Exhibit 99.1

FORM 51-102F4

BUSINESS ACQUISITION REPORT

1. IDENTITY OF COMPANY

1.1 Name and Address of Company

Medicure Inc. (the “Company”)

2 – 1250 Waverley Street

Winnipeg, Manitoba

R3T 6C6

1.2 Executive Officer

James Kinley, Chief Financial Officer of the Company is knowledgeable about the significant acquisition to which this business acquisition report relates (the “Report”) and may be contacted at 204-487-7412.

2. DETAILS OF ACQUISITION

2.1 Nature of Acquisition

The Acquisition

Further to its press releases of November 18, 2016 and December 1, 2016, the Company and its wholly owned subsidiary, Medicure Mauritius Limited, exercised its option rights to purchase interests (the “Acquisition”) in Apicore, Inc. and Apicore LLC. Apicore, Inc. and Apicore LLC are affiliated entities that together operate the Apicore pharmaceutical business and are referred to together as “Apicore”. Apicore is a leading process research and development and Active Pharmaceutical Ingredients (“APIs”) manufacturing service provider for the worldwide pharmaceutical industry. The acquisition brings the Company and its subsidiary’s ownership interests in Apicore, Inc. to 64% (or approximately 59% on a fully diluted basis) and the Company and its subsidiary’s ownership in Apicore LLC. to 64% (basic and fully-diluted). Five percent of Medicure’s ownership in Apicore LLC is held by Apigen Investments Limited (“Apigen”), a Company which owned 100 percent of Apicore LLC, before the Acquisition.

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The Company acquired 4,717,000 Series A Preferred Shares and 1,250,000 Warrants to purchase Class D Common Shares in Apicore, Inc. from certain investors in Apicore, Inc. Medicure Mauritius Limited acquired 4,717,000 Series A Preferred Interests and 1,250,000 Warrants to purchase Class D Common Interests in Apicore LLC, from Apigen Investments Limited. Apicore LLC is the holding company of Apicore Pharmaceuticals Private Limited which conducts the business of Apicore in India and Apigen is a Mauritius holding Company, who has minimal business activities outside of those of its subsidiary. Apigen incurred expenses of approximately USD$23,000 for the year ended December 31, 2015 which are included in the financial statements in the appendices of the Report. The Company has begun the process of exchanging its interests in Apicore LLC for shares of Apigen, which will ultimately result in the Company owning 64% of Apigen and as a result has filed the financial statements of Apigen herein. The Warrants are exercisable into Class D Common Shares of Apicore, Inc. and Class D Common Interests of Apicore LLC, in each case at $0.01 each and are effectively ownership interests in Apicore. The capital structures for Apicore are included in the financial statements which are attached to the Report in the appendices.

The financial statements of Apigen included with this Report consolidate the financial statements of Apicore LLC as at the date thereof and for each of the periods described therein.  Apigen does not have any operations outside its ownership of Apicore LLC and accordingly the financial statements of Apigen reflect the financial position and the results of operations of Apicore LLC at the dates of such financial statements and for the periods described therein, with the exception of (i) expenses incurred by Apigen of approximately US$23,000 for the year ended December 31, 2015, and (ii) approximately $19,000 of expenses for the nine months ended September 30, 2016.

Prior to the Acquisition, Medicure held, directly or indirectly, approximately 5% ownership in Apicore. This initial ownership interest and the option rights were obtained for the Company’s lead role in structuring and participating in a majority interest purchase and financing of Apicore that occurred on July 3, 2014.

Medicure continues to have additional option rights until July 3, 2017 to acquire additional shares in Apicore, Inc. and Apicore LLC (with the option to purchase additional interests in Apicore LLC to become an option to purchase equivalent shares of Apigen if the reorganization described above is completed) at predetermined prices consistent with the value reflected in the Acquisition.

Business of Apicore

Apicore is a private, New Jersey based developer and manufacturer of specialty APIs and pharmaceuticals, including over 15 Abbreviated New Drug Applications (“ANDAs”), one of which, is partnered with Medicure and two of which have been approved by the United States Food and Drug Administration (“FDA”). Apicore has two FDA approved facilities. In the United States, the Somerset, New Jersey facility can produce volumes from a few grams up to 200kg and in India, the Vadodara, Gujarat facility can produce volumes from a few kilograms up to sixty metric tons annually. Both facilities are equipped with state-of-the-art analytical and research capabilities. Apicore manufactures over 100 different API’s, including over 35 for which Drug Master Files have been submitted to the FDA and 12 that are approved for commercial sale in the U.S. by Apicore’s customers.  Apicore specializes in the manufacture of difficult to synthesize, high value and other niche API’s for many U.S. and international generic and branded pharmaceutical companies.

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2.2 Acquisition Date

The closing date for the Acquisition was December 1, 2016.

2.3 Consideration

The Company paid an aggregate price of US$33,750,000 for the combined interests in Apicore.

The source of funding for the acquisition was under a term loan agreement with Crown Capital Fund IV, LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”), in which Crown holds a 40% interest, for CDN$60,000,000, of which CDN$30,000,000 was syndicated to the Ontario Pension Board (“OPB”), a limited partner in Crown’s investment funds. The proceeds were used to pay the total purchase price of US$33,750,000, as well as to subsequently, on January 9, 2017, refinance Apicore, Inc.’s existing long-term debt with the Company lending Apicore, Inc. US$9.8 million under a secured loan agreement. Under the terms of the loan agreement with Crown, the loan bears interest at a fixed rate of 9.5% per annum, compounded and payable monthly on an interest only basis, matures in 48 months, and is repayable in full upon maturity. The term loan is secured against the assets of the Company including the ownership interests in Apicore. The Company also granted 450,000 warrants to each of Crown and OPB. Each warrant entitles the holder to purchase one Medicure common share at an exercise price of $6.50 for a period of four years. The Company’s secured loan to Apicore, Inc. bears interest at 12% per annum, matures on December 31, 2020 and is secured by a charge over the assets of Apicore, Inc.

Additionally, subsequent to the Acquisition, in January 2017, the Company acquired an additional 112,500 Class E Common Shares of Apicore, Inc., representing approximately 1% of Apicore, Inc.’s issued equity, for US$549,000 from a former employee of Apicore, Inc. and former members of Apicore, Inc.’s Board of Directors. These shares were issued as a result of the exercise of stock options held in Apicore, Inc. by these individuals and purchased by Medicure at a pre specified price in accordance with Apicore, Inc.’s stock option plan and the Company’s option rights with respect to the shares of Apicore, Inc.

2.4 Effects on Financial Position

The Acquisition provides the Company with a controlling interest in Apicore, which includes a portfolio of revenue generating products and an existing diverse customer base. The Company acquired the majority equity position in Apicore with the goal of further increasing Apicore’s value for all stakeholders, in particular Medicure’s shareholders.

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The Company’s plan of operations is to increase Apicore’s revenues and customer base over time. The Company believes there is opportunity for organic growth within Apicore as it begins to receive FDA approval for products that are currently under development, as well as continuing to develop additional new products.

Since the date of the Acquisition, the Company has continued to operate the Apicore business separately from the Company’s pre-existing specialty pharmaceutical business, and Apicore, Inc. continues to be managed under the direction of its Board of Directors consisting of six Directors, which includes four members of the Board of Directors of Medicure. The Company’s long term objective continues to be the identification and advancement of new products that are complementary to the Company’s U.S. specialty pharmaceutical business, securing supply for potential new development products, and diversifying Medicure’s asset base within the pharmaceutical industry. The Company’s business focus continues to be maintaining and expanding the sales of AGGRASTAT® (tirofiban HCl) in the United States.  

For further information regarding the business affairs, financial performance and financial position of the Company generally, please refer to the Company’s unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2016 and the associated management’s discussion and analysis which are available under the Company’s SEDAR profile at www.sedar.com.

2.5 Prior Valuations

Not applicable.

2.6 Parties to Transaction

The Acquisition was not with an “informed person” (as such term is defined in National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”)), or an associate or affiliate of the Company.

2.7 Date of Report

This report is dated February 14, 2017.

3. FINANCIAL STATEMENTS

As required by Part 8 of NI 51-102, the following financial statements are included in this Business Acquisition Report:

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· Apicore, Inc.’s audited consolidated financial statements: (a) as of December 31, 2015 and for the year then ended and (b) as of  December 31, 2014 and for the period from July 3, 2014 through December 31, 2014, together with the notes thereto, which are attached as Schedule “A”.

· Apigen’s audited consolidated financial statements for the year ended December 31, 2015, together with the notes thereto, which are attached as Schedule “B”.

· Apicore, Inc.’s unaudited consolidated financial statements for the nine months ended September 30, 2016, together with the notes thereto, which are attached as Schedule “C”.

· Apigen’s unaudited consolidated financial statements for the nine months ended September 30, 2016, together with the notes thereto, which are attached as Schedule “D”.

The Financial Statements for the Company are prepared in accordance with International Financial Reporting Standards (“IFRS”). The Financial Statements for Apicore, Inc. and Apigen are prepared in accordance with US Generally Accepted Accounting Principles (“US GAAP”). The recognition, measurement and disclosure requirements of US GAAP differs from those of IFRS.

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SCHEDULE “A”

APICORE, INC. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2015 AND THE PERIOD FROM JULY 3, 2014 THROUGH DECEMBER 31, 2014

(Begins on the following page.)

APICORE, INC.

Consolidated Financial Statements

For The Year Ended December 31, 2015

And The Period from July 3, 2014 through December 31, 2014

With Independent Auditors’ Report

Apicore, Inc.

Table of Contents

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

	Page(s)
Independent Auditors’ Report	1-2
Consolidated Financial Statements
Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Statements of Stockholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Financial Statements	7-21
Supplemental Schedules
Consolidating Balance Sheets	22-23
Consolidating Statements of Operations	24

INDEPENDENT AUDITORS' REPORT

To the Stockholders of Apicore, Inc:

We have audited the accompanying consolidated financial statements of Apicore, Inc. (the “Company”) which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2015 and for the Company’s initial operating period from July 3, 2014 through December 31, 2014, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.  Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Apicore, Inc. as of December 31, 2015 and 2014, and the consolidated results of its operations and cash flows for the year ended December 31, 2015 and for the initial operating period from July 3, 2014 through December 31, 2014 in accordance with accounting principles generally accepted in the United States of America.

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Other Information

Our 2015 audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying consolidating balance sheets and statements of operations as of December 31, 2015 and for the year then ended are presented for purposes of additional analysis and are not a required part of the basic consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

/s/ Withum Smith + Brown, PC

Withum Smith + Brown, PC

Morristown, New Jersey, USA

April 22, 2016

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Apicore, Inc.

Consolidated Balance Sheets

December 31, 2015 and 2014

	2015			2014
Assets
Current assets
Cash and cash equivalents	$	1,782,029		$	637,798
Accounts receivable		5,282,839			2,139,699
Advanced billings on development arrangements		200,000			3,350,000
Inventory, net		1,963,425			2,256,489
Prepaid expenses		159,061			75,798
Due from related party, net		716,441			-
Deferred income taxes		-			95,947
Total current assets		10,103,795			8,555,731
Property, equipment and improvements, net		1,334,980			1,075,353
Other assets
Goodwill		12,213,780			12,213,780
Intangible assets, net		9,480,716			10,392,349
Deferred income taxes		725,774			493,437
Total other assets		22,420,270			23,099,566
Total Assets	$	33,859,045		$	32,730,650
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,208,038		$	1,325,352
Accrued expenses and customer deposits		1,965,326			1,677,212
Advances on development arrangements		3,975,000			3,350,000
Short-term debt, net of discount and debt issuance costs		1,726,952			156,480
Due to related parties, net		67,663			329,921
Total current liabilitites		8,942,979			6,838,965
Long-term debt, net of discount and debt issuance costs		6,639,970			7,522,857
Stockholders' Equity
Convertible redeemable preferred stock
Series A; $.0001 Par value; Authorized 5,000,000 shares; 4,717,000 shares issued and outstanding; liquidation value of $10,259,022 at December 31, 2015 and $9,504,924 at December 31, 2014		9,200,037			9,200,037
Common stock
Class A; $.0001 Par value; Authorized 5,000,000 shares; No shares issued and outstanding		-			-
Class B; $.0001 Par value; Authorized 600,000 shares; 533,000 issued and outstanding		53			53
Class C; $.0001 Par value; Authorized 3,500,000 shares; 3,500,000 issued and outstanding		350			350
Class D; $.0001 Par value; Authorized 1,250,000 shares; No shares issued and outstanding		-			-
Class E; $.0001 Par value; Authorized 1,800,000 shares; 25,000 shares issued and outstanding (2015)		3			-
Additional paid-in-capital		10,671,896			10,426,238
Accumulated deficit		(1,596,243	)		(1,257,850	)
Total stockholders' equity		18,276,096			18,368,828
Total Liabilities and Stockholders' Equity	$	33,859,045		$	32,730,650

The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.

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Apicore, Inc.

Consolidated Statements of Operations

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

	2015			2014 Period
Net revenue (including $2,310,000 of revenue from arrangements in 2015)	$	19,869,973		$	9,647,494
Cost of goods sold (includes a merger related charge of $834,040 in 2014)		10,704,204			5,695,028
Gross profit		9,165,769			3,952,466
Operating expenses
Selling, general and administrative		3,412,644			1,713,290
Research and development		2,889,872			610,750
Depreciation and amortization		1,076,744			477,494
Total operating expenses		7,379,260			2,801,534
Income from operations		1,786,509			1,150,932
Organization, acquisition and merger related expenses		-			1,922,562
Interest expense (includes amortization of financing costs and warrants)		2,259,792			1,073,604
Loss before income tax		(473,283	)		(1,845,234	)
Income tax benefit		134,890			587,384
Net loss	$	(338,393	)	$	(1,257,850	)

The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.

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Apicore, Inc.

Consolidated Statements of Stockholders’ Equity

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

					Class B, C, and E				Additional					Total
	Convertible Preferred Stock				Common Stock				Paid-in		Accumulated			Stockholder's
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, July 3, 2014		-	$	-		-	$	-	$	-	$	-		$	-
Issuance of Series A
Convertible Preferred Stock		4,717,000		9,200,037		-		-		-		-			9,200,037
Issuance of Class C Common Stock		-		-		3,500,000		350		6,826,050		-			6,826,400
Issuance of Class B Common Stock to Investment Advisor		-		-		533,000		53		1,039,510		-			1,039,563
Issuance of warrant to creditors		-		-		-		-		2,425,000		-			2,425,000
Stock compensation expense		-		-		-		-		135,678		-			135,678
Net loss		-		-		-		-		-		(1,257,850	)		(1,257,850	)
Balance, December 31, 2014		4,717,000		9,200,037		4,033,000		403		10,426,238		(1,257,850	)		18,368,828
Exercise of Class E stock options		-		-		25,000		3		10,747		-			10,750
Stock compensation expense		-		-		-		-		234,911		-			234,911
Net loss		-		-		-		-		-		(338,393	)		(338,393	)
Balance, December 31, 2015		4,717,000	$	9,200,037		4,058,000	$	406	$	10,671,896	$	(1,596,243	)	$	18,276,096

The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.

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Apicore, Inc.

Consolidated Statements of Cash Flows

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

	2015			2014 Period
Cash flows from operating activities
Net loss	$	(338,393	)	$	(1,257,850	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation		165,111			54,678
Stock compensation expense		234,911			135,678
Noncash organization, acquisition and merger related expense		-			1,039,563
Amortization of intangibles		911,633			422,816
Amortization of discount on warrants issued to creditors		777,232			411,017
Amortization of deferred financing costs		118,353			62,587
Benefit from deferred income taxes		(136,390	)		(589,384	)
Changes in operating assets and liabilities (excluding the effects of assets acquired and liabilties assumed in the 2014 Period):
Accounts receivable		(3,143,140	)		(1,610,701	)
Advanced billings on development arrangements		3,150,000			(3,350,000	)
Prepaid expenses		(83,263	)		(52,073	)
Inventory		293,064			368,921
Accounts payable		(117,314	)		(889,582	)
Accrued expenses and customer deposits		288,114			213,618
Advances on development arrangements		625,000			3,350,000
Due to/from related parties, net		(978,699	)		329,921
Net cash provided by (used in) operating activities		1,766,219			(1,360,791	)
Cash flows from investing activities
Capital expenditures		(424,738	)		(362,418	)
Acquisition of Apicore LLC, net of cash acquired of $7,553		-			(16,469,763	)
Net cash used in investing activities		(424,738	)		(16,832,181	)
Cash flows from financing activities
Proceeds from debt, net of direct cash costs of $369,267		-			9,630,733
Repayments of debt principal balance		(208,000	)		-
Proceeds from issuance of Series A convertible preferred stock		-			9,200,037
Proceeds from exercise of Class E common stock options		10,750			-
Net cash (used in) provided by financing activities		(197,250	)		18,830,770
Net increase in cash and cash equivalents		1,144,231			637,798
Cash and cash equivalents, beginning of period		637,798			-
Cash and cash equivalents, end of period	$	1,782,029		$	637,798

The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.

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Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

1. Background and Organization

Background

Apicore, Inc. (formerly ABC Pharma Acquisition Company, the “Company”) is the parent company of Apicore US, LLC (the “Subsidiary”), its sole operating entity. The Company, incorporated on March 19, 2014 in the State of Delaware, is engaged in the manufacture, development, marketing and selling of Active Pharmaceutical Ingredients (“API”) to generic pharmaceutical customers and provides custom synthesis for early phase pharmaceutical research of branded products. The Company also participates in collaborations with third parties in the research and development (“R&D”) stages of specific products. The Company purchases a substantial amount of inventory from an India based company, in which stockholders have an ownership interest in.

Organization (See Notes 3, 6 and 7)

On July 3, 2014 pursuant to the terms and conditions of a Purchase Agreement (“PA”), the Company acquired (the “Acquisition”) 100% of Apicore LLC (“LLC”), from its members for a total consideration of $23,303,716, comprised of $16,477,316 of cash consideration, and the issuance of 3.5 million shares (amounting to $6,826,400) of Class C Common Shares (a 35% interest in the Company measured on diluted basis). Prior to July 3, 2014, the Company (and its predecessor) was a dormant entity, with 100 shares of $0.01 each outstanding, incorporated solely to effect the Acquisition. The results of operations and cash flows from the date of incorporation through July 2, 2014 were not significant. The LLC has been an operating company since 2003.

The acquiring investors hold 4,717,000 of Series A Convertible Preferred Stock. To supplement the funding of the Acquisition, the Company also entered into a debt financing for $10 million. The Acquisition has been accounted for as a business combination and the acquired assets and assumed liabilities at July 3, 2014 have been recorded at their relative fair values. The accompanying financial statements reflect the operations of the Company for the year ended December 31, 2015 and for the period from July 3, 2014 through December 31, 2014 (“2014 Period”).

R&D Arrangements & Business Risks

The Company may also pursue, if conditions are met and requisite approvals obtained, additional equity offerings (possibly resulting in the dilution of existing investors’ interests) and other long term debt arrangements, to fund the costs of product development arrangements (see Note 11), in process R&D projects and other operating and development costs. In addition, management believes it has the ability to curtail (or suspend) the funding of discretionary projects and initiatives to assist the Company in successfully managing its cash flow requirements in future periods. Should the Company be unable to generate operating cash flow or access available financing in the future, product development activities may need to be scaled back, deferred or discontinued. As a result, the realization of business plans and forecasted results may not be achieved.

2. Summary of Significant Accounting Policies

Basis of Accounting

The Company utilizes the accrual basis of accounting in preparing the accompanying consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and Subsidiary from the Acquisition date forward. All inter-company transactions and balances have been eliminated in consolidation.

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Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the valuation of receivables, inventory, goodwill and other intangible assets, the measurement of stock compensation and non-cash interest expenses and the estimated useful lives for long lived assets. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all liquid investments purchased with a maturity of three months or less at acquisition to be cash equivalents. At various times throughout the year, certain balances at a financial institution exceeded the Federal Deposit Insurance Corporation’s (“FDIC”) limit ($250,000 as of December 31, 2015 and 2014). Management monitors regularly the financial condition of the banking institution, along with their balances in cash and cash equivalents and endeavors to keep this potential risk at a minimum. Cash equivalents in excess of FDIC limits totaled exceeded the insurance limit by approximately $1,299,000 and $387,000 at December 31, 2015 and 2014, respectively.

Accounts Receivable

Accounts receivable are uncollateralized, non-interest bearing, customer obligations due under normal trade terms requiring payment at various terms, from due on demand up to 60 days from the invoice date, and are stated at the amount billed to the customer. Customer account balances with invoices over 90 days past due are considered delinquent. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. Based on an assessment of the customers’ credit worthiness, there are no allowances for doubtful accounts at December 31, 2015 and 2014.

Inventories

Inventories, consisting of raw materials, work in process, and finished goods, are valued at the lower of cost or market value. Cost is determined by the weighted average cost basis, using the first-in first-out method. As of December 31, 2015, the Company has not established an inventory reserve as the assessment did not reflect any slow-moving, off-standard, or obsolete inventory. As of December 31, 2014, the Company established a reserve of $143,667 for specifically identified slow-moving inventory, all of which was discarded against the reserve in 2015. Included in Cost of Goods Sold for the 2014 Period is a charge of $834,040 related to the “step-up” (that is the July 3, 2014 fair value over historical cost) of acquired inventory subsequently sold. There was no such charge in 2015. Inventories, net, at December 31, 2015 and 2014 are summarized by major classification as follows:

	2015		2014
Raw materials	$	585,954	$	1,190,065
Work-in-progress		154,396		348,703
Finished goods, net (2014)		835,400		717,721
Stock in transit		387,675		-
Total inventories, net (2014)	$	1,963,425	$	2,256,489

Property, Equipment and Improvements

Property, equipment and improvements are recorded at cost. Depreciation is recorded over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the lesser of asset life or lease term. All property and equipment have useful lives ranging from three to seven years. Maintenance and repair costs are charged to expense as incurred. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts and any resulting gain or loss is reported in results of operations.

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Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

Intangible Assets

Intangible assets with finite lives are amortized over their respective estimated useful lives to their estimated residual values. Intangible assets are comprised of the fair values ascribed to customer relationships, intellectual property (principally drug master files), and in process research and development programs (“IPR&D”). Customer relationships and intellectual property are amortized over a seven year term, utilizing estimated revenue levels. Acquired IPR&D is not, at present, amortized but is assessed and evaluated for impairment. Upon successful launch of product in prospective periods, the allocable IPR&D will be amortized over the then estimated useful life.

Impairment of Long-Lived Assets

Fixed and Intangible Assets - The Company evaluates the recoverability of such assets when indicators of impairment exist. US GAAP requires recognition of impairment of long-lived assets in the event the net carrying value of these assets exceeds the estimated future undiscounted cash flows attributable to such assets. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these assets in relation to the operating performance of the business and the future discounted cash flows expected to result from the use of these assets. If the carrying value of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value of the asset exceeds the fair value of the asset. There were no impairment charges recognized in 2015 or the 2014 Period.

Goodwill - Authoritative guidance allows the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If Management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a two-step quantitative goodwill impairment test. At December 31, 2015 and 2014, the Company determined that there was no impairment of goodwill.

Costs Related to Debt Financing (see New Accounting Pronouncements and Note 6)

Cash costs associated with the 2014 debt financing ($369,267) and the fair value of warrants ($2,425,000) issued to creditors are capitalized and amortized over the term of the debt using the effective interest rate method. The fair value of debt financing and warrants is recorded against the carrying value of the related debt. The interest rate on the Company’s debt, including the effects of amortization of the warrants, approximated 24% during 2015 and 21% (annualized) during the 2014 Period.

Revenue Recognition

The Company records revenue from product sales when title and risk of ownership have been transferred to the customer, which occurs upon shipment of the product. Consistent with industry practice, the Company maintains a return policy that, in certain circumstances, allows its customers to return product.

The Company also records revenue for certain customer arrangements using the milestone method of revenue recognition. Milestones are generally based on development efforts the Company has achieved, completion of studies, manufacturing of acceptable batch products and defined regulatory submissions or approvals. In evaluating revenue recognition, the Company performs an assessment of its performance and remaining obligations to determine if milestones are substantive, that is the Company: (a) has satisfactorily fulfilled performance obligations or has enhanced the delivered item (or service) as a result of its performance, (b) has already performed services necessary to achieve the defined milestones and (c) has concluded that there are no remaining conditions or contingencies (or an obligation to provide future services) under the arrangement. During 2015, the Company recognized revenue of approximately $2,310,000 related to these arrangements; such amounts are included in “Net revenue” in the accompanying consolidated statement of operations (also see Note 11, R&D Arrangements). There was no revenue relating to milestone agreements in the 2014 Period.

9 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

Shipping & Handling

Shipping and handling costs are generally included in the value of the purchased inventory (freight in) and the net revenue billed to customers (freight out).

Cost of Goods Sold

Cost of goods sold primarily includes cost of material, labor and conversion cost, duties, packaging, product development, direct labor and overhead, and provision on slow-moving inventory.

R&D Costs

R&D expenditures include all direct costs related to the development of the Company’s API products and new product launches; such costs are principally comprised of fees paid to consultants and contract research organizations and sponsored research payments. R&D costs are expensed as incurred. The Company has entered into agreements with third parties to collaborate in the R&D stages of specific products. The Company invoices their partners for a reimbursement of such costs in accordance with the agreements and/or the achievement of certain milestones. The Company deferred recognition of $3,975,000 and $3,350,000 at December 31, 2015 and 2014, respectively, as the Company had not provided the requisite services under these agreements. At December 31, 2015 and 2014, such amounts have been deferred as “Advances on development arrangements” in the accompanying consolidated balance sheets. Such services are expected to be delivered through the Company’s year ending December 31, 2018.

Income Taxes

The Company accounts for income taxes in accordance with the “liability” method, under which deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the balance sheets when it is determined that it is more likely than not that the asset will be realized. Guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized (see Note 8).

US GAAP clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of a tax uncertainty occurs if the recognition threshold has been met. The standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition requirements. Prior to the Acquisition, Federal and state taxes were passed through to the LLC’s members, so too would the assessments from any tax examinations. The Company conducts business domestically and, as a result, will file Federal and state income tax returns.

In the normal course of business, the Company is subject to examination by taxing authorities. There are no ongoing or pending examinations by Federal or state tax agencies. The Company, by statute, has not filed its various tax returns as of April 22, 2016 but will evaluate its tax positions for 2015; at present, they have concluded that there will be no significant uncertain tax positions for either Federal or state purposes. Accordingly, there were no interest or penalties related to income taxes that have been accrued or recognized as of December 31, 2015 and 2014.

Fair Value Accounting

For certain of the Company’s financial instruments, including cash and cash equivalents, trade accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short-term maturities.

10 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

The Financial Accounting Standards Board (“FASB”) established a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). At present, the Company has no financial instruments requiring fair value hierarchy disclosures.

Stock Based Compensation (See Note 7)

The Company accounts for its granting of awards for stock options (and modifications thereto) to employees and warrants to creditors using the Black-Scholes Option pricing model, a grant-date fair value method to recognize a noncash compensation expense ratably over the vesting period and an interest expense over the term of the debt, using the effective interest method. Awards issued to consultants and non-employee directors are also valued using the fair value methodology prescribed by this guidance. The Company, at present, does not consider forfeitures arising from attrition in determining stock compensation expense. Class B Common Stock awards (valued at $1.95 per share at the grant date of July 3, 2014) issued to an investment advisor on the Acquisition are included in “organization, acquisition and merger related expenses” in the accompanying consolidated statement of operations for the 2014 period.

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which provides guidance on the recognition of revenue in arrangements where there are contractual performance obligations between the parties. The effective date for the Company to adopt this guidance is currently 2019; however, early adoption is permitted with retrospective application required for comparative purposes.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard provides principles and definitions for management to consider in their evaluation of whether there is substantial doubt about an entity’s ability to continue as a going concern. The effective date for the Company to adopt this guidance is 2017; however, early adoption is permitted.

In February 2016, ASU 2016-02, Leases, was issued. This guidance will require companies who are lessees in a qualified lease to recognize, as assets and liabilities in their balance sheets, the rights and obligations created by those leases. This guidance will be effective for the Company beginning in 2020, with early application permitted.

The Company will evaluate the effects of these standards in future periods.

In 2015, the Company adopted the provisions of ASU 2015-03, Imputation of Interest and Simplifying the Presentation of Debt Issuance Costs. This standard stipulates that such costs ($188,327 [2015] and $306,680 – [2014]) are to be presented net against the carrying value of the related debt instrument. The Company’s December 31, 2014 consolidated balance sheet has been reclassified, as permitted, to reflect the effects of the required reclassification.

Management is not aware of any other new accounting pronouncements that would have a material effect on the current and prospective periods’ financial statements.

3. Acquisition (See Note 1)

The purchase price of the LLC on July 3, 2014 has been allocated based on estimated fair values at July 3, 2014, for the various assets and liabilities assumed under the PA. The Company ascribed fair values based on its estimates and internal technical evaluation for the various tangible and intangible assets acquired under the PA. The following table summarizes the allocation of purchase price consideration, for the fair values of the assets acquired and liabilities assumed and the determination of goodwill:

11 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

Total Purchase Price	$	23,303,716
Fair Value of Net Assets Acquired:
Cash equivalents		7,553
Accounts receivable, net		528,998
Inventory		2,625,410
Property and equipment		767,613
Intangibles (see Note 5)		10,815,165
Other assets		23,725
Total		14,768,464
Liabilities assumed:
Accounts payable, accrued expenses and customer deposits		3,549,616
Other liabilities		128,912
Total		3,678,528
Less: Fair Value of Net Assets Acquired		11,089,936
Goodwill Arising from the Acquisition	$	12,213,780

The total costs associated with the Acquisition approximated $1,923,000. Of this amount, $884,000 was related to legal fees and the remaining non-cash expense of $1,039,000 were related to investment advisor fees, settled through the issuance of 533,000 shares of Class B common stock of the Company, valued at $1.95 per share. The entire amount has been expensed as a non-operating charge, as management believes that such costs are non-recurring (given the structuring of the organization and acquisition efforts involved) and not indicative of the operational results of the Company.

4. Property, Equipment and Improvements

Property, equipment and improvements as of December 31, 2015 and 2014 consist of the following:

	2015		2014
Property and equipment	$	556,340	$	410,213
Furniture and fixtures		104,455		19,076
Office equipment		71,922		-
Leasehold improvements		813,790		692,480
Software		8,262		8,262
		1,554,769		1,130,031
Less: accumulated depreciation		219,789		54,678
Property, equipment and improvements, net	$	1,334,980	$	1,075,353

Depreciation expense related to property, equipment and improvements amounted to $165,111 and $54,678 for the year ended December 31, 2015 and the 2014 Period, respectively.

12 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

5. Intangible Assets

Intangible assets at December 31, 2015 and 2014 are comprised of the following:

			Accumulated			Net Carrying
December 31, 2015	Cost		Amortization			Value
Intangible assets subject to amortization:
Customer relationships	$	5,044,839	$	(1,108,732	)	$	3,936,107
Drug master files		2,562,493		(225,717	)		2,336,776
		7,607,332		(1,334,449	)		6,272,883
Intangible assets, not currently subject to amortization:
Acquired IPRD		3,207,833		-			3,207,833
	$	10,815,165	$	(1,334,449	)	$	9,480,716

			Accumulated			Net Carrying
December 31, 2014	Cost		Amortization			Value
Intangible assets subject to amortization:
Customer relationships	$	5,044,839	$	(368,084	)	$	4,676,755
Drug master files		2,562,493		(54,732	)		2,507,761
		7,607,332		(422,816	)		7,184,516
Intangible assets, not currently subject to amortization:
Acquired IPRD		3,207,833		-			3,207,833
	$	10,815,165	$	(422,816	)	$	10,392,349

Amortization expense was $911,633 and $422,816 for the year ended December 31, 2015 and the 2014 Period, respectively. For customer relationships and Drug master files, amortization expense for the next five years and thereafter is estimated as follows:

2016	$	1,088,527
2017		1,283,897
2018		1,177,458
2019		1,177,458
2020		1,177,458
Thereafter		368,085
	$	6,272,883

6. Debt Obligation

On July 3, 2014, the Company received $10,000,000 of funding from a consortium of lenders to fund, in part, the Acquisition and general working capital needs. Borrowings are collateralized by a security interest in substantially all of the Company’s assets, as well as the assets of an affiliated company (Apigen Investments Limited). The borrowing agreement is subject to certain reporting, financial and other covenants; including, but not limited to, defined fixed charge coverage ratios.

13 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

For the initial measurement period of the covenants (annual period ending June 30, 2015), the Company did not meet certain financial ratios stipulated by the covenants. The lenders subsequently provided a waiver and the debt agreement was amended on December 17, 2015, to restructure the financial ratios for measurement periods subsequent to June 30, 2015. As part of this amendment, the interest rate on the debt was increased from 12% to 15% per annum. Subject to meeting certain financial ratios in measurement periods subsequent to December 31, 2015, the interest rate will revert to 12% per annum. For each of the quarterly periods ended September 30, 2015 and December 31, 2015, the Company was in compliance with the restructured financial ratios.

In connection with this financing, the lenders received 1,250,000 warrants to purchase Class D Common stock at an exercise price of $.01 per share. The fair value ascribed to these warrants ($2,425,000) was based on the fair value of the Company’s Common Class A stock ($1.95) on the date of the Acquisition. Such warrants have been classified as a discount to the debt in the accompanying consolidated balance sheet and are amortized over the term of the loan based on the effective interest rate method. Amortization expense on warrant costs amounted to $777,232 and $411,017 during 2015 and the 2014 Period, respectively. Amortization expense of deferred financing costs totaled $118,353 and $62,587, respectively, for 2015 and the 2014 Period.

As of December 31, 2015, the debt carries an interest rate of 15% per annum; the effective rate of interest on the debt, including the effects of the warrant grant, approximates 24% per annum. As of December 31, 2014, the debt carried an interest rate of 12% which resulted in an effective rate of interest of 21% per annum. Interest is payable at the end of each quarter and any unpaid principal and interest is due at the maturity date of June 30, 2018.

Principal payments are based on levels of net income, as defined in the debt agreement, at periodic dates throughout the term of the agreement. Management currently estimates that future principal payments will be (exclusive of the effects of the aforementioned warrants and deferred financing costs):

Year Ending December 31,	Amount
2016	$	2,500,000
2017		3,500,000
2018		3,792,000
		9,792,000
Less: unamortized warrant costs:
2016		670,888
2017		435,268
2018		130,595
		1,236,751
Less: unamortized deferred financing costs:
2016		102,160
2017		66,281
2018		19,886
		188,327
Debt at December 31, 2015, net	$	8,366,922

7. Stockholders’ Equity (See Note 11)

Series A Convertible Preferred Stock

On July 3, 2014, the Company and third party investors signed a subscription agreement that resulted in the Company receiving a cash investment of $9,200,037 for 4,717,000 shares of Series A preferred stock. There has been no change in the amount of Series A preferred stock outstanding at December 31, 2015 and 2014.

14 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

Series A preferred stock provides the holder with preferences in distributions, registration of shares (in the event of certain occurrences), voting rights, Board of Director representation and conversion features (into Class A Common Stock). The Series A preferred stock also provides a cumulative return of 8% on the investment amount, payable in the form of a dividend which is payable only upon declaration. The accumulated dividend of $322,985 for the 2014 Period and $736,000 for the year ended December 31, 2015 (aggregating to $1,058,985) has not been declared at December 31, 2015. The liquidating preference amount is arrived by including the accumulated dividend and the preferred stock investment. The dividend to preferred holders is designed to facilitate an annual minimum return and it provides preference over all classes of common stockholders in the event of a liquidation of the Company. In addition to the minimum 8% return, the preferred stockholders are entitled to participation in the distribution, if any, of surplus profits along with the common stock holders.

The Series A preferred stockholders will vote together with the holders of common stock as a single class. The preferred stockholders also have an option to convert into 4,717,000 shares of Class A common stock. The initial conversion price was agreed upon to be $1.95 per share. The prices for subsequent conversions are to be adjusted based on the terms of the amended and restated Certification of Incorporation.

The preferred shares are subject to a redemption right which can be exercised by the preferred stockholders anytime on or after December 31, 2019. Upon exercise, the Company is required to redeem these shares in three equal annual installments calculated at a price equal to the greater of: (a) the defined liquidation amount and accumulated dividends and (b) the then fair market value as defined and agreed to by the parties.

Common Stock

As part of the Acquisition, the Company issued: (a) 533,000 shares of Class B common stock as consideration for investment advisory services, which were valued at $1.95 per share at the date of Acquisition; and (b) 3.5 million shares of Class C common stock to the LLC sellers as part consideration for the purchase agreement. The Company issued 25,000 shares of Class E Common Stock in 2015; proceeds of which were received from an exercise of stock options. The voting, dividend and liquidation rights of the common stockholders are subject to, and qualified, by the rights and preferences of the Preferred Stockholders. However, the various classes of common stock contain similar voting rights as those afforded to the Preferred Stockholders. The rights and privileges among the common classes are the same.

Stock Option Plan

On July 28, 2014, the Company’s Board of Directors approved the 2014 Equity Incentive Plan (the “Plan”). The Plan provides for the granting of awards in the form of options and other awards under the Plan to employees and third parties. The Plan provides that the exercise price of an option shall not be less than 100% of the defined fair market value (110% for 10% shareholders in the case of incentive stock options) on the date of the award. As of December, 31, 2015, the Company has reserved up to maximum of 1,020,000 shares of Common Stock Class E type for issuance upon exercise. Of this amount, 600,000 shares had been reserved as of December 31, 2014, with an additional 420,000 of shares approved and reserved by Company’s Board of Directors in 2015. The Company engaged an independent firm to perform a valuation of the Company’s Class E Common Stock in 2015, the fair value of the Company’s Class E common stock was determined to be $0.43.

Stock Option Awards

In the 2014 Period, the Company awarded 400,000 Class E stock options to employees and 50,000 to Directors; the then exercise price was established at $1.95. The fair value of the Company’s common stock for the 2014 Period was based, in part, on the most recent price of the shares purchased by investors on July 3, 2014.

15 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

In 2015, the Company awarded 310,000 Class E Stock options at an exercise price of $0.43 to be granted to employees (285,000) and to an Independent Director (25,000). The fair value of the Company’s common stock (used in valuing unit incentive awards) was based on a third party valuation as of February 19, 2015.

At December 31, 2015 and 2014, 208,333 and 50,000 of the incentive stock options had vested, respectively. The contractual terms of the option grants are 10 years.

Modification of 2014 Awards

In 2015, the Board approved a modification of the $1.95 per share exercise price of all the 450,000 stock options originally issued in 2014; as a result, the exercise price of such 2014 options was repriced to $0.43 per share based on the aforementioned valuation report. This modification resulted in an incremental cost of $64,178 related to the repricing of the 2014 options. Of this amount, $44,812 was expensed and the remaining $19,366 will be expensed in future periods as the options vest.

Financial Effects & Activity in Awards

The stock compensation expense related to these awards, as well as the modifications, totaled $234,910 and $135,678 for the year ended December 31, 2015 and the 2014 Period, respectively, and is included in “Selling, general and administrative” expenses in the accompanying consolidated financial statements. The total compensation cost related to non-vested awards not yet recognized totaled $321,396 and $414,366 at December 31, 2015 and 2014, respectively, and will be recognized over the remaining vesting period which approximates 2.5 years.

Activity with respect to awards was as follows for the year ended December 31, 2015 and the 2014 Period, respectively:

				Weighted-Average
	Number of Shares			Exercise Price
Balance, at July 3, 2014		-0-		$	-
Granted		450,000		$	1.95
Exercised		-0-		$	-
Forfeitures		-0-		$	-
Balance, at December 31, 2014		450,000		$	1.95
Granted		310,000		$	0.43
Exercised		(25,000	)	$	0.43
Forfeitures		(10,000	)	$	0.43
Balance, at December 31, 2015		725,000		$	0.43
Vested, December 31, 2015		208,333		$	0.43
Vested, December 31, 2014		50,000		$	1.95

The following tables summarize additional information regarding awards outstanding and exercisable at December 31, 2015 and 2014, respectively:

2015
Awards Outstanding						Awards Exercisable
						Weighted-				Weighted-
				Weighted-		Average				Average
Exercise		Outstanding		Average		Exercise		Number		Exercise
Price		Awards		Contractual Life		Price		Exercisable		Price
$	0.43		725,000		7.3	$	0.43		208,333	$	0.43

16 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

2014
Awards Outstanding						Awards Exercisable
						Weighted-				Weighted-
				Weighted-		Average				Average
Exercise		Outstanding		Average		Exercise		Number		Exercise
Price		Awards		Contractual Life		Price		Exercisable		Price
$	1.95		450,000		7.5	$	1.95		50,000	$	1.95

The fair value of the options granted in 2015 was $0.25. Significant assumptions used in the valuation of options were: interest rates of 2.11%; volatility of 56%, no dividend yield, and an expected term of 7.3 years. The fair value of each option granted in the 2014 Period was initially $1.22. Significant assumptions used in the valuation of options were: interest rates of 2.53%; volatility of 60%, no dividend yield, and an expected term of 7.5 years. In both periods, attrition factors were not considered given the finite number of participants in the Plan.

Non-vested stock options at December 31, 2015 and 2014 totaled 516,667 and 450,000, respectively. There was no intrinsic value ascribed to the stock options outstanding and exercisable at December 31, 2015 and 2014.

Warrants

During 2014, the Company issued 1,250,000 warrants to creditors (see Note 6). Each warrant is exercisable for one share of Class D common stock. The warrants have an exercise price of $.01 and an exercise period of ten years. The fair value of these warrants issued to the lenders was recorded as a discount to the carrying value of the debt (as a cost of attracting the funding) and an increase to additional paid-in-capital in 2014. No warrants were exercised at December 31, 2015 and 2014.

Stock Available for Issuance

At December 31, 2015, the Company had authorized for future issuance: (i) 6,317,000 of Classes A, B, C and D common shares (ii) 283,000 Series A Preferred shares, and (iii) 1,775,000 of Class E Common shares.

8. Income Taxes

The tax benefit (provision) for income taxes for the year ended December 31, 2015 and the 2014 Period consists of the following:

	2015			2014 Period
Current:
Federal	$	-		$	-
State		(1,500	)		(2,000	)
		(1,500	)		(2,000	)
Deferred:
Federal		73,823			576,622
State		62,567			12,762
		136,390			589,384
Total	$	134,890		$	587,384

As of December 31, 2015 and 2014, the Company has recorded a tax benefit related to the recognized net operating losses and deferred tax assets. After an assessment of all available evidence (including historical [considering the effects of merger related charges] and forecasted operating results), management concluded that realization of the Company’s deferred tax assets in future periods, is considered more likely than not.

17 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

The Company's effective rate (28.5% and 31.8%) for the year ended December 31, 2015 and the 2014 Period, respectively, differs from the Federal statutory rate primarily due to state income taxes and non-deductible expenses, principally related to stock compensation.

The significant components of the Company's net deferred income tax assets as of December 31, 2015 and 2014 are as follows:

	2015			2014
Inventory	$	-		$	49,465
Intangible assets		714,890			785,466
Accrued liabilities		-			46,482
Fixed assets		(177,445	)		(109,142	)
Goodwill (considered deductible for tax purposes)		(189,637	)		(182,887	)
Net operating losses & business credits		377,966			-
Net deferred income taxes	$	725,774		$	589,384

Such deferred income tax assets, net, have been classified in current assets ($ -0- and $95,947) and other assets ($725,774 and $493,437) in the accompanying December 31, 2015 and 2014 consolidated balance sheets, respectively. At December 31, 2015, the Company had net operating losses of approximately $990,000 and $900,000, respectively, for Federal and New Jersey (separate company) tax return purposes. The U.S. and New Jersey NOLs (which are available only on a separate company basis) both begin to expire in 2035.

9. Concentrations

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The Company generated approximately 41% and 11% of its revenue from two customers during 2015. The Company generated approximately 65% of its revenue from one customer during the 2014 Period. Accounts receivable from two customers amounted to 48% and 10% of net accounts receivable at December 31, 2015. Accounts receivable from three customers amounted to 19%, 17%, and 13% of net accounts receivable at December 31, 2014.

The Company had recognized an advanced billing receivable of $3,050,000 at December 31, 2014 from a third party in connection with a 2014 Period product development agreement; such amount was collected in 2015.

The Company’s largest vendor (a related party - See Note 10) accounted for approximately 86% and 39% of purchases for the year ended December 31, 2015 and the 2014 Period, respectively. Two other vendors accounted for 30% (a related party - See Note 10), and 19%, respectively, of Company purchases for the 2014 Period. Based on its relationships with these suppliers and access to alternate vendors (if necessary), the Company believes that the risks related to these concentrations are not significant.

In 2015 and the 2014 Period, net revenue from customers based in foreign countries approximated $4,449,000 and $2,567,000, respectively. At December 31, 2015 and 2014, the Company had accounts receivables of $2,968,000 and $882,000, respectively, from customers based in foreign countries. Purchases from India based suppliers in 2015 and the 2014 Period approximated $5.9 million and $2.8 million, respectively.

The Company’s administrative office and warehouse are centralized in one New Jersey location.

18 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

10. Related Party Transactions

The Company purchases a substantial amount of its inventory from related parties. Apicore Pharmaceuticals Pvt. Ltd (“APPL”) is under the control of the Company’s stockholders. Aktinos Pharmaceuticals Pvt. Ltd. (“Aktinos”) and Omgene Life Sciences Pvt. Ltd. (“Omgene”) are India based entities which are considered related parties, as a family member of one of the Company’s directors has a minority ownership in these entities. APPL, Aktinos and Omgene sell intermediate and key starting material used in the manufacturing of API to the Company.

In August 2015, the Company entered into a collaborative agreement for the development of defined products with Medicure International Inc. (“Medicure”), the recipient of a Class B common stock grant. The Company received and recognized revenue of $200,000 for a milestone payment in accordance with the contractual agreement. The Company deferred recognition of advances of $375,000 at December 31, 2015 as the Company had not provided the requisite services under these agreements. In connection with this agreement, the Company will also be required to fund 50% of remaining obligations, conditional upon defined development milestones and regulatory approvals.

During the year ended December 31, 2015 and the 2014 Period, Company transactions with related parties included the following:

	2015		2014 Period
Purchases (included in the determination of costs of goods sold) from APPL (a manufacturer of API in its approved facility)	$	5,423,276	$	2,172,551
Purchases (included in the determination of  costs of goods sold) from Aktinos	$	169,000	$	925,240
Purchases (included in the determination of  costs of goods sold) from Omgene	$	-	$	63,000
Research and development expenses paid  to Omgene	$	390,000	$	-
Rent expense –incurred to Dap Dhaduk II, LLC (wholly owned entity of a stockholder of the  Company- See Note 11)	$	266,899	$	120,611

At December 31, 2015 and 2014 balances with related parties are comprised of the following:

(Advances to) Accounts Payable - APPL, net	$	(716,441	)	$	194,936
Accounts payable to Aktinos	$	663		$	134,985
Accounts payable to Omgene	$	67,000		$	-

11. Commitments and Contingencies

R&D Arrangements

The Company has entered into seven collaborative agreements with six parties for the development of defined products which continue through 2025. The agreements include terms of renewal, ranging from one to three years, subject to mutual approval. The total expected cost to be incurred under these agreements approximated $13 million (unaudited) at December 31, 2015.

The Company invoiced a third party $3,050,000 in December 2014, based on terms of this development arrangement. As the arrangement was signed by both parties in December 2014, the Company established a measurement date of December 2014. As such, the Company recorded $3.05 million as both an advance billing on development arrangements and an advance on development arrangements at December 31, 2015 and 2014 in the accompanying consolidated balance sheets. No significant R&D efforts were performed during 2015. In connection with this agreement, the Company will also be required to fund 50% of remaining obligations, conditional upon defined development milestones and regulatory approvals.

19 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

The Company entered into a collaboration agreement with a third party in May 2015. Based on the terms of this agreement, the Company invoiced $860,000 in 2015. As upfront fees and developmental milestones aggregating $860,000 were satisfied as of December 31, 2015, the Company recognized $860,000 of revenue in the accompanying 2015 consolidated statement of operations.

The Company entered into two collaboration agreements with a third party in March 2015. Based on the terms of both agreements, the Company invoiced $1,450,000 in 2015. As upfront fees and developmental milestones aggregating $1,000,000 were satisfied as of December 31, 2015, the Company recognized $1,000,000 as revenue in 2015 and deferred recognition of $450,000 (as an advance on development arrangements) at December 31, 2015 in the accompanying consolidated statements of operations and consolidated balance sheets, respectively. In connection with both agreements, the Company will also be required to fund 50% of remaining obligations, conditional upon defined development milestones and regulatory approvals.

As discussed in Note 10, the Company entered into a collaboration agreement with a related party in August 2015. Based on the terms of the agreement, the Company invoiced $575,000 in 2015. An upfront fee of $200,000 was recognized as revenue in 2015 and $375,000 (as both a receivable and an advance on development arrangements) at December 31, 2015 in the accompanying consolidated statements of operations and consolidated balance sheets, respectively. In connection with the agreement, the Company will also be required to fund 50% of remaining obligations, conditional upon defined development milestones and regulatory approvals.

The Company was subject to a collaboration agreement with a third party prior to the Acquisition date (July 3, 2014). As part of the agreement, the Company received a milestone payment of $250,000 during 2015 related to acceptance of the Abbreviated New Drug Application filing by the United States’ Food & Drug Administration (“FDA”). The amount received was recognized as revenue in 2015 and included in the accompanying 2015 consolidated statement of operations.

The Company has received funding arising from arrangements with other third parties that aggregate $100,000 and $300,000 at December 31, 2015 and 2014, respectively. Such funding relates to prospective R&D efforts and, as such, has included such balances in “Advances on development arrangements” in the accompanying consolidated balance sheet.

Operating Lease

As disclosed in Note 10, the Company leases their office and facilities space from a related party, under a non-cancelable agreement expiring in 2024. The terms of the agreement specify that the Company has the option to purchase the building and land for a pre-determined price as well as the option to renew the lease for an additional five year period.

Total future minimum rental payments pursuant to this agreement are as follows:

Year Ending December 31,	Amount
2016	$	251,111
2017		256,133
2018		261,256
2019		266,481
2020		271,811
Thereafter		994,139
	$	2,300,931

20 

Apicore, Inc.

Notes to the Consolidated Financial Statements

For The Year Ended December 31, 2015 and The Period from July 3, 2014 through December 31, 2014

Purchase Commitment

The Company entered into a purchase agreement with a vendor in December 2015 to purchase software in 2016. The estimated software and installation costs approximate $136,000.

Regulatory Environment

Any product designed and labeled for use in humans requires regulatory approval by government agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical and clinical trials to demonstrate safety and efficacy and other approval procedures of the FDA. Various Federal, state, local, and foreign statutes and regulations also govern testing, manufacturing, labeling, distribution, storage, and record-keeping related to such products and their promotion and marketing. In addition, the current regulatory environment at the FDA could lead to increased testing and data requirements which could impact regulatory timelines and costs to the Company and its suppliers.

Stockholder Purchase Option

The investment advisor discussed in Note 3, also a Class B common stock holder, has an option to purchase outstanding Series A Preferred Stock, Classes C, D, and E common stock, unexercised stock options and creditor warrants at a defined purchase price through July 3, 2017. This option is exercisable at any time over this period, subject to satisfactory closing conditions (or the absence of defined events that would terminate the option). Through April 22, 2016 the investor advisor has not exercised this option.

12. Supplemental Cash Flow Disclosures

Cash paid for interest expense in 2015 and the 2014 Period totaled $1,364,207 and $600,000, respectively.

There were no non cash investing or financing activities in 2015. Non cash investing and financing activities in the 2014 Period were as follows:

Fair value of warrants issued to creditors	$	2,425,000
Issuance of 3,500,000 shares of Class C stock  in connection with the Acquisition	$	6,826,400
Issuance of 533,000 shares of Class B stock for  investment advisory services	$	1,039,563

13. Subsequent Events

The Company has evaluated subsequent events occurring after the financial statement date through April 22, 2016 which is the date the consolidated financial statements were available to be issued. Based on the evaluation, the Company has determined that there are no subsequent events that require adjustment to or disclosure in the financial statements.

21 

Apicore, Inc.

Consolidating Balance Sheets

December 31, 2015

	Total		Eliminations			Apicore US, LLC		Apicore, Inc.
Assets
Current assets
Cash and cash equivalents	$	1,782,029	$	-		$	1,764,840	$	17,189
Accounts receivable		5,282,839		-			5,282,839		-
Advanced billings on development arrangements		200,000		-			200,000		-
Inventory, net		1,963,425		-			1,963,425		-
Prepaid expenses		159,061		-			159,061		-
Due from related party, net		716,441		(487,297	)		1,203,738		-
Total current assets		10,103,795		(487,297	)		10,573,903		17,189
Property, equipment and improvements, net		1,334,980		-			1,334,980		-
Other assets
Investment in and advances to subsidiary		-		(24,153,716	)		-		24,153,716
Goodwill		12,213,780		-			12,213,780		-
Intangible assets, net		9,480,716		-			9,480,716		-
Deferred income taxes		725,774		-			-		725,774
Total other assets		22,420,270		(24,153,716	)		21,694,496		24,879,490
Total Assets	$	33,859,045	$	(24,641,013	)	$	33,603,379	$	24,896,679

See Independent Auditors’ Report.

22 

Apicore, Inc.

Consolidating Balance Sheets (continued)

December 31, 2015

	Total			Eliminations			Apicore US, LLC		Apicore, Inc.
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,208,038		$	-		$	1,208,038	$	-
Accrued expenses and customer deposits		1,965,326			-			1,963,801		1,525
Advances on development arrangements		3,975,000			-			3,975,000		-
Short-term debt, net of discount and debt issuance costs		1,726,952			-			-		1,726,952
Due to related parties, net		67,663			(1,337,297	)		67,663		1,337,297
Total current liabilities		8,942,979			(1,337,297	)		7,214,502		3,065,774
Long-term debt, net of discount and debt issuance costs		6,639,970			-			-		6,639,970
Stockholders' Equity
Convertible preferred stock
Series A; $.0001 Par value; authorized 5,000,000 shares; 4,717,000 shares issued and outstanding; liquidation value of $10,259,022		9,200,037			-			-		9,200,037
Common stock
Class A; $.0001 Par value; authorized 5,000,000 shares; No shares issued and outstanding		-			-			-		-
Class B; $.0001 Par value; authorized 600,000 shares; 533,000 issued and outstanding		53			-			-		53
Class C; $.0001 Par value; authorized 3,500,000 shares; 3,500,000 issued and outstanding		350			-			-		350
Class D; $.0001 Par value; authorized 1,250,000 shares; No shares issued and outstanding		-			-			-		-
Class E; $.0001 Par value; authorized 1,800,000 shares; 25,000 shares issued and outstanding		3			-			-		3
Additional paid-in-capital		10,671,896			-			-		10,671,896
Contributed capital		-			(23,303,716	)		23,303,716		-
(Accumulated deficit) retained earnings		(1,596,243	)		-			3,085,161		(4,681,404	)
Total stockholders' equity		18,276,096			(23,303,716	)		26,388,877		15,190,935
Total Liabilities and Stockholder's Equity	$	33,859,045		$	(24,641,013	)	$	33,603,379	$	24,896,679

See Independent Auditors’ Report.

23 

Apicore, Inc.

Consolidating Statements of Operations

For the Year Ended December 31, 2015

	Total			Eliminations		Apicore US, LLC			Apicore, Inc.
Net revenue (including $2,310,000 of revenue from arrangements)	$	19,869,973		$	-	$	19,869,973		$	-
Cost of goods sold		10,704,204			-		10,704,204			-
Gross profit		9,165,769			-		9,165,769			-
Operating expenses
Selling, general and administrative		3,412,644			-		3,399,089			13,555
Research and development		2,889,872			-		2,889,872			-
Depreciation and amortization		1,076,744			-		1,076,744			-
		7,379,260			-		7,365,705			13,555
Income (loss) from operations		1,786,509			-		1,800,064			(13,555	)
Organization, acquisition and merger related expenses		-			-		-			-
Interest expense (includes amortization of financing costs and warrants)		2,259,792			-		-			2,259,792
(Loss) income before tax		(473,283	)		-		1,800,064			(2,273,347	)
Income tax benefit		134,890			-		(2,000	)		136,890
Net (loss) income	$	(338,393	)	$	-	$	1,798,064		$	(2,136,457	)

See Independent Auditors’ Report.

24 

SCHEDULE “B”

APIGEN INVESTMENTS LIMITED AUDITED CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2015

(Begins on the following page.)

SCHEDULE “C”

APICORE, INC. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016

(Begins on the following page.)

Interim Consolidated Financial Statements

(Expressed in United States Dollars)

Apicore, Inc.

For the nine months ended September 30, 2016

(Unaudited)

Apicore, Inc.

Consolidated Balance Sheets

(unaudited - expressed in United States dollars)

	Note		September 30, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents			$	1,216,234		$	1,782,029
Accounts receivable				5,117,508			5,282,839
Advanced billings on development arrangements				1,000,000			200,000
Inventories, net				2,655,820			1,963,425
Prepaid expenses				372,653			159,061
Due from related party, net		5		-			716,441
Total current assets				10,362,215			10,103,795
Non-current assets:
Property, equipment and improvements, net				1,585,578			1,334,980
Goodwill				12,213,780			12,213,780
Intangible assets, net				8,664,411			9,480,716
Deferred income taxes				725,774			725,774
Total non-current assets				23,189,543			23,755,250
Total assets			$	33,551,758		$	33,859,045
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable			$	2,252,908		$	1,208,038
Accrued expenses and customer deposits				2,037,486			1,965,326
Advances on development arrangements				2,881,785			3,975,000
Short-term debt, net of discount and debt issuance costs		3		-			1,726,952
Due to related parties, net		5		155,150			67,663
Total current liabilities				7,327,329			8,942,979
Non-current liabilities
Long-term debt, net of discount and debt issuance costs		3		8,627,658			6,639,970
Lease obligations				263,710			-
Total non-current liabilities				8,891,368			6,639,970
Total liabilities				16,218,697			15,582,949
Stockholders’ Equity:
Series A; $0.0001 Par Value; Authorized 5,000,000 shares, 4,717,000 shares issued and outstanding; liquidation value of $10,874,563 at September 30, 2016 and $10,259,022 at December 31, 2015				9,200,037			9,200,037
Series A-1 Par value $4.94 Authorized 145,773 shares, issued and outstanding at September 30, 2016, nil at December 31, 2016				720,118			-
Common Stock
Class B; $0.0001 Par value; Authorized 600,000 shares; 533,000 shares issued and outstanding		4		53			53
Class C; $0.0001 Par value; Authorized 3,500,000 shares; 3,500,000 shares issued and outstanding		4		350			350
Class D; $0.0001 Par value; Authorized 1,250,000 shares; No shares issued and outstanding		4		-			-
Class E; $0.0001 Par value; Authorized 1,800,000 shares; 25,000 shares issued and outstanding (2015)		4		3			3
Additional paid-in-capital				10,853,904			10,671,896
Accumulated deficit				(3,441,404	)		(1,596,243	)
Total Stockholder’s Equity				17,333,061			18,276,096
Commitments and Contingencies		6
Total liabilities and Stockholders’ Equity			$	33,551,758		$	33,859,045

The Notes to the Interim Consolidated Financial Statements are an integral part of these interim consolidated financial statements

1 

Apicore, Inc.

Interim Consolidated Statements of Operations

(unaudited - expressed in United States dollars)

Nine months ended September 30	Note	2016			2015
Net revenue		$	15,057,742		$	12,224.922
Cost of goods sold			8,674,970			7,199,540
Gross Profit			6,382,772			5,025,382
Operating Expenses
Selling, general and administrative			3,291,861			2,478,771
Research and development			2,238,734			1,693,826
Depreciation and amortization			1,002,639			798,724
Total operating expenses			6,533,234			4,971,321
Income from operations			(150,462	)		54,061
Interest expense (includes amortization of financing costs and warrants)			1,694,699			1,583,682
Net loss		$	(1,845,161	)	$	(1,529,621	)

The Notes to the Interim Consolidated Financial Statements are an integral part of these interim consolidated financial statements

2 

Apicore, Inc.

Interim Consolidated Statements of Stockholders’ Equity

(unaudited - expressed in United States dollars)

		Convertible Preferred Stock				Class B, C, and E Common Stock				Additional					Total
										Paid-in		Accumulated			Stockholder's
	Note	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, December 31, 2014			4,717,000	$	9,200,037		4,033,000	$	403	$	10,426,238	$	(1,257,850	)	$	18,368,828
Exercise of Class E stock options			-		-		25,000		3		10,747		-			10,750
Stock compensation expense			-		-		-		-		234,911		-			234,911
Net loss			-		-		-		-		-		(338,393	)		(338,393	)
Balance, December 31, 2015			4,717,000	$	9,200,037		4,058,000	$	406	$	10,671,896	$	(1,596,243	)	$	18,276,096
Issuance of Series A-1 Preferred Shares			145,773		720,118		-		-		-		-			720,118
Stock compensation expense			-		-		-		-		182,008		-			182,008
Net loss			-		-		-		-		-		(1,845,161	)		(1,845,161	)
Balance, September 30, 2016			4,862,773	$	9,920,155		4,058,000	$	406	$	10,853,904	$	(3,441,404	)	$	17,333,061

The Notes to the Interim Consolidated Financial Statements are an integral part of these interim consolidated financial statements

3 

Apicore, Inc.

Interim Consolidated Statements of Cash Flows

(expressed in United States dollars)

Nine months ended September 30	Note	2016			2015
Cash flows from operating activities:
Net loss		$	(1,845,161	)	$	(1,529,621	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation			186,244			115,024
Stock compensation expense			182,008			176,183
Amortization of intangible assets			816,395			683,700
Amortization discount on warrants issued to creditors			503,166			582,924
Amortization of deferred financing costs			76,620			88,765
Changes in operating assets and liabilities:
Accounts receivable			165,331			(160,402	)
Advanced billings on development arrangements			(800,000	)		2,350,000
Prepaid expenses			(213,592	)		(161,801	)
Inventory			(692,395	)		547,612
Accounts payable			1,044,730			(839,807	)
Accrued expenses and customer deposits			72,160			3,358,505
Advances on development arrangements			(1,093,215	)		(2,200,000	)
Lease obligations			263,710			-
Due to/from related parties, net			803,928			(1,179,963	)
Net cash provided by (used in) operating activities			(530,071	)		1,831,119
Cash flows from investing activities:
Capital expenditures			(436,842	)		(347,162	)
Cash flows used in investing activities			(436,842	)		(347,162	)
Cash flows from financing activities:
Repayment of debt principal balance			(319,000	)		(208,000	)
Proceeds from issuance of Series A-1 Preferred Shares			720,118			-
Cash flows from (used in) financing activities			401,118			(208,000	)
Net (decrease) increase in cash and cash equivalents			(565,795	)		1,275,957
Cash, beginning of period			1,782,029			637,798
Cash, end of period		$	1,216,234		$	1,913,755

The Notes to the Interim Consolidated Financial Statements are an integral part of these interim consolidated financial statements

4 

Apicore, Inc.

Notes to the Interim Consolidated Financial Statements

(unaudited - expressed in United States dollars)

1. Background and Organization

Background

Apicore, Inc. (formerly ABC Pharma Acquisition Company, the “Company”) is the parent company of Apicore US, LLC (the “Subsidiary”), its sole operating entity. The Company, incorporated on March 19, 2014 in the State of Delaware, is engaged in the manufacture, development, marketing and selling of Active Pharmaceutical Ingredients (“API”) to generic pharmaceutical customers and provides custom synthesis for early phase pharmaceutical research of branded products. The Company also participates in collaborations with third parties in the research and development (“R&D”) stages of specific products. The Company purchases a substantial amount of inventory from an India based company, in which stockholders have an ownership interest in.

Organization

On July 3, 2014 pursuant to the terms and conditions of a Purchase Agreement (“PA”), the Company acquired (the “Acquisition”) 100% of Apicore LLC (“LLC”), from its members for a total consideration of $23,303,716, comprised of $16,477,316 of cash consideration, and the issuance of 3.5 million shares (amounting to $6,826,400) of Class C Common Shares (a 35% interest in the Company measured on diluted basis). Prior to July 3, 2014, the Company (and its predecessor) was a dormant entity, with 100 shares of $0.01 each outstanding, incorporated solely to effect the Acquisition. The results of operations and cash flows from the date of incorporation through July 2, 2014 were not significant. The LLC has been an operating company since 2003.

The acquiring investors hold 4,717,000 of Series A Convertible Preferred Stock. To supplement the funding of the Acquisition, the Company also entered into a debt financing for $10 million. The Acquisition has been accounted for as a business combination and the acquired assets and assumed liabilities at July 3, 2014 have been recorded at their relative fair values. The accompanying financial statements reflect the operations of the Company for the nine months ended September 30, 2016 and 2015.

R&D Arrangements & Business Risks

The Company may also pursue, if conditions are met and requisite approvals obtained, additional equity offerings (possibly resulting in the dilution of existing investors’ interests) and other long term debt arrangements, to fund the costs of product development arrangements (see Note 7), in process R&D projects and other operating and development costs. In addition, management believes it has the ability to curtail (or suspend) the funding of discretionary projects and initiatives to assist the Company in successfully managing its cash flow requirements in future periods. Should the Company be unable to generate operating cash flow or access available financing in the future, product development activities may need to be scaled back, deferred or discontinued. As a result, the realization of business plans and forecasted results may not be achieved.

2. Summary of Significant Accounting Policies

The accounting policies and methods of computation applied by the Company in these consolidated interim financial statements are the same as those applied in the Company’s annual financial statements as at and for the year ended December 31, 2015.

5 

Apicore, Inc.

Notes to the Interim Consolidated Financial Statements

(unaudited - expressed in United States dollars)

2. Summary of Significant Accounting Policies (continued)

New Accounting Pronouncements (continued)

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”. The amendments in ASU 2016-15 provide cash flow statement classification guidance on the following eight topics: 1. Debt Prepayment or Debt Extinguishment Costs; 2. Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; 3. Contingent Consideration Payments Made after a Business Combination; 4. Proceeds from the Settlement of Insurance Claims; 5. Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; 6. Distributions Received from Equity Method Investees; 7. Beneficial Interests in Securitization Transactions; and 8. Separately Identifiable Cash Flows and Application of the Predominance Principle. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will evaluate the effects of these standards in future periods.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 simplifies several aspects of accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statements of cash flows. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company will evaluate the effects of these standards in future periods.

In February 2016, ASU 2016-02, Leases, was issued. This guidance will require companies who are lessees in a qualified lease to recognize, as assets and liabilities in their balance sheets, the rights and obligations created by those leases. This guidance will be effective for the Company beginning in 2020, with early application permitted. The Company will evaluate the effects of these standards in future periods.

3. Debt Obligation

On July 3, 2014, the Company received $10,000,000 of funding from a consortium of lenders to fund, in part, the Acquisition and general working capital needs. Borrowings are collateralized by a security interest in substantially all of the Company’s assets, as well as the assets of an affiliated company (Apigen Investments Limited). The borrowing agreement is subject to certain reporting, financial and other covenants; including, but not limited to, defined fixed charge coverage ratios.

For the initial measurement period of the covenants (annual period ending June 30, 2015), the Company did not meet certain financial ratios stipulated by the covenants. The lenders subsequently provided a waiver and the debt agreement was amended on December 17, 2015, to restructure the financial ratios for measurement periods subsequent to June 30, 2015. As part of this amendment, the interest rate on the debt was increased from 12% to 15% per annum. Subject to meeting certain financial ratios in measurement periods subsequent to December 31, 2015, the interest rate will revert to 12% per annum. For each of the quarterly periods ended September 30, 2015 and December 31, 2015, the Company was in compliance with the restructured financial ratios.

Lenders and Company executed amendment to the loan agreement on September 27^th 2016 to revise down interest rate to 12%, restructuring financial ratios, extending the loan maturity date to June 30^th 2020 upon meeting certain conditions. As part of this amendment, Company was required to bring additional equity and Company issued 145,773 A-1 Preferred shares to raise $720,118. For each of quarterly periods ending March 31^st 2016, June 30^th 2016 and September 30^th 2016, the Company was in compliance with the restructured financial ratios.

In connection with this financing, the lenders received 1,250,000 warrants to purchase Class D Common stock at an exercise price of $.01 per share. The fair value ascribed to these warrants ($2,425,000) was based on the fair value of the Company’s Common Class A stock ($1.95) on the date of the Acquisition. Such warrants have been classified as a discount to the debt in the accompanying consolidated balance sheet and are amortized over the term of the loan based on the effective interest rate method. Amortization expense on warrant costs amounted to $579,786 and $777,232 during 2016 and 2015, respectively. Amortization expense of deferred financing costs totaled $76,620 and $118,353, respectively, for 2016 and 2015.

As of September 30, 2016, the debt carries an interest rate of 12% per annum; the effective rate of interest on the debt, including the effects of the warrant grant, approximates 21% per annum. As of December 31, 2015, the debt carried an interest rate of 15% which resulted in an effective rate of interest of 24% per annum. Interest is payable at the end of each quarter and any unpaid principal and interest is due at the maturity date of June 30, 2018 or extended date of June 30, 2020.

6 

Apicore, Inc.

Notes to the Interim Consolidated Financial Statements

(unaudited - expressed in United States dollars)

3. Debt Obligation (continued)

Principal payments are based on levels of net income, as defined in the debt agreement, at periodic dates throughout the term of the agreement. Management currently estimates that future principal payments will be (exclusive of the effects of the aforementioned warrants and deferred financing costs):

Year Ending December 31:	Amount
Remainder of 2016		-
2017		1,500,000
2018		3,000,000
2019		4,500,000
2020		473,000
		9,473,000
Less: unamortized warrant costs:
Remainder of 2016		167,722
2017		435,268
2018		130,595
		733,585
Less: unamortized deferred financing costs:
Remainder of 2016		25,590
2017		66,281
2018		19,886
		111,757
Debt at November 30, 2016, net		8,627,658

4. Stockholders’ Equity

Series A Convertible Preferred Stock

On July 3, 2014, the Company and third party investors signed a subscription agreement that resulted in the Company receiving a cash investment of $9,200,037 for 4,717,000 shares of Series A preferred stock. There has been no change in the amount of Series A preferred stock outstanding at November 30, 2016 and December 31, 2015.

Series A preferred stock provides the holder with preferences in distributions, registration of shares (in the event of certain occurrences), voting rights, Board of Director representation and conversion features (into Class A Common Stock). The Series A preferred stock also provides a cumulative return of 8% on the investment amount, payable in the form of a dividend which is payable only upon declaration. The accumulated dividend of $322,985 for the 2014 Period and $736,000 for the year ended December 31, 2015 (aggregating to $1,058,985) has not been declared at September 30, 2016. The liquidating preference amount is arrived by including the accumulated dividend and the preferred stock investment. The dividend to preferred holders is designed to facilitate an annual minimum return and it provides preference over all classes of common stockholders in the event of a liquidation of the Company. In addition to the minimum 8% return, the preferred stockholders are entitled to participation in the distribution, if any, of surplus profits along with the common stock holders.

The Series A preferred stockholders will vote together with the holders of common stock as a single class. The preferred stockholders also have an option to convert into 4,717,000 shares of Class A common stock. The initial conversion price was agreed upon to be $1.95 per share. The prices for subsequent conversions are to be adjusted based on the terms of the amended and restated Certification of Incorporation.

The preferred shares are subject to a redemption right which can be exercised by the preferred stockholders anytime on or after December 31, 2019. Upon exercise, the Company is required to redeem these shares in three equal annual installments calculated at a price equal to the greater of: (a) the defined liquidation amount and accumulated dividends and (b) the then fair market value as defined and agreed to by the parties.

7 

Apicore, Inc.

Notes to the Interim Consolidated Financial Statements

(unaudited - expressed in United States dollars)

4. Stockholders’ Equity (continued)

During the nine months ended September 30, 2016, the Company issued 145,773 Series A-1 Preferred Shares for gross proceeds to the Company of $720,118.

Common Stock

As part of the Acquisition, the Company issued: (a) 533,000 shares of Class B common stock as consideration for investment advisory services, which were valued at $1.95 per share at the date of Acquisition; and (b) 3.5 million shares of Class C common stock to the LLC sellers as part consideration for the purchase agreement. The Company issued 25,000 shares of Class E Common Stock in 2015; proceeds of which were received from an exercise of stock options. The voting, dividend and liquidation rights of the common stockholders are subject to, and qualified, by the rights and preferences of the Preferred Stockholders. However, the various classes of common stock contain similar voting rights as those afforded to the Preferred Stockholders. The rights and privileges among the common classes are the same.

Stock Option Plan

On July 28, 2014, the Company’s Board of Directors approved the 2014 Equity Incentive Plan (the “Plan”). The Plan provides for the granting of awards in the form of options and other awards under the Plan to employees and third parties. The Plan provides that the exercise price of an option shall not be less than 100% of the defined fair market value (110% for 10% shareholders in the case of incentive stock options) on the date of the award. As of November 30, 2016, the Company has reserved up to maximum of 1,020,000 shares of Common Stock Class E type for issuance upon exercise. The Company engaged an independent firm to perform a valuation of the Company’s Class E Common Stock in February 2016, the fair value of the Company’s Class E common stock was determined to be $1.69

Stock Option Awards

In 2015, the Company awarded 310,000 Class E Stock options at an exercise price of $0.43 to be granted to employees (285,000) and to an Independent Director (25,000). The fair value of the Company’s common stock (used in valuing unit incentive awards) was based on a third party valuation as of February 19, 2015.

In 2016, the Company awarded 200,000 Class E Stock options at an exercise price of $1.69 to be granted to employees. The fair value of the Company’s common stock (used in valuing unit incentive awards) was based on a third party valuation as of February 29, 2016.

At September 30, 2016 and December 31, 2015, 433,333 and 208,333 of the incentive stock options have vested, respectively. The contractual terms of the option grants are 10 years.

Modification of 2014 Awards

In 2015, the Board approved a modification of the $1.95 per share exercise price of all the 450,000 stock options originally issued in 2014; as a result, the exercise price of such 2014 options was repriced to $0.43 per share based on the aforementioned valuation report. This modification resulted in an incremental cost of $64,178 related to the repricing of the 2014 options. Of this amount, $44,812 was expensed and the remaining $19,366 will be expensed in future periods as the options vest.

Financial Effects & Activity in Awards

The stock compensation expense related to these awards totaled $182,008 for the nine months ended September 30, 2016 and is included in “Selling, general and administrative” expenses ($170,988), “Cost of goods sold” ($7,121) and “Research and development” expenses ($3,899) in the accompanying interim consolidated financial statements. The stock compensation expense related to these awards as well as the modifications, totaled $176,183 for the nine months ended September 30, 2015 and is included in “Selling, general and administrative” expenses in the accompanying interim consolidated financial statements. The total compensation cost related to non-vested awards not yet recognized totaled $442,230 as at September 30, 2016, and will be recognized over the remaining vesting period which approximates 2.4 years.

8 

Apicore, Inc.

Notes to the Interim Consolidated Financial Statements

(unaudited - expressed in United States dollars)

4. Stockholders’ Equity (continued)

Activity with respect to awards was as follows for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively:

	Number of Shares			Weighted-Average Exercise Price
Balance, at December 31, 2014		450,000		$	1.95
Granted		310,000		$	0.43
Exercised		(25,000	)	$	0.43
Forfeitures		(10,000	)	$	0.43
Balance, at December 31, 2015		725,000		$	0.43
Granted		200,000		$	1.69
Balance, at September 30, 2016		925,000		$	0.70
Vested, September 30, 2016		433,333		$	0.43
Vested, December 31, 2015		208,333		$	0.43

The following tables summarize additional information regarding awards outstanding and exercisable at September 30, 2016 and December 31, 2015, respectively:

September 30, 2016:

		Awards Outstanding						Awards Exercisable
						Weighted-				Weighted-
				Weighted-		Average				Average
Exercise		Outstanding		Average		Exercise		Number		Exercise
Price		Awards		Contractual Life		Price		Exercisable		Price
$	0.70		925,000		6.5	$	0.70		433,333	$	0.43

December 31, 2015:

		Awards Outstanding						Awards Exercisable
						Weighted-				Weighted-
				Weighted-		Average				Average
Exercise		Outstanding		Average		Exercise		Number		Exercise
Price		Awards		Contractual Life		Price		Exercisable		Price
$	0.43		725,000		7.3		0.43		208,33	$	0.43

The fair value of the options granted during the nine months ended September 30 2016 was $0.94. Significant assumptions used in the valuation of options were: interest rates of 1.45%; volatility of 57.5%, no dividend yield, and an expected term of 6.5 years. The fair value of each option granted in 2015 was $0.25. Significant assumptions used in the valuation of options were: interest rates of 2.11%: volatility of 56%, no dividend yield, and an expected term of 7.3 years. In both periods, attrition factors were not considered given the finite number of participants in the Plan.

Non-vested stock options at September 30, 2016 and December 31, 2015 totaled 491,667 and 516,667, respectively. There was no intrinsic value ascribed to the stock options outstanding and exercisable at September 30, 2016 and December 31, 2015.

Warrants

During 2014, the Company issued 1,250,000 warrants to creditors. Each warrant is exercisable for one share of Class D common stock. The warrants have an exercise price of $.01 and an exercise period of ten years. The fair value of these warrants issued to the lenders was recorded as a discount to the carrying value of the debt (as a cost of attracting the funding) and an increase to additional paid-in-capital in 2014. No warrants were exercised at September 30, 2016 and December 31, 2015.

Stock Available for Issuance

At September 30, 2016, the Company had authorized for future issuance: (i) 6,462,773 of Classes A, B, C and D common shares (ii) 283,000 Series A Preferred shares, and (iii) 1,775,000 of Class E Common shares.

5. Related Party Transactions

The Company purchases a substantial amount of its inventory from related parties. Apicore Pharmaceuticals Pvt. Ltd (“APPL”) is under the control of the Company’s stockholders. Aktinos Pharmaceuticals Pvt. Ltd. (“Aktinos”) and Omgene Life Sciences Pvt. Ltd. (“Omgene”) are India based entities which are considered related parties, as a family member of one of the Company’s directors has a minority ownership in these entities. APPL, Aktinos and Omgene sell intermediate and key starting material used in the manufacturing of API to the Company.

9 

Apicore, Inc.

Notes to the Interim Consolidated Financial Statements

(unaudited - expressed in United States dollars)

5. Related Party Transactions (continued)

During the nine months ended September 30, 2016 and 2015 Company transactions with related parties included the following:

		2016		2015
Purchases (included in the determination of costs of goods sold) from APPL (a manufacturer of API in its approved facility)	$	5,575,132	$	3,466,020
Purchases (included in the determination of costs of goods sold) from Aktinos	$	675,120	$	169,000
Research and development expenses paid to Omgene	$	45,000	$	225,000
Rent expense - incurred to Dap Dhaduk II, LLC (wholly owned entity of a stockholder of the  Company)	$	186,469	$	182,813

At September 30, 2016 and December 31, 2015 balances with related parties are comprised of the following:

(Advances to) Account Payable - APPL, net	$	155,150	$	(716,441	)
Accounts payable to Aktinos	$	125,783	$	663
Accounts payable to Omgene	$	-	$	67,000

6. Commitments and Contingencies

Operating Lease

As disclosed, the Company leases their office and facilities space from a related party, under a non-cancelable agreement expiring in 2024. The terms of the agreement specify that the Company has the option to purchase the building and land for a pre-determined price as well as the option to renew the lease for an additional five year period.

Total future minimum rental payments pursuant to this agreement are as follows:

Year Ending December 31:	Amount
2016 remaining	$	64,616
2017		256,133
2018		261,256
2019		266,481
2020		271,811
Thereafter		994,139
	$	2,114,436

Regulatory Environment

Any product designed and labeled for use in humans requires regulatory approval by government agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical and clinical trials to demonstrate safety and efficacy and other approval procedures of the FDA. Various Federal, state, local, and foreign statutes and regulations also govern testing, manufacturing, labeling, distribution, storage, and record-keeping related to such products and their promotion and marketing. In addition, the current regulatory environment at the FDA could lead to increased testing and data requirements which could impact regulatory timelines and costs to the Company and its suppliers.

Stockholder Purchase Option

The investment advisor discussed in Note 3 to the consolidated financial statements for the year ended December 31, 2015, also a Class B common stock holder, has an option to purchase outstanding Series A Preferred Stock, Classes C, D, and E common stock, unexercised stock options and creditor warrants at a defined purchase price through July 3, 2017. This option is exercisable at any time over this period, subject to satisfactory closing conditions (or the absence of defined events that would terminate the option). The following subsequent event note will discuss the exercise of the option..

10 

Apicore, Inc.

Notes to the Interim Consolidated Financial Statements

(unaudited - expressed in United States dollars)

7. Subsequent events

Subsequent to September 30, 2016, on December 1, 2016, Medicure Inc. (“Medicure”) exercised its option rights to purchase the Series A Preferred Stock and the creditor warrants from those equity holders. Medicure acquired 4,717,000 Series A Preferred Shares and 1,250,000 Warrants to purchase Class D Common Shares in Apicore, Inc. for $23,000,000 and $1,840,000 respectively.

As a result of the option exercise described above, the Company’s remaining unvested stock options vested upon the change of control resulting from this transaction.

As well, during December, 87,500 stock options were exercised resulting in the issuance of 87,500 Class E Common Shares and gross proceeds of $37,625 to the Company. All Class E Common Shares, totaling 112,500, were subsequently purchased by Medicure from the shareholders for $549,000.

Additionally, on January 9, 2017 Medicure provided a secured loan in the amount of US$9.8 million to the Company resulting in the repayment of the Company’s existing debt (note 3). The loan bears interest at 12% per annum, matures on December 31, 2020 and is secured by a charge over the U.S. assets of Apicore.

11 

SCHEDULE “D”

APIGEN INVESTMENTS LIMITED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016

(Begins on the following page.)

Interim Consolidated Financial Statements

(Expressed in United States dollars)

Apigen Investments Limited

For the nine months ended September 30, 2016

(Unaudited)

Apigen Investments Limited

Interim Consolidated Statements of Balance Sheets

(unaudited - expressed in United States dollars)

	Note	September 30, 2016		December 31, 2015
Assets
Current assets:
Cash and cash equivalents		$	479,046	$	84,142
Trade accounts receivable, net			690,364		483,880
Inventories	4		2,224,725		1,903,111
Prepaid expenses and other current assets			329,129		684,404
Due from related parties	7		155,150		-
Total current assets			3,878,414		3,155,537
Non-current assets:
Property, plant and equipment, net			5,934,469		6,051,198
Intangible assets, net			363,885		363,885
Investment securities			30,700		30,530
Other assets			85,943		93,146
Total assets		$	10,293,411	$	9,694,296
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings	5	$	339,441	$	360,054
Current portion of long term borrowings	6		204,617		204,617
Trade accounts payable			1,745,451		808,815
Due to related parties, net	7		-		1,340,642
Accrued expenses and other current liabilities			580,769		462,129
Total current liabilities			2,870,278		3,176,257
Long-term borrowings, excluding current portion	6		544,615		698,466
Other liabilities			-		67,484
Deferred income taxes			102,915		100,345
Total liabilities			3,517,808		4,042,552
Stockholders’ Equity:
Issued, subscribed and fully paid up	8		280,757		875
Share premium			5,839,894		5,839,894
Retained earnings/(deficit)			654,952		(189,025	)
Total Stockholder’s Equity			6,775,603		5,651,744
Subsequent events	9
Total liabilities and Stockholders’ Equity		$	10,293,411	$	9,694,296

See accompanying notes to the interim consolidated financial statements

1 

Apigen Investments Limited

Interim Consolidated Statements of Operations and Comprehensive Income

(unaudited - expressed in United States dollars)

For the nine months ended September 30	Note	2016			2015
Revenues, net	7	$	6,811,717		$	6,456,234
Cost of goods sold			4,075,154			4,107,693
Selling, general and administrative			796,881			800,640
Research and development			362,649			192,511
Depreciation and amortization			666,563			480,482
Profit from operations			910,470			874,908
Other expense, net			(61,635	)		(138,163	)
Net Profit		$	848,835		$	736,745
Other Comprehensive Income
Currency translation adjustment			(4,858	)		(27,524	)
Total Comprehensive income		$	843,977		$	709,221

See accompanying notes to the interim consolidated financial statements

2 

Apigen Investments Limited

Interim Consolidated Statement of changes in Stockholders’ equity

(unaudited - expressed in United States dollars)

	Note	Common Stock				Additional Paid-in		Accumulated Surplus			Total Stockholder's
		Shares		Amount		Capital		(Deficit)			Equity
Balance, December 31, 2014			10,000,000	$	875	$	5,839,894	$	(231,466	)	$	5,609,303
Total Comprehensive income			-		-		-		42,441			42,441
Balance, December 31, 2015			10,000,000	$	875	$	5,839,894	$	(189,025	)	$	5,651,744
Issuance of Series A-1 Preference Shares	8		145,772		279,882		-		-			279,882
Total Comprehensive income			-		-		-		843,977			843,977
Balance, September 30, 2016			10,145,772	$	280,757	$	5,839,894	$	654,952		$	6,775,603

See accompanying notes to the interim consolidated financial statements

3 

Apigen Investments Limited

Interim Consolidated Statements of Cash Flows

(unaudited - expressed in United States dollars)

For the nine months ended September 30	Note	2016			2015
Cash flows from operating activities:
Net profit		$	848,835		$	736,745
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			666,563			480,482
			1,515,398			1,217,227
Changes in operating assets and liabilities, net:
Accounts receivable (including due from related parties)			(1,702,276	)		(345,903	)
Inventories			(321,614	)		301,274
Other assets			277,735			30,964
Trade accounts payable			936,636			(245,993	)
Accrued expenses, other current liabilities and other liabilities			118,640			334
Net cash provided by operating activities			824,519			957,903
Cash flow from investing activities:
Purchase of property, plant and equipment			(549,834	)		(647,308	)
Net cash used in investing activities			(549,834	)		(647,308	)
Cash flow from financing activities:
Proceeds of issuance of Class A-1 Preferred Shares			279,882			-
Repayments of long term borrowings			(153,851	)		(204,850	)
Repayments of short term borrowings			(20,613	)		(141,026	)
Net cash provided by (used in) financing activities			105,418			(345,876	)
Effect of changes in exchange rates			14,801			(21,764	)
Net increase (decrease) in cash and cash equivalents			394,904			(57,045	)
Cash and cash equivalents, beginning of period			84,142			73,497
Cash and cash equivalents, end of period		$	479,046		$	16,452

See accompanying notes to the interim consolidated financial statements

4 

Apigen Investments Limited

Notes to the interim consolidated financial statements

(unaudited - expressed in United States dollars)

1. Organization and Nature of Operations

Incorporation history

Apigen Investments Limited (“Apigen” or “Parent Company”) was incorporated in Mauritius on June 27, 2014. With effect from July 3, 2014, Apigen acquired 100% ownership interest of Apicore LLC, a company incorporated in the United States of America (USA) (“Apicore LLC”), from Synergy Pharma. Apicore LLC is holding 100% equity shares in Apicore Pharmaceuticals Private Limited (“Apicore”) which was incorporated in India in July 2006 and is a 100% Export Oriented Unit, engaged in manufacture of Active Pharmaceutical Ingredient (API).

Apigen holds a Category 1 Global Business License under the Financial Services Act 2007 and is regulated by the Financial Services Commission. The principal activity of the Parent Company is to carry on business as an investment holding company. The registered address of the Parent Company is 4^th Floor, Tower A, 1, Cybercity, Ebene, Mauritius.

2. Summary of Significant Accounting Policies

The accounting policies and methods of computation applied by the Company in these consolidated interim financial statements are the same as those applied in the Company’s annual financial statements as at and for the year ended December 31, 2015

3. Financial instruments and concentration of credit risk

Financial instruments that potentially subject the Group to concentration of credit risk are reflected principally in cash and cash equivalents, trade accounts receivable, prepaid and other assets, and investment securities.

The Group places its cash and cash equivalents with corporations and banks with investment grade ratings, limits the amount of credit exposure with any one corporation or bank and conducts ongoing evaluation of the credit worthiness of the corporations and banks with which it does business.

The major customer of the Group is primarily based in the USA and accordingly, trade accounts receivables are concentrated in the USA. To reduce credit risk, the Group performs ongoing credit evaluation of customers.

By their nature, all financial instruments stated above involve risk including the credit risk of non-performance by counterparties. In management’s opinion, as of September 30, 2016, other than those already accounted for, there was no significant risk of loss in the event of non-performance of the counterparties to these financial instruments.

4. Inventories

	September 30, 2016		December 31, 2015
Raw materials	$	671,968	$	657,243
Packing materials		6,624		7,248
Work in progress		671,342		622,894
Finished goods		874,791		413,619
Inventory in transit		-		202,107
	$	2,224,725	$	1,903,111

5 

Apigen Investments Limited

Notes to the interim consolidated financial statements

(unaudited - expressed in United States dollars)

5. Short-term borrowings

Apicore Pharmaceuticals Private Limited has taken a cash credit facility at an interest rate of Base Rate plus 2.70% p.a. (December 31, 2015 – 2.55% p.a.). The outstanding amount as at September 30, 2016 is $18,960 (December 31, 2015 - $45,054). These are secured by hypothecation by way of first charge on stock (inventories), book debts (trade receivables) and other assets.

Apicore Pharmaceuticals Private Limited has received a bank issued pre-shipment credit bearing interest at a rate of LIBOR plus 3.50% p.a. against export orders. The outstanding amount as at September 30, 2016 is $320,481 (December 31, 2015 - $315,000).

6. Long-term borrowings

Long-term borrowings comprise the following:

	September 30, 2016		December 31, 2015
Term loan	$	749,232	$	903,083
Less: Current portion		204,617		204,617
	$	544,615	$	698,466

Term loans are secured by hypothecation of Land, Building, Machinery and equipment along with 2,726,530 equity shares of $0.16 of Apicore LLC and a guarantee given by directors of Apicore.

These loans are repayable in 84 months and carry a floating interest rate equal to bank rate plus 2.55% p.a.

The aggregate maturities of long-term debt, based on contractual maturities as of September 30, 2016 are as follows:

Within 1 year	$	204,617
1-2 years		204,617
2-3 years		204,617
3-4 years		135,381
	$	749.232

7. Related party transactions

The Group has entered into transactions with the following related parties:

	September 30, 2016		September 30, 2015
Services rendered to:
Apicore US LLC	$	556,000	$	432,688
Sale of goods to:
Apicore US LLC		5,015,637		3,067,562
	$	5,571,637	$	3,500,250

At September 30, 2016, Apicore US LLC had a balance due to the Company $155,150. At December 31, 2015, the Company had a balance owing to Apicore US LLC. of $1,340,642.

8. Stockholders’ Equity

During the nine months ended September 30, 2016, the Company issued 145,772 Series A-1 Preferred Shares for gross proceeds to the Company of $279,882.

6 

Apigen Investments Limited

Notes to the interim consolidated financial statements

(unaudited - expressed in United States dollars)

9. Subsequent events

Subsequent to September 30, 2016, on December 1, 2016, Medicure Mauritius Limited (“Medicure”) exercised its option rights to purchase interests in Apicore LLC from the Company. Medicure acquired 4,717,000 Series A Preferred Interests and 1,250,000 Warrants to purchase Class D Common Interests in Apicore LLC, for $8,250,000 and $660,000 respectively.

7