VANCOUVER, BC / December 6, 2018 / EastWest Bioscience Inc. (the “Company” or “EastWest”) (TSX-V: EAST) is pleased to announce the closing of the Company’s previously announced acquisition (the “Acquisition”) of the iconic chain of 29 Sangster’s Health Centres (“Sangster’s”) on November 30th, 2018. Sangster’s is one of Canada’s most storied national natural health product franchises. The acquisition gives EastWest a strategic footprint in its quest to become the leading hemp-focused consumer goods company in Canada and around the globe.
EastWest continues to strive to be a fast-growing Natural Health Company that is committed to delivering the holistic benefits of hemp to our consumers. Sangster’s provides instant critical strategic benefits that fit perfectly into our long-term growth strategy, such as shelf space, retail experience, market-testing new products, consolidation of administration and warehousing.
Sangster’s Franchise Stores and Head Franchise
Sangster’s has over 200 private brand products exclusively sold in 29 franchise stores, including 24 third-party owned and five corporate owned franchises, giving it one of Canada’s most recognized brands for safe natural remedies. Today, Sangster’s continues to grow as a national brand name with franchise stores located across Canada. Sangster’s receives royalty revenue from franchise stores based on the reported retail sales as well as sales of Sangster’s branded products to franchise stores.
Franchise stores currently operating reported approximate gross retail sales in the trailing 12 months ended September 30, 2018 to Sangster’s as follows.
|Franchise Store Gross Retail Sales (1)||$7,200,000|
(1) Sangster’s Health Centre Franchise Store Gross Retail Sales are not revenues to Sangster’s but are the total franchise sales revenue on which the royalty revenue fees are based.
Sangster’s Operating Results
Financial results(2) reported by Sangster’s for the trailing 12 months to September 30, 2018 is as follows:
|Product Sales to Franchises||$7,200,000|
|Royalty and Miscellaneous Revenue||$719,164|
|Cost of Sales||$844,186|
|Selling, general and administrative expenses||$864,941|
|Profit before taxes on income||$285,420|
|Taxes on income(3)||$51,882|
|Interest, Taxes, Depreciation and Amortization||$63,702|
(2) Sangster’s results reported are unaudited and are presented based on Canadian Accounting Standards for Private Enterprises. Presentation of the future results of Sangster’s in the consolidated financial statements of the EastWest Bioscience based on International Financial Reporting Standards may differ significantly.
(3) Taxes on income reported for the nine-month period ended April 30, 2018.
Sangster’s Corporate Owned Stores
Prior to November 30, 2018, Sangster’s acquired three underperforming franchise stores and converted them to corporate owned stores. The Company will be working with its retail advisory board to implement a series of management, marketing, and sales changes to improve results and bring the stores to a level of performance consistent with the existing top franchisees in the franchise group. These changes will be implemented along with the potential integration of an instore pharmacy in order to turn these stores into Sangster’s Super Centres. Financial results(4) reported for these corporate stores for the 3 months ended September 30, 2018, not included in the above Sangster’s results, is as follows:
|Cost of Sales||$45,846|
|Selling, general and administrative expenses||$75,015|
|Profit before taxes on income||-$37,206|
|Interest, Taxes, Depreciation and Amortization||$0|
(4) Sangster’s corporate store financial results reported are unaudited and are presented based on Canadian Accounting Standards for Private Enterprises. Presentation of the future results of Sangster’s in the consolidated financial statements of the EastWest Bioscience based on International Financial Reporting Standards may differ significantly.
Selling, general and administrative expenses includes start-up, training and administrative costs incurred during the non-operating transitionary period of conversion from third-party owned franchises to corporate franchises.
EastWest is in the process of re-opening two franchises as corporate stores, which are expected to be in operation in January 2019.
EastWest will continue to develop its Superstores concept and plans to convert its corporate stores into Sangster’s Super Centres. This Superstore concept anticipates the integration of health products stores and pharmacies into clinical models designed to take advantage of the expected changes of sales and distribution of CBD health products.
EastWest Future Plans
EastWest plans to restructure Sangster’s head franchise and corporate stores to restore sales and earnings to previous levels and grow the Company to further increase sales and earnings.
EastWest is also pursuing other major acquisitions that will further expand EastWest’s revenues and distribution footprint and will be updating markets and shareholders with additional revenue streams as part of its vertically integrated model.
Sangster’s Acquisition Consideration
The aggregate purchase price for the Sangster’s assets was $1,150,000 consisting of a combination of $600,000 in cash ($300,000 at closing and $300,000 30 days from closing), a cash promissory notes for an aggregate of $300,000 at 6% annualized interest, payable 50% after one year and 50% after two years from the Closing Date, and an aggregate of $250,000 in EastWest stock, 50% due on the Closing Date and 50% due one year from the Closing Date. On November 30, 2018, the Company paid the initial tranche of $300,000 in cash, 819,457 EastWest shares at a deemed issue price of approximately $0.1525 per share and issuance of the promissory notes.
About EastWest Bioscience Group
EastWest Bioscience is a seed-to-sale organization that offers world class manufacturing and premium hemp-based consumer goods. Since it was founded in 2016, EastWest continues to grow as a high-quality producer, manufacturer and distributor of multiple lines of premium hemp products. EastWest is strategically positioned in mainstream consumer markets with wholistic natural products and has developed distribution channels into mainstream stores and markets in Canada. The Company has a Health Canada licensed, GMP (Good Manufacturing Practices) certified manufacturing facility and produces premium brands offering natural products for a preventive care lifestyle. EastWest consumer product lines are divided into four distinct brands: 1) Natural Advancement – natural biopharmaceutical health supplements; 2) Earth’s Menu – all-natural hemp superfoods; 3) Natural Pet Science – pet food and pet supplements; and 4) Chanvre Hemp – all-natural health and beauty products. The organization will continue to focus on ongoing development of innovative, hemp-based consumer products through advanced science with clean, natural ingredients to complement its current product offerings.
About Sangster’s Health Centres
Sangster’s Health Centres occupies a distinguished position in the Canadian natural health products and natural health industry in Canada. Founded in 1971, Sangster’s stores and people have been providing their customers knowledge and hundreds of product remedies for the safe, natural prevention and treatment of disease and ailments for almost 50 years. Sangster’s has introduced and developed over 200 exclusive Sangster’s products (vitamins, mineral, herbs, proteins, natural body care and organic foods) putting the Sangster’s name and branded products into thousands of Canadian households. Today, Sangster’s continues to grow as a national brand name with franchise stores located across Canada.
ON BEHALF OF THE BOARD OF DIRECTORS EASTWEST BIOSCIENCE GROUP
Co-Founder, Chief Executive Officer and Director
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: This news release includes certain “forward-looking statements” under applicable Canadian securities legislation. Forward-looking statements include, but are not limited to, statements with respect to the terms and conditions of the Acquisition. Forward-looking statements are necessarily based upon several estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general business, economic, competitive, political and social uncertainties; and delay or failure to receive board, shareholder or regulatory approvals. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.