Key Venture Capital Inc.
TSX VENTURE : KVC.P

August 28, 2012 19:30 ET

Key Venture Capital Announces Qualifying Transaction With Pharmacy Hearing Centres

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 28, 2012) - Key Venture Capital Inc. (TSX VENTURE:KVC.P) (the "Company"), a capital pool company pursuant to Policy 2.4 of the TSX Venture Exchange (the "TSXV"), is pleased to announce that it has entered into a letter of intent (the "LOI") dated August 27, 2012 for the arm's length acquisition, directly or indirectly, of all of the issued and outstanding shares of Ontario-incorporated PHC Canada Inc. and Delaware-incorporated Pharmacy Hearing Centers, Inc. (collectively "PHC") from the shareholders of VitaSound Audio Inc. ("VitaSound"), a private Ontario corporation. VitaSound is owned as to 38.6% by 2171861 Ontario Inc. (an Ontario company that is directly or indirectly owned equally by Philippe Pango, a resident of the Ivory Coast and Gora Ganguli and Mark Chamberlain, whom are residents of the greater Hamilton area) and as to 17.5% by Trivaris-VitaSound Holdings Inc. (an Ontario company that is controlled by Mark Chamberlain).

The LOI contemplates that the Company will, subject to regulatory approval and the approval of the shareholders of the Company and VitaSound, acquire all of the issued and outstanding shares of PHC by way of a share exchange pursuant to which the outstanding securities of PHC will be acquired for an aggregate of approximately 51.9 million shares of the Company (the "Transaction"). The LOI provides, however, that the parties may amend the Transaction to proceed alternatively by way of amalgamation, plan of arrangement, merger or other form of business combination. The Transaction is conditional upon, among other things, (i) PHC receiving binding funding commitments of an aggregate of $2 million from one or more third party suppliers, (ii) PHC completing a $1 million working capital financing, (iii) the Company successfully completing a concurrent private placement financing of at least $4 million at a price to be determined in accordance with the policies of the TSXV, and (iv) the consolidated net and unallocated working capital of the Company and PHC meeting the minimum listing requirements of the TSXV.

Key Venture Capital Inc.

Sophia Leung states, "The Board Directors, comprised of Earl Drake, Chris Carl, Joshua Siow and Sophia Leung have carefully assessed the financial and business plans of PHC and fully support the future business development and expansion in Canada and United States of PHC. The merger of the two companies will provide a strong and viable new business entity for Canada."

About Pharmacy Hearing Centers

PHC has developed an innovative retail distribution model for hearing products and operates this model through "store-in-store" hearing centres located in pharmacies and other retail locations across Canada and the United States. PHC hearing centres provide consumers with affordable, high quality products and services in convenient locations within trusted pharmacy and retail store chains that in turn offer PHC much higher retail traffic than would be the case for standalone, remote locations. The hearing centres offer a variety of hearing solutions, including hearing aids, hearing protection, and assistive listening products. The stores carry major national brands as well as unique technologies such as the patented Neuro-Compensator®, developed in partnership with VitaSound Audio Inc. and McMaster University. PHC will have an exclusive agreement to distribute through consumer retail channels, hearing-aid devices that incorporate VitaSound's innovative hardware and software technologies that improve the performance of such devices.

PHC Canada Inc. commenced operations in early 2010. By October 2010 it had assumed twenty two stores within a large retail chain that had previously been operated by another company. PHC Canada Inc. has since stabilized these operations and improved the customer experience. PHC Canada Inc. plans to grow the number of hearing centres that it operates in Canada substantially over the next five years, all within the same retail chain. The United States based Pharmacy Hearing Centers, Inc. commenced its operations in May 2009 and initially opened stores within three different retailers. It is now concentrating most of its US expansion efforts into one national chain.

PHC currently operates approximately 60 "store-in-store" hearing centres in the United States and Canada and through existing channel partners, has the potential to grow to over 2,000 additional hearing centres in North America. PHC has, together with its partners, identified over 300 retail locations where there is the opportunity to open new hearing centres within 12 months following the completion of the Transaction, assuming, among other things, PHC's ability to raise sufficient financing. At full capacity, it is anticipated that, each store will have the ability to generate more than approximately $100,000 in annual revenue at EBITDA margins in excess of 10%. Since PHC has already invested in the necessary infrastructure to support this level of financial performance, PHC will also have the opportunity to leverage this infrastructure to increase stores sales and margins through the sale of additional products and services.

PHC's business model is based on two important sets of partnerships that it has cultivated. First, it has partnered with very large national retailers in both Canada and the United States to locate its hearing centres. This allows PHC and the retailers to provide the product and services offering to the large walk-through customer bases of the retailers, while neither increasing operating costs to the retailers nor restricting or eroding the product margins for PHC. Second, in addition to exclusive rights in the consumer retail channel for the Neuro-Compensator® hearing-aid products, PHC has partnered with global suppliers of hearing-aid technologies so that PHC can offer a wide array of products to suit individual customer preferences. These suppliers are also funding certain marketing and start-up costs but ownership of the business shall remain exclusively with PHC shareholders.

"This really is a 'customer-benefit business strategy' aimed at offering customers the best product choices, at the most competitive prices and at the most convenient locations," says PHC President, Gora Ganguli. "Unlike traditional hearing aid centres that tend to be located in remote locations and that are single manufacturer specific, these high traffic locations will make the up to 75% of people who could benefit from hearing assistance and who do not have hearing-aids, more aware of the possibilities and allow all customers easy access to testing and additional product knowledge. In addition to providing this much improved customer experience, PHC has tremendous growth opportunities both by rapidly increasing the number of locations and by maximizing profitability growth for each location by offering an ever-expending range of products at a very low overhead cost per unit. This truly is a win-win model for both the consumer and the provider at the same time."

PHC Financial Summary

The following Exhibit 1.1 has been prepared by PHC management, and includes specific income statement balances from the unaudited financial statements for the years ended December 31, 2010 and December 31, 2011, as well as the unaudited interim financial statements for the six-month period ended June 30, 2012, which were prepared in accordance with International Financial Reporting Standards ("IFRS"). Balance Sheet items will be disclosed in the audited financial statements of PHC that will be included in the Company's information circular or filing statement that will be filed on SEDAR in connection with the Transaction (the "Information Circular").

Six Months Ended
June 30, 2012
Year Ended
December 31, 2011
Year Ended
December 31, 2010
Revenue $1,322,000 $2,105,000 $473,000
EBIT1 ($1,395,000) ($2,618,000) ($871,000)
Avg # Locations 56 49 20

1 The term "EBIT" refers to earnings before income taxes and interest expense. PHC believes that EBIT is useful supplemental information as it provides an indication of the results generated by the PHC's main business activities prior to taking into consideration how those activities are financed or taxed. EBIT is a non-IFRS earnings measure that does not have standardized measures prescribed by IFRS, and therefore may not be comparable to similar measures presented by other issuers.

Qualifying Transaction

The Transaction is intended to be the Company's "qualifying transaction" as that term is defined in Exchange Policy 2.4 concerning capital pool companies. To date, the Company has been a capital pool company with the business of identifying a qualifying transaction. The Company has not commenced operations and has no assets other than cash. Following the Transaction, the combined company (the "Resulting Issuer") will be a bio-technology distribution company. PI Financial Corp. has been engaged as a financial advisor for the Transaction.

Trading of the common shares of the Company remains halted in connection with the dissemination of this news release and will recommence at such time as the TSXV may determine, having regard to the completion of certain requirements pursuant to TSXV Policy 2.4.

Financing

In conjunction with the Transaction, the Company plans to undertake a private placement financing (the "Offering") to raise gross proceeds of $4,000,000 with PI Financial Corp. as Agent. The Company intends to use the proceeds of the Offering to fund the expansion plans and working capital of the Resulting Issuer. Further details concerning the Financing, including details of the agents' compensation, will be announced by way of press release once determined.

Sponsorship

Due diligence pertaining to a qualifying transaction of a capital pool company is required by the TSXV in the form of a sponsorship letter or a sponsorship waiver letter. PI Financial Corp., subject to satisfactory due diligence, is agreeable to acting as sponsor in connection with the Transaction. An agreement to provide the foregoing services should not be construed as any assurance with respect to the merits of the Transaction or the likelihood of its completion.

Officers, Directors and Insiders upon Completion of the Transaction

Upon completion of the Transaction, it is anticipated that the directors and officers of the Resulting Issuer will be:

Name Current Position Position with the Resulting Issuer
Gora Ganguli President and CEO, VitaSound Audio Inc. Director, President and CEO
Mark Chamberlain President and CEO, Trivaris Ltd. Director, Chairman of the Board
Sophia Leung, C.M.2 CEO and Director, Key Venture Capital Inc. Director
Chris Carl Director, Key Venture Capital Inc. Director
Dean Mosca Chairman, The St. Joseph's Health Foundation Director
Pete Pigott, C.A. Chief Operating Officer Chief Operating Officer
Sandra Hilliard Corporate Secretary and General Counsel of Trivaris Ltd. Corporate Secretary

2 Member of the Order of Canada

If applicable, further details of any shareholders who shall hold in excess of 10% of the issued number of shares of the Resulting Issuer shall be disclosed in a subsequent news release.

A description of the backgrounds of each of the directors and officers listed above will be included in the Company's Information Circular.

The information in this news release regarding PHC and its management has been provided to the Company by PHC and has not been independently verified by the Company.

Completion of the Transaction is subject to a number of conditions, including but not limited to, TSXV acceptance and if applicable pursuant to TSXV requirements, majority of the minority shareholder approval. Where applicable, the Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

The information in this news release includes certain information and statements about management's view of future events, expectations, plans and prospects that constitute forward looking statements, including but not limited to the closing of the Transaction and the Offering and the number of shares to be issued in connection therewith, the ability of PHC to secure the working capital financing and the funding commitments from suppliers, the ability of PHC to expand its business by opening new hearing centres, the anticipated number of new hearing centres PHC intends to open, the timeframe within which such hearing centres are opened, the expected development costs per hearing centre and the anticipated revenues and EBITDA margins of its hearing centres. These statements are based upon assumptions that are subject to significant risks and uncertainties including among other things, that the Transaction may not satisfy the TSXV requirements for a Qualifying Transaction, that the Company and PHC may not be able to satisfy the conditions precedent prior to closing the Transaction, that the Offering and working capital financing may not be able to be completed on terms acceptable to the Company, general business and economic conditions, the timing and receipt of required approvals, the availability of financing, ongoing relationships between PHC and its retail partners and suppliers, the ability of PHC to finalize licencing arrangements with VitaSound Audio Inc. and the ability of PHC to meet its business plan assumptions leading it to become a financially sustainable company. Because of these assumptions, risks and uncertainties and as a result of a variety of other factors the actual results, expectations, achievements or performance may differ materially from those anticipated and indicated by these forward looking statements. Although the Company and PHC believe that the expectations reflected in forward looking statements are reasonable, it can give no assurances that the expectations of any forward looking statements will prove to be correct. Except as required by law, the Company and PHC disclaim any intention and assume no obligation to update or revise any forward looking statements to reflect actual results, whether as a result of new information, future events, changes in assumptions, changes in factors affecting such forward looking statements or otherwise.

Neither the TSX Venture Exchange not its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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