UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANTTO SECTION 13 OR |
For the quarterly period ended December 31, 2017June 30, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR |
For the transition period from to
Commission File Number:file number: 001-37619
Stellar Biotechnologies, Inc.
(Exact name of registrant as specified in its charter)
EDESA BIOTECH, INC. |
(Exact name of registrant as specified in its charter) |
British Columbia, Canada | N/A | |
(State or other jurisdiction of | ||
incorporation or organization) | (I.R.S. Employer Identification No.) | |
100 Spy Court, Markham, ON, Canada L3R 5H6 | (289) 800-9600 | |
(Address of principal executive | ( |
Registrant’s telephone number, including area code:(805) 488-2800Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Shares, without par value | EDSA | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated Filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.x ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No x☒
As of February 7, 2018,August 9, 2023, the registrant had 10,520,09621,093,654 common shares issued and outstanding.
Stellar Biotechnologies, Inc.EDESA BIOTECH, INC.
Quarterly Report on FormQUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended December 31, 2017June 30, 2023
Table of Contents
2
PART I — FINANCIAL INFORMATION
2 | ||
Table of Contents |
Stellar Biotechnologies,PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
Edesa Biotech, Inc.
Condensed Interim Consolidated Balance Sheets
(Unaudited)
December 31, | September 30, | |||||||
2017 | 2017 | |||||||
Assets: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,369,671 | $ | 4,570,951 | ||||
Accounts receivable | 10,977 | 1,287 | ||||||
Short-term investments | 998,575 | 1,994,401 | ||||||
Inventory | 118,540 | 68,114 | ||||||
Prepaid expenses | 159,543 | 123,694 | ||||||
Total current assets | 5,657,306 | 6,758,447 | ||||||
Noncurrent assets: | ||||||||
Equity investment in joint venture | 66,695 | 66,695 | ||||||
Property, plant and equipment, net | 854,053 | 879,523 | ||||||
Deposits | 15,340 | 15,340 | ||||||
Total noncurrent assets | 936,088 | 961,558 | ||||||
Total Assets | $ | 6,593,394 | $ | 7,720,005 | ||||
Liabilities and Shareholders' Equity: | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 574,376 | $ | 320,947 | ||||
Total Current Liabilities | 574,376 | 320,947 | ||||||
Commitments(Note 7) | ||||||||
Shareholders' equity: | ||||||||
Common shares, unlimited common shares authorized, no par value, 10,520,096 issued and outstanding at December 31, 2017 and September 30, 2017 | 48,351,701 | 48,351,701 | ||||||
Accumulated share-based compensation | 4,460,106 | 4,439,400 | ||||||
Accumulated deficit | (46,792,789 | ) | (45,392,043 | ) | ||||
Total Shareholders' Equity | 6,019,018 | 7,399,058 | ||||||
Total Liabilities and Shareholders' Equity | $ | 6,593,394 | $ | 7,720,005 |
|
| June 30, 2023 |
|
| September 30, 2022 |
| ||
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 6,457,170 |
|
| $ | 7,090,919 |
|
Accounts and other receivable |
|
| 42,866 |
|
|
| 1,255,451 |
|
Prepaid expenses and other current assets |
|
| 414,045 |
|
|
| 745,543 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 6,914,081 |
|
|
| 9,091,913 |
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 9,918 |
|
|
| 12,694 |
|
Long-term deposits |
|
| 177,825 |
|
|
| 171,464 |
|
Intangible asset, net |
|
| 2,205,313 |
|
|
| 2,281,192 |
|
Right-of-use assets |
|
| 112,387 |
|
|
| 18,465 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 9,419,524 |
|
| $ | 11,575,728 |
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 1,454,120 |
|
| $ | 2,121,802 |
|
Short-term right-of-use lease liabilities |
|
| 74,846 |
|
|
| 18,975 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 1,528,966 |
|
|
| 2,140,777 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term payables |
|
| - |
|
|
| 43,662 |
|
Long-term right-of-use lease liabilities |
|
| 40,075 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 1,569,041 |
|
|
| 2,184,439 |
|
|
|
|
|
|
|
|
|
|
Commitments (Note 5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Capital shares |
|
|
|
|
|
|
|
|
Authorized unlimited common and preferred shares without par value |
|
|
|
|
|
|
|
|
Issued and outstanding: |
|
|
|
|
|
|
|
|
20,866,772 common shares (September 30, 2022 - 16,662,014) |
|
| 46,141,187 |
|
|
| 42,473,099 |
|
Additional paid-in capital |
|
| 12,598,108 |
|
|
| 11,176,345 |
|
Accumulated other comprehensive loss |
|
| (190,187 | ) |
|
| (213,602 | ) |
Accumulated deficit |
|
| (50,698,625 | ) |
|
| (44,044,553 | ) |
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
| 7,850,483 |
|
|
| 9,391,289 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ | 9,419,524 |
|
| $ | 11,575,728 |
|
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
3 |
Table of Contents |
Condensed Interim Consolidated Statements of Operations
(Unaudited)
Three Months Ended | ||||||||
December 31, | December 31, | |||||||
2017 | 2016 | |||||||
Revenues: | ||||||||
Product sales | $ | 20,487 | $ | 141,856 | ||||
20,487 | 141,856 | |||||||
Expenses: | ||||||||
Cost of sales | 2,801 | 78,565 | ||||||
Costs of aquaculture | 98,050 | 84,835 | ||||||
Research and development | 631,034 | 460,865 | ||||||
General and administrative | 678,481 | 932,067 | ||||||
1,410,366 | 1,556,332 | |||||||
Loss from Operations | (1,389,879 | ) | (1,414,476 | ) | ||||
Other Income (Loss) | ||||||||
Foreign exchange loss | (17,929 | ) | (77,390 | ) | ||||
Investment income | 7,862 | 6,994 | ||||||
(10,067 | ) | (70,396 | ) | |||||
Loss Before Income Tax | (1,399,946 | ) | (1,484,872 | ) | ||||
Income tax expense | 800 | 800 | ||||||
Net Loss | $ | (1,400,746 | ) | $ | (1,485,672 | ) | ||
Loss per common share: | ||||||||
Basic and diluted | $ | (0.13 | ) | $ | (0.15 | ) | ||
Weighted average number of common shares outstanding: | ||||||||
Basic and diluted | 10,520,096 | 10,136,258 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
| $ | 1,025,622 |
|
| $ | 4,547,543 |
|
| $ | 3,841,150 |
|
| $ | 11,541,404 |
|
General and administrative |
|
| 1,038,587 |
|
|
| 1,249,982 |
|
|
| 3,011,945 |
|
|
| 3,993,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (2,064,209 | ) |
|
| (5,797,525 | ) |
|
| (6,853,095 | ) |
|
| (15,534,479 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement grant income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 780,257 |
|
Interest income |
|
| 82,754 |
|
|
| 17,518 |
|
|
| 217,901 |
|
|
| 27,386 |
|
Foreign exchange loss |
|
| (3,451 | ) |
|
| (7,013 | ) |
|
| (18,078 | ) |
|
| (7,377 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 79,303 |
|
|
| 10,505 |
|
|
| 199,823 |
|
|
| 800,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
| (1,984,906 | ) |
|
| (5,787,020 | ) |
|
| (6,653,272 | ) |
|
| (14,734,213 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| - |
|
|
| - |
|
|
| 800 |
|
|
| 800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| (1,984,906 | ) |
|
| (5,787,020 | ) |
|
| (6,654,072 | ) |
|
| (14,735,013 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on translation |
|
| 39,839 |
|
|
| 34,559 |
|
|
| 23,415 |
|
|
| 79,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss |
| $ | (1,945,067 | ) |
| $ | (5,752,461 | ) |
| $ | (6,630,657 | ) |
| $ | (14,655,539 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
| 20,514,766 |
|
|
| 15,462,287 |
|
|
| 19,619,548 |
|
|
| 14,227,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted |
| $ | (0.10 | ) |
| $ | (0.37 | ) |
| $ | (0.34 | ) |
| $ | (1.04 | ) |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
4 |
Table of Contents |
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended | ||||||||
December 31, | December 31, | |||||||
2017 | 2016 | |||||||
Cash Flows Used In Operating Activities: | ||||||||
Net loss | $ | (1,400,746 | ) | $ | (1,485,672 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 49,309 | 45,470 | ||||||
Share-based compensation | 20,706 | 36,442 | ||||||
Foreign exchange loss | 17,929 | 77,390 | ||||||
Transfer equipment to research and development | 10,835 | - | ||||||
Changes in working capital items: | ||||||||
Accounts receivable | (9,712 | ) | 72,666 | |||||
Inventory | (50,426 | ) | (80,153 | ) | ||||
Prepaid expenses | (35,919 | ) | (9,885 | ) | ||||
Accounts payable and accrued liabilities | 253,561 | (21,292 | ) | |||||
Net cash used in operating activities | (1,144,463 | ) | (1,365,034 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Acquisition of property, plant and equipment | (34,767 | ) | (84,424 | ) | ||||
Purchase of short-term investments | (4,174 | ) | (4,804 | ) | ||||
Proceeds on sales and maturities of short-term investments | 1,000,000 | - | ||||||
Net cash provided by (used in) investing activities | 961,059 | (89,228 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (17,876 | ) | (77,233 | ) | ||||
Net change in cash and cash equivalents | (201,280 | ) | (1,531,495 | ) | ||||
Cash and cash equivalents - beginning of period | 4,570,951 | 7,416,904 | ||||||
Cash and cash equivalents - end of period | $ | 4,369,671 | $ | 5,885,409 | ||||
Cash (demand deposits) | $ | 4,090,861 | $ | 4,549,089 | ||||
Cash equivalents | 278,810 | 1,336,320 | ||||||
Cash and cash equivalents | $ | 4,369,671 | $ | 5,885,409 | ||||
Supplemental cash flow information: | ||||||||
Cash paid during the period for taxes | $ | 800 | $ | 800 |
|
| Nine Months Ended |
| |||||
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||
|
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (6,654,072 | ) |
| $ | (14,735,013 | ) |
Adjustments for: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 137,501 |
|
|
| 89,228 |
|
Share-based compensation |
|
| 729,380 |
|
|
| 1,804,670 |
|
Changes in working capital items: |
|
|
|
|
|
|
|
|
Accounts and other receivable |
|
| 1,149,129 |
|
|
| 1,900,776 |
|
Prepaid expenses and other current assets |
|
| 339,031 |
|
|
| (28,858 | ) |
Accounts payable and accrued liabilities |
|
| (869,430 | ) |
|
| 4,318,102 |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (5,168,461 | ) |
|
| (6,651,095 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| - |
|
|
| (5,697 | ) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
| - |
|
|
| (5,697 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares and warrants |
|
| 3,861,245 |
|
|
| 11,957,567 |
|
Proceeds from exercise of warrants |
|
| 770,531 |
|
|
| - |
|
Payments for issuance costs of common shares and warrants |
|
| (214,130 | ) |
|
| (327,653 | ) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 4,417,646 |
|
|
| 11,629,914 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 117,066 |
|
|
| (3,669 | ) |
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| (633,749 | ) |
|
| 4,969,453 |
|
Cash and cash equivalents, beginning of period |
|
| 7,090,919 |
|
|
| 7,839,259 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
| $ | 6,457,170 |
|
| $ | 12,808,712 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Noncash Financing Activities: |
|
|
|
|
|
|
|
|
Issuance costs withheld from gross proceeds from issuance of common shares and warrants |
| $ | - |
|
| $ | 393,461 |
|
Fair value of placement agent warrants |
|
| - |
|
|
| 408,059 |
|
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Stellar Biotechnologies,Edesa Biotech, Inc.
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity
|
| Shares # |
|
| Common Shares |
|
| Additional Paid-in Capital |
|
| Accumulated Other Comprehensive Loss |
|
| Accumulated Deficit |
|
| Total Shareholders' Equity |
| ||||||
Three Months Ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance - March 31, 2023 |
|
| 20,058,665 |
|
| $ | 45,453,733 |
|
| $ | 12,489,949 |
|
| $ | (230,026 | ) |
| $ | (48,713,719 | ) |
| $ | 8,999,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants in equity offering |
|
| 808,107 |
|
|
| 833,749 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 833,749 |
|
Issuance costs |
|
| - |
|
|
| (146,295 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (146,295 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 108,159 |
|
|
| - |
|
|
| - |
|
|
| 108,159 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 39,839 |
|
|
| (1,984,906 | ) |
|
| (1,945,067 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2023 |
|
| 20,866,772 |
|
| $ | 46,141,187 |
|
| $ | 12,598,108 |
|
| $ | (190,187 | ) |
| $ | (50,698,625 | ) |
| $ | 7,850,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 3, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2022 |
|
| 15,462,287 |
|
| $ | 40,264,080 |
|
| $ | 12,364,302 |
|
| $ | (160,347 | ) |
| $ | (35,443,622 | ) |
| $ | 17,024,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 565,384 |
|
|
| - |
|
|
| - |
|
|
| 565,384 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 34,559 |
|
|
| (5,787,020 | ) |
|
| (5,752,461 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2022 |
|
| 15,462,287 |
|
| $ | 40,264,080 |
|
| $ | 12,929,686 |
|
| $ | (125,788 | ) |
| $ | (41,230,642 | ) |
| $ | 11,837,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
| 16,662,014 |
|
| $ | 42,473,099 |
|
| $ | 11,176,345 |
|
| $ | (213,602 | ) |
| $ | (44,044,553 | ) |
| $ | 9,391,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants in equity offering |
|
| 3,499,444 |
|
|
| 2,916,418 |
|
|
| 944,827 |
|
|
| - |
|
|
| - |
|
|
| 3,861,245 |
|
Issuance of common shares upon exercise of warrants |
|
| 705,314 |
|
|
| 994,618 |
|
|
| (224,087 | ) |
|
| - |
|
|
| - |
|
|
| 770,531 |
|
Issuance costs |
|
|
|
|
|
| (242,948 | ) |
|
| (28,357 | ) |
|
| - |
|
|
| - |
|
|
| (271,305 | ) |
Share-based compensation |
|
|
|
|
|
|
|
|
|
| 729,380 |
|
|
| - |
|
|
| - |
|
|
| 729,380 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23,415 |
|
|
| (6,654,072 | ) |
|
| (6,630,657 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2023 |
|
| 20,866,772 |
|
| $ | 46,141,187 |
|
| $ | 12,598,108 |
|
| $ | (190,187 | ) |
| $ | (50,698,625 | ) |
| $ | 7,850,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2021 |
|
| 13,295,403 |
|
| $ | 34,887,721 |
|
| $ | 4,871,461 |
|
| $ | (205,262 | ) |
| $ | (26,495,629 | ) |
| $ | 13,058,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants in equity offering |
|
| 2,166,884 |
|
|
| 6,239,180 |
|
|
| 6,702,293 |
|
|
| - |
|
|
| - |
|
|
| 12,941,473 |
|
Issuance costs including fair value of placement agent warrants |
|
| - |
|
|
| (862,821 | ) |
|
| (448,738 | ) |
|
| - |
|
|
| - |
|
|
| (1,311,559 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 1,804,670 |
|
|
| - |
|
|
| - |
|
|
| 1,804,670 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 79,474 |
|
|
| (14,735,013 | ) |
|
| (14,655,539 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2022 |
|
| 15,462,287 |
|
| $ | 40,264,080 |
|
| $ | 12,929,686 |
|
| $ | (125,788 | ) |
| $ | (41,230,642 | ) |
| $ | 11,837,336 |
|
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
6 |
Table of Contents |
Edesa Biotech, Inc.
Notes to Condensed Interim Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Edesa Biotech, Inc. (the Company)Company or Edesa) is a biopharmaceutical company focused on acquiring, developing and commercializing clinical-stage drugs for inflammatory and immune-related diseases with clear unmet medical needs. The Company is organized under the laws of British Columbia, Canada. The Company’s businessCanada and is the aquaculture, researchheadquartered in Markham, Ontario. It operates under its wholly owned subsidiaries, Edesa Biotech Research, Inc., an Ontario, Canada corporation, and development, manufacture and commercialization of Keyhole Limpet Hemocyanin (KLH). The Company markets and distributes its KLH products to biotechnology and pharmaceutical companies, academic institutions, and clinical research organizations primarily in Europe, Asia, and the United States. Edesa Biotech USA, Inc., a California, USA corporation.
The Company’s common shares have been listed for tradingtrade on The Nasdaq Capital Market in the United States under the symbol “SBOT” since November 5, 2015.“EDSA”.
In April 2010, the Company changed its name from CAG Capital, Inc. to Stellar Biotechnologies, Inc. and completed a reverse merger transaction with Stellar Biotechnologies, Inc., a California corporation, which was founded in September 1999, and remains the Company’s wholly-owned subsidiary and principal operating entity. In January 2017, the California subsidiary and the Company established a wholly-owned Mexican subsidiary under the name BioEstelar, S.A. de C.V. in Ensenada, Baja California to perform aquaculture research and development activities in Mexico. The Company’s executive offices are located at 332 E. Scott Street, Port Hueneme, California, 93041, USA, and its registered and records office is Royal Centre, 1055 West Georgia Street, Suite 1500, Vancouver, BC, V6E 4N7, Canada.
Management Plans
Company operations have historically been funded by the issuance2. Basis of common shares, exercise of warrants, grant revenues, contract services revenue and product sales. For the three months ended December 31, 2017 and 2016, the Company reported net losses of approximately $1.4 million and $1.5 million, respectively. As of December 31, 2017, the Company had an accumulated deficit of approximately $46.8 million and working capital of approximately $5.1 million. While the Company plans to finance company operations for the next twelve months with cash on hand and product sales, management expects to continue incurring losses for the foreseeable future and will need to raise additional capital to pursue our business plan beyond February 2019. Management is taking action to ensure the Company will continue as a going concern for at least one year beyond the date of the issuance of the Company’s financial statements. First, management has flexibility to adjust planned expenditures based on a number of factors including the size and timing of capital expenditures, staffing levels, inventory levels, and the status of customer clinical trials. Management also seeks to expand the customer base for existing marketed products, and intends to secure additional financing through debt and/or equity financings, including transactions with strategic customers and partners that may include debt and/or equity arrangements.Presentation
The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These unaudited condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022, which was filed with the Securities and Exchange Commission (SEC) on December 16, 2022.
The accompanying unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Stellar Biotechnologies, Inc., a California corporation in the U.S. and BioEstelar, S.A. de C.V. a Baja California corporation in Mexico.wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated inon consolidation. In the opinion of management, allAll adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the periodperiods presented have been included in the interim period.periods. Operating results for the three and nine months ended December 31, 2017June 30, 2023 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending September 30, 2018. The condensed interim consolidated financial data at September 30, 2017 is derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017, as filed on December 1, 2017 with the SEC.2023.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP for interim financial information requires management to make estimates and assumptions that affect the reported amounts reported inof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and accompanying notes.the reported amounts of revenue and expenses during the period or year. Actual results could differ from thesethose estimates. Areas where significant judgment is involved in making estimates are valuation of accounts and other receivable; valuation and useful lives of property and equipment; intangible assets; right-of-use assets; deferred income taxes; the determination of fair value of share-based compensation; the determination of fair value of warrants in order to allocate proceeds from equity issuances; and forecasting future cash flows for assessing the going concern assumption.
Functional Currencyand reporting currencies
The condensed interim consolidated financial statements of the Company are presented in U.S. dollars, unless otherwise stated, which is the Company’s and its wholly owned subsidiary’s, Edesa Biotech USA, Inc., functional currency. The functional currency of the Company’s wholly owned subsidiary, Edesa Biotech Research, Inc., as determined by management, is Canadian dollars.
3. Intangible Assets
Recent Accounting PronouncementsAcquired License
In May 2014,April 2020, the Financial Accounting Standards Board (FASB) issued guidance codified in Accounting Standards Codification (ASC) 606Revenue Recognition – Revenue from Contracts with Customerswhich amends the guidance in ASC 605,Revenue Recognition and addsCompany entered into a new Subtopic to the Codification, ASC 340-40,Other Assets and Deferred Costs: Contracts with Customers.The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s)license agreement with a customer; Step 2: Identifypharmaceutical development company to obtain exclusive world-wide rights to know-how, patents and data relating to certain monoclonal antibodies (the Constructs), including sublicensing rights. Unless earlier terminated, the performance obligationsterm of the license agreement will remain in the contract;Step 3: Determine the transaction price; Step 4: Allocate the transaction price to the performance obligations in the contract; and Step 5: Recognize revenue when (or as) the entity satisfies a performanceobligation. ASC 606 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized atfor 25 years from the date of initial application (the modified retrospective method). In August 2015,first commercial sale of licensed products containing the FASB issued an accounting update to defer the effective date by one year for public entities such that it is now effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periodswithin those years, with early application permitted by one year.Constructs. Subsequently, the FASB issued supplemental adoption guidance and clarification to ASC 606 related to principal vs. agent considerations, identifying performance obligations and licensing, technical corrections and improvements, which must be adoptedlicense agreement will automatically renew for five-year periods unless either party terminates the agreement in accordance with its terms.
Under the license agreement, the Company is exclusively responsible, at the same time as ASC 606. These standards are effectiveits expense, for the Company duringresearch, development manufacture, marketing, distribution and commercialization of the fiscal year ending September 30, 2019. Management is in the process of assessing the impact this guidance will have on the Company’s consolidated financial statements.We anticipate adoption of ASC 606 using the modified retrospective method with a cumulative catch-up adjustmentConstructs and licensed products and to the opening balance sheet of retained earnings at the effective date, during the first quarter of fiscal 2019.obtain all necessary licenses and rights. The Company will continueis required to review separate performance obligations, potential disclosures,use commercially reasonable efforts to develop and commercialize the methodConstructs in accordance with the terms of adoptiona development plan established by the parties.
7 |
Table of Contents |
The Company has determined that the license has multiple alternative future uses in order to complete the evaluationresearch and development projects and sublicensing in other countries or for other disease indications. The value of the impact onacquired license is recorded as an intangible asset with amortization over the consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,Financial Instruments-Overall (Subtopic 825-10): Recognitionestimated useful life of 25 years and Measurement of Financial Assets and Financial Liabilities, whichprimarily affects the accountingevaluation for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition,ASU 2016-01clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.The guidance is effective for public entities for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted. These standards are effective for the Company during the fiscal year ending September 30, 2019.Management is in the process of assessing the impact of ASU 2016-01 on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities on the balance sheet arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those years, with early adoption permitted. These standards are effective for the Company during the fiscal year ending September 30, 2020.Management is in the process of assessing the impact of ASU 2016-02 on the Company’s consolidated financial statements.We anticipate adoption of ASU 2016-02, will result in lease liabilities and right-of-use assets onthe Company’s consolidatedfinancial statements for several long-term operating leases.
In June 2016, the FASB issued ASU 2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which includes provisions that require financial assets measured at amortized cost basis to be presented at the net amount expected to be collected and credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses, which requires recognition of an estimate of all current expected credit losses. The guidance is effective for public entities for fiscal years beginning after December 15, 2019, including interim periods within those years, with early adoption permitted for fiscal years beginning after December 15, 2018. These standards are effective for the Company during the fiscal year ending September 30, 2021.Management is in the process of assessing the impact of ASU 2016-13 on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which provides new guidance on changes to the terms or conditions of share-based payment awards that would be required to apply modification accounting under ASC 718,Compensation-Stock Compensation. The amendments are effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. These standards are effective for the Company during the fiscal year ending September 30, 2019. Management is in the process of assessing the impact of ASU 2017-09 on the Company's consolidated financial statements.
Short-term investments consisted of U.S. Treasury Bills at December 31, 2017 and September 30, 2017.
U.S. Treasury Bills are carried at amortized cost which approximates fair value and are classified as held-to-maturity investments.
Raw materials include inventory of manufacturing supplies. Work in process includes manufacturing supplies, direct and indirect labor, contracted manufacturing and testing, and allocated manufacturing overhead for inventory in processimpairment at the end of theeach reporting period. Finished goods include products that are complete and available for sale. At December 31, 2017 and September 30, 2017, the Company recorded work in process and finished goods inventory only for those products with recent sales levels to evaluate net realizable value.
Inventory consistedThe required upfront license payment of $2.5 million was paid by issuance of Series A-1 Convertible Preferred Shares, which have been fully converted to common shares. The value of the following:license includes acquisition legal costs. See Note 5 for license commitments.
December 31, | September 30, | |||||||
2017 | 2017 | |||||||
Raw materials | $ | 30,628 | $ | 21,761 | ||||
Work in process | 51,933 | - | ||||||
Finished goods | 35,979 | 46,353 | ||||||
$ | 118,540 | $ | 68,114 |
Property, plant and equipment,Intangible assets, net consisted of the following:
December 31, | September 30, | |||||||
2017 | 2017 | |||||||
Aquaculture system | $ | 126,257 | $ | 126,257 | ||||
Laboratory facilities | 62,033 | 62,033 | ||||||
Computer and office equipment | 117,840 | 117,840 | ||||||
Tools and equipment | 1,035,604 | 982,439 | ||||||
Vehicles | 77,994 | 77,994 | ||||||
Leasehold improvements | 342,935 | 337,060 | ||||||
1,762,663 | 1,703,623 | |||||||
Less: accumulated depreciation | (1,008,777 | ) | (969,418 | ) | ||||
Depreciable assets, net | 753,886 | 734,205 | ||||||
Construction in progress | 100,167 | 145,318 | ||||||
$ | 854,053 | $ | 879,523 |
|
| June 30, 2023 |
|
| September 30, 2022 |
| ||
|
|
|
|
|
|
| ||
The Constructs |
| $ | 2,529,483 |
|
| $ | 2,529,483 |
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization |
|
| (324,170 | ) |
|
| (248,291 | ) |
|
|
|
|
|
|
|
|
|
Total intangible assets, net |
| $ | 2,205,313 |
|
| $ | 2,281,192 |
|
Depreciation and amortization
Amortization expense amounted to approximately $49,000 and $45,000 for the three months ended December 31, 2017 and 2016, respectively.
Operating leases
The Company leases buildings and facilities used in its operations under two sublease agreements. In June 2015, the Company exercised its option to extend these sublease agreements for an additional five-year term beginning in October and November 2015. The Company negotiated an option to extend the leases for two additional five-year terms.
The Company leases facilities used for executive offices and laboratories and pays a portion of the common area maintenance. In July 2016, the Company extended this lease for a two-year term, with options to renew for three successive two-year terms.
The Company leases undeveloped land in Baja California, Mexico to assess the potential development of an additional aquaculture locale and expansion of production. The lease term is three years from June 2015 with options to extend the lease for 30 years. The Company may terminate early with 30 days’ notice. The rent has been prepaid through June 2018, and is not included in the future minimum lease payments below. The Company has a related agreement with the lessor to collaborate on the design, expansion and development of marine aquaculture resources and KLH production facilities on the leased property. Under that agreement, the Company was responsible for certain leasehold improvements including construction of structures and a power-generating facility, which are owned by the Company. The Company reimburses the lessor for local operational support. The collaboration agreement expires in June 2018, unless terminated earlier.
Aggregate future minimum lease payments at December 31, 2017 are as follows:
Nine Months Ending September 30, 2018 | 115,000 | |||
Year Ending September 30, 2019 | 106,000 | |||
Year Ending September 30, 2020 | 106,000 | |||
Year Ending September 30, 2021 | 6,000 | |||
$ | 333,000 |
Rent expense on these lease agreements amounted to approximately $60,000 and $59,000 for the three months ended December 31, 2017 and 2016, respectively.
Purchase obligations
The Company has commitments totaling approximately $133,000 at December 31, 2017 for signed agreements with contract research organizations, consultants, construction contractors and equipment suppliers. All purchase obligations are expected to be fulfilled within the next 12 months.
Supply agreements
The Company has commitments under supply agreements with customers for fixed prices per gram of KLH in connection with clinical trials on a non-exclusive basis except within that customer’s field of use. The expiration dates of these supply agreements range from October 2019 to February 2022, and are generally renewable upon written request of the customer.
Joint venture agreement
In May 2016, the Company entered into a joint venture agreement with another party for the formation of a joint venture company to manufacture and sell conjugated therapeutic vaccines. The joint venture is organized as a French simplified corporation.
The Company holds a 30% equity interest in the joint venture in exchange for an initial capital contribution of €120,000. One-half of the initial contribution, approximately $67,000, was paid during the year ended September 30, 2016 with the balance due upon the occurrence of certain defined future events. The Company will also provide the joint venture additional financing as may be required, on a pro rata basis in line with our equity interest. According to the joint venture agreement, if certain milestones are not achieved by December 31, 2017, the joint venture will be dissolved, unless (i) the parties mutually agree to pursue the joint venture arrangement, or (ii) either party decides to purchase the equity interests of the other party. This deadline has passed and the parties have expressed their mutual desire to renew and amend the agreement to extend the timeline. Each of the parties is entitled, upon the occurrence of certain defined events, to acquire the interest of the other party. Except as described herein, the joint venture has an initial ten-year term, renewable for successive five-year terms. If either party provides notice at least six months prior to the expiration date of an applicable term that it does not wish to continue its participation in the joint venture, the other party will have a right to acquire all of such terminating party’s equity interests in the joint venture.
In connection with the formation of the joint venture and the execution of its strategy, the parties intend over time to enter into an exclusive supply agreement within a limited field of use for Stellar to supply KLH to the joint venture, a supply agreement designating the joint venture as the exclusive manufacturer and supplier of the other party’s vaccines, and services agreements for the provision of various knowledge and expertise by each of the parties.
Licensing agreement and technology transfer agreement
In July 2013, the Company acquired the exclusive, worldwide license to certain patented technology for the development of human immunotherapies againstClostridium difficile infection (C. diff) under a written agreement (the License Agreement) with a University (the Licensor) which required payments of license fees, patent cost reimbursements and other contingent fees. In March 2017, (i) the Company entered into an agreement to terminate the License Agreement, (ii) the Company concurrently entered into a technology transfer and purchase agreement (the Transfer Agreement) with a vaccine biotechnology company (the Transferee), and (iii) the Licensor and Transferee entered into a direct licensing arrangement relating to the patented C. diff technology. Under the Transfer Agreement, the Company transferred to the Transferee its proprietary rights and know-how of immunogens and vaccine technology for C. diff, in exchange for an upfront payment and a percentage of future fees, milestone payments, sublicensing income and royalties, if any, paid by the Transferee or its assigns to the Licensor.
As a result of the termination of the License Agreement, there are no early termination penalties and no further annual licensing fees, contingent milestone payments, royalties, sub-licensing fees or other financial obligations payable by the Company to the Licensor.
Retirement savings plan 401(k) contributions
The Company sponsors a 401(k) retirement savings plan that requires an annual non-elective safe harbor employer contribution of 3% of eligible employee wages. All employees over 21 years of age are eligible beginning the first payroll after 3 consecutive months of employment. Employees are 100% vested in employer contributions and in any voluntary employee contributions. Contributions to the 401(k) plan were approximately $19,000 and $18,000$0.03 million for each of the three months ended December 31, 2017June 30, 2023 and 2016, respectively.2022 and $0.08 million for each of the nine months ended June 30, 2023 and 2022.
Total estimated future amortization of intangible assets for each fiscal year is as follows:
Year Ending |
|
|
| |
September 30, 2023 |
| $ | 25,293 |
|
September 30, 2024 |
|
| 101,172 |
|
September 30, 2025 |
|
| 101,172 |
|
September 30, 2026 |
|
| 101,172 |
|
September 30, 2027 |
|
| 101,172 |
|
Thereafter |
|
| 1,775,332 |
|
|
|
|
|
|
|
| $ | 2,205,313 |
|
4. Right-of-Use Lease with Related party commitmentsParty
On August 14, 2002,The Company leases a facility used for executive offices from a related company. The original lease expired in December 2022, and the Company executed a two-year extension through December 2024.
The components of right-of-use lease cost were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Right-of-use lease cost, included in general and administrative on the Statements of Operations |
| $ | 21,188 |
|
| $ | 20,105 |
|
| $ | 61,530 |
|
| $ | 60,713 |
|
Lease terms and discount rates were as follows:
June 30, 2023 | September 30, 2022 | |||||||
Remaining lease term (months): | 18 | 3 | ||||||
Estimated incremental borrowing rate: | 9.2 | % | 6.5 | % |
8 |
Table of Contents |
The future minimum lease payments under right-of-use leases at June 30, 2023 were as follows:
Year Ending |
|
|
| |
September 30, 2023 |
| $ | 20,422 |
|
September 30, 2024 |
|
| 81,689 |
|
September 30, 2025 |
|
| 20,422 |
|
|
|
|
|
|
Total lease payments |
|
| 122,533 |
|
Less imputed interest |
|
| 7,612 |
|
|
|
|
|
|
Present value of right-of-use lease liabilities |
|
| 114,921 |
|
Present value included in current liabilities |
|
| 74,846 |
|
|
|
|
|
|
Present value included in long-term liabilities |
| $ | 40,075 |
|
Cash flow information was as follows:
|
| Nine Months Ended |
| |||||
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||
Cash paid for amounts included in the measurement of right-of-use lease liabilities, included in accounts payable and accrued liabilities on the Statements of Cash Flow. |
| $ | 59,045 |
|
| $ | 60,714 |
|
5. Commitments
Research and other commitments
The Company has commitments for contracted research organizations who perform clinical trials for the Company’s ongoing clinical studies and other service providers. Approximate aggregate future contractual payments at June 30, 2023 are as follows:
Year Ending |
|
|
| |
September 30, 2023 |
| $ | 466,000 |
|
September 30, 2024 |
|
| 1,369,000 |
|
September 30, 2025 |
|
| 49,000 |
|
September 30, 2026 |
|
| 36,000 |
|
September 30, 2027 |
|
| 11,000 |
|
|
|
|
|
|
|
| $ | 1,931,000 |
|
License and royalty commitments
In April 2020, through its CaliforniaOntario subsidiary, the Company entered into a patent royaltylicense agreement with a directorthird party to obtain exclusive world-wide rights to certain know-how, patents and officerdata relating to the Constructs, including sublicensing rights. An intangible asset for the acquired license has been recognized. See Note 3 for intangible assets. Under the license agreement, the Company is committed to payments of up to an aggregate amount of $356 million contingent upon meeting certain milestones outlined in the license agreement, primarily relating to future potential commercial approval and sales milestones. The Company also has a commitment to pay royalties based on any net sales of products containing the Constructs in the countries where the Company directly commercializes the products containing the Constructs and a percentage of any sublicensing revenue received by the Company and its affiliates in the countries where it does not directly commercialize the products containing the Constructs. No milestone, royalty or sublicensing payments were made to the third party during the three and nine months ended June 30, 2023 and 2022.
In connection with this license agreement and pursuant to a purchase agreement entered into in April 2020, the Company acquired drug substance of one of the Constructs for an aggregate purchase price of $5.0 million, payable in two installments. The Company recorded expense of $2.5 million for the second installment during the three and nine months ended June 30, 2022. No expense was recorded during the three and nine months ended June 30, 2023.
9 |
Table of Contents |
In 2016, through its Ontario subsidiary, the Company entered into a license agreement with a third party to obtain exclusive rights to certain know- how, patents and data relating to a pharmaceutical product. The Company will use the exclusive rights to develop the product for therapeutic, prophylactic and diagnostic uses in topical dermal applications and anorectal applications. No intangible assets have been recognized under the license agreement with the third party. Under the license agreement, the Company is committed to payments of various amounts to the third party upon meeting certain milestones outlined in the license agreement, up to an aggregate amount of $18.4 million after deducting $0.04 million that is included in the commitments table above for the year ending September 30, 2023. Upon divestiture of substantially all of the assets of the Company, whereby hethe Company would receivepay the third party a percentage of the valuation of the licensed technology sold as determined by an external objective expert. The Company also has a commitment to pay the third party a royalty based on net sales of the product in countries where the Company, or an affiliate, directly commercializes the product and a percentage of sublicensing revenue received by the Company and its affiliates in the countries where it does not directly commercialize the product. Milestone payments in exchange for assignment of his patent rightstotaling $0.04 million and $0.16 million were made to the Company. Thethird party during the three and nine months ended June 30, 2023, respectively. No milestones were met during the three and nine months ended June 30, 2022. No royalty is 5%or sublicensing payments were made to the third party during the three and nine months ended June 30, 2023 and 2022.
In March 2021, through its Ontario subsidiary, the Company entered into a license agreement with the inventor of gross receipts from products using this invention in excessthe same pharmaceutical product to acquire global rights for all fields of $500,000 annually. The Company’s current operations utilize this invention. There was no royalty expense incurreduse beyond those named under the 2016 license agreement. Milestone payments of $0.03 million were made under the 2021 agreement during the nine months ended June 30, 2022. No milestones were met during the three and nine months ended June 30, 2023 or the three months ended June 30, 2022. The Company is committed to remaining milestone payments of up to an aggregate amount of $68.9 million, primarily relating to future potential commercial approval and sales milestones. In addition, if the Company fails to file an investigational new drug application or foreign equivalent (IND) for the product within a certain period of time following the date of the agreement, the Company is required to remit to the inventor a fixed or prorated license fee annually as long as the requirement to file an IND remains unfulfilled.
6. Capital Shares
Equity Distribution Agreements
On March 27, 2023, the Company entered into an equity distribution agreement with Canaccord Genuity LLC (Canaccord), as sales agent, pursuant to which the Company may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $20 million in gross proceeds, subject to certain offering limitations that currently allow the Company to offer and sell common shares having an aggregate gross sales price of up to $8.37 million. The Company has no obligation to sell any of the common shares and may at any time suspend sales or terminate the equity distribution agreement in accordance with its terms. During the three months ended June 30, 2023, the Company sold a total of 808,107 common shares pursuant to the agreement for net proceeds of $0.69 million after deducting commissions and costs.
From November 22, 2021 until terminated on March 21, 2022, the Company had an equity distribution agreement for an at-the-market equity offering program with another sales agent. During the nine months ended June 30, 2022, the Company sold a total of 626,884 common shares pursuant to the agreement for net proceeds of $2.62 million.
Equity offerings
On November 2, 2022, the Company completed a private placement of units consisting of 2,691,337 common shares, Class A warrants to purchase up to an aggregate of 1,345,665 common shares and Class B warrants to purchase up to an aggregate of 1,345,665 common shares. Net proceeds from the offering were $2.91 million, which were allocated between the relative fair values of the common shares (using a fair value of $2.69 million) and the common share purchase warrants (using a total fair value of $1.22 million). The warrants became exercisable December 31, 201723, 2022. The Class A warrants have an exercise price of $1.50 per share and 2016.will expire on December 23, 2025. The Class B warrants have an exercise price of $1.00 per share and will expire on December 23, 2023. The warrants are considered contracts on the Company’s own shares and are classified as equity.
On March 24, 2022, the Company completed a registered direct offering of 1,540,000 common shares, no par value, and pre-funded warrants to purchase up to an aggregate of 1,199,727 common shares. In a concurrent private placement, the Company issued common share purchase warrants to purchase an aggregate of up to 2,739,727 common shares. Net proceeds from the offering were $9.01 million, which were allocated between the relative fair values of the common shares and pre-funded warrants (using a total fair value of $5.87 million) and the common share purchase warrants (using a total fair value of $4.13 million). The common share purchase warrants were immediately exercisable at an exercise price of $3.52 per share and will expire on September 24, 2027. The pre-funded warrants were immediately exercisable at an exercise price of $0.0001 per share and do not expire. The warrants are considered contracts on the Company’s own shares and are classified as equity. In connection with the offering, the Company issued warrants to purchase an aggregate of 191,780 common shares to certain affiliated designees of the placement agent as part of the placement agent’s compensation. The placement agent warrants are exercisable on or after March 24, 2022, at an exercise price of $4.5625 per share, and will expire on March 21, 2027 with a fair value of $0.41 million.
10 | ||
Table of Contents |
The Company had the following transactions in share capital:
Three Months Ended | ||||||||
December 31, | December 31, | |||||||
2017 | 2016 | |||||||
Share-based compensation | $ | 20,706 | $ | 36,442 |
Black-Scholes option valuation model
The Company uses the Black-Scholes option valuation model to determine the fair value of share-based compensation for share options and compensation warrants granted and share options.the fair value of warrants issued. Option valuation models require the input of highly subjective assumptions including the expected price volatility. The Company has usedcalculates expected volatility based on historical volatility to estimate the volatility of the Company’s share price. When there is insufficient data available, the Company uses a peer group that is publicly traded to calculate expected volatility. The Company adopted interest-free rates by reference to the U.S. treasury yield rates. The Company calculated the fair value of share options granted based on the expected life of 5 years considering expected forfeitures during the option term of 10 years. Expected life of warrants is based on warrant terms. The Company did not and is not expected to declare any dividends. Changes in the subjective input assumptions can materially affect the fair value estimates, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s warrants and share options.
Warrants
There were 1,265,626A summary of the Company’s warrants outstanding at December 31, 2017 with an exercise price of $4.50 and expiry date of January 6, 2022. There were no warrants granted or exercised during the period from September 30, 2016 to December 31, 2017.activity is as follows:
|
| Number of Warrant Shares (#) |
|
| Weighted Average Exercise Price |
| ||
Nine Months Ended June 30, 2023 |
|
|
|
|
|
| ||
Balance - September 30, 2022 |
|
| 3,651,953 |
|
| $ | 4.00 |
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 2,691,330 |
|
|
| 1.25 |
|
Exercised |
|
| (705,314 | ) |
|
| 1.09 |
|
Expired |
|
| (28,124 | ) |
|
| 15.90 |
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2023 |
|
| 5,609,845 |
|
| $ | 2.99 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
Balance - September 30, 2021 |
|
| 720,446 |
|
| $ | 5.69 |
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 2,931,507 |
|
|
| 3.59 |
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2022 |
|
| 3,651,953 |
|
| $ | 4.00 |
|
The weighted average contractual life remaining on the outstanding warrants at December 31, 2017June 30, 2023 is 3334 months.
The following table summarizes information about the warrants outstanding at June 30, 2023:
Number of Warrants (#) |
|
| Exercise Prices |
|
| Expiry Dates | |||
| 563,685 |
|
| $ | 4.80 |
|
| July 2023 | |
| 770,786 |
|
| $ | 1.00 |
|
| December 2023 | |
| 7,484 |
|
| $ | 4.81 |
|
| June 2024 | |
| 11,778 |
|
| $ | 3.20 |
|
| January 2025 | |
| 1,215,230 |
|
| $ | 1.50 |
|
| December 2025 | |
| 109,375 |
|
| $ | 8.00 |
|
| February 2026 | |
| 191,780 |
|
| $ | 4.56 |
|
| March 2027 | |
| 2,739,727 |
|
| $ | 3.52 |
|
| September 2027 | |
| 5,609,845 |
|
|
|
|
|
|
|
The fair value of warrants granted during the nine months ended June 30, 2023 was estimated using the Black-Scholes option valuation model using the following assumptions:
|
| Nine Months Ended June 30, 2023 |
|
| Nine Months Ended June 30, 2022 |
| ||||||||||
|
| Class A Warrants |
|
| Class B Warrants |
|
| Common Warrants |
|
| Placement Agent Warrants |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Risk free interest rate |
|
| 4.54 | % |
|
| 4.76 | % |
|
| 2.37 | % |
|
| 2.37 | % |
Expected life |
| 3.14 years |
|
| 1.14 years |
|
| 5.5 years |
|
| 5 years |
| ||||
Expected share price volatility |
|
| 90.73 | % |
|
| 89.70 | % |
|
| 87.09 | % |
|
| 87.09 | % |
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % |
11 |
Table of Contents |
Pre-funded Warrants
A summary of the Company’s pre-funded warrants activity is as follows:
Number of Pre-funded Warrant Shares (#) | ||||
Nine Months Ended June 30, 2022 | ||||
Balance - September 30, 2021 | - | |||
Issued | 1,199,727 | |||
Balance - June 30, 2022 | 1,199,727 |
There were no pre-funded warrants during the nine months ended June 30, 2023.
Share Options
The Company hasadopted an incentive compensation plan adoptedEquity Incentive Compensation Plan in 20172019 (the Incentive2019 Plan) administered by the independent members of the Board of Directors, which amended and restated the 2013 fixed share option plan.prior plans. Options, restricted shares and restricted share units are eligible for grantsgrant under the Incentive2019 Plan. TheAt June 30, 2023, the total number of shares available for issuance under the Incentive Plan is 1,597,000,1,557,766 including shares available for the exercise of outstanding options under the 2013 fixed share option plan. No restricted shares or restricted share units have been granted as2019 Plan. The remaining number of December 31, 2017.options available for grant at June 30, 2023 is 1,557,766.
The exercise price of an option is set at the closing price of the Company’s common shares on the date of grant. Share2019 Plan allows options to be granted to directors, officers, employees and certain individualexternal consultants and advisers. Under the 2019 Plan, the option term is not to exceed 10 years and the exercise price of each option is determined by the independent members of the Board of Directors.
Options granted for past service are subject to the followingdirectors normally have monthly vesting schedule: (a) one-third shall vest immediately, (b) one-third shall vest atin equal proportions over 12 months frombeginning on the date of grant and (c) one-third shall vest at 18 months from the date of grant.
Share optionsdate. Options granted to directors, officers,for employees and certain individual consultants for future service are subject to the followingnormally have monthly vesting schedule: (x) one-third shall vest at 12 months from the date of grant, (y) one-third shall vest at 24 months from the date of grant and (z) one-third shall vest atin equal proportions over 36 months frombeginning on the grant date. Options granted for new employees normally have monthly vesting in equal proportions over 36 months beginning on the monthly anniversary of the grant date following 90 days of grant.employment.
Share options granted to certain individual investor relations consultants are subject to the following vesting schedule: (aa) 25% shall vest at 3 months from the date of grant, (bb) 25% shall vest at 6 months from the date of grant, (cc) 25% shall vest at 12 months from the date of grant and (dd) 25% shall vest at 15 months from the date of grant.
Options have been granted under the Incentive2019 Plan allowing the holders to purchase common shares of the Company as follows:
Number of Options | Weighted Average Exercise Price |
| Number of Options (#) |
|
| Weighted Average Exercise Price |
|
| Weighted Average Grant Date Fair Value |
| ||||||||||||
Balance - September 30, 2016 | 539,103 | $ | 5.29 | |||||||||||||||||||
Nine Months Ended June 30, 2023 |
|
|
|
|
|
|
| |||||||||||||||
Balance - September 30, 2022 |
| 2,203,699 |
| $ | 4.66 |
| $ | 3.42 |
| |||||||||||||
|
|
|
|
|
|
| ||||||||||||||||
Granted | 71,600 | 1.89 |
| 332,950 |
| 1.43 |
| 1.07 |
| |||||||||||||
Expired | (28,233 | ) | 11.14 | |||||||||||||||||||
Forfeited |
| (88,226 | ) |
| 3.28 |
| 2.34 |
| ||||||||||||||
Expired | (171,500 | ) | 2.90 | CDN $ |
|
| (238 | ) |
|
| 304.08 |
|
|
| 304.08 |
| ||||||
|
|
|
|
|
|
| ||||||||||||||||
Balance - September 30, 2017 | 410,970 | $ | 5.74 | |||||||||||||||||||
Balance - June 30, 2023 |
|
| 2,448,185 |
|
| $ | 4.23 |
|
| $ | 3.11 |
| ||||||||||
|
|
|
|
|
|
| ||||||||||||||||
Expired | (10,667 | ) | 17.29 | |||||||||||||||||||
Nine Months Ended June 30, 2022 |
|
|
|
|
|
|
| |||||||||||||||
Balance - September 30, 2021 |
| 1,776,219 |
| $ | 5.06 |
| $ | 3.79 |
| |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Granted |
| 500,083 |
| 3.66 |
| 2.48 |
| |||||||||||||||
Exercised |
| (26,954 | ) |
| 6.56 |
| 4.97 |
| ||||||||||||||
Expired | (35,250 | ) | 4.57 | CDN $ |
|
| (45,649 | ) |
|
| 8.05 |
|
|
| 6.48 |
| ||||||
|
|
|
|
|
|
| ||||||||||||||||
Balance - December 31, 2017 | 365,053 | $ | 5.58 | |||||||||||||||||||
Balance - June 30, 2022 |
|
| 2,203,699 |
|
| $ | 4.66 |
|
| $ | 3.42 |
|
During the nine months ended June 30, 2023, the independent members of the Board of Directors granted 332,950 employee and new employee options pursuant to the 2019 Plan. During the nine months ended June 30, 2022, the independent members of the Board of Directors granted 415,083 employee options and 85,000 director options. The options have a term of 10 years and an exercise price equal to the Nasdaq closing price on the grant date.
12 |
Table of Contents |
The weighted average contractual life remaining on the outstanding options at June 30, 2023 is 3390 months.
The following table summarizes information about the options under the Incentive2019 Plan outstanding and exercisable at December 31, 2017:June 30, 2023:
Number of Options | Exercisable at December 31, 2017 | Range of exercise prices | Expiry Dates | |||||||
94,360 | 94,360 | CDN$0.01 - 5.00 | Apr 2017-Dec 2019 | |||||||
69,233 | 32,533 | $0.01 - 5.00 | Sep 2023-Mar 2024 | |||||||
125,360 | 125,360 | CDN$5.01 - 10.00 | Oct 2017-Jun 2022 | |||||||
15,100 | 15,100 | $5.01 - 10.00 | Dec 2022 | |||||||
21,500 | 21,500 | CDN$15.01 - 20.00 | Nov 2018-Nov 2021 | |||||||
39,500 | 29,500 | $15.01 - 20.00 | Nov 2020 | |||||||
365,053 | 318,353 |
Number of Options (#) |
|
| Exercisable at June 30, 2023 (#) |
|
| Range of Exercise Prices |
|
| Expiry Dates | ||||
| 3,499 |
|
|
| 3,499 |
|
| $ | 35.28 - 93.24 |
|
| Sep 2023-Mar 2025 | |
| 296,403 |
|
|
| 296,403 |
|
| C$ | 2.16 |
|
| Aug 2027-Dec 2028 | |
| 323,976 |
|
|
| 323,976 |
|
| $ | 3.16 |
|
| Feb 2030 | |
| 397,000 |
|
|
| 363,829 |
|
| $ | 7.44 - 8.07 |
|
| Sep 2030-Oct 2030 | |
| 653,326 |
|
|
| 525,001 |
|
| $ | 5.25 - 5.74 |
|
| Jan 2031-Sep 2031 | |
| 481,365 |
|
|
| 279,177 |
|
| $ | 2.94 - 3.71 |
|
| Feb 2032-Mar 2032 | |
| 292,616 |
|
|
| 43,990 |
|
| $ | 0.96 - 1.43 |
|
| Dec 2032-Feb 2033 | |
| 2,448,185 |
|
|
| 1,835,875 |
|
|
|
|
|
|
|
The estimated fair value of the share options granted during the threenine months ended December 31, 2016June 30, 2023 and 2022 was determinedestimated using athe Black-Scholes option valuation model withusing the following weighted average assumptions:
|
|
|
|
| ||||
|
| Nine Months Ended |
| |||||
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||
|
|
|
|
| ||||
Risk free interest rate |
| 3.62%-4.18% |
|
| 1.71% - 2.54% |
| ||
Expected life |
| 5 years |
|
| 5 years |
| ||
Expected share price volatility |
| 95.3%-97.34% |
|
| 85.91% - 86.59% |
| ||
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
There were no share options granted duringThe Company recorded $0.11 million and $0.57 million of share-based compensation expenses for the three months ended December 31, 2017.
The weighted average fair value of share options granted duringJune 30, 2023 and 2022, respectively and $0.73 million and $1.80 million for the threenine months ended December 31, 2016 was $1.98.June 30, 2023 and 2022, respectively.
As of December 31, 2017,June 30, 2023, the Company had approximately $40,000$0.46 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 2731 months.
There were no options exercised during the three months ended December 31, 20177. Reimbursement Grant Income and 2016. There was no intrinsic value of the vested options at December 31, 2017.
Receivable
Reimbursement grant income for the Company’s federal grant with the Canadian government’s Strategic Innovation Fund (SIF) is recorded based on the claim period of eligible costs. At June 30, 2023, the grant program is complete and all grant reimbursements have been received.
8. Financial Instruments
(a) Fair values
The Company uses the fair value measurement framework for valuing financial assets and liabilities measured on a recurring basis in situations where other accounting pronouncements either permit or require fair value measurements.
Fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying value of certain financial instruments such as accounts receivable, accounts payable, accrued liabilities, and deferred revenue approximates fair value due to the short-term nature of such instruments. Short-term investments in U.S. Treasury Bills are recorded at amortized cost, which approximates fair value.
The Company follows the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs that reflect assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
There are three levels of inputs that may be used to measure fair value:
· | Level | |
· | ||
· | Level | 3 - Unobservable inputs for the asset or liability that are supported by little or no market |
13 |
Table of |
The carrying value of certain financial instruments such as cash and cash equivalents, accounts and other receivable, accounts payable and accrued liabilities approximates fair value due to the short-term nature of such instruments. The fair value of lease obligations on right-of-use assets approximates carrying value due to a fixed lease rate, which represents market rate.
(b) Interest rate and credit risk
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a significant change in market interest rates, relative to interest rates on cash and cash equivalents due to the short-term nature of these balances.
The Company reports its short-term investments in U.S. Treasury Bills at fair value using Level 1 inputs in the fair value hierarchy.
The following table summarizes fair values for those assets and liabilities with fair value measured on a recurring basis.
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||
December 31, 2017 | ||||||||||||||||
Assets | ||||||||||||||||
Short-term investments in U.S. Treasury Bills | $ | 998,575 | $ | - | $ | - | $ | 998,575 | ||||||||
September 30, 2017 | ||||||||||||||||
Assets | ||||||||||||||||
Short-term investments in U.S. Treasury Bills | $ | 1,994,401 | $ | - | $ | - | $ | 1,994,401 |
Credit risk is the risk of an unexpected loss if a customer or third partyalso exposed to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to a concentration of credit risk consist primarilyat period end from the carrying value of its cash and cash equivalents U.S Treasury Bills, and accounts and other receivable. The Company estimates its maximum creditmanages this risk at the amount recorded on the balance sheet.
Management’s assessment of the Company’s credit risk for cash and cash equivalents is low as they are held in major financial institutionsby maintaining bank accounts with Canadian Chartered Banks, U.S. banks believed to be credit worthy orand money market mutual funds of U.S. Treasury Bills with maturities of 90 days or less.government securities. The Company’s cash is not subject to any external restrictions. The Company limitsassesses the collectability of accounts receivable through a review of the current aging and terms, as well as an analysis of historical collection rates, general economic conditions and credit status of government agencies. Credit risk for the HST refunds receivable are not considered significant since amounts are due from the Canada Revenue Agency.
(c) Foreign exchange risk
The Company and its Canadian subsidiary have balances in Canadian dollars that give rise to exposure to creditforeign exchange (FX) risk relating to the impact of translating certain non-U.S. dollar balance sheet accounts as these statements are presented in U.S. dollars. A strengthening U.S. dollar will lead to a FX loss for short-term investments by holdingwhile a weakening U.S. Treasury Bills with maturitiesdollar will lead to a FX gain. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks. At June 30, 2023, the Company and its Canadian subsidiary had assets denominated in Canadian dollars of 1 year or less.approximately C$3.3 million and the U.S. dollar exchange rate at this date was equal to 1.3250 Canadian dollars. Based on credit monitoringthe exposure at June 30, 2023, a 10% annual change in the Canadian/U.S. exchange rate would impact the Company’s loss and history,other comprehensive loss by approximately $0.3 million.
(d) Liquidity risk
Liquidity risk is the risk that the Company considerswill encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the risk of credit losses due to customer non-performance on accounts receivable to be low.Company closely monitors its forecasted cash requirements with expected cash drawdown.
9. Loss per Share
The Company had securities outstanding which could potentially dilute basic earnings per share in the following concentrationsfuture but were excluded from the computation of revenues by customers,diluted loss per share in the periods presented, as their effect would have been anti-dilutive.
10. Related Party Transactions
During each of which accountedthree and nine months ended June 30, 2023 and 2022, the Company paid cash of $0.02 million and $0.06 million, respectively, for more than 10%a right of revenuesuse lease from a company controlled by the Company’s CEO. These transactions are in the applicable period:
Three Months Ended | ||||||||
December 31, | December 31, | |||||||
2017 | 2016 | |||||||
Product sales and contract services revenue | 98% from 3 customers | 92% from 1 customer |
Thenormal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by both parties. On December 31, 2022, the Company hadexecuted a two-year lease extension through December 31, 2024 in accordance with the following concentrationsterms of revenues by geographic areas:
Three Months Ended | ||||||||
December 31, | December 31, | |||||||
2017 | 2016 | |||||||
Europe | 73 | % | 94 | % | ||||
North America | 27 | % | 6 | % |
the original lease agreement.
The Company had11. Subsequent Events
Subsequent to June 30, 2023, equity sales under the following concentrations of accounts receivable from its customers, each of which accounted for more than 10%Company’s at-the-market offering program have resulted in the applicable period:issuance of 226,882 common shares and receipt of net cash proceeds of $0.19 million after deducting sales agent commissions.
Subsequent to the quarter end, the Company granted 497,000 share options to employees and directors and 326,200 restricted shares units to certain employees in lieu of cash-based incentive compensation and to one employee for payment of past consulting services.
14 | ||||
Table of Contents |
There were no customer accounts receivable at September 30, 2017.Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed interim consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q as of December 31, 2017June 30, 2023 and our audited consolidated financial statements for the year ended September 30, 20172022 included in our Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission (the “SEC”) on December 1, 2017.16, 2022.
This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this report, the words “expects,” “anticipates,” “suggests,” “believes,” “intends,” “estimates,” “plans,” “projects,” “continue,” “ongoing,” “potential,” “expect,” “predict,” “believe,” “intend,” “may,” “will,” “should,” “could,” “would” and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our Annual Report on Form 10-K for the year ended September 30, 20172022 and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.
The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed interim consolidated financial statements as of December 31, 2017June 30, 2023 and September 30, 2017,2022, and for the three and nine months ended December 31, 2017June 30, 2023 and 20162022 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which we have prepared in accordance with U.S. generally accepted accounting principles.principles for interim financial information and with the instructions to Form 10-Q. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Overview
Stellar Biotechnologies, Inc. is a biotechnology company engaged in the aquaculture, research and development, manufacture and commercialization of Keyhole Limpet Hemocyanin (KLH). KLH is an immune-stimulating protein with an extensive history of safe and effective use in immunological applications. Today, multiple companies and institutions are developing drugs that combine disease-targeting agents with KLH. These disease-targeting agents do not evoke a robust immune response by themselves and thus require a carrier molecule like KLH. The versatility of the KLH molecule and its use in multiple drug development pipelines provide numerous commercial opportunities for us. Overview
We extractare a biopharmaceutical company developing innovative ways to treat inflammatory and manufacture KLH from the hemolymph of a scarce ocean mollusk, the Giant Keyhole Limpet. Based upon our specialized knowledge of aquaculture science and KLH, we have built unique land-based aquaculture, laboratory and production facilities in Port Hueneme, California, and developed production and manufacturing processes to produce medical-grade KLH using Current Good Manufacturing Practices (GMP).immune-related diseases.
Our approach is to acquire, develop and commercialize drug candidates based on mechanisms of action that have demonstrated proof-of-concept in human subjects. We prioritize our efforts on disease indications where there is compelling scientific rationale, no approved therapies or where there are unmet medical needs, and where there are large addressable market and sell our KLH products under the brand Stellar KLH. Our customers and partners include multinational biotechnology and pharmaceutical companies, academic institutions, clinical research organizations and research centers.opportunities, among other factors. We have multiple agreements to license and supply Stellar KLH and other technologylate-stage product candidates in exchange for fees, revenues or royalties. Our customers manage and fund all productour development and regulatory submissions for their respective drug products that utilize our KLH protein.
Recent Developmentspipeline.
Neostell Joint VentureOur most advanced drug candidate is EB05 (paridiprubart), a monoclonal antibody developed for acute and chronic disease indications that involve dysregulated innate immunity responses. EB05 inhibits toll-like receptor 4 (TLR4), a key immune signaling protein and an important mediator of inflammation. We are currently evaluating EB05 as a potential treatment for Acute Respiratory Distress Syndrome (ARDS), a life-threatening form of respiratory failure. In September 2022, we reported final results from the Phase 2 part of a Phase 2/Phase 3 study of EB05 in ARDS patients who were hospitalized for Covid-19-related respiratory disease. Among the findings, EB05 demonstrated statistically significant mortality reductions in critically ill hospitalized patients treated with EB05 plus Standard of Care treatment (SOC). Based in part of these findings, the U.S. Food and Drug Administration (FDA) granted us a Fast Track designation. We are currently enrolling patients in the Phase 3 part of the EB05 study.
In May 2016,addition to EB05, we entered intoare developing product candidates for a joint venture agreement with Neovacs S.A,number of chronic dermatological and inflammatory conditions. We recently reported preliminary, topline results from a Paris-based biotechnology company,Phase 2b clinical study evaluating multiple concentrations of our drug candidate, EB01, as a monotherapy for moderate-to-severe chronic Allergic Contact Dermatitis (ACD), a common occupational skin condition. Among the preliminary findings, 1.0% EB01 (daniluromer) cream demonstrated statistically significant improvement over placebo for the formationprimary endpoint and a key secondary endpoint. We are preparing for an End of Phase 2 meeting with FDA following full analysis. In January 2023, Health Canada approved our clinical trial application (CTA) for our EB06 monoclonal antibody candidate to conduct a future Phase 2 study in vitiligo, a common autoimmune disorder that causes skin to lose its color in patches. We are also preparing an investigational new drug application (IND) in the United States for our EB07 (paridiprubart) product candidate to conduct a future Phase 2 study in systemic sclerosis (SSc), an autoimmune rheumatic disorder that causes fibrosis (scarring/hardening) of skin and internal organs.
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Recent Developments
EB05 (paridiprubart)
In June 2023, we announced positive findings from an in vitro study of paridiprubart against a panel of respiratory pathogens. The research results demonstrated that inflammation signaling from multiple pathogens, including Influenza A, coronavirus and a common bacterium (H. influenzae), was inhibited by paridiprubart. Based on these findings and our clinical experience with paridiprubart, we believe that our drug candidate could provide an effective treatment for ARDS caused by, among others, coronaviruses, pandemic influenza and harmful bacteria. The in vitro study was conducted in collaboration with the University of Toronto under a grant from the Government of Canada's Strategic Innovation Fund.
In March 2023, we announced that the company and the FDA agreed on the primary endpoint and population for the Phase 3 part of a joint venture companyPhase 2/3 study evaluating our monoclonal antibody candidate, EB05, as a therapy for hospitalized Covid-19 patients with ARDS. Under the amended protocol design, Edesa will evaluate a single cohort of severely ill patients on invasive mechanical ventilation, both with and without additional organ support such as extracorporeal membrane oxygenation (ECMO). Edesa plans to manufactureenroll approximately 600 evaluable hospitalized subjects. The primary endpoint will be the mortality rate at 28 days. Last year, Canadian regulators approved a similar Phase 3 study of EB05 in Covid-19-induced ARDS among two separate cohorts of patients, and sell conjugated therapeutic vaccines. In July 2016, Neostell S.A.S., a French simplified stock corporation (Neostell), was formed to carry out the businesswe are evaluating potential future harmonization of the joint venture. Neostell is expectedCanadian protocol with the U.S. protocol. With recruitment open in both the U.S. and Canada, we discontinued recruitment at secondary sites, which were located in Poland and Colombia.
In April 2023, we announced the World Health Organization and the United States Adopted Name (USAN) Council have adopted the international nonproprietary name “paridiprubart” for our anti-TLR4 monoclonal antibody candidate.
Based on current hospitalization trends and our recruitment experience, we believe that Covid-19-related hospitalization patterns have become more predictable and seasonal in nature, similar to produce Neovacs’ product candidatesthose of influenza, with increased hospitalizations and deaths anticipated in the fall/winter and among populations and geographies with low booster/vaccination rates. As a result, we believe that utilize Stellar KLHthe pace of future enrollment will be more closely linked to the number and location of investigational sites we activate rather than the unpredictable waves of the pandemic. Subject to funding, we plan to increase the number of investigational centers from 23 to up to 60 hospitals in the U.S. and Canada. We have the flexibility to adjust the timing of these and other clinical trial expenditures to manage our working capital.
In addition to Covid-19 induced ARDS, we are also exploring various approaches to evaluate our EB05 (paridiprubart) drug candidate in a general ARDS population, including, among other potential options, participating in a government-sponsored platform study, amending our current Phase 3 study protocol to include non-Covid-19 ARDS patients and initiating a separate study or cohort. Given the broader pool of patients, we believe a harmonized or general ARDS study could increase efficiency and expedite development timelines as well as validate the broader potential utility of paridiprubart. Any changes we make to our clinical study protocol may impact how previously enrolled subjects are categorized and/or included in the study’s results.
EB01 (daniluromer)
In June 2023, we announced the assignment of the name "daniluromer" to the active pharmaceutical ingredient in our EB01 drug candidate, a topical formulation of daniluromer that we are developing as a carrier molecule and may also manufacture and sell other KLH-based immunotherapy productstreatment for third-party customers.Allergic Contact Dermatitis. We holdexpect daniluromer to be published in an upcoming World Health Organization (WHO) list of recommended international nonproprietary names. The WHO, under its International Nonproprietary Names program, provides a 30% equity interest in the joint venture in exchangeglobally recognized system for an initial capital contribution of €120,000. One-half of the initial contribution, approximately $67,000, was paid in June 2016 with the balance due upon the occurrence of certain defined future events. We will also provide additional financingselecting unique names to Neostell, as may be required, on a pro rata basis in line with our equity interest. According to the joint venture agreement, if certain milestones are not achieved by December 31, 2017, Neostell will be dissolved, unless the parties mutually agree to pursue the joint venture arrangement, or either party decides to purchase the equity interests of the other party. This deadline has passed and the parties have expressed their mutual desire to renew and amend the agreement to extend the timeline.identify pharmaceutically active substances.
Significant Accounting Policies and Estimates
For a discussion ofSee Note 3 to our significant accounting policies and estimates, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, as filed with the Securities and Exchange Commission (SEC) on December 1, 2017. There are no material changes in2022 for a discussion of our significant accounting policies and estimates from the disclosure provided in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.estimates. There have been no material changes to such critical accounting policies or estimates.
Results of Operations
Comparison of the Three Months Ended December 31, 2017June 30, 2023 and 20162022
Our total revenuesTotal operating expenses decreased by $.12$3.74 million to $.02$2.06 million for the three months ended December 31, 2017June 30, 2023 compared to $.14 million for the three months ended December 31, 2016 due to a decrease in our product sales. While our customer base has not changed significantly, product sales volumes are subject to variability associated with the rate of development and progression of clinical studies of third-party products that utilize Stellar KLH. The rate of progression toward later stage studies is expected to continue to affect the timing and volume of future product sales. During both periods, product mix was similar, consisting of various grades of KLH for clinical and pre-clinical studies and immune system assays.
Our total expenses decreased by $.15 million to $1.41 for the three months ended December 31, 2017 compared to $1.56$5.80 million for the same period last year:
· | ||
· | General and |
Our totalTotal other income (loss) decreasedincreased by $.06$0.07 million to an overall loss of $.01$0.08 million for the three months ended December 31, 2017June 30, 2023 compared to an overall loss of $.07 million for the same period last year. Foreign exchange loss was $.02 million for the three months ended December 31, 2017 compared to a loss of $.08$0.01 million for the same period last year primarily due to fluctuationsan increase in exchange rates and decreased amounts held in Canadianinterest earned on cash and cash equivalents.balances.
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Our net loss for
For the three months ended December 31, 2017June 30, 2023, our net loss was $1.40$1.98 million, or $0.13$0.10 per basiccommon share, compared to a net loss of $1.49$5.79 million, or $0.15$0.37 per basiccommon share, for the three months ended December 31, 2016.June 30, 2022.
Comparison of the Nine Months Ended June 30, 2023 and 2022
Total operating expenses decreased by $8.68 million to $6.85 million for the nine months ended June 30, 2023 compared to $15.53 million for the same period last year:
· | Research and development expenses decreased by $7.70 million to $3.84 million for the nine months ended June 30, 2023 compared to $11.54 million for the same period last year primarily due to decreased external research expenses related to our ongoing clinical studies and manufacturing of our investigational drugs, and a decrease in non-cash share-based compensation. | |
· | General and administrative expenses decreased by $0.98 million to $3.01 million for the nine months ended June 30, 2023 compared to $3.99 million for the same period last year primarily due to decreased personnel expenses and non-cash share-based compensation. |
Total other income decreased by $0.60 million to $0.20 million for the nine months ended June 30, 2023 compared to $0.80 million for the same period last year primarily due to a decrease in grant income associated with the completion of clinical study activities under our federal reimbursement grant with the Canadian government’s Strategic Innovation Fund.
For the nine months ended June 30, 2023, our net loss was $6.65 million, or $0.34 per common share, compared to a net loss of $14.74 million, or $1.04 per common share, for the nine months ended June 30, 2022.
Capital Expenditures
Our capital expenditures which primarily consist of scientific, manufacturing,computer and aquaculture equipment, and facility leasehold improvementsoffice equipment. There were $34,767 and $84,424no significant capital expenditures for the three and nine months ended December 31, 2017June 30, 2023 and 2016, respectively.2022.
Liquidity and Capital Resources
CompanyAs a clinical-stage company we have not generated significant revenue, and we expect to incur operating losses as we continue our efforts to acquire, develop, seek regulatory approval for and commercialize product candidates and execute on our strategic initiatives. Our operations have historically been funded by the issuancethrough issuances of common shares, exerciseexercises of common share purchase warrants, grant revenues, contract services revenueconvertible preferred shares, convertible loans, government grants and product sales.tax incentives. For the nine-month periods ended June 30, 2023 and 2022, we reported net losses of $6.65 million and $14.74 million, respectively.
On March 27, 2023, we entered into an equity distribution agreement with Canaccord Genuity LLC (Canaccord), as sales agent, pursuant to which the Company may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $20 million in gross cash proceeds, subject to certain offering limitations that currently allow the Company to offer and sell common shares having an aggregate gross sales price of up to $8.37 million. Canaccord will use commercially reasonable efforts to sell the common shares from time to time, based upon our instructions. We have no obligation to sell any of the common shares and may at any time suspend sales under the equity distribution agreement or terminate the equity distribution agreement in accordance with its terms. The total amount of cash that may be generated under this equity distribution agreement is uncertain and depends on a variety of factors, including market conditions and the trading price of our common shares. For the three months ended June 30, 2023, we sold a total of 808,107 common shares pursuant to the agreement. After deducting commissions and costs, net proceeds totaled $0.69 million. Subsequent to the quarter end, sales under the agreement have resulted in the issuance of 226,882 common shares and receipt of net cash proceeds of $0.19 million after deducting sales agent commissions.
In November 2022, we completed a private placement of units consisting of 2,691,337 common shares, three-year warrants to purchase up to an aggregate of 1,345,665 common shares (Class A warrants) and twelve-month warrants to purchase up to an aggregate of 1,345,665 common shares (Class B warrants). The gross proceeds from this offering are approximately $3.03 million, before offering expenses. During the nine months ended June 30, 2023, 705,314 shares have been issued upon the exercise of Class A and Class B warrants, with proceeds to the Company of $0.77 million.
In March 2022, we completed a registered direct offering of 1,540,000 common shares, no par value, and pre-funded warrants to purchase up to an aggregate of 1,199,727 common shares. In a concurrent private placement, we issued common share purchase warrants to purchase an aggregate of up to 2,739,727 common shares. After deducting the placement agent fees and offering expenses, net proceeds to the Company were approximately $9.01 million.
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From November 2021 to March 2022, we sold a total of 626,884 common shares under an “at-the-market” equity distribution program which resulted in net proceeds of $2.62 million after deducting commissions and direct costs.
Under our contribution agreement with the Canadian government’s Strategic Innovation Fund (SIF), we were eligible to receive cash reimbursements up to C$14.05 million (approximately $11 million USD) in the aggregate for certain research and development expenses related to our EB05 clinical development program. For the years ended September 30, 2022 and 2021, we recorded grant income of $0.78 million and $10.34 million respectively. All grant reimbursements were received by December 31, 20172022.
At June 30, 2023, we had cash and 2016, the Company reported net lossescash equivalents of approximately $1.4$6.46 million, and $1.5working capital of $5.39 million, respectively. Asshareholders’ equity of December 31, 2017, the Company had$7.85 million and an accumulated deficit of approximately $46.8 million and working capital of approximately $5.1$50.70 million. While the Company plansWe plan to finance company operations forover the course of the next twelve months with cash and cash equivalents on hand and productequity sales management expects to continue incurring losses forunder the foreseeable future and will need to raise additional capital to pursue our business plan beyond February 2019.at-the-market offering program. Management is taking action to ensure the Company will continue as a going concern for at least one year beyond the date of the issuance of the Company’s financial statements. First, management has flexibility to adjust this timeline by making changes to planned expenditures based on a number ofrelated to, among other factors, including the size and timing of capitalclinical trial expenditures and manufacturing campaigns, staffing levels, inventory levels, and the statusacquisition or in-licensing of customer clinical trials. Management also seeksnew product candidates. To help fund our operations and meet our obligations in the future, we plan to expand the customer base for existing marketed products, and is currently evaluating opportunities to secureseek additional financing through the sale of equity, government grants, debt and/financings or equity financings,other capital sources, including transactionspotential future licensing, collaboration or similar arrangements with third parties or other strategic customers and partners that may include debt and/or equity arrangements. We have not secured any commitment for new financing at this time, nor can we provide anytransactions. There is no assurance that new financingadequate funding will be available to us or, if available, that such funding will be available on commercially acceptable terms if needed.that we or our shareholders view as favorable. Market volatility, inflation, interest rates, government policies and concerns related to the war in Ukraine and the Covid-19 pandemic may have a significant impact on the availability of funding sources and the terms at which any funding may be available.
We have filed with the Securities and Exchange Commission, and the Securities and Exchange Commission declared effective, a universal shelf registration statement of up to $100 million worth of registered equity securities, of which we utilized approximately $6.75 million in our July 2016 offering. Under this effective registration statement, we may issue registered securities, from time to time, in one or more separate offerings or other transactions with the size, price and terms to be determined at the time of issuance. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell securities in a public primary offering with a value of more than one-third of the aggregate market value of our common shares held by non-affiliates in any twelve-month period, so long as the aggregate market value of our common shares held by non-affiliates remains below $75 million. Registered securities issued using our existing shelf may be used to raise additional capital to fund our working capital, R&D and other corporate needs.
Geographic Concentrations
We primarily market and distribute our products directly to biotechnology and pharmaceutical companies, academic institutions, clinical research organizations and research centers. Products are shipped to our customers from our facilities in Port Hueneme, California using a common carrier chosen by the customer. The geographic markets of our customers are principally Europe, Asia and North America. We had the following concentrations of revenues by geographic areas:
Three Months Ended | ||||||||
December 31, | December 31, | |||||||
2017 | 2016 | |||||||
Europe | 73 | % | 94 | % | ||||
North America | 27 | % | 6 | % |
The geographic concentration of our product sales revenue fluctuates quarter over quarter, sometimes significantly, depending on the volume of sales from our customers in each of our principal geographic markets.
Research and Development
Our coreprimary business is the development of innovative therapeutics for inflammatory and immune-related diseases with clear unmet medical needs. We focus our resources on research and development activities, including the conduct of clinical studies and product development, and expense such costs as they are incurred. Our research and development expenses have primarily consisted of employee-related expenses, including salaries, benefits, taxes, travel and share-based compensation expense for personnel in research and development functions; expenses related to process development and production of product candidates paid to contract manufacturing organizations and contract testing organizations, including the cost of acquiring, developing, and commercializing Keyhole Limpet Hemocyaninmanufacturing research material; costs associated with clinical activities, including expenses for use in immunotherapycontract research organizations; and immunodiagnostic applications. Our internal research has included, among otherclinical trials and activities continual improvement of methodsrelated to regulatory filings for the culture and growth of Giant Keyhole Limpet, innovations in aquaculture systems and infrastructure, biophysical and biochemical characterization of the KLH molecule, analytical processes to enhance performance of our products, KLH manufacturing process improvements, new KLH formulations, and early development of potential new KLH-based immunotherapies.product candidates, including regulatory consultants.
Research and development costs, including materials, KLH designated for internal research use onlyexpenses, which have historically varied based on the level of activity in our clinical programs, are significantly influenced by study initiation expenses and salaries of employees directly involved in researchpatient recruitment rates, and development efforts, are expensed as incurred. From time to time, we produce saleable KLH as a byproduct of our research and development activities. The cost of this KLH is not assignedresult are expected to inventory.
continue to fluctuate, sometimes substantially. Our research and development costs were $631,034$3.84 million and $460,865$11.54 million for the threenine months ended December 31, 2017June 30, 2023 and 2016,2022, respectively. The decrease was due primarily to decreased external research expenses related to our ongoing clinical studies and manufacturing of our investigational drugs.
The increase from the comparable period was primarily due to research and development activities intended to increase the scalability and throughput capacity of existing manufacturing systems, including engineering lots of KLH produced under our optimization initiative.
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Disclosure of Contractual ObligationsOff-Balance Sheet Arrangements
We currently lease 4,300 square feet of executive office and laboratory space in Port Hueneme, California under a lease which was renewed in July 2016 for a two-year term, with options to renew for three successive two-year terms.
Our aquaculture and KLH manufacturing operations are located on approximately 37,000 square feet of oceanfront land in the Port Hueneme Aquaculture Business Park. Our facilities here include specialized aquaculture infrastructure, seawater supply and discharge systems, laboratories, manufacturing and administrative offices. Wedo not have two sublease agreements which expire in September and October 2020, respectively, with options to extend the leases for two additional five-year terms.
We also currently lease undeveloped land in Baja California, Mexico under a lease agreement which we entered into in June 2015, with a three-year term, which lease agreement may be terminated at will at any time with 30 days prior notice by either party. We are utilizing the undeveloped land to conduct suitability studies for the potential development of an additional aquaculture locale and future expansion of production. We also have a short-term lease for office space in a business center located in Ensenada, Baja California. This office serves as the administrative headquarters of our BioEstelar subsidiary.
We have purchase commitments for contract research organizations, consultants, construction contractors and equipment suppliers.
There have been no material changes in our contractual obligations previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, as filed with the SEC on December 1, 2017.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
We are exposed to financial market risks associated with foreign exchange rates, concentration of credit, and liquidity. In accordance with our policies, we manage our exposure to various market-based risks and where material, these risks are reviewed and monitored by our Board of Directors. For a discussion of our market risk exposure, refer to Item 7A, “Quantitative3. Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, as filed with the SEC on December 1, 2017. There are no material changes in market risk from the disclosure provided in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.Risk.
We are a smaller reporting company and are not required to provide disclosure under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures to provide reasonable assurance that material information related to our Company, including our consolidated subsidiaries, is made known to senior management, including our Chief Executive Officer and Chief Financial Officer, by others within those entities on a timely basis so that appropriate decisions can be made regarding public disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities and Exchange Act of 1934, as amended) as of December 31, 2017.June 30, 2023. Our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures, as of December 31, 2017,June 30, 2023, were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2017June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. Legal Proceedings.
From time to time, we may be involved in legal proceedings, claims and litigation arising in the ordinary course of business. We are not currently a party to any material legal proceedings or claims outside the ordinary course of business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
If we cannot meet Nasdaq’s continuing listing requirements and Nasdaq rules, Nasdaq may delist our securities, which could negatively affect our Company and the price of our securities.Item 1A. Risk Factors.
On January 30, 2018,There have been no material changes to the Company received a letter from The Nasdaq Stock Market LLC (Nasdaq) notifying the Company that, basedrisk factors discussed in Item 1A. Risk Factors in our Annual Report on the Company’s closing bid priceForm 10-K for the lastyear ended September 30, consecutive business days, the Company is not in compliance2022, filed with the minimum bid price requirement of $1.00 per share for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2). The Company has an initial period of 180 calendar days, or until July 30, 2018 to regain compliance with the minimum bid price requirement for continued listingSecurities and Exchange Commission on Nasdaq. Although the Nasdaq notification has no immediate impact on the listing of the Company’s common shares, which will continue to trade on the Nasdaq Capital Market under the symbol “SBOT”, we can make no assurances that the Company will regain compliance with the Nasdaq listing requirements.December 16, 2022.
We intend to continue to actively monitor the bid priceItem 2. Unregistered Sales of our common shares. If our common shares do not trade at a level that is likely to regain compliance with the Nasdaq listing requirements, our BoardEquity Securities and Use of Directors will consider available options to resolve the deficiency and regain compliance. If at any time before July 30, 2018, the closing bid price of our common shares is at least $1.00 per share for at least ten consecutive business days, we will regain compliance with the minimum bid price requirement. If we cannot demonstrate compliance by July 30, 2018 or if we are not afforded an additional grace period beyond July 30, 2018 by which to demonstrate compliance with the Nasdaq listing requirements, our common shares may then be delisted from Nasdaq, which could make trading our common shares more difficult for investors, potentially leading to declines in our share price and liquidity. Without a Nasdaq listing, shareholders may have a difficult time getting a quote for the sale or purchase of our shares, the sale or purchase of our shares would likely be made more difficult, and the trading volume and liquidity of our shares could decline. Delisting from Nasdaq could also result in negative publicity and could make it more difficult for us to raise additional capital. If our common shares are delisted by Nasdaq, our common shares may be eligible to trade on an over-the-counter quotation system where an investor may find it more difficult to sell our shares or obtain accurate quotations as to the market value of our common shares. We cannot assure you that our common shares, if delisted from Nasdaq, will be listed on another national securities exchange or quoted on an over-the-counter quotation system.Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Amended and Restated Employment Agreement with Pardeep Nijhawan
On August 4, 2023, the Company entered into an amended and restated employment agreement with Pardeep Nijhawan, the Company’s Chief Executive Officer (the “Nijhawan Employment Agreement”).
Pursuant to the Nijhawan Employment Agreement, Dr. Nijhawan serves as the Company’s Chief Executive Officer as well as Chief Executive Officer of each of the Company’s subsidiaries, Edesa Biotech Research, Inc. and Edesa Biotech USA, Inc. and a director of Edesa Biotech Research, Inc. Dr. Nijhawan’s employment will continue for an indefinite term until terminated in accordance with the Nijhawan Employment Agreement.
Pursuant to the Nijhawan Employment Agreement, Dr. Nijhawan is entitled to a base salary of $357,700 per year and is eligible to receive a target annual bonus of 40% of his base salary, subject to the achievement of corporate and personal targets as determined by the Company and the Board of Directors. Dr. Nijhawan’s base salary is subject to annual review by the Board of Directors. Dr. Nijhawan is also entitled to an automobile allowance of $2,701.50 per month and is eligible to participate in the Company’s group insured benefits program, as may be in effect from time-to-time for employees generally, and executive employees specifically. Dr. Nijhawan is eligible for equity-based awards pursuant to the Company’s Equity Incentive Compensation Plan, as determined by the Board of Directors or Compensation Committee, commensurate with Dr. Nijhawan’s position and any business milestones that may be established by the Company.
If Dr. Nijhawan’s employment is terminated for “Cause” (as such term is defined in the Nijhawan Employment Agreement), subject to applicable law, Dr. Nijhawan is entitled to his base salary and vacation pay earned through the date of termination, and all of Dr. Nijhawan’s non-vested equity-based awards will be automatically extinguished. All vested equity-based awards shall be subject to the terms of the Company’s Equity Incentive Compensation Plan.
If Dr. Nijhawan is terminated without “Cause”, subject to Dr. Nijhawan signing a general release of claims, Dr. Nijhawan is entitled to: (i) a lump sum payment equal to Dr. Nijhawan’s then current base salary for 12 months plus one additional month for every completed year of service since August 1, 2017 (the “Nijhawan Severance Period”) which shall not exceed 24 months, inclusive of, and not in addition to, his notice and severance entitlements, if any, pursuant to applicable law, (ii) a lump sum payment of the annual bonus to which Dr. Nijhawan is entitled for the calendar year immediately preceding the date of termination, if such bonus has not already been paid, (iii) a lump sum payment equal to Dr. Nijhawan’s annual bonus entitlement, prorated over Dr. Nijhawan’s length of service in the calendar year in which his employment is terminated, calculated in accordance with the terms of the Nijhawan Employment Agreement, (iv) payment of Dr. Nijhawan’s annual bonus entitlement during the full Nijhawan Severance Period, calculated in accordance with the terms of the Nijhawan Employment Agreement, (v) continuation of Dr. Nijhawan’s benefits and car allowance and any other benefit required to be maintained by law in accordance with the terms of the Nijhawan Employment Agreement, and (vi) subject to applicable law, all vested equity-based awards granted to Dr. Nijhawan shall be exercisable in accordance with the terms of the applicable Equity Incentive Compensation Plan.
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None.In the event that Dr. Nijhawan is terminated or constructively terminated, which includes a material change in Dr. Nijhawan’s title, responsibilities, authority or status or a material reduction of his compensation, without “Cause” upon or within a 12-month period following a “Change of Control” (as such term is defined in the Nijhawan Employment Agreement), Dr. Nijhawan is entitled to (i) a change of control payment equal to 24 months of the value of Dr. Nijhawan’s then current base salary as of the date of termination, (ii) a lump sum payment of the annual bonus to which Dr. Nijhawan is entitled for the calendar year immediately preceding the date of termination, if such bonus has not already been paid, (iii) a lump sum payment equal to Dr. Nijhawan’s annual bonus entitlement, prorated over Dr. Nijhawan’s length of service in the calendar year in which his employment is terminated, calculated in accordance with the terms of the Nijhawan Employment Agreement, (iv) payment of Dr. Nijhawan’s annual bonus entitlement during the full Nijhawan Severance Period, calculated in accordance with the terms of the Nijhawan Employment Agreement, (v) continuation of Dr. Nijhawan’s benefits and car allowance and any other benefit required to be maintained by law in accordance with the terms of the Nijhawan Employment Agreement, and (vi) subject to applicable law, all vested equity-based awards granted to Dr. Nijhawan shall be exercisable in accordance with the terms of the applicable Equity Incentive Compensation Plan.
Dr. Nijhawan may resign from his employment at any time by providing the Company with a minimum of 60 days advance notice, in writing. Dr. Nijhawan’s notice may be waived by the Company, subject only to providing Dr. Nijhawan with payment of his base salary and continuation of benefits until the end of the notice period. If Dr. Nijhawan resigns from his employment, subject to applicable law, (i) all non-vested equity based awards held by Dr. Nijhawan shall be automatically extinguished and (ii) Dr. Nijhawan shall not be entitled to any bonus or pro rata bonus payment not already awarded on or before the date of termination. All vested equity-based awards shall be subject to the terms of the applicable Equity Incentive Compensation Plan.
During the term of Dr. Nijhawan’s employment and for 12 months following the cessation of Dr. Nijhawan’s employment, Dr. Nijhawan is prohibited from competing with the business of the Company in North America. In addition, for 24 months following the cessation of Dr. Nijhawan’s employment, Dr. Nijhawan is prohibited from soliciting customers or prospective customers for any purpose competitive with the business of the Company, encouraging any customer to cease doing business with the Company and soliciting the employment or engagement of certain of Company’s employees.
Amended and Restated Employment Agreement with Michael Brooks
On August 4, 2023, the Company entered into an amended and restated employment agreement with Michael Brooks, the Company’s President (the “Brooks Employment Agreement”).
Pursuant to the Brooks Employment Agreement, Dr. Brooks serves as the Company’s President as well as President and a director of the Company’s subsidiary, Edesa Biotech Research, Inc. Dr. Brooks’ employment will continue for an indefinite term until terminated in accordance with the Brooks Employment Agreement.
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Pursuant to the Brooks Employment Agreement, Dr. Brooks is entitled to a base salary of $335,340 per year and is eligible to receive a target annual bonus of 40% of his base salary, subject to the achievement of corporate and personal targets as determined by the Company and the Board of Directors. Dr. Brooks’ base salary is subject to annual review by the Board of Directors. Dr. Brooks is also entitled to an automobile allowance of $2,000 per month and is eligible to participate in the Company’s group insured benefits program, as may be in effect from time-to-time for employees generally, and executive employees specifically. Dr. Brooks is eligible for equity-based awards pursuant to the Company’s Equity Incentive Compensation Plan, as determined by the Board of Directors or Compensation Committee, commensurate with Dr. Brooks’ position and any business milestones that may be established by the Company.
If Dr. Brooks’ employment is terminated for “Cause” (as such term is defined in the Brooks Employment Agreement), subject to applicable law, Dr. Brooks is entitled to his base salary and vacation pay earned through the date of termination, and all of Dr. Brooks’ non-vested equity-based awards will be automatically extinguished. All vested equity-based awards shall be subject to the terms of the Company’s Equity Incentive Compensation Plan.
If Dr. Brooks is terminated without “Cause”, subject to Dr. Brooks signing a general release of claims, Dr. Brooks is entitled to: (i) a lump sum payment equal to Dr. Brooks’ then current base salary for 12 months plus one additional month for every completed year of service since September 1, 2015 (the “Brooks Severance Period”) which shall not exceed 24 months, inclusive of, and not in addition to, his notice and severance entitlements, if any, pursuant to applicable law, (ii) a lump sum payment of the annual bonus to which Dr. Brooks is entitled for the calendar year immediately preceding the date of termination, if such bonus has not already been paid, (iii) a lump sum payment equal to Dr. Brooks’ annual bonus entitlement, prorated over Dr. Brooks’ length of service in the calendar year in which his employment is terminated, calculated in accordance with the terms of the Brooks Employment Agreement, (iv) payment of Dr. Brooks’ annual bonus entitlement during the full Brooks Severance Period, calculated in accordance with the terms of the Brooks Employment Agreement, (v) continuation of Dr. Brooks’ benefits and car allowance and any other benefit required to be maintained by law in accordance with the terms of the Brooks Employment Agreement, and (vi) subject to applicable law, all vested equity-based awards granted to Dr. Brooks shall be exercisable in accordance with the terms of the applicable Equity Incentive Compensation Plan.
In the event that Dr. Brooks is terminated or constructively terminated, which includes a material change in Dr. Brooks’ title, responsibilities, authority or status or a material reduction of the Employee’s compensation, without cause upon or within a 12-month period following a “Change of Control” (as such term is defined in the Brooks Employment Agreement), Dr. Brooks is entitled to (i) a change of control payment equal to 24 months of the value of Dr. Brooks’ then current base salary as of the date of termination, (ii) a lump sum payment of the annual bonus to which Dr. Brooks is entitled for the calendar year immediately preceding the date of termination, if such bonus has not already been paid, (iii) a lump sum payment equal to Dr. Brooks’ annual bonus entitlement, prorated over Dr. Brooks’ length of service in the calendar year in which his employment is terminated, calculated in accordance with the terms of the Brooks Employment Agreement, (iv) payment of Dr. Brooks’ annual bonus entitlement during the full Brooks Severance Period, calculated in accordance with the terms of the Brooks Employment Agreement, (v) continuation of Dr. Brooks’ benefits and car allowance and any other benefit required to be maintained by law in accordance with the terms of the Brooks Employment Agreement, and (vi) subject to applicable law, all vested equity-based awards granted to Dr. Brooks shall be exercisable in accordance with the terms of the applicable Equity Incentive Compensation Plan.
Dr. Brooks may resign from his employment at any time by providing the Company with a minimum of 60 days advance notice, in writing. Dr. Brooks’ notice may be waived by the Company, subject only to providing Dr. Brooks with payment of his base salary and continuation of benefits until the end of the notice period. If Dr. Brooks resigns from his employment, subject to applicable law, (i) all non-vested equity based awards held by Dr. Brooks shall be automatically extinguished and (ii) Dr. Brooks shall not be entitled to any bonus or pro rata bonus payment not already awarded on or before the date of termination. All vested equity-based awards shall be subject to the terms of the applicable Equity Incentive Compensation Plan.
During the term of Dr. Brooks’ employment and for 12 months following the cessation of Dr. Brooks’ employment, Dr. Brooks is prohibited from competing with the business of the Company in North America. In addition, for 24 months following the cessation of Dr. Brooks’ employment, Dr. Brooks is prohibited from soliciting customers or prospective customers for any purpose competitive with the business of the Company, encouraging any customer to cease doing business with the Company and soliciting the employment or engagement of certain of Company’s employees.
The descriptions of the Nijhawan Employment Agreement and Brooks Employment Agreement do not purport to be complete and are qualified in their entireties by reference to the full texts of the Nijhawan Employment Agreement and Brooks Employment Agreement, which have been filed as Exhibits listed10.3 and 10.4 to this Quarterly Report and are incorporated herein by reference.
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Item 6. Exhibits
EXHIBIT INDEX
Exhibit No. | Description | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Label Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
* The information in the Exhibit Index immediately preceding such Exhibits arethis exhibit is furnished and deemed not filed with orthe Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Edesa Biotech, Inc. under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in this Quarterly Report.such filing.
+ Management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 9, 2023 | By: | /s/ Stephen Lemieux | |
Stephen Lemieux, Chief Financial Officer | |||
(Principal Financial Officer and Duly Authorized Officer) |
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EXHIBIT INDEX
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