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, 20172023
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 | ( |
Securities 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 |
Registrant’s telephone number, including area code:(805) 488-2800
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, 2018,9, 2024, the registrant had 10,520,0963,171,760 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, 20172023
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 |
|
| December 31, 2023 |
|
| September 30, 2023 |
| ||
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 4,267,787 |
|
| $ | 5,361,397 |
|
Accounts and other receivable |
|
| 743,569 |
|
|
| 626,543 |
|
Prepaid expenses and other current assets |
|
| 404,903 |
|
|
| 448,912 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 5,416,259 |
|
|
| 6,436,852 |
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 8,188 |
|
|
| 8,702 |
|
Long-term deposits |
|
| 177,731 |
|
|
| 173,490 |
|
Intangible asset, net |
|
| 2,154,727 |
|
|
| 2,180,020 |
|
Right-of-use assets |
|
| 74,885 |
|
|
| 91,373 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 7,831,790 |
|
| $ | 8,890,437 |
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 1,908,598 |
|
| $ | 1,747,150 |
|
Short-term right-of-use lease liabilities |
|
| 78,314 |
|
|
| 74,714 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 1,986,912 |
|
|
| 1,821,864 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Long-term right-of-use lease liabilities |
|
| - |
|
|
| 19,773 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 1,986,912 |
|
|
| 1,841,637 |
|
|
|
|
|
|
|
|
|
|
Commitments (Note 5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Capital shares |
|
|
|
|
|
|
|
|
Authorized unlimited common and preferred shares without par value |
|
|
|
|
|
|
|
|
Issued and outstanding: |
|
|
|
|
|
|
|
|
3,164,722 common shares (September 30, 2023 - 3,075,473) |
|
| 46,933,895 |
|
|
| 46,643,151 |
|
Additional paid-in capital |
|
| 13,223,622 |
|
|
| 13,039,265 |
|
Accumulated other comprehensive loss |
|
| (215,220 | ) |
|
| (214,648 | ) |
Accumulated deficit |
|
| (54,097,419 | ) |
|
| (52,418,968 | ) |
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
| 5,844,878 |
|
|
| 7,048,800 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ | 7,831,790 |
|
| $ | 8,890,437 |
|
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 |
| |||||
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Expenses: |
|
|
|
|
|
| ||
Research and development |
| $ | 704,458 |
|
| $ | 1,357,338 |
|
General and administrative |
|
| 1,152,971 |
|
|
| 1,020,967 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (1,857,429 | ) |
|
| (2,378,305 | ) |
|
|
|
|
|
|
|
|
|
Other income (loss): |
|
|
|
|
|
|
|
|
Reimbursement grant income |
|
| 120,834 |
|
|
| - |
|
Interest income |
|
| 60,966 |
|
|
| 49,429 |
|
Foreign exchange loss |
|
| (2,822 | ) |
|
| (5,941 | ) |
|
|
|
|
|
|
|
|
|
|
|
| 178,978 |
|
|
| 43,488 |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| (1,678,451 | ) |
|
| (2,334,817 | ) |
|
|
|
|
|
|
|
|
|
Exchange differences on translation |
|
| (572 | ) |
|
| (25,067 | ) |
|
|
|
|
|
|
|
|
|
Net comprehensive loss |
| $ | (1,679,023 | ) |
| $ | (2,359,884 | ) |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
| 3,128,024 |
|
|
| 2,626,847 |
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted |
| $ | (0.54 | ) |
| $ | (0.89 | ) |
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 |
|
| Three Months Ended |
| |||||
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (1,678,451 | ) |
| $ | (2,334,817 | ) |
Adjustments for: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 45,031 |
|
|
| 27,197 |
|
Share-based compensation |
|
| 184,357 |
|
|
| 333,675 |
|
Changes in working capital items: |
|
|
|
|
|
|
|
|
Accounts and other receivable |
|
| (99,585 | ) |
|
| 1,060,378 |
|
Prepaid expenses and other current assets |
|
| 38,664 |
|
|
| 57,722 |
|
Accounts payable and accrued liabilities |
|
| 103,456 |
|
|
| (935,250 | ) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (1,406,528 | ) |
|
| (1,791,095 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares and warrants |
|
| 315,201 |
|
|
| 3,027,496 |
|
Payments for issuance costs of common shares and warrants |
|
| (9,459 | ) |
|
| (115,721 | ) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 305,742 |
|
|
| 2,911,775 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 7,176 |
|
|
| 58,608 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| (1,093,610 | ) |
|
| 1,179,288 |
|
Cash and cash equivalents, beginning of period |
|
| 5,361,397 |
|
|
| 7,090,919 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
| $ | 4,267,787 |
|
| $ | 8,270,207 |
|
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 December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance - September 30, 2023 |
|
| 3,075,473 |
|
| $ | 46,643,151 |
|
| $ | 13,039,265 |
|
| $ | (214,648 | ) |
| $ | (52,418,968 | ) |
| $ | 7,048,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares |
|
| 89,249 |
|
|
| 315,201 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 315,201 |
|
Issuance costs |
|
| - |
|
|
| (24,457 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (24,457 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 184,357 |
|
|
| - |
|
|
| - |
|
|
| 184,357 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (572 | ) |
|
| (1,678,451 | ) |
|
| (1,679,023 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2023 |
|
| 3,164,722 |
|
| $ | 46,933,895 |
|
| $ | 13,223,622 |
|
| $ | (215,220 | ) |
| $ | (54,097,419 | ) |
| $ | 5,844,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
| 2,380,280 |
|
| $ | 42,473,099 |
|
| $ | 11,176,345 |
|
| $ | (213,602 | ) |
| $ | (44,044,553 | ) |
| $ | 9,391,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants |
|
| 384,477 |
|
|
| 2,082,669 |
|
|
| 944,827 |
|
|
| - |
|
|
| - |
|
|
| 3,027,496 |
|
Issuance costs |
|
| - |
|
|
| (81,945 | ) |
|
| (37,175 | ) |
|
| - |
|
|
| - |
|
|
| (119,120 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 333,675 |
|
|
| - |
|
|
| - |
|
|
| 333,675 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (25,067 | ) |
|
| (2,334,817 | ) |
|
| (2,359,884 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2022 |
|
| 2,764,757 |
|
| $ | 44,473,823 |
|
| $ | 12,417,672 |
|
| $ | (238,669 | ) |
| $ | (46,379,370 | ) |
| $ | 10,273,456 |
|
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, 2017.2023, which was filed with the Securities and Exchange Commission (SEC) on December 15, 2023.
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 months ended December 31, 20172023 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.2024.
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 |
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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 |
|
| December 31, 2023 |
|
| September 30, 2023 |
| ||
|
|
|
|
|
|
| ||
The Constructs |
| $ | 2,529,483 |
|
| $ | 2,529,483 |
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization |
|
| (374,756 | ) |
|
| (349,463 | ) |
|
|
|
|
|
|
|
|
|
Total intangible assets, net |
| $ | 2,154,727 |
|
| $ | 2,180,020 |
|
Depreciation and amortizationAmortization 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, 20172023 and 2016,2022 , respectively.
Total estimated future amortization of intangible assets for each fiscal year is as follows:
Year Ending |
|
|
| |
September 30, 2024 |
|
| 75,879 |
|
September 30, 2025 |
|
| 101,172 |
|
September 30, 2026 |
|
| 101,172 |
|
September 30, 2027 |
|
| 101,172 |
|
September 30, 2028 |
|
| 101,172 |
|
Thereafter |
|
| 1,674,160 |
|
|
|
|
|
|
|
| $ | 2,154,727 |
|
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 |
| |||||
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Right-of-use lease cost, included in general and administrative on the Statements of Operations |
| $ | 20,116 |
|
| $ | 18,898 |
|
Lease terms and discount rates were as follows:
December 31, 2023 | September 30, 2023 | |||||||
Remaining lease term (months): | 12 | 15 | ||||||
Estimated incremental borrowing rate: | 9.2 | % | 9.2 | % |
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Table of Contents |
The future minimum lease payments under right-of-use leases at December 31, 2023 were as follows:
Year Ending |
|
|
|
|
|
| ||
September 30, 2024 |
|
|
|
| $ | 61,234 |
| |
September 30, 2025 |
|
|
|
|
| 20,411 |
| |
|
|
|
|
|
|
|
| |
Total lease payments |
|
|
|
|
| 81,645 |
| |
Less imputed interest |
|
|
|
|
| 3,331 |
| |
|
|
|
|
|
|
|
| |
Present value of right-of-use lease liabilities |
|
|
|
|
| 78,314 |
| |
Present value included in current liabilities |
|
|
|
|
| 78,314 |
| |
|
|
|
|
|
|
|
|
|
Present value included in long-term liabilities |
|
|
|
| $ | - |
|
Cash flow information was as follows:
|
| Three Months Ended |
| |||||
|
| December 31, 2023 |
|
| December 31, 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. |
| $ | 20,116 |
|
| $ | 18,899 |
|
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 December 31, 2023 are as follows:
Year Ending |
|
|
| |
|
|
|
| |
September 30, 2024 |
| $ | 1,540,000 |
|
September 30, 2025 |
|
| 49,000 |
|
September 30, 2026 |
|
| 36,000 |
|
September 30, 2027 |
|
| 42,000 |
|
September 30, 2028 |
|
| - |
|
|
|
|
|
|
|
| $ | 1,667,000 |
|
License and royalty commitments
In April 2020, through its CaliforniaOntario subsidiary, the Company entered into a patent royaltylicense agreement with a director and officer of the Company, whereby he would receive royalty payments in exchange for assignment of his patentthird party to obtain exclusive world-wide rights to the Company.Constructs, including sublicensing rights. An intangible asset for the acquired license has been recognized. See Note 5 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 is 5% of gross receipts from products using this invention in excess of $500,000 annually. The Company’s current operations utilize this invention. There was no royalty expense incurredor sublicensing payments were made to the third party during the three months ended December 31, 20172023 and 2016.2022.
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. Upon divestiture of substantially all of the assets of the Company, the Company shall pay 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. A milestone payment of $0.1 million was made to the third party during the three months ended December 31, 2022 and no milestone payments were made during the three months ended December 31, 2023.
9 | ||
Table of Contents |
In March 2021, through its Ontario subsidiary, the Company entered into a license agreement with the inventor of the same pharmaceutical product to acquire global rights for all fields of use beyond those named under the 2016 license agreement. The Company hadis committed to remaining 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 transactionsthe date of the agreement, the Company is required to remit to the inventor a fixed license fee quarterly as long as the requirement to file an IND remains unfulfilled. For the three months ended December 31, 2023, the Company recorded an expense of $25,000 as a result of meeting milestones outlined in share capital:the 2021 license agreement. There were no milestones achieved in the three months ended December 31, 2022 and no expenses were incurred.
Three Months Ended | ||||||||
December 31, | December 31, | |||||||
2017 | 2016 | |||||||
Share-based compensation | $ | 20,706 | $ | 36,442 |
6. Capital Shares
Equity offerings
On November 2, 2022, the Company completed a private placement of units consisting of 384,475 common shares, Class A warrants to purchase up to an aggregate of 192,248 common shares and Class B warrants to purchase up to an aggregate of 192,248 common shares. Net proceeds from the offering were $2.9 million, which were allocated between the relative fair values of the common shares (using a fair value of $2.7 million) and the common share purchase warrants (using a total fair value of $1.2 million). The warrants became exercisable December 23, 2022. The Class A warrants have an exercise price of $10.50 per share and will expire on December 23, 2025. The Class B warrants have an exercise price of $7.00 per share and expired on December 23, 2023. The warrants are considered contracts on the Company’s own shares and are classified as equity.
Equity distribution agreement
On March 27, 2023, the Company entered into an equity distribution agreement with Canaccord, 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 $8.4 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 December 31, 2023, the Company sold a total of 89,249 common shares pursuant to the agreement for gross proceeds of approximately $0.3 million after deducting commissions and direct costs.
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.
10 |
Table of Contents |
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 |
| ||
Three Months Ended December 31, 2023 |
|
|
|
|
|
| ||
Balance - September 30, 2023 |
|
| 720,909 |
|
| $ | 19.51 |
|
|
|
|
|
|
|
|
|
|
Expired |
|
| (110,122 | ) |
|
| 7.00 |
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2023 |
|
| 610,787 |
|
| $ | 21.76 |
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
| 521,718 |
|
| $ | 28.00 |
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 384,496 |
|
|
| 8.75 |
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2022 |
|
| 906,214 |
|
| $ | 19.88 |
|
The weighted average contractual life remaining on the outstanding warrants at December 31, 20172023 is 3338 months.
The following table summarizes information about the warrants outstanding at December 31, 2023:
Number of Warrants (#) |
|
| Exercise Prices |
|
| Expiry Dates | |||
| 1,070 |
|
| $ | 33.67 |
|
| June 2024 | |
| 1,687 |
|
| $ | 22.40 |
|
| January 2025 | |
| 173,614 |
|
| $ | 10.50 |
|
| December 2025 | |
| 15,627 |
|
| $ | 56.00 |
|
| February 2026 | |
| 27,399 |
|
| $ | 31.94 |
|
| March 2027 | |
| 391,390 |
|
| $ | 24.64 |
|
| September 2027 | |
| 610,787 |
|
|
|
|
|
|
|
The fair value of warrants granted during the three months ended December 31, 2022 was estimated using the Black-Scholes option valuation model using the following assumptions:
|
| Three Months Ended December 31, 2022 |
| |||||
|
| Class A Warrants |
|
| Class B Warrants |
| ||
|
|
|
|
|
|
| ||
Risk free interest rate |
|
| 4.54 | % |
|
| 4.76 | % |
Expected life |
| 3.14 years |
|
| 1.14 years |
| ||
Expected share price volatility |
|
| 90.73 | % |
|
| 89.70 | % |
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
Share Optionsoptions
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. The total number of shares available for issuance under the Incentiveterms of the 2019 Plan is 1,597,000, including575,737. The remaining number of 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 as ofto grant at December 31, 2017.2023 is 81,371.
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 for past service are subjectand advisers. Under the 2019 Plan, the option term is not to exceed 10 years and the following vesting schedule: (a) one-third shall vest immediately, (b) one-third shall vest at 12 months fromexercise price of each option is determined by the dateindependent members of grant and (c) one-third shall vest at 18 months from the dateBoard of grant.Directors.
Share options granted to directors, officers, employees and certain individual consultants for future service are subject to the following 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 at 36 months from the date of grant.
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.
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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 | |||||||||||||||||||
Three Months Ended December 31, 2023 |
|
|
|
|
|
|
| |||||||||||||||
Balance - September 30, 2023 |
| 420,615 |
| $ | 25.60 |
| $ | 18.84 |
| |||||||||||||
|
|
|
|
|
|
| ||||||||||||||||
Granted | 71,600 | 1.89 |
| 500 |
| 4.10 |
| 3.10 |
| |||||||||||||
Expired | (28,233 | ) | 11.14 |
|
| (106 | ) |
|
| 960.00 |
|
|
| 960.00 |
| |||||||
|
|
|
|
|
|
|
| |||||||||||||||
Balance - December 31, 2023 |
|
| 421,009 |
|
| $ | 25.46 |
|
| $ | 18.67 |
| ||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Three Months Ended December 31, 2022 |
|
|
|
|
|
|
| |||||||||||||||
Balance - September 30, 2022 |
| 314,853 |
| $ | 32.62 |
| $ | 23.94 |
| |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Granted |
| 500 |
| 6.72 |
| 4.97 |
| |||||||||||||||
Expired | (171,500 | ) | 2.90 | CDN $ |
|
| (34 | ) |
|
| 2,129.00 |
|
|
| 2,129.00 |
| ||||||
|
|
|
|
|
|
| ||||||||||||||||
Balance - September 30, 2017 | 410,970 | $ | 5.74 | |||||||||||||||||||
Expired | (10,667 | ) | 17.29 | |||||||||||||||||||
Expired | (35,250 | ) | 4.57 | CDN $ | ||||||||||||||||||
Balance - December 31, 2017 | 365,053 | $ | 5.58 | |||||||||||||||||||
Balance - December 31, 2022 |
|
| 315,319 |
|
| $ | 32.27 |
|
| $ | 23.73 |
|
During the three months ended December 31, 2023, the independent members of the Board of Directors granted 500 employee options and no director options. The options have a term of 10 years and an exercise price equal to the Nasdaq closing price on the grant date.
The weighted average contractual life remaining on the outstanding options at December 31, 2023 is 3383 months.
The following table summarizes information about the options under the Incentive2019 Plan outstanding and exercisable at December 31, 2017:2023:
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 December 31, 2023 (#) |
|
| Range of Exercise Prices |
|
| Expiry Dates | ||||
| 391 |
|
|
| 391 |
|
| $ | 246.96 - 596.82 |
|
| June 2024 - Mar 2025 | |
| 42,348 |
|
|
| 42,348 |
|
| C$ | 15.12 |
|
| May 2024 - Dec 2028 | |
| 46,285 |
|
|
| 46,285 |
|
| $ | 22.12 |
|
| May 2024 - Feb 2030 | |
| 56,722 |
|
|
| 56,722 |
|
| $ | 52.08 - 56.49 |
|
| May 2024 - Oct 2030 | |
| 93,344 |
|
|
| 87,090 |
|
| $ | 36.75 - 40.18 |
|
| Apr 2024 - Sep 2031 | |
| 68,777 |
|
|
| 49,004 |
|
| $ | 20.58 - 25.97 |
|
| Apr 2024 - Feb 2032 | |
| 113,142 |
|
|
| 30,585 |
|
| $ | 5.79 - 10.01 |
|
| Apr 2024 - Jul 2033 | |
| 421,009 |
|
|
| 312,425 |
|
|
|
|
|
|
|
The estimatedoptions exercisable at December 31, 2023 had a weighted average exercise price of $29.99, $245 intrinsic value and a weighted average remaining life of 74 months. There were 108,584 options at December 31, 2023 that had not vested with a weighted average exercise price of $12.43, no intrinsic value and a weighted average remaining life of 109 months.
The fair value of the share options granted during the three months ended December 31, 20162023 and 2022 was determinedestimated using athe Black-Scholes option valuation model withusing the following weighted average assumptions:
|
| Three Months Ended December 31, 2023 |
|
| Three Months Ended December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Risk free interest rate |
|
| 4.92 | % |
|
| 3.62 | % |
Expected life |
| 5 years |
|
| 5 years |
| ||
Expected share price volatility |
|
| 97.26 | % |
|
| 95.30 | % |
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
There were no share options granted duringThe Company recorded $0.2 million and $0.3 million of share-based compensation expenses for the three months ended December 31, 2017.
The weighted average fair value of share options granted during the three months ended December 31, 2016 was $1.98.2023 and 2022, respectively.
As of December 31, 2017,2023, the Company had approximately $40,000$0.3 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 27 months.31months.
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Restricted Share Units (RSU)
The Company’s 2019 Plan allows restricted share units (RSUs) to be granted to directors, officers, employees and certain external consultants and advisers. Under the 2019 Plan, the RSU term is not to exceed 10 years. The fair value is based on the 5-day VWAP of the Company’s common shares up to the date of grant. The initial grant of RSUs was in August 2023.
The following is a summary of changes in the status of RSUs from October 1, 2023 through December 31, 2023:
|
| Number of RSU (#) |
|
| Weighted Average Grant Date Fair Value |
| ||
Three Months Ended December 31, 2023 |
|
|
|
|
|
| ||
Balance - September 30, 2023 and December 31, 2023 |
|
| 33,045 |
|
| $ | 5.60 |
|
The following table summarizes information about the RSUs under the 2019 Plan outstanding and exercisable at December 31, 2023:
Number of RSU (#) | Expiry Date | ||||||
Fully-vested RSUs | 33,045 | August 4, 2033 |
All RSUs that were granted vested immediately upon the grant date. The outstanding RSUs can be converted to common shares by the holder at any time prior to the expiry date. There wereis no options exercised duringfuture unrecorded compensation expense for the RSUs.
7. Government Contributions
Reimbursement grant income for the Company’s federal grant with the Canadian government’s SIF is recorded based on the claim period of eligible costs.
In February 2021, the Company entered into a multi-year contribution agreement (the 2021 SIF Agreement) with the Canadian Government’s Strategic Innovation Fund. Under the 2021 SIF Agreement, the Government of Canada committed up to C$14.1 million in nonrepayable funding which was intended to support research and development related to our EB05 clinical program. No further funding will be received from the 2021 SIF Agreement.
In October 2023, the Company entered into a multi-year contribution agreement (the 2023 SIF Agreement) with the Canadian Government’s Strategic Innovation Fund. Under the 2023 SIF Agreement, the Government of Canada committed up to C$23 million in partially repayable funding toward (i) conducting and completing the Company’s Phase 3 clinical study of its experimental drug EB05 in critical-care patients with Acute Respiratory Distress Syndrome (ARDS) caused by COVID-19 or other infectious agents, (ii) submitting EB05 for governmental approvals and manufacturing scale-up, following, and subject to, completing the Phase 3 study and (iii) conducting two non-clinical safety studies to assess the potential long-term impact of EB05 exposure (the Project). Of the C$23 million committed by SIF, up to C$5.8 million is not repayable by the Company. The remaining C$17.2 million is conditionally repayable starting in 2029 only if and when the Company earns gross revenue. The repayable portion would be payable over fifteen (15) years based on a percentage rate of the Company’s annual revenue growth. The maximum amount repayable under the Agreement is 1.4 times the original repayable amount. In addition, the Company is entitled to partial reimbursement of certain eligible expenses under the Agreement.
Under the Agreement, the Company agreed to certain financial and non-financial covenants and other obligations in relation to the Project. Pursuant to the Agreement, certain customary events of default, such as the Company’s or Edesa Biotech Research’s breach of their covenants and obligations under the Agreement, their insolvency, winding up or dissolution, and other similar events, may permit the Government of Canada to declare an event of default under the Agreement. Upon an event of default, subject to applicable cure, the Government of Canada may exercise a number of remedies, including suspending or terminating funding under the Agreement, demanding repayment of funding previously received and/or terminating the Agreement.
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The funding and any associated conditional repayments are not secured by any assets of Edesa Biotech Research or the Company.
The Agreement will expire on the later of December 31, 2042 or the date of the last repayment, unless earlier terminated, subject to certain provisions that extend three (3) years beyond the term or early termination of the Agreement.
Under the 2023 SIF Agreement the Company recorded grant income of $0.1 million for the three months ended December 31, 2017 and 2016. There2023. No grant income was no intrinsic value ofrecorded under the vested options at2023 SIF Agreement for the three months ended December 31, 2017.
2022.
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:
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. (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
(c) Foreign exchange risk The Company and its subsidiary have balances in Canadian dollars that give rise to exposure to (d) Liquidity risk Liquidity risk is the risk that the Company
9. Loss per Share
The Company had securities outstanding which could potentially dilute basic earnings per share in the 10. Related Party Transactions During each of
the original lease agreement. Rent of approximately $15,000 was payable at December 31, 2023. There was no rent payable at December 31, 2022.
In October 2023, we entered into $10.0 million revolving credit agreement with Pardeep Nijhawan Medicine Professional Corporation, an entity controlled by Dr. Pardeep Nijhawan, MD, our Chief Executive Officer and Secretary and member of our board of directors (Credit Agreement), providing an unsecured revolving credit facility, with a credit limit of $3.5 million (Credit Limit) which was available immediately. The line of credit bears interest at the Canadian Imperial Bank of Commerce US Base-Interest Rate plus 3% per annum and has a maturity date of March 31, 2026, unless terminated earlier by either party with 90 days’ notice. Advances under the line of credit are tied to a borrowing base (Borrowing Base) consisting of eligible grant receivables from SIF, future potential license fee receivables and any other accounts receivable. At no time shall the aggregate principal amount of all advances outstanding exceed the lesser of (i) the Credit Limit and (ii) an amount equal to 85% of the Borrowing Base. The Company 11. Subsequent Events Subsequent to December 31, 2023, equity sales under the Company’s at-the-market offering program have resulted in the issuance of 7,038 common shares and receipt of net cash proceeds of $0.03 million after deducting sales agent commissions.
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, 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, 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,
This Quarterly Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. There are a
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the
Overview We are a biopharmaceutical company developing innovative ways to treat inflammatory and 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 Our most advanced drug candidate is EB05. EB05 represents a new class of emerging therapies called Host-Directed Therapeutics (HDTs) that are designed to modulate the body’s own immune response when confronted with infectious diseases or even chemical agents. Importantly, these therapies are designed to work across multiple infectious diseases and threats, and could be stockpiled preemptively ahead of outbreaks. Because they are threat agnostic, HDTs like paridiprubart have the potential to become standard of care in Intensive Care Units (ICUs) and critical countermeasures for both pandemic preparedness and biodefense. We are currently evaluating EB05 as a potential treatment for Acute Respiratory Distress Syndrome (ARDS), a life-threatening form of respiratory failure. Recruitment in a Phase 3 study is ongoing. In addition to EB05, we are developing product candidates for a number of chronic dermatological and inflammatory conditions. In November 2023, we reported final results from a 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 findings, 1.0% EB01 cream demonstrated statistically significant
Recent Developments
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES See Note 2 to our financial statements included in our Annual Report on Form 10-K for the
Results of Operations
Comparison of the Three Months Ended December 31,
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For the three months ended December 31, 2023, our net loss was $1.7 million, or $0.54 per common share, compared to a net loss of $2.3 million, or $0.89 per common share for the three months ended December 31, 2022. Capital Expenditures
Our Liquidity and Capital Resources As 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 through issuances of common shares, exercises of common share purchase warrants, convertible preferred shares, convertible loans, government grants and tax incentives. Our primary use of cash is to fund our operating expenses, which consist of R&D and G&A expenditures. Cash used to fund operating expenses is impacted by
In October 2023, we entered into the 2023 SIF Agreement with the Canadian Government’s SIF. Under the 2023 SIF Agreement, the Government of Canada committed up to C$23 million in partially repayable funding. Of the C$23 million committed by SIF, up to C$5.8 million is not repayable by us. The remaining C$17.2 million is conditionally repayable starting in 2029 only if and when we earn gross revenue. In February 2021, we entered into the 2021 SIF Agreement, pursuant to which we were eligible to receive cash reimbursements up to C$14.1 million in the aggregate for certain R&D expenses related to our EB05 clinical development program. All potential funding available under the 2021 SIF Agreement has been received. For the three months ended December 31, 2023 we recorded grant income of $0.1 million related to the 2023 SIF Agreement. The was no grant income recognized in the comparative period. In October 2023, we entered into $10.0 million revolving credit agreement with Pardeep Nijhawan Medicine Professional Corporation, an entity controlled by Dr. Pardeep Nijhawan, MD, our Chief Executive Officer and Secretary and member of our board of directors (Credit Agreement), providing an unsecured revolving credit facility, with a credit limit of $3.5 million (Credit Limit) which was available immediately. The line of credit bears interest at the Canadian Imperial Bank of Commerce US Base-Interest Rate plus 3% per annum and has a maturity date of March 31, 2026, unless terminated earlier by either party with 90 days’ notice. Advances under the line of credit are tied to a borrowing base (Borrowing Base) consisting of eligible grant receivables from SIF, future potential license fee receivables and any other accounts receivable. At no time shall the aggregate principal amount of all advances outstanding exceed the lesser of (i) the Credit Limit and (ii) an amount equal to 85% of the Borrowing Base. We have not drawn any funds from the Credit Agreement. In August 2022, we filed a $150.0 million shelf registration statement. In March 2023, we entered into an equity distribution agreement with Canaccord, as sales agent, pursuant to which we 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 us to offer and sell common shares having an aggregate gross sales price of up to $8.4 million (Canaccord ATM). There was approximately $6.7 million of available capacity on the Canaccord ATM as of December 31, 2023.We have 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. For the three months ended December 31, 2023, we sold a total of 89,249 common shares pursuant to the agreement for net proceeds of $0.3 million after deducting commissions and costs of $24,000. Subsequent to December 31, 2023, we sold a total of 7,038 common shares pursuant to the agreement for net proceeds of $33,000 after deducting sales agent commissions. In November 2022, we completed a private placement of units consisting of 384,475 common shares, 12-month warrants to purchase up to an At December 31, 2023, we had an accumulated deficit of $54.1 million and working capital of $3.4 million, including $4.3 million in cash and cash equivalents. We plan to finance company operations over the course of the next twelve months with cash and cash equivalents on hand, including net proceeds from the Canaccord ATM, advances under the Credit Agreement and reimbursements of eligible R&D expenses under the 2023 SIF Agreement with the Canadian government. Management has flexibility to adjust this timeline by making changes to planned expenditures related to, among other factors, the size and timing of clinical trial expenditures and manufacturing campaigns, staffing levels, and the acquisition or in-licensing of new product candidates. To help fund our operations and meet our obligations in the future, we plan to seek additional financing through the sale of equity, government grants, debt financings or other capital sources, including potential future licensing, collaboration or similar arrangements with third parties or other strategic transactions. If we raise additional funds by issuing equity securities, our shareholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our existing shareholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development of our product candidates. We expect to continue to incur substantial additional operating losses for at least the Cash Flows Net cash used in operating activities Net cash used in operating activities was
Net cash used in investing activities There was no cash used in investing activities for the three months ended December 31,
Net cash provided by financing activities
Our primary business is the development of innovative therapeutics for inflammatory and immune-related diseases with clear unmet medical needs. We focus our resources on R&D activities, including the conduct of clinical studies and product development, and expense such costs as they are incurred. R&D expenses, which have historically varied based on the level of activity in our clinical programs, are significantly influenced by study initiation expenses and patient recruitment rates, and as a result are expected to continue to fluctuate, sometimes substantially. Our R&D expenses were $0.7 million and $1.4 million for the three months ended December 31, 2023 and 2022, respectively. The decrease was due primarily to lower external research expenses related to our ongoing clinical studies.
We
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 the 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
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,
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.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits EXHIBIT INDEX
* The @ Management contract or compensatory plan or arrangement. + Portions of this
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.
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