UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number
(Exact name of Registrant as specified in its Charter)
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
The |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 |
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| Accelerated filer |
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☒ | 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 14, 2023, the registrant had
Table of Contents
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements.” Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions of the Company. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q regarding the prospects of our industry or our prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “plans,” “expects” or “does not expect,” “is expected,” “look forward to,” “budget,” “scheduled,” “estimates,” “forecasts,” “will continue,” “intends,” “the intent of,” “have the potential,” “anticipates,” “does not anticipate,” “believes,” “should,” “should not,” or variations of such words and phrases that indicate that certain actions, events or results “may,” “could,” “would,” “might,” or “will,” “be taken,” “occur,” or “be achieved,” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission (“SEC”) or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.
Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to:
● | the anticipated amount, timing and accounting of contingent, milestone, royalty and other payments under licensing or collaboration agreements; |
● | tax positions and contingencies; research and development costs; compensation and other selling, general and administrative expense; |
● | amortization of intangible assets; |
● | foreign currency exchange risk; |
● | estimated fair value of assets and liabilities; and impairment assessments; |
● | patent terms, patent term extensions, patent office actions and expected availability and period of regulatory exclusivity; |
● | our plans and investments in our portfolio as well as implementation of our corporate strategy; |
● | the risk that the Company will maintain enough liquidity to execute its business plan and its ability to continue as a going concern; |
● | the drivers for growing our business, including our plans and intention to commit resources relating to discovery, research and development programs and business development opportunities as well as the potential benefits and results of, and the anticipated completion of, certain business development transactions; |
● | the expectations, development plans and anticipated timelines, including costs and timing of potential clinical trials, filings and approvals, of our products candidates and pipeline programs, including collaborations with third-parties, as well as the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline product candidates, if approved; |
● | the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to our patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters; |
● | our ability to finance our operations and business initiatives and obtain funding for such activities; |
● | any continuing impact of the COVID-19 pandemic on our business and operations, including expenses, reserves and allowances, the supply chain, manufacturing, cyber-attacks or other privacy or data security incidents, research and development costs, clinical trials and employees; |
● | inflation, market volatility and rising interest rates; |
● | the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our product candidates, if approved; |
● | the risk that we become characterized as a passive foreign investment company; |
● | lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations; and |
● | the impact of new laws (including tax), regulatory requirements, judicial decisions and accounting standards. |
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. Risks, uncertainties and other factors which may cause the actual results, performance or achievements of ProMIS Neurosciences Inc. (the “Company”), as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements include, but are not limited to, the risks described under the heading “Risk Factors Summary” and in Item 1A—“Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 8, 2023 (the “Form 10-K”), the section entitled “Risk Factors” in the Company’s Post-Effective Amendment No. 1 to Form S-1 filed with the SEC on March 17, 2023 as well as the risks described in Item 1A—“Risk Factors” in this Quarterly Report on Form 10-Q.
Readers are cautioned not to place undue reliance on any forward-looking statements contained in this Quarterly Report on Form 10-Q, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
PROMIS NEUROSCIENCES INC.
Condensed Consolidated Balance Sheets
(expressed in US dollars, except share amounts)
(Unaudited)
June 30, | December 31, | ||||||
| 2023 |
| 2022 | ||||
Assets | |||||||
Current assets: | |||||||
Cash | $ | | $ | | |||
Short-term investments |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
| — |
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Intangible assets, net |
| |
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Total assets | $ | | $ | | |||
Liabilities and Shareholders' Deficit |
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Current liabilities: |
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Accounts payable | $ | | $ | | |||
Accrued liabilities |
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Total current liabilities |
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Warrant liability |
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Total liabilities |
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Commitments and contingencies (Note 10) |
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Shareholders' deficit: |
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Series 1 Convertible Preferred Shares, | — | — | |||||
Common shares, |
| — |
| — | |||
Additional paid-in capital |
| |
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Accumulated other comprehensive loss |
| ( |
| ( | |||
Accumulated deficit |
| ( |
| ( | |||
Total shareholders' deficit |
| ( |
| ( | |||
Total liabilities and shareholders' deficit | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PROMIS NEUROSCIENCES INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(expressed in US dollars, except share amounts)
(Unaudited)
For the | For the | For the | For the | ||||||||||
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | June 30, | June 30, | ||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
Operating expenses: | |||||||||||||
Research and development | $ | | $ | | $ | | $ | | |||||
General and administrative |
| |
| |
| |
| | |||||
Total operating expenses |
| |
| |
| |
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Loss from operations |
| ( |
| ( |
| ( |
| ( | |||||
Other income (expense): | |||||||||||||
Change in fair value of financial instruments |
| |
| |
| |
| | |||||
Other interest expense | ( | — | ( | — | |||||||||
Interest expense on convertible debt |
| — |
| ( |
| — |
| ( | |||||
Gain on extinguishment of convertible debt and derivative liability | — | | — | | |||||||||
Other income |
| |
| |
| |
| | |||||
Total other income (expense), net | | | | | |||||||||
Net loss |
| ( |
| ( |
| ( |
| ( | |||||
Other comprehensive loss |
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|
|
|
|
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Foreign currency translation adjustment |
| ( |
| |
| ( |
| | |||||
Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per share, basic and diluted | ( | ( | ( | ( | |||||||||
Weighted-average shares outstanding of common shares, basic and diluted |
| |
| |
| |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PROMIS NEUROSCIENCES INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
(expressed in US dollars, except share amounts)
(Unaudited)
Accumulated | ||||||||||||||||||||||
Series 1 Convertible | Additional | Other |
| |||||||||||||||||||
Preferred Shares | Common Shares | Paid-in | Comprehensive | Accumulated |
| |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Total | |||||||||||||||
Balance, January 1, 2022 |
| — |
| $ | — |
| |
| $ | — |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
Share-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — | | |||||||
Conversion of convertible debt and derivative liability to Series 1 Convertible Preferred Shares |
| 70,000,000 |
| — |
| — |
| — |
| 5,600,000 |
| — |
| — | 5,600,000 | |||||||
Foreign currency translation |
| — |
| — |
| — |
| — |
| — |
| |
| — | | |||||||
Net loss |
| — | — |
| — |
| — |
| — |
| — |
| ( | ( | ||||||||
Balance, June 30, 2022 |
| | $ | — | | $ | — |
| $ | |
| $ | ( |
| $ | ( | $ | |
Accumulated | ||||||||||||||||||||||
Series 1 Convertible | Additional | Other | ||||||||||||||||||||
Preferred Shares | Common Shares | Paid-in | Comprehensive | Accumulated | ||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Total | |||||||||||||||
Balance, January 1, 2023 |
| | $ | — | | $ | — | $ | | $ | ( | $ | ( | $ | ( | |||||||
Share-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Foreign currency translation |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, June 30, 2023 |
| | $ | — |
| | $ | — | $ | | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
PROMIS NEUROSCIENCES INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
(expressed in US dollars, except share amounts)
(Unaudited)
Accumulated | ||||||||||||||||||||||
Series 1 Convertible | Additional | Other |
| |||||||||||||||||||
Preferred Shares | Common Shares | Paid-in | Comprehensive | Accumulated |
| |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Total | |||||||||||||||
Balance, April 1, 2022 |
| — |
| $ | — |
| |
| $ | — |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
Share-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — | | |||||||
Conversion of convertible debt and derivative liability to Series 1 Convertible Preferred Shares |
| |
| — |
| — |
| — |
| |
| — |
| — | | |||||||
Foreign currency translation |
| — |
| — |
| — |
| — |
| — |
| |
| — | | |||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| — |
| ( | ( | |||||||
Balance, June 30, 2022 |
| | $ | — | | $ | — |
| $ | |
| $ | ( |
| $ | ( | $ | |
Accumulated | ||||||||||||||||||||||
Series 1 Convertible | Additional | Other | ||||||||||||||||||||
Preferred Shares | Common Shares | Paid-in | Comprehensive | Accumulated | ||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Total | |||||||||||||||
Balance, April 1, 2023 |
| |
| $ | — |
| |
| $ | — |
| $ | |
| $ | ( |
| $ | ( |
| $ | ( |
Share-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Foreign currency translation |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, June 30, 2023 |
| | $ | — |
| | $ | — | $ | | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
6
PROMIS NEUROSCIENCES INC.
Condensed Consolidated Statements of Cash Flows
(expressed in US dollars)
(Unaudited)
Six Months Ended | |||||||
June 30, | |||||||
| 2023 |
| 2022 | ||||
Cash flows from operating activities | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Share-based compensation |
| |
| | |||
Foreign currency exchange loss (gain) |
| ( |
| | |||
Change in fair value of derivative liability |
| — |
| ( | |||
Change in fair value of warrant liability |
| ( |
| ( | |||
Depreciation of property and equipment |
| |
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Amortization of debt discount and issuance costs |
| — |
| | |||
Amortization of intangible assets |
| |
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Gain on extinguishment of convertible debt and derivative liability | — | ( | |||||
Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
| |
| ( | |||
Accounts payable |
| |
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Accrued liabilities |
| ( |
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Net cash used in operating activities |
| ( |
| ( | |||
Cash flows from investing activities |
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Purchase of property and equipment |
| — |
| ( | |||
Net cash used in investing activities |
| — |
| ( | |||
Effect of exchange rates on cash |
| |
| ( | |||
Net decrease in cash |
| ( |
| ( | |||
Cash at beginning of period |
| |
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Cash at end of period | $ | | $ | | |||
Noncash financing activities |
|
|
|
| |||
Conversion of convertible debt and derivative liability to Series 1 Convertible Preferred Shares | $ | — | $ | | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid for interest on convertible debt | $ | — | $ | | |||
Cash paid for other interest | $ | | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
PROMIS NEUROSCIENCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(expressed in US dollars, except share and per share amounts)
(Unaudited)
1. | DESCRIPTION OF BUSINESS |
Business Description
ProMIS Neurosciences Inc. (the “Company” or “ProMIS”) is applying its patented technology platform to build a portfolio of antibody therapies, therapeutic vaccines, and other antibody-based therapies in neurodegenerative diseases and other protein-misfolding diseases, with a focus on Alzheimer’s disease (AD), multiple system atrophy (MSA), and amyotrophic lateral sclerosis (ALS). The Company believes these diseases share a common biologic cause — misfolded versions of proteins, that otherwise perform a normal function, becoming toxic and killing neurons, resulting in disease. ProMIS’ technology platform enables drug discovery through a combination of protein biology, physics and supercomputing. ProMIS believes this platform provides a potential advantage in selectively targeting the toxic misfolded proteins with therapeutics or detecting them with diagnostics.
The Company is developing a pipeline of antibodies aimed at selectively targeting misfolded toxic forms of proteins that drive neurodegenerative diseases without interfering with the essential functions of the same properly folded proteins. The Company's product candidates are PMN310, PMN267, and PMN442. PMN267 is our second lead product candidate targeting ALS. It has been shown in preclinical studies to selectively recognize misfolded, cytoplasmic TDP 43 aggregates without interacting with normal TDP 43. Misfolded TDP 43 is believed to play an important role in the development of ALS. In light of research suggesting that misfolded toxic a-syn is a primary driver of disease in synucleinopathies such as MSA and Parkinson’s disease, our third lead product candidate, PMN442, has shown robust binding to pathogenic a-syn oligomers and seeding fibrils in preclinical studies, with negligible binding to a-syn monomers and physiologic tetramers which are required for normal neuronal function.
The Company was incorporated on January 23, 2004 under the Canada Business Corporations Act (“CBCA”). On July 13, 2023, the Company continued its existence from a corporation incorporated under the CBCA into the Province of Ontario under the Business Corporations Act (Ontario) (the “OBCA”) (the “Continuance”). The Continuance was approved by the Company’s shareholders at the Company’s 2023 Annual Meeting of Shareholders held on June 29, 2023. The Company is located at 1920 Yonge Street, Toronto, Ontario. The Company’s Common Shares are traded on the Nasdaq Capital Market (“Nasdaq”) under the symbol PMN. The Company has a wholly-owned U.S. subsidiary, ProMIS Neurosciences (US) Inc. (“ProMIS USA”), which was incorporated in January 2016 in the State of Delaware. As of June 30, 2023, ProMIS USA has had no material activity and has no material financial impact on the Company’s unaudited condensed consolidated financial statements.
The success of the Company is dependent on obtaining the necessary regulatory approvals of its product candidates, marketing its products, if approved, and achieving profitable operations. The continuation of the research and development activities and the commercialization of its products, if approved, are dependent on the Company’s ability to successfully complete these activities and to obtain additional financing through a combination of financing activities and operations. It is not possible to predict either the outcome of future research and development or commercialization programs, the Company’s ability to fund these programs, or the Company’s ability to continue as a going concern.
8
Liquidity Risk
The accompanying unaudited condensed consolidated financial statements were prepared on a going concern basis, which assumes that the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated revenues from its activities. The Company had a net loss of $
The Company may continue to incur net losses for at least the next several years as the Company advances its product candidates. The Company is actively pursuing additional financing to further develop certain of the Company’s scientific initiatives, but there is no assurance these initiatives will be successful, timely or sufficient.
2. | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022, which are included with the Company’s Annual Report on Form 10-K and related amendments filed with the United States Securities Exchange Commission (“SEC”). Furthermore, the Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the years ended December 31, 2022 and 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC. Since the date of those audited consolidated financial statements, there have been no changes to the Company’s significant accounting policies except for the Company’s accounting treatment of deferred financing costs for common stock issuances, further described below.
Common stock issuance costs are incremental costs directly associated with an offering of securities. These costs typically include fees paid to bankers or underwriters, attorneys, accountants, as well as printers and other third parties. Prior to the effective date of an offering of equity securities, specific incremental costs directly attributable to a proposed or actual offering of securities may be deferred and charged against the gross proceeds of the offering. The Company capitalizes these deferred financing costs as prepaid expenses and other current assets in the accompanying unaudited interim condensed consolidated balance sheets until the completion of the offering, unless the offering is abandoned, at which time the deferred financing costs will be recognized in the unaudited condensed consolidated statements of operations. During the three and six months ended June 30, 2023, the Company recognized general and administrative expenses of $
The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations, and cash flows. The December 31, 2022 condensed consolidated balance sheet was derived from audited financial statements, but does not include all GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results for the full year.
9
Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made in the accompanying unaudited condensed consolidated financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of warrant liabilities and embedded derivative liabilities. Actual results could differ from those estimates, and such differences could be material to the unaudited condensed consolidated financial statements.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”), or decision-making group, in making decisions on how to allocate resources and assess performance. The Company has
Foreign Currency
Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. As of June 30, 2023, the reporting currency of the Company is the United States dollar (“US$” or “$”) and the functional currency of the Company is the Canadian dollar (“C$”). The assets and liabilities of the Company are translated to US$ at exchange rates in effect at the balance sheet date. All income statement accounts are translated at average exchange rates. Resulting foreign currency translation adjustments are recorded directly in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity (deficit). Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss when realized and are not material for the three and six months ended June 30, 2023 and 2022.
Emerging Growth Company Status
The Company is an Emerging Growth Company, as defined in Section 2(a) of the Securities Act of 1933, as modified by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these unaudited condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (“Subtopic 470-20 ”) and Derivatives and Hedging Contracts in Entity s Own Equity (“Subtopic 815-40 ”): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred shares. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (i) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (ii) convertible debt instruments issued with substantial premiums for which the premiums are recorded as additional paid-in capital. ASU 2020-06 also amends the guidance for the derivatives
10
scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for the Company for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact adopting ASU 2020-06 will have on the Company’s consolidated financial statements and related disclosures.
In June 2016, and in later clarifying amendments, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The pronouncement changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. ASU 2016-13 will be effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this standard effective January 1, 2023 with no material impact on the Company’s unaudited interim condensed consolidated financial statements.
3. | FAIR VALUE MEASUREMENTS |
The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:
As of June 30, 2023 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets: | ||||||||||||
Short-term investments | $ | | $ | — | $ | — | $ | | ||||
Total assets measured at fair value | $ | | $ | — | $ | — | $ | | ||||
Liabilities: |
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Warrant liability | $ | — | $ | — | $ | | $ | | ||||
Total liabilities measured at fair value | $ | — | $ | — | $ | | $ | |
As of December 31, 2022 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets: | ||||||||||||
Short-term investments | $ | | $ | — | $ | — | $ | | ||||
Total assets measured at fair value | $ | | $ | — | $ | — | $ | | ||||
Liabilities: |
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Warrant liability | $ | — | $ | — | $ | | $ | | ||||
Total liabilities measured at fair value | $ | — | $ | — | $ | | $ | |
4. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets consist of the following:
June 30, | December 31, | ||||||
| 2023 |
| 2022 | ||||
Upfront research payments | $ | | $ | | |||
Goods and services tax receivable |
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Insurance |
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Dues and subscriptions |
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Consultants |
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License fee |
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Deposits |
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Deferred financing costs | | — | |||||
Miscellaneous |
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Total prepaid expenses and other current assets | $ | | $ | |
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5. | ACCRUED LIABILITIES AND ACCOUNTS PAYABLE |
Accrued liabilities consist of the following:
June 30, | December 31, | ||||||
| 2023 |
| 2022 | ||||
Legal | $ | | $ | — | |||
Accounting |
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Research and development |
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Other |
| ( |
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Accrued liabilities | $ | | $ | |
Accounts payable are current obligations due to vendors. In May 2023, the Company entered into an agreement with a vendor which gives the option to defer payment on approximately $
6. | EQUITY |
The Company has authorized an unlimited number of both Common and Preferred Shares, issuable in series, and
Common Shares reserved for future issuance consists of the following:
June 30, | December 31, | ||||
| 2023 |
| 2022 | ||
Warrants |
| |
| | |
Series 1 Convertible Preferred Shares | | | |||
Options issued and outstanding under stock option plan |
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Deferred Share Units |
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Common Shares available for grant under stock option plan |
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Total Common Shares reserved for future issuance |
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The preferences, privileges and rights of the Common Shares are as follows:
Voting
Subject to any special voting rights or restrictions, holders of Common Shares entitled to vote shall have
Dividends
The Company’s Board of Directors may from time to time declare and authorize payment of dividends, if any, as they may deem advisable and need not give notice of such declaration to any shareholder. Subject to the rights of common shareholders, if any, holding shares with specific rights as to dividends, all dividends on Common Shares shall be declared and paid according to the number of such shares held and paid in Canadian dollars.
Liquidation Rights
In the event of the liquidation, dissolution or winding-up of the Company or any other distribution of the Company’s assets for the purpose of winding up the Company’s affairs, after the payment of dividends declared but unpaid, the holders of Common Shares shall be entitled pari passu to receive any remaining property of the Company.
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Series 1 Convertible Preferred Shares
On June 17, 2022, the directors of the Company authorized the issuance of
Dividends
If the Company declares, pays or sets aside any dividends on shares of any other class or series of capital stock the holders of the Preferred Shares shall receive a dividend on each outstanding share of Preferred Share in an amount equal to that dividend per share of the Preferred Share as would equal the product of the dividend payable as if all shares of such series had been converted into Common Shares.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Preferred Shares shall be entitled to be paid out of the assets of the Company available for distribution to the shareholders an amount per share equal to $
Voting
The Preferred Shares do not confer any voting rights or privileges.
Redemption
The Preferred Shares are not subject to mandatory redemption or other redemption provisions for which the events resulting in redemption are not within the Company’s control.
Optional Conversion
Preferred Shares are convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable Common Shares as is determined by dividing $
Mandatory Conversion
All outstanding Preferred Shares shall automatically convert into Common Shares, at the effective conversion rate upon the closing of one or more sales of equity securities resulting in at least $
Equity Transactions
In August 2021, the Company announced the closing of a public offering of
The 2021 accelerated warrants are accounted for as a warrant liability since the exercise price is in US$ while the Company’s functional currency is C$. Due to the existence of the acceleration option, the Company determined it was appropriate to fair value the warrants using a Monte Carlo Simulation model (“Monte Carlo”). As of June 30, 2023, the fair value of the 2021
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accelerated warrants was calculated using a Monte Carlo model with the following parameters: risk free interest rate of
In October 2022, the Company announced the closing of a private offering of
The 2022 warrants are accounted for as a warrant liability since the exercise price is in US$ while the Company’s functional currency is C$. The Company determined it was appropriate to fair value the warrants using Black-Scholes.
As of June 30, 2023, the fair value of the 2022 warrants was calculated using Black-Scholes with the following parameters: risk free interest rate of
A summary of warrant activity for the six-month period ended June 30, 2023 is as follows:
| June 30, | ||
2023 | |||
Balance at December 31, 2022 | $ | | |
Change in fair value of the warrant liability |
| ( | |
Foreign exchange loss |
| ( | |
Balance at June 30, 2023 | $ | |
A summary of warrant liability activity for the year ended December 31, 2022 is as follows:
December 31, | |||
2022 | |||
Balance at December 31, 2021 | $ | | |
October 2022 PIPE warrant liability at issuance |
| | |
Change in fair value of the warrant liability |
| ( | |
Foreign exchange loss |
| | |
Balance at December 31, 2022 | $ | |
7. | WARRANTS |
As of June 30, 2023, outstanding Common Share warrants and exercise prices denominated in C$ unless otherwise noted, related to unit offerings are as follows:
Exercise |
| Number of |
| |
Price $ |
| Warrants | Expiry date | |
|
| |
| January 2024 |
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| June 2024 |
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| November 2024 |
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| December 2024 |
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| November 2025 |
USD |
| |
| August 2026 |
USD |
| |
| August 2026 |
USD |
| |
| April 2028 |
USD |
| |
| April 2028 |
| |
In April 2023,
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8. | SHARE-BASED COMPENSATION |
2015 Stock Option Plan
The Company maintains the 2015 Stock Option Plan (“2015 Option Plan”), originally referred to as the 2007 Option Plan. In June 2015, the 2015 Option Plan was amended from a fixed option plan to a rolling share option plan pursuant to which the Company is authorized to grant options of up to
The following table summarizes the share options outstanding under the 2015 Option Plan for the six months ended June 30, 2023. All amounts are denominated in C$, except year and share amounts:
|
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| Weighted |
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| Weighted |
| Average |
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| Average |
| Remaining |
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Number of |
| Exercise |
| Contractual | Aggregate | |||||
Share |
| Price Per |
| Term | Intrinsic | |||||
Options | Share |
| (years) | Value | ||||||
Outstanding as of December 31, 2022 |
| | $ | |
| $ | | |||
Expired |
| ( |
| |
| — |
| | ||
Outstanding as of June 30, 2023 |
| |
| |
| | ||||
Vested and exercisable as of June 30, 2023 |
| | $ | |
| $ | |
The aggregate intrinsic value of options outstanding and vested and exercisable is calculated as the difference between the exercise price of the underlying options, and the fair value of the Company’s Common Shares when the exercise price is below fair value. There were
Share-based Payment Expense
The following table summarizes total share-based compensation included in the Company’s accompanying unaudited condensed consolidated statements of operations and comprehensive loss:
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
Research and development | $ | | $ | | $ | | $ | | |||||
General and administrative |
| |
| |
| |
| | |||||
Total share-based compensation | $ | | $ | | $ | | $ | |
As of June 30, 2023, there was C$
9. | RELATED PARTY TRANSACTIONS |
UBC Collaborative Research Agreement
In April 2016, the Company entered into a collaborative research agreement (“CRA”) with the University of British Columbia (“UBC”) and the Vancouver Coastal Health Authority in the amount of C$
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10. | COMMITMENTS AND CONTINGENCIES |
Research, Development and License Agreements
The Company enters into research, development and license agreements with various parties in the ordinary course of business where the Company receives research services and rights to proprietary technologies. The agreements require compensation to be paid by the Company, typically, by a combination of the following:
● | fees comprising amounts due initially on entering into the agreements and additional amounts due either on specified timelines or defined services to be provided; |
● | milestone payments that are dependent on products developed under the agreements proceeding toward specified plans of clinical trials and commercial development; and |
● | royalty payments calculated as a percentage of net sales, commencing on commercial sale of any product candidates developed from the technologies. |
Milestone and royalty related amounts that may come due under various agreements are dependent on, among other factors, preclinical safety and efficacy, clinical trials, regulatory approvals and, ultimately, the successful development and commercial launch of a new drug, the outcomes and timings of which are uncertain. Amounts due per the various agreements for milestone payments will accrue once the occurrence of a milestone is likely. Amounts due as royalty payments will accrue as commercial revenues from the product are earned. Through June 30, 2023,
UBC and the Vancouver Coastal Health Authority Agreement
In April 2016, the Company entered into a
UBC Agreement
In February 2009, the Company entered into an agreement with UBC to further the development and commercialization of certain technology developed, in part, by the Company’s Chief Scientific Officer. The agreement was amended and restated in October 2015. Under the amended and restated agreement, the Company is committed to make royalty payments based on revenue earned from the licensed technology. An annual license fee is payable over the term of the agreement. The agreement remains effective unless terminated under the provisions of the agreement. The Company made annual license payments of C$
University Health Network Agreement
In April 2006, and in additional amendments through November 2013, the Company entered into an agreement with the University Health Network, Toronto, to license certain technology and related intellectual property. The UHN License Agreement calls for certain customary payments such as milestone payments, buyout payments and payment to UHN between a half of
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Indemnification
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers. The Company currently has directors’ and officers’ insurance.
11. | NET LOSS PER SHARE |
The following table sets forth the computation of basic and diluted net loss per share attributable to common shareholders:
Six Months Ended June 30, | |||||||
2023 |
| 2022 | |||||
Numerator: | |||||||
Net loss attributable to common shareholders |