10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 11, 2023
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)
______________________________________
Québec, |
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(State or other jurisdiction of |
(I.R.S. Employer |
(Address of principal executive offices, including 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 |
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, 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 |
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Accelerated filer |
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Emerging growth company |
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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
The number of outstanding common shares of the registrant, no par value per share, as of August 9, 2023, was
ACASTI PHARMA INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 2023
Table of Contents
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains information that may be forward-looking information within the meaning of Canadian securities laws and forward-looking statements within the meaning of U.S. federal securities laws, both of which we refer to in this quarterly report as forward-looking information. Forward- looking information can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not statements about the present or historical facts.
Although the forward-looking statements in this quarterly report are based upon what we believe are reasonable assumptions, you should not place undue reliance on those forward-looking statements since actual results may vary materially from them.
In addition, the forward-looking statements in this quarterly report are subject to a number of known and unknown risks, uncertainties and other factors many of which are beyond our control, that could cause our actual results and developments to differ materially from those that are disclosed in or implied by the forward-looking statements, including, among others:
2
All of the forward-looking statements in this quarterly report are qualified by this cautionary statement. There can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the consequences or effects on our business, financial condition, or results of operations that we anticipate. As a result, you should not place undue reliance on the forward-looking statements. Except as required by applicable law, we do not undertake to update or amend any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are made as of the date of this quarterly report.
We express all amounts in this quarterly report in U.S. dollars, except where otherwise indicated. References to “$” and “U.S.$” are to U.S. dollars and references to “C$” or “CAD$” are to Canadian dollars.
Except as otherwise indicated, references in this quarterly report to “Acasti,” “the Corporation,” “we,” “us” and “our” refer to Acasti Pharma Inc. and its consolidated subsidiaries.
3
PART I. FINANCIAL INFORMATION
Item 1: Financial Information
Unaudited Condensed Consolidated Interim Financial Statements
4
ACASTI PHARMA INC.
Condensed Consolidated Interim Balance Sheet
(Unaudited)
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June 30, 2023 |
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March 31, |
(Expressed in thousands of U.S. dollars except share data) |
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Notes |
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$ |
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$ |
Assets |
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Current assets: |
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Cash and cash equivalents |
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Short-term investments |
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5 |
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Receivables |
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4 |
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Prepaid expenses |
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Total current assets |
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Operating lease right of use asset |
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Equipment |
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Intangible assets |
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Goodwill |
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Total assets |
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Liabilities and Shareholders’ equity |
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Current liabilities: |
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Trade and other payables |
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7 |
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Operating lease liability |
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8 |
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Total current liabilities |
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Operating lease liability |
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Deferred tax liability |
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Total liabilities |
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Shareholders’ equity: |
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Common shares, |
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9(a) |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
Accumulated deficit |
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Total shareholders' equity |
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14 |
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Total liabilities and shareholders’ equity |
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See accompanying notes to unaudited interim financial statements.
5
ACASTI PHARMA INC.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
(Unaudited)
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Three months ended |
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June 30, 2023 |
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June 30, |
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(Expressed in thousands of U.S dollars, except share and per share data) |
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Notes |
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$ |
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$ |
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Operating expenses |
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Research and development expenses, net of government assistance |
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6 |
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( |
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( |
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General and administrative expenses |
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( |
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( |
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Sales and marketing |
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( |
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( |
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Restructuring cost |
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15 |
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( |
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Loss from operating activities |
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( |
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( |
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Foreign exchange gain (loss) |
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( |
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Change in fair value of warrant liabilities |
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Interest income and other expense |
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Total other income (loss), net |
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( | ) |
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Loss before income tax recovery |
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( |
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( |
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Income tax recovery |
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Net loss and total comprehensive loss |
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( |
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( |
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Basic and diluted loss per share |
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11 |
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Weighted average number of shares outstanding |
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See accompanying notes to unaudited interim financial statements
6
ACASTI PARMA INC.
Condensed Consolidated Interim Statements of Shareholders' Equity
(Unaudited)
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Common Shares |
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(Expressed in thousands of U.S. dollars except share data) |
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Notes |
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Number |
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Dollar |
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Additional |
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Accumulated |
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Deficit |
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Total |
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$ |
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$ |
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$ |
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$ |
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$ |
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Balance, March 31, 2023 |
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( |
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Net loss and total comprehensive loss for the period |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation |
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10 |
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— |
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— |
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— |
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— |
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Balance at June 30, 2023 |
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Common Shares |
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(Expressed in thousands of US dollars except for share data) |
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Notes |
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Number |
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Dollar |
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Additional |
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Accumulated |
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Deficit |
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Total |
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$ |
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$ |
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$ |
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$ |
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$ |
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Balance, March 31, 2022 |
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( |
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( |
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Net loss and total comprehensive loss for the period |
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— |
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— |
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— |
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— |
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( |
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( |
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Cumulative translation adjustment |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock-based compensation |
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10 |
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— |
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— |
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— |
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— |
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Net proceeds from shares issued under the at-the-market (ATM) program |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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( |
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( | ) |
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7
ACASTI PHARMA INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
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Three months ended |
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June 30, 2023 |
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June 30, |
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(Expressed in thousands of U.S. dollars) |
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Notes |
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$ |
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$ |
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Cash flows used in operating activities: |
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Net loss for the period |
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( |
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( |
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Adjustments: |
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Depreciation of equipment |
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Stock-based compensation |
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10 |
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Change in fair value of warrant liabilities |
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( |
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Income tax recovery |
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( |
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( |
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Unrealized foreign exchange (gain) loss |
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( |
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Write-off of equipment |
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Changes in operating assets and liabilities |
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12 |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Acquisition of equipment |
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( |
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Acquisition of short-term investments |
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( |
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Maturity of short-term investment |
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Net cash from investing activities |
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Cash flows from financing activities: |
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Net proceeds from issuance under the at-the-market (ATM) program |
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(9a) |
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Net cash from financing activities |
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Effect of exchange rate fluctuations on cash and cash equivalents |
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( |
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Net (decrease) increase in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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Cash and cash equivalents are comprised of: |
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Cash |
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Cash equivalents |
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See accompanying notes to unaudited interim financial statements.
8
ACASTI PHARMA INC.
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)
(Expressed in thousands of U.S. dollars except share data)
1. Nature of operation
Acasti Pharma Inc. (“Acasti” or the “Corporation”) is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 2572 boul. Daniel-Johnson, 2nd Floor Laval, Québec, Canada H7T 2R3.
The Corporation’s shares are listed on the Nasdaq Capital Market (the "Nasdaq"), and through March 27, 2023 the Corporation's shares were also listed on the TSX Venture Exchange ("TSXV"), in each case, under the symbol "ACST". On March 13, 2023 the Corporation received approval to voluntarily delist from the TSXV. Effective as at the close of trading on March 27, 2023, the Corporation's common shares are no longer listed and posted for trading on the TSXV.
In August 2021, the Corporation completed the acquisition via a share-for-share merger of Grace Therapeutics, Inc. (“Grace”), a privately held emerging biopharmaceutical company focused on developing innovative drug delivery technologies for the treatment of rare and orphan diseases. The post-merger Corporation is focused on building a late-stage specialty pharmaceutical company specializing in rare and orphan diseases and developing and commercializing products that improve clinical outcomes using its novel drug delivery technologies. The Corporation seeks to apply new proprietary formulations to existing pharmaceutical compounds to achieve enhanced efficacy, faster onset of action, reduced side effects, more convenient delivery and increased patient compliance; all of which could result in improved patient outcomes. The active pharmaceutical ingredients chosen by the Corporation for further development may be already approved in the target indication or could be repurposed for use in new indications.
The Corporation has incurred operating losses and negative cash flows from operations in each year since its inception. The Corporation expects to incur significant expenses and continued operating losses for the foreseeable future.
In May 2023, the Corporation implemented a strategic realignment plan to enhance shareholder value that resulted in the Corporation engaging a new management team, streamlining its research and development activities to concentrate on its lead product, GTX 104, and greatly reducing its workforce. Moving forward, the Corporation plans to build a smaller, more focused organization in the United States. Further development of GTX-102 and GTX-101 will occur at such time as additional funding is obtained or strategic partnerships are entered into. This strategic realignment is expected to significantly reduce administrative and research and development expenses and enable the Corporation to extend its available cash resources to the second calendar quarter of 2025.
The Corporation will require additional capital to fund our daily operating needs beyond that time. The Corporation does not expect to generate revenue from product sales unless and until it successfully completes drug development and obtains regulatory approval, which the Corporation expects will take several years and is subject to significant uncertainty. To date, the Corporation has financed its operations primarily through public offerings and private placements of its common shares, warrants and convertible debt and the proceeds from research tax credits. Until such time that the Corporation can generate significant revenue from drug product sales, if ever, it will require additional financing, which is expected to be sourced from a combination of public or private equity or debt financing or other non-dilutive sources, which may include fees, milestone payments and royalties from collaborations with third parties. Arrangements with collaborators or others may require the Corporation to relinquish certain rights related to its technologies or drug product candidates. Adequate additional financing may not be available to the Corporation on acceptable terms, or at all. The Corporation’s inability to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategy. The Corporation plans to raise additional capital prior to that time in order to maintain adequate liquidity. Negative results from studies, if any, and depressed prices of the Corporation’s stock could impact the Corporation’s ability to raise additional financing. Raising additional equity capital is subject to market conditions not within the Corporation’s control. If the Corporation does not raise additional funds in this time period, the Corporation may not be able to realize our assets and discharge our liabilities in the normal course of business.
The Corporation remains subject to risks similar to other development stage companies in the biopharmaceutical industry, including compliance with government regulations, protection of proprietary technology, dependence on third-party contractors and consultants and potential product liability, among others. Please refer to the risk factors included in Part 1, Item 1A of the Corporation’s annual report on Form 10-K for the year ended March 31, 2023, filed with the SEC on June 23, 2023 (the “Annual Report”).
Reverse stock split
On June 29, 2023, the Board of Directors of the Corporation approved an amendment to the Corporation's Articles of Incorporation to implement a reverse stock split of the Corporation's Class A common shares, no par value per share, at a ratio of
9
options, price per share and weighted average number of shares outstanding have been adjusted to reflect the Reverse Stock Split, which became effective on July 10, 2023.
2. Summary of significant accounting policies:
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X under the Securities Exchange Act of 1934. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended March 31, 2023, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Corporation’s consolidated financial position as of June 30, 2023, the consolidated results of its operations for the three months ended June 30, 2023 and 2022, its statements of shareholders’ equity for the three months ended June 30, 2023 and 2022 and its consolidated cash flows for the three months ended June 30, 2023 and 2022.
These unaudited condensed consolidated financial statements should be read in conjunction with the Corporation’s audited consolidated financial statements and the accompanying notes for the year ended March 31, 2023 included in the Corporation’s Annual Report. The condensed consolidated balance sheet data as of March 31, 2023 presented for comparative purposes was derived from the Corporation’s audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. The results for the three months ended June 30, 2023 are not necessarily indicative of the operating results to be expected for the full year or for any other subsequent interim period.
The Corporation’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended March 31, 2023 included in the Annual Report. There have been no changes to the Corporation's significant accounting policies since the date of the audited consolidated financial statements for the year ended March 31, 2023 included in the Annual Report.
Use of estimates
The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates.
Estimates are based on management’s best knowledge of current events and actions that management may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Estimates and assumptions include the measurement of stock-based compensation, accruals for research and development contracts and contract organization agreements, and valuation of intangibles and goodwill. Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and development expenditures at each reporting date, and determining which research and development expenses qualify for research and development tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized.
3. Recent accounting pronouncements
The Corporation has considered recent accounting pronouncements and concluded that they are either not applicable to the business or that the effect is not expected to be material to the consolidated financial statements as a result of future adoption.
4.
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June 30, 2023 |
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March 31, |
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Notes |
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$ |
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$ |
Sales tax receivables |
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Government assistance |
|
6 |
|
|
||
Interest receivable |
|
|
|
|
||
Total receivables |
|
|
|
|
10
5. Short-term investments
The Corporation holds various marketable securities, with maturities greater than 3 months at the time of purchase, as follows:
|
|
June 30, 2023 |
|
|
March 31, |
|
||
|
|
$ |
|
|
$ |
|
||
Term deposits issued in CAD currency earning interest at |
|
|
|
|
|
|
||
Total short-term investments |
|
|
|
|
|
|
6. Government assistance
|
|
June 30, 2023 |
|
|
March 31, 2023 |
|
||
|
|
$ |
|
|
$ |
|
||
Investment tax credit |
|
|
|
|
|
|
Government assistance is comprised of research and development investment tax credits from the Québec provincial government, which relate to qualifiable research and development expenditures under the applicable tax laws. The amounts recorded as receivables are subject to a government tax audit and the final amounts received may differ from those recorded. For the three months ended June 30, 2023 and 2022, the Corporation recorded $(
Unrecognized Canadian federal tax credits may be used to reduce future Canadian federal income tax and expire as follows:
|
|
$ |
|
|
2029 |
|
|
||
2030 |
|
|
|
|
2031 |
|
|
|
|
2032 |
|
|
|
|
2033 |
|
|
|
|
2034 |
|
|
|
|
2035 |
|
|
|
|
2036 |
|
|
|
|
2037 |
|
|
|
|
2038 |
|
|
|
|
2039 |
|
|
|
|
2040 |
|
|
|
|
2041 |
|
|
|
|
2042 |
|
|
|
|
2043 |
|
|
|
|
|
|
|
|
7. Trade and other payables
|
|
June 30, 2023 |
|
|
March 31, 2023 |
|
||
|
|
$ |
|
|
$ |
|
||
Trade payables |
|
|
|
|
|
|
||
Accrued liabilities and other payables |
|
|
|
|
|
|
||
Employee salaries and benefits payable |
|
|
|
|
|
|
||
Total trade and other payables |
|
|
|
|
|
|
8. Leases
The Corporation has historically entered into lease arrangements for its research and development and quality control laboratory facility located in Sherbrooke, Québec. As of June 30, 2023, the Corporation had one operating lease with required future minimum payments.
11
The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Corporation’s operating lease for the three month period ended June 30, 2023:
Operating cash flows for operating lease |
|
$ |
|
|
Weighted-average remaining lease term (in years) |
|
|
|
|
Weighted-average discount rate |
|
|
% |
As the Corporation's lease do not provide an implicit rate, the Corporation utilized its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Corporation could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.
Future minimum lease payments under the Corporation’s operating lease as of June 30, 2023 were as follows:
|
|
June 30, 2023 |
|
|
|
|
$ |
|
|
2024 |
|
|
|
|
2025 and thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less: interest |
|
|
( |
) |
Total lease liability |
|
|
|
9. Capital and other components of equity
a. Common Shares
Authorized capital stock
Unlimited number of shares
At-the-Market (“ATM”) Program
On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the “Sales Agreement”) with B. Riley FBR, Inc. ("B.Riley"), Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the Corporation’s existing ATM program. Under the terms of the Sales Agreement, which had a three-year term, the Corporation could issue and sell from time-to-time common shares having aggregate gross proceeds of up to $
12
Sales Agreement, the Agents would use their commercially reasonable efforts to sell the common shares from time to time, based upon the Corporation’s instructions. The Corporation had
On November 10, 2021, the Corporation filed a prospectus supplement relating to its at-the-market program, expiring July 7, 2023, with B. Riley, Oppenheimer& Co. Inc. and H.C. Wainwright & Co., LLC acting as agents. Under the terms of the ATM Sales Agreement and the prospectus supplement, the Corporation may issue and sell from time-to-time common shares having an aggregate offering price of up to $
During the three months ended June 30, 2023,
b. Warrants
During the three month period ended June 30, 2023, the remaining
10. Stock-based compensation
At June 30, 2023, the Corporation had in place a stock option plan for directors, officers, employees, and consultants of the Corporation (“Stock Option Plan”).
The Stock Option Plan continues to provide for the granting of options to purchase common shares. Under the terms of the Stock Option Plan, the exercise price of the stock options granted under the Stock Option Plan may not be lower than the closing price of the Corporation’s common shares on the Nasdaq Capital Market at the close of such market the day preceding the grant. The maximum number of common shares that may be issued upon exercise of options granted under the amended Stock Option Plan shall not exceed 20% of the aggregate number of issued and outstanding shares of the Corporation as of July 28, 2022. The terms and conditions for acquiring and exercising options are set by the Corporation’s Board of Directors, subject to, among others, the following limitations: the term of the options cannot exceed
The total number of options issued to any one consultant within any twelve-month period cannot exceed
The following table summarizes