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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

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: 001-35776

______________________________________

Acasti Pharma Inc.

(Exact name of registrant as specified in its charter)

______________________________________

Québec, Canada

98-1359336

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

103 Carnegie Center Suite 300

Princeton, New Jersey 08540

(Address of principal executive offices, including zip code)

609-649-9272

(Registrants telephone number, including area code)

 

2572 boul. Daniel-Johnson, 2nd Floor Laval

Québec, Canada H7T 2R3

(Former name, former address, and former fiscal year, if changed since last report)

______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, no par value per share

ACST

Nasdaq Stock Market

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 ☒ No ☐

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). Yes ☒ 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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

The number of outstanding common shares of the registrant, no par value per share, as of February 9, 2024, was 9,399,404.

 


 

ACASTI PHARMA INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended December 31, 2023

Table of Contents

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains information that may be forward-looking statements within the meaning of Canadian securities laws or forward-looking statements within the meaning of U.S. federal securities laws, and we refer to such statements in this quarterly report as forward-looking statements. Forward- looking statements 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:

We are heavily dependent on the success of our lead drug candidate, GTX-104.
Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Failure can occur at any stage of clinical development.
We are subject to uncertainty relating to healthcare reform measures and reimbursement policies that, if not favorable to our drug candidates, could hinder or prevent our drug candidates’ commercial success.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug products, if approved, we may be unable to generate any revenue.
If we are unable to differentiate our drug products from branded reference drugs or existing generic therapies for similar treatments, or if the U.S. Food and Drug Administration (“FDA”) or other applicable regulatory authorities approve products that compete with any of our drug products, our ability to successfully commercialize our drug products would be adversely affected.

2


 

Our success depends in part upon our ability to protect our intellectual property for our drug candidates.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
We do not have internal manufacturing capabilities, and if we fail to develop and maintain supply relationships with various third-party manufacturers, we may be unable to develop or commercialize our drug candidates.
The design, development, manufacture, supply, and distribution of our drug candidates are highly regulated and technically complex.
The other risks and uncertainties identified in Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended March 31, 2023.

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 these 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 “$” are to U.S. dollars and references to “CAD$” 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

Condensed Consolidated Interim Balance Sheets

5

 

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

6

 

Condensed Consolidated Interim Statements of Shareholders’ Equity

7

Condensed Consolidated Interim Statements of Cash Flows

8

Notes to the Condensed Consolidated Interim Financial Statements

9

 

 

4


 

ACASTI PHARMA INC.

Condensed Consolidated Interim Balance Sheets

(Unaudited)

 

 

 

December 31,
2023

 

March 31,
2023

(Expressed in thousands except share data)

 

$

 

$

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

18,545

 

27,875

Short-term investments

 

6,569

 

15

Receivables

 

959

 

802

Prepaid expenses

 

811

 

598

Total current assets

 

26,884

 

29,290

 

 

 

 

 

Operating lease right of use asset

 

23

 

463

Equipment

 

12

 

104

Intangible assets

 

41,128

 

41,128

Goodwill

 

8,138

 

8,138

Total assets

 

76,185

 

79,123

 

 

 

 

 

Liabilities and Shareholders’ equity

 

 

 

 

Current liabilities:

 

 

 

 

Trade and other payables

 

1,746

 

3,336

Operating lease liability

 

24

 

75

Total current liabilities

 

1,770

 

3,411

 

 

 

 

 

Derivative warrant liabilities

 

3,332

 

Operating lease liability

 

 

410

Deferred tax liability

 

6,403

 

7,347

Total liabilities

 

11,505

 

11,168

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

Class A common shares, no par value per share; unlimited shares authorized as of December 31, 2023 and March 31, 2023; 9,399,404 and 7,435,533 shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively

 

261,038

 

258,294

Class B, C, D and E common shares, no par value per share; unlimited shares authorized as of December 31, 2023 and March 31, 2023; none issued and outstanding

 

 

Additional paid-in capital

 

17,633

 

13,965

Accumulated other comprehensive loss

 

(6,038)

 

(6,038)

Accumulated deficit

 

(207,953)

 

(198,266)

Total shareholders' equity

 

64,680

 

67,955

 

 

 

 

 

Total liabilities and shareholders’ equity

 

76,185

 

79,123

 

See accompanying notes to unaudited interim consolidated financial statements.

5


 

ACASTI PHARMA INC.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

(Unaudited)

 

 

Three months ended

 

 

Nine months ended

 

 

December 31,
2023

 

 

December 31,
2022

 

 

December 31,
2023

 

 

December 31,
2022

 

(Expressed in thousands, except share and per share data)

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses, net of government assistance

 

 

(1,443

)

 

 

(2,450

)

 

 

(2,998

)

 

 

(8,332

)

General and administrative expenses

 

 

(1,570

)

 

 

(1,589

)

 

 

(4,922

)

 

 

(5,187

)

Sales and marketing

 

 

(30

)

 

 

(206

)

 

 

(184

)

 

 

(563

)

Restructuring cost

 

 

 

 

 

 

 

 

(1,485

)

 

 

 

Loss from operating activities

 

 

(3,043

)

 

 

(4,245

)

 

 

(9,589

)

 

 

(14,082

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange gain (loss)

 

 

3

 

 

 

15

 

 

 

(2

)

 

 

(75

)

Change in fair value of derivative warrant liabilities

 

 

125

 

 

 

 

 

 

(1,701

)

 

 

10

 

Interest income and other expense, net

 

 

316

 

 

 

67

 

 

 

662

 

 

 

134

 

Total other income (expense), net

 

 

444

 

 

 

82

 

 

 

(1,041

)

 

 

69

 

Loss before income tax recovery

 

 

(2,599

)

 

 

(4,163

)

 

 

(10,630

)

 

 

(14,013

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax recovery

 

 

208

 

 

 

274

 

 

 

943

 

 

 

671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and total comprehensive loss

 

 

(2,391

)

 

 

(3,889

)

 

 

(9,687

)

 

 

(13,342

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

 

(0.21

)

 

 

(0.52

)

 

 

(1.09

)

 

 

(1.80

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding

 

 

11,506,257

 

 

 

7,435,472

 

 

 

8,874,872

 

 

 

7,416,318

 

See accompanying notes to unaudited interim consolidated financial statements

6


 

ACASTI PARMA INC.

Condensed Consolidated Interim Statements of Shareholders' Equity

(Unaudited)

 

Common Shares

 

 

 

 

 

 

 

 

(Expressed in thousands except share data)

 

Number

 

Dollar

 

Additional
paid-in
capital

 

Accumulated
other
comprehensive
loss

 

Accumulated deficit

 

Total stockholders' equity

 

 

 

$

 

$

 

$

 

$

 

$

Balance, March 31, 2023

 

7,435,533

 

258,294

 

13,965

 

(6,038)

 

(198,266)

 

67,955

Net loss and total comprehensive loss for the period

 

 

 

 

 

(4,023)

 

(4,023)

Stock-based compensation

 

 

 

78

 

 

 

78

Balance at June 30, 2023

 

7,435,533

 

258,294

 

14,043

 

(6,038)

 

(202,289)

 

64,010

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares and pre-funded warrants through private placement, net of offering costs

 

1,951,371

 

2,744

 

2,963

 

 

 

5,707

Issuance of common shares upon the exercise of stock options

 

12,500

 

 

21

 

 

 

21

Net loss and total comprehensive loss for the period

 

 

 

 

 

(3,273)

 

(3,273)

Stock-based compensation

 

 

 

280

 

 

 

280

Balance at September 30, 2023

 

9,399,404

 

261,038

 

17,307

 

(6,038)

 

(205,562)

 

66,745

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and total comprehensive loss for the period

 

 

 

 

 

(2,391)

 

(2,391)

Stock-based compensation

 

 

 

326

 

 

 

326

Balance at December 31, 2023

 

9,399,404

 

261,038

 

17,633

 

(6,038)

 

(207,953)

 

64,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

 

 

 

(Expressed in thousands except for share data)

 

Number

 

Dollar

 

Additional
paid-in
capital

 

Accumulated
other
comprehensive
loss

 

Accumulated deficit

 

Total stockholders' equity

 

 

 

$

 

$

 

$

 

$

 

$

Balance, March 31, 2022

 

7,381,425

 

257,990

 

12,154

 

(6,037)

 

(155,837)

 

108,270

Net loss and total comprehensive loss for the period

 

 

 

 

 

(4,524)

 

(4,524)

Cumulative translation adjustment

 

 

 

 

(2)

 

 

(2)

Stock-based compensation

 

 

 

464

 

 

 

464

Net proceeds from shares issued under the at-the-market (ATM) program

 

34,335

 

195

 

 

 

 

195

Balance at June 30, 2022

 

7,415,760

 

258,185

 

12,618

 

(6,039)

 

(160,361)

 

104,403

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and total comprehensive loss for the period

 

 

 

 

 

(4,929)

 

(4,929)

Cumulative translation adjustment

 

 

 

 

(1)

 

 

(1)

Net proceeds from shares issued under the at-the-market (ATM) program

 

19,773

 

109

 

 

 

 

109

Stock-based compensation

 

 

 

582

 

 

 

582

Balance at September 30, 2022

 

7,435,533

 

258,294

 

13,200

 

(6,040)

 

(165,290)

 

100,164

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and total comprehensive loss for the period

 

 

 

 

 

(3,889)

 

(3,889)

Cumulative translation adjustment

 

 

 

 

2

 

 

2

Stock-based compensation

 

 

 

443

 

 

 

 

443

Balance at December 31, 2022

 

7,435,533

 

258,294

 

13,643

 

(6,038)

 

(169,179)

 

96,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7


 

ACASTI PHARMA INC.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

 

Nine months ended

 

 

December 31,
2023

 

 

December 31,
2022

 

(Expressed in thousands)

 

$

 

 

$

 

Cash flows used in operating activities:

 

 

 

 

 

 

Net loss for the period

 

 

(9,687

)

 

 

(13,342

)

Adjustments:

 

 

 

 

 

 

Depreciation of equipment

 

 

10

 

 

 

116

 

Gain on sale of equipment

 

 

(58

)

 

 

 

Stock-based compensation

 

 

684

 

 

 

1,489

 

Change in fair value of warrant liabilities

 

 

1,701

 

 

 

(10

)

Income tax recovery

 

 

(943

)

 

 

(671

)

Unrealized foreign exchange (gain) loss

 

 

 

 

 

(28

)

Write-off of equipment

 

 

32

 

 

 

31

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

(157

)

 

 

(268

)

Prepaid expenses

 

 

(213

)

 

 

(382

)

Trade and other payables

 

 

(1,591

)

 

 

478

 

Operating lease right of use asset

 

 

(23

)

 

 

 

Net cash used in operating activities

 

 

(10,245

)

 

 

(12,587

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of equipment

 

 

 

 

 

(9

)

Proceeds from sale of equipment

 

 

110

 

 

 

 

Acquisition of short-term investments

 

 

(6,554

)

 

 

(5,015

)

Maturity of short-term investments

 

 

 

 

 

13,185

 

Net cash (used in) provided by investing activities

 

 

(6,444

)

 

 

8,161

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Net proceeds from issuance of common shares and warrants from private placement

 

 

7,338

 

 

 

 

Proceeds from issuance of common shares from exercise of stock options

 

 

21

 

 

 

 

Net proceeds from shares issuance under the at-the-market (ATM) program

 

 

 

 

 

304

 

Net cash provided by financing activities

 

 

7,359

 

 

 

304

 

 

 

 

 

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

 

 

 

24

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(9,330

)

 

 

(4,098

)

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

27,875

 

 

 

30,339

 

Cash and cash equivalents, end of period

 

 

18,545

 

 

 

26,241

 

 

 

 

 

 

 

 

Cash and cash equivalents are comprised of:

 

 

 

 

 

 

Cash

 

 

2,060

 

 

 

26,241

 

Cash equivalents

 

 

16,485

 

 

 

 

 

See accompanying notes to unaudited interim consolidated financial statements.

8


 

 

ACASTI PHARMA INC.

Notes to Condensed Interim Consolidated Financial Statements

(Unaudited)

(Expressed in thousands except share and per 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 Class A common shares, no par value per share (“Common Shares”), are listed on the Nasdaq Capital Market (the “Nasdaq”) and, through March 27, 2023, the Corporation's Common 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 and greatly reducing its workforce. Following the realignment, the Corporation is a smaller, more focused organization, based in the United States, and concentrated on its development of its lead product GTX-104. Further development of GTX-102 and GTX-101 will occur at such time when the Company is able to secure additional funding, or enters into strategic partnerships for license or sale with third parties.

 

On September 24, 2023, the Corporation entered into a securities purchase agreement with certain institutional and accredited investors. Gross proceeds to the Corporation from this private placement were $7,500, before deducting fees and expenses. The Corporation issued and sold an aggregate of 1,951,371 Common Shares, pre-funded warrants (the "Pre-funded Warrants") to purchase up to an aggregate of 2,106,853 Common Shares, each at a purchase price of $1.8481 per Common Share and accompanying common warrants (the "Common Warrants" and, together with the Pre-funded Warrants, the "Warrants") to purchase up to an aggregate of 2,536,391 Common Shares. The Corporation currently intends to use the net proceeds from the private placement for clinical trial expenses to further the Phase 3 clinical trial for GTX-104, pre-commercial planning, working capital and other general corporate purposes. The Corporation believes its cash runway, including net proceeds from this financing, will be sufficient to fund the Corporation’s operations into the second calendar quarter of 2026.

 

The Corporation will require additional capital to fund its 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 in order to maintain adequate liquidity. Negative results from studies or trials, if any, or 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 that are not within the Corporation’s control. If the Corporation is unable to raise additional funds, the Corporation may not be able to realize its assets and discharge its 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

9


 

 

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 Common Shares, at a ratio of 1-for-6 (the “Reverse Stock Split”). On July 4, 2023, the Corporation filed Articles of Amendment to its Articles of Incorporation with the Registraire des entreprises du Québec, to implement the Reverse Stock Split. All references in these financial statements to number of Common Shares, warrants and 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 December 31, 2023, the consolidated results of its operations for the three and nine months ended December 31, 2023 and 2022, its statements of shareholders’ equity for the three and nine months ended December 31, 2023 and 2022, and its consolidated cash flows for the nine months ended December 31, 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. The results for the three and nine months ended December 31, 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, derivative warrant liabilities, accruals for research and development contracts and contract organization agreements, and valuation of intangibles and goodwill. Estimates and assumptions are also involved in determining the extent to which research and development expenses qualify for research and development tax credits. The Corporation recognizes tax credits once it has reasonable assurance that they will be realized.

 

Recent accounting pronouncements

 

The Corporation has considered recent accounting pronouncements and concluded that they are either not applicable to the Corporation's business or that the effect is not expected to be material to the consolidated financial statements as a result of future adoption.

3. Fair Value Measurements

 

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 are as follows:

10


 

 

 

 

Total

 

Quoted prices in active markets (Level 1)

 

Significant other observable inputs (Level 2)

 

Significant unobservable inputs (Level 3)

 

 

$

 

$

 

$

 

$

 

Assets

 

 

 

 

 

 

 

 

 

   Guaranteed investment certificates and term deposits
   classified as cash equivalents

 

16,485

 

16,485

 

 

 

   Guaranteed investment certificates and term deposits
   classified as short-term investments

 

6,569

 

6,569

 

 

 

Total assets

 

23,054

 

23,054

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

   Derivative warrant liabilities

 

3,332

 

 

 

3,332

 

Total liabilities

 

3,332

 

 

 

3,332

 

 

 

Assets measured at fair value on a recurring basis as of March 31, 2023 are as follows:

 

 

Total

 

Quoted prices in active markets (Level 1)

 

Significant other observable inputs (Level 2)

 

Significant unobservable inputs (Level 3)

 

 

$

 

$

 

$

 

$

 

Assets

 

 

 

 

 

 

 

 

 

   Guaranteed investment certificate classified as a
   short-term investment

 

15

 

15

 

 

 

Total assets

 

15

 

15

 

 

 

 

There were no changes in valuation techniques or transfers between Levels 1, 2 or 3 during the nine months ended December 31, 2023. The Corporation’s derivative warrant liabilities are measured at fair value on a recurring basis using unobservable inputs that are classified as Level 3 inputs. Refer to Note 8(b) for the valuation techniques and assumptions used in estimating the fair value of the derivative warrant liabilities.

 

4. Receivables

 

 

December 31, 2023

 

March 31,
2023

 

 

$

 

$

Sales tax receivables

 

411

 

338

Government assistance

 

356

 

412

Interest receivable

 

164

 

52

Other receivables

 

28

 

Total receivables

 

959

 

802

 

11


 

 

 

Government assistance is comprised of research and development investment tax credits from the Québec provincial government, which relate to quantifiable 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.

 

5. Short-term investments

 

The Corporation holds various marketable securities, with maturities greater than 3 months at the time of purchase, as follows:

 

December 31, 2023

 

 

March 31,
2023

 

 

$

 

 

$

 

Term deposits issued in CAD currency earning interest at 3% and maturing on March 29, 2024

 

 

15

 

 

 

15

 

Term deposits issued in USD currency earning interest at 5.62% and maturing on January 4, 2024

 

 

3,500

 

 

 

 

Term deposits issued in USD currency earning interest at 5.65% and maturing on February 5, 2024

 

 

3,054

 

 

 

 

Total short-term investments

 

 

6,569

 

 

 

15

 

 

 

6. Trade and other payables

 

 

December 31, 2023

 

 

March 31, 2023

 

 

 

$

 

 

$

 

Trade payables

 

 

913

 

 

 

1,242

 

Accrued liabilities and other payables

 

 

532

 

 

 

946

 

Employee salaries and benefits payable

 

 

301

 

 

 

1,148

 

Total trade and other payables

 

 

1,746

 

 

 

3,336

 

 

7. 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 December 31, 2023, the Corporation had one operating lease with required future minimum payments. On March 14, 2022, the Corporation renewed the lease agreement effective April 1, 2022, resulting in a commitment of $556 over a 24-month base lease term with an option to renew for an additional 48-month term. In April 2023, the Corporation elected not to renew the additional 48-month option to renew, with the lease expected to terminate March 31, 2024. The Corporation accounted for the change in lease term as a lease modification under ASC 842. Due to the modification in lease term, the Corporation remeasured the lease liability and right-of-use asset associated with the lease. As of the effective date of modification, the Corporation recorded an adjustment to the right-of-use asset and lease liability in the amount of $369 based on the net present value of lease payments discounted using an estimated incremental borrowing rate of 4.3%.

Supplemental balance sheet information related to leases as of December 31, 2023 was as follows:

 

 

December 31, 2023

 

March 31, 2023

 

 

$

 

$

Operating lease right of use asset

 

23

 

463

Operating lease liability, current

 

24

 

75

Operating lease liability, long-term

 

 

410

Total operating lease liability

 

24

 

485

Supplemental lease expense related to leases is as follows:

 

 

Three months ended

 

Nine months ended

 

 

December 31, 2023

 

December 31, 2022

 

December 31, 2023

 

December 31, 2022

 

 

$

 

$

 

$

 

$

Operating lease cost

 

23

 

22

 

70

 

69

Total lease expense

 

23

 

22

 

70

 

69

 

12


 

 

 

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 nine-month period ended December 31, 2023:

 

Operating cash flows for operating lease

 

$

70

 

Weighted-average remaining lease term (in years)

 

 

0.25

 

Weighted-average discount rate

 

 

4.3

%

 

As the Corporation's lease does 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 December 31, 2023 were as follows:

 

 

December 31, 2023

 

 

 

$

 

2024

 

 

24

 

2025 and thereafter

 

 

 

Total lease payments

 

 

24

 

Less: interest

 

 

 

Total lease liability

 

 

24

 

 

 

8. Common shares and warrants

 

a. Common Shares

Authorized capital stock

Unlimited number of shares

Class A common shares ("Common Shares"), voting (one vote per share), participating and without par value. As of December 31, 2023, there were 9,399,404 Common Shares issued and outstanding.
Class B common shares, voting (ten votes per share), non-participating, without par value and maximum annual non-cumulative dividend of 5% on the amount paid per share. Class B common shares are convertible, at the holder’s discretion, into Common Shares, on a one-for-one basis, and Class B common shares are redeemable at the holder’s discretion for CAD $4.80 per share, subject to certain conditions. As of December 31, 2023, there were no Class B common shares issued and outstanding.
Class C common shares, non-voting, non-participating, without par value and maximum annual non-cumulative dividend of 5% on the amount paid per share. Class C common shares are convertible, at the holder’s discretion, into Common Shares, on a one-for-one basis, and Class C common shares are redeemable at the holder’s discretion for CAD $1.20 per share, subject to certain conditions. As of December 31, 2023, there were no Class C common shares issued and outstanding.
Class D and E common shares, non-voting, non-participating, without par value and maximum monthly non-cumulative dividend between 0.5% and 2% on the amount paid per share. Class D and E common shares are convertible, at the holder’s discretion, into Common Shares, on a one-for-one basis, and Class D and E common shares are redeemable for the price paid for such shares, plus a redemption premium described in the Corporation's Articles of Incorporation, as amended, at the holder’s discretion, subject to certain conditions. As of December 31, 2023, there were no Class D or E common shares issued and outstanding.

 

Private Placement

 

On September 24, 2023, the Corporation entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional and accredited investors in connection with a private placement of the Corporation's securities (the “Offering”). Pursuant to the Purchase Agreement, the Corporation agreed to offer and sell 1,951,371 Common Shares, at a purchase price of $1.848 per Common Share and Pre-funded Warrants to purchase up to 2,106,853 Common Shares at a purchase price equal to the purchase price per Common Share less $0.0001. Each Pre-funded Warrant is exercisable for one Common Share at an exercise price of $0.0001 per Common Share, is immediately exercisable, and will expire once exercised in full. Pursuant to the Purchase Agreement, the Corporation also issued to such institutional and accredited investors Common Warrants to purchase Common Shares, exercisable for an aggregate of 2,536,391 Common Shares. Under

13


 

 

the terms of the Purchase Agreement, for each Common Share and each Pre-funded Warrant issued in the Offering, an accompanying five-eighths (0.625) of a Common Warrant was issued to the purchaser thereof. Each whole Common Warrant is exercisable for one Common Share at an exercise price of $3.003 per Common Share, is immediately exercisable, and will expire on the earlier of (i) the 60th day after the date of the acceptance by the U.S. Food and Drug Administration of a New Drug Application for the Corporation’s product candidate GTX-104 or (ii) five years from the date of issuance.

 

The Offering closed on September 25, 2023. The net proceeds to the Corporation from the Offering were $7,338, after deducting fees and expenses.

 

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 $75,000 through the Agents. Subject to the terms and conditions of the 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 no obligation to sell any of the Common Shares and could, at any time, suspend sales under the Sales Agreement. The Corporation and the Agents could terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Corporation provided the Agents with customary indemnification rights and the Agents were entitled to compensation at a commission rate equal to 3.0% of the gross proceeds from each sale of the Common Shares. The Sales Agreement expired pursuant to its terms on June 29, 2023.

During the nine months ended December 31, 2023, no Common Shares were sold under the ATM program. During the nine months ended December 31, 2022, 54,108 Common Shares were sold for total net proceeds of $304 with commissions, legal expenses and costs related to the share sale amounting to $10. The Common Shares were sold at the prevailing market prices, which resulted in an average price of approximately $5.70 per share.

 

b. Warrants

 

On May 9, 2023, warrants issued pursuant to the Corporation’s May 2018 Canadian public offering to acquire 137,370 Common Shares at an exercise price of CAD $62.88 expired.

 

As further discussed above, on September 25, 2023, the Corporation issued Warrants exercisable for 4,643,244 Common Shares in the Offering pursuant to the terms of the Purchase Agreement entered into with certain institutional and accredited investors. As of December 31, 2023, no Warrants have been exercised.

 

The Common Warrants issued as a part of the Offering are derivative warrant liabilities given the warrant indenture did not meet the fixed-for-fixed criterion and that the Common Warrants are not indexed to the Corporation’s own stock. Proceeds were allocated amongst Common Shares, Pre-funded Warrants, and Common Warrants by applying the residual method, with fair value of the Common Warrants determined using the Black-Scholes model, resulting in an initial warrant liability of $1,631 and $45 of issuance costs allocated to Common Warrants. Accordingly, $2,822 and $3,047 of gross proceeds were allocated to Common Shares and Pre-funded Warrants, respectively; and $78 and $84 of issuance costs were allocated to Common Shares and Pre-funded Warrants, respectively. For the nine months ended December 31, 2023, Common Warrants were revalued at fair value. Any changes in fair value of the Common Warrants are reflected in the Corporations Statements of Loss and Comprehensive Loss.

 

The derivative warrant liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value is presented in the following table:

 

 

 

 

 

 

December 31, 2023

December 31, 2022

 

 

$

$

Beginning balance

 

10

Issued during the year

 

1,631

Change in fair value

 

1,701

(10)

Ending balance

 

3,332

 

The warrant liability was determined based on the fair value of warrants at the issue date and the reporting dates using the Black-Scholes model with the following weighted-average assumptions will expire on the earlier of (i) the 60th day after the date of the acceptance by the U.S. Food and Drug Administration of a New Drug Application for the Corporation's product candidate GTX-104 or (ii) five years from the date on issuance.

 

14


 

 

 

 

 

 

 

 

 

September 25, 2023

 

December 31, 2023

Risk-free interest rate

 

5.00%

 

4.15%

Share price

 

$1.78

 

$2.89

Expected warrant life

 

2.54

 

2.28

Dividend yield

 

0%

 

0%

Expected volatility

 

80.90%

 

80.84%

 

The weighted-average assumptions were prorated based on the probability of the warrant liability expiring on the 60th day after the date of the acceptance by the U.S. Food and Drug Administration of a New Drug Application for the Corporation's product candidate GTX-104 and of it expiring on five years from the date of issuance. The weighted-average fair values of the Common Warrants were determined to be $0.64 and $1.31 per Common Warrant, as of September 25, 2023 and December 31, 2023, respectively. The risk-free interest rate at the issue date and on the reporting date of December 31, 2023 was based on the interest rate corresponding to the U.S. Treasury rate issue with a remaining term equal to the expected term of the warrants. The expected volatility was based on the historical volatility for the Corporation.

 

At December 31, 2023, the Corporation had outstanding Common Warrants to purchase 2,536,391 Common Shares, with an exercise price of $3.003, all of which were classified as derivative warrant liability. At December 31, 2023, the Corporation had outstanding Pre-funded Warrants to purchase 2,106,853 Common Shares, with an exercise price of $0.0001, all of which were classified within shareholders' equity. The Common Warrants will expire on the earlier of (i) the 60th day after the date of the acceptance by the U.S. Food and Drug Administration of a New Drug Application for the Corporation's product candidate GTX-104 or (ii) five years from the date of issuance.

 

9. Stock-based compensation

 

At December 31, 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 provides 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 ten years and (i) all options granted to a director will be vested evenly on a monthly basis over a period of at least twelve (12) months, and (ii) all options granted to an employee will be vested evenly on a quarterly basis over a period of at least thirty-six (36) months.

 

The total number of options issued to any one consultant within any twelve-month period cannot exceed 2% of the Corporation’s total issued and outstanding Common Shares (on a non-diluted basis). The total number of options issued within any twelve-month period to all directors, employees and/or consultants of the Corporation (or any subsidiary of the Corporation) conducting investor relations services, cannot exceed in the aggregate 2% of the Corporation’s issued and outstanding Common Shares (on a non-diluted basis), calculated at the date an option is granted to any such person.

 

The following table summarizes information about activities within the Stock Option Plan for the nine-month period ended December 31, 2023:

 

 

 

Number of
options

 

 

Weighted-average
exercise price

 

 

Weighted-average
grant date
fair value

 

 

 

 

 

 

$

 

 

$

 

Outstanding, March 31, 2023

 

 

740,957

 

 

 

13.60

 

 

 

11.23

 

Granted

 

 

607,670

 

 

 

2.50

 

 

 

2.13

 

Exercised

 

 

(12,500

)

 

 

1.27

 

 

 

2.27

 

Forfeited/Cancelled

 

 

(614,334

)

 

 

12.89

 

 

 

1.61

 

Outstanding, December 31, 2023

 

 

721,793

 

 

 

3.68

 

 

 

2.02

 

Exercisable, December 31, 2023

 

 

217,480

 

 

 

5.34

 

 

 

1.67

 

 

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Forfeited and cancelled options were as a result of the Corporation's restructuring that occurred during the nine months ended December 31, 2023. On July 14, 2023, the Corporation's Board of Directors approved the grant of options to purchase 446,502 Common Shares at an exercise price of $2.64 per Common Share under the Corporation's Stock Option Plan. On December 19, 2023, the Corporation's Board of Directors approved the grant of options to purchase 161,168 Common Shares at an exercise price of $2.125 per Common Share under the Corporation's Stock Option Plan.

 

The weighted-average grant date fair value of awards for options granted during the nine months ended December 31, 2023 was $2.13. The fair value of options granted was estimated using the Black-Scholes option pricing model, resulting in the following weighted-average assumptions for the options granted:

 

 

December 31, 2023

 

December 31, 2022

 

 

Weighted-average

 

Weighted-average

Exercise price 1

 

$2.50

 

$0.81

Share price 1

 

$2.50

 

$0.81

Dividend

 

 

Risk-free interest

 

3.95%

 

3.27%

Estimated life (years)

 

5.66

 

5.73

Expected volatility

 

117.80%

 

117.56%

 

1 Original CAD price of $1.10 has been converted to USD using a conversion rate of 0.7378 as of December 31, 2022.

 

Compensation expense recognized under the Stock Option Plan is summarized as follows:

 

 

Three months ended

 

 

Nine months ended

 

 

 

December 31, 2023

 

 

December 31, 2022

 

 

December 31, 2023

 

 

December 31, 2022

 

 

$

 

 

$

 

 

$

 

 

$

 

Research and development expenses

 

 

61

 

 

 

139

 

 

 

145

 

 

 

481

 

General and administrative expenses

 

 

265

 

 

 

280

 

 

 

523

 

 

 

930

 

Sales and marketing expenses

 

 

-

 

 

 

24

 

 

 

16

 

 

 

78

 

 

 

326

 

 

 

443

 

 

 

684

 

 

 

1,489

 

 

As of December 31, 2023, there was $671 of total unrecognized compensation cost, related to non-vested stock options, which is expected to be recognized over a remaining weighted-average vesting period of 1.31 years.

 

Corporation equity incentive plan

The Corporation established an equity incentive plan (the “Equity Incentive Plan”) for employees, directors, and consultants. The Equity Incentive Plan provides for the issuance of restricted share units (RSUs), performance share units, restricted shares, deferred share units and other stock-based awards, subject to restricted conditions as may be determined by the Board of Directors. There were no such awards outstanding as of December 31, 2023 and 2022, and no stock-based compensation was recognized for the period ended December 31, 2023 and 2022 under the Equity Incentive Plan.

 

10. Loss per share

 

The Corporation has generated a net loss for all periods presented, therefore diluted loss per share is the same as basic loss per share since the inclusion of potentially dilutive securities would have had an anti-dilutive effect. All currently outstanding options and warrants could potentially be dilutive in the future.

 

The Corporation excluded the following potential Common Shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

December 31, 2023

 

December 31, 2022

Options outstanding

 

721,793

 

740,974

September 2023 Common Warrants

 

2,536,391

 

May 2018 public offering warrants

 

 

137,370

 

Basic and diluted net loss per share is calculated based upon the weighted-average number of Common Shares outstanding during the period. Common Shares underlying the Pre-funded Warrants are included in the calculation of basic and diluted earnings per share.

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11. Financial instruments

 

a. Concentration of credit risk

 

Financial instruments that potentially subject the Corporation to a concentration of credit risk consist primarily of cash, cash equivalents, and short-term investments. Cash, cash equivalents, and short-term investments are all invested in accordance with the Corporation’s Investment Policy with the primary objective being the preservation of capital and the maintenance of liquidity, which risk is managed by dealing only with highly rated Canadian and U.S. institutions. The carrying amount of financial assets, as disclosed in the consolidated balance sheets, represents the Corporation’s credit exposure at the reporting date.

 

b. Foreign currency risk

 

The Corporation is exposed to financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates. Foreign currency risk is limited to the portion of the Corporation's business transactions denominated in currencies other than the Corporation's functional currency of the U.S. dollar. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in the Corporation's operating results. The Corporation does not use derivative instruments to hedge exposure to foreign exchange risk. The fluctuation of the Canadian dollar in relation to the U.S. dollar and other foreign currencies will consequently have an impact upon the Corporation’s net loss.

 

c. Liquidity risk

 

Liquidity risk is the risk that the Corporation will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Corporation manages liquidity risk through the management of its capital structure and financial leverage. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Corporation's operating budgets, and reviews material transactions outside the normal course of business. The Corporation currently does not have long-term debt nor arranged committed sources of financing and is currently using existing cash and short-term investment balances to fund operations. Refer to Note 1 – Nature of Operations.

 

12. Commitments and contingencies

Research and development contracts and contract research organizations agreements

 

The Corporation utilizes contract manufacturing organizations (“CMOs”) for the development and production of clinical materials and contract research organizations (“CROs”) to perform services related to its clinical trials. Pursuant to the agreements with these CMOs and CROs, the Corporation has either the right to terminate the agreements without penalties or under certain penalty conditions. As of December 31, 2023, the Corporation has no commitments from CMOs and $7,670 of commitments for the next twelve months to CROs.

 

Raw krill oil supply contract

 

On October 25, 2019, the Corporation signed a supply agreement with Aker BioMarine Antarctic AS. (“AKBM”) to purchase raw krill oil product for a committed volume of commercial starting material for CaPre, one of the Corporation’s former drug candidates, for a total fixed value of $3,100 based on the value of krill oil at that time. As of March 31, 2022, the remaining balance of commitment amounted to $2,800. During the second calendar quarter of 2022, AKBM informed the Corporation that AKBM believed it had satisfied the terms of the supply agreement as to their obligation to deliver the remaining balance of raw krill oil product, and that the Corporation was therefore required to accept the remaining product commitment. The Corporation disagreed with AKBM’s position and believed that AKBM was not entitled to further payment under the supply agreement. Accordingly, no liability was recorded by the Corporation. The dispute remained unresolved as of both March 31, 2023 and 2022. On October 18, 2023, the Corporation entered into an agreement with AKBM to settle any and all potential claims regarding amounts due under the supply agreement (“Settlement Agreement”). Pursuant to the terms of the Settlement Agreement, in exchange for a release and waiver of claims arising out of the supply agreement by AKBM and any of AKBM’s affiliates, the Corporation and AKBM agreed to the following: (a) AKBM retained ownership of all raw krill oil product, including amounts previously delivered to the Corporation, (b) AKBM acquired and took ownership of all production equipment related to the production of CaPre, (c) AKBM acquired and took ownership of all data from research, clinical trials and pre-clinical studies with respect to CaPre, and (d) AKBM acquired and took ownership over all rights, title and interest in and to all intellectual property rights, including all patents and trademarks, related to CaPre owned by the Corporation. Pursuant to the terms of the Settlement Agreement, AKBM acknowledged that the CaPre assets were transferred on an “as is” basis, and in connection therewith the Corporation disclaimed all representations and warranties in connection with the CaPre assets, including any representations with respect to performance or sufficiency. The value of the raw krill oil previously delivered to the Corporation, the production equipment, and the intellectual property rights related to CaPre were fully impaired in prior reporting periods and had a carrying value of nil as of March 31, 2023. As of December 31, 2023, no liability was recorded by the Corporation.

 

17


 

 

Legal proceedings and disputes

 

In the ordinary course of business, the Corporation is at times subject to various legal proceedings and disputes. The Corporation assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, the Corporation records a liability in its consolidated financial statements. These legal contingencies may be adjusted to reflect any relevant developments. Where a loss is not probable or the amount of loss is not estimable, the Corporation does not accrue legal contingencies. While the outcome of legal proceedings is inherently uncertain, based on information currently available, management believes that it has established appropriate legal reserves. Any incremental liabilities arising from pending legal proceedings are not expected to have a material adverse effect on the Corporation’s financial position, results of operations, or cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation’s financial position, results of operations, or cash flows. No reserves or liabilities have been accrued as of December 31, 2023.

 

13. Restructuring Costs

 

On May 8, 2023, the Corporation communicated its decision to terminate a substantial amount of its workforce as part of a plan that intended to align the Corporation’s organizational and management cost structure to prioritize resources to GTX-104, thereby reducing losses to improve cash flow and extend available cash resources. The Corporation incurred $1,485 of costs primarily consisting of employee severance costs and legal fees.

 

 

18


 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation