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Novus Therapeutics, Inc.MedMira Inc. Management’s Discussion & Analysis For the year ended July 31, 2020 Management’s Discussion & Analysis For the year ended July 31, 2020 Forward looking statements This document contains forward looking statements, such as statements regarding future sales opportunities in various global regions and financing initiatives that are based on current expectations of management. These statements involve uncertainties and risks, including MedMira Inc.’s (“MedMira” or the “Company”) ability to obtain and/or access additional financing with acceptable terms, and delays in anticipated product sales. Such forward-looking statements should be given careful consideration and undue reliance should not be placed on these statements. This MD&A contains statements that may constitute forward-looking statements about the Company’s objectives, strategies, financial condition, results of operations, cash flows and businesses. These statements are “forward-looking” because they are based on current expectations, estimates, assumptions, risks and uncertainties. These forward-looking statements are typically identified by future or conditional verbs such as “outlook”, “believe”, “anticipate”, “estimate”, “project”, “expect”, “intend”, “plan”, and terms and expressions of similar import. Such forward-looking statements are subject to a number of risks and uncertainties that include, but are not limited to: cyclical downturn; competitive pressures; dealing with business and political systems in a variety of jurisdictions; repatriation of funds or property in other jurisdictions; payment of taxes in various jurisdictions; exposure to currency movements; inadequate or failed internal processes, people or systems or from external events; dependence on key customers; safety performance; expansion and acquisition strategy; regulatory and legal risk; corruption, bribery or fraud by employees or agents; extreme weather conditions and the impact of natural or other disasters; shortage of specialized skills and cost of labour increases; equipment and parts availability, reputational risk; cybersecurity risk; market price and dilution of common shares and environmental regulation risk. Actual results could be materially different from expectations if known or unknown risks affect the business, or if estimates or assumptions turn out to be inaccurate. The Company does not guarantee that any forward-looking statement will materialize and, accordingly, the reader is cautioned not to place reliance on these forward-looking statements. The Company disclaims any intention and assumes no obligation to update any forward-looking statement, even if new information becomes available, as a result of future events or for any other reasons, except in accordance with applicable securities laws. Introduction The Management’s Discussion and Analysis (MD&A) was issued and approved by the Board of Directors on November 30, 2020. The MD&A for the year ended July 31, 2020 has been prepared to help investors understand the financial performance of MedMira in the broader context of the Company’s strategic direction, the risk and opportunities as understood by management, and the key metrics that are relevant to the Company’s performance. The Audit Committee of the Board of Directors has reviewed this document and all other publicly reported financial information for integrity, usefulness, reliability and consistency. This document should be read in conjunction with the audited consolidated financial statements for the year ended July 31, 2020. Annual references are to the Company’s fiscal years, which end on July 31. All amounts are expressed in Canadian dollars (CAD) unless otherwise noted. Additional information about MedMira, this document, and the related audited financial statements ended July 31, 2020 can be viewed on the Company’s website at www.medmira.com and are available on SEDAR at www.sedar.com. The preparation of the MD&A may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management bases estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different 1 Management’s Discussion & Analysis For the year ended July 31, 2020 assumptions or conditions. Management believes the accounting policies, outlined in the Significant Accounting Policies section of its July 31, 2020 consolidated financial statements, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. About MedMira MedMira is a biotechnology company engaged in the development and commercialization of rapid diagnostics and technology platforms. The Company is headquartered in Halifax, Nova Scotia, Canada and is listed on the TSX Venture Exchange (TSX-V) under the symbol MIR. The patented MedMira Rapid Vertical Flow (RVF) Technologyä platform is the basis for the Company’s line of rapid tests. Diagnostic applications based on this technology are highly accurate, easy-to-use, and produce instant results – a strong advantage over most other rapid diagnostics on the market today. These features are enhanced further with ability to deliver multiplex results on one test device with just one drop of specimen. The Company has created a new generation of rapid tests that are based on the need to provide immediate answers without increasing costs. MedMira’s technology platform and growing portfolio of diagnostic tools demonstrate excellence in performance and quality in the highly competitive diagnostics industry. More than $30 million has been invested in perfecting MedMira’s core technology, which has proven itself time and time again with its excellent clinical performance and its success in rigorous evaluations and inspections, leading to regulatory approvals for rapid diagnostic solutions in the United States (U.S. Food and Drug Administration), Canada (Health Canada), the notified body in the European Union (CE Mark), and China (CFDA) and in a number of countries in Latin America, Africa, and Asia. The Company’s quality system is ISO 9001 and ISO 13485 certified. MedMira sells its rapid tests through a network of medical distributors and strategic business development partners to customers in all sectors of the healthcare industry, including laboratories, hospitals, point-of-care clinics, governments, aid organizations, and public health agencies. In addition to clinical diagnostics, the Company offers the Miriadä product line to create new opportunities in the high value technology licensing sector. This business line allows the Company to monetize its award-winning technology and core capabilities, including R&D, product development, and regulatory proficiency. Miriad provides access to MedMira’s RVF Technology for researchers, developers, and biotech companies on a license basis to facilitate the creation of new rapid tests or the transition of existing tests to this unique platform. Infiltrating new and different sectors of the diagnostic industry, such as veterinary and environmental, with the Company’s technology, enables MedMira to build a higher degree of global awareness, generate new revenue streams, and provide a superior diagnostic platform to the market. Intellectual property The Company strives to protect its intellectual property in established and emerging markets around the world as warranted. MedMira’s intellectual property portfolio for its Rapid Vertical Flow Technology and the methodology behind its rapid diagnostics includes the following: Patent # Title Jurisdiction 9,164,087 Rapid Diagnostic Device, assay and multifunctional Buffer United States 9,086,410 Downward or vertical flow diagnostic device and assay United States 8,025,850 Rapid Diagnostic Device, Assay and Multifunctional Buffer United States 2 Management’s Discussion & Analysis For the year ended July 31, 2020 8,287,817 Rapid Diagnostic Device, Assay and Multifunctional Buffer United States 8,586,375 Rapid Diagnostic Device, Assay and Multifunctional Buffer United States 7,531,362 Rapid Diagnostic Device, Assay and Multifunctional Buffer United States D706945 Diagnostic Device D706466 Diagnostic Device EP1417489 Rapid Diagnostic Device and Assay ZL02819646.5 Rapid Diagnostic Device and Assay United States United States Europe China 2,493,616 Rapid Diagnostic Device, Assay and Multifunctional Buffer Canada The Company has other patents pending patents in the U.S. as well as two design patents in force or pending in eight markets. The Company’s corporate and product brand names are protected by trademarks in the U.S. and Canada. The Company has recorded an impairment charge in previous fiscal years to write-down its intangible assets to a nominal value. There is no indication at the end of July 31, 2020 that this impairment has been reversed and thus the value of intangible assets on the balance sheet on July 31, 2020 is $1 (July 31, 2019 - $1). Corporate update In the first two quarters of FY2020, MedMira continued to focus on sustaining and expanding its presence in the U.S. rapid HIV test market, as well as the tissue and eye bank vertical with current product lines. However, with the outbreak of the global COVID-19 pandemic, these efforts were hindered. Whereas this situation negatively affected sales and developments for planned new products, it also provided a new opportunity for the Company by launching its REVEALCOVID-19TM Total Antibody Test. The development and validation of this new product showcased the flexibility of MedMira’s patented Rapid Vertical Flow® Technology platform. Subsequently, internal and external studies provided data and facts of its high quality and performance which allowed MedMira to continue its work with the various regulatory bodies. In the third and fourth quarter of FY2020, MedMira’s Operations team efficiently increased the weekly production in order to meet the growing demand for its REVEALCOVID-19TM Total Antibody Test by expanding its manufacturing team 10-fold. Parallel to this, the Company acquired additional machinery to complete its semi-automation and is in the final planning phase for full automation of certain production processes. During the last financial quarter of FY2020, the main challenges faced by MedMira were mainly due to the global lockdowns and logistic restrictions which caused certain delays of supply and higher than normal logistic costs. This has impacted the current gross profit margin of MedMira, and it is the management’s expectation that these shall be reverted to its normal rate over the next financial quarters. The Company’s Finance team continued its fiscal constraints to maintain its low fixed costs with the ultimate aim to achieve breakeven and subsequent profitability within a short period of time. 3 Management’s Discussion & Analysis For the year ended July 31, 2020 Financial results Basis of preparation and significant accounting policies The basis of financial statement preparation and the significant accounting policies of MedMira are described in Notes 2 ended of 3 and July 31, 2020. consolidated statements Company’s financial audited year the the for Selected quarterly information (in thousands of dollars except per share amounts) Income statement Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Revenue Cost of sales Gross profit Operating expenses Other expenses (gains) Net earnings (loss) before tax Balance sheet Current assets Non-current assets $ 648 (297) 351 (403) (218) $ 87 (17) 70 (603) (160) $ 95 (16) 79 (511) (182) $ 89 (17) 72 (355) (185) $ 99 (15) 84 (391) (141) $ 143 (24) 119 (429) (203) $ 130 (26) 104 (477) (222) $ 155 (40) 115 (22) (243) (270) (693) (614) (468) (448) (513) (595) (550) Q4 2020 $ 911 2,485 Q3 2020 $ 656 2,442 Q2 2020 $ 344 2,488 Q1 2020 $ 130 2,535 Q4 2019 $ 246 7 Q3 2019 $ 266 9 Q2 2019 $ 310 13 Q1 2019 $ 270 19 Total assets 3,396 3,098 2,832 2,665 253 275 323 289 Current liabilities Non-current liabilities Total liabilities Total shareholders deficiency Total liabilities and equity Net earnings (loss) per share 15,806 16,009 15,053 14,233 13,769 13,331 12,867 12,203 3,152 2,381 2,379 2,417 - - - - 18,958 18,390 17,432 16,650 13,769 13,331 12,866 12,203 (15,562) (15,292) -14,600 (13,985) (13,516) (13,056) (12,543) (11,914) 3,396 3,098 2,832 2,665 (253) 275 323 289 (0.0004) (0.0011) (0.0009) (0.0010) (0.0008) (0.0008) (0.001) (0.001) This quarterly information is unaudited but has been prepared on the same basis as the annual consolidated financial statements. We discuss the factors that caused our results to vary over the past eight quarters throughout this MD&A. The main highlights are: 4 Management’s Discussion & Analysis For the year ended July 31, 2020 • • The increase in revenue of 74% for fiscal 2020 compared to fiscal 2019 is the direct result of the Company’s launch of its REVEALCOVID-19TM Total Antibody Test. The slight increase in operating expenses of 9% for fiscal 2020 compared to fiscal 2019 is a direct result of the work associated with the launch of the new product and the ramping up of the Company’s manufacturing department. The decrease of other expenses of 8% for fiscal 2020 compared to fiscal 2019 is in line with the Company’s strategy. Fourth quarter analysis Product Product sales Product cost of sales Gross margin on product Service Service sales Service cost of sales Gross margin on service sales Licensing fee Operating expenses Research and development Sales and marketing Other direct costs General and administrative Total operating expenses Operating loss Non-operating income (expenses) Financing Net (loss) income For the three months ended 31-Jul-19 $ 31-Jul-20 $ Better(worse) $ 317,485 (167,510) 149,975 196,196 (129,176) 67,020 134,040 (4,687) (11,515) (157,631) (228,850) (402,683) 99,003 (14,935) 84,068 - - - - (117,002) (28,078) (92,644) (153,029) (390,753) 218,482 (152,575) 65,907 196,196 (129,176) 67,020 134,040 112,315 16,563 (64,987) (75,821) (11,930) (51,648) (306,685) 255,037 (218,280) (269,928) (141,848) (448,533) (76,432) 178,605 Product revenue and gross margin The Company recorded revenue from product sales in the three months ended July 31, 2020 of $317,485 as compared to $99,003 for the same period last year. The increase in revenue compared to Q4 FY2019 was due sales being recognized from the initial order from MedMira’s US distributor. Gross profit on product sales for the three months ended July 31, 2020 was $149,975 compared to $84,068 for the same period in 2019. The Company’s gross profit decreased by approximately 38% in comparison to Q4 FY2019. The Company’s gross profit margin in Q4 FY2020 was 47% compared to a gross margin of 85% in the same quarter last financial year. This decrease was due to the higher supplier pricing and approximately 5 times higher shipping costs during the lock downs and various restrictions caused by the COVID-19 pandemic. The gross profit margin is expected to increase over the next financial quarters. 5 Management’s Discussion & Analysis For the year ended July 31, 2020 Service revenue and gross margin The Company recorded revenue from service sales in the three months ended July 31, 2020 of $196,196 compared to $0 for the same period in 2019. The Company’s gross profit from service sales was $67,020 compared to $0 in the previous year. Licensing fees The Company recorded revenue from licensing fees in the three months ended July 31, 2020 of $134,040 compared to $0 for the previous year., Operating expenses Total operating expenses increased by $11,930 from $390,753 for the three months ended July 31, 2019 to $402,683 for the three months ended July 31, 2020. - Research and development expenses for the three months ended July 31, 2020 were $4,687 compared to a $117,002 for the same period in 2019. The decrease in research and development expenses were due to R&D activities being externally funded. - Sales and marketing expenses for the three months ended July 31, 2020 were $11,515 compared to $28,078 for the same period in 2019. The decrease of approximately 59% was due to the Company’s sales strategy (B2B). - Other direct costs for the three months ended July 31, 2020 were $157,631, compared to $92,644 for the same period in 2019. The increase of approximately 70% was due to the higher costs associated with sales such as logistic costs during the COVID-19 pandemic. - General and administrative expenses were $228,850 for the three months ended July 31, 2020, compared to $153,029 for the same period in 2019. The increase of approximately 50% was mainly due to essential IT upgrades and the increase of labour. Non-operating expenses - Total non-operating expenses were $218,280 in the three months ended July 31, 2020, compared to $141,848 during the same period in fiscal year 2019. The increase of approximately 54% were due to mainly additional short term loans and accounts payable. 6 Management’s Discussion & Analysis For the year ended July 31, 2020 Year to date Analysis Product Product sales Product royalties Product cost of sales Gross margin on product Service Service sales Service cost of sales Gross margin on service sales Licensing fee Operating expenses Research and development Sales and marketing Other direct costs General and administrative Total operating expenses Operating loss Non-operating income (expenses) Financing Net (loss) income For the twelve months ended 31-Jul-19 $ 31-Jul-20 $ Better(worse) $ 588,836 - (217,616) 371,220 196,196 (129,176) 67,020 134,040 527,445 - (104,094) 423,351 - - - - (199,269) (40,327) (461,327) (1,171,514) (1,872,437) (317,349) (131,217) (364,917) (905,901) (1,719,384) 61,391 - (113,522) (52,131) 196,196 (129,176) 67,020 134,040 118,080 90,890 (96,410) (265,613) (153,053) (1,300,157) (1,296,033) (4,124) (745,229) (2,045,386) (810,415) (2,106,448) 65,186 61,062 Product revenue and gross margin The Company recorded revenue from product sales for the year ended July 31, 2020 of $588,836 as compared to $527,445 for the same period last year. Gross profit on product sales for the year ended July 31, 2020 was $371,220 compared to $423,351 for the same period in 2019. The Company’s increased revenue is directly related to its additional sales of its REVEALCOVID-19TM Total Antibody Test. Due to the COVID-19 pandemic other product sales significantly decrease between January – July 2020. The Company’s gross margin was 63% for the twelve months ended July 31, 2020 in comparison to a gross profit margin of only 80% for the period ended July 31, 2019. This was due to the higher costs associated with procurement of components which are a direct result of the COVID-19 pandemic. The management expects the gross profit margin to increase over the subsequent quarters. Service revenue and gross margin The Company recorded revenue from service sales in the three months ended July 31, 2020 of $196,196 compared to $0 for the same period in 2019. The Company’s gross profit from service sales was $67,020 compared to $0 in the previous year. Licensing fees 7 Management’s Discussion & Analysis For the year ended July 31, 2020 The Company recorded revenue from licensing fees in the three months ended July 31, 2020 of $134,040 compared to $0 for the previous year., Operating expenses Total operating expenses increased by $153,053 from $1,719,384 for the year ended July 31, 2019 to $1,872,437 for the year ended July 31, 2020. - Research and development expenses for the year ended July 31, 2020 were $199,269 compared to $317,349 for the same period in 2019. The decrease of approximately 37% in research and development expenses were due to that certain R&D activities were externally funded. - Sales and marketing expenses for the year end July 31, 2020 were $40,327 to $131,217 for the same period in 2019. The decrease of approximately 69% was due to the Company’s sales strategy (B2B). - Other direct costs for the year ended July 31, 2020 were $461,327 compared to $364,483 for the same period in 2019. - General and administrative expenses were $1,171,514 for the year ended July 31, 2020, compared to $905,901 for the same period in 2019. With the increase of approximately 29% was mainly due to essential IT upgrades and the increase of labour. Non-operating expenses - Total non-operating expenses were $745,229 in the year ended July 31, 2020, compared to $810,415 during the same period in 2019. The decrease of approximately 8% was in line with management’s expectations. Geographic information The Company organizes and records the sales and distribution of its products based on major geographical territories around the world. The table below provides the three month geographic breakdown of revenue. Product and service revenue Product and service revenue North America Latin America and the Caribbean Europe Asia Pacific Other For the three months ended 31-Jul-20 31-Jul-19 $ 609,223 - 38,498 - - $ 78,257 - 20,748 - - Total revenue 647,721 99,005 For the year ended 31-Jul-20 $ 850,104 6,515 62,453 - 919,072 31-Jul-19 $ 418,006 3,150 92,720 13,572 - 527,448 Liquidity and capital resources Cash and working capital The Company had a cash reserve of $401,861 on July 31, 2020 as compared to $88,897 on July 31, 2019. The Company’s 8 Management’s Discussion & Analysis For the year ended July 31, 2020 net working capital position as at July 31, 2020 was a deficit of $14.9 million compared to the July 31, 2019 working capital deficit of $13.5 million. The Company has incurred operational losses and negative cash flows on a cumulative basis since inception. For the year ended July 31, 2020, the Company incurred a net loss from operating activities of approximately $1.3 million and negative cash flows from operations of $0.4 million, compared to a net loss from operations of $1.3 million and negative cash flows from operations of $0.9 million for the same period in 2019. The following table is a list of commitments the Company has: Total $ 9,469,419 6,946,311 101,603 2,441,092 Less than 1 year 1 to 3 years 4 to 5 years After 5 years $ $ $ $ 8,621,084 848,335 - - 6,946,311 - - - 18,958,425 15,806,437 101,603 137,439 - - 465,025 1,313,360 366,244 366,244 1,472,384 - Debt Accounts payable and accrued liabilities Royalty provision Lease liability Total debt Operating activities MedMira incurred negative cash flows from operations of approximately $0.4 million for the year ended July 31, 2020, compared to negative cash flows of $0.9 million for the same period in 2019. The reason for this variance was mainly due to the increase in additional revenues generated in FY2020. Financing activities Cash inflows from financing activities were $0.7 million for the year ended July 31, 2020, compared to cash inflow of $1.0 million for the same period in 2019. Investing activities Cash outflows from investments were $0.1 million for the year ended July 31, 2020, compared to cash outflows of $0 for the same period in 2019. Debt As at July 31, 2020, the Company had loans payable with a carrying value of $9.5 million compared to $8.6 million at July 31, 2019. The increase in the carrying value of loans payable from July 31, 2019 to July 31, 2020 is due to additional short term loans. During the past 36 months, the Company was in negotiations with all of its debt holders to ensure realistic debt repayment plans, which shall enable the Company to use its working capital for its growth and ensure its future stability. As these negotiations are ongoing, the Company must record these as in default until final agreements have been signed. The amount of all loans in default due to non-payment of principal and interest was $8.6 million and therefore shows as a current liability on the balance sheet. Further discussion on liquidity and capital resources can be found in this document in the Liquidity Risk section, Risk and Uncertainties section of this document and in Notes 2 and 12 of the Company’s consolidated financial statements for the year ended July 31, 2020 and the audited consolidated financial statements for the year ended July 31, 2019. Equity/Shares The Company is authorized to issue an unlimited number of common shares without par value. During the year end July 31, 2020, the Company issued no common shares. The number of issued and outstanding common shares on July 31, 2020 was 9 Management’s Discussion & Analysis For the year ended July 31, 2020 658,364,320. The Company is also authorized to issue an unlimited number of Series A preferred shares redeemable at $0.01 per share after March 31, 2010, convertible into an equal number of common shares upon the Company meeting certain milestones. There were 5,000,000 Series A preferred shares issued and outstanding on July 31, 2020. The Company had 600,000 outstanding stock options on July 31, 2020. The outstanding stock options have a weighted average exercise price of ranging of $0.05 per share and a weighted average remaining term of less than a 1 year. The number of outstanding warrants on July 31, 2020 was nil. Off balance sheet arrangements The Company was not party to any off balance sheet arrangements as of July 31, 2020. Financial instruments – fair value (i) Classification and measurement of financial assets and liabilities A financial asset is classified as the following measurement categories: amortized cost; fair value through other comprehensive income ("FVOCI") or fair value through profit or loss ("FVTPL"). The classification of financial assets is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. The Company’s financial assets consist of cash and cash equivalents FVTPL, and accounts receivable classified at amortized cost. The Company’s financial liabilities consist of trade accounts payable and accrued liabilities, salaries and benefits payable, interest payable, lease liability and long-term debt are classified at amortized cost. Financial instruments – risk factors MedMira has exposure to the following risks from its financial instruments: liquidity risk, credit risk, currency risk, and interest rate risk. Management monitors risk levels and reviews risk management activities as necessary. Liquidity risk The Company manages liquidity by forecasting and monitoring operating cash flows and the use of revolving credit facilities and share issuances. The Company has incurred losses and negative cash flows from operations on a cumulative basis since inception. For the year ended July 31, 2020, the Company realized a net loss of $2.0 million (July 31, 2019 - $2.1 million), consisting of a net loss from operations of $1.3 million (July 31, 2019 - $1.3 million), and other non-operating losses of $0.8 million (July 31, 2019 - $0.8 million). Negative cash flows from operations were $0.3 million (July 31, 2019 - $0.9 million). As at July 31, 2020, the Company had an accumulated deficit of $92.8 million (July 31, 2019 - $90.8 million) and a negative working capital position of $14.9 million (July 31, 2019 - $13.5 million). In addition, as at July 31, 2020, $8.6 million of debt was in default. The Company currently has insufficient cash to fund its operations for the next 12 months. In addition to its on-going working capital requirements, the Company must secure sufficient funding for its research and development programs for existing commitments, including its current portion of debt of approximately $8.6 million. These material uncertainties may cast significant doubt about the Company’s ability to continue as a going concern. The Company’s objectives in managing capital are to ensure it can meet its ongoing working capital requirements. The Company must secure sufficient capital to support its capital requirements for research and development programs, existing commitments, including its current portion of debt of approximately $9.4 million, as well as growth opportunities. 10 Management’s Discussion & Analysis For the year ended July 31, 2020 Management dedicates significant time to pursuing additional revenue generating alternatives that will fund the Company’s operations and growth opportunities so it can continue as a going concern. Debt arrangements were also ongoing with the Company’s major shareholder and other debt holders. Subsequent to the close of fiscal year 2020, MedMira has generated additional revenues from product sales, product development and license fees which support the Company’s on-going operating costs and provide funding for its product development activities. Management continues to work closely with its main investor to support any additional cash requirements if needed, nevertheless there is no assurance that this initiative will be successful. The Company is subject to risks associated with early stage companies, including but not limited to, dependence on key individuals, competition from substitute services and larger companies, and the requirement for the continued successful development and marketing of its products and services. The Company’s ability to continue as a going-concern is dependent upon its ability to generate positive cash flow from operations and secure additional financing and the continued support of its lenders and shareholders. These financial statements do not reflect the adjustments to carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going-concern assumption not appropriate. These adjustments could be material. Credit risk The Company exposed to credit risk in relation to its trade accounts receivable. To mitigate such risk, the Company continuously monitors the financial condition of its customers and reviews the credit history or worthiness of each new customer. The Company mitigates this risk by requiring a 50% down payment on most orders at the time of purchase, and the remaining 50% prior to shipment. The Company establishes an allowance for doubtful accounts based on specific credit risk of its customers by examining such factors as the number of overdue days of the customers’ balance outstanding as well as the customers’ collection history. Since 81% of the Company’s sales are with three large international companies there is no significant concentration of credit risk. Currency risk MedMira receives most of its revenues in foreign currencies and incurs expenses in U.S. and Canadian currencies. As a result, the Company is subject to uncertainty as foreign exchange rates fluctuate. The exchange fluctuations from year to year have accounted for a significant portion of the Company’s exchange gain and loss. Most sales are in USD, however, they are recorded at the exchange rate prevailing on or near the transaction date and collected in a timely manner. The Company also experiences currency exposure resulting from balance sheet fluctuations of U.S and CHF denominated cash, U.S. accounts receivable, US and CHF denominated accounts payable and U.S. and CHF denominated promissory notes. MedMira mitigates this currency risk by maintaining a balance of USD currency which is used to pay down U.S.-denominated liabilities and replenishes the balance through U.S.-denominated revenues. Interest rate risk The Company is not exposed to interest rate risk as it borrows funds at fixed rates. Related party transactions The following transactions occurred with related parties during the year ended July 31, 2020: • Short term loans totalling $55,888 was received from an officer (2019 - $142,554). • A short terms loan totalling $132,780 was received from Ritec AG (2019 - $393,720). • Short term loans totalling $4,625 were received from employees (2019 - $104,355). 11 Management’s Discussion & Analysis For the year ended July 31, 2020 • Short term loans totalling $125,939 were repaid to employees (2019 - $94,557). • Short term loans totalling $104,954 were repaid to an officer (2019 - $0). • Long term loans totalling $746,650 were received from MedMira Holding AG (2019 - 336,425) • Royalty payments of $22,837 were incurred and owed to MedMira Holding AG (2019 - $23,732). • A licensing agreement of $420,990 was received from Ritec AG (2019 - $0) The following balances with related parties were outstanding at July 31, 2020: • Accounts payable totalling $1,024,970 was due to officers (2019 - $733,240). • A long term loan totalling $222,087 and accrued interest of $24,357 was due to the Chief Financial Officer (2019 - $200,539). • A royalty provision was owed to MedMira Holding AG of $126,186 (2019 - $100,321). • • Short term loans totalling $61,344 and accrued interest of $7,042 were owed to employees (2019 - $182,544). Short term loans totalling $1,763,640 and accrued interest of $228,569 are owed to Ritec AG (2019 - $1,459,810). • Short term loans totalling $265,420 and accrued interest of $7,577 were owed to an officer (2019 - $296,387). • A short term loan totalling $367,425 and accrued interest of $20,707 was owed to MedMira Holding AG (2019 • - $331,775). Long term loans totalling $808,335 and accrued interest of $23,757 was owed to MedMira Holding AG (2019 - $0) Adoption of new accounting policies The Company adopted IFRS 16 Leases on August 1, 2019, which introduces a new approach to lease accounting. The Company adopted the standard using the modified retrospective approach, which does not require restatement of prior period financial information, as it recognizes the cumulative impact on the opening balance sheet and applies the standard prospectively. Accordingly, the comparative information in these unaudited interim consolidated financial statements is not restated. At the inception of a contract, the Company assesses whether the contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This policy is applied to contracts entered into, or modified, on or after August 1, 2019. Effective August 1, 2019, the IFRS 16 transition date, the Company elected to use the following practical expedients under the modified retrospective transition approach. Leases with lease terms of less than twelve months (short-term leases) and leases of low-value assets (less than $5,000 CAD dollars) (low-value leases) that have been identified at transition were not recognized in the consolidated balance sheet: • Right-of-use assets on transition were measured at the amount equal to the lease liabilities at transition, adjusted by the amount of any prepaid or accrued lease payments; • For certain leases having associated initial direct costs, the Company, at initial measurement on transition, excluded these directs costs from the measurement of the right-of-use assets; and • Any provision for onerous lease contracts previously recognized at the date of adoption of IFRS 16, has been applied to the associated right-of-use asset recognized upon transition. Where the Company is a lessee, a right-of-use asset representing the right to use the underlying asset with a corresponding lease liability is recognized when the leased asset becomes available for use by the Company. The right-of use asset is 12 Management’s Discussion & Analysis For the year ended July 31, 2020 recognized at cost and is depreciated on a straight-line basis over the shorter of the estimated useful life of the asset and the lease term on a straight-line basis. The cost of the right-of-use asset is based on the following: • The amount of initial recognition of related lease liability; • Adjusted by any lease payments made on or before inception of the lease; • Increased by any initial direct costs incurred; and – decreased by lease incentives received and any costs to dismantle the leased asset. The lease term includes consideration of an option to extend or to terminate if the Company is reasonably certain to exercise that option. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability. Lease liabilities are initially recognized at the present value of the lease payments. The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. In the situation where the implicit interest rate in the lease is not readily determined, the Company uses judgment to estimate the incremental borrowing rate for discounting the lease payments. The Company's incremental borrowing rate generally reflects the interest rate that the Company would have to pay to borrow a similar amount at a similar term and with a similar security. The Company estimates the lease term by considering the facts and circumstances that create an economic incentive to exercise an extension or termination option. Certain qualitative and quantitative assumptions are used when evaluating these incentives. Subsequent to recognition, lease liabilities are measured at amortized cost using the effective interest rate method. Lease liabilities are re-measured when there is a change in future lease payments arising mainly from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, renewal or termination option. The payments related to short-term leases and low-value leases are recognized and included within selling, general and administrative costs over the lease term in the unaudited interim consolidated statements of income. The Company's unaudited interim consolidated financial statements were not impacted by the adoption of IFRS 16 Leases in relation to lessor accounting. Lessors will continue with the dual classification model for recognized leases with the resultant accounting remaining unchanged from IAS 17 Leases. On August 1, 2019 upon adoption of IFRS 16, the Company recognized $2.57 million of right-of-use assets and $2.57 million of lease liabilities that were previously accounted for as operating leases. The Company applied its estimated weighted average incremental borrowing rate at August 1, 2019 of 5.0% to determine the amount of lease liabilities. Compensation summary A) Officers for the year ended July 31, 2020 Name and Principal Position Paid Compensation ($) Accrued Compensation Current year Share- and Option- based Awards* All other compensation ($) Total Compensation current year Paid Compensation related to Accrued Compensation related to 13 Management’s Discussion & Analysis For the year ended July 31, 2020 ($) ($) ($) previous fiscal years ($) previous fiscal years ($) Hermes Chan CEO Markus Meile CFO - - 151,231 110,376 - - - - 151,231 110,376 - - 289,231 441,846 1 All other compensation includes pension fund contributions and/or bonuses paid out. *The Company makes certain estimates and assumptions when calculating the fair value of option-based awards. The Company uses an option-pricing model, which includes significant assumptions including estimates of the expected volatility, expected life, expected dividend rate and expected risk-free rate of return. Changes in these assumptions may result in a material change to the amounts recorded for the issuance of stock options. B) Directors for year ended July 31, 2020 Name and Principal Position Paid Compensation ($) Accrued Compensation Current year ($) Share- and Option- based Awards* ($) Total Compensation current year ($) Paid Compensation related to previous fiscal years ($) Accrued Compensation related to previous fiscal years ($) Hermes Chan, Director Member of the Audit Committee Steven Cummings, Director Member of the Audit and Nomination and Compensation Committee Jianhe Mao Director, Member of the Audit and Nomination and Compensation Committee - - - - - - - - - - . - - - - - - - *The Company makes certain estimates and assumptions when calculating the fair value of option-based awards. The Company uses an option pricing model which includes significant assumptions including estimates of the expected volatility, expected life, expected dividend rate and expected risk-free rate of return. Changes in these assumptions may result in a material change to the amount recorded for the issuance of stock options. Subsequent events 14 Management’s Discussion & Analysis For the year ended July 31, 2020 Subsequent to the end of the financial year 2020, MedMira has generated additional revenues from product sales and from a product development contract in the amount of approximately CAD $750,000. Internal control systems and disclosure controls To ensure the integrity and objectivity of the data, management maintains a system of internal controls comprising of written policies, procedures and a program of internal reviews which provides reasonable assurance that transactions are recorded and executed in accordance with its authorization that assets are properly safeguarded and that reliable financial records are maintained. Management is currently updating existing standardized processes to improve internal controls and reduce compliance costs. The updated controls will help improve timeliness and accuracy of financial records as well as continue to ensure that the Company’s assets are properly safeguarded. Disclosure controls and procedures within MedMira have been designed to provide reasonable assurance that all relevant information is identified to the Disclosure Committee to ensure appropriate and timely decisions are made regarding public disclosure. Management, under the supervision of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting and based on this evaluation, has concluded that internal control over financial reporting was effective as of July 31, 2020. Due to inherent limitations, internal control over financial reporting and disclosure controls can provide only reasonable assurances and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Audit Committee of the Board of Directors of MedMira reviewed this MD&A, and the consolidated financial statements and MedMira’s Board of Directors approved these documents prior to release. Risk and uncertainties The Company’s base of activity has expanded to manufacturing products for distribution in international markets, making it difficult to accurately predict future operating results. Actual future results may differ significantly in any forward-looking statements. Currently, the Company is not making sufficient sales to be self-sustaining. As a result, the Company’s financial condition, business and operations, and intellectual property are exposed to a variety of risk factors. These risks include, but are not limited to, the following: 15 Management’s Discussion & Analysis For the year ended July 31, 2020 Risks and uncertainties related to the Company’s financial condition Need for additional capital Cash generated from operations is insufficient to satisfy working capital and capital expenditure requirements, and the Company is operating with a substantial working capital deficit. The Company will need to secure additional financing in the near term in order to continue as a going concern which may include the sale of additional equity or debt securities or obtaining additional credit facilities. In recent quarters, the Company has relied on temporary funding advanced from key investors. There can be no assurance that this source of funding will continue to be available on acceptable terms, and additional capital may not be available on satisfactory terms, or at all. Management is pursuing other financing alternatives to fund the Company’s operations so it can continue as a going-concern. The Company intends to continue to explore opportunities to enter into supply agreements, joint venture relationships, and other special purpose vehicles with third parties from time to time in order to continue to commercialize its patent pending technology and other intellectual property. Such arrangements may include the issuance of equity or debt securities of the Company, subject to compliance with the applicable requirements of the Canadian securities regulatory authorities and the TSX-V. Any additional equity financing may result in the dilution of shareholders, and debt financing, if available, may include restrictive covenants. MedMira’s future liquidity and capital funding requirements will depend on numerous factors including: - - - - the extent to which new products and products under development are successfully developed, gain market acceptance and become and remain competitive; the costs and timing of further expansion of sales, marketing and manufacturing activities and facility’s needs; the timing and results of clinical studies and regulatory actions regarding potential products; and the costs and timing associated with business development activities, including potential licensing of technologies patented by others. Continued operations will be contingent on generating sufficient revenues or raising additional capital or debt financing. There is no assurance that these initiatives will be successful. Fluctuations in revenue The Company’s quarterly and annual revenues may fluctuate due to several factors, including seasonal variations in demand, competitive pressure on average selling prices, customer order patterns, the rate of acceptance of the Company’s products, product delays or production inefficiencies, regulatory uncertainties or delays, costs and timing associated with business development activities, including potential licensing of technologies, international market conditions and variations in the timing and volume of distributor purchases. The healthcare industry traditionally is not impacted by seasonal demand. The impact of one or a combination of several of these factors could have a significant adverse effect on the operations of the Company. In addition, changes in existing collaborative relationships, as well as the establishment of new relationships, product licensing and other financing relationships, could materially impact the Company’s financial position and results from operations. Effects of inflation and foreign currency fluctuations A significant portion of the Company’s revenue and expenses are in U.S. dollars, and therefore subject to fluctuations in exchange rates. There is a risk that significant fluctuations in exchange rates may impact the Company’s ability to sell its products and, thereby, have a material adverse impact on the Company’s results of operations. 16 Management’s Discussion & Analysis For the year ended July 31, 2020 Possible volatility of share price The stock market has from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of the Company. In addition, the market price of the Company’s common shares, like the share prices of many publicly traded biotechnology companies, has been highly volatile. Announcement of technology innovations or new commercial products by the Company or its competitors, developments or disputes concerning patent or proprietary rights, publicity regarding actual or potential medical results relating to products under development by the Company or its competitors, regulatory developments in both the U.S. and foreign countries, public concern as to the safety of biotechnology products and economic and other external factors, as well as period to period fluctuations in financial results may have a significant impact on the market price of the Company’s common shares. It is likely that in some future quarter the Company’s operating results will be below the expectations of the public market analysts and investors. In such event, the price of the Company’s common shares would likely be materially adversely affected. Risks and uncertainties related to the Company’s business and operations Lack of market acceptance MedMira’s ability to market its diagnostic products will, in part, depend on its or its partners’ ability to convince users that these products represent viable and efficacious diagnostic tests. There can be no assurance that MedMira will be successful in this regard. Competition The in vitro diagnostics market in which the Company participates is highly complex and competitive. It is comprised of both large healthcare companies that have substantially greater financial, scientific, and other resources than MedMira and a variety of international companies producing diagnostic products of varying quality. In the developed regions of the world with strong healthcare infrastructures, the in vitro diagnostics market for serious and emerging infectious diseases such as HIV and Hepatitis C has been focused on diagnostic tests using instrument based platforms designed for clinical laboratories. Diagnostic products designed for use in non-laboratory settings at the point-of-care or for use in laboratories or public health clinics using non-instrument based platforms for the screening and diagnosis of infectious diseases are becoming more mainstream in both the developed and developing regions of the world. Competition in this sector of the market is intense and is expected to increase. Many of the companies have substantially greater resources available for development, marketing and distribution of these products than does MedMira. Significant development effort required Products currently under development by MedMira require additional development, testing and investment prior to any final commercialization. There can be no assurance that these products or any future products will be successfully developed, prove to be safe and effective in clinical trials, receive applicable regulatory approvals, be capable of being produced in commercial quantities at reasonable costs or be successfully marketed. The long term success of MedMira must be considered in light of the expenses, difficulties and delays frequently encountered in connection with the development of new technology and the competitive and highly regulated environment in which MedMira operates. Uncertainties in sales cycles in target markets MedMira markets and distributes its products to both developed and developing regions of the world. Sales cycles in developed regions of the world are somewhat conventional, however, timing of registrations and other activities surrounding the sale of product into a specific market are unpredictable and highly dependent on third party and government organizations to complete certain processes before a sales transaction can take place. In developing regions of the world where MedMira and its strategic partners are working to close deals, the sales cycle timing is highly uncertain given a number of factors including political and economic turmoil, as well as bureaucratic processes necessary to do business in these regions. 17 Management’s Discussion & Analysis For the year ended July 31, 2020 High degree of regulation MedMira operates in a highly regulated industry and is subject to the authority and approvals of certain regulatory agencies, including Health Canada, the FDA, the CFDA, CE Mark and applicable health authorities in other countries, with regard to the development, testing, manufacture, marketing and sale of its products. The process of obtaining such approvals can be costly and time consuming, and there can be no assurance that regulatory approvals will be obtained or maintained. Any failure to obtain (or significant delay in obtaining) or maintain Health Canada, FDA, Notified Body or CFDA approvals (or, to a lesser extent, approval of applicable health authorities in other countries) for MedMira’s new or existing products could materially adversely affect MedMira’s ability to market its products successfully and could therefore have a material adverse effect on the business of MedMira. Ability to retain and attract key management and other experienced personnel Since its inception, the Company has been, and continues to be, dependent in its ability to attract and maintain key scientific and commercial personnel upon whom the Company relies for its product innovations and commercialization programs. Loss of key personnel individually or as a group could have significant adverse impact on the Company’s immediate and future achievement of operating results. Limited sales and marketing resources and reliance on key distributors to market and sell the Company’s product Any revenues received by the Company will be dependent on the efforts of third parties and there can be no assurance that such efforts will be successful. Failure to establish sustainable and successful sales and marketing programs with effective distributor support programs may have a material adverse effect on the Company. Commercialization of the Company’s products is expensive and time consuming. In the United States, a relationship has been established with a number of distributors to support the logistics and distribution of the Company’s products. The Company will rely on the joint efforts of Medline Industries and distributors Cardinal Health, a Fortune 100 company, and VWR International to distribute MedMira’s product line. Outside the United States, the Company pursues collaborative arrangements with established pharmaceutical and distribution companies for marketing, distribution, and sale of its products. In China, MedMira has formed a strategic partnership with Triplex to market and distribute the Company’s rapid HIV test within the assigned territory. This strategic partnership also encompasses the assembly and packaging of final product components. If any of the Company’s distribution agreements are terminated and the Company is unable to enter into alternative agreements, or if the Company elects to distribute new products directly, additional investment in sales and marketing resources would be required which would increase future selling, general and administrative expenses. The Company has limited experience in direct sales, marketing and distribution of its products. A failure of the Company to successfully market its products would have a material and adverse effect on the Company. Manufacturing capabilities and scale-up The Company must manufacture its products in compliance with regulatory requirements, in sufficient quantities and on a timely basis, while maintaining product quality and acceptable manufacturing costs. If it is unable to manufacture or contract for such capabilities on acceptable terms for its products under development, MedMira’s plans for commercialization could be materially adversely affected. MedMira’s manufacturing facilities are, or will be, subject to periodic regulatory inspections by the FDA, CE, CFDA and other regulatory agencies and these facilities are subject to Quality System Regulations requirements of the FDA and other standards organizations. MedMira may not satisfy such regulatory or standards requirements, and any failure to do so would have a material adverse effect on the Company. 18 Management’s Discussion & Analysis For the year ended July 31, 2020 In addition, production and scale-up of manufacturing for new products may require the development and implementation of new manufacturing technologies and expertise. Manufacturing and quality control problems may arise as the Company attempts to scale-up manufacturing and such scale-up may not be achieved in a timely manner or at commercially reasonable cost, or at all. Rapidly changing technology The in vitro diagnostic testing field as a whole is characterized by rapidly advancing technology that could render MedMira’s products obsolete at any time and thereby adversely affect the financial condition and future prospects of the Company. Uncertainties regarding healthcare reimbursement and reform The future revenues and profitability of diagnostic companies as well as the availability of capital may be affected by the continuing efforts of government and third party payers to contain or reduce costs of healthcare through various means. For example, in certain foreign markets, pricing or profitability is subject to government control. In the US, there has been, and the Company expects that there will continue to be, a number of federal and state proposals to implement similar government controls. While the Company cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could have a material adverse effect on the Company’s results of operations. Product liability MedMira may be subject to claims of personal injury and could become liable to clinical laboratories, hospitals and patients for injuries resulting from the use of its products. MedMira could suffer financial loss due to defects in its products and such financial loss together with litigation expenses could have a material adverse effect on its operations. MedMira has obtained product liability insurance to protect against possible losses of this nature. However, no assurance can be given that such insurance will be adequate to cover all claims or that MedMira will be able to maintain such insurance at a reasonable cost. COVID-19 related uncertainties COVID-19. Since January 31, 2020, the outbreak of COVID-19 (coronavirus) has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures have caused material disruption to businesses globally resulting in an economic slowdown, and global equity markets have experienced significant volatility and weakness. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the outcome of government and central bank interventions. In management's estimation, these events have not had a material unrecorded impact on the carrying value of assets and liabilities reported in these financial statements as at July 31, 2020. The duration and impact of the COVID-19 pandemic remains unclear at this time. Therefore, it is not possible to reliably estimate the duration and severity of these consequences, as well as their impact on the financial position and results of the company for future periods. Risks and uncertainties related to the Company’s intellectual property No assurance of patent protection MedMira has filed patent applications in the United States, Canada, China, and other foreign countries relating to various aspects of its rapid diagnostic platform, processes, reagents, and equipment. Although it is management’s belief that the patents for which the Company applied may be issued, there can be no such assurance, nor can MedMira assure that competitors will not develop functionally similar or superior diagnostic testing devices. Moreover, there is a question as to the extent to which biotechnology discoveries and related products and processes can effectively be protected by patents. The law regarding the breadth or scope of biotechnology patents is new and evolving. No assurance can be given that, if a patent issued to MedMira is challenged, it will be held valid and enforceable or will be found to have a scope sufficiently broad to cover competitors’ products or processes. The cost of enforcing MedMira’s patent right, if any, in lawsuits that it may bring against infringers may be significant and could limit MedMira’s operations. 19 Management’s Discussion & Analysis For the year ended July 31, 2020 Possible patent infringement The extent to which biotechnology discoveries and related products and processes can be effectively protected by patents and be enforceable is uncertain and subject to interpretation by the courts. The technologies, products, and processes of MedMira may be subject to claims of infringement on the patents of others and, if such claims are successful, could result in the requirement to access such technology by license agreement. There can be no assurance that such licenses would be available on commercially acceptable terms. If MedMira is required to acquire rights to valid and enforceable patents but cannot do so at reasonable cost, MedMira’s ability to manufacture or market its products would be materially adversely affected. The cost of MedMira’s defence against infringement charges by other patent holders may be significant and could limit MedMira’s operations. 20
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