Alpha Compute Corp 6-K, filed Dec 1, 2020
Alpha Compute Corp (ALP)
About this 6-K
Alpha Compute Corp filed this 6-K on December 1, 2020.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 2020
Commission File Number: 000-30314
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PORTAGE BIOTECH INC. |
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(Translation of registrant's name into English) |
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6 Adelaide St. East, Suite 300 Toronto, Ontario, Canada M5C 1H6 |
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(Address of principal executive office) |
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F
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Form 20-F ☒ |
Form 40-F ☐ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
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Yes ☐ |
No ☒ |
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):____________
SUBMITTED HEREWITH
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Portage Biotech Inc. (Registrant) |
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| Date: November 30, 2020 | By | /s/ Ian Walters |
| Ian Walters MD | ||
| Chief Executive Officer | ||
Portage Biotech Inc.
Condensed Consolidated Interim Financial Statements
For the Three and Six Months Ended September 30, 2020
(Unaudited - Prepared by Management)
(U.S. Dollars)
Portage Biotech Inc.
Condensed Consolidated Interim Financial Statements
NOTICE TO READER OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The condensed consolidated interim financial statements for Portage Biotech Inc. are comprised of the condensed consolidated statements of financial position as of September 30, 2020 and March 31, 2020, and the condensed consolidated interim statements of operations and comprehensive loss for the three and six months ended September 30, 2020 and 2019 and the statements of equity and cash flows for each of the six months then ended and are the responsibility of the Company's management.
The condensed consolidated interim financial statements have been prepared by management and include the selection of appropriate accounting principles, judgments and estimates necessary to prepare these condensed consolidated interim financial statements in accordance with International Financial Reporting Standards.
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"signed" |
"signed" |
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Allan Shaw, CFO |
Ian Walters MD, Director |
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DATE: November 30, 2020 |
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Portage Biotech Inc.
Condensed Consolidated Interim Statements of Financial Position
(U.S. Dollars)
(Unaudited - see Notice to Reader dated November 30, 2020)
| As of , | Note | September 30, 2020 |
March 31, 2020 |
||||||
| (Audited) | |||||||||
| In 000'$ | In 000'$ | ||||||||
| Assets | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | $ | 4,431 | $ | 3,152 | |||||
| Prepaid expenses and other receivables | 4 | 480 | 574 | ||||||
| Investments in marketable equity securities | 5 | - | 68 | ||||||
| 4,911 | 3,794 | ||||||||
| Long-term assets | |||||||||
| Long-term portion of other receivables | 4 | 34 | 34 | ||||||
| Investment in associates | 6 | 2,616 | 1,225 | ||||||
| Investment in private companies | 8 | 7,409 | 7,409 | ||||||
| Goodwill | 9 | 43,324 | 43,324 | ||||||
| In process research and development | 10 | 117,388 | 117,388 | ||||||
| Other assets | 36 | - | |||||||
| Total assets | $ | 175,718 | $ | 173,174 | |||||
| Liabilities and Equity | |||||||||
| Current liabilities | |||||||||
| Accrued equity issuable | 11 | $ | 3,972 | $ | - | ||||
| Accounts payable and accrued liabilities | 343 | 1,268 | |||||||
| Warrant liability | 12 | 271 | - | ||||||
| Unsecured notes payable | 11 | 300 | 300 | ||||||
| Advance from related party | - | 1,000 | |||||||
| 4,886 | 2,568 | ||||||||
| Non-current liabilities | |||||||||
| Unsecured notes payable | 11 | - | 3,361 | ||||||
| Deferred tax liability | 10 | 21,604 | 21,604 | ||||||
| 21,604 | 24,965 | ||||||||
| Total liabilities | 26,490 | 27,533 | |||||||
| Shareholders' Equity | |||||||||
| Capital stock | 13 | 126,670 | 117,817 | ||||||
| Stock option reserve | 14 | 58 | 58 | ||||||
| Accumulated other comprehensive income | 958 | 958 | |||||||
| Accumulated deficit | (25,453 | ) | (22,302 | ) | |||||
| Total equity attributable to owners of the Company | 102,233 | 96,531 | |||||||
| Non-controlling interest | 20 | 46,995 | 49,110 | ||||||
| Total equity | $ | 149,228 | $ | 145,641 | |||||
| Total liabilities and equity | $ | 175,718 | $ | 173,174 | |||||
| Commitments and Contingent Liabilities (Note 16) |
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On behalf of the Board |
"Allan Shaw" |
Chief Financial Officer |
"Ian Walters" |
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(signed) |
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(signed) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-2
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Operations and Other Comprehensive Loss
(U.S. Dollars)
(Unaudited - see Notice to Reader dated November 30, 2020)
| Note | Three months ended September 30, |
Six months ended September 30, |
|||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||
| In 000'$ | In 000'$ | In 000'$ | In 000'$ | ||||||||||||
| Expenses | |||||||||||||||
| Research and development | $ | 543 | $ | 1,147 | $ | 1,290 | $ | 2,384 | |||||||
| General and administrative expenses | 625 | 423 | 851 | 984 | |||||||||||
| Loss from operations | (1,168 | ) | (1,570 | ) | (2,141 | ) | (3,368 | ) | |||||||
| Gain on sale of marketable equity securities | 5 | 72 | - | 72 | - | ||||||||||
| Gain on fair value of warrant liability | 12 | 59 | - | 59 | - | ||||||||||
| Loss on accrued equity issuable at a discount | 13 | (1,333 | ) | - | (1,333 | ) | - | ||||||||
| Loss on extinguishment of notes payable | 11 | (223 | ) | - | (223 | ) | - | ||||||||
| Share of (loss) income in associates accounted for using equity method | 6 | (49 | ) | (23 | ) | 391 | (66 | ) | |||||||
| Interest (expense) | (47 | ) | (108 | ) | (169 | ) | (203 | ) | |||||||
| Net (loss) | (2,689 | ) | (1,701 | ) | (3,344 | ) | (3,637 | ) | |||||||
| Other comprehensive (loss) | |||||||||||||||
| Unrealised (loss) on Investment in Biohaven | (78 | ) | (3 | ) | - | (18 | ) | ||||||||
| Total comprehensive (loss) for period | $ | (2,767 | ) | $ | (1,704 | ) | $ | (3,344 | ) | $ | (3,655 | ) | |||
| Net (loss) attributable to: | |||||||||||||||
| Owners of the Company | $ | (2,455 | ) | $ | (1,273 | ) | $ | (3,151 | ) | $ | (2,715 | ) | |||
| Non-controlling interest | (234 | ) | (428 | ) | (193 | ) | (922 | ) | |||||||
| $ | (2,689 | ) | $ | (1,701 | ) | $ | (3,344 | ) | $ | (3,637 | ) | ||||
| Comprehensive (loss) attributable to: | |||||||||||||||
| Owners of the Company | $ | (2,533 | ) | $ | (1,276 | ) | $ | (3,151 | ) | $ | (2,733 | ) | |||
| Non-controlling interest | (234 | ) | (428 | ) | (193 | ) | (922 | ) | |||||||
| $ | (2,767 | ) | $ | (1,704 | ) | $ | (3,344 | ) | $ | (3,655 | ) | ||||
| (Loss) per share (Actual) | 15 | ||||||||||||||
| Basic and diluted | $ | (0.21 | ) | $ | (0.12 | ) | $ | (0.28 | ) | $ | (0.25 | ) | |||
| Weighted average shares outstanding | |||||||||||||||
| Basic and diluted | 11,686 | 10,973 | 11,411 | 10,915 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-3
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
For the Six Months Ended September 30, 2020 and 2019
(U.S. Dollars)
(Unaudited - see Notice to Reader dated November 30, 2020)
| Number of Shares |
Capital Stock | Stock Option Reserve |
Accumulated Other Comprehensive Income |
Retained Earnings (Accumulated Deficit) |
Equity Attributable to Owners of Company |
Non-controlling Interest |
Total Equity | |||||||||||||||||
| In '000' | In '000'$ | In '000'$ | In '000'$ | In '000'$ | In '000'$ | In '000'$ | In '000'$ | |||||||||||||||||
| Balance, April 1, 2020 | 10,988 | 117,817 | 58 | 958 | (22,302 | ) | 96,531 | 49,110 | 145,641 | |||||||||||||||
| Issued under private placement | 698 | 6,980 | - | - | - | 6,980 | - | 6,980 | ||||||||||||||||
| Share issuance costs | - | (248 | ) | - | - | - | (248 | ) | - | (248 | ) | |||||||||||||
| Share-based compensation | - | - | - | - | - | - | 529 | 529 | ||||||||||||||||
| Exchange of SalvaRX warrants for Portage warrants | - | 2,451 | - | - | - | 2,451 | (2,451 | ) | - | |||||||||||||||
| Warrant liability at contract price | - | (330 | ) | - | - | - | (330 | ) | - | (330 | ) | |||||||||||||
| Net loss for period | - | - | - | - | (3,151 | ) | (3,151 | ) | (193 | ) | (3,344 | ) | ||||||||||||
| Balance, September 30, 2020 | 11,686 | 126,670 | 58 | 958 | (25,453 | ) | 102,233 | 46,995 | 149,228 | |||||||||||||||
| Balance, April 1, 2019 | 1,085,790 | |||||||||||||||||||||||
| After 100:1 reverse stock split | 10,858 | 116,237 | 324 | 82 | (16,969 | ) | 99,674 | 48,883 | 148,557 | |||||||||||||||
| Shares issued on acquisition of Intensity Holdings Limited | 130 | 1,298 | - | - | - | 1,298 | - | 1,298 | ||||||||||||||||
| Share-based compensation | - | - | 9 | - | - | 9 | 1,323 | 1,332 | ||||||||||||||||
| Unrealized (loss) on investment in Biohaven | - | - | - | (18 | ) | - | (18 | ) | - | (18 | ) | |||||||||||||
| Net loss for period | - | - | - | - | (2,715 | ) | (2,715 | ) | (922 | ) | (3,637 | ) | ||||||||||||
| Balance, September 30, 2019 | 10,988 | 117,535 | 333 | 64 | (19,684 | ) | 98,248 | 49,284 | 147,532 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-4
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Cash Flows
For the Six Months Ended September 30, 2020 and 2019
(U.S. Dollars)
(Unaudited - see Notice to Reader dated November 30, 2020)
| For the six months ended September 30, | 2020 | 2019 | |||||
| In 000'$ | In 000'$ | ||||||
| Cash flows provided by (used in) operating activities: | |||||||
| Net loss for the period | $ | (3,344 | ) | $ | (3,637 | ) | |
| Adjustments for non-cash items: | |||||||
| Gain on sale of marketable securities | (72 | ) | - | ||||
| Gain on fair value of warrant liability | (59 | ) | - | ||||
| Loss on accrued equity issuable at a discount | 1,333 | - | |||||
| Value of shares and options expensed as consulting fee | 529 | 1,332 | |||||
| Amortization of debt discount | 76 | 4 | |||||
| Loss on early extinguishment of debt | 223 | - | |||||
| Share of (gain) loss in associates | (391 | ) | 66 | ||||
| Changes in operating working capital: | |||||||
| Accounts receivable | 96 | - | |||||
| Prepaid expenses and other receivables | 2 | (141 | ) | ||||
| Accounts payable and accrued liabilities | (925 | ) | 154 | ||||
| Other assets | (36 | ) | - | ||||
| Other | (5 | ) | - | ||||
| Net cash used in operating activities | (2,573 | ) | (2,222 | ) | |||
| Cash flows provided by (used in) investing activities: | |||||||
| Proceeds from sale of marketable securities | 140 | - | |||||
| Investment in associates | (1,000 | ) | - | ||||
| Net cash used in investing activities | (860 | ) | - | ||||
| Cash flows provided by (used in) financing activities: | |||||||
| Proceeds from shares issued under private placement | 6,980 | - | |||||
| Share issuance costs | (248 | ) | - | ||||
| Repayment of unsecured notes payable - SalvaRx | (1,020 | ) | - | ||||
| Repayment of advance from related party | (1,000 | ) | - | ||||
| Repayment of unsecured notes payable | - | (100 | ) | ||||
| Net cash provided by (used in) financing activities | 4,712 | (100 | ) | ||||
| Increase (decrease) in cash and cash equivalents during period | 1,279 | (2,322 | ) | ||||
| Cash and cash equivalents at beginning of period | 3,152 | 6,166 | |||||
| Cash and cash equivalents at end of period | $ | 4,431 | $ | 3,844 | |||
| Supplemental disclosure of cash flow information: | |||||||
| Cash paid for interest | $ | 748 | $ | - | |||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||
| Accrued equity issuable under warrants exercised in exchange for unsecured notes payable issued by SalvaRx |
$ | 2,640 | $ | - | |||
| Fair value of warrant liability for Portage warrants issued | 271 | - | |||||
| Fair value of shares issued to acquire investment in Intensity Holdings Limited | $ | - | $ | 1,298 | |||
| Unrealised (loss) on investment in marketable securities - Biohaven | $ | - | $ | (18 | ) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-5
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 1. NATURE OF OPERATIONS
Portage Biotech Inc. (the "Company") is incorporated in the British Virgin Islands ("BVI") with its registered office located at FH Chambers, P.O. Box 4649, Road Town, Tortola, BVI. Its Toronto agent, Portage Services Ltd., is located at 6 Adelaide Street East, Suite 300, Toronto, Ontario, M5C 1H6, Canada.
The Company is a reporting issuer with the Ontario Securities Commission on the Canadian Stock Exchange under the symbol PBT-U and U.S. Securities and Exchange Commission on the OTC market under the symbol PTGEF.
The Company is engaged in the business of researching and developing pharmaceutical and biotechnology products through to clinical "proof of concept" with an initial focus on unmet clinical needs. Following proof of concept, the Company intends to seek to sell or license the products to large pharmaceutical companies for further development and commercialization.
On June 5, 2020, the Company effected a 100:1 reverse stock split. All share and per share information included in the condensed consolidated interim financial statements have been retroactively adjusted to reflect the impact of the reverse stock split. The shares of ordinary shares authorized remained at an unlimited number of ordinary shares without par value.
The Company's existing subsidiaries are in the pre-clinical stage, and as such no revenue has been generated from their operations.
Liquidity and Capital Resources
The Company has incurred substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. The losses result primarily from its conduct of research and development activities. As of September 30, 2020, the Company had cash balances totaling approximately $4.4 million and working capital of approximately $0.025 million (approximately $4.3 million adjusted for accrued equity issuable and warrant liability settleable on a non-cash basis), as compared to approximately $3.2 million and approximately $1.2 million, respectively, as of March 31, 2020.
On June 16, 2020, in a private placement, the Company issued 698,145 restricted ordinary shares for gross proceeds of $6.98 million. The Company incurred costs of approximately $0.25 million in connection with the offering, which were recorded as a reduction of the offering proceeds.
The Company historically has funded its operations principally from proceeds from issuances of equity and debt securities. The Company will require significant additional capital to make the investments it needs to execute its longer-term business plan. The Company's ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, future equity issuances would result in dilution to existing stockholders and any future debt securities may contain covenants that limit the Company's operations or ability to enter into certain transactions.
The Company's believes its current cash will be sufficient to fund operations for at least 12 months from the date of issuance of the financial statements contained herein. However, the Company believes it will need to raise additional funding through strategic relationships, public or private equity or debt financings, grants or other arrangements in order to advance the Company's existing and new product candidates through development and regulatory processes. If such funding is not available or not available on terms acceptable to the Company, the Company's current development plan and plans for expansion of its general and administrative infrastructure may be modified or even curtailed.
F-6
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 1. NATURE OF OPERATIONS (Cont'd)
COVID-19 Effect
Beginning in early March 2020, the COVID-19 pandemic and the measures imposed to contain this pandemic have disrupted and are expected to continue to impact the Company's business operations. The magnitude of the impact of the COVID-19 pandemic on the Company's productivity, results of operations and financial position, and its disruption to the Company's business and clinical programs and timelines, will depend, in part, on the length and severity of these restrictions and on the Company's ability to conduct business in the ordinary course.
NOTE 2. BASIS OF PRESENTATION
Statement of Compliance and Basis of Presentation
These condensed consolidated interim financial statements have been prepared in accordance with the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"), IAS 34 Interim Financial Reporting and interpretations of the International Financial Reporting Interpretations Committee. These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended March 31, 2020.
These condensed consolidated interim financial statements have been prepared on an historical cost basis except for items disclosed herein at fair value. In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
The Company has only one material operating segment.
These condensed consolidated interim financial statements were approved and authorized for issue by the Audit Committee and Board of Directors on November 30, 2020.
Consolidation
The condensed consolidated interim financial statements include the accounts of the Company and,
(a) Portage Services Ltd., a wholly owned subsidiary incorporated in Ontario on January 31, 2011.
(b) Portage Pharmaceuticals Ltd. ("PPL") a wholly owned subsidiary acquired in a merger on July 23, 2013, incorporated in the British Virgin Islands.
(c) EyGen Limited, ("EyGen"), a wholly owned subsidiary of PPL, incorporated on September 20, 2016, in the British Virgin Islands.
(d) SalvaRx Limited ("SalvaRx"), a wholly owned subsidiary, incorporated on May 6, 2015 in the British Virgin Islands.
(e) Portage Glasgow Ltd ("PGL"), a 65% subsidiary of PPL, incorporated in Glasgow, Scotland.
(f) iOx Therapeutics Ltd ("iOx"), a United Kingdom based immune-oncology company, a 60.49% subsidiary, incorporated in the United Kingdom on February 10, 2015.
(g) Saugatuck, a 70% owned subsidiary incorporated in the British Virgin Islands.
F-7
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 2. BASIS OF PRESENTATION (Cont'd)
Consolidation (Cont'd)
(h) Portage Developmental Services, a 100% owned subsidiary incorporated in Delaware.
All inter-company balances and transactions have been eliminated on consolidation.
Non-controlling interest in the equity of a subsidiary is accounted for and reported as a component of stockholders' equity. Non-controlling interests represent the 39.51% shareholder ownership interest in iOx and the 30% shareholder ownership interest in Saugatuck, and the 35% shareholder ownership interest in PGL, which are consolidated by the Company.
Functional and Presentation Currency
The Company's functional and presentation currency is U.S. Dollar.
Use of Estimates and Judgments
The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
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.
Significant areas where estimates are made include valuation of financial instruments, research and development costs, fair value used for acquisition and measurement of share-based compensation. Significant areas where critical judgments are applied include assessment of impairment of investments and goodwill and the determination of the accounting acquirer and acquiree in the business combination accounting.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies are set out in Note 3 to the fiscal 2020 audited consolidated financial statements. These policies have been applied consistently to all periods presented in these condensed consolidated interim financial statements.
New accounting standards, interpretations and amendments
Standards issued but not yet effective up to the date of issuance of the Company's condensed consolidated interim financial statements are listed below. This listing is of standards and interpretations issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they become effective.
F-8
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and Its Associate or Joint Venture
The amendment addresses the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors' interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Company does not believe that the above amendment will have any material impact on its financial statements.
NOTE 4. PREPAID EXPENSES AND OTHER RECEIVABLES
| As of September 30, 2020 |
As of March 31, 2020 |
|||||
| In 000'$ | In 000'$ | |||||
| Prepaid expenses | $ | 29 | $ | 14 | ||
| Research &Development tax credits | 451 | 500 | ||||
| Other receivables | - | 60 | ||||
| $ | 480 | $ | 574 |
In October 2016, the Company's wholly owned subsidiary, PPL agreed to a settlement, from a claim made against a supplier, to receive $120,000 in annual instalments of $11,250. Through September 30, 2020, the Company had collected $75,000. The balance of $45,000 was classified $11,250 as a current asset within other receivables and $33,750 as a long-term asset as of each of September 30, 2020 and March 31, 2020.
NOTE 5. INVESTMENT IN MARKETABLE EQUITY SECURITIES
As of March 31, 2020, the Company's investment in marketable equity securities was comprised of 2,000 shares in Biohaven Pharmaceutical Holding Company Limited ("Biohaven"), a public company listed on the New York Stock Exchange. The Company accounts for its investment in Biohaven as a financial asset classified as fair value through the statement of other comprehensive income ("FVTOCI").
In August 2020, the Company sold the shares of Biohaven for proceeds of $140,000 resulting in a gain of $72,000.
The following table is a roll-forward of the investment in Biohaven:
| Six Months Ended September 30, 2020 |
Six Months Ended September 30, 2019 |
|||||
| In 000'$ | In 000'$ | |||||
| Balance, beginning of period | $ | 68 | $ | 103 | ||
| Unrealized (loss) on investment | - | (18 | ) | |||
| Proceeds from the sale of the investment | (140 | ) | - | |||
| Gain on sale | 72 | - | ||||
| Balance, end of period | $ | - | $ | 85 |
F-9
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 6. INVESTMENT IN ASSOCIATE
Details of the Company's associate as of September 30, 2020 and March 31, 2020 are as follows:
|
Name |
|
Principal Activity |
|
Place of Incorporation and Principal Place of Business |
|
Voting Rights Held as of September 30, 2020 |
|
Voting Rights Held as of March 31, 2020 |
|
|
Associate: Stimunity S.A. |
|
Biotechnology |
|
Paris, France |
|
44.0 |
% |
36.4 |
% |
The abovementioned associate is accounted for using the equity method in these condensed consolidated interim financial statements.
The following table is a roll-forward of the investment Stimunity S.A.:
| Six Months Ended September 30, 2020 |
Six Months Ended September 30, 2019 |
|||||
| In 000'$ | In 000'$ | |||||
| Balance, beginning of period | $ | 1,225 | $ | 1,207 | ||
| Additional investment | 1,000 | - | ||||
| Share of income (loss) | 391 | (66 | ) | |||
| Balance, end of period | $ | 2,616 | $ | 1,141 |
On June 1, 2020, the Company made an additional $1.0 million investment in Stimunity upon Stimunity's achievement of certain agreed milestones, increasing its equity share in Stimunity to 44% (see Note 16 (b).
Under the shareholders agreement, Portage has (i) a preferential subscription right to maintain its equity interest in Stimunity in the event of a capital increase from the issuance of new securities by Stimunity, except for issuances of new securities for stock options under a merger plan or for an acquisition, or (ii) the right to vote against any (a) issuances of additional securities that would call for the Company to waive its preferential subscription right, or (b) any dilutive issuance.
The following table illustrates the summarized financial information of the Company's investment in Stimunity S.A (in millions):
| March 31, | ||||||
| 2020 | 2019 | |||||
| (Unaudited) | (Unaudited) | |||||
| Current assets | $ | 1.3 | $ | 1.1 | ||
| Non-current assets | $ | - | $ | - | ||
| Current liabilities | $ | 0.3 | $ | 0.2 | ||
| Non-current liabilities | $ | 0.1 | $ | - | ||
| Equity | $ | 0.9 | $ | 0.9 | ||
| Company's share in equity - 36.4% and 36.5% | $ | 0.3 | $ | 0.3 | ||
| Years ended March 31, | 2020 | 2019 | ||||
| (Unaudited) | (Unaudited) | |||||
| Revenue | $ | 0.2 | $ | 0.2 | ||
| Loss from operations | $ | (0.3 | ) | $ | (0.5 | ) |
| Net loss | $ | - | $ | (0.5 | ) |
F-10
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
The Company accounts for its investment in Stimunity under the equity method and accordingly, records its share of Stimunity's earnings or loss based on its ownership percentage. The Company recorded equity in earnings (loss) in Stimunity of ($49,000) and $391,000 for the three and six months ended September 30, 2020, respectively.
NOTE 7. INVESTMENT IN PGL
The Company's wholly owned subsidiary, PPL, holds 650 ordinary shares of Portage Glasgow Ltd. (PGL), at £0.01 per share for a total consideration of £6.50 ($9.11). PPL's ownership comprised 65% of the issued ordinary shares in PGL. PPL's Chief Executive Officer ("CEO") is also the chairman of the board of directors of PGL, which currently consists of two persons. PGL is therefore considered a subsidiary and consolidated.
As per the terms of a Convertible Loan Agreement dated January 31, 2018, signed with PGL, PPL has committed to provide PGL with an unsecured convertible loan facility up to £1 million ($1.4 million) with a minimum drawdown of £50,000 ($70,075) and maximum drawdown of £250,000 ($350,375) during any three-month period. Interest will be at 7% accruing monthly and the facility is repayable within nine years from the date of the agreement. The outstanding loan with accrued interest can be converted into ordinary shares of PGL to be priced at between £9,000 per share and £5,000 per share depending on the conversion date being within one year to eight years. However, completion of an eligible fundraising by PGL, being £5 million ($7.0 million) at a pre-money valuation of minimum £10 million ($14.0 million), will require the loan to be converted as per the terms of conversion described above. As of each of September 30, 2020 and March 31, 2020, the outstanding balance on the loan facility was $200,000. This loan facility is an intercompany loan that is eliminated in consolidation.
NOTE 8. INVESTMENT IN PRIVATE COMPANIES
The following is a discussion of our investments in private companies as of September 30, 2020 and March 31, 2020.
Sentien
In August 2015, the Company acquired 210,210 shares of Series A preferred stock in Sentien ("Preferred Stock"), a Medford, MA based private company for $700,000 of cash. The Preferred Stock is fully convertible into an equal number of common shares. The Company's holdings represent 5.06% of the equity of Sentien on a fully diluted basis as of September 30, 2020 and March 31, 2020, respectively. The investment in Sentien has been irrevocably designated as a financial asset recorded at fair value with changes in fair value recorded through other comprehensive income. As of March 31, 2020, the Company determined that cost no longer was the best estimate of fair value due to a significant change in the strategy of Sentien and determined that the investment in Sentien no longer had any fair value as Sentien was no longer pursing the proposed indication from the time of the Company's initial investment.
Intensity
In connection with the SalvaRx Acquisition in fiscal 2019, the Company acquired a $4.5 million interest in Intensity, a clinical stage biotechnology company, of 1.0 million shares, which represented a 7.5% equity interest in Intensity. The investment was recorded at fair value (which approximates cost) at the acquisition date. The investment in Intensity has been irrevocably designated as a financial asset recorded at fair value with gains and losses recorded through other comprehensive income. The fair value of the asset is determined by considering other comparable equity funding transactions by Intensity with unrelated investors.
On July 11, 2019, the Company entered into an agreement with Fast Forward Innovations Limited ("Fast Forward") to purchase Intensity Holdings Limited ("IHL"), a wholly owned subsidiary of Fast Forward. The Company paid $1.3 million for IHL through the issuance of 129,806 ordinary shares. The sole asset of IHL consists of 288,458 shares of the private company, Intensity. This transaction increased the Company's ownership to 1,288,458 shares of Intensity. As of September 30, 2020, and March 31, 2020, the Company owned approximately 9.0% of the outstanding shares of Intensity.
F-11
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 8. INVESTMENT IN PRIVATE COMPANIES (Cont'd)
As of September 30, 2020 and March 31, 2020, the Company has determined that there was no evidence of any impairment in the value of the above investments and as a result no adjustment was considered necessary in their carrying values.
NOTE 9. GOODWILL
| Six Months Ended September 30, 2020 | Year Ended March 31, 2020 | |||||||||||||||||
| Goodwill | IPRD | DTL | Goodwill | IPRD | DTL | |||||||||||||
| In 000'$ | In 000'$ | In 000'$ | In 000'$ | In 000'$ | In 000'$ | |||||||||||||
| Balance, beginning of period | 43,324 | 117,388 | (21,604 | ) | 43,324 | 117,388 | (21,604 | ) | ||||||||||
| On Acquisition of SalvaRx Ltd | - | - | - | - | - | - | ||||||||||||
| Amortization | - | - | - | - | - | - | ||||||||||||
| Impairment | - | - | - | - | - | - | ||||||||||||
| Balance, end of period | 43,324 | 117,388 | (21,604 | ) | 43,324 | 117,388 | (21,604 | ) | ||||||||||
The Company's goodwill arose from the acquisition of SalvaRx and its portfolio of several projects and investments.
As of September 30, 2020, the Company determined that it has only one cash-generating unit ("CGU"), the consolidated Portage Biotech, Inc.
On an annual basis, the Company assesses its long-lived assets with definite lives, which are not yet available for use for potential indicators of impairment. If any such indication exists, the Company estimates the recoverable amount of the asset or CGU and compares it to the carrying value.
The Company performed its annual impairment test in 2020 and estimated the recoverable amount of the above-noted CGU based on its value in use, which was determined using a capitalized cash flow methodology and categorized within level 3 of the fair market value hierarchy.
The recoverable amount of the CGU has been determined based on its value in use. The recoverable amount considered assumptions based on probabilities of technical, regulatory and clinical acceptances and financial support. Further, Management uses risk-adjusted cash flow projections based on financial budgets. Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. The discount rate has been determined based on the Company's best estimate of a risk adjusted discount rate.
The key assumptions used in the calculation of the recoverable amount include forecasts of the following:
(a) revenues;
(b) normalized operating expenses;
(c) income taxes; and
(d) capital expenditures.
Discounted cash flows are determined with reference to undiscounted risk adjusted cash flows, and the discount rate approximated 20.5% based on the individual characteristics of the Company's CGU, the risk-free rate of return and other economic and operating factors.
F-12
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 9. GOODWILL (Cont'd)
Additionally, at the end of each reporting period, the Company is required to assess whether there is any indication that an asset may be impaired. Pursuant to IAS 36, the Company reviewed its assets for any indicators of impairment and considered underlying fundamentals, execution, de-risking/advancement of assets and the value creation activities during the three and six months ended September 30, 2020.
As of September 30, 2020, management assessed whether any indications of impairment existed for the Company's CGU and concluded no indicators were present. Therefore, a test for impairment was not required and no impairment was recorded for the three and six months ended September 30, 2020.
NOTE 10. IN PROCESS RESEARCH AND DEVELOPMENT AND DEFERRED TAX LIABILITY
In process research and development ("IPRD") consists of the following projects (in 000'$):
| Project # | Description | Value as of September 30, 2020 |
Value as of March 31, 2020 |
||||||
| iOx: | |||||||||
| IMM 60 | Melanoma & Lung Cancers | $ | 84,213 | $ | 84,213 | ||||
| IMM 65 | Ovarian/Prostate Cancers | 32,997 | 32,997 | ||||||
| 117,210 | 117,210 | ||||||||
| Oncomer/Saugatuck | DNA Aptamers | 178 | 178 | ||||||
| $ | 117,388 | $ | 117,388 | ||||||
| Deferred tax liability | $ | 21,604 | $ | 21,604 |
Additionally, at the end of each reporting period, the Company is required to assess whether there is any indication that an asset may be impaired. Pursuant to IAS 36, the Company reviewed its assets for any indicators of impairment and considered underlying fundamentals, execution, de-risking/advancement of assets and the value creation activities during the three and six months ended September 30, 2020.
As of September 30, 2020, management assessed whether any indications of impairment existed for the Company's IPRD and concluded no indicators were present. Therefore, a test for impairment was not required and no impairment was recorded for the three and six months ended September 30, 2020.
Deferred tax liability (DTL) related to IPRD at iOx is subject to tax in the United Kingdom. As of September 30, 2020, there was no change in the amount and status of iOx IPRD and as a result, no changes were considered necessary in the amount of deferred tax.
F-13
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 11. UNSECURED NOTES PAYABLE
Following is a roll-forward of notes payable:
| CURRENT | CURRENT | NON-CURRENT | ||||||||||
| Notes payable | PPL | iOx | SalvaRx | Total | ||||||||
| In 000'$ | In 000'$ | In 000'$ | In 000'$ | |||||||||
| Balance, April 1, 2019 | 193 | 100 | 3,370 | 3,663 | ||||||||
| Repayment | - | - | (300 | ) | (300 | ) | ||||||
| Amortization of debt discount | 7 | - | 258 | 265 | ||||||||
| Loss on extinguishment of debt | - | - | 33 | 33 | ||||||||
| Balance, March 31, 2020 | 200 | 100 | 3,361 | 3,661 | ||||||||
| Repayment | - | - | (1,020 | ) | (1,020 | ) | ||||||
| Amortization of debt discount | - | - | 76 | 76 | ||||||||
| Value of notes exchanged in warrant exercise | - | - | (2,640 | ) | (2,640 | ) | ||||||
| Loss on extinguishment of debt | - | - | 223 | 223 | ||||||||
| Balance, September 30, 2020 | 200 | 100 | - | 300 |
PPL and EyGen Unsecured Notes Payables
The Unsecured Notes bear interest at 7% per annum, payable annually on the corresponding date of issuance. The Unsecured Notes are not redeemable by the Company prior to the maturity date of March 2020. The Unsecured Notes matured in March 2020, but have not been repaid, and accordingly, the Unsecured Notes are included in current liabilities.
In conjunction with the issuance of the Unsecured Notes, the note holders were also issued a warrant to subscribe for $7,500 new PPL or EyGen ordinary shares for every $10,000 of principal issued, respectively, provided that a certain qualifying event occurs within three years of issuance. The warrants were only exercisable on a qualifying event and the exercise price of the warrant would be based on the price of equity shares determined by the qualifying event and the year in which it took place. The warrants had a three-year term. The unexpired warrants expired during the year ended March 31, 2020, and thus do not have any fair value.
SalvaRx Unsecured Notes Payable and Warrants
In connection with the SalvaRx Acquisition in January 2019, the Company assumed $3.96 million of principal in unsecured notes due on March 2, 2021 (or earlier upon a qualifying event), that bear interest at 7% per annum (the "SalvaRx Notes"). The fair value of the SalvaRx Notes was determined to be $3.4 million at January 2019. As the SalvaRx Acquisition was a qualifying event, the unsecured notes became due upon the acquisition. In December 2019, the maturity date of the SalvaRx Notes was extended to June 2021.
The holders of the SalvaRx Notes received $7,500 of warrants in respect of each $10 thousand of principal issued. The warrants vest in the event of a qualifying transaction and are exercisable at a 30% discount to the implied valuation of SalvaRx. On the Acquisition Date, the fair value of the warrants, which are included in non-controlling interest, was determined to be $2.5 million using the Black Scholes Model.
F-14
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 11. UNSECURED NOTES PAYABLE AND WARRANTS (Cont'd)
During September 2020, the Company settled the SalvaRx Note obligations originally due in June 2021 in an aggregate principal amount of approximately $3.7 million, plus accrued interest of $0.75 million in exchange for cash payments totaling $1.77 million and 397,604 of the associated warrants with an exercise price of $6.64 per share. The warrants were exchanged for an equal number of warrants to acquire Portage stock at the same price per share. The Company accounted for the contractual value of the exercised and outstanding warrants at September 30, 2020 of $2.64 million as accrued equity issuable. Additionally, the Company recorded a loss of $1.3 million increasing accrued equity issuable to recognize the discount between the fair value of the underlying shares of $9.99 at September 30, 2020 (the closing market price on that date) and the contract price of $6.64 per share, which was reflected in the Company's results of operations for the three and six months ended September 30, 2020.
Four of the Company's directors, Gregory Bailey, James Mellon, Steven Mintz (in trust) and Kam Shah, received, in total, 363,718 of the warrants pursuant to this transaction. Subsequent to the exercise of the warrants in October 2020, Portage had 12,083,395 and 49,701 issued and outstanding shares and warrants, respectively (See Note 17(b)).
The Company also recorded a loss on early extinguishment of debt of $223,000 in the three and six months ended September 30, 2020.
iOx Unsecured Notes Payable and Warrants
In connection with the SalvaRx Acquisition in January 2019, the Company assumed $2.0 million of 7% convertible notes issued by iOx, a wholly owned subsidiary of SalvaRx (the "Convertible Notes"), of which the Company holds $1.9 million. As a result of the SalvaRx Acquisition, iOx became a subsidiary of the Company during the year ended March 31, 2019. In accordance with IFRS 3 - Business Combinations, the fair value, including interest receivable, of the Convertible Notes were effectively settled against the note receivable upon the business combination. The remaining Convertible Notes issued to third parties, including the conversion option, are recorded at a fair value of $0.1 million. In each of March 2019 and December 2019, $0.05 million of the Convertible Notes matured. The holders of the Convertible Notes can convert the notes and accrued interest into ordinary shares of iOx at any time before maturity at £120 per share. There is an automatic conversion in the event iOx raises $2.0 million, and the conversion price will be determined based on the timing of the capital raised and the price at which the money was raised. iOx has the right to repay the Convertible Notes together with accrued interest at any time.
NOTE 12. WARRANT LIABILITY
Below is the roll-forward of warrants issued by entity (see Note 11):
| PBI | SalvaRx | |||||||||||||||||
| Exercise Price |
Warrants | Amount | Exercise Price |
Warrants | Contract Amount |
|||||||||||||
| In 000' | In 000'$ | In 000' | In 000'$ | |||||||||||||||
| Warrants outstanding, April 1, 2020 | - | - | $ | - | $ | 6.64 | 447,305 | $ | 2,970 | (1) | ||||||||
| Exchange of warrants pursuant to SalvaRx Note settlement | $ | 6.64 | 447,305 | 2,970 | $ | 6.64 | (447,305 | ) | (2,970 | ) | ||||||||
| Reclassification to accrued equity issuable | $ | 6.64 | (397,604 | ) | (2,640 | ) | - | - | - | |||||||||
| Fair value adjustment at September 30, 2020 (2) | - | - | (59 | ) | - | - | - | |||||||||||
| Warrants outstanding, September 30, 2020 | $ | 6.64 | 49,701 | $ | 271 | - | - | $ | - | |||||||||
(1) Treated as non-controlling interest accounted for at fair value.
(2) Portage warrant liability valued at contract price, adjusted for fair value using the Black Scholes model.
F-15
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 13. CAPITAL STOCK
(a) Authorized ordinary shares: Unlimited number of common shares without par value.
(b) Following is a roll-forward of ordinary shares:
| Six Months Ended September 30, 2020 |
Six Months Ended September 30, 2019 |
|||||||||||
| Ordinary shares |
Amount | Ordinary shares |
Amount | |||||||||
| In 000' | In 000'$ | In 000' | In 000'$ | |||||||||
| Balance, beginning of period | 10,988 | $ | 117,817 | 10,858 | $ | 116,237 | ||||||
| Shares issued in a private placement, net of issue costs | 698 | 6,732 | - | - | ||||||||
| Exchange of SalvaRx warrants for PBI warrants | - | 2,451 | - | - | ||||||||
| To reflect warrants issued and outstanding (d) | - | (330 | ) | - | - | |||||||
| Shares issued in connection with the acquisition of interest in Intensity Holding Limited | - | - | 130 | 1,298 | ||||||||
| Balance, end of period | 11,686 | $ | 126,670 | 10,988 | $ | 117,535 | ||||||
(c) Number of ordinary shares have been retroactively adjusted to reflect the impact of 100:1 reverse stock split on June 5, 2020.
(d) Represents the contractual value of the Portage warrants, which was adjusted to fair value of $271 using the Black Scholes model.
On June 16, 2020, the Company completed a private placement of 698,145 restricted ordinary shares at a price of $10.00 per share for gross proceeds of $6.98 million to accredited investors. Directors of the Company subscribed for 215,000 shares, or approximately 30.8% of the private placement, for proceeds of $2.15 million. The Company incurred costs of approximately $0.25 million in connection with the offering, which was treated as contra-equity on the Company's balance sheet.
During September 2020, the Company settled the SalvaRx Note obligations originally due in June 2021 in an aggregate principal amount of approximately $3.7 million, plus accrued interest of $0.75 million in exchange for cash payments totaling $1.77 million and 397,604 of the associated warrants with an exercise price of $6.64 per share. The warrants were exchanged for an equal number of warrants to acquire Portage stock at the same price per share. The Company accounted for the contractual value of the exercised and outstanding warrants at September 30, 2020 of $2.64 million as accrued equity issuable. Additionally, the Company recorded a loss of $1.3 million increasing accrued equity issuable to recognize the discount between the fair value of the underlying shares of $9.99 at September 30, 2020 (the closing market price on that date) and the contract price of $6.64 per share, which was reflected in the Company's results of operations for the three and six months ended September 30, 2020.
Four of the Company's directors, Gregory Bailey, James Mellon, Steven Mintz (in trust) and Kam Shah, received, in total, 363,718 of the shares pursuant to this transaction. Subsequent to the exercise of the warrants in October 2020, Portage had 12,083,395 and 49,701 issued and outstanding shares and warrants, respectively.
F-16
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 14. STOCK OPTION RESERVE
(a) The following table provides the activity for the Company's stock option reserve:
| Six Months Ended September 30, 2020 |
Six Months Ended September 30,2019 |
|||||||||||
| Non- Controlling Interest |
Stock Option Reserve |
Non- Controlling Interest |
Stock Option Reserve |
|||||||||
| In 000'$ | In 000'$ | In 000'$ | In 000'$ | |||||||||
| Balance, beginning of period | 10,618 | 58 | 8,475 | 324 | ||||||||
| Share-based compensation expense | 529 | - | 1,323 | 9 | ||||||||
| Balance, end of period | 11,147 | 58 | 9,798 | 333 | ||||||||
(b) The movements in the number of options issued were:
| PBI 2013 Option Plan | PPL Option Plan (Subsidiary Plan) |
iOx Option Plan (Subsidiary Plan) |
||||||||||||||||
| Six Months Ended Sept. 30, 2020 |
Six Months Ended Sept. 30, 2019 |
Six Months Ended Sept. 30, 2020 |
Six Months Ended Sept. 30, 2019 |
Six Months Ended Sept. 30, 2020 |
Six Months Ended Sept. 30, 2019 |
|||||||||||||
| Balance, beginning of period | 2,980 | 5,959 | 9,341 | 57,258 | 2,599 | 2,599 | ||||||||||||
| Expired | - | - | - | - | - | - | ||||||||||||
| Balance, end of period | 2,980 | 5,959 | 9,341 | 57,258 | 2,599 | 2,599 | ||||||||||||
| Exercisable, end of period | 2,980 | 5,959 | 9,341 | 57,258 | 1,723 | 1,881 | ||||||||||||
The Board discontinued the 2013 Option Plan in fiscal 2019.
There were no other options issued under the PPL and iOx Plans.
(a) Following are the weighted average exercise price and the remaining contractual life for outstanding options by plan:
| PBI 2013 Option Plan | PPL Option Plan (Subsidiary Plan) |
iOx Option Plan (Subsidiary Plan) |
||||||||||||||||
| As of Sept. 30, 2020 |
As of Sept. 30, 2019 |
As of Sept. 30, 2020 |
As of Sept. 30, 2019 |
As of Sept. 30, 2020 |
As of Sept. 30, 2019 |
|||||||||||||
| Weighted average exercise price | $ | 15.00 | $ | 15.00 | $ | 2.83 | $ | 2.83 | $ | 152.74 | $ | 152.84 | ||||||
| Weighted average remaining contractual life (in years) |
1.22 | 2.22 | 2.11 | 3.11 | 1.13 | 2.13 | ||||||||||||
The vested options can be exercised at any time in accordance with the applicable option agreement. The exercise price was greater than the market price on the date of the grants for all options outstanding as of September 30, 2020 and March 31, 2020.
F-17
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 14. STOCK OPTION RESERVE (Cont'd)
The Company recorded $234,000 and $529,000 of compensation expense related to the iOx stock option plans for the three and six months ended September 30, 2020, respectively, and $573,000 and $1,323,000 for the three and six months ended September 30, 2019, respectively.
On June 25, 2020, at the annual meeting of shareholders, the Company's new incentive stock option plan (the "2020 Stock Option Plan") was approved, which authorized the directors to fix the option exercise price and to issue stock options under the plan as they see fit. The Company's 2020 Stock Option Plan is a 10% rolling stock option plan under which the directors are authorized to grant up to a maximum of 10% of the issued and outstanding ordinary shares on the date of grant. Through September 30, 2020, no stock options had been granted under the 2020 Stock Option Plan.
NOTE 15. EARNINGS (LOSS) PER SHARE
Basic earnings per share ("EPS") is calculated by dividing the net income (loss) attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is calculated by dividing the net income (loss) attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
| Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Numerator (in 000'$) | ||||||||||||
| Net loss attributable to owners of the Company | $ | (2,455 | ) | $ | (1,273 | ) | $ | (3,151 | ) | $ | (2,715 | ) |
| Denominator (in 000') | ||||||||||||
| Weighted average number of shares - Basic and Diluted | 11,686 | 10,973 | 11,411 | 10,915 | ||||||||
| Basic and diluted (loss) per share (Actual) | $ | (0.21 | ) | $ | (0.12 | ) | $ | (0.28 | ) | $ | (0.25 | ) |
Inclusion of outstanding options or other common stock equivalents in the computation of diluted loss per share would have an anti-dilutive effect on the loss per share and are therefore excluded from the computation. Consequently, there is no difference between loss per share and diluted loss per share.
NOTE 16. COMMITMENTS AND CONTINGENT LIABILITIES
(a) Under the terms of a License Agreement dated January 25, 2013, PPL is required to reimburse to the Licensor, Trojan Technologies Limited ("Trojan"), 50% of all maintenance costs of the U.S. Patent #7,968,512 and to pay royalties of 3% on Net Receipts from sales of the Licensed Product and 5% on Net Receipts from third parties in respect of development or other exploitation of Licensed Intellectual Property and/or Licensed Products up to a maximum of $30 million. As of September 30, 2020, no royalties have been earned and maintenance fees are insignificant, therefore no payments have been made to Trojan.
(b) The Company was committed to invest approximately €1.5 million ($1.9 million) in Stimunity upon Stimunity's achievement of certain agreed milestones. During the year ended March 31, 2019, the Company made a discretionary investment of €600,129 ($688,359) and on June 1, 2020, the Company made a discretionary investment of €800,000 ($1.0 million) investment towards the commitment. The remaining commitment was €100,000 as of September 30, 2020 (see Note 6).
(c) PPL is committed to provide a loan facility to PGL of up to £1 million ($1.4 million). As of September 30, 2020, PPL advanced £188,733 ($229,858) against the loan facility (see Note 7).
F-18
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 16. COMMITMENTS AND CONTINGENT LIABILITIES (Cont'd)
(d) SalvaRx has a contractual obligation to make further capital contribution of €0.3 million ($0.3 million) in Nekonal once certain development milestones have been achieved (see (e) below).
(e) SalvaRx and Nekonal are currently in disagreement regarding SalvaRx's obligation to make the additional equity contribution described in (d), which is due upon Nekonal's attainment of the defined milestone. In April 2019, SalvaRx asserted that management of Nekonal committed a breach of duties and fraud on its minority shareholder and Nekonal management has accused SalvaRx of breach of contract. To date, no legal proceedings have been formally commenced by either party. Research and development efforts have been suspended pending a resolution of this matter. The Company has reduced its investment in Nekonal to zero in these financial statements. The Company cannot predict the outcome of this matter and there is no assurance that additional costs will not be incurred.
NOTE 17. RELATED PARTY TRANSACTIONS
The Board of Directors, Chairman, Chief Executive Officer and Chief Financial Officer are key management personnel. The following subsidiaries and associates are considered related parties:
(a) Nekonal: One of the three directorships on the Board of Directors of Nekonal is controlled by Portage. Additionally, the CEO of the Company is also the CEO of Nekonal, and employees of the Company comprise the management team of Nekonal under the service agreement for management services.
(b) Stimunity: One of the three directors on the Board of Directors of Stimunity is controlled by Portage.
(c) iOx: Two of the five directorships on the Board of Directors of iOx is controlled by Portage. Additionally, Portage has an observer on the Board of iOx. The CEO of the Company is also the CEO of iOx, and the management team of the Company comprise the management team of iOx.
(d) Saugatuck: One of the three directorships on the Board of Directors of Saugatuck is controlled by Portage. Additionally, the CEO of the Company is also the CEO of Saugatuck and the management team of the Company comprise the management team of Saugatuck.
(e) Intensity: One of the four directorships on the Board of Directors of Intensity is represented by Portage. Additionally, the CEO of the Company is an officer and employee of Intensity.
(f) PGL: PPL holds 65% equity in PGL, committed to provide financing and also handles financial and administrative matters of PGL.
The following are significant related party balances and transactions other than those disclosed elsewhere in the condensed consolidated interim financial statements:
(a) Unsecured notes payable includes $200,000 notes issued to directors of the Company by PPL. See (b) below for discussion of the exchange and settlement of approximately $3.2 notes issued to directors by SalvaRx Ltd.
F-19
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 17. RELATED PARTY TRANSACTIONS (Cont'd)
(b) Interest expense includes approximately $22,231 and $78,427 interest for the three and six months ended September 30, 2020, respectively, and $59,850 and $119,700 interest for the three and six months ended September 30, 2019, respectively, incurred on notes issued to members of the Portage board of directors. In connection with the settlement of the SalvaRx unsecured notes, $692,045 of accrued interest and $805,000 of principal was paid to directors. The directors also exchanged an aggregate $2,415,000 of notes payable for SalvaRx warrants at a price of $6.64, which were exchanged for Portage warrants and immediately converted to Portage stock, which was included in accrued equity issuable on the condensed consolidated interim statements of financial position at September 30, 2020.(See Note 6).
(c) In January 2020, a board member of the Company advanced the Company $1.0 million, which was repaid in July 2020. There was no interest or fees associated with this advance.
Transactions between the parent company and its subsidiaries, which are related parties, have been eliminated in consolidation and are not disclosed in this note.
NOTE 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's financial instruments recognized in the Company's condensed consolidated interim statements of financial position consist of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The following table summarizes the Company's financial instruments as of September 30, 2020 and March 31, 2020:
| As of September 30, 2020 | As of March 31, 2020 | |||||||||||
| Amortized Cost | Fair Value to Other Comprehensive Income (FVTOCI) |
Amortized Cost | FVTOCI | |||||||||
| in 000'$ | in 000'$ | in 000'$ | in 000'$ | |||||||||
| Financial assets | ||||||||||||
| Cash and cash equivalents | 4,431 | - | 3,152 | - | ||||||||
| Prepaid expenses and other receivables | 480 | - | 574 | - | ||||||||
| Investments | - | 10,025 | - | 8,702 | ||||||||
| Amortized Cost | Fair Value through profit or loss (FVTPL) |
Amortized Cost | FVTPL | |||||||||
| Financial liabilities | ||||||||||||
| Accounts payable and accrued liabilities | 343 | - | 1,268 | - | ||||||||
| Accrued equity issuable | - | 3,972 | - | - | ||||||||
| Unsecured notes payable | 300 | - | 3,661 | - | ||||||||
| Warrant liability | - | 271 | - | - | ||||||||
A summary of the Company's risk exposures as it relates to financial instruments are reflected below.
Fair value of financial instruments
The Company's financial assets and liabilities are comprised of cash, receivables and investments in equities and private entities, accounts payable, warrant liability and unsecured notes payable.
F-20
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont'd)
The Company classifies the fair value of these transactions according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:
- Level 1 - Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date.
- Level 2 - Values are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or indirectly observable as of the reporting date.
- Level 3 - Values are based on prices or valuation techniques that are not based on observable market data. Investments are classified as Level 3 financial instrument.
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.
Management has assessed that the fair values of cash and cash equivalents, other receivables and accounts payable approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate their fair values:
Investment in Biohaven: Fair value was based on a quoted market price of $34.03 per share as of March 31, 2020 (Level 1). The investment was sold in August 2020.
Investment and option in Nekonal: Fair value has been listed at $0.
Investment in Sentien: Fair value of the asset is determined by considering strategy changes by Sentien (Level 3).
Investment in Intensity: Fair value of the asset is determined by considering other comparable equity funding transactions by Intensity with unrelated investors (Level 3).
Accrued equity issuable: The fair value is estimated based on the quoted market price at September 30, 2020 (Level 1).
Unsecured notes payable and warrant liability: The fair value is estimated using a Black Scholes model (Level 3).
Warrant Liability: The fair value is estimated using a Black Scholes model (Level 3).
There have been no transfers between levels of the fair value hierarchy for the three and six months ended September 30, 2020 and the year ended March 31, 2020.
The Company's financial instruments are exposed to certain financial risks: credit risk and liquidity risk.
Credit risk. Credit risk is the risk of loss associated with a counterparty's inability to fulfil its payment obligations. The credit risk is attributable to various financial instruments, as noted below. The credit risk is limited to the carrying value as reflected on the condensed consolidated interim statements of financial position.
F-21
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont'd)
Cash. Cash is held with major international financial institutions and therefore the risk of loss is minimal.
Other receivables. The Company is exposed to credit risk attributable to its debtor since a significant portion of this amount represents the amount agreed on a settlement of a claim by PPL (see Note 4), payable over the next four years. The debtor has so far been diligent in paying the amounts on the due dates and PPL management will be monitoring the account on a regular basis.
Liquidity risk. Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due.
The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company's reputation. The Company holds sufficient cash to satisfy obligations under accounts payable and accruals.
The Company monitors its liquidity position regularly to assess whether it has the funds necessary to meet its operating needs and needs for investing in new projects. The Company believes that it has sufficient funding to finance the committed drug development work, apart from meeting its operational needs for the foreseeable future.
However, as a biotech company at an early stage of development and without significant internally generated cash flows, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company, or that actual drug development expenditures may exceed those planned. The current uncertainty in global markets could have an impact on the Company's future ability to access capital on terms that are acceptable to the Company. There can be no assurance that required financing will be available to the Company.
NOTE 19. CAPITAL DISCLOSURES
The Company considers the items included in Shareholders' Equity as capital. The Company had accounts payable and accrued expenses of approximately $0.34 million as of September 30, 2020 (approximately $1.3 million as of March 31, 2020) and current assets, primarily in cash, of approximately $4.9 million as of September 30, 2020 (approximately $3.8 million as of March 31, 2020). The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to pursue new business opportunities and to maintain a flexible capital structure, which optimizes the costs of capital at an acceptable risk.
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.
As of September 30, 2020, shareholders' equity attributable to the owners of the company was approximately $102.2 million (approximately $96.5 million as of March 31, 2020).
The Company is not subject to any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital. There have been no changes to the Company's approach to capital management during the three and six months ended September 30, 2020 and 2019.
F-22
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited - See Notice to Reader dated November 30, 2020)
NOTE 20. NON-CONTROLLING INTEREST
| PGL | SalvaRx | iOx | Saugatuck | Total | |||||||||||
| 000'$ | 000'$ | 000'$ | 000'$ | 000'$ | |||||||||||
| Balance, April 1, 2020 | (81 | ) | 2,451 | 46,712 | 28 | 49,110 | |||||||||
| Stock-based compensation expense | - | - | 529 | - | 529 | ||||||||||
| Exchange of SalvaRx warrants for PBI warrants in SalvaRx Note settlement |
- | (2,451 | ) | - | - | (2,451 | ) | ||||||||
| Net loss attributable to non-controlling interest | - | - | (165 | ) | (28 | ) | (193 | ) | |||||||
| Non-controlling interest, September 30, 2020 | (81 | ) | - | 47,076 | - | 46,995 |
| PGL | SalvaRx | iOx | Saugatuck | Total | |||||||||||
| 000'$ | 000'$ | 000'$ | 000'$ | 000'$ | |||||||||||
| Balance, April 1, 2019 | (31 | ) | 2,451 | 46,376 | 87 | 48,883 | |||||||||
| Stock-based compensation expense | - | - | 1,323 | - | 1,323 | ||||||||||
| Net loss attributable to non-controlling interest | (43 | ) | - | (870 | ) | (9 | ) | (922 | ) | ||||||
| Non-controlling interest, September 30, 2019 | (74 | ) | 2,451 | 46,829 | 78 | 49,284 |
F-23
PORTAGE BIOTECH INC.
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020
MANAGEMENT'S DISCUSSION AND ANALYSIS
Prepared as of November 30, 2020
Index
Management Discussion and Analysis
The following discussion and analysis by management of the financial condition and financial results for Portage Biotech Inc. for the three and six months ended September 30, 2020, should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three and six months ended September 30, 2020 and for the three months ended June 30, 2020, together with the related Management's Discussion and Analysis and audited consolidated financial statements for the year ended March 31, 2020, and Annual Report on Form 20-F for the same period.
Forward-Looking Statements
This document includes "forward-looking statements." All statements, other than statements of historical facts, included herein or incorporated by reference herein, including without limitation, statements regarding our business strategy, plans and objectives of management for future operations and those statements preceded by, followed by, or that otherwise include the words "believe," "expects," "anticipates," "intends," "estimates" or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that such forward-looking statements will prove to be correct.
Each forward-looking statement reflects our current view of future events and is subject to risks, uncertainties and other factors that could cause actual results to differ materially from any results expressed or implied by our forward-looking statements.
Risks and uncertainties include, but are not limited to:
- our plans and ability to develop and commercialize product candidates and the timing of these development programs;
- clinical development of our product candidates, including the results of current and future clinical trials;
- the benefits and risks of our product candidates as compared to others;
- our maintenance and establishment of intellectual property rights in our product candidates;
- our need for additional financing and our estimates regarding our capital requirements and future revenues and profitability;
- our estimates of the size of the potential markets for our product candidates; and
- our selection and licensing of product candidates.
These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments based on the focus of our business activities on biotechnology, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties, which could cause actual results to differ materially from our expectations, including the risks set forth in "Item 3 - Key Information - Risk Factors" in the Company's Annual Report on Form 20-F for the year ended March 31, 2020.
Our business focus is that of being primarily a pharmaceutical development business subject to all of the risks of a pharmaceutical development business. We do not anticipate directly engaging in the post pharmaceutical development endeavors of manufacturing, marketing and distribution of our development products.
Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.
Unless the context indicates otherwise the terms "Portage Biotech Inc.," the "Company," "Portage," "we," "us," "our" are used interchangeably in this Annual Report and refer to Portage Biotech Inc. and its subsidiaries.
Nature of Operations and Overview
Portage Biotech Inc. ("the Company") operated as an Ontario, Canada incorporated company, formerly under the name of Bontan Corporation Inc. ("Bontan") until July 5, 2013. On July 5, 2013, the Company changed its name to the current name and moved its jurisdiction of incorporation to the British Virgin Islands ("BVI") under a Certificate of Continuance issued by the Registrar of Corporate Affairs of BVI.
The Company now continues as a BVI incorporated company with its registered office located at FH Chambers, P.O. Box 4649, Road Town, Tortola, BVI. Its Toronto agent, Portage Services Ltd., is located at 6 Adelaide Street East, Suite 300, Toronto, Ontario, M5C 1H6, Canada.
The Company is a reporting issuer with the Ontario Securities Commission and the U.S. Securities and Exchange Commission. Its ordinary shares trade on the OTC Markets under the trading symbol "PTGEF," effective August 23, 2013, and prior to that date, the shares traded as Bontan Corporation Inc. under the trading symbol "BNTNF." Effective October 28, 2013, the Company's shares were listed for trading in U.S. currency on the Canadian Securities Exchange under the symbol "PBT.U."
On January 8, 2019, the Company acquired 100% of the equity of SalvaRx Ltd., which has full and partial ownership of six immune-oncology companies that are developing nine products.
On June 5, 2020, the Company completed a reverse-split of its ordinary shares at the rate of 100 old shares for one new share. The consolidation of shares proposal was approved by our shareholders at the annual general and special meeting of shareholders of the Company held on January 8, 2020.
On June 16, 2020, the Company closed a private placement (the "Offering") for gross proceeds of $6.98 million through the issuance of 698,145 ordinary shares (the "Ordinary Shares") at a price of $10.00 per Ordinary Share. The Company incurred costs of $248,000 in connection with the Offering, which was offset against the gross proceeds. The net proceeds from the Offering will be used to accelerate pipeline development/execution and will enable management to pursue new opportunistic value creation.
The current organization chart of the Portage Group is as follows:
Summary of Results
The following table summarizes financial information for the quarter ended September 30, 2020, and the preceding eight quarters (all amounts in 000'US$ except net loss per share, which are actual amounts). All share and per share amounts reflect the 1:100 reverse stock split effected June 5, 2020.
| Quarter ended | Sept. 30 | June 30, | Mar. 31, | Dec. 31, | Sept. 30, | June 30, | Mar. 31, | Dec. 31, | Sept. 30, | ||||||||||||||||||
| 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | 2019 | 2018 | 2018 | |||||||||||||||||||
| in 000'$ | in 000'$ | in 000'$ | in 000'$ | in 000'$ | in 000'$ | in 000'$ | in 000'$ | in 000'$ | |||||||||||||||||||
| Net loss - attributable to the owners of the Company | 2,455 | 696 | 2,242 | 376 | 1,273 | 1,442 | 1,901 | 307 | 208 | ||||||||||||||||||
| Working capital (1) | 25 | 6,293 | 1,226 | 1,977 | 2,500 | 3,604 | 4,757 | 6,015 | 7,157 | ||||||||||||||||||
| Shareholders' equity | 102,233 | 102,646 | 96,531 | 98,574 | 98,248 | 98,222 | 99,674 | 8,979 | 9,229 | ||||||||||||||||||
| Net loss per share - basic | (0.21 | ) | (0.06 | ) | (0.20 | ) | (0.03 | ) | (0.12 | ) | (0.13 | ) | (0.18 | ) | (0.11 | ) | (0.07 | ) | |||||||||
| Net loss per share - diluted | (0.21 | ) | (0.06 | ) | (0.20 | ) | (0.03 | ) | (0.12 | ) | (0.13 | ) | (0.18 | ) | (0.11 | ) | (0.07 | ) |
(1) September 30, 2020 working capital is net of accrued equity issuable of $3,972 and warrant liability of $271 settled or settleable on a non-cash basis.
Number of Ordinary Shares, Options and Warrants
These are as follows:
|
As of, |
|
September 30, 2020 |
|
|
November 27, 2020 |
|
||
|
Shares issued and outstanding |
|
|
11,685,791 |
|
|
|
12,083,395 |
|
|
Options granted but not yet exercised (a) |
|
|
2,980 |
|
|
|
2,980 |
|
|
Warrants (b) |
|
|
49,701 |
|
|
|
49,701 |
|
(a) Options are exercisable into equal number of ordinary shares at an average exercise price of $15.00 and have a weighted average remaining contractual life of approximately 1.22 years as of September 30, 2020.
(b) Warrants are exercisable into equal number of ordinary shares at an average exercise prise of $6.64 and have a remaining contractual life of approximately 2.00 years as of September 30, 2020.
Business Environment
Risk Factors
Please refer to the Annual Report on Form F-20 for the year ended March 31, 2020 for detailed information as the economic and industry factors that are substantially unchanged as of the date hereof.
Business Plan
Portage enables research and development of pharmaceutical products and technologies so as to produce more clinical programs and maximize potential returns by eliminating typical overhead costs associated with many biotechnology companies. We nurture the creation of early- to mid-stage, first- and best-in-class therapies for a variety of cancers, by providing funding, strategic business and clinical counsel, and shared services, to enable efficient, turnkey execution of commercially informed development plans. Our business encompasses nine subsidiary companies whose products or technologies have established scientific rationales, including intra-tumoral, nanoparticles, liposomes, aptamers, cell penetrating peptides, and virus-like particles. In collaboration with our subsidiaries, we create viable product development strategies, to cost-effectively deliver best-in-class R&D, clinical trial design, and financial and project management, to ultimately build value and support commercial potential.
Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
(All Amounts in 000'$)
Results of Operations
The following details major expenses for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The information presented for the three and six months ended September 30, 2019 reflects reclassifications to conform to the classifications used for the three and six months ended September 30, 2020.
| Three months ended September 30, | 2020 | 2019 | ||||||
| In 000'$ | In 000'$ | |||||||
| Operating expenses | (1,168 | ) | (1,570 | ) | ||||
| Gain on sale of marketable securities | 72 | - | ||||||
| Gain on fair value of warrant liability | 59 | - | ||||||
| Loss on accrued equity issuable at a discount | (1,333 | ) | - | |||||
| Loss on extinguishment of SalvaRx debt | (223 | ) | - | |||||
| Interest expense | (47 | ) | (108 | ) | ||||
| Share of loss in associates accounted for under the equity method | (49 | ) | (23 | ) | ||||
| Net loss | (2,689 | ) | (1,701 | ) | ||||
| Unrealized gain (loss) on investment, available for sale | (78 | ) | (3 | ) | ||||
| Total comprehensive loss for period | (2,767 | ) | (1,704 | ) | ||||
| Non-controlling interest | (234 | ) | (428 | ) | ||||
| Net loss attributable to owners | (2,533 | ) | (1,276 | ) | ||||
| Total comprehensive loss for period | (2,767 | ) | (1,704 | ) | ||||
Expenses
The overall analysis of the operating expenses is as follows:
| Three months ended September 30, | 2020 | 2019 | ||||
| In 000'$ | In 000'$ | |||||
| Research and development | 543 | 1,147 | ||||
| General and administrative expenses | 625 | 423 | ||||
| Total operating expenses | 1,168 | 1,570 |
Research and Development Costs
These costs comprised the following:
| Three months ended September 30, | 2020 | 2019 | ||||
| In 000'$ | In 000'$ | |||||
| Legal regarding Patents' registration | 13 | 64 | ||||
| Consultants - scientists and researchers | 262 | 697 | ||||
| Other outside services - lab testing, peptide handling, etc. | 268 | 386 | ||||
| Total research and development costs | 543 | 1,147 |
Included in consultants - scientists and researchers are $197 and $481 of non-cash stock-based compensation expense for the three months ended September 30, 2020 and 2019, respectively.
Research and development costs ("R&D") decreased by $604, or 53%, during the three months ended September 30, 2020, compared to the three months ended September 30, 2019. $284 of this difference resulted from a decrease in non-cash stock-based compensation expense included in research and development costs in the comparable periods. The decrease in the current year period is also due to the decrease in the level of activities in the comparable periods.
Key Recent Developments
iOx
In November,2020, iOx received regulatory approval to start clinical trials for IMM60 in the UK and IMM65 in the Netherlands. It is anticipated that both clinic trials will activate before the end of the year. While Covid-19 challenges remain, iOx remains hopeful of getting its first patients treated soon. The team also is looking at other clinical opportunities as we have manufactured a good deal of clinical supplies.
Saugatuck Therapeutics Ltd. ("Saugatuck") and Oncomer
Saugatuck focuses on the development of DNA aptamers and certain aptamer-based combination products. It achieved initial proof of concept of the nanolipogel ("NLG") formulation with Portage's initial investment of $300,000, which triggered an additional investment of $700,000 USD in Saugatuck by Portage. Saugatuck was able to formulate a proprietary PD1 aptamer in the NLG formulation, and it has shown the formulation properly modulates PD1 signaling and is progressing towards identifying human reactive PDI aptamer I. In non-clinical, in vivo experiments the NLG-PD1 performed favorably compared to a mouse PD1 antibody. The additional funding will support exploration of multiple PD1 based co-formulations with small molecules and other DNA aptamers. Separately, this work has triggered a license from D5 pharma to create additional proprietary DNA aptamers for immune-oncology targets. This license is with another Portage company, Oncomer. The Oncomer company supplies Saugatuck with aptamers to be formulated in the NLG platform.
Stimunity
Stimunity has focused on the development of STING agonists in cancer and reached a major development milestone in its preclinical development plan in during the quarter ended June 30, 2020. As a result of this advancement, Portage made an additional €900k (approximately $1million) investment into Stimunity. It is anticipated that this additional capital will enable Stimunity to start the manufacturing of its biologic cGAMP-VLP (STI-001) lead compound to create additional drug product to facilitate further development STING-activating cGAMP Virus-Like Particle(cGAMP-VLP) technology has a unique property enabling its payload to preferentially target immune cells, which is different from other chemical STING approaches. This targeting mechanism has an impact on the stimulation of the immune system and the quality of the anti-tumoral response by delivering the cGAMP via systemic route of administration and that it leads to induction of systemic anti-tumor T-cell response which demonstrates picking the right approach to modulate STING is key. Stimunity is currently working on a new oral formulation of STING, that the Company believes could be very competitive with other approaches in this area due to its unique virus like particle delivery system.
Intensity
Intensity has shown clinical proof of concept results of their product in humans and has secured regulatory secured fast track status from the FDA. In addition, Intensity has launched 7 phase 2 studies including clinical collaborations with the two largest immuno-oncology drug manufacturers, BMS and Merck. Intensity has presented clinical trial results at major conferences, including ASCO and SITC since the beginning of this fiscal year and reported excellent safety, with encouraging signs of efficacy.
General and Administrative Expenses
Key components of general and administrative expenses are:
| Three months ended September 30, | 2020 | 2019 | ||||
| In 000'$ | In 000'$ | |||||
| Consulting fees | 260 | 208 | ||||
| Professional fees | 166 | 103 | ||||
| Office and general expenses | 199 | 112 | ||||
| Total general and administrative expenses | 625 | 423 |
General and administrative expenses increased by $0.2 million, or 49%, during the three months ended September 30, 2020, compared to the three months ended September 30, 2019. This increase was primarily due to increases in consulting fees attributable to an effort to strengthen the Company's infrastructure. In addition, professional fees in the three months ended September 30, 2020 increased due to an increase in accounting related expenses. Finally, office and general expenses increased due primarily to an increase in investor related expenditures.
Six Months Ended September 30, 2020 Compared to the Six Months Ended September 30, 2019
(All Amounts in 000'$)
Results of Operations
The following details major expenses for the six months ended September 30, 2020, compared to the six months ended September 30, 2019.
| Six months ended September 30, | 2020 | 2019 | ||||
| In 000'$ | In 000'$ | |||||
| Operating expenses | (2,141 | ) | (3,368 | ) | ||
| Gain on sale of marketable securities | 72 | - | ||||
| Gain on fair value of warrant liability | 59 | - | ||||
| Loss on accrued equity issuable at a discount | (1,333 | ) | - | |||
| Loss on extinguishment of SalvaRx debt | (223 | ) | - | |||
| Interest expense | (169 | ) | (203 | ) | ||
| Share of income (loss) in associate accounted for under the equity method | 391 | (66 | ) | |||
| Net loss | (3,344 | ) | (3,637 | ) | ||
| Other comprehensive loss | - | (18 | ) | |||
| Total comprehensive loss for period | (3,344 | ) | (3,655 | ) | ||
| Non-controlling interest | (193 | ) | (922 | ) | ||
| Net loss attributable to owners | (3,151 | ) | (2,733 | ) | ||
| Total comprehensive loss for period | (3,344 | ) | (3,655 | ) |
Expenses
The overall analysis of the operating expenses is as follows:
| Six months ended September 30, | 2020 | 2019 | ||||
| In 000'$ | In 000'$ | |||||
| Research and development | 1,290 | 2,384 | ||||
| General and administrative expenses | 851 | 984 | ||||
| Total operating expenses | 2,141 | 3,368 |
Research and Development Costs
These costs comprised the following:
| Six months ended September 30, | 2020 | 2019 | ||||
| In 000'$ | In 000'$ | |||||
| Legal regarding Patents' registration | 96 | 115 | ||||
| Consultants - scientists and researchers | 1,009 | 1,573 | ||||
| Other outside services - lab testing, peptide handling, etc. | 755 | 696 | ||||
| 1,860 | 2,384 | |||||
| Proceeds from a legal settlement with a vendor | (570 | ) | - | |||
| Total research and development costs | 1,290 | 2,384 |
Included in consultants - scientists and researchers are $443 and $1,124 of non-cash stock-based compensation expense for the six months ended September 30, 2020 and 2019, respectively.
Research and development costs ("R&D") decreased by $1.1 million, or 46%, in the six months ended September 30,2020, compared to the six months ended September 30, 2019. The decrease was primarily due to a decrease in consulting expense of $0.6 million, attributed primarily to non-cash stock-based compensation expense included in consulting expense and the receipt by one of Portage's portfolio companies of a $0.6 million cash settlement for a legal dispute it had with a vendor while developing one of its products. These were offset by a slight increase of $0.1 million in outside services purchased.
General and Administrative Expenses
Key components of general and administrative expenses are:
| Six months ended September 30, | 2020 | 2019 | ||||
| In 000'$ | In 000'$ | |||||
| Consulting fees | 326 | 524 | ||||
| Professional fees | 241 | 346 | ||||
| Office and general expenses | 284 | 114 | ||||
| Total general and administrative expenses | 851 | 984 |
General and administrative expenses decreased by $0.1 million, or approximately 14%, during the six months ended September 30, 2020, compared to the three months ended September 30, 2019. This reduction was primarily due to a decrease in consulting fees of $0.2 million caused by non-recurring consulting expense incurred in the prior year associated with the SalvaRx acquisition and a reduction in non-cash stock-based compensation expense in the six months ended September 30, 2020, compared to the prior year period. In addition, professional fees in the six months ended September 30, 2020 decreased by $0.1 million, compared to the six months ended September 30, 2019, due to audit and accounting fees incurred in the prior year period. These were offset by an increase in office and general expenses of $0.2 million in the current year period, due primarily to investor related expenses.
Liquidity and Capital Resources
On June 16, 2020, the Company closed a private placement of ordinary shares for gross proceeds of approximately $7.0 million through the issuance of 698,145 ordinary shares at a price of $10.00 per share. The Company incurred costs of $248,000 in connection with the offering, which was offset against the gross proceeds. The net proceeds from the offering will be used to finance operating expenses and accelerate pipeline development/execution and will enable management to pursue new opportunistic value creation. A portion of the proceeds was used to settle the SalvaRx Notes.
Operating Cash Flow
During the six months ended September 30, 2020, operating activities required a net cash outflow of approximately $2,573,000, compared to a net cash outflow from operations of approximately $2,222,000 during the six months ended September 30, 2019. The cash obligations were funded by existing cash plus a portion of the net proceeds from the private placement of approximately $6,733,000, net of offering costs, closed in June 2020. These amounts were consistent with the Company's level of research and development activities in the comparable periods.
The Company currently does not have any contractual commitments to fund further research and development at its subsidiaries.
The Company's continuing operations are dependent upon any one of:
1. the development and identification of economically recoverable medical solutions;
2. the ability of the Company to obtain the necessary financing to complete the research; or
3. future profitable production from or proceeds from the disposition of intellectual property.
The Company has incurred substantial operating losses since inception due to significant research and development spending and corporate overhead and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2020, the Company held cash balances of approximately $4.3 million, working capital of approximately $0.025 million ($4.3 million adjusted for accrued equity issuable and warrant liability settleable on a non-cash basis ) and an accumulated deficit of approximately $25.5 million. The Company has historically funded its operations from proceeds from the sale of equity and debt securities. The Company will require significant additional capital to make the investments it needs to execute its longer-term business plan. The Company's ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, even if it were successful, future equity issuances would result in dilution to its existing stockholders and any future debt securities may contain covenants that limit the Company's operations or ability to enter into certain transactions.
The Company's current cash will be sufficient to fund operations for at least the next 12 months. However, the Company will need to continue to raise additional funding through strategic relationships, public or private equity or debt financings, grants or other arrangements to develop and seek regulatory approvals for the Company's existing and new product candidates. If such funding is not available or not available on terms acceptable to the Company, the Company's current development plan and plans for expansion of its general and administrative infrastructure may be curtailed.
Investing Cash Flows
On June 1, 2020, the Company made an additional $1.0 million investment in Stimunity upon Stimunity's achievement of certain agreed milestones, increasing its equity share in Stimunity to 44%.
There were no investing activities during the six months ended September 30, 2019.
Financing Cash Flows
On June 16, 2020, the Company completed a private placement offering of 698,145 restricted ordinary shares at a price of $10 per share for gross proceeds of $6.98 million to accredited investors. Directors of the Company subscribed for 215,000 shares for $2,150,000. The Company incurred offering costs of $248,000 in connection with the private placement.
The Company also repaid a $1million advance from a related party in July 2020.
There were no financing activities during the six months ended September 30, 2019.
Key Contractual Obligations
Details of contractual obligations, commitments and contingent liabilities are provided in Note 16 to the unaudited condensed consolidated interim financial statements for the three and six months ended September 30, 2020.
Off-balance Sheet Arrangements
As of September 30, 2020 and 2019, the Company did not have any off-balance sheet arrangements, including any relationships with unconsolidated entities or financial partnership to enhance perceived liquidity.
Transactions with Related Parties
Significant related party transactions are detailed in Note 17 to the unaudited condensed consolidated interim financial statements for the three and six months ended September 30, 2020.
Financial and Derivative Instruments
The Company's financial instruments recognized in the Company's condensed consolidated interim statements of financial position consist of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The following table summarizes the Company's financial instruments as of September 30, 2020 and March 31, 2020:
| As of September 30, 2020 | As of March 31, 2020 | |||||||||||
| Amortized Cost | Fair Value to Other Comprehensive Income (FVTOCI) |
Amortized Cost | FVTOCI | |||||||||
| in 000'$ | in 000'$ | in 000'$ | in 000'$ | |||||||||
| Financial assets | ||||||||||||
| Cash and cash equivalents | 4,431 | - | 3,152 | - | ||||||||
| Prepaid expenses and other receivables | 480 | - | 574 | - | ||||||||
| Investments | - | 10,025 | - | 8,702 | ||||||||
| Amortized Cost | Fair Value through Profit or Loss (FVTPL) |
Amortized Cost | FVTPL | |||||||||
| Financial liabilities | ||||||||||||
| Accounts payable and accrued liabilities | 343 | - | 1,268 | - | ||||||||
| Accrued equity issuable | - | 3,972 | - | - | ||||||||
| Unsecured notes payable | 300 | - | 3,661 | - | ||||||||
| Warrant liability | - | 271 | - | - | ||||||||
A summary of the Company's risk exposures as it relates to financial instruments are reflected below.
During September 2020, the Company settled the SalvaRx Note obligations originally due in June 2021 in an aggregate principal amount of approximately $3.7 million, plus accrued interest of $0.75 million in exchange for cash payments totalling $1.77 million and 397,604 of the associated warrants with an exercise price of $6.64 per share. The warrants were exchanged for an equal number of warrants to acquire Portage stock at the same price per share. The Company accounted for the contractual value of the exercised and outstanding warrants at September 30, 2020 of $2.64 million as accrued equity issuable. Additionally, the Company recorded a loss of $1.3 million increasing accrued equity issuable to recognize the discount between the fair value of the underlying shares of $9.99 at September 30, 2020 (the closing market price on that date) and the contract price of $6.64 per share, which was reflected in the Company's results of operations for the three and six months ended September 30, 2020.
Fair value of financial instruments
The Company's financial assets and liabilities are comprised of cash, receivables and investments in equities and private entities, accounts payable, warrant liability and unsecured notes payable.
The Company classifies the fair value of these transactions according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:
- Level 1 - Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date.
- Level 2 - Values are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or indirectly observable as of the reporting date.
- Level 3 - Values are based on prices or valuation techniques that are not based on observable market data. Investments are classified as Level 3 financial instrument.
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.
Management has assessed that the fair values of cash and cash equivalents, other receivables and accounts payable approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate their fair values:
Investment in Biohaven: Fair value was based on a quoted market price of $34.03 per share as of March 31, 2020 (Level 1). The investment was sold in August 2020.
Investment and option in Nekonal: Fair value has been listed at $0.
Investment in Sentien: Fair value of the asset is determined by considering strategy changes by Sentien (Level 3).
Investment in Intensity: Fair value of the asset is determined by considering other comparable equity funding transactions by Intensity with unrelated investors (Level 3).
Accrued equity issuable: The fair value is estimated based on the quoted market price at September 30, 2020 (Level 1).
Unsecured notes payable and warrant liability: The fair value is estimated using a Black Scholes model (Level 3).
Warrant Liability: The fair value is estimated using a Black Scholes model (Level 3).
There have been no transfers between levels of the fair value hierarchy for the three and six months ended September 30, 2020 and the year ended March 31, 2020.
The Company's financial instruments are exposed to certain financial risks: credit risk and liquidity risk.
Credit risk. Credit risk is the risk of loss associated with a counterparty's inability to fulfil its payment obligations. The credit risk is attributable to various financial instruments, as noted below. The credit risk is limited to the carrying value as reflected on the condensed consolidated interim statements of financial position.
Cash. Cash is held with major international financial institutions and therefore the risk of loss is minimal.
Other receivables. The Company is exposed to credit risk attributable to its debtor since a significant portion of this amount represents the amount agreed on a settlement of a claim by PPL (see Note 4), payable over the next four years. The debtor has so far been diligent in paying the amounts on the due dates and PPL management will be monitoring the account on a regular basis.
Liquidity risk. Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due.
The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company's reputation. The Company holds sufficient cash to satisfy obligations under accounts payable and accruals.
The Company monitors its liquidity position regularly to assess whether it has the funds necessary to meet its operating needs and needs for investing in new projects. The Company believes that it has sufficient funding to finance the committed drug development work, apart from meeting its operational needs for the foreseeable future.
However, as a biotech company at an early stage of development and without significant internally generated cash flows, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company, or that actual drug development expenditures may exceed those planned. The current uncertainty in global markets could have an impact on the Company's future ability to access capital on terms that are acceptable to the Company. There can be no assurance that required financing will be available to the Company.
Use of Estimates and Judgments
The preparation of the condensed consolidated interim financial statements in conformity with International Financial Reporting Standards ("IFRS") requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
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.
Significant areas where estimates are made include valuation of financial instruments, research and development costs, fair value used for acquisition and measurement of share-based compensation. Significant areas where critical judgments are applied include assessment of impairment of investments and goodwill and the determination of the accounting acquirer and acquiree in the business combination accounting.
New Accounting Standards, Interpretations and Amendments
The Company is also unaware of any applicable but not-yet-adopted standards that are expected to materially affect the financial statements of future periods.
Internal Controls Over Financial Reporting
The management of the Company, including the CEO and CFO, is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company's internal control system was designed to provide reasonable assurance to the Company's management and the board of directors regarding the reliability of financial reporting and preparation and fair presentation of published financial statements for external purposes in accordance with IFRS. Internal control over financial reporting includes those policies and procedures that:
1. pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
Management assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2020. In making this assessment, it used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the evaluation under these criteria, management identified material weaknesses in the Company's internal controls over financial reporting, and as a result, management concluded that the Company's internal control over financial reporting was not effective as of September 30, 2020.
Management identified the following material weaknesses set forth below in our internal control over financial reporting.
- Management was unable to perform an effective risk assessment or monitor internal controls over financial reporting;
- The management of the Company lacks the number of skilled persons it requires given the complexity of the reporting requirements it has to make, which more specifically include the staff and expertise (i) to properly segregate duties and perform oversight of work performed and to perform compensating controls over the finance and accounting functions, (ii) to establish and perform fair value estimates or subsequently monitor fluctuations in fair value estimates, and (iii) to apply complex accounting principles, including those relating to business combination accounting, income taxes and fair value estimates; and
- There are insufficient written policies and procedures in place to ensure the correct application of accounting and financial reporting with respect to the current requirements of IFRS and SEC disclosure requirements, some of which specifically relate to investment accounting and fair value measures, assessment of in-process research and development assets, share based payments, carrying amounts of goodwill and intangible assets and business combination accounting.
Public Securities Filings
Additional information, including the Company's annual information in the Annual Report on Form 20-F, is filed with the Canadian Securities Administrators at www.sedar.com and with the United States Securities and Exchange Commission and can be viewed at www.edgar.com.