BIONIK LABORATORIES CORP. Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that involve substantial risks and uncertainties and that reflect assumptions, expectations, projections, intentions, or beliefs about future events that are intended as "forward-looking statements". All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward- looking statements. These statements appear in several places, including, but not limited to in this "Management's Discussion and Analysis of Financial Condition and Results of Operations". These statements represent our reasonable judgment of the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as "anticipate," "believe," "estimate," "expect," "forecast," "may," "will", "should," "plan," "project" and other words of similar meaning. These forward-looking statements include, among other things, statements about:
? Our ability to successfully raise capital for ongoing operations and other
business purposes;
? our ability to identify and penetrate new markets for our products and
technology;
? our estimates regarding expenses, future revenues, capital requirements and
needs for additional funding;
? our ability to obtain and maintain regulatory clearances;
? our sales and marketing capabilities and strategy in
internationally;
? our ability to retain key management personnel on whom we depend;
? our expectations with respect to our acquisition activity;
? our intellectual property portfolio; and
? our ability to innovate, develop and commercialize new products.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report and in our other public filings with theSecurities and Exchange Commission , or theSEC , that could cause actual results or events to differ materially from the forward-looking statements that we make. You should read this Quarterly Report and the documents that we have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. It is routine for internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations are made as of the date of this Quarterly Report and may change prior to the end of each quarter or the year. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report and the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K filed with theSEC onJune 9, 2022 . Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods. The discussion and analysis of the 13 Table of Contents
financial condition and results of operations are based upon the financial
statements, which have been prepared in accordance with accounting principles
generally accepted in
Company Overview
Bionik Laboratories Corp. is a healthcare company focused on improving the quality of life of millions of people with neurological or mobility impairments by combining artificial intelligence and innovative robotics technology and data solutions to help individuals from hospital to home to regain mobility, enhance autonomy, and regain self- esteem. The Company uses artificial intelligence and machine learning technologies to make rehabilitation methods and processes smarter and more intuitive to deliver greater recovery for patients with neurological or mobility impairments. These technologies allow large amounts of data to be collected and processed in real-time, enabling appropriately challenging and individualized therapy during every treatment session. This is the foundation of the InMotion therapy. The Company's rehabilitation therapy robots are built on an artificial intelligence platform, measuring the position, the speed, and the acceleration of the patients' arm 200 times per second. The artificial intelligence platform is designed to adapt in real time to the patient's needs and progress while providing quantifiable feedback of a patient's progress and performance, in a way that the Company believes a trained clinician cannot. Based on this foundational work, the Company has a portfolio of products and solutions focused on upper extremity rehabilitation for stroke and other mobility-impaired individuals, including InMotion robots currently in the market. Additionally, our software platform, InMotion Connect, which is providing the ability for hospital management to access remotely to management dashboards presenting the utilization data of each of their InMotion robotic devices and their robotic devices productivity. Customized reporting capabilities in the platform focus on facility and organization measurement dashboards to support effective decision making for clinicians and for hospital management. Currently, we receive revenues from the sale of our InMotion robots to our customers both in theU.S. and internationally. We also record revenues associated with our extended warranties that customers will purchase with the sale of our InMotion robots as well as from the sale of the InMotion Connect hardware and the subscription fees associated with the utilization of the InMotion Connect Pulse solution in theU.S. We currently sell our products directly or can introduce customers to a third-party finance company to lease at a monthly fee over the term or other fee structure for our products to hospitals, clinics, distribution companies and/or buying groups that supply those rehabilitation facilities.
Our strategic business focus is on the following key areas:
Continuing to expand our distribution channels and commercial footprint in the
?
initiatives;
Continue to improve our data strategy and enhance our InMotion Connect software
? with solutions that serve clinical rehabilitation providers and their patients;
and
? Continue to seek out opportunities to enhance our product offering and
potentially introduce new technologies.
We believe our business provides a platform for growth. We continue to make investments in our enhancements of our existing products and the future development of new products.
We currently hold an intellectual property portfolio that includes 5 issuedU.S. patents and 3 U.S. pending patent applications, as well as other patents under development. We may file provisional patent applications from time to time, and may, where deemed advisable pursue non-provisional patent applications within 12 months of the filing date of such provisional patent applications. Additionally, we hold exclusive licenses to three additional patents. 14 Table of Contents Business Developments InDecember 2018 , we entered into a Sale of Goods Agreement (the "Agreement") withCHC Management Services, LLC , or Kindred, pursuant to which, among other things, Kindred agreed to purchase from us in a first phase a minimum of 21 of the Company's InMotion ARM Interactive Therapy Systems - a minimum of one for each of Kindred's existing and soon-to-open affiliated inpatient rehabilitation hospitals and similar facilities described in the Agreement, and in a second phase a minimum of one InMotion ARM Interactive Therapy System for each similar future facility of Kindred, during the four-year minimum term of the Agreement. As ofJune 30, 2022 , 30 InMotion robots have been sold in total to Kindred. During 2021, we implemented a machine learning prototype predictive model for the classification of the level of responsiveness of the InMotion therapy outcomes. This solution was developed with Bitstrapped, aToronto -based data engineering firm specializing in machine learning infrastructure through their partnership withJuly 15, 2021 , we commenced a refinancing of our existing indebtedness and launched a new secured convertible promissory note offering of up to$10.0 million . Pursuant to the terms of the offering, we were offering for sale up to$10.0 million in convertible notes to accredited investors and non-U.S. persons. As a result, we issued an aggregate of$8.3 million in principal of convertible notes of which an aggregate of$5.0 million was purchased for cash and the remainder was issued as a result of consolidating existing debt. All of these convertible notes were converted onMarch 31, 2022 , into 946,194 shares of our common stock. BetweenJune 9, 2022 , andJune 10, 2022 , we issued convertible promissory notes and borrowed an aggregate of$500,000 from an affiliate ofRemi Gaston-Dreyfus , a director ($200,000 ); an affiliate ofAndré-Jacques Auberton-Hervé , the Chairman of the Board of Directors ($100,000 ); and an existing investor and shareholder ($200,000 ). We intend to use the net proceeds from the notes for our working capital and general corporate purposes.
Covid-19 Pandemic
As a result of extended shutdowns of businesses around the world due to the COVID-19 pandemic, we have seen a slowdown in our business as most of the capital expenditure programs of the healthcare facilities that make up our customer base have been put on hold or has been significantly curtailed. This, along with our typically long sales cycle, has adversely affected our ability to generate revenues dating back to the beginning of the pandemic in 2020. As a result, we took the following steps to address the decrease in revenue, as follows:
At the beginning of fiscal 2021, we furloughed three employees in the United
States and temporarily laid-off one employee in
senior management agreed to salary deferrals and employees in the
? Canadian government's programs described below,
less than
exceeding
Most Canadian employees were returned to their normal base salary. Senior
management's salaries were restored in
certain senior management salaries were reduced between 30%-50% for 3 months.
On
amount of
under the Coronavirus Aid, Relief and Economic Security Act, which is
administered by the
?
including to retain workers and maintain payroll or make mortgage interest
payments, lease payments, and utility payments. We applied for forgiveness of
this debt with the SBA and as of
loan and all interest.
Our
? Canadian Emergency Wage Subsidy (CEWS), which is available monthly until June
2021, which was used to return the salaries of many of our Canadian
non-management employees back to their full amount.
15
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The Company has reduced working on its research and development projects to
focus on the further enhancements of InMotion ConnectTM, to provide the ability
? for hospital management to access remotely to management dashboards presenting
the utilization data of each of their InMotion robotic devices and their
InMotion robotic devices productivity, as well as the artificial intelligence
and machine learning analysis based on the data collected by InMotion Connect.
The global outbreak of the COVID-19 coronavirus continues to evolve. The extent to which COVID-19 may continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, the emergence of new variants, travel restrictions and social distancing in theU.S. and other countries, business closures or business disruptions and the effectiveness of actions taken in theU.S. and other countries to contain and treat the disease.
Results of Operations
Three Months Ended
The following table contains selected statement of operations data, which serve as the basis of the discussion of our results of operations for the three months endedJune 30, 2022 and 2021, respectively: Three Months Ended June 30, 2022 2021 As a % of As a % of Total Total $ % Amount Revenues Amount Revenues Change Change Revenues, net$ 242,829 100 %$ 671,283 100 %$ (428,454) (64) % Cost of revenues 75,181 31 130,506 19 (55,325) (42) Gross profit 167,648 69 540,777 81 (373,129) (69) Operating expenses Sales and marketing 562,110 231 329,474 49 232,636 71 Research and development 378,105 156 180,967 27 197,138 109 General and administrative 600,733 247
832,221 124 (231,488) (28) Total operating expenses 1,540,948 635 1,342,662 200 198,286 15 Loss from operations (1,373,300) (566) (801,885) (119) (571,415) 71 Interest expense, net 4,824 2 102,296 15 (97,472) (95)
Other expense (income), net 6,010 2 (453,269) (68) 459,279 (101) Total other expense (income) 10,834 4 (350,973) (52) 361,807 (103) Net loss$ (1,384,134) (570) %$ (450,912) (67) %$ (933,222) 207 % Revenues
Total revenues for the three months ended
Three Months Ended
June 30,
$ %
2022 2021 Change Change
Product $ 129,675 $ 563,138 $ (433,463) (77) %
Subscriptions 62,250 54,750 7,500 14Service, extended warranty & other 50,904 53,395 (2,491)
(5)
Total revenues $ 242,829 $ 671,283 $ (428,454) (64) %
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The change in total revenues was attributable to the following factors:
Product revenue decreased
? shipped. In the 2022 period, two units were shipped through our distributor
model as compared to five-unit sales in the 2021 period, four of which were
direct sales and one which was through our distributor model.
? Subscription revenue grew by
from 25 in the 2021 period to 28 in the 2022 period.
? Our service, extended warranty and other revenues were consistent in the
periods shown.
Cost of Revenues
Three Months Ended
June 30,
$ %
2022 2021 Change Change
Cost of revenues $ 75,181 $ 130,506 $ (55,325) (42) %
Cost of revenues (as a percentage of
total revenues) 31 % 19 %
Total cost of revenues decreased
Sales and Marketing
Three Months Ended
June 30,
$ %
2022 2021 Change Change
Sales and marketing $ 562,110 $ 329,474 $ 232,636 71 %
Sales and marketing (as a percentage of
total revenues) 231 % 49 %
Sales and marketing expenses increased $0.2 million , or 71%, to $0.6 million for
the 2022 period, as compared to $0.3 million for the 2021 period. The increase
was due to higher consulting, personnel related expenses and marketing expenses
related to our commercial initiatives to grow our sales pipeline.
Research and Development
Three Months Ended
June 30,
$ %
2022 2021 Change Change
Research and development $ 378,105 $ 180,967 $ 197,138 109 %
Research and development (as a percentage
of total revenues) 156 % 27 %
Research and development expenses increased $0.2 million , or 109%, to $0.4
million for the 2022 period, as compared to $0.2 million for the 2021 period.
The increase was due to a $0.2 million increase in consulting expenses as we
continue research and development initiatives related to our data strategy.
17
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General and Administrative
Three Months Ended
June 30,
$ %
2022 2021 Change Change
General and administrative $ 600,733 $ 832,221 $ (231,488) (28) %
General and administrative (as a
percentage of total revenues) 247 % 124 %
General and administrative expenses decreased $0.2 million , or 28%, to $0.6
million for the 2022 period, as compared to $0.8 million for the 2021 period.
Share based compensation expense decreased by approximately $50,000 and
corporate overhead costs decreased by approximately $0.2 million as we reduced
our general and administrative costs to align to the needs of our business.
Interest Expense, net
Three Months Ended
June 30,
$ %
2022 2021 Change Change
Interest expense, net $ 4,824 $ 102,296 $ (97,472) (95) %
Interest expense, net (as a percentage of
total revenues) 2 % 15 %
The interest expense for the three month period ending June 30, 2022 decreased
by $0.1 million due to less debt outstanding during the 2022 period than in
the
2021 period.
Other expense (income), net
Three Months Ended
June 30,
$ %
2022 2021 Change Change
Other expense (income), net $ 6,010 $ (453,269) $ 459,279 (101) %
Other expense (income), net (as a
percentage of total revenues) 2 % (68) %
Other expense (income) increased by $0.5 million , or 101%, for the 2022 period
as compared to the 2021 period. In the 2022 period other expense consists
primarily of the foreign currency impact of changes in the exchange rate between
the Canadian dollar and the US dollar. In the 2021 period other income consisted
primarily of the extinguishment of the PPP loan associated with the forgiveness
from the federal government of $0.5 million .
Liquidity and Capital Resources
We have funded operations through the issuance of capital stock, loans, grants, and investment tax credits and forgivable loans received from theU.S. andCanada governments. We require cash to pay our operating expenses, including research and development activities, fund working capital needs and make capital expenditures. AtJune 30, 2022 , our cash and cash equivalents were$1.3 million . Our cash and cash equivalents are predominantly cash in operating accounts. BetweenJune 9, 2022 , andJune 10, 2022 , the Company issued convertible promissory notes and borrowed an aggregate of$500,000 from an affiliate ofRemi Gaston-Dreyfus , a director of the Company ($200,000 ); an affiliate ofAndré-Jacques Auberton-Hervé , the Chairman of the Board of Directors of the Company ($100,000 ); and an existing investor and shareholder of the Company ($200,000 ). The Company intends to use the net proceeds from the notes for the Company's working capital and general corporate purposes. Based on our current burn rate, we need to raise additional capital to fund operations, hire necessary employees we lost as a result of COVID-19 related furloughs and other terminations, and meet expected future liquidity requirements. We are continuously in discussions to raise additional capital, which may include or be a combination of convertible or term loans and equity which, if successful, will enable us to continue operations based on our current burn rate, for the next 12 months; however, we cannot give any assurance at this time that we will successfully raise all or some of such capital or any other capital. 18 Table of Contents There can be no assurance that necessary debt or equity financing will be available, or will be available on terms acceptable to us, in which case we may be unable to meet our obligations or fully implement our business plan, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Additionally, we will need additional funds to respond to business opportunities including potential acquisitions of complementary technologies, protect our intellectual property, develop new lines of business, and enhance our operating infrastructure. While we may need to seek additional funding for any such purposes, we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our common stock. We will also seek additional funds through arrangements with collaborators or other third parties. However, the recent COVID-19 pandemic has presented unprecedented challenges to businesses and the investing landscape around the world. Therefore, there can be no assurance that our plans will be successful. We may not be able to negotiate any such arrangements on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our product lines or our operations.
Cash Flows
Net cash used in operating activities was$1.2 million for the three months endedJune 30, 2022 and resulted primarily from$1.4 million in net loss offset by$0.1 million in depreciation, interest expense and stock-based compensation expense for the period. Net changes in working capital items increased cash from operating activities by approximately$0.2 million , primarily related to a decrease in accounts receivable and an increase in accounts payable and accrued expenses which was partially offset by an increase in inventory. There was no net cash used in or provided by investing activities for the 2022 period. Net cash provided by financing activities during the three months endedJune 30, 2022 was$0.5 million , related to proceeds received from the convertible promissory notes. Net cash used in operating activities was$0.6 million for the three months endedJune 30, 2021 and resulted primarily from$0.5 million in net loss and$0.5 million relating to the extinguishment of the PPP loan offset by approximately$0.2 million in depreciation and amortization, interest expense and stock-based compensation expense for the period. Net changes in working capital items increased cash from operating activities by approximately$0.1 million , primarily related to increases in accounts payable associated with the timing of vendor payments. There was no net cash used in or provided by investing activities for the 2021 period. Net cash provided by financing activities during the three months endedJune 30, 2021 was$0.6 million , related to proceeds received from the term loan.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations set forth above are based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those described in our Annual Report on Form 10-K for the year endedMarch 31, 2022 . We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities, and the reported amounts of revenues and expenses, that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Recent Accounting Pronouncements
See Note 9 to our condensed consolidated interim financial statements included in this Quarterly Report for information regarding recent accounting pronouncements that are of significance or potential significance to us.
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