The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of significant accounting policies
Basis of presentation and going concern
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Securities and Exchange (“SEC”) rules and regulations and using the same accounting policies as described in Note 2 of the audited consolidated financial statements included in BioAmber Inc. (BioAmber or the Company) Annual Report on Form 10-K for the fiscal year ended December 31, 2016, except for the adoption of the Accounting Standard Update 2016-09, as referenced in paragraph Recently adopted accounting pronouncements below. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. All amounts herein are expressed in United States dollars (the Company’s functional currency) unless otherwise indicated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The Company’s management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2017 or any other future period.
The Company started its commercial operations at the end of 2015, and is currently ramping-up the production at its Sarnia facility. Therefore, the company incurred recurring losses from its past activities since inception
.
As of September 30, 2017, the Company had positive working capital of $1.5
million, an accumulated deficit of $234.9 million and a net loss of $7.8 million and $18.1 million for the three and nine months ended September 30, 2017, respectively. The attainment of profitable operations is dependent upon future events, including
successful ramp-up of the commercial-scale manufacturing Sarnia facility
,
further advancing its existing commercial arrangements with strategic partners to generate revenue from the sale of its products that will support the Company’s cost structure
,
gaining market acceptance for its bio-succinic acid, its derivatives and other building block chemicals,
obtaining adequate financing to complete its development activities, and attracting and retaining qualified personnel. These conditions raise substantial doubt regarding our ability to continue as a going concern.
The Company will
be required to raise additional capital
available on its effective shelf filed on January 3, 2017 or to secure additional debt
within the next year from its financial statements issuance, in order to continue the production and commercialization of its succinic acid and to continue to fund operations at the current cash expenditure levels. The Company cannot be certain that additional funding will be available on acceptable terms, or at all. If the Company is unable to raise additional capital, find a strategic partners or obtain debt when required or on acceptable terms, the Company may have to reduce or delay operating expenses as deemed appropriate in order to conserve cash.
The Company’s condensed consolidated financial statements as of September 30, 2017 have been prepared under the assumption that we will continue as a going concern for the next twelve months. The Company’s ability to continue as a going concern is dependent upon its ability to generate additional revenue, attain further operating efficiencies, obtain additional equity or debt financing or to reduce expenditures. The Company’s condensed consolidated financial statements as of September 30, 2017 did not include any adjustments that might result from the outcome of this uncertainty.
N
et loss per share
The Company computes net loss per share in accordance with FASB ASC 260,
Earnings per share
, under which basic net loss per share attributable to common shareholders is computed by dividing net loss attributable to common shareholders by the basic weighted-average number of common shares outstanding during the period. Shares issued and reacquired during the period are weighted for the portion of the period that they were outstanding. The computation of diluted earnings per share (“EPS”) is similar to the computation of the basic EPS except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all of the potentially dilutive shares of common stock had been issued. In addition, in computing the dilutive effect of convertible securities, the numerator is adjusted to add back any convertible preferred dividends and the after-tax amount of interest recognized in the period associated with any convertible debt. The numerator is also adjusted for any other changes
10
in income or loss that would result from the assumed conversion of those potential sh
ares of common stock such as profit-sharing expenses. Common equivalent shares are excluded from the diluted EPS calculation if their effect is anti-dilutive.
Recently adopted accounting pronouncements
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016. The Company adopted this guidance on January 1, 2017 and made an accounting policy election to account for forfeitures as they occur, the impact of which is generally consistent with the Company’s current forfeiture estimate. There was no cumulative-effect adjustment to retained earnings as of the beginning of the period in which this ASU is adopted.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
(“ASU-2015-11”). ASU 2015-11 applies to inventory that is measured using first-in, first-out (“FIFO”) or average cost. ASU 2015-11 requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 31, 2016. The Company adopted this guidance on January 1, 2017, and there was no
impact on
its consolidated financial statements.
Recent accounting pronouncements not yet adopted
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, "Revenue Recognition - Revenue from Contracts with Customers," which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. This standard is effective for interim and annual periods beginning after December 15, 2017, and either full retrospective adoption o
r modified retrospective adoption is permitted. The Company is still in the process of evaluating the impact of this standard, but do not currently
expect it to have a material impact on its consolidated financial position or results of operations. The Company plans to adopt this standard when it becomes effective for the Company on January 1, 2018.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which among other changes in accounting and disclosure requirements, replaces the cost method of accounting for non-marketable equity securities with a model for recognizing impairments and observable price changes, and also eliminates the available-for-sale classification for marketable equity securities. Under the new guidance, other than when the consolidation or equity method of accounting is utilized, changes in the fair value of equity securities are to be recognized in earnings. This guidance will be effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In February 2016, the FASB issued Accounting ASU 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments” to address diversity in practice on certain specific cash flow issues. The ASU will be effective for the Company for the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements and the timing of adoption.
11
In November 2016, the FASB issued ASU 2016-18,
“
Restricted Cash
”
.
The purpose of this guidance is to reduce the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. This guidance requires that a statement of cash flows explain the change d
uring the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cas
h and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for interim or annual periods beginning after December 15, 2017 and early adoption is permitted.
This guidance must be applied retrospectively. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated cash flows.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This standard eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (“the Step 2 test”) from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. The standard will become effective for the Company beginning January 1, 2020 and must be applied to any annual or interim goodwill impairment assessments after that date. Early adoption is permitted. The Company is currently evaluating the standard, but expects that it will not have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718) - Scope of Modification Accounting”. The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards that would be required to apply modification accounting under ASC 718, Compensation-Stock Compensation. The amendments are effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company is currently evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.
2. Equity and Cost Investments
Sinoven, the Company’s wholly-owned subsidiary and a third-party, NatureWorks LLC, are both 50% holders of the joint venture AmberWorks.
AmberWorks had a net loss of $nil for the three and nine months ended September 30, 2017 and 2016, respectively. Sinoven’s share of the net loss amounted to $nil for those periods.
AmberWorks had total assets of $68,744 and total liabilities of $nil as of September 30, 2017 and December 31, 2016, respectively. Sinoven’s share of net assets amounted to $34,372 as of those periods, respectively.
On February 5, 2015, the Company invested $412,434 (CAD$ 500,000) in Comet Biorefining Inc., a start-up private company, which represented less than 6.6% ownership interest. This investment is recorded using the cost investment method.
3. Inventories
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Finished goods
|
|
|
5,273,754
|
|
|
|
3,638,562
|
|
Work in progress
|
|
|
159,475
|
|
|
|
117,642
|
|
Raw material
|
|
|
591,496
|
|
|
|
567,441
|
|
Supplies and spare parts
|
|
|
188,981
|
|
|
|
173,995
|
|
Total
|
|
|
6,213,706
|
|
|
|
4,497,640
|
|
12
4. Property and equipment
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
September 30,
|
|
|
December 31,
|
|
|
|
Life
|
|
2017
|
|
|
2016
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Land
|
|
|
|
|
286,372
|
|
|
|
265,667
|
|
Building
|
|
40
|
|
|
94,504,255
|
|
|
|
87,296,018
|
|
Machinery and equipment
|
|
5 - 20
|
|
|
38,803,134
|
|
|
|
35,655,348
|
|
Furniture and fixtures
|
|
5 - 8
|
|
|
121,043
|
|
|
|
114,078
|
|
Computers, office equipment and peripherals
|
|
3 - 7
|
|
|
195,867
|
|
|
|
184,865
|
|
Leasehold improvement
|
|
10
|
|
|
353,601
|
|
|
|
328,035
|
|
Construction in-progress
|
|
|
|
|
3,282,370
|
|
|
|
3,324,862
|
|
|
|
|
|
|
137,546,642
|
|
|
|
127,168,873
|
|
Less: accumulated depreciation
|
|
|
|
|
(9,733,861
|
)
|
|
|
(5,540,601
|
)
|
Property and equipment, net
|
|
|
|
|
127,812,781
|
|
|
|
121,628,272
|
|
Depreciation expense is recorded as an operating expense in the consolidated statements of operations and amounted to $1,277,094 and $1,155,707 for the three months ended September 30, 2017 and 2016, respectively and to $3,623,887 and $3,441,217 for the nine months ended September 30, 2017 and 2016, respectively.
5. Intangible assets
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
License with indefinite-lived
|
|
|
3,106,767
|
|
|
|
3,106,767
|
|
Acquired licenses with definite-lived
|
|
|
3,017,550
|
|
|
|
3,017,550
|
|
Computer software and licenses
|
|
|
406,057
|
|
|
|
384,972
|
|
Less: accumulated amortization
|
|
|
(551,539
|
)
|
|
|
(382,602
|
)
|
Intangible assets, net
|
|
|
5,978,835
|
|
|
|
6,126,687
|
|
Amortization expense is recorded as an operating expense in the consolidated statements of operations and amounted to $51,151 and $52,737 for the three months ended September 30, 2017 and 2016, respectively
and
to $153,742 and $159,089 for the nine months ended September 30, 2017 and 2016, respectively.
6. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Trade accounts payable
|
|
|
4,803,188
|
|
|
|
4,601,835
|
|
Accrued payroll
|
|
|
1,006,578
|
|
|
|
383,117
|
|
Consulting and legal fees
|
|
|
650,409
|
|
|
|
635,722
|
|
Accrued interest
|
|
|
5,588
|
|
|
|
184,567
|
|
Other
|
|
|
379,587
|
|
|
|
216,733
|
|
Total
|
|
|
6,845,350
|
|
|
|
6,021,974
|
|
7. Short-term and Long-term debt
|
i)
|
Sustainable Jobs and Investment Fund (“SJIF”)
|
13
On September 30, 2011, BioAmber Sarnia and the Minister of Economic Development and Trade of Ontario, Canada (Sustainable Jobs Innovation Fund) entered into an agreement pursuant to which a loan in the amount
of CAD$15,000,000, was granted to BioAmber Sarnia, according to the following principal terms:
|
•
|
the loan is interest free during the first five years provided BioAmber Sarnia creates or retains an average of 31 jobs per year, calculated on an annual basis;
|
|
•
|
the loan will bear interest from the fifth anniversary date of its disbursement at an annual rate of 3.98% (or 5.98% if BioAmber Sarnia does not fully achieve the cumulative job target for the first five years);
|
|
•
|
the principal will be repayable in five annual equal installments from the sixth anniversary date of the disbursement of the loan;
|
|
•
|
the loan is secured by a guarantee from BioAmber and Mitsui & Co., Ltd., the non-controlling shareholder of BioAmber Sarnia (the guarantee being limited to its percentage of ownership held in BioAmber Sarnia); and
|
|
•
|
the loan is secured by (i) a general security agreement representing a valid charge on BioAmber Sarnia’s present and future accounts receivable, inventory, equipment and other personal property and (ii) a valid charge against the leasehold interest on the portion of the real property located in Sarnia Ontario, Canada and leased to BioAmber Sarnia.
|
The fair value of the loan was calculated using the method of the discounted future cash payments of principal and interest over the term of the loan. The discount rate used was between 12% and 15%, being the interest rates a loan with similar terms and conditions would carry.
The difference between the face value of the loan and the discounted amount of the loan was recorded as a short-term deferred grant and subsequently reclassified to reduce the cost of construction in-progress. The discounted loan is being accreted to its face value through a charge in the consolidated statement of operations using the effective interest method over the term of the loan.
|
ii)
|
Sustainable Chemistry Alliance (“SCA”)
|
In November 2011, BioAmber Sarnia entered into a loan agreement with SCA in the amount of CAD$500,000. The loan was interest free until November 30, 2013, and the unpaid balance of the loan subsequently bears interest at the rate of 5% per annum compounded monthly. The loan’s principal is repayable in 20 equal quarterly installments of CAD$25,000 from November 2015 to November 2020. The loan agreement contains various legal and financial covenants including i) third party credit facilities which could not exceed originally CAD$45 million in the aggregate as long as any principal of the loan remains outstanding, and ii) dividends may not be declared or paid without the consent of the lender. The loan agreement was amended to increase the third party credit facilities from CAD$45 million to CAD$60 million in the aggregate in June 2014, and subsequently from CAD$60 million to CAD$67.5 million in the aggregate in March 2016. These covenants were met as of September 30, 2017.
The loan was originally recorded at the discounted amount of the future cash payments of principal and interest over the term of the loan. The discount rate used was 15%, being the interest rate a loan with similar terms and conditions would carry.
The difference between the face value of the loan and the discounted amount of the loan was recorded as a deferred grant, and subsequently reclassified against operating expenses during the period ended December 31, 2015.
The discounted loan is being accreted to its face value through a charge in the consolidated statement of operations using the effective interest method over the term of the loan.
|
iii)
|
Federal Economic Development Agency (“FEDDEV”)
|
On September 30, 2011, BioAmber Sarnia and FEDDEV entered into a contribution agreement pursuant to which a loan of up to a maximum amount of CAD$12 million, was granted to BioAmber Sarnia. The loan is non-interest bearing with original repayment of principal from October 2013 to October 2018 in 60 monthly installments. The repayment terms were later modified as described below.
The loan agreement contains various legal and financial covenants ordinarily found in such government agency loan agreements. In addition, the following specific covenants also apply:
|
(a)
|
the Company will carry appropriate amounts of liability and casualty insurance during the duration of the loan agreement and;
|
|
(b)
|
the Company will not allow change of control without prior written consent of the Minister responsible for the Federal Economic Development Agency for Southern Ontario (“Minister”).
|
These covenants were met as of September 30, 2017.
14
On March 20, 2013, BioAmber Sarnia agreed with FEDDEV to amend the repayment of principal from the period October 2013 to October 2018, to the period October 2014 to October 2019
. In May 2014, the repayment of principal was subsequently amended to the period October 2015 to October 2020.
In March 2017,
BioAmber Sarnia agreed with FEDDEV
to amend the repayment
of principal from $200,000 monthly until October 2020, to $50,000 quart
erly starting from January 1, 2017 to March 31, 2018, to $50,000 monthly from April 1, 2018 to March 1, 2019, to $100,000 monthly from April 1, 2019 to March 1, 2020, and to $150,000 monthly from April 1, 2020 to February 1, 2024.
The Company recorded the impact of the amendments in accordance with FASB ASC 470-50,
Debt Modifications and Extinguishments
. Accordingly, the amendments were recorded as a debt extinguishment and the issuance of new debt, with new terms. For the three months ended March 31, 2017, a gain on debt extinguishment of $1.3 million was recorded.
The fair value of the loan was calculated using the method of the discounted future cash payments of principal and interest over the term of the loan. The discount rate used was between 12% and 15%, being the interest rates a loan with similar terms and conditions would carry.
|
iv)
|
Minister of Agriculture and Agri-Food of Canada (“AAFC”)
|
On March 10, 2014, BioAmber Sarnia entered into a repayable contribution agreement in the form of a non-interest bearing loan with the Minister of Agriculture and Agri-Food of Canada in the amount of CAD$10 million, for the Agri Innovation Program. This loan provided progressive disbursements as eligible costs were incurred for building construction, installation of equipment and start-up and commissioning of the Sarnia facility. The loan is repayable in equal, monthly installments beginning March 31, 2016 through March 31, 2026 and it contains various legal and financial covenants ordinarily found in such government agency loan agreements. On February 13, 2017, the Company agreed with AAFC to modify the principal repayment to have no principal repayment during the period of January 1, 2017 until January 30, 2018, and then repay in equal monthly payments commencing January 30, 2018 and coming due monthly on that day, such that the loan is fully repaid by March 31, 2025. These covenants were met as of September 30, 2017.
The fair value of the loan was calculated using the method of the discounted future cash payments of principal and interest over the term of the loan. The discount rate used was 12%, being the interest rate a loan with similar terms and conditions would carry.
|
v)
|
Comerica Bank,
Export Development Canada and Farm Credit Canada (“EDC”)
|
On June 20, 2014, BioAmber Sarnia signed a loan agreement with a financial consortium, comprised of Comerica Bank, Export Development Canada and Farm Credit Canada for a senior secured loan in the principal amount of CAD$20.0 million, which was disbursed on May 12, 2015. The loan’s principal was repayable in 26 equal, quarterly installments beginning on September 30, 2015. On September 26, 2017, the Company entered into a waiver and amending agreement with EDC for a principal payment holiday from January 1, 2017 until December 31, 2017. The scheduled principal repayments were modified so the revised quarterly installment shall be $962,000 from March 31, 2018 until fully repaid in December 2021. The floating interest rate per annum based on the greater of (i) the Canadian prime rate and (ii) the Canadian dealer offered rate plus 1%, in either case plus an interest spread of 5%. The disbursement of the loan, net of a 2.5% upfront loan fee of CAD$500,000, was recorded as debt discount and is amortized over the estimated term of the loan using the effective interest method.
The loan was originally recorded at
the discounted amount of the future cash payments of principal and interest over the term of the loan. The discount rate used was 12%, being the interest rate a loan with similar terms and conditions would carry. The difference between the face value of the loan and the discounted amount of the loan was recorded as a grant applied as reduction of the cost of construction in-progress.
BioAmber Sarnia may prepay all or a portion of the loan outstanding from and after the date of the first principal repayment, without penalty.
BioAmber Sarnia’s obligations under the loan are secured by (i) a security interest on all of BioAmber Sarnia’s assets and (ii) a pledge of all the shares of BioAmber Sarnia. In addition, the Company provides the lenders with a guarantee representing 70% of the secured obligations under the loan, and Mitsui & Co., Ltd. provides a guarantee representing 30% of the secured obligations under the loan that is capped at CAD$6.0 million plus all accrued interest on the secured obligations and fees and expenses. The proceeds of the loan were used by BioAmber Sarnia to complete the ongoing construction of the Sarnia Plant and fund its startup and commissioning.
The loan agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings, including in connection with the disbursement of the loan. On August 9, 2016, the loan agreement was amended, to adjust the financial covenants to require BioAmber Sarnia to maintain a minimum debt service ratio
of 1.75
on a historical basis, at all times, to be certified monthly, during the term of the loan starting September 30, 2017. Financial
15
covenants also include a minimum cash balance requirement of CAD$4.0 million, and a minimum gross revenue from product sales covenant. The agreement also contai
ns customary events of default (subject, in certain instances, to specified grace periods) including, but not limited to, the failure to make payments of interest or premium, if any, on, or principal under the loan, the failure to comply with certain coven
ants and agreements specified in the agreement, the occurrence of a material adverse effect, defaults in respect of certain other indebtedness and agreements, and certain events of insolvency. If an event of default occurs, the principal, premium, if any,
interest and any other monetary obligations on all the then outstanding amounts under the loan may become due and payable immediately
. On December 1, 2016, a waiver was obtained to reduce the minimum cash balance requirement from CAD$4 million to CAD$2
mil
lion until January 31, 2017
.
All applicable covenants as of
September 30
, 2017
have been met, except for the minimum gross revenue from product sales
co
venant
,
for which the Company obtained a waiver.
It is not probable that the Company
will be able to meet the current financial covenants during the next twelve months, therefore the loan was reclassified as a current liability. The Company is in the process of renegotiating the financial covenants with EDC.
|
vi)
|
BDC Capital Inc. (“BDC”)
|
On April 20, 2016, BDC, a wholly owned subsidiary of Business Development Bank of Canada, accepted to enter into a binding Letter of Offer of financing with BioAmber Sarnia to make a secured term loan (“BDC Loan”) of CAD$10 million to fund the working capital of the BioAmber Sarnia’s facility. The BDC Loan proceeds were received on August 10, 2016, and recorded as long-term debt, net of debt issuance costs of $
378,108
.
The Loan is repayable in 59 equal, monthly installments of CAD$165,000 from April 15, 2017 until February 15, 2022, and by way of one balloon payment of CAD$265,000, payable on March 15, 2022. The BDC Loan bears interest at a fixed interest rate of 13% per annum, payable monthly on the 15
th
day of the month commencing on the next occurring payment date following the first advance on the Loan.
On May 12, 2016, an amendment to the BDC Loan was signed to modify the commencement instalment repayment date from April 15, 2017 to October 15, 2017 and continuing monthly until September 15, 2022. On July 22, 2016, a second amendment was signed to modify certain debt covenants, including the term debt to tangible equity ratio of maximum of 0.85:1, and the debt service ratio of at least 1.10:1 commencing on the quarter ending December 31, 2017, and increasing to 1.50:1 for the quarter ending September 30, 2019. In addition, pursuant to this amendment, the fixed interest rate was adjusted to 14.90% per year, which can vary upon achievement of certain milestones. On July 9, 2017, the Company entered into a third amendment with BDC to modify the commencement installment repayment date from October 15, 2017 to October 15, 2018, and to modify the payment to a first instalment of $167,060 on October 15, 2018 and monthly installments of $166,660 until September 15, 2023.
All applicable covenants as of September 30, 2017 have been met.
vii) Bridging Finance Inc. (“Bridging”)
On September 9, 2016, the Company entered into an agreement for a demand non-revolving credit facility (the “Facility”) with Bridging, and received the loan proceeds of CAD$25 million, net of 1.50% of financing fees. The proceeds were used to repay in full the outstanding principal amount of its loan with TCP and to fund general corporate expenses.
The Facility was repayable at the earlier of the date of demand or September 30, 2017. The Facility bears interest at an annual interest rate of the Bank of Montreal prime rate plus 10.8%, calculated on a daily outstanding balance of the Facility and compounded monthly, payable on the last business day of each month. Subject to (i) the right of Bridging to demand the payment of the loan at any time (subject to a grace period of 15 days) or (ii) the occurrence of an event of default, the principal of the loan will be reimbursable in one lump-sum payment at its maturity date. On the occurrence of an event of default, as more fully described in the agreement, interest shall be calculated at annual rate of 21% per annum calculated and compounded as aforesaid.
After April 1, 2017, the Company may prepay a portion or all of the Facility outstanding at any time, (i) without any fee or penalty upon at least 90 days prior written notice to the Lender, or (ii) with a prepayment penalty of up to 90 days of interest if the Company provides the lender with a prepayment notice of less than 90 days.
The loan obligations are secured by a security interest on substantially all of the Company’s assets (subject to certain exceptions), including its intellectual property, but excluding certain identified licenses from third parties and its equity interest in its subsidiary, BioAmber Sarnia Inc.
On January 27, 2017, the Company paid off and terminated its facility agreement with Bridging. The Company reimbursed the CAD$ 25 million principal owed, as well as accrued and unpaid interest and fees. The balance of unamortized debt discount of $528,206 was written-off and recorded as loss on debt extinguishment during the three months ended March 31, 2017. As a result of the repayment, Bridging is required to terminate its security interest in the corporate level assets of the Company, according to the
16
terms contained in the facility agreement
, which was not terminated by Bridging as of
September 30
, 2017, as a result of its pending litigation
with the Company.
Refer to
PART II—OTHER INFORMATION
, Item 1. Legal Proceedings for more details.
The balance of the outstanding long-term debt is as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Sustainable Chemistry Alliance:
|
|
|
|
|
|
|
|
|
Face value (CAD $340,519)
|
|
|
273,165
|
|
|
|
327,835
|
|
Less: debt discount
|
|
|
(194,063
|
)
|
|
|
(180,032
|
)
|
Amortization of debt discount
|
|
|
157,758
|
|
|
|
130,774
|
|
Less: short-term portion of debt
|
|
|
(80,220
|
)
|
|
|
(74,420
|
)
|
|
|
|
156,640
|
|
|
|
204,157
|
|
|
|
|
|
|
|
|
|
|
Sustainable Jobs and Investment Fund:
|
|
|
|
|
|
|
|
|
Face value (CAD $15,000,000)
|
|
|
12,033,000
|
|
|
|
11,163,000
|
|
Less: debt discount
|
|
|
(5,512,770
|
)
|
|
|
(5,114,190
|
)
|
Amortization of debt discount
|
|
|
2,805,463
|
|
|
|
1,846,954
|
|
|
|
|
9,325,693
|
|
|
|
7,895,764
|
|
|
|
|
|
|
|
|
|
|
Federal Economic Development Agency:
|
|
|
|
|
|
|
|
|
Face value (CAD $8,900,000)
|
|
|
7,139,580
|
|
|
|
6,697,800
|
|
Less: debt discount
|
|
|
(3,416,155
|
)
|
|
|
(3,169,163
|
)
|
Less: short-term portion of debt
|
|
|
(280,770
|
)
|
|
|
(1,786,080
|
)
|
Gain on debt extinguishment
|
|
|
(2,016,159
|
)
|
|
|
(601,616
|
)
|
Amortization of debt discount
|
|
|
2,846,541
|
|
|
|
2,313,885
|
|
|
|
|
4,273,037
|
|
|
|
3,454,826
|
|
|
|
|
|
|
|
|
|
|
Minister of Agriculture and Agri-Food Canada:
|
|
|
|
|
|
|
|
|
Face value (CAD $9,074,074)
|
|
|
7,279,222
|
|
|
|
6,883,850
|
|
Less: debt discount
|
|
|
(3,807,341
|
)
|
|
|
(3,532,065
|
)
|
Amortization of debt discount
|
|
|
1,231,993
|
|
|
|
836,234
|
|
Less: short-term portion of debt
|
|
|
(753,025
|
)
|
|
|
(744,200
|
)
|
|
|
|
3,950,849
|
|
|
|
3,443,819
|
|
|
|
|
|
|
|
|
|
|
EDC:
|
|
|
|
|
|
|
|
|
Face value (CAD $15,384,615)
|
|
|
12,341,538
|
|
|
|
11,449,231
|
|
Less: debt discount
|
|
|
(3,167,161
|
)
|
|
|
(2,863,751
|
)
|
Amortization of debt discount
|
|
|
1,500,867
|
|
|
|
1,006,724
|
|
Less: short-term portion of debt
|
|
|
(10,675,244
|
)
|
|
|
(2,289,846
|
)
|
|
|
|
—
|
|
|
|
7,302,358
|
|
|
|
|
|
|
|
|
|
|
BDC:
|
|
|
|
|
|
|
|
|
Face value (CAD $10,000,000)
|
|
|
8,022,000
|
|
|
|
7,442,000
|
|
Less: debt issuance cost
|
|
|
(397,117
|
)
|
|
|
(368,403
|
)
|
Amortization of debt discount
|
|
|
77,555
|
|
|
|
25,945
|
|
Less: short-term portion of debt
|
|
|
—
|
|
|
|
(368,379
|
)
|
|
|
|
7,702,438
|
|
|
|
6,731,163
|
|
Bridging:
|
|
|
|
|
|
|
|
|
Face value
|
|
|
—
|
|
|
|
18,605,000
|
|
Less: debt issuance cost
|
|
|
—
|
|
|
|
(627,069
|
)
|
Amortization of debt issuance cost
|
|
|
—
|
|
|
|
58,542
|
|
Less: short-term portion of debt
|
|
|
—
|
|
|
|
(18,036,473
|
)
|
|
|
|
—
|
|
|
|
—
|
|
Long-term debt, net
|
|
|
25,408,657
|
|
|
|
29,032,087
|
|
17
The principal repayments of the outstanding loans payable are as follows:
|
SCA
|
|
|
SJIF
|
|
|
FEDDEV
|
|
|
AAFC
|
|
|
EDC
|
|
|
BDC
|
|
|
Total
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
October 2017 - September 2018
|
|
80,220
|
|
|
|
—
|
|
|
|
280,770
|
|
|
|
753,025
|
|
|
|
12,341,538
|
|
|
|
—
|
|
|
|
13,455,553
|
|
October 2018 - September 2019
|
|
80,220
|
|
|
|
2,406,600
|
|
|
|
721,980
|
|
|
|
1,004,031
|
|
|
|
—
|
|
|
|
1,604,657
|
|
|
|
5,817,488
|
|
October 2019 - September 2020
|
|
112,725
|
|
|
|
2,406,600
|
|
|
|
1,203,300
|
|
|
|
1,004,031
|
|
|
|
—
|
|
|
|
1,604,336
|
|
|
|
6,330,992
|
|
October 2020 - September 2021
|
|
—
|
|
|
|
2,406,600
|
|
|
|
1,443,960
|
|
|
|
1,004,031
|
|
|
|
—
|
|
|
|
1,604,336
|
|
|
|
6,458,927
|
|
October 2021 and thereafter
|
|
—
|
|
|
|
4,813,200
|
|
|
|
3,489,570
|
|
|
|
3,514,104
|
|
|
|
—
|
|
|
|
3,208,671
|
|
|
|
15,025,545
|
|
Total
|
|
273,165
|
|
|
|
12,033,000
|
|
|
|
7,139,580
|
|
|
|
7,279,222
|
|
|
|
12,341,538
|
|
|
|
8,022,000
|
|
|
|
47,088,505
|
|
8. Financial charges (income), net
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
End of term charge on long-term debt
|
|
|
—
|
|
|
|
774,703
|
|
|
|
—
|
|
|
|
1,032,937
|
|
Interest on long-term debt
|
|
|
358,621
|
|
|
|
713,135
|
|
|
|
1,554,253
|
|
|
|
1,736,438
|
|
Revaluation of the warrants financial liability (Note 11)
|
|
|
(2,378,752
|
)
|
|
|
1,108,170
|
|
|
|
(12,344,916
|
)
|
|
|
(8,000,894
|
)
|
Issuance costs of the warrants financial liability
|
|
|
605,880
|
|
|
|
—
|
|
|
|
955,619
|
|
|
|
—
|
|
Other interest charge (income), net
|
|
|
489,456
|
|
|
|
594,138
|
|
|
|
429,845
|
|
|
|
571,265
|
|
Total financial charges (income), net
|
|
|
(924,795
|
)
|
|
|
3,190,146
|
|
|
|
(9,405,199
|
)
|
|
|
(4,660,254
|
)
|
9. Commitments and contingencies
Leases
The Company leases its premises and other assets under various operating leases. As of September 30, 2017, leases payments for the next three months of 2017, and on a twelve months basis for the remaining years, are the following:
|
September 30, 2017
|
|
|
$
|
|
2017
|
|
44,073
|
|
2018
|
|
161,614
|
|
2019
|
|
156,557
|
|
2020
|
|
168,341
|
|
2021
|
|
176,758
|
|
Thereafter
|
|
73,649
|
|
18
Royalties
The Company has entered into exclusive license agreements that provide for the payment of royalties in the form of up-front payments, minimum annual royalties, and milestone payments. The Company has the right to convert such exclusive agreements into non-exclusive agreements without the right to sublicense and without the obligation to pay minimum royalties. As of September 30, 2017, the royalty payments commitments for the next three months of 2017, and on a twelve months basis for the remaining years are the following:
|
September 30, 2017
|
|
|
$
|
|
2017
|
|
312,500
|
|
2018
|
|
1,500,000
|
|
2019
|
|
1,200,000
|
|
2020
|
|
1,200,000
|
|
2021
|
|
1,200,000
|
|
Thereafter
|
|
9,000,000
|
|
The royalties the Company owes are in return for the use or development of proprietary tools, patents and know-how and the actual expenses incurred amounted to a total of $820,466 and $ 429,623 for the three months ended September 30, 2017 and 2016, respectively, and $1,125,000 and $543,984 for the nine months ended September 30, 2017 and 2016, respectively.
Purchase Obligations
BioAmber Sarnia has entered into a steam supply agreement with Arlanxeo Inc., under which, BioAmber Sarnia has agreed to pay a Monthly Take or Pay fee during the term of the contract, which will vary upon the natural gas price index. An amount of CAD$375,000 or $300,825 when converted into U.S. dollars as of September 30, 2017 is held in an escrow account as a guarantee for the supply agreement. BioAmber Sarnia has also entered into a service agreement with Arlanxeo inc. under which minimum yearly payments are required. As of September 30, 2017, purchase obligations commitments for the next three months of 2017, and on a twelve months basis for the remaining years are the following:
|
September 30, 2017
|
|
|
$
|
|
2017
|
|
593,824
|
|
2018
|
|
2,548,352
|
|
2019
|
|
2,548,352
|
|
2020
|
|
2,548,352
|
|
2021
|
|
2,548,352
|
|
Thereafter
|
|
3,460,758
|
|
Litigation
On March 18, 2017, a putative securities class action lawsuit was filed against the Company and Messrs. Huc, Orecchioni and Saucier in federal district court in New York alleging violations of the U.S. Exchange Act and the U.S. Securities Act.
The complaint principally alleges that the prospectus for our January 2017 follow-on public offering failed to disclose the postponement of a large customer order.
On June 6, 2017, the Court appointed a lead plaintiff and lead counsel. On August 7, 2017, the lead plaintiff filed an amended complaint. The amended complaint names the Company, and Messrs. Huc and Saucier as defendants (Mr. Orecchioni was dropped as a defendant). The amended complaint alleges violations of the U.S. Exchange Act. There are no U.S. Securities Act claims alleged in the amended complaint. The amended complaint is premised on allegedly false and misleading Q4 2016 and FY 2016 revenue projections set forth in the prospectuses for our December 2016 and January 2017 public offerings. On October 6, 2017, defendants filed a motion to dismiss the amended complaint.
The Company believes the suit is without merit and intends to continue to vigorously defend it.
From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any litigation that we believe to be material and we are not aware of any pending or
19
threatened litigation against us that we believe could have a material
adverse effect on our business, operating results, financial condition or cash flows.
The Company believes
that
possible losses are remote.
10. Redeemable non-controlling interest
On January 24, 2014, the Company signed an amended and restated joint venture agreement (the “Amended JV Agreement”) with Mitsui & Co. Ltd. related to the Sarnia joint venture. Under the Amended JV Agreement, Mitsui invested an additional $8.1 million (CAD$9 million) on January 29, 2014 in BioAmber Sarnia. The Amended JV Agreement also revised each party’s rights and obligations under the buy/sell provisions of the Agreement, including a put option exercisable at Mitsui’s sole discretion that requires the Company to purchase Mitsui’s equity for a purchase price of 50% of Mitsui’s equity in the joint venture.
During the year ended December 31, 2015, Mitsui invested an additional $8.9 million (CAD$11.1 million).
On February 15, 2016, the Company signed a second amended and restated joint venture agreement (the
“Second Amended JV Agreement
”) with Mitsui pursuant to which Mitsui provided BioAmber Sarnia an additional capital contribution for a total amount of $17.7 million (CAD$25 million), which increased Mitsui’s share ownership to 40.8%. As a result of Mitsui’s additional capital contribution, BioAmber Sarnia agreed to increase the size of its Board of directors from five to six members, and BioAmber and Mitsui have the right to designate three members each. All Board decisions have to be approved by the affirmative vote of a simple majority of the BioAmber Sarnia Board members, except that with respect to the following matters, which BioAmber, as the controlling shareholder of BioAmber Sarnia, have the right to make a final decision: (i) the approval and any amendment to any annual budget, including capital expenditures required to maintain the plant in operation, (ii) the hiring and firing of BioAmber Sarnia personnel and their compensation, and (iii) the execution of any raw material or utility supply agreements that are needed in the ordinary course of business. BioAmber also agreed that in the event that Mitsui’s equity stake in BioAmber Sarnia increases to above 45% in the future, BioAmber would no longer have the deciding votes described in the preceding sentence.
On March 31, 2017, BioAmber Inc. provided with additional capital contributions for an aggregate amount of CAD$8 million, which decreased Mitsui’s ownership to 38.9%.
On August 1, 2017, the Company entered into a Share Purchase Agreement with Mitsui pursuant to which the Company acquired Mitsui’s entire 38.9% interest in BioAmber Sarnia, increasing its ownership stake to 100%. Pursuant to the terms of the Share Purchase Agreement, the Company’s joint venture agreement with Mitsui was terminated and, with the exception of certain obligations which survive termination, Mitsui was released from its obligations and liabilities under the joint venture agreement. Although the joint venture agreement contained a put option which would have required the Company to purchase Mitsui’s interest for a purchase price of 50% of Mitsui’s equity in the joint venture, pursuant to the terms of the Share Purchase Agreement, the purchase price paid by BioAmber for Mitsui’s 38.9% interest was CAD $1.0. As further consideration for Mitsui’s sale of its interest, the Company also entered into an Indemnity Agreement, dated August 1, 2017, pursuant to which BioAmber and, subject to the prior consents required to be obtained from its lenders, BioAmber Sarnia, have agreed to indemnify Mitsui for any payments made by Mitsui pursuant to its guarantee of our obligations under our CAD $20.0 million commercial loan agreement with EDC and BioAmber’s CAD $15.0 million loan agreement with SJIF. The Company also entered into a Security Agreement, dated August 1, 2017, pursuant to which BioAmber and, subject to the prior consents required to be obtained from its lenders, BioAmber Sarnia, pledged all of their personal property as security for our obligations under the Indemnity Agreement. In addition, the Company has agreed with Mitsui that in the event a strategic investor acquires more than 25% of BioAmber, or any investor acquires more than 25% of BioAmber Sarnia, Mitsui will be released from all liability under its guarantee obligations for the EDC Loan Agreement and the SJIF Loan Agreement. Pursuant to the Share Purchase Agreement, the members of BioAmber Sarnia’s board of directors nominated by Mitsui resigned effective August 1, 2017.
On August 1, 2017, the balance of the redeemable non-controlling-interest at the Consolidated Balance Sheets was reclassified to the Company’s Additional paid-in capital and to accumulated other comprehensive loss, for a total of $36,069,465.
The following table reflects the activity of the redeemable non-controlling interest:
Balance, December 31, 2016
|
|
37,515,687
|
|
Net loss attributable to redeemable NCI
|
|
(4,035,302
|
)
|
Accumulated other comprehensive income attributable to NCI
|
|
2,589,080
|
|
Purchase of redeemable non-controlling interest by BioAmber
|
|
(36,069,465
|
)
|
Balance at September 30, 2017
|
|
—
|
|
20
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net loss attributable to Bioamber shareholders
|
|
|
(7,049,514
|
)
|
|
|
(6,158,414
|
)
|
|
|
(14,082,140
|
)
|
|
|
(12,293,434
|
)
|
Transfers from (to) the non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Increase in Bioamber's paid-in capital for the purchase of
Mitsui's common shares
|
|
|
38,609,755
|
|
|
|
—
|
|
|
|
38,609,755
|
|
|
|
—
|
|
Net transfers from (to) non-controlling interest
|
|
|
38,609,755
|
|
|
|
—
|
|
|
|
38,609,755
|
|
|
|
—
|
|
Changes from net loss attributable to Bioamber shareholders
and transfers from (to) non-controlling interest
|
|
|
31,560,241
|
|
|
|
(6,158,414
|
)
|
|
|
24,527,615
|
|
|
|
(12,293,434
|
)
|
11. Share capital
Secondary Public Offering
On January 21, 2016, the Company completed a follow-on public offering and issued 2,600,000 shares of common stock, at an offering price to the public of $5.00 per share. The gross aggregate proceeds from this follow-on public offering were approximately $13.0 million, with net proceeds of approximately $11.9 million, after deducting underwriting discounts and commissions and expenses payable by the Company. This public offering also triggered an adjustment to the exercise price of the outstanding IPO Warrants, April 2011 Warrants and the June 2009 Warrants, refer to section Warrants financial liability below for details.
On December 29, 2016, the Company completed the closing of another follow-on public offering and issued 1,748,750 shares of common stock, at an offering price to the public of $4.00 per share. In addition, in connection with this offering, the Company issued the Special Warrant at an issue price of $8,896,796. This public offering also triggered an adjustment to the exercise price of the outstanding IPO Warrants, April 2011 Warrants and the June 2009 Warrants, refer to section Warrants financial liability below for details. On January 27, 2017, the Company completed the closing of a follow-on public offering and issued 3,684,212 shares of common stock, together with warrants to purchase up to 1,842,106 shares of common stock with an initial exercise price of $5.50 per share of common stock (the “January 2017 Warrants”), at a public offering price of $4.75 per fixed combination consisting of one share of common stock and associated January 2017 Warrant to purchase one-half share of common stock. The Company also granted the underwriters a 30-day option to purchase up to an additional 552,632 shares of common stock and/or 2017 Warrants to purchase 276,316 shares of common stock at the public offering price, which they exercised in full on January 27, 2017. The net proceeds from this offering (including the exercise in full of the option to purchase additional shares and January 2017 Warrants, but assuming no exercise of the January 2017 Warrants) is approximately $18.6 million, after deducting underwriting discounts and estimated offering expenses payable by the Company. Refer to section Warrants financial liability below for the details on accounting treatment of the 2017 Warrants.
On August 11, 2017, the Company completed the closing of a follow-on public offering and issued 14,666,667 shares of common stock, together with warrants to purchase up to 14,666,667 shares of common stock with an initial exercise price of $0.75 per share of common stock (the “August 2017 Warrants”), at a public offering price of $0.75 per fixed combination consisting of one share of common stock and associated August 2017 Warrants to purchase one share of common stock.
Concurrent with this offering, on August 15, 2017, the Company entered into subscription agreements (the “Subscription Agreements”) with certain of the Company’s officers and directors (collectively, the “Investors”) to issue and sell to the Investors in a private placement an aggregate of 273,331 shares of Common Stock (the “Private Placement Shares”), together with warrants to purchase up to 273,331 shares of Common Stock with an initial exercise price of $0.75 per share of Common Stock (the “Private Placement Warrants”).
This public offering also triggered an adjustment to the exercise price of the outstanding April 2011 Warrants and June 2009 Warrants, refer to section
“
Warrants financial liability
”
below for details.
The net proceeds from this offering is approximately $9.9 million, after deducting underwriting discounts and offering expenses payable by us.
21
Warrants financial liability
June 2009 & April 2011 Warrants
On June 22, 2009, the Company issued 208,950 warrants at an exercise price of $5.74 per share in connection with a financing transaction, with an estimated fair value of $1,045,307. On April 11, 2011, the Company issued 94,745 warrants at an exercise price of $10.55 per share with a fair value of $810,448 in connection with a second financing transaction. Those warrants contain anti-dilution protection in the event securities are sold at a lower price than the warrant’s original exercise price. The anti-dilution protection contains a price adjustment and an adjustment to the number of warrants. The fair value of the warrants is classified as a financial liability as a result of their characteristics, in accordance with FASB ASC 815- Derivatives and Hedging (
“
ASC 815
”
). A non-cash reclassification from equity to liability was recorded in the third quarter 2015.
Following the May 2015 public offering, the exercise price per share of the April 2011 Warrants were adjusted to an exercise price of $10.11 per share and an additional 4,124 warrants were issued. The January 2016 public offering also triggered an adjustment to the exercise price of the April 2011 Warrants and the June 2009 Warrants from $10.11 per share and $5.74 per share, respectively, to $9.65 per share and $5.67 per share, respectively. An additional 4,713 warrants at an exercise price of $9.65 and an additional 2,580 warrants at an exercise price of $5.67 per share were issued following the adjustments triggered by this issuance. The December 2016 public offering also triggered the exercise price adjustment of the 2011 Warrants and the June 2009 Warrants from $9.65 per share and $5.67 per share, respectively, to $8.97 per share and $5.47 per share, respectively. An additional 7,852 warrants at an exercise price of $8.97 and an additional 7,734 warrants at an exercise price of $5.47 per share were issued following adjustments in the number of shares underlying the warrants that were triggered by this issuance. The August 2017 public offering also triggered the exercise price adjustment of the 2011 Warrants and the June 2009 Warrants from $8.97 per share and $5.47 per share, respectively, to $6.61 per share and $4.12 per share, respectively. An additional 151,220 warrants at an exercise price of $6.61 and an additional 291,110 warrants at an exercise price of $4.12 per share were issued following adjustments in the number of shares underlying the warrants that were triggered by this issuance.
As of September 30, 2017, the fair value of those warrants was determined to be $0.011 and $0.07 per warrant, for the June 2009 Warrants and the April 2011 Warrants, respectively, using the Monte Carlo method, a level 3 fair value measure, for a total fair value of $14,237 classified as warrants financial liability on the consolidated balance sheets. It resulted in a financial (income) charge of $(142,621) and $148,170 for the three months ended September 30, 2017 and 2016, respectively and $(736,372) and $(480,894) for the nine months ended September 30, 2017 and 2016, respectively.
As of December 31, 2016, the fair value of those warrants was determined to be $2.16 and $2.38 per warrant, for the June 2009 Warrants and the April 2011 Warrants, respectively, using the Monte Carlo method, a level 3 fair value measure, for a total fair value of $739,546 classified as warrants financial liability on the consolidated balance sheets.
IPO Warrants
The warrants issued upon the completion of the IPO (“IPO Warrants”), were exercisable during the period beginning on August 8, 2013 and ending on May 9, 2017. Those warrants expired on May 9, 2017 and ceased trading on the New York Stock Exchange under the symbol BIOA.WS. The expiration of the IPO Warrants resulted in a financial income of $nil and $960,000 for the three months ended September 30, 2017 and 2016, respectively, and of $5,600,000 and $(7,520,000) for the nine months ended September 30, 2017 and 2016.
On December 31, 2016, the closing value of the warrant on the New York Stock Exchange, a level 1 fair value measure, was $0.70 per warrant, for a total fair value of $5,600,000.
Special Warrant
On December 29, 2016, the Company entered into a Canadian Securities Purchase Agreement (the “Purchase Agreement”) with the purchaser’s party thereto to issue and sell a warrant (the “Special Warrant”) to purchase an aggregate of 2,224,199 common shares, for gross proceeds of $8,896,796, that were placed into an escrow account, recorded as restricted cash, to be released upon the exercise or deemed exercise of the Special Warrant pursuant to the terms of the Purchase Agreement. The exercise price per share for the common stock underlying the Special Warrant is $4.00. The net proceeds from the Warrants Offering were $3.80 per share of common stock underlying the Special Warrant, representing a placement agent fee of 5.0%, before expenses payable by the Company.
The term of the Special Warrant was 120 days from December 29, 2016. On April 28, 2017, the Special Warrant was automatically exercised for 2,224,199 common shares following the issuance of a receipt for the Company’s final prospectus qualifying the underlying shares by the British Columbia Securities Commission. The proceeds of the Special Warrant, recorded as
22
restricted cash in the current assets of the consolidated
balance sheet as of March 31, 2017, were released from the escrow concurrently with the deemed automatic exercise of the Special Warrant
.
January 2017 Warrants
On January 27, 2017, the Company issued 2,118,422 warrants, to purchase 2,118,422 shares of our common stock at an exercise price of $5.50 per share. The termination date is 4 years after the issuance date of those warrants. Per the 2017 Warrants agreement, the Company has the possibility to extend the termination date and the warrants exercise price without the consent of the holders. At issuance, the fair value of the warrants was classified as a financial liability as a result of their characteristics, in accordance with FASB ASC 815.
The initial fair value of the warrants was determined to be $2.41 per warrant using the Black-Scholes option pricing model, the residual amount of the gross proceeds was allocated to the common shares. The financing costs associated with the 2017 warrants issuance were recorded as financial charge in the consolidated statements of operations, in the amount of $349,739. As of September 30, 2017, the fair value of those warrants was determined to be $0.008 per warrant. As a result, the liability was revalued at the balance sheet date resulting in a financial income of $1,294,820
and $5,078,296 for the three and nine months ended September 30, 2017.
August 2017 & Private Placements Warrants
On August 11, 2017 and August 15, 2017, the Company issued 14,666,667
warrants (August 2017 Warrants)
and 273,331 warrants (Private Placements Warrants), respectively, to purchase the same number of shares of our common stock at an exercise price of $0.75 per share. The termination date is 5 years after the issuance date of those warrants.
Those warrants contain full ratchet anti-dilution protection upon the issuance of any Common Stock, securities convertible into Common Stock or certain other issuances at a price below the then-existing exercise price of the Warrants, with certain exceptions.
Per the August 2017 Warrants and the Private Placement Warrants agreements, the Company has the possibility to extend the termination date and the warrants exercise price without the consent of the holders. At issuance, the fair value of the warrants was classified as a financial liability as a result of their characteristics, in accordance with FASB ASC 815.
The initial fair value of the warrants was determined to be $0.35 per warrant using the Monte Carlo method, a level 3 fair value measure, the residual amount of the gross proceeds was allocated to the common shares. The financing costs associated with the August 2017 and Private Placements Warrants issuance were recorded as financial charge in the consolidated statements of operations, in the amount of $605,880. As of September 30, 2017, the fair value of those warrants was determined to be $0.28 per warrant. As a result, the liability was revalued at the balance sheet date resulting in a financial income of $941,311 for the three and nine months ended September 30, 2017.
Stock option plan
Stock-based compensation expense was allocated as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
ended
|
|
|
ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
General and administrative
|
|
|
310,968
|
|
|
|
470,866
|
|
|
|
2,551,161
|
|
|
|
1,525,011
|
|
Research and development
|
|
|
462,952
|
|
|
|
389,830
|
|
|
|
1,434,852
|
|
|
|
1,021,649
|
|
Sales and marketing
|
|
|
36,570
|
|
|
|
47,040
|
|
|
|
131,669
|
|
|
|
139,405
|
|
Total compensation expense
|
|
|
810,490
|
|
|
|
907,736
|
|
|
|
4,117,682
|
|
|
|
2,686,065
|
|
23
The following table summarizes activity under the Plan:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
Numbers
of
options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Numbers
of
options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Numbers
of
options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Numbers
of
options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, beginning of period
|
|
|
6,897,234
|
|
|
$
|
5.95
|
|
|
|
5,716,580
|
|
|
$
|
6.88
|
|
|
|
5,599,511
|
|
|
$
|
6.73
|
|
|
|
5,044,107
|
|
|
$
|
7.51
|
|
Granted
|
|
|
15,000
|
|
|
|
0.34
|
|
|
|
200,000
|
|
|
|
3.90
|
|
|
|
1,870,407
|
|
|
|
3.11
|
|
|
|
1,391,000
|
|
|
|
4.59
|
|
Exercised
|
|
|
(46,691
|
)
|
|
|
5.03
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(101,500
|
)
|
|
|
1.07
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
(112,072
|
)
|
|
|
8.00
|
|
|
|
(502,875
|
)
|
|
|
5.20
|
|
|
|
(630,599
|
)
|
|
|
7.96
|
|
Outstanding, end of period
|
|
|
6,865,543
|
|
|
$
|
5.94
|
|
|
|
5,804,508
|
|
|
$
|
6.76
|
|
|
|
6,865,543
|
|
|
$
|
5.94
|
|
|
|
5,804,508
|
|
|
$
|
6.76
|
|
Exercisable, end of period
|
|
|
4,801,676
|
|
|
$
|
6.78
|
|
|
|
3,507,730
|
|
|
$
|
7.20
|
|
|
|
4,801,676
|
|
|
$
|
6.78
|
|
|
|
3,507,730
|
|
|
$
|
7.20
|
|
Per share weighted average grant-date fair value of options granted
|
|
|
|
|
|
$
|
0.23
|
|
|
|
|
|
|
$
|
2.62
|
|
|
|
|
|
|
$
|
1.89
|
|
|
|
|
|
|
$
|
2.69
|
|
The fair value of options granted was determined using the Black-Scholes option pricing model and the following weighted-average assumptions:
|
Three months ended
|
|
|
Nine months ended
|
|
|
September 30,
|
|
|
September 30,
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Risk-free interest rate
|
|
1.88
|
%
|
|
|
1.34
|
%
|
|
|
1.78
|
%
|
|
|
1.58
|
%
|
Expected life (in years)
|
|
6.25
|
|
|
6.25
|
|
|
|
4.80
|
|
|
6.25
|
|
Volatility
|
|
73.78
|
%
|
|
|
76.00
|
%
|
|
|
76.86
|
%
|
|
|
79.17
|
%
|
Expected dividend yield
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Warrants
During the three months ended September 30, 2017, no warrants were exercised and no warrants expired. During the nine months ended September 30, 2016, 55,230 warrants were exercised
at an exercise price of $1.07, and 4,655 warrants expired.
As at September 30, 2017, the Company had the following warrants and warrants financial liability outstanding to acquire common shares:
Number
|
|
|
Exercise price
|
|
|
Expiration date
|
|
47,740
|
|
|
$
|
1.07
|
|
|
September 2018
|
|
159,390
|
|
|
$
|
1.43
|
|
|
February 2019
|
|
291,110
|
|
|
$
|
4.12
|
|
|
June 2019
|
|
151,220
|
|
|
$
|
6.61
|
|
|
April 2021
|
|
2,118,422
|
|
|
$
|
5.50
|
|
|
January 2021
|
|
14,939,998
|
|
|
$
|
0.75
|
|
|
August 2022
|
|
17,707,880
|
|
|
|
|
|
|
|
12. Income taxes
Based on the Company’s evaluation at September 30, 2017, management has concluded that there has been no change to the recorded uncertain tax positions requiring adjustments to deferred tax assets and related valuation allowance. Open tax years include the tax years December 31, 2012 through December 31, 2016.
For the three-month periods ended September 30, 2017 and 2016, the Company’s effective income tax rates were 0.27% and nil% respectively, compared to an applicable U.S. combined federal and state income tax rate of 35%. The difference between the effective tax rate and U.S. statutory tax rate as of September 30, 2017 is primarily due the existence of valuation allowances for deferred tax assets including net operating losses and stock options. For the three months ended September 30, 2017, the Company recorded valuation allowances on deferred tax assets relating to current year losses and temporary differences.
The Company is subject to possible income tax examinations for its U.S. federal and state income tax returns filed for the tax years 2013 to present.
24
13. Financial instruments
Currency risk
The Company is exposed to foreign currency risk as result of foreign-denominated transactions and balances. The Company does not hold any financial instruments that mitigate this risk.
Credit risk
The Company’s exposure to credit risk as of September 30, 2017, is equal to the carrying amount of its financial assets.
Interest Rate Risk
We had cash balances totaling $10.2 million at September 30, 2017. These amounts were deposited in current and interest-bearing accounts and were held for working capital purposes. Our primary objective is to preserve our capital for the purpose of funding our operations. We do not enter into investments for trading or speculative purposes. The Company’s long-term loan with EDC bears interest at floating interest rate per annum based on the Canadian prime rate plus an interest spread of 5%. If the Canadian prime rate were to increase, the interest rates for the remaining term of the loan would increase.
14. Fair value of financial assets and liabilities
For cash, restricted cash, accounts receivable and accounts payable and accrued liabilities, the carrying amount approximates fair value because of the short-term maturity of those instruments.
The carrying amount of long-term debt approximates fair value as at September 30, 2017 and December 31, 2016. The fair value of long-term debt received from government organizations was determined using Level 3 information as the Company produces an estimate of fair value based on internally developed valuation techniques which are based on a discounted cash flow methodology and incorporates all relevant observable market inputs. The interest free loans were discounted using an interest rate between 12% and 15%, a level 3 fair value measurement, representing the interest rate a loan with similar terms and conditions would carry.
The fair value of the IPO warrants was calculated using the Black-Scholes option pricing model using various assumptions which was a level 3 fair value measurement. As these warrants started trading freely on the New York Stock Exchange on June 10, 2013, the closing value of these warrants, which is a level 1 measurement was used to calculate the fair value from June 10, 2013 onwards. Those warrants expired on May 9, 2017.
The fair value of the June 2009, April 2011, August 2017 and Private Placements Warrants was calculated using the Monte Carlo model, which is a level 3 measurement. The fair value of the 2017 January Warrants was calculated using the Black-Scholes option pricing model using various assumptions which was a level 3 fair value measurement.
15. Related party transactions
Transactions with related parties not disclosed elsewhere were as follows:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Product sales to a shareholder
|
|
|
257,909
|
|
|
|
131,039
|
|
|
|
575,304
|
|
|
|
230,686
|
|
Services received by a shareholder
|
|
|
23,188
|
|
|
|
131,721
|
|
|
|
156,402
|
|
|
|
131,721
|
|
The related party transactions noted above were undertaken in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the parties.
25