Item 1A. Risk Factors
Any investment in our common Shares involves a high degree of
risk. The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered.
If any of these risks actually occur, our business, financial condition, prospects, results of operations or cash flow could be
materially and adversely affected and you could lose all or a part of the value of your investment. Additional risks or uncertainties
not currently known to us, or that we deem immaterial, may also negatively affect our business operations.
Risks Related to Our Evaluation of Strategic Alternatives
Our
business to date has been almost entirely dependent on the success of CaPre, and we have decided we will not file a New Drug Application
(NDA) with the U.S. Food and Drug Administration (FDA) for patients with severe hypertriglyceridemia, and we do not plan to conduct
additional clinical trials for CaPr. We will explore and evaluate strategic alternatives, which may not be successful.
To date, we
have invested substantially all of our efforts and financial resources in the research and development of our lead indication for
CaPre, which was our only product candidate to enter Phase 3 clinical trials.
On August
31, 2020, we announced that our second Phase 3 trial, TRILOGY 2 did not meet its primary endpoints and we would discontinue research
and development activities to reduce operating expenses, including a reduction in our workforce, to preserve our cash resources
while we evaluate our strategic alternatives with a goal to maximize stockholder value. We have retained Oppenheimer & Co.,
Inc. to advise and assist us in this strategic review, along with legal advisors. There can be no assurance that our process to
identify and evaluate potential strategic alternatives will result in any definitive offer to consummate a strategic transaction,
or if made that the terms thereof will be acceptable to the us. If any definitive offer to consummate a strategic transaction
is received, there can be no assurance that a definitive agreement will be executed or that, if a definitive agreement is executed,
the transaction will be consummated. In addition, there can be no assurance that any transaction, involving our company and/or
assets, that is consummated would enhance stockholder value. There also can be no assurance that we will conduct further drug
research or development activities in the future.
If we are
successful in completing a strategic transaction, we may be exposed to other operational and financial risks, including increased
near-term or long-term expenditures, exposure to unknown liabilities, incurrence of substantial debt or dilutive issuances of equity
securities to pay for acquisitions, higher-than-expected acquisition and integration costs, write-downs of assets or goodwill or
impairment charges, increased amortization expenses, difficulty and cost in combining the operations and personnel of any acquired
businesses with our operations and personnel, impairment of relationships with key suppliers or customers of any acquired businesses
due to changes in management and ownership, and inability to retain key employees of our company or any acquired businesses.
The identification,
negotiation, and completion of a strategic transaction will require significant time on the part of our management and may divert
such attention away from other aspects of our business. The identification, negotiation, and completion of any such transaction
may also require more time and cash resources than we anticipate.
If we do not successfully consummate a strategic transaction,
our board of directors may decide to pursue a dissolution and liquidation of our company. In such an event, the amount of cash
available for distribution to our shareholders will depend heavily on the timing of such liquidation as well as the amount of cash
that will need to be reserved for commitments and contingent liabilities.
There can be no assurance that
the process to identify a strategic transaction will result in a successfully consummated transaction. If no transaction is completed,
our board of directors may decide to pursue a dissolution and liquidation of the Corporation. In such an event, the amount of cash
available for distribution to our shareholders will depend heavily on the timing of such decision and, ultimately, such liquidation
since the amount of cash available for distribution continues to decrease as we fund our operations while we evaluate our strategic
alternatives. In addition, if our board of directors were to approve and recommend, and our shareholders were to approve, a dissolution
and liquidation of the Corporation, we would be required under applicable corporate law to pay our outstanding obligations, as
well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to
our shareholders. Our commitments and contingent liabilities may include (i) obligations under our employment and related agreements
with certain employees that provide for severance and other payments following a termination of employment occurring for various
reasons, including a change in control of our company; (ii) potential litigation against us, and other various claims and legal
actions arising in the ordinary course of business; and (iii) non-cancelable obligations. As a result of this requirement, a portion
of our assets may need to be reserved pending the resolution of such obligations. In addition, we may be subject to litigation
or other claims related to a dissolution and liquidation of the Corporation. If a dissolution and liquidation were pursued, our
board of directors, in consultation with our advisors, would need to evaluate these matters and make a determination about a reasonable
amount to reserve. Accordingly, holders of our common shares could lose all or a significant portion of their investment in the
event of a liquidation, dissolution or winding up of the Corporation.
We are substantially dependent on our remaining employees
to facilitate the consummation of a strategic transaction.
Our ability to successfully complete a strategic transaction depends
in large part on our ability to retain certain of our remaining personnel. Despite our efforts to retain these employees, one or
more may terminate their employment with us on short notice. The loss of the services of any of our employees could potentially
harm our ability to evaluate and pursue strategic alternatives, as well as fulfill our reporting obligations as a public company.
In connection with our discontinuation of commercial and research and development activities, we initiated a plan in September
2020 to reduce personnel and expenses to preserve cash and further reduce our operations.
We may not realize any additional value in a strategic transaction
for our intellectual property.
The market capitalization of our company is or may be below the
value of our cash, cash equivalents and marketable securities at the time of consummation of any strategic transaction. Although
the TRILOGY clinical trials failed to meet their primary endpoints, we believe that data from preclinical and other clinical studies
of CaPre may support potential further investigation and development activities by a potential counterparty in a strategic transaction.
However, potential counterparties in a strategic transaction involving our company may place minimal or no value on our assets,
given the limited data regarding their potential new application. Further, the development and any potential commercialization
of CaPre by a potential counterparty to a strategic transaction will require substantial additional funding associated with the
conduct of the necessary clinical testing to obtain regulatory approval. Consequently, any potential counterparty in a strategic
transaction involving our company may choose not to spend additional resources and continue development of CaPre and may attribute
little or no value, in such a transaction, to CaPre or our intellectual property.
Our ability to successfully consummate a strategic transaction
may be materially and adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic is severely adversely affecting the U.S.,
Canadian and many other global economies. If the outbreak continues to spread, it may affect our operations and those of third
parties upon which we rely, including limiting our ability to explore strategic alternatives to enhance shareholder value.
The extent to which the COVID-19 pandemic impacts our business
and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information
which may emerge concerning the severity of the COVID-19 pandemic and the actions to contain the COVID-19 pandemic or
treat its impact, among others.
Additionally, while the potential economic impact brought by, and
the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the
global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity
and adversely affect our business and overall financial condition.
General Risks Related to the Company
We may not continue as a going concern.
We have incurred operating losses and negative cash flows from operations
since our inception. To date, we have financed our operations through public offerings and private placements of securities, proceeds
from exercises of warrants, rights and options, and receipt of research tax credits and research grant programs.
Prior to this quarter, there was substantial doubt regarding our ability
to realize our assets and discharge our liabilities and commitments in the ordinary course of business. During this quarter, we
have raised net proceeds of $19.7 million under the ATM program. Our assets as at December 31, 2020 include cash and cash equivalents
and short-term investments totaling $27.9 million. Our current liabilities total $2.3 million at December 31, 2020 and are comprised
primarily of amounts due to or accrued for creditors. Subsequent, to December 31, 2020, we have raised an additional $7.9 million
of net proceeds under the ATM.
Our ability to continue as a going concern is dependent
upon our ability to achieve a successful strategic alternative and ultimately generate cashflows to meet our obligations. Due to
the failure of our Phase 3 clinical studies to meet its primary endpoints, and the resulting decision not to file an NDA to obtain
FDA approval for CaPre, we have commenced a formal process to explore and evaluate strategic alternatives to enhance shareholder
value, which is currently the focus of our activities. There is no assurance that a strategic transaction will be consummated as
such transaction is not within our control. Due to our lack of operating activities, our current liabilities and commitments are
limited. As a result of our current liquidity profile and lack of operating activity unrelated to the evaluating strategic alternatives,
we have assessed that substantial doubt regarding our ability to continue as a going concern during the next 12 months statements
no longer exists.
We may be subject to foreign exchange rate fluctuations.
Our reporting currency is the U.S. dollar. However, many of our
expenses are denominated in foreign currencies, including Canadian dollars. As we previously completed financings in both Canadian
and U.S. dollars, both currencies are maintained and used to make required payments in the applicable currency. Though we plan
to implement measures designed to reduce our foreign exchange rate exposure, the U.S. dollar/Canadian dollar and U.S. dollar /European
euro exchange rates have fluctuated significantly in the recent past and may continue to do so, which could have a material adverse
effect on our business, financial position and results of operations.
Risks Related to Intellectual Property
We may not realize any additional
value in a strategic transaction for our intellectual property.
The market capitalization of our corporation
is or may be below the value of our cash, cash equivalents and marketable securities at the time of consummation of any strategic
transaction. Although the CaPre clinical trial failed to meet its primary endpoints, we believe that data from preclinical and
other clinical studies of CaPre may support potential further investigation and development activities. However, potential counterparties
in a strategic transaction involving our corporation may place minimal or no value on our assets, given the limited data regarding
their potential application. Further, the development and any potential commercialization of investigational CaPre will require
substantial additional funding associated with conducting the necessary clinical testing and obtaining regulatory approval. Consequently,
any potential counterparty in a strategic transaction involving our corporation may choose not to spend additional resources and
continue development of CaPre and may attribute little or no value, in such a transaction, to CaPre or our other intellectual property.
It is difficult and costly to protect our intellectual property
rights.
It is possible that our patents and/or proprietary technologies
in the future could be circumvented through the adoption of competitive, though non-infringing, processes or products. The patent
positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which
important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish
the value of our intellectual property. We cannot predict the breadth of claims that may be allowable or enforceable in our patents,
or of patents licensed to us.
We face risks that:
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our rights under our U.S., Canadian or foreign patents or other licensed patents that other third parties license to us could be curtailed;
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we may not be the first inventor of inventions covered by our issued patents or pending applications or be the first to file patent applications for those inventions;
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our pending or future patent applications may not be issued with the breadth of claim coverage sought by us, or be issued at all;
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our competitors could independently develop or patent technologies that are substantially equivalent or superior to our technologies;
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our trade secrets could be learned independently by our competitors;
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the steps we take to protect our intellectual property may not be adequate; and
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effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not sought by us in some foreign countries.
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Further, patents have a limited lifespan. In the United States,
a patent generally expires 20 years after it is filed (or 20 years after the filing date of the first non-provisional U.S. patent
application to which it claims priority). While extensions may be available, the life of a patent, and the protection it affords,
is limited. Without patent protection for CaPre or any other of our future product candidates, we may be open to competition from
generic versions of CaPre or our other future product candidates. Further, the extensive period of time between patent filing and
regulatory approval for a product candidate limits the time during which we can market that product candidate under patent protection.
Patents owned by third parties could have priority over patent applications filed or in-licensed by us, or we or our licensors
could become involved in interference, opposition or invalidity proceedings before U.S., Canadian or foreign patent offices. The
cost of defending and enforcing our patent rights against infringement charges by other patent holders may be significant and could
limit our operations.
We may be involved in lawsuits to protect or enforce our patents
or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensors.
To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming.
If we or our licensors were to initiate legal proceedings against a third party to enforce a patent covering CaPre or our technology,
the defendant could counterclaim that our or our licensor’s patent is invalid or unenforceable. In patent litigation, defendant
counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure
to meet any of several statutory requirements; for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability
assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the patent
office, such as the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity
and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be
certain that there is no invalidating prior art, of which we or our licensors and the patent examiner were unaware during prosecution.
If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps
all, of the patent protection on CaPre or certain aspects of our platform technology. Such a loss of patent protection could have
a material adverse impact on our business. Patents and other intellectual property rights also will not protect our technology
if competitors design around our protected technology without legally infringing our patents or other intellectual property rights.
In addition, in an infringement proceeding, a court may refuse to
stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question.
An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held
unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless
of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our
business.
Interference proceedings provoked by third parties or brought by
the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those
of our licensors. An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using
the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing
party does not offer us a license on commercially reasonable terms, or at all. Litigation or interference proceedings may result
in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management
and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential
information, particularly in countries where the laws may not protect those rights as fully as in the United States and Canada.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition,
there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common
shares.
Obtaining and maintaining our patent protection depends on compliance
with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our
patent protection could be reduced or eliminated for non-compliance with these requirements.
Changes in patent law could diminish the value of patents
in general, thereby impairing our ability to protect CaPre and any of our other future product candidates.
Numerous recent changes to the patent laws and proposed changes
to the rules of the various patent offices around the world may have a significant impact on our ability to protect our technology
and enforce our intellectual property rights. These changes may lead to increasing uncertainty with regard to the scope and value
of our issued patents and to our ability to obtain patents in the future.
Once granted, patents may remain open to opposition, re-examination,
post-grant review, inter partes review, nullification derivation and opposition proceedings in court or before
patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections
against the initial grant. In the course of any such proceedings, which may continue for a protracted period of time, the patent
owner may be compelled to limit the scope of the allowed or granted claims attacked or may lose the allowed or granted claims altogether.
Depending on decisions by authorities in various jurisdictions, the laws and regulations governing patents could change in unpredictable
ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors
or partners may obtain in the future.
We may not be able to protect our intellectual property rights
throughout the world.
Many companies have encountered significant problems in protecting
and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries, particularly certain
developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which
could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary
rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert
our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted
narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may
not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop or license.
Risks Relating to Our Common Shares
The price of our common shares may be volatile.
Market prices for pharmaceutical companies can fluctuate significantly.
Factors such as the announcement to the public or in various scientific or industry forums of technological innovations; new commercial
products; patents or exclusive rights obtained by us or others; disputes or other developments relating to proprietary rights,
including patents, litigation matters and our ability to obtain patent protection for our technologies; the commencement, enrollment
or announcement of results of clinical trials we conduct, or changes in the development status of our product candidates; results
or delays of pre-clinical and clinical studies by us or others; any delay in our regulatory filings for our product candidates
and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review
of such filings; a change of regulations; additions or departures of key scientific or management personnel; overall performance
of the equity markets; general political and economic conditions; publications; failure to meet the estimates and projections of
the investment community or that we may otherwise provide to the public; research reports or positive or negative recommendations
or withdrawal of research coverage by securities analysts; actual or anticipated variations in quarterly operating results; announcements
of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; public concerns
over the risks of pharmaceutical products and dietary supplements; unanticipated serious safety concerns related to the use of
CaPre; the ability to finance, future sales of securities by us or our shareholders; and many other factors, many of which are
beyond our control, could have considerable effects on the price of our common shares. The price of our common shares has fluctuated
significantly in the past and there can be no assurance that the market price of our common shares will not experience significant
fluctuations in the future.
In addition, pharmaceutical companies often experience extreme price
and volume fluctuations that are unrelated or disproportionate to the operating performance of those companies. Broad market and
industry factors may negatively affect the market price of our common shares, regardless of our actual operating performance. In
the past, securities class action litigation has often been instituted against pharmaceutical companies following periods of volatility
in the market price of their securities. This type of litigation, if instituted against us, could result in substantial costs and
a diversion of management’s attention and resources, which would harm our business, operating results or financial condition.
Raising additional capital may cause dilution to our existing
shareholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may need to raise additional capital in order to execute on
our business plan. We may seek additional capital through a combination of public and private equity offerings, debt financings,
strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale
of equity or convertible debt securities, the ownership interests of our shareholders will be diluted, and the terms may include
liquidation or other preferences that adversely affect the rights of our shareholders. The incurrence of indebtedness by us would
result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and
alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product
candidates or grant licenses on terms unfavorable to us.
The market price of our common shares could decline as a result
of operating results falling below the expectations of investors or fluctuations in operating results each quarter.
Our net losses and expenses may fluctuate significantly and any
failure to meet financial or clinical expectations may disappoint securities analysts or investors and result in a decline in the
price of our common shares. Our net losses and expenses have fluctuated in the past and are likely to do so in the future. The
market price of our common shares has fluctuated significantly in the past and may continue to do so. Some of the factors that
could cause the market price for our common shares to fluctuate include the following:
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the fluctuations in valuation of our derivative warrant liabilities;
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the outcome of any litigation;
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changes in foreign currency fluctuations;
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the timing of achievement and the receipt of milestone payments from current or future third parties;
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failure to enter into new or the expiration or termination of current agreements with third parties;
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execution of any new collaboration, licensing or similar arrangement, and the timing of payments we may make or receive under such existing or future arrangements or the termination or modification of any such existing or future arrangements;
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any intellectual property infringement lawsuit or opposition against us or our competition that could have a negative impact on the OM3 space, interference or cancellation proceeding in which we may become involved;
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additions and departures of key personnel;
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strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
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inability to achieve strategic outcome from review of strategic alternatives;
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changes in general market and economic conditions.
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If our quarterly operating results fall below the expectations of
investors or securities analysts, the market price of our common shares could decline substantially. Furthermore, any quarterly
fluctuations in our operating results may, in turn, cause the market price of our common shares to fluctuate substantially. We
believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an
indication of our future performance.
There can be no assurance that an active market for our common
shares will be sustained.
There can be no assurance that an active market for our common shares
will be sustained. Holders of common shares may be unable to sell their investments on satisfactory terms. As a result of any risk
factor discussed herein, the market price of our common shares at any given point in time may not accurately reflect our long-term
value. Furthermore, responding to these risk factors could result in substantial costs and divert management’s attention
and resources. Substantial and potentially permanent declines in the value of our common shares may adversely affect the liquidity
of the market for our common shares.
Other factors unrelated to our performance that may have an effect
on the price and liquidity of our common shares include: positive or negative industry or competitor news; extent of analyst coverage;
lessening in trading volume and general market interest in our common shares; the size of our public float; and any event resulting
in a delisting of our common shares.
A large number of common shares may be issued and subsequently
sold upon the exercise of existing warrants. The sale or availability for sale of existing warrants or other securities convertible
into common shares may depress the price of our common shares.
As of December 31, 2020, there were 15.9 million common shares issuable
under outstanding warrants at various exercise prices. To the extent that holders of existing warrants sell common shares issued
upon the exercise of warrants, the market price of our common shares may decrease due to the additional selling pressure in the
market. The risk of dilution from issuances of common shares underlying existing warrants may cause shareholders to sell their
common shares, which could further contribute to any decline in our common share market price.
Any downward pressure on the price of our common shares caused by
the sale of common shares issued upon the exercise of existing warrants could encourage short sales by third parties. In a short
sale, a prospective seller borrows common shares from a shareholder or broker and sells the borrowed common shares. The prospective
seller anticipates that the common share price will decline, at which time the seller can purchase common shares at a lower price
for delivery back to the lender. The seller profits when the common share price declines because it is purchasing common shares
at a price lower than the sale price of the borrowed common shares. Such short sales of common shares could place downward pressure
on the price of our common shares by increasing the number of common shares being sold, which could lead to a decline in the market
price of our common shares.
We do not currently intend to pay any cash dividends on our
common shares in the foreseeable future.
We have never paid any cash dividends on our common shares and we
do not anticipate paying any cash dividends on our common shares in the foreseeable future because, among other reasons, we currently
intend to retain any future earnings to finance our business. The future payment of cash dividends will be dependent on factors
such as cash on hand and achieving profitability, the financial requirements to fund growth, our general financial condition and
other factors our board of directors may consider appropriate in the circumstances. Until we pay cash dividends, which we may never
do, our shareholders will not be able to receive a return on their common shares unless they sell them. See “Item 5. Market
for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities — Dividends.”
If we fail to meet applicable listing requirements, the NASDAQ
Stock Market or the TSXV may delist our common shares from trading, in which case the liquidity and market price of our common
shares could decline.
Our common shares are currently listed on the NASDAQ Stock Market
and the TSXV, but we cannot assure you that our securities will continue to be listed on the NASDAQ Stock Market and the TSXV in
the future. In the past, we have received notices from the NASDAQ Stock Market that we have not been in compliance with its continued
listing standards, and we have taken responsive actions and regained compliance.
On February 28, 2020, we received written notification from the
NASDAQ Listing Qualifications Department for failing to maintain a minimum bid price of $1.00 per share for the preceding 30 consecutive
business days, as required by NASDAQ Listing Rule 5550(a)(2) – bid price (the “Minimum Bid Price Rule”). The
NASDAQ notification has no immediate effect on the listing of our common shares. Under NASDAQ Listing Rule 5810(c)(3)(A) –
compliance period, we initially had 180 calendar days to regain compliance.
On April 17, 2020, we were informed that NASDAQ had granted temporary
regulatory relief related to its minimum bid price requirement due to the COVID-19 pandemic for all NASDAQ-listed companies and
therefore extended the deadline for us to regain compliance to November 9, 2020.
On November 11, 2020, we were further informed that NASDAQ had granted
an additional 180 calendar days, or until May 10, 2021, for us to regain compliance. We have not regained compliance to date.
If at any time over this relief period the bid price of our common
shares closes at $1.00 per share or more for a minimum of ten (10) consecutive business days, NASDAQ will provide written confirmation
of compliance and the matter will be closed. If we do not regain compliance within the relief period, then our common shares will
be subject to delisting, at which time we may appeal the delisting determination to a NASDAQ Hearings Panel.
If we fail to comply with listing standards and the NASDAQ Stock
Market or TSXV delists our common shares, we and our shareholders could face significant material adverse consequences, including:
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a limited availability of market quotations for our common shares;
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reduced liquidity for our common shares;
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a determination that our common shares are “penny stock”, which would require brokers trading in our common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common shares;
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a limited amount of news about us and analyst coverage of us; and
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a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.
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We may pursue opportunities or transactions that adversely
affect our business and financial condition.
Our management, in the ordinary course of our business, regularly
explores potential strategic opportunities and transactions. These opportunities and transactions may include strategic joint venture
relationships, significant debt or equity investments in us by third parties, the acquisition or disposition of material assets,
the licensing, acquisition or disposition of material intellectual property, the development of new drug candidates, significant
distribution arrangements, the sale of our common shares and other similar opportunities and transactions. The public announcement
of any of these or similar strategic opportunities or transactions might have a significant effect on the price of our common shares.
Our policy is to not publicly disclose the pursuit of a potential strategic opportunity or transaction unless we are required to
do so by applicable law, including applicable securities laws relating to periodic disclosure obligations. There can be no assurance
that investors who buy or sell common shares are doing so at a time when we are not pursuing a particular strategic opportunity
or transaction that, when announced, would have a significant effect on the price of our common shares.
In addition, any such future corporate development may be accompanied
by certain risks, including exposure to unknown liabilities of the strategic opportunities and transactions, higher than anticipated
transaction costs and expenses, the difficulty and expense of integrating operations and personnel of any acquired companies, disruption
of our ongoing business, diversion of management’s time and attention, and possible dilution to shareholders. We may not
be able to successfully overcome these risks and other problems associated with any future acquisitions and this may adversely
affect our business and financial condition.
We are a “smaller reporting company” under the
SEC’s disclosure rules and have elected to comply with the reduced disclosure requirements applicable to smaller reporting
companies.
We are a “smaller reporting company” under the SEC’s
disclosure rules, meaning that we have either:
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a public float of less than $250 million; or
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annual revenues of less than $100 million during the most recently completed fiscal year; and
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a public float of less than $700 million.
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As a smaller reporting company, we are permitted to comply with
scaled-back disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations
regarding executive compensation in our periodic reports and proxy statements. We have elected to adopt the accommodations available
to smaller reporting companies. Until we cease to be a smaller reporting company, the scaled-back disclosure in our SEC filings
will result in less information about our company being available than for other public companies.
If investors consider our common shares less attractive as a result
of our election to use the scaled-back disclosure permitted for smaller reporting companies, there may be a less active trading
market for our common shares and our share price may be more volatile.
As a non-accelerated filer, we are not required to comply
with the auditor attestation requirements of the Sarbanes-Oxley Act.
We are a non-accelerated filer under the Securities Exchange Act
of 1934, as amended, or the Exchange Act, and we are not required to comply with the auditor attestation requirements of Section
404(b) of the Sarbanes-Oxley Act of 2002. Therefore, our internal controls over financial reporting will not receive the level
of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to
the auditor attestation requirements. In addition, we cannot predict if investors will find our common shares less attractive because
we are not required to comply with the auditor attestation requirements. If some investors find our common shares less attractive
as a result, there may be a less active trading market for our common shares and trading price for our common shares may be negatively
affected.
U.S. investors may be unable to enforce certain judgments.
We are a company existing under the Business Corporations
Act (Québec). Some of our directors and officers are residents of Canada, and substantially all of our assets are
currently located outside the United States. As a result, it may be difficult to effect service within the United States upon us
or upon some of our directors and officers. Execution by U.S. courts of any judgment obtained against us or any of our directors
or officers in U.S. courts may be limited to assets located in the United States. It may also be difficult for holders of securities
who reside in the United States to realize in the United States upon judgments of U.S. courts predicated upon civil liability of
us and our directors and executive officers under the U.S. federal securities laws. There may be doubt as to the enforceability
in Canada against non-U.S. entities or their controlling persons, directors and officers who are not residents of the United States,
in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities predicated solely upon U.S. federal
or state securities laws.
There is a significant risk that we may be classified as a
PFIC for U.S. federal income tax purposes.
Current or potential investors in our common shares who are U.S.
Holders (as defined below) should be aware that, based on our most recent financial statements and projections and given uncertainty
regarding the composition of our future income and assets, there is a significant risk that we may have been classified as a “passive
foreign investment company” or “PFIC” for the 2020 taxable year and may be classified as a PFIC for our current
taxable year and possibly subsequent years. If we are a PFIC for any year during a U.S. Holder’s holding period of our common
shares, then such U.S. taxpayer generally will be required to treat any gain realized upon a disposition of such common shares
or any so-called “excess distribution” received on such common shares, as ordinary income (with a portion subject to
tax at the highest rate in effect), and to pay an interest charge on a portion of such gain or excess distribution. In certain
circumstances, the sum of the tax and the interest charge may exceed the total amount of proceeds realized on the disposition,
or the amount of excess distribution received, by the U.S. Holder. Subject to certain limitations, a timely and effective QEF Election
(as defined below) under Section 1295 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, or a Mark-to-Market Election
(as defined below) under Section 1296 of the Code may be made with respect to the common shares. A U.S. Holder who makes a timely
and effective QEF Election generally must report on a current basis its share of our net capital gain and ordinary earnings for
any year in which we are a PFIC, whether or not we distribute any amounts to our shareholders. A U.S. Holder who makes the Mark-to-Market
Election generally must include as ordinary income each year the excess of the fair market value of their common shares over the
holder’s basis therein. This paragraph is qualified in its entirety by the discussion under the heading “Item 5. Market
for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities - U.S. Federal Income
Tax Considerations of the Acquisition, Ownership, and Disposition of Common Shares - Passive Foreign Investment Company Rules.”
Each current or potential investor who is a U.S. Holder should consult its own tax advisor regarding the U.S. federal, state and
local, and non-U.S. tax consequences of the acquisition, ownership, and disposition of our common shares, the U.S. federal tax
consequences of the PFIC rules, and the availability of any election that may be available to the holder to mitigate adverse U.S.
federal income tax consequences of holding shares in a PFIC.