BIONIK LABORATORIES CORP. Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that involve substantial risks and uncertainties and that reflect assumptions, expectations, projections, intentions, or beliefs about future events that are intended as "forward-looking statements". All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward- looking statements. These statements appear in several places, including, but not limited to in this "Management's Discussion and Analysis of Financial Condition and Results of Operations". These statements represent our reasonable judgment of the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as "anticipate," "believe," "estimate," "expect," "forecast," "may," "will", "should," "plan," "project" and other words of similar meaning. These forward-looking statements include, among other things, statements about:
? Our ability to successfully raise capital for ongoing operations, to acquire
additional physical therapy clinics and for other business purposes;
? our ability to identify and penetrate new markets for our products, technology
and services;
our ability to successfully identify, acquire, fund and operate specialized
? neuro-recovery physical therapy clinics as part of our newly launches business
initiative;
? our estimates regarding expenses, future revenues, capital requirements and
needs for additional funding;
? our ability to obtain and maintain regulatory clearances;
? our sales and marketing capabilities and strategy in
internationally;
? our ability to retain key management personnel on whom we depend;
? our expectations with respect to our acquisition activity;
? our intellectual property portfolio; and
? our ability to innovate, develop and commercialize new products, technologies
and services.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report and in our other public filings with theSecurities and Exchange Commission , or theSEC , that could cause actual results or events to differ materially from the forward-looking statements that we make. You should read this Quarterly Report and the documents that we have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. It is routine for internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations are made as of the date of this Quarterly Report and may change prior to the end of each quarter or the year. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. 16
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The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report and the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K filed with theSEC onJune 9, 2022 . Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods. The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States .
Company Overview
The Company uses artificial intelligence and machine learning technologies to make rehabilitation methods and processes smarter and more intuitive to deliver greater recovery for patients with neurological or mobility impairments. These technologies allow large amounts of data to be collected and processed in real-time, enabling appropriately challenging and individualized therapy during every treatment session. This is the foundation of the InMotion therapy. The Company's rehabilitation therapy robots are built on an artificial intelligence platform, measuring the position, the speed, and the acceleration of the patients' arm 200 times per second. The artificial intelligence platform is designed to adapt in real time to the patient's needs and progress while providing quantifiable feedback of a patient's progress and performance, in a way that the Company believes a trained clinician cannot. Based on this foundational work, the Company has a portfolio of products and solutions focused on upper extremity rehabilitation for stroke and other mobility-impaired individuals, including InMotion robots currently in the market. Additionally, our software platform, InMotion Connect, which is providing the ability for hospital management to access remotely to management dashboards presenting the utilization data of each of their InMotion robotic devices and their robotic devices productivity. Customized reporting capabilities in the platform focus on facility and organization measurement dashboards to support effective decision making for clinicians and for hospital management. OnSeptember 7, 2022 , the Company acquired Tower Aquatic, described further below, which is the first step in our planned national strategic rollout of rehabilitation clinics. The Company intends to rebrand the newly acquired physical therapy clinic as a specialized neuro-recovery center that will showcase and provide continued accessibility toBionik's technology and solutions by providing treatment to patients with stroke, brain and spinal cord injuries. The Company plans to acquire a network of neuro recovery centers which will enable us to provide more patients with access toBionik's InMotion systems. Currently, we receive revenues from the sale of our InMotion robots to our customers both in theU.S. and internationally and the operation of our newly acquired rehabilitation center through insurance reimbursements and patient co-payments. We also record revenues associated with our extended warranties that customers will purchase with the sale of our InMotion robots as well as from the sale of the InMotion Connect hardware and the subscription fees associated with the utilization of the InMotion Connect Pulse solution in theU.S. We currently sell our products directly or can introduce customers to a third-party finance company to lease at a monthly fee over the term or other fee structure for our products to hospitals, clinics, distribution companies and/or buying groups that supply those rehabilitation facilities.
Our strategic business focus is on the following key areas:
Continuing to expand our distribution channels and commercial footprint in the
?
initiatives;
Continue to seek out and acquire rehabilitation centers to showcase the
? Company's technology and solutions with the goal of building a network of
Bionik branded neuro recovery centers which is the catalyst to our data gathering.
Continue to improve our data strategy and enhance our InMotion Connect software
? with solutions that serve clinical rehabilitation providers and their patients;
and
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? Continue to seek out opportunities to enhance our product offering and
potentially introduce new technologies
We believe our business provides a platform for growth. We continue to make investments in our enhancements of our existing products and the future development of new products.
We currently hold an intellectual property portfolio that includes 5 issuedU.S. patents and 3 U.S. pending patent applications, as well as other patents under development. We may file provisional patent applications from time to time, and may, where deemed advisable pursue non-provisional patent applications within 12 months of the filing date of such provisional patent applications. Additionally, we hold exclusive licenses to three additional patents.
Business Developments
During 2021, we implemented a machine learning prototype predictive model for the classification of the level of responsiveness of the InMotion therapy outcomes. This solution was developed with Bitstrapped, aToronto -based data engineering firm specializing in machine learning infrastructure through their partnership withJuly 15, 2021 , we commenced a refinancing of our existing indebtedness and launched a new secured convertible promissory note offering of up to$10.0 million . Pursuant to the terms of the offering, we were offering for sale up to$10.0 million in convertible notes to accredited investors and non-U.S. persons. As a result, we issued an aggregate of$8.3 million in principal of convertible notes of which an aggregate of$5.0 million was purchased for cash and the remainder was issued as a result of consolidating existing debt. All of these convertible notes were converted onMarch 31, 2022 , into 946,194 shares of our common stock. BetweenJune 9, 2022 , andJune 10, 2022 , we issued convertible promissory notes and borrowed an aggregate of$500,000 from an affiliate ofRemi Gaston-Dreyfus , a director ($200,000 ); an affiliate ofAndré-Jacques Auberton-Hervé , the Chairman of the Board of Directors ($100,000 ); and an existing investor and shareholder ($200,000 ). OnSeptember 7, 2022 , the Company completed the acquisition of the assets ofDearman & Dearman PT LLC (which is doing business as Tower Aquatic & Sports Physical Therapy), a physical therapy practice, for a cash purchase price of$215,000 . In relation to such acquisition, onSeptember 2, 2022 , we issued a convertible promissory note and borrowed an aggregate of$250,000 from an affiliate of Mr. Gaston-Dreyfus to finance the acquisition of such assets and pay related costs and expenses.
On each of
Covid-19 Pandemic
As a result of extended shutdowns of businesses around the world due to the COVID-19 pandemic, we have seen a slowdown in our business as most of the capital expenditure programs of the healthcare facilities that make up our customer base have been put on hold or has been significantly curtailed. This, along with our typically long sales cycle, has adversely affected our ability to generate revenues dating back to the beginning of the pandemic in 2020. As a result, we took steps to address the decrease in revenue, including the following:
On
amount of
under the Coronavirus Aid, Relief and Economic Security Act, which is
administered by the
?
including to retain workers and maintain payroll or make mortgage interest
payments, lease payments, and utility payments. We applied for forgiveness of
this debt with the SBA and as ofMay 23, 2021 , have received forgiveness of the loan and all interest. 18 Table of Contents
Our
? Canadian Emergency Wage Subsidy (CEWS), which is available monthly until June
2021, which was used to return the salaries of many of our Canadian non-management employees back to their full amount.
The Company has reduced working on its research and development projects to
focus on the further enhancements of InMotion ConnectTM, to provide the ability
? for hospital management to access remotely to management dashboards presenting
the utilization data of each of their InMotion robotic devices and their
InMotion robotic devices productivity, as well as the artificial intelligence
and machine learning analysis based on the data collected by InMotion Connect.
The global outbreak of the COVID-19 coronavirus continues to evolve. The extent to which COVID-19 may continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, the emergence of new variants, travel restrictions and social distancing in theU.S. and other countries, business closures or business disruptions and the effectiveness of actions taken in theU.S. and other countries to contain and treat the disease.
Results of Operations
Three Months Ended
The following table contains selected statement of operations data, which serve as the basis of the discussion of our results of operations for the three months endedDecember 31, 2022 and 2021, respectively: Three Months Ended December 31, 2022 2021 As a % of As a % of Total Total $ % Amount Revenues
Amount Revenues Change Change Revenues, net
$ 575,054 100 %$ 183,262 100 %$ 391,792 214 % Cost of revenues 304,503 53 50,394 27 254,109 504 Gross profit 270,551 47 132,868 73 137,683 104 Operating expenses Sales and marketing 446,424 78 567,300 310 (120,873) (21) Research and development 93,617 16 368,095 201 (274,478) (75) General and administrative 773,911 135 725,300 396 48,611 7 Impairment of goodwill & intangible assets - - 5,200,608 2,838 (5,200,608) (100) Total operating expenses 1,313,955 228 6,861,303 3,744 (5,547,348) (81) Loss from operations (1,043,404) (181) (6,728,435) (3,671) (5,685,031) (84) Interest expense, net 30,435 5 249,096 136 (218,661) (88) Other expense, net 2,372 - 6,314 3 (3,942) (62) Total other expense 32,807 6 255,410 139 (222,603) (87) Net loss$ (1,076,211) (187) %$ (6,983,845) (3,811) %$ 5,907,634 (85) % 19 Table of Contents Revenues Total revenues for the three months endedDecember 31, 2022 increased by$0.4 million , or 214%, to$0.6 million , as compared to revenues of$0.2 million for the three months endedDecember 31, 2021 . Three Months Ended December 31, $ % 2022 2021 Change Change Product$ 405,373 $ 88,699 $ 316,674 357 % Subscriptions 64,500 51,000 13,500 26
Service, extended warranty & other 105,181 43,563 61,618
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Total revenues $ 575,054 $ 183,262 $ 391,792 214 %
The change in total revenues was attributable to the following factors:
Product revenue increased by
? units shipped. In the 2022 period, five units were shipped as compared to one
unit sale in the 2021 period.
? Subscription revenue grew by
the 2022 period as compared to the 2021 period.
Our service, extended warranty and other revenues increased primarily due to
? revenue associated with the acquisition of our first clinic in the current
period.
Cost of Revenues
Three Months Ended
December 31,
$ %
2022 2021 Change Change
Cost of revenues $ 304,503 $ 50,394 $ 254,109 504 %
Cost of revenues (as a percentage of
total revenues) 53 % 27 %
Total cost of revenues increased $0.3 million , or 504%, to $0.3 million for the
2022 period, as compared to $50,394 for the 2021 period. The increase is
associated with selling more units in the 2022 period as compared to the 2021
period and from costs of revenues associated with our clinic in the current
period, which tends to carry lower gross margins for patient services.
Sales and Marketing
Three Months Ended
December 31,
$ %
2022 2021 Change Change
Sales and marketing $ 446,427 $ 567,300 $ (120,873) (21) %
Sales and marketing (as a percentage of
total revenues) 78 % 310 %
Sales and marketing expenses decreased $0.1 million , or 21%, to $0.4 million for
the 2022 period, as compared to $0.6 million for the 2021 period. The decrease
was due to lower consulting, personnel related expenses and marketing expenses
during the period.
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Research and Development
Three Months Ended
December 31,
$ %
2022 2021 Change Change
Research and development $ 93,617 $ 368,095 $ (274,478) (75) %
Research and development (as a
percentage of total revenues) 16 % 201 %
Research and development expenses decreased $0.3 million , or 75%, to $0.1
million for the 2022 period, as compared to $0.4 million for the 2021 period.
The decrease was due to lower consulting expenses and personnel expenses related
to our research and development initiatives, regulatory and quality initiatives.
General and Administrative
Three Months Ended
December 31,
$ %
2022 2021 Change Change
General and administrative $ 773,911 $ 725,300 $ 48,611 7 %
General and administrative (as a
percentage of total revenues) 135 % 396 %
General and administrative expenses increased $49,000 , or 7%, to $0.8 million
for the 2022 period, as compared to $0.7 million for the 2021 period. In the
2022 period our general and administrative costs remain substantially in line
with the 2021 period.
Impairment of
Three Months Ended
December 31,
$ %
2022 2021 Change Change
Impairment of goodwill & intangible
assets $ - $ 5,200,608 $ (5,200,608) (100) %
Impairment of goodwill & intangible
assets (as a percentage of total
revenues) - % 2,838 %
We did not incur any impairment of goodwill & intangible asset charges in the
2022 period. Impairment of goodwill and intangible assets were $5.2 million , in
the 2021 period.
Interest Expense, net
Three Months Ended
December 31,
$ %
2022 2021 Change Change
Interest expense, net $ 30,435 $ 249,096 $ (218,661) (88) %
Interest expense, net (as a percentage
of total revenues) 5 % 136 %
The interest expense for the three month period ending December 31, 2022
decreased by $0.2 million due to less debt outstanding during the 2022 period
than in the 2021 period.
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Other expense, net
Three Months Ended
December 31,
$ %
2022 2021 Change Change
Other expense, net $ 2,372 $ 6,314 $ (3,942) (62) %
Other expense, net (as a percentage of
total revenues) - % 3 %
Other expense decreased by $4,000 , or 62%, for the 2022 period as compared to
the 2021 period. Other expense, net in both periods consists primarily of the
foreign currency impact of changes in the exchange rate between the Canadian
dollar and the US dollar.
Nine Months Ended
The following table contains selected statement of operations data, which serve as the basis of the discussion of our results of operations for the nine months endedDecember 31, 2022 and 2021, respectively: Nine Months Ended December 31, 2022 2021 As a % of As a % of Total Total $ % Amount Revenues Amount Revenues Change Change Revenues, net$ 1,304,088 100 %$ 1,082,450 100 %$ 221,638 20 % Cost of revenues 568,331 44 261,823 24 306,508 117 Gross profit 735,757 56 820,627 76 (84,870) (10) Operating expenses Sales and marketing 1,504,887 115 1,335,730 123 169,157 13 Research and development 697,600 53 634,147 59 63,453 10 General and administrative 2,061,186 158 2,222,044 205 (160,858) (7) Impairment of goodwill & intangible assets - - 5,200,608 480 (5,200,608) (100) Total operating expenses 4,263,673 327 9,392,529 868 (5,128,856) (55) Loss from operations (3,527,916) (271) (8,571,902) (792) (5,043,986) (59) Interest expense, net 52,675 4 576,576 53 (523,901) (91) Other expense (income), net 9,141 1 (445,732) (41) 454,873 (102) Total other expense 61,816 5 130,844 12 (69,028) (53) Net loss$ (3,589,732) (275) %$ (8,702,746) (804) %$ 5,113,014 (59) % Revenues Total revenues for the nine months endedDecember 31, 2022 increased by$0.2 million , or 20%, to$1.3 million , as compared to revenues of$1.1 million for the nine months endedDecember 31, 2021 . Nine Months Ended December 31, $ % 2022 2021 Change Change Product$ 894,898 $ 781,512 $ 113,368 15 % Subscriptions 190,500 163,750 26,750 16 Service, extended warranty & other 218,690 137,188 81,502 59 Total revenues$ 1,304,088 $ 1,082,450 $ 221,638 20 %
The change in total revenues was attributable to a number of factors:
Product revenue increased by
? in the nine months ended
month period ended
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? Subscription revenue grew by
the 2022 period as compared to the 2021 period.
? Our service, extended warranty and other revenues increased primarily due to
revenue from the acquisition of our first clinic in the current period.
Cost of Revenues
Nine Months Ended
December 31,
$ %
2022 2021
Cost of revenues $ 568,331 $ 261,823 $ 306,508 117 %
Cost of revenues (as a percentage of total
revenues) 44 % 24 %
Total cost of revenues increased $0.3 million , or 117%, to $0.6 million for the
2022 period, as compared to $0.3 million for the 2021 period. The increase was
associated with selling more robots in the 2022 period, costs of revenues
associated with our clinic in the 2022 period which carry lower gross margins
for patient services, partially offset with selling demonstration inventory in
the 2021 period which has a lower cost associated with it.
Sales and Marketing
Nine Months Ended
December 31,
$ %
2022 2021 Change Change
Sales and marketing $ 1,504,887 $ 1,335,730 $ 169,157 13 %
Sales and marketing (as a percentage of
total revenues) 115 % 123 %
Sales and marketing expenses increased $0.2 million , or 13%, to $1.5 million for
the 2022 period, as compared to $1.3 million for the 2021 period. The increase
was due to higher consulting, personnel related expenses and marketing expenses
related to our commercial initiatives to grow our sales pipeline.
Research and Development
Nine Months Ended
December 31,
$ %
2022 2021 Change Change
Research and development $ 697,600 $ 634,147 $ 63,453 10 %
Research and development (as a percentage of
total revenues) 53 % 59 %
Research and development expenses increased $0.1 million , or 10%, to $0.7
million for the 2022 period, as compared to $0.6 million for the 2021 period.
The increase was due to an increase in consulting expenses and personnel
expenses related to our research and development, regulatory and quality
initiatives.
General and Administrative
Nine Months Ended
December 31,
$ %
2022 2021 Change Change
General and administrative $ 2,061,186 $ 2,222,044 $ (160,858) (7) %
General and administrative (as a percentage
of total revenues) 158 % 205 %
General and administrative expenses decreased by $0.2 million , or 7%, to $2.1
million for the 2022 period, as compared to $2.2 million for the 2021 period, as
we reduced corporate overhead costs to align to the needs of the business.
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Impairment of
Nine Months Ended
December 31,
$ %
2022 2020 Change ChangeImpairment of goodwill & intangible assets $ -$ 5,200,608 $ (5,200,608) (100) % Impairment of goodwill & intangible assets (as a percentage of total revenues) - % 480 % We did not incur any impairment of goodwill & intangible asset charges in the 2022 period. Impairment of goodwill and intangible assets were$5.2 million , in the 2021 period. Interest Expense, net Nine Months Ended December 31, $ % 2022 2021 Change Change Interest expense, net$ 52,675 $ 576,576 $ (523,901) (91) % Interest expense, net (as a percentage of total revenues) 4 % 53 %
The interest expense for the nine month period ending
Other expense (income), net
Nine Months Ended
December 31,
$ %
2022 2021 Change ChangeOther expense (income), net$ 9,141 $ (445,732) $ (454,873) 102 % Other expense (income), net (as a percentage of total revenues) 1 % (41) % Other expense (income) for the nine-month period endingDecember 31, 2022 decreased by approximately$0.4 million due primarily to the extinguishment of the PPP loan associated with the forgiveness from the federal government in the 2021 period.
Liquidity and Capital Resources
We have funded operations through the issuance of capital stock, loans, grants, and investment tax credits and forgivable loans received from theU.S. andCanada governments. We require cash to pay our operating expenses, including research and development activities, fund working capital needs and make capital expenditures. AtDecember 31, 2022 , our cash and cash equivalents were$0.7 million . Our cash and cash equivalents are predominantly cash in operating accounts. Based on our current burn rate, we need to raise additional capital to fund operations, hire necessary employees we lost as a result of COVID-19 related furloughs and other terminations, and meet expected future liquidity requirements. We are continuously in discussions to raise additional capital, which may include or be a combination of convertible or term loans and equity which, if successful, will enable us to continue operations based on our current burn rate, for the next 12 months; however, we cannot give any assurance at this time that we will successfully raise all or some of such capital or any other capital. There can be no assurance that necessary debt or equity financing will be available, or will be available on terms acceptable to us, in which case we may be unable to meet our obligations or fully implement our business plan, if at all. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 24
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Additionally, we will need additional funds to respond to business opportunities including potential acquisitions of complementary technologies, additional purchases of physical therapy clinics to expand our base of specialized neuro-recovery centers, protect our intellectual property, develop new lines of business, and enhance our operating infrastructure. While we may need to seek additional funding for any such purposes, we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our common stock. We may also seek additional funds through arrangements with collaborators or other third parties. However, there can be no assurance that our plans will be successful. We may not be able to negotiate any such arrangements on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our product lines, services, business initiatives or our operations.
Cash Flows
Net cash used in operating activities was$2.6 million for the nine months endedDecember 31, 2022 and resulted primarily from$3.6 million in net loss offset by$0.2 million in depreciation, interest expense and stock-based compensation expense for the period. Net changes in working capital items increased cash from operating activities by approximately$0.7 million , primarily related to an increase in accrued expenses and a decrease in prepaid expenses and other assets. Net cash used in investing activities for the 2022 period was$0.2 million related to the Tower Aquatic clinic purchase. Net cash provided by financing activities during the nine months endedDecember 31, 2022 was$1.6 million , related to proceeds received from issuing convertible promissory notes. Net cash used in operating activities was$2.8 million for the nine months endedDecember 31, 2021 , and resulted primarily from$8.7 million in net loss and$0.5 million relating to the extinguishment of the PPP loan offset by$5.2 million in impairment expense and approximately$1.0 million in depreciation and amortization, interest expense and stock-based compensation expense. Net changes in working capital items increased cash from operating activities by approximately$0.2 million , primarily related to a decrease in accounts receivable due to cash collection efforts. Net cash used in investing activities was$13,000 for the nine months endedDecember 31, 2021 related to the purchase of equipment. Net cash provided by financing activities during the nine months endedDecember 31, 2021 was$5.5 million , related to proceeds received from the 2021 notes and term loan.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations set forth above are based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those described in our Annual Report on Form 10-K for the year endedMarch 31, 2022 . We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities, and the reported amounts of revenues and expenses, that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Recent Accounting Pronouncements
See Note 11 to our condensed consolidated interim financial statements included in this Quarterly Report for information regarding recent accounting pronouncements that are of significance or potential significance to us.
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