MedMira Inc. Management’s Discussion & Analysis For the six months ended January 31, 2020
MedMiraInc.Management’sDiscussion&AnalysisForthesixmonthsendedJanuary31,2020
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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Forwardlookingstatements
Thisdocumentcontains forward lookingstatements,suchasstatementsregardingfuturesalesopportunities invariousglobalregionsandfinancinginitiativesthatarebasedoncurrentexpectationsofmanagement.Thesestatementsinvolveuncertaintiesandrisks,includingMedMiraInc.’s(“MedMira”orthe“Company”)abilitytoobtainand/oraccessadditionalfinancingwith acceptable terms, and delays in anticipated product sales. Such forward-looking statements should begivencarefulconsiderationandunduerelianceshouldnotbeplacedonthesestatements.
This MD&A contains statements that may constitute forward-looking statements about the Company’s objectives,strategies,financialcondition,resultsofoperations,cashflowsandbusinesses.Thesestatementsare“forward-looking”becausetheyarebasedoncurrentexpectations,estimates,assumptions,risksanduncertainties.Theseforward-lookingstatementsare typically identifiedby futureorconditionalverbs suchas“outlook”, “believe”, “anticipate”, “estimate”,“project”,“expect”,“intend”,“plan”,andtermsandexpressionsofsimilar import.Suchforward-lookingstatementsaresubject to a number of risks and uncertainties that include, but are not limited to: cyclical downturn; competitivepressures; dealingwith business and political systems in a variety of jurisdictions; repatriation of funds or property inother jurisdictions; payment of taxes in various jurisdictions; exposure to currency movements; inadequate or failedinternal processes, people or systems or from external events; dependence on key customers; safety performance;expansion and acquisition strategy; regulatory and legal risk; corruption, bribery or fraud by employees or agents;extremeweatherconditionsandtheimpactofnaturalorotherdisasters;shortageofspecializedskillsandcostoflabourincreases; equipment and parts availability, reputational risk; cybersecurity risk;market price and dilution of commonshares and environmental regulation risk. Actual results could bematerially different from expectations if known orunknown risks affect the business, or if estimates or assumptions turn out to be inaccurate. The Company does notguarantee that any forward-looking statement will materialize and, accordingly, the reader is cautioned not to placerelianceontheseforward-lookingstatements.TheCompanydisclaimsanyintentionandassumesnoobligationtoupdateanyforward-lookingstatement,evenifnewinformationbecomesavailable,asaresultoffutureeventsorforanyotherreasons,exceptinaccordancewithapplicablesecuritieslaws.
Introduction
TheManagement’sDiscussion andAnalysis (MD&A)was issuedandapprovedby theBoardofDirectorsonMarch31,2020.ThefollowingMD&AforthesixmonthsendedJanuary31,2020hasbeenpreparedtohelp investorsunderstandthe financial performance of MedMira in the broader context of the Company’s strategic direction, the risk andopportunitiesasunderstoodbymanagement,andthekeymetricsthatarerelevanttotheCompany’sperformance.TheAudit Committee of the Board of Directors has reviewed this document and all other publicly reported financialinformationforintegrity,usefulness,reliabilityandconsistency.ThisdocumentshouldbereadinconjunctionwiththeauditedconsolidatedfinancialstatementsfortheyearendedJuly31,2019.AnnualreferencesaretotheCompany’sfiscalyears,whichendonJuly31.AllamountsareexpressedinCanadiandollars(CAD)unlessotherwisenoted.AdditionalinformationaboutMedMira,thisdocument,andtherelatedquarterlyfinancialstatementsendedJanuary31,2020canbeviewedontheCompany’swebsiteatwww.medmira.comandareavailableonSEDARatwww.sedar.com.The preparation of theMD&Amay requiremanagement tomake estimates and assumptions that affect the reportedamounts of assets and liabilities as of the date of the financial statements and the reported amount of revenue andexpenses during the reporting period. Management bases estimates and judgments on historical experience and on
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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variousotherfactorsthatarebelievedtobereasonableunderthecircumstances,theresultsofwhichformthebasisformakingjudgmentsaboutthecarryingvalueofassetsandliabilities.Actualresultsmaydifferfromtheseestimatesunderdifferentassumptionsorconditions.Managementbelievestheaccountingpolicies,outlinedintheSignificantAccountingPolicies section of its January 31, 2020 consolidated financial statements, affect its more significant judgments andestimatesusedinthepreparationofitsconsolidatedfinancialstatements.
AboutMedMira
MedMira is a biotechnology company engaged in the development and commercialization of rapid diagnostics andtechnologyplatforms. TheCompany isheadquartered inHalifax,NovaScotia,Canadaand is listedontheTSXVentureExchange(TSX-V)underthesymbolMIR.
ThepatentedMedMiraRapidVerticalFlow(RVF)Technology™platformisthebasisfortheCompany’slineofrapidtests.Diagnosticapplicationsbasedonthistechnologyarehighlyaccurate,easy-to-use,andproduceinstantresults–astrongadvantageovermostotherrapiddiagnosticsonthemarkettoday. Thesefeaturesareenhancedfurtherwithabilitytodelivermultiplexresultsononetestdevicewithjustonedropofspecimen.TheCompanyhascreatedanewgenerationofrapidteststhatarebasedontheneedtoprovideimmediateanswerswithoutincreasingcosts.
MedMira’s technology platform and growing portfolio of diagnostic tools demonstrate excellence in performance andqualityinthehighlycompetitivediagnosticsindustry.Morethan$30millionhasbeeninvestedinperfectingMedMira’score technology,whichhasproven itself timeand timeagainwith its excellent clinical performance and its success inrigorousevaluationsand inspections, leadingtoregulatoryapprovals for rapiddiagnosticsolutions in theUnitedStates(U.S.FoodandDrugAdministration),Canada (HealthCanada), thenotifiedbody in theEuropeanUnion (CEMark),andChina(CFDA)andinanumberofcountriesinLatinAmerica,Africa,andAsia.TheCompany’squalitysystemisISO9001andISO13485certified.
MedMirasells itsrapidteststhroughanetworkofmedicaldistributorsandstrategicbusinessdevelopmentpartnerstocustomers inall sectorsof thehealthcare industry, including laboratories,hospitals,point-of-careclinics, governments,aidorganizations,andpublichealthagencies.
Inadditiontoclinicaldiagnostics,theCompanyofferstheMiriad™productlinetocreatenewopportunitiesinthehighvaluetechnologylicensingsector.ThisbusinesslineallowstheCompanytomonetizeitsaward-winningtechnologyandcorecapabilities,includingR&D,productdevelopment,andregulatoryproficiency.MiriadprovidesaccesstoMedMira’sRVFTechnology for researchers,developers,andbiotechcompaniesona licensebasis to facilitate thecreationofnewrapid tests or the transition of existing tests to this unique platform. Infiltrating new and different sectors of thediagnostic industry,suchasveterinaryandenvironmental,withtheCompany’stechnology,enablesMedMiratobuildahigher degree of global awareness, generate new revenue streams, and provide a superior diagnostic platform to themarket.
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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Intellectualproperty
The Company strives to protect its intellectual property in established and emerging markets around the world aswarranted.MedMira’sintellectualpropertyportfolioforitsRapidVerticalFlowTechnologyandthemethodologybehinditsrapiddiagnosticsincludesthefollowing:
Patent# Title Jurisdiction
9,164,087 RapidDiagnosticDevice,assayandmultifunctionalBuffer UnitedStates
9,086,410 Downwardorverticalflowdiagnosticdeviceandassay UnitedStates
8,025,850 RapidDiagnosticDevice,AssayandMultifunctionalBuffer UnitedStates
8,287,817 RapidDiagnosticDevice,AssayandMultifunctionalBuffer UnitedStates
8,586,375 RapidDiagnosticDevice,AssayandMultifunctionalBuffer UnitedStates
7,531,362 RapidDiagnosticDevice,AssayandMultifunctionalBuffer UnitedStates
D706945 DiagnosticDevice UnitedStates
D706466 DiagnosticDevice UnitedStates
EP1417489 RapidDiagnosticDeviceandAssay Europe
ZL02819646.5 RapidDiagnosticDeviceandAssay China
2,493,616 RapidDiagnosticDevice,AssayandMultifunctionalBuffer Canada
TheCompanyhasotherpatentspendingpatents in theU.S.aswellas twodesignpatents in forceorpending ineightmarkets.TheCompany’scorporateandproductbrandnamesareprotectedbytrademarksintheU.S.andCanada.TheCompanyhasrecordedanimpairmentchargeinpreviousfiscalyearstowrite-downitsintangibleassetstoanominalvalue.ThereisnoindicationattheendofJanuary31,2019thatthisimpairmenthasbeenreversedandthusthevalueofintangibleassetsonthebalancesheetonJanuary31,2019is$2(July31,2018-$2).
Corporateupdate
InQ2FY2020,theCompany’sprimaryfocuswasmaintainingtheRevealG4andMiriadproductlinescustomerbaseintheU.S.,oneof itskeystrategicfocusmarkets. Workingcloselywith itsdistributionnetworkandkeycustomers,MedMiraservedboththehealthcareandrapidHIVtestingsegmentaswellasthetissueandeyebankverticalwith itsproducts.MedMiracontinuesitsworkwithinternationalpartnerstoexploreglobalopportunitiesfortheCompany’srapidtestingsolutionsandtechnologyplatform.
TheCompany’s R&D teamcontinued tobuild out development and commercializationpathways for new rapid testingsolutions and RVF platform advancements to meet the healthcare challenges of today and future collaborationopportunitieswithinnovationandresearchpartners.
Throughout Q2 FY2020, MedMira’s Finance and Operations teams managed ongoing cost containment initiatives topreservetheCompany’scashflow.
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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Financialresults
Basisofpreparationandsignificantaccountingpolicies
ThebasisoffinancialstatementpreparationandthesignificantaccountingpoliciesofMedMiraaredescribedinNotes2and3oftheCompany’scondensedinterimconsolidatedfinancialstatementsforthesixmonthsendedJanuary31,2020.
Selectedquarterlyinformation(inthousandsofdollarsexceptpershareamounts)
Incomestatement Q22020 Q12020 Q42019 Q32019 Q22019 Q12019 Q42018 Q32018
$ $ $ $ $ $ $ $
Revenue 95 89 99 143 130 155 172 76
ProductRoyalties - - - 14 -
Costofsa les (16) (17) (15) (24) (26) (40) (40) (16)
Gross profi t 79 72 84 119 104 115 146 60
Operatingexpenses (511) (355) (391) (429) (477) (422) (468) (572)
Otherexpenses (ga ins ) (182) (185) (141) (203) (222) (243) (181) (145)
Netearnings (loss )beforetax (614) (468) (448) (513) (595) (550) (503) (657)
Balancesheet
Q22020 Q12020 Q42019 Q32019 Q22019 Q12019 Q42018 Q32018
$ $ $ $ $ $ $ $
Currentassets 344 130 246 266 310 270 272 245
Non-currentassets 2,488 2,535 7 9 13 19 29 33
Total assets 2,832 2,665 253 275 323 289 301 278
Currentl iabi l i ties 15,053 14,233 13,769 13,331 12,867 12,203 11,699 11,173
Non-currentl iabi l i ties 2,379 2,417 - - - - - -
Total l iabi l i ties 17,432 16,650 13,769 13,331 12,867 12,203 11,699 11,173
Total shareholders deficiency (14,600) (13,985) (13,516) (13,056) (12,543) (11,914) (11,398) (10,896)
Total l iabi l i ties andequity 2,832 2,665 253 275 324 289 301 277
Netearnings (loss )pershare (0.0009) (0.0010) (0.0008) (0.0008) (0.0010) (0.0025) (0.0010) (0.0010)
This quarterly information is unaudited but has been prepared on the same basis as any other annual consolidatedfinancial statements. The Company discusses the factors that caused its results to vary over the past eight quartersthroughoutthisMD&A.Themainhighlightsare:
• Thedecreaseinrevenueforfiscal2020comparedtofiscal2019isthedirectresultoftheCompany’sdecisiontofocusonhigherprofitmarginmarkets.
• ThedecreaseinoperatingexpensesisadirectresultofthedecreaseinsalescoupledwiththeCompany’scontinuedeffortstoreducegeneralandadministrativecosts.
• TheincreaseinotherexpensesoverthelastseveralquartersisindirectrelationtotheincreasedamountofaccountspayableandloanspayablethattheCompanyiscarrying.
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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Secondquarteranalysis
Forthethreemonthsended31-Jan-20 31-Jan-19 Better(worse)
$ $ $ProductProductsales 95,012 129,990 (34,978)Productcostofsales (15,799) (25,579) 9,780
Grossmarginonproduct 79,213 104,411 (25,198)
OperatingexpensesResearchanddevelopment (50,326) (62,771) 12,445Salesandmarketing (12,174) (38,205) 26,031Otherdirectcosts (115,887) (119,852) 3,965Generalandadministrative (333,374) (256,887) (76,487)
Totaloperatingexpenses (511,761) (477,715) (34,046)
Operatingloss (432,548) (373,304) (59,244)
Non-operatingincome(expenses)Financing (181,758) (222,016) 40,258
Net(loss)income (614,306) (595,320) (18,986)
Productrevenueandgrossmargin
TheCompanyrecordedrevenuefromproductsalesinthethreemonthsendedJanuary31,2020of$95,012ascomparedto$129,990forthesameperiodlastyear.The27%decreaseinrevenuecomparedtoQ2FY2020wasduetoachangeoforderingpatternsby theCompany’smaincustomer.Thishascausedadecreaseof revenue forQ2FY2020 thatwillbebalancedoutinQ3FY2020.
GrossprofitonproductsalesforthethreemonthsendedJanuary31,2020was$79,213comparedto$104,411forthesameperiodinFY2019.TheCompany’sgrossprofitdecreasedby24%incomparisontoQ2FY2019.TheCompany’sgrossprofitmargininQ2FY2020was83%comparedtoagrossmarginof80%inthesamequarterlastfinancialyear.ThisslightincreasewasduetoastrongUSD,whichpositivelyimpactedtheoverallgrossmarginfortheCompany.
Operatingexpenses
Totaloperatingexpensesincreased$34,046from$477,715forthethreemonthsendedJanuary31,2019to$511,761thethreemonthsendedJanuary31,2020.
− Research and development expenses for the three months ended January 31, 2020 were $50,326 compared to$62,771forthesameperiod infiscal2019.Thedecreaseof20%inresearchanddevelopmentexpensesare in linewiththemanagement’sexpectationsasR&Dprojectsandproducts in thepipelinemovethroughvariousstagesofdiscovery,development,andcommercialization.
− SalesandmarketingexpensesforthethreemonthsendedJanuary31,2020were$12,174comparedto$38,205forthe sameperiod in fiscal 2019. Thedecreaseof approximately 68%wasdue to theCompany’s cost restructuringstrategy.
− OtherdirectcostsforthethreemonthsendedJanuary31,2020were$115,887,comparedto$119,852forthesameperiodinfiscal2019.Thisdecreaseofapproximately3%wasduetothelowersalesgeneratedandthemanagement’s
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strategytostreamlinecosts.
− General and administrative expenses were $333,374 for the threemonths ended January 31, 2020 compared to$256,887forthesameperiodinfiscal2019.This23%increaseisduetoadditionalregulatorycostsassociatedwithnewregulationsimplementedbytheUSmarket(MDSAP)andpreparationworkforclinicaltrials.
Non-operatingexpenses
− Total non-operating expenseswere$181,758 in the threemonths ended January 31, 2020 compared to$222,016duringthesameperiodinfiscalyear2019.
YeartodateAnalysis
Forthesixmonthsended31-Jan-20 31-Jan-19 Better(worse)
$ $ $ProductProductsales 184,144 285,055 (100,911)Productcostofsales (33,243) (65,662) 32,419
Grossmarginonproduct 150,901 219,393 (68,492)
OperatingexpensesResearchanddevelopment (86,050) (137,694) 51,644Salesandmarketing (26,827) (71,565) 44,738Otherdirectcosts (214,752) (200,521) (14,231)Generalandadministrative (539,129) (489,646) (49,483)
Totaloperatingexpenses (866,758) (899,426) 32,668
Operatingloss (715,857) (680,033) (35,824)
Non-operatingincome(expenses)Financing (367,122) (465,326) 98,204
Net(loss)income (1,082,979) (1,145,359) 62,380
Productrevenueandgrossmargin
TheCompanyrecordedrevenuefromproductsalesinthesixmonthsendedJanuary31,2020of$184,144ascomparedto$285,055 for the sameperiod last year. Grossprofitonproduct sales for the sixmonthsended January31,2020was$150,901comparedto$219,393forthesameperiodin2019.TheCompany’sdecreasedrevenueisdirectlyrelatedtoitsstrategytofocusonhighprofitmarginmarketsimplementedinFY2017.Inaddition,changestoorderingpatternsbytwooftheCompany’slargestclientsresultedashiftofrecognisablerevenuesforQ2FY2020.
Operatingexpenses
Totaloperatingexpensesdecreasedby$32,668from$899,426forthesixmonthsendedJanuary31,2019to$866,758forthesixmonthsendedJanuary31,2020.
− ResearchanddevelopmentexpensesforthesixmonthsendedJanuary31,2020were$86,050comparedto$137,694forthesameperiodin2019.Thedecreaseofapproximately38%inresearchanddevelopmentexpensesareinlinewiththemanagement’sexpectationsasR&Dprojectsandproducts in thepipelinemovethroughvariousstagesof
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discovery,development,andcommercialization.
− SalesandmarketingexpensesforthesixmonthsendedJanuary31,2020were$26,827comparedto$71,565forthesame period in 2019. The decrease of approximately 63% in sales and marketing expenses was in line with themanagement’sstrategicplanforhighlyfocusedsalesandmarketingefforts.
− Otherdirectcosts for thesixmonthsendedJanuary31,2020were$214,752,comparedto$200,521 for thesameperiodin2019.Thisincreaseofapproximately7%wasduehigherlogisticcostsassociatedwithsalesandpurchasing.
− General and administrative expenses were $539,129 for the six months ended January 31, 2020, compared to$489,646for thesameperiod in2019.This10% increase isduetoadditional regulatorycostsassociatedwithnewregulationsimplementedbytheUSmarket(MDSAP)andpreparationworkforclinicaltrials.
Non-operatingexpenses
− Total non-operating expenses were $367,122 in the six months ended January 31, 2020, compared to $465,326duringthesameperiodin2019.Thisdecreaseofapproximately27%isduetoanadjustmentofthecontractvalueoftheCompany’slong-termloansanditsinterestcomponents.
Geographicinformation
TheCompanyorganizesandrecordsthesalesanddistributionofitsproductsbasedonmajorgeographicalterritories
ProductRevenue
ThreemonthsendingJanuary31,2020
ThreemonthsendingJanuary31,2019
$ $
NorthAmerica 90,602 126.996LatinAmericaandtheCaribbean - -AsiaPacific - -Europe 4,410 2,994Totalrevenue 95,012 129,990
ProductRevenue
SixmonthsendingJanuary31,2020
SixmonthsendingJanuary31,2019
$ $
NorthAmerica 159,978 253,695LatinAmericaandtheCaribbean 6,515 3,150AsiaPacific - 14,638Europe 17,650 13,572Totalrevenue 184,143 285,055
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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Liquidityandcapitalresources
Cashandworkingcapital
TheCompanyhadacashbalanceof$155,025onJanuary31,2020ascomparedtoacashbalanceof$88,897onJuly31,2019.TheCompany’snetworkingcapitalpositionasatJanuary31,2020wasadeficitof$14.8millioncomparedtotheJuly 31, 2019working capital deficit of $13.5million. The Company has incurred operational losses and negative cashflowsonacumulativebasissinceinception.ForthesixmonthsendedJanuary31,2020,theCompanyincurredanetlossfromoperatingactivitiesofapproximately$0.4millionandnegativecashflowsfromoperationsof$0.6million,comparedtoanetlossfromoperationsof$0.7millionandnegativecashflowsfromoperationsof$0.6millionforthesameperiodinfiscal2019.ThefollowingtableisalistofcommitmentstheCompanyhas:
ForthesixmonthsendedJanuary31,2020Total Lessthan1year 1to3years 4to5years After5years
$ $ $ $ $Debt 9,306,502 9,306,502 - - -Accountspayableandaccruedliabilities 5,530,046 5,530,046 - - -Leaseliabilities 2,854,494 134,228 552,321 # 340,834 1,486,277Royaltyprovision 82,000 82,000 - - -Totaldebt 17,773,042 15,052,776 552,321 340,834 1,486,277
Operatingactivities
MedMiraincurrednegativecashflowsfromoperationsofapproximately$0.6millionforthesixmonthsJanuary31,2020comparedtonegativecashflowsof$0.6millionforthesameperiodinfiscal2019.
Financingactivities
Cashinflowsfromfinancingactivitieswere$0.6millionforthethreemonthsendedJanuary31,2020,comparedtocashinflowsof$0.6millionforthesameperiodinfiscal2019.
Debt
AsatJanuary31,2020,theCompanyhadloanspayablewithacarryingvalueof$9.3millioncomparedto$8.6millionatJuly31,2019. The increase in thecarryingvalueof loanspayable fromJuly31,2019 to January31,2020 isdue toanincrease in short term loans.During thepastmonths, theCompanywas in negotiationswith all of its debtholders toensure realistic debt repayment plans, which shall enable the Company to use its working capital for its growth andensure its future stability. As these negotiations are ongoing, the Companymust record these as in default until finalagreements havebeen signed.All the loans are currently in default due tonon-paymentof principal and interest andthereforeshowasacurrentliabilityonthebalancesheet.
FurtherdiscussiononliquidityandcapitalresourcescanbefoundinthisdocumentintheLiquidityRisksection,RiskandUncertaintiessectionofthisdocumentandinNotes2and11oftheCompany’sconsolidatedfinancialstatementsforthesixmonthsendedJanuary31,2020.
Equity/Shares
TheCompanyisauthorizedtoissueanunlimitednumberofcommonshareswithoutparvalue.Duringthethreemonthsended January31,2020, theCompanyhas issuednocommonshares.Thenumberof issuedandoutstandingcommonsharesonJanuary31,2020was658,364,320.TheCompanyisalsoauthorizedto issueanunlimitednumberofSeriesApreferred shares redeemable at $0.01 per share afterMarch 31, 2010, convertible into an equal number of common
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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shares upon the Company meeting certain milestones. There were 5,000,000 Series A preferred shares issued andoutstandingonJanuary31,2020.
The Company had 600,000 outstanding stock options on January 31, 2020. The outstanding stock options have aweightedaverageexercisepriceof$0.05pershareandaweightedaverageremainingtermof1yearOffbalancesheetarrangementsTheCompanywasnotpartytoanyoffbalancesheetarrangementsasofJanuary31,2020.
Financialinstruments–fairvalue
IFRS9setsoutrequirementsforrecognizingandmeasuringfinancialassets,financialliabilitiesandsomecontractstobuyor sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. TheCompanyhasadopted IFRS9onamodifiedretrospectivebasisanddeterminedthatthere isnomaterial impacttotheCompany’sfinancialstatementsuponadoption.Thedetailsofthenewsignificantaccountingpoliciesandthenatureandeffectof thechanges topreviousaccountingpoliciesare setoutbelow. (i)Classificationandmeasurementof financialassetsandliabilities IFRS9 largelyretainstheexistingrequirements inIAS39fortheclassificationandmeasurementoffinancialliabilities.However,iteliminatesthepreviousIAS39categoriesforfinancialassetsofheldtomaturity,loansandreceivablesandavailable forsale.Theadoptionof IFRS9hasnothadasignificanteffectontheCompany’saccountingpoliciesrelatedtofinancialliabilities.TheimpactofIFRS9ontheclassificationandmeasurementoffinancialassetsissetoutasfollows.Afinancialassetisclassifiedasthefollowingmeasurementcategories:amortizedcost;fairvaluethroughothercomprehensiveincome("FVOCI")orfairvaluethroughprofitorloss("FVTPL").Theclassificationoffinancialassetsis generally based on the business model in which a financial asset is managed and its contractual cash flowcharacteristics.Derivativesembedded in contractswhere thehost is a financial asset in the scopeof the standardareneverseparated.Instead,thehybridfinancialinstrumentasawholeisassessedforclassification.TheCompany’sfinancialassetsconsistofcashandcashequivalentsFVTPL,andaccountsreceivableclassifiedatamortizedcost.TheCompany’sfinancialliabilitiesconsistoftradeaccountspayableandaccruedliabilities,salariesandbenefitspayable,interestpayable,andlong-termdebtareclassifiedatamortizedcostwhileprovisionforroyalty isclassifiedasFVTPLwhichisunchangedfrom IAS 39. Financial instruments – risk factors MedMira has exposure to the following risks from its financialinstruments:liquidityrisk,creditrisk,currencyrisk,andinterestraterisk.Managementmonitorsrisklevelsandreviewsriskmanagementactivitiesasnecessary.
Financialinstruments–riskfactors
MedMirahasexposure to the following risks from its financial instruments: liquidity risk, credit risk, currency risk, andinterestraterisk.Managementmonitorsrisklevelsandreviewsriskmanagementactivitiesasnecessary.
Liquidityrisk
The accompanying consolidated financial statements have been prepared on the basis of IFRS applicable to a going-concern,whichcontemplatestherealizationofassetsandliquidationofliabilitiesduringthenormalcourseofoperations.However,certainadverseconditionsandeventscastsignificantdoubtuponthevalidityofthisassumption.
TheCompanyhasincurredlossesandnegativecashflowsfromoperationsonacumulativebasissinceinception.Forthesixmonths ended January 31, 2020, theCompany realized a net loss of $1.1million (January 31, 2019 - $1.1million),consistingofanetlossfromoperationsof$0.7million(January31,2019-$0.7million),andothernon-operatinglossesof$0.4million(January31,2019-$0.5million).Negativecashflowsfromoperationswere$0.6million(January31,2019–$0.6 million). As at January 31, 2020, the Company had an accumulated deficit of $91.8 million (July 31, 2019 -$90.7million)andanegativeworkingcapitalpositionof$14.7(July31,2019-$13.5million).Inaddition,asatJanuary31,2020,$9.3millionofdebtwasindefault.TheCompanycurrentlyhasinsufficientcashtofunditsoperationsforthenext
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12months. Inadditiontoitsongoingworkingcapitalrequirements,theCompanymustsecuresufficientfundingforitsresearch and development programs for existing commitments, including its current portion of debt of approximately$9.3million.ThesematerialuncertaintiesmaycastsignificantdoubtabouttheCompany’sabilitytocontinueasagoingconcern.
TheCompany’sobjectives inmanagingcapitalaretoensure itcanmeet itsongoingworkingcapitalrequirements. TheCompany must secure sufficient capital to support its capital requirements for research and development programs,existingcommitments,includingitscurrentportionofdebtofapproximately$9.3million,aswellasgrowthopportunities.
ManagementdedicatessignificanttimetopursuinginvestmentalternativesthatwillfundtheCompany’soperationsandgrowthopportunitiessoitcancontinueasagoing concern. AsofJanuary31,2020,potential investorswereidentifiedandnegotiationswereinitiatedtosecurethenecessaryfinancingthroughtheissuanceofnewequity.DebtarrangementswerealsoongoingwiththeCompany’smajorshareholderandotherdebtholders.Subsequenttothecloseofthesecondquarter of FY2020,management continues investor negotiations with the identified parties, nevertheless, there is noassurancethatthisinitiativewillbesuccessful.
Creditrisk
The Company exposed to credit risk in relation to its trade accounts receivable. To mitigate such risk, the Companycontinuouslymonitorsthefinancialconditionofitscustomersandreviewsthecredithistoryorworthinessofeachnewcustomer.TheCompanymitigatesthisriskbyrequiringa50%downpaymentonmostordersatthetimeofpurchase,andthe remaining50%prior to shipment. TheCompanyestablishes anallowance fordoubtful accountsbasedon specificcredit risk of its customers by examining such factors as the number of overdue days of the customers’ balanceoutstanding as well as the customers’ collection history. Since 86% of the Company’s sales are with three largeinternationalcompaniesthereisnosignificantconcentrationofcreditrisk.
Currencyrisk
MedMirareceivesmostof its revenues in foreigncurrenciesand incursexpenses inU.S.andCanadiancurrencies.Asaresult,theCompanyissubjecttouncertaintyasforeignexchangeratesfluctuate.TheexchangefluctuationsfromyeartoyearhaveaccountedforasignificantportionoftheCompany’sexchangegainandloss.MostsalesareinUSD,however,theyarerecordedattheexchangerateprevailingonornearthetransactiondateandcollectedinatimelymanner.
TheCompanyalsoexperiencescurrencyexposureresultingfrombalancesheetfluctuationsofU.SandCHFdenominatedcash,U.S. accounts receivable,USandCHFdenominatedaccountspayable andU.S. andCHFdenominatedpromissorynotes.
MedMira mitigates this currency risk by maintaining a balance of USD currency which is used to pay down U.S.-denominatedliabilitiesandreplenishesthebalancethroughU.S.-denominatedrevenues.
InterestrateriskTheCompanyisnotexposedtointerestrateriskasitborrowsfundsatfixedrates.
Relatedpartytransactions
ThefollowingtransactionsoccurredwithrelatedpartiesduringtheninemonthsendedOctober31,2019:
• Shorttermloanstotalling$4,625werereceivedfromemployees(July31,2019-$104,355)• Shorttermloanstotalling$87,615wererepaidtoemployees(July31,2019-$94,557)• Ashorttermloantotalling$15,888wasreceivedfromtheChiefFinancialOfficer(July31,2019-$142,554)• Ashorttermloantotalling$662,380wasreceivedfromMedMiraHoldingAG(2019-$0)
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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ThefollowingbalanceswithrelatedpartieswereoutstandingatOctober31,2019:
• Accountspayabletotalling$931,182wasduetoofficers(July31,2019-$733,240).• Alongtermloantotalling$207,248wasduetotheChiefFinancialOfficer(July31,2019-$204,377).• AroyaltyprovisionwasowedtoMedMiraHoldingAGof$82,000(July31,2019-$82.000).• Shorttermloanstotalling$99,648wereowedtoemployees(July31,2019-$182,544)• Shorttermloanstotalling$1,508,650areowedtoRitecAG(July31,2019-$1,459,810)• Shorttermloanstotalling$316,713wereowedtotheChiefFinancialOfficer(July31,2019-$296,387)• Shorttermloanstotalling$1,028,625wasowedtoMedMiraHoldingAG(July31,2019-$0)
The Company adopted IFRS 16 Leases on August 1, 2019,which introduces a new approach to lease accounting. TheCompanyadoptedthestandardusingthemodifiedretrospectiveapproach,whichdoesnotrequirerestatementofpriorperiod financial information, as it recognizes the cumulative impact on the opening balance sheet and applies thestandard prospectively. Accordingly, the comparative information in these unaudited interim consolidated financialstatementsisnotrestated.Attheinceptionofacontract,theCompanyassesseswhetherthecontractis,orcontains,aleasebasedonwhether thecontractconveys the right tocontrol theuseofan identifiedasset foraperiodof time inexchange for consideration. This policy is applied to contracts entered into, ormodified, on or after August 1, 2019.EffectiveAugust1,2019,theIFRS16transitiondate,theCompanyelectedtousethefollowingpracticalexpedientsunderthemodifiedretrospectivetransitionapproach:
Leaseswithleasetermsof lessthantwelvemonths(short-termleases)andleasesof low-valueassets(lessthan$5,000CADdollars) (low-value leases) thathavebeen identifiedat transitionwerenot recognized in theconsolidatedbalancesheet;
• Right-of-use assets on transition were measured at the amount equal to the lease liabilities at transition,adjustedbytheamountofanyprepaidoraccruedleasepayments;
• For certain leases having associated initial direct costs, the Company, at initial measurement on transition,excludedthesedirectscostsfromthemeasurementoftheright-of-useassets;and
• Anyprovision for onerous lease contracts previously recognized at the date of adoptionof IFRS 16, has beenappliedtotheassociatedright-of-useassetrecognizedupontransition.
Where the Company is a lessee, a right-of-use asset representing the right to use the underlying asset with acorrespondingleaseliabilityisrecognizedwhentheleasedassetbecomesavailableforusebytheCompany.Theright-of-useassetisrecognizedatcostandisdepreciatedonastraight-linebasisovertheshorteroftheestimatedusefullifeoftheassetandtheleasetermonastraight-linebasis.Thecostoftheright-of-useassetisbasedonthefollowing:
• theamountofinitialrecognitionofrelatedleaseliability;• adjustedbyanyleasepaymentsmadeonorbeforeinceptionofthelease;• increased by any initial direct costs incurred; and – decreased by lease incentives received and any costs to
dismantletheleasedasset.
The lease term includes consideration of an option to extendor to terminate if the Company is reasonably certain toexercisethatoption.Inaddition,theright-of-useassetisperiodicallyreducedbyimpairmentlosses,ifany,andadjustedforcertainre-measurementsoftheleaseliability.
Lease liabilitiesare initially recognizedat thepresentvalueof the leasepayments.The leasepaymentsarediscountedusing the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
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borrowingrate.Generally,theCompanyusesitsincrementalborrowingrateasthediscountrate.Inthesituationwheretheimplicitinterestrateintheleaseisnotreadilydetermined,theCompanyusesjudgmenttoestimatetheincrementalborrowing rate for discounting the lease payments. The Company's incremental borrowing rate generally reflects theinterestratethattheCompanywouldhavetopaytoborrowasimilaramountatasimilartermandwithasimilarsecurity.TheCompanyestimatestheleasetermbyconsideringthefactsandcircumstancesthatcreateaneconomicincentivetoexerciseanextensionorterminationoption.Certainqualitativeandquantitativeassumptionsareusedwhenevaluatingtheseincentives.
Subsequenttorecognition,leaseliabilitiesaremeasuredatamortizedcostusingtheeffectiveinterestratemethod.Leaseliabilitiesarere-measuredwhenthereisachangeinfutureleasepaymentsarisingmainlyfromachangeinanindexorrate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual valueguarantee, or if the Company changes its assessment of whether it will exercise a purchase, renewal or terminationoption. The payments related to short-term leases and low-value leases are recognized and included within selling,generalandadministrativecostsovertheleasetermintheunauditedinterimconsolidatedstatementsofincome.
TheCompany'sunauditedinterimconsolidatedfinancialstatementswerenotimpactedbytheadoptionofIFRS16Leasesin relation to lessor accounting. Lessorswill continuewith thedual classificationmodel for recognized leaseswith theresultantaccountingremainingunchangedfromIAS17Leases.OnAugust1,2019uponadoptionofIFRS16,theCompanyrecognized$2.57millionofright-of-useassetsand$2.57millionofleaseliabilitiesthatwerepreviouslyaccountedforasoperatingleases.TheCompanyapplieditsestimatedweightedaverageincrementalborrowingrateatAugust1,2019of5.0%todeterminetheamountofleaseliabilities
Compensationsummary
A)OfficersforQ2FY2020
Nameand
PrincipalPosition
Paid
Compensation($)
Accrued
CompensationCurrentyear
($)
Share-andOption-based
Awards*($)
Allother
compensation($)
Total
Compensationcurrentyear
($)
PaidCompensationrelatedto
previousfiscalyears($)
AccruedCompensationrelatedto
previousfiscalyears($)
HermesChanCEO
- 50,615 - - 50,615 - 339,846
MarkusMeileCFO
- 39,774 - - 39,774 - 447,556
1Allothercompensationincludespensionfundcontributionsand/orbonusespaidout.
*TheCompanymakescertainestimatesandassumptionswhencalculating the fair valueofoption-basedawards. TheCompany uses an option-pricing model, which includes significant assumptions including estimates of the expectedvolatility,expectedlife,expecteddividendrateandexpectedrisk-freerateofreturn.Changesintheseassumptionsmayresultinamaterialchangetotheamountsrecordedfortheissuanceofstockoptions.
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B)DirectorsforQ2FY2020
NameandPrincipalPosition
Paid
Compensation($)
Accrued
CompensationCurrentyear
($)
Share-and
Option-based
Awards*($)
Total
Compensationcurrentyear
($)
PaidCompensationrelatedto
previousfiscalyears($)
AccruedCompensationrelatedto
previousfiscalyears($)
HermesChanMemberoftheAuditCommittee
- - - - - -
StevenCummings,Director,MemberoftheAuditandNominationandCompensationCommittee
- - - . - -
JianheMao,Director,MemberoftheAuditandNominationandCompensationCommittee
- - - - - -
*TheCompanymakescertainestimatesandassumptionswhencalculating the fair valueofoption-basedawards. TheCompany uses an option pricing model which includes significant assumptions including estimates of the expectedvolatility,expectedlife,expecteddividendrateandexpectedrisk-freerateofreturn.Changesintheseassumptionsmayresultinamaterialchangetotheamountrecordedfortheissuanceofstockoptions.
Internalcontrolsystemsanddisclosurecontrols
Toensure the integrityandobjectivityof thedata,managementmaintainsa systemof internal controls comprisingofwrittenpolicies,proceduresandaprogramofinternalreviewswhichprovidesreasonableassurancethattransactionsarerecorded and executed in accordance with its authorization that assets are properly safeguarded and that reliablefinancialrecordsaremaintained.
Management iscurrentlyupdatingexistingstandardizedprocesses to improve internalcontrolsandreducecompliancecosts.TheupdatedcontrolswillhelpimprovetimelinessandaccuracyoffinancialrecordsaswellascontinuetoensurethattheCompany’sassetsareproperlysafeguarded.
DisclosurecontrolsandprocedureswithinMedMirahavebeendesignedtoprovidereasonableassurancethatallrelevantinformation is identified to the Disclosure Committee to ensure appropriate and timely decisions aremade regardingpublicdisclosure.
Management, under the supervision of the Chief Executive Officer and Chief Financial Officer, has evaluated theeffectivenessoftheCompany’sinternalcontroloverfinancialreportingandbasedonthisevaluation,hasconcludedthatinternalcontroloverfinancialreportingwaseffectiveasatJanuary31,2020.
Duetoinherentlimitations,internalcontroloverfinancialreportinganddisclosurecontrolscanprovideonlyreasonableassurancesandmaynotpreventordetectmisstatements.Furthermore,projectionsofanyevaluationofeffectivenessto
Management’sDiscussion&Analysis ForthesixmonthsendedJanuary31,2020
14
futureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
TheAuditCommitteeoftheBoardofDirectorsofMedMirareviewedthisMD&A,andthecondensedinterimconsolidatedfinancialstatementsofMedMiraforJanuary31,2020andMedMira’sBoardofDirectorsapprovedthesedocumentspriortorelease.
Riskanduncertainties
ForthesixmonthperiodendedJanuary31,2020,theCompanyhasnotidentifiedanysignificantchangestotherisksanduncertaintiesitisexposedtowhichwerepreviouslydescribedinthepreviousissuedMD&A’s.