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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2024
Commission file number: 000-56663
BIOHARVEST SCIENCES INC.
(Exact name of Registrant as specified in its charter)
Not applicable
(Translation of Registrant’s name into English)
1140-625 Howe Street, Vancouver, British Columbia V6C 2T6, Canada
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
☒ Form 20-F ☐ Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
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Exhibits:
Exhibit | Description |
Unaudited Interim Condensed Consolidated Financial Statement for the Three and Six Months Ended June 30, 2024 | |
Management’s Discussion and Analysis for the Three and Six Months Ended June 30, 2024 | |
Form 52-109FV2 - Certification of Interim Filings – Venture Issuer Basic Certificate - CEO | |
Form 52-109FV2 - Certification of Interim Filings – Venture Issuer Basic Certificate - CFO |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIOHARVEST SCIENCES INC. |
| (Registrant) |
|
|
Date: August 29, 2024 | /s/ Ilan Sobel |
| Name: Ilan Sobel |
| Title: Chief Executive Officer |
BioHarvest Sciences Inc.
Unaudited Interim Condensed Consolidated Financial Statements For the Three and Six Months Ended June 30, 2024
Expressed in U.S. dollars in thousands
BioHarvest Sciences Inc.
Unaudited Interim Condensed Consolidated Financial Statements For the Three and Six Months Ended June 30, 2024
Expressed in U.S. dollars in thousands
TABLE OF CONTENTS
2
BioHarvest Sciences Inc. Unaudited Interim Condensed Consolidated Statements of Financial Position U.S. dollars in thousands |
| Notes | As at June 30, 2024 | As at December 31, 2023 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
| $ 5,168 | $ 5,355 |
Trade accounts receivable |
| 905 | 808 |
Other accounts receivable |
| 614 | 423 |
Inventory |
| 2,568 | 2,466 |
Total current assets |
| 9,255 | 9,052 |
|
|
|
|
Non-current |
|
|
|
Restricted cash |
| 401 | 179 |
Property and equipment, net | 3,4 | 17,358 | 5,771 |
Total non-current assets |
| 17,759 | 5,950 |
Total assets |
| $ 27,014 | $ 15,002 |
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Trade accounts payable |
| $ 4,043 | $ 1,778 |
Other accounts payable |
| 3,395 | 3,172 |
Derivative liability - warrants | 8 | - | 526 |
Convertible loans | 7 | 1,164 | 20,533 |
Accrued liabilities |
| 336 | 458 |
Total current liabilities |
| 8,938 | 26,467 |
|
|
|
|
Non-current liabilities |
|
|
|
Lease liability | 3 | 9,224 | 1,425 |
Liability to Agricultural Research Organization |
| 2,150 | 1,963 |
Total non-current liabilities |
| 11,374 | 3,388 |
|
|
|
|
Shareholders’ deficit |
|
|
|
Share capital and premium | 5 | 97,475 | 68,652 |
Accumulated deficit |
| (90,773) | (83,505) |
Total Shareholders’ equity (deficit) |
| 6,702 | (14,853) |
|
|
|
|
Total liabilities and shareholders’ equity deficit |
| $ 27,014 | $ 15,002 |
Going concern (Note 1C)
The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statement.
3
BioHarvest Sciences Inc. Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss U.S. dollars in thousands, except per share data |
| Three-months period ended June 30, | Six-months period ended June 30, | |||
| 2024 | 2023 | 2024 | 2023 | |
Revenues | $ 6,027 | 2,750 | $ 11,371 | 4,913 | |
Cost of revenues | 2,925 | 1,644 | 5,266 | 3,015 | |
Gross profit | 3,102 | 1,106 | 6,105 | 1,898 | |
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|
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| |
Operating expenses |
|
|
|
| |
Research and development expenses | 1,088 | 812 | 2,122 | 1,423 | |
Sales and marketing expenses | 2,812 | 1,851 | 5,376 | 3,692 | |
General and administrative expenses | 978 | 1,318 | 1,807 | 2,193 | |
Total operating expenses | 4,878 | 3,981 | 9,305 | 7,308 | |
|
|
|
|
| |
Loss from operations | 1,776 | 2,875 | 3,200 | 5,410 | |
Finance expenses | 378 | 159 | 4,117 | 302 | |
Finance income | (1,467) | (184) | (49) | (2,110) | |
Net loss before tax | $ 687 | 2,850 | 7,268 | 3,602 | |
Net loss and comprehensive loss | $ 687 | 2,850 | $ 7,268 | $ 3,602 | |
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|
|
|
| |
Basic and diluted loss per share | (0.04) | *(0.21) | *(0.48) | *(0.27) | |
Weighted average number of shares outstanding | 16,348,802 | *(13,418,231) | *(15,047,396) | *(13,362,576) |
(*) Restated for giving effect to the reverse stock split (see also Note 5b)
The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statements.
4
BioHarvest Sciences Inc. Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) U.S. dollars in thousands |
For the six-months period ended June 30, 2024:
| Note | Number of shares | Share capital and premium |
| Accumulated deficit |
| Total | |
Balance, January 1, 2024 |
| 13,676,798 | $ | 68,652 | $ | (83,505) | $ | (14,853) |
Exercise of options and warrants by employees and consultants | 5,6 | 106,132 |
| 408 |
| - |
| 408 |
Share based compensation |
| - |
| 328 |
| - |
| 328 |
Conversion of convertible loans into common shares | 5,7,8 | 2,940,882 |
| 20,527 |
| - |
| 20,527 |
Issuance of warrants | 5,8 | - |
| 2,296 |
| - |
| 2,296 |
Reclassification of warrants | 7,8 | - |
| 934 |
| - |
| 934 |
Issuance of units of securities | 5 | 603,904 |
| 4,330 |
| - |
| 4,330 |
Net loss and comprehensive loss for the period |
| - |
| - |
| (7,268) |
| (7,268) |
Balance, June 30, 2024 |
| 17,327,716 | $ | 97,475 | $ | (90,773) | $ | 6,702 |
The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statements.
5
BioHarvest Sciences Inc. Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) U.S. dollars in thousands |
For the six-months period ended June 30, 2023
| Number of shares (*) | Share Capital and Premium |
| Accumulated deficit |
| Total | |
Balance, January 1, 2023 | 13,163,504 | $ | 65,012 | $ | (70,941) | $ | (5,929) |
Exercise of options and warrants by employees and consultants | 103,418 |
| 403 |
| - |
| 403 |
Share based compensation | - |
| 414 |
| - |
| 414 |
Conversion of convertible loans into common shares | 407,019 |
| 2,557 |
| - |
| 2,557 |
Net loss and comprehensive loss for the period | - |
| - |
| (3,602) |
| (3,602) |
Balance, June 30, 2023 | 13,673,941 | $ | 68,386 | $ | (74,543) | $ | (6,157) |
Share based compensation | - |
| 250 |
| - |
| 250 |
Share issuance in lieu of cash fees | 2,857 |
| 16 |
| - |
| 16 |
Net loss and comprehensive loss for the period | - |
| - |
| (8,962) |
| (8,962) |
Balance, December 31, 2023 | 13,676,798 | $ | 68,652 | $ | (83,505) | $ | (14,853) |
(*) Restated for giving effect to the reverse stock split (see also Note 5b)
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.
6
BioHarvest Sciences Inc. Unaudited Interim Condensed Consolidated Statements of Cash Flows U.S. dollars in thousands |
|
| Six-months period ended June 30, | |
| Note | 2024 | 2023 |
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Cash flows from operating activities: |
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Net loss for the period |
| $ (7,268) | $ (3,602) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
| 559 | 407 |
Fair value adjustments of derivative liability - convertible loans |
| 3,453 | (2,055) |
Fair value adjustments of derivative liability - warrants |
| 408 | - |
Interest and re-assessment on liability to Agricultural Research Organization, net |
| 187 | 191 |
Finance income, net |
| (13) | (43) |
Share based compensation (including cash-settled share-based payment) |
| 328 | 313 |
Changes in operations assets and liabilities: |
|
|
|
Change in trade accounts receivable |
| (97) | (42) |
Change in other accounts receivable |
| (191) | 164 |
Change in inventory |
| (102) | (615) |
Changes in trade accounts payable, other accounts payable and accrued liabilities |
| 238 | 809 |
Cash used in operations |
| (2,498) | (4,473) |
Interest paid |
| (38) | (60) |
Net cash used in operating activities |
| (2,536) | (4,533) |
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Cash flow from investing activities: |
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|
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Purchase of property and equipment |
| (1,930) | (743) |
Deposit of restricted cash for bank guarantee, net of drawing |
| (225) | - |
Net cash used in investing activities |
| (2,155) | (743) |
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Cash flow from financing activities: |
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Payments of lease liabilities | 3 | (248) | (179) |
Exercise of options |
| 408 | 403 |
Net proceeds from issuance of units of securities | 5 | 4,330 | - |
Proceeds from issuance of Convertible loans | 7 | - | 5,140 |
Net cash provided by financing activities |
| 4,490 | 5,364 |
|
|
|
|
Exchange rate differences on cash and cash equivalents |
| 14 | (12) |
Increase (Decrease) in cash and cash equivalents |
| (201) | 88 |
Cash and cash equivalents at the beginning of the period |
| 5,355 | 1,736 |
Cash and cash equivalents at the end of the period |
| $ 5,168 | $ 1,812 |
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Significant non-cash transactions: |
|
|
|
Conversion of convertible loans into common shares and warrants |
| 20,527 | 2,557 |
Purchase of property in installment agreement |
| 1,995 | - |
Recognition of right of use assets and lease liabilities |
| 8,648 | - |
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.
7
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
A.The Company:
BioHarvest Sciences Inc. (the “Company” or “BioHarvest Sciences”), together with its wholly owned subsidiaries was incorporated under the Business Corporations Act of British Columbia on April 19, 2013. The Company fully owns BioHarvest Ltd., (“BioHarvest”), a company incorporated in Israel, and Superfood Nutraceuticals Inc., (“Superfood”) a company incorporated in Delaware, USA.
BioHarvest was incorporated in January 2007 and commenced its activity in July 2007.
In July 2014, BioHarvest Ltd incorporated a Delaware based wholly owned subsidiary, BioHarvest Inc (“BioHarvest Inc”).
On October 28, 2020, BioHarvest Sciences incorporated a Delaware based wholly owned subsidiary, Superfood Nutraceuticals Inc. (“Superfood”).
The Company is publicly traded on the Canadian Securities Exchange under the symbol BHSC, on the OTC under the symbol CNVCF and on the Frankfurt Stock Exchange under the symbol 8MV, the Munich Stock Exchange under the symbol “8MV”, the Stuttgart Stock Exchange under the symbol “CA09076J1084.SG” and the Tradegate Exchange under the symbol “8MV”.
The official address of the Company is 1140-625 Howe St., Vancouver, BC V6C 2T6, Canada.
Description of Business
The Company is a biotechnology company that has developed the Botanical Synthesis Platform Technology, which enables the Company to grow, at an industrial scale, the active and beneficial ingredients in certain fruits and plants without the need to grow the plant itself. The Botanical Synthesis Platform Technology is the only non-genetically modified organism platform that can produce plant cells with significantly higher concentrations of active ingredients (as compared to those that are produced naturally), as well as extremely high levels of solubility and bio-availability. The Botanical Synthesis Platform Technology is economical, ensures consistency and avoids the negative environmental impacts associated with traditional agriculture by providing consistent product production, a year-round production cycle and products that are devoid of sugar, calories and contaminants, such as pesticides, heavy metals and residues.
The Company is currently focused on utilizing the Botanical Synthesis Platform Technology to develop the next generation of science-based and clinically proven therapeutic solutions through two business units:
1.The Products Business Unit, comprises:
a)Nutraceuticals: Research, development, manufacturing, marketing and sales of science-based therapeutic nutraceutical solutions (capsules, powders, chews and other delivery mechanisms such as coffee, teas and protein bars);
b)Cosmeceuticals: Research and development for future manufacturing, marketing and sales of science-based therapeutic cosmeceutical solutions; and
8
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 1 - GENERAL (Continued):
2.The CDMO Services Business Unit comprising a Contract Development and Manufacturing Operation (“CDMO”) that offers customers from the pharmaceutical, cosmeceutical, nutraceutical and nutrition industries the development and future manufacturing of specific plant-based active molecules, via an end-to-end service agreement.
B.War in Israel:
The Company manufacturing facility and offices are located in Israel. On October 7, 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Following the attack, Israel declared war against Hamas and the Israeli military began to call-up reservists for an active duty. At the same time, and because of the declaration of war against Hamas, the clash between Israel and Hezbollah in Lebanon has escalated and there is a possibility that it will turn into a greater regional conflict in the future. As of the date of these Financial Statements, these events have had no material impact on the Company’s operations.
C.Going concern:
The Company has incurred losses from operations since its inception. As at June 30, 2024, the Company has an accumulated deficit of $90,773. The Company generated negative cash flows from operating activities of $2,536 and a loss in the amount of $7,268 for the six months ended June 30, 2024. As at the date of the issuance of these financial statements, the Company has not yet commenced generating sufficient sales to fund its operations, and therefore depends on fundraising from new and existing investors to finance its activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The company’s management believes that the company will fund near term anticipated activities based on proceeds from capital fund raising and future revenues.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The accompanying unaudited interim condensed consolidated financial statements of the Company were authorized for issue by the Board of Directors in August 29, 2024.
NOTE 2 - BASIS OF PREPARATION:
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board (IASB) and Interpretations (collectively IFRS). These interim unaudited condensed consolidated financial statements have been prepared in accordance with International Accounting Standards IAS 34 Interim Financial Reporting.
This interim condensed consolidated financial information does not include all of the information required for annual consolidated financial statements and should be read in conjunction with the Company’s annual financial statements as of December 31, 2023. The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2023, are applied consistently in these interim consolidated financial statements.
9
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 2 - BASIS OF PREPARATION (Continued):
New IFRSs adopted in the period
The following amendments are effective for the period beginning January 1, 2024:
a)Supplier Finance Arrangements (Amendments to IAS 7 & IFRS 7); These amendments have no effect on the measurement or presentation of any items in the Interim Condensed Consolidated Financial Statements of the Company but affect the disclosure of accounting policies of the Company.
b)Lease Liability in a Sale and Leaseback (Amendments to IFRS 16); These amendments had no material effect on the Interim Condensed Consolidated Financial Statements of the Company.
c)Classification of Liabilities as Current or Non-Current (Amendments to IAS 1); These amendments had no material effect on the Interim Condensed Consolidated Financial Statements of the Company.
d)Non-current Liabilities with Covenants (Amendments to IAS 1). These amendments had no material effect on the Interim Condensed Consolidated Financial Statements of the Company.
In April 2024, the IASB issued IFRS 18 “Presentation and Disclosure in Financial Statements” replacing IAS 1 to improve the usefulness of information presented and disclosed in financial statements. IFRS 18 introduces three sets of new requirements. The standard defines categories for income and expenses, such as operating, investing and financing, and requires entities to provide new defined subtotals, including operating profit. IFRS 18 also requires entities that define entity-specific measures that are related to the income statement to disclose explanations of those measures, referred to as management-defined performance measures. In addition, it sets out enhanced guidance on how to organize information and whether to provide it in the primary financial statements or in the notes and requires entities to provide more transparency about operating expenses. These new requirements are to improve the entities’ reporting of financial performance and give investors a better basis for analyzing and comparing entities. The standard carries forward many requirements from IAS 1 unchanged. The standard is effective for annual periods beginning on or after January 1, 2027. The Company is currently evaluating the potential impact that the adoption of the standard will have on its consolidated financial statements.
There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective for periods beginning subsequent to December 31, 2023, that the Company has decided not to adopt early. The Company is currently assessing the impact of these new standards, interpretations and amendments. The Company does not believe that the standards, interpretations and amendments will have a material impact on the financial statements once adopted.
NOTE 3 - LEASES:
The Company leases several facilities in Israel from which it operates. The Company also leases certain items of property and equipment which contain a lease of vehicles.
All leases are stated in Israeli New Shekel (“NIS” or “ILS”) and accounted for by recognizing a right-of-use asset and a lease liability except for:
a)Leases with low value assets; and
b)Leases with a duration of 12 months or less.
10
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 3 – LEASES (Continued):
In April 2024, the Company entered into a lease agreement for leasing approximately 10,300 square meters facility in Yavne, Israel (“Yavne 2 facility”) from April 1, 2024, until September 30, 2030, subject to 2 extension options for an additional 5 years each. The average monthly fees are NIS 327 ($88), including an annual increase and other adjustments, subject to the Consumer Price Index published by the Israeli Central Bureau of Statistics.
As of June 30, 2024, the Company believe it’s probable the 2 extension options for an additional total of 10 years will be exercised.
On April 1, 2024, the Company recorded a right-of-use asset and lease liability with carrying amount of $8,648 and using an incremental borrowing rate of 9% per annum.
NOTE 4 - PROPERTY AND EQUIPMENT:
In April 2024, the Company entered into an equipment purchase agreement for purchasing 12 GMP (Good manufacturing practices standards) cleanrooms, laboratory spaces and offices. The equipment purchase price was approximately $3,532.
NOTE 5 - SHARE CAPITAL:
| Number of shares (*) | |
| June 30, 2024 | December 31, 2023 |
| Issued and outstanding | Issued and outstanding |
Common shares | 17,327,716 | 13,676,798 |
(*) Restated for giving effect to the reverse stock split (see also Note 5b)
a)The Company is authorized to issue an unlimited number of common shares.
b)On May 27, 2024, the Company’s shareholders approved a 35-for-1 share consolidation, (hereinafter referred to as the 35:1 Share Consolidation) of the Company’s common shares pursuant to which the holders of the Company’s common shares received one common share for every 35 common shares held. The 35:1 Share Consolidation was approved by the Canadian Securities Exchange and is effective from June 3, 2024. All common shares (issued and unissued) were consolidated on the basis that every 35 common shares of no-par value were consolidated into 1 common share of no-par value.
c)On June 28, 2024 the Company completed a private placement financing by issuing 603,904 units at a price of $7.17 per unit. Each unit consists of one common share of the Company and one quarter (1/4) of one $7.68 warrant and one quarter (1/4) of one $11.52 warrant. Each whole $7.68 warrant will entitle the holder to purchase one common share and is exercisable for a period of 6 months. Each whole $11.52 warrant will entitle the holder to purchase one common share and is exercisable of a period of 18 months. The total proceeds from the private placement were $4,330. The increase in share capital and premium as a result of this transaction is $4,330.
11
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 5 - SHARE CAPITAL (Continued):
d)During the six-months period ended June 30, 2024, the Company issued 2,940,882 common shares as a result of the conversion of convertible loans. Based on the terms of the convertible loans, upon conversion, the Company also issued 1,359,216 early exercise warrants with an exercise price of $7.77. 1,178,501 warrants are exercisable until October 30, 2025, and 180,715 are exercisable until December 22, 2025 (see Notes 7a, 7b, 7c). The increase in share capital and premium as a result of this transaction is $20,527.
e)During the six-months period ended June 30, 2024, the Company issued 106,132 common shares as a result of the exercise of options. The increase in share capital and premium as a result of this transaction is $408.
f)The following table summarizes information about the warrants outstanding as at June 30, 2024:
| Warrants Outstanding |
|
June 30, 2024 (*) | Exercise Price (*) | Expiry Date |
518,174 | $7.77 | October 30, 2025 |
150,978 | $11.52 | December 28, 2025 |
150,978 | $7.68 | December 28, 2024 |
1,178,501 | $7.77 | October 30, 2025 |
180,715 | $7.77 | December 22, 2025 |
2,179,346 | - | - |
(*) Restated for giving effect to the reverse stock split (see also Note 5b)
NOTE 6 - SHARE BASED COMPENSATION:
a)Options granted under the Company’s 2008 Israeli Share Option Plan (“Plan”) are exercisable within 10 years from the date of grant upon payment of the exercise price as indicated in the Plan.
b)On February 20, 2024, the Company granted employees and consultants 2,857 options to purchase shares of the Company at CAD 7.875 ($5.95) per share under the Company’s share option plan. The options will be exercisable for a 10-year period. The options will vest quarterly over a 2-year period. The total value of the options granted is CAD 11 ($8).
c)On February 20, 2024, the Company granted employees and consultants 13,600 options to purchase shares of the Company at CAD 7.875 ($5.95) per share under the Company’s share option plan. The options will be exercisable for a 2-year period. The options will vest immediately in May 2024. The total value of the options granted is CAD 24 ($18).
d)On March 22, 2024, the Company granted employees and consultants 47,144 options to purchase the Company’s shares at CAD 9.975 ($7.35) per share under the Company’s share option plan. The options will be exercisable for a 10-year period. 11,429 options will vest quarterly over a 2-year period, 32,287 options will vest quarterly over a 3-year period, 2,857 options will vest quarterly over a 1-year period, 571 options will vest over a 18-months period. The total value of the options granted is CAD 237 ($175).
12
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 6 - SHARE BASED COMPENSATION (Continued):
e)On March 22, 2024, the Company granted employees and consultants 22,857 options to purchase the Company’s shares at CAD 9.975 ($7.35) per share under the Company’s share option plan. The options will be exercisable for a 3-year period. 14,286 options will vest quarterly over a 2.75-year period after a 3-months period from the date of the grant and 8,571 options will vest monthly over a 2.5-year period after a 6-months period from the date of the grant. The total value of the options granted is CAD 77 ($57).
f)On April 26, 2024, the Company granted employees and consultants 8,571 warrants to purchase the Company’s shares at CAD 9.1 ($6.65) per share under the Company share option plan. The warrants will be exercisable for 2-year period. The total value of the warrants granted is CAD 24 ($18).
g)On April 26, 2024, the Company granted employees and consultants 20,000 restricted share units (“RSU”) under the Company’s Restricted Share Units plan with an expiry date of December 31, 2024. The RSU vesting is subject to the performance condition of achieving the Company’s specified targets in 2024.
h)On May 31, 2024, the Company granted employees and consultants 16,429 options to purchase the Company’s shares at CAD 8.925 ($6.65) per share under the Company’s share option plan. The options will be exercisable for a 10-year period. The options will vest quarterly over a 3-year period. The total value of the options granted is CAD 75 ($55).
i)The following table summarizes information regarding expenses relating to share-based compensation:
| Three months ended June 30, 2024 | Six months ended June 30, 2024 | Three months Ended June 30, 2023 | Six months Ended June 30, 2023 |
Equity settled compensation | 194 | 328 | 189 | 414 |
Cash settled compensation | - | - | - | (101) |
| 194 | 328 | 189 | 313 |
j)A summary of activity related to options granted to purchase the Company’s shares under the Company’s share option plan is as follows:
| June 30, 2024 | December 31, 2023 | |||
| Number of Options | Weighted Average Exercise Price (*) | Number of Options (*) | Weighted Average Exercise Price (*) | |
Options outstanding at beginning of period | 1,807,456 | 6.15 | 1,783,466 | 6.65 | |
Changes during the period: |
|
|
|
| |
Options granted | 102,887 | 6.91 | 193,070 | 5.95 | |
Options exercised | (106,132) | 3.85 | (103,418) | 3.85 | |
Options forfeited (**) | (7,523) | 6.28 | (65,662) | 7.35 | |
Options outstanding at the end of the period (***) | 1,796,688 | 6.33 | 1,807,456 | 6.15 | |
Options exercisable at end of period | 1,549,246 |
| 1,578,131 |
|
13
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 6 - SHARE BASED COMPENSATION (Continued):
(*)Restated for giving effect to the reverse stock split (see also Note 5b).
(**)During the six-months period ended June 30, 2024, 7,523 options were forfeited due to termination of employment.
(***)The options outstanding at June 30, 2024, had a weighted-average contractual life of 6.8 years (December 31, 2023: 7.24 years).
The following table summarizes information about the options outstanding as at June 30, 2024:
| Options Outstanding |
| Options Exercisable |
at June 30, 2024 (*) | Exercise Price (*) | Expiry Date | at June 30, 2024 (*) |
517,091 | $3.57 (CAD 4.90) | June 9, 2030 | 517,091 |
4,286 | $3.83 (CAD 5.25) | June 10, 2030 | 4,286 |
354,572 | $3.83 (CAD 5.25) | July 29, 2030 | 354,572 |
20,001 | $3.83 (CAD 5.25) | September 10, 2030 | 20,001 |
27,143 | $.345 (CAD 4.72) | November 9, 2030 | 27,143 |
77,001 | $4.85 (CAD 6.65) | December 23, 2030 | 77,001 |
19,000 | $9.19 (CAD 12.60) | January 12, 2031 | 19,000 |
4,572 | $10.9 (CAD 15.05) | January 29, 2031 | 4,572 |
7,600 | $12.76 (CAD 17.5) | February 8, 2031 | 7,600 |
171,429 | $16.85 (CAD 23.10) | February 25, 2031 | 171,429 |
25,143 | $13.00 (CAD 17.85) | March 22, 2031 | 25,143 |
6,944 | $11.48 (CAD 15.75) | July 9, 2031 | 6,468 |
19,999 | $8.68 (CAD 11.90) | October 8, 2031 | 16,856 |
11,429 | $8.80 (CAD 12.07) | October 21, 2031 | 9,524 |
1,806 | $10.20 (CAD 14.00) | October 29, 2031 | 1,568 |
24,286 | $9.57 (CAD 13.30) | November 29, 2031 | 20,477 |
13,772 | $8.92 (CAD 12.25) | March 22, 2032 | 12,058 |
8,287 | $8.68 (CAD 11.90) | May 6, 2032 | 5,525 |
38,856 | $6.13 (CAD 8.40) | July 4, 2032 | 24,670 |
857 | $5.87 (CAD 8.05) | July 8, 2032 | 857 |
150,109 | $8.17 (CAD 11.20) | September 9, 2032 | 139,871 |
4,143 | $7.15 (CAD 9.80) | October 21, 2032 | 4,000 |
11,000 | $7.40 (CAD 10.15) | February 3, 2033 | 5,000 |
10,000 | $5.60 (CAD 7.70) | March 10, 2033 | 6,250 |
52,858 | $6.64 (CAD 9.10) | April 20, 2033 | 23,254 |
11,428 | $5.30 (CAD 7.35) | June 1, 2033 | 5,714 |
8,571 | $4.34 (CAD 5.95) | August 17, 2033 | 2,143 |
83,047 | $5.10 (CAD 7.00) | December 7, 2033 | 16,858 |
8,571 | $5.36 (CAD 7.35) | December 14, 2033 | 1,429 |
13,600 | $5.95 (CAD 7.88) | February 20, 2026 | 13,600 |
2,857 | $5.95 (CAD 7.88) | February 20, 2034 | 357 |
8,571 | $7.35 (CAD 9.98) | March 22, 2027 | - |
14,286 | $7.35 (CAD 9.98) | June 22, 2027 | - |
47,144 | $7.35 (CAD 9.98) | March 22, 2034 | 4,929 |
16,429 | $6.65 (CAD 8.93) | May 31, 2034 | - |
1,796,688 |
|
| 1,549,246 |
(*) Restated for giving effect to the reverse stock split (see also Note 5b)
14
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 6 - SHARE BASED COMPENSATION (Continued):
Warrants
k)A summary of activity related to warrants granted to purchase the Company’s shares, accounted for as share based compensation, is as follows:
| June 30, 2024 | December 31, 2023 | |||
| Number of Warrants | Weighted Average Exercise Price (*) | Number of Warrants (*) | Weighted Average Exercise Price (*) | |
Warrants outstanding at the beginning of the period | 64,986 | 7.7 | 1,429 | 9.45 | |
Changes during the period: |
|
|
|
| |
Issuance of warrants | 8,571 | 6.65 | 64,986 | 7.7 | |
Expired | - | - | (1,429) | 9.45 | |
Warrants outstanding at the end of the period | 73,557 | 7.57 | 64,986 | 7.7 |
(*) Restated for giving effect to the reverse stock split (see also Note 5b)
The following table summarizes information about the warrants outstanding as at June 30, 2024:
| Warrants Outstanding |
|
Number Outstanding (*) | Exercise Price (*) | Expiry Date |
64,986 | $7.7 (CAD 10.5) | October 25, 2025 |
8,571 | $6.65 (CAD 9.1) | April 26, 2026 |
73,557 |
|
|
(*) Restated for giving effect to the reverse stock split (see also Note 5b)
NOTE 7 - CONVERTIBLE LOANS:
A.Convertible loan A:
In April 2022, the Company signed an agreement (“the Agreement”) with certain lenders (the “Lenders”), according to which the Company authorized the sale and issuance to the Lenders a convertible loan (the “Convertible Loan”) with aggregate principal amounts of $7,658 (CAD 10,034) closed in three tranches. The first tranche of $5,308 (CAD 6,878) closed on October13, 2022, the second tranche of $1,950 (CAD $2,613) closed on November 15, 2022, and the third tranche of $400 (CAD 543) closed on December 15, 2022 (“Principal Loan Amount”). The Principal Loan Amount, to the extent and for the period of time that such Principal Amount is unconverted, shall bear interest at a rate of 9% per annum from the closing date (the “Closing Date”) up to and including the date that is 24 months following the Closing Date (the “Second Anniversary”). The Company will pay the Lenders, to the extent such interest is unconverted:
a)any interest accrued up to and including the date that is twelve months following the Closing Date (the “Anniversary”), on the Anniversary; and
b)any interest accrued between and including the dates that are one day following the Anniversary and twenty-four months following the Closing Date (the “Secondary Anniversary”), on the Second Anniversary.
15
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 7 - CONVERTIBLE LOANS (Continued):
A.Convertible loan A (Continued):
The Convertible Loan shall mature on the date that is twenty-four months following the Closing Date (the “Maturity Date”). Any unconverted portion of the Principal Loan Amount will be repaid on the Maturity Date.
The Lenders may, at any time prior to the Maturity Date, elect to convert any unconverted portion of the Principal Loan Amount together with the accrued Interest thereon (the “Remaining Amount”), into common shares in the capital of the Company as constituted on the date hereof (“Shares”) at the Conversion Price.
The conversion price is the price per share (the “Conversion Price”) that is equal to:
a)CAD 11.20, if the date of the receipt of such Conversion Notice by the Company occurs between and including the Closing Date and the date that is 90 days following the Closing Date.
b)CAD 12.25, if the date of the receipt of such Conversion Notice by the Company occurs between and including the dates that are 91 days following the Closing Date and 180 days following the Closing Date.
c)CAD 13.65, if the date of the receipt of such Conversion Notice by the Company occurs between and including the dates that are 181 days following the Closing Date and 270 days following the Closing Date.
d)CAD 15.40, if the date of the receipt of such Conversion Notice by the Company occurs between and including the date that is 271 days following the Closing Date and the date that is one day prior to the Anniversary; or
e)If the date of the receipt of such Conversion Notice by the Company occurs on or following the Anniversary the Discounted Conversion Price shall be:
·75% of the closing price of the shares, on the principal exchange on which the shares are listed (the “Exchange”), on the date of receipt of the Conversion Notice by the Company (the “Closing Price”) if the Closing Price is CAD 17.50 or less; or
·80% of the Closing Price, if the Closing Price is CAD 17.85 or greater.
In the event that the Discounted Conversion Price is less than CAD 9.10 per share (the “Floor Price”), the Conversion Price will be equal to the Floor Price. In the event that the Discounted Conversion Price is greater than CAD 22.75 per share, the Conversion Price shall not exceed:
·CAD 22.75, if the date of the receipt of such Conversion Notice by the Company occurs between and including the Anniversary and the date that is 90 days following the Anniversary.
·CAD 26.25, if the date of the receipt of such Conversion Notice by the Company occurs between and including the dates that are 91 days following the Anniversary and 180 days following the Anniversary.
·CAD 29.75, if the date of the receipt of such Conversion Notice by the Company occurs between and including the dates that are 181 days following the Anniversary and 270 days following the Anniversary: or
·CAD 33.25, if the date of the receipt of such Conversion Notice by the Company occurs between and including the date that is 271 days following the Anniversary and the date that is one day prior to the Maturity Date.
16
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 7 - CONVERTIBLE LOANS (Continued):
During the six-month period ended June 30, 2024, the company issued 510,888 shares as a result of the conversion of $3,383 (principal and accrued interest) related to the Convertible loan A (see Note 5d).
The Convertible Loan is denominated in Canadian dollars and convertible into common shares based on the principal and interest balance. The conversion rate to common shares is variable as it depends on the Company’s share price prevailing at specific dates on the stock exchange. Therefore, the convertible loan is a hybrid instrument that includes a debt host contract and an embedded derivative liability.
As the instrument contains an embedded derivative, it has been designated at fair value through profit or loss on initial recognition and as such the embedded conversion feature is not separated. All transaction costs related to financial instruments designated as fair value through profit or loss are expensed as incurred.
The component of fair value changes relating to the Company’s own credit risk is recognized in other comprehensive income (“OCI”). Amounts recorded in OCI related to credit risk are not subject to recycling in profit or loss but are transferred to retained earnings when realized. Fair value changes relating to market risk are recognized in profit or loss. There was no change in the Company’s own credit risk since the issuance of the convertible notes.
The fair value of the Convertible Loans has been determined using the Binomial model. The following assumptions were used to determine the fair value of the Convertible Loans:
| June 30, 2024 |
Risk‐free interest rate | 4.43% |
Expected volatility | 50% |
| Convertible loan A |
Balance as of January 1, 2024 | 4,503 |
Loss recognized in Profit or loss | 5 |
Conversion of convertible loans (Note 5d) | (3,344) |
Balance as of June 30, 2024 | 1,164 |
Convertible loan A | As of June 30, 2024 | As of December 31, 2023 |
Carrying amount | 1,164 | 4,503 |
Amount to be paid at maturity date (principal + accrued interest) | 1,236 | 4,470 |
17
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 7 - CONVERTIBLE LOANS (Continued):
B.Convertible loan B:
In March 2023, the Company signed an agreement (“the Agreement”) with certain lenders (the “Lenders”), according to which the Company authorized the sale and issuance to the Lenders a convertible loan (the “Convertible Loan”) with aggregate principal amounts of $10,077 (CAD 13,622) closed in two tranches. The first tranche of $8,710 (CAD 11,786) closed on October 30, 2024 and the second tranche of $1,367 (CAD $1,836) closed on December 22, 2024. (“Principal Loan Amount”). The Principal Loan Amount, to the extent and for the period of time that such Principal Amount is unconverted, shall bear interest at a rate of 12% per annum from the closing date (the “Closing Date”) up to and including the date that is 24 months following the Closing Date (the “Second Anniversary”). The Company will pay the Lenders, to the extent such interest is unconverted:
a)any interest accrued up to and including the date that is twelve months following the Closing Date (the “Anniversary”), on the Anniversary; and
b)any interest accrued between and including the dates that are one day following the Anniversary and twenty-four months following the Closing Date (the “Secondary Anniversary”), on the Second Anniversary.
The Convertible Loan shall mature on the date that is twenty-four months following the Closing Date (the “Maturity Date”). Any unconverted portion of the Principal Loan Amount will be paid on the Maturity Date.
The Lenders may, at any time prior to the Maturity Date, elect to convert any unconverted portion of the Principal Loan Amount together with the accrued Interest thereon (the “Remaining Amount”), into common shares in the capital of the Company as constituted on the date hereof (“Shares”) at the Conversion Price.
The conversion price is the price per share (the “Conversion Price”) that is equal to:
·80% of the closing price of the shares, on the principal exchange on which the shares are listed (the “Exchange”), on the date of receipt of the Conversion Notice by the Company (the “Closing Price”).
·In the event that the Discounted Conversion Price is less than CAD 8.40 per Share (the “Floor Price”), the Conversion Price will be equal to the Floor Price.
·In the event that the Discounted Conversion Price is greater than CAD 26.25 per Share (the “Ceiling Price”), the Conversion Price will be equal to the Ceiling Price.
An investor who invests a minimum amount of CAD 2,700,000 will also receive upon closing an additional warrant (the “Major Investment Warrant”) for each CAD 10.50 invested. Each Major Investment Warrant will be exercisable for a period of 24 months from the Closing Date of the convertible loan to purchase a common share of the Company at CAD 10.50 per share. On October 30, 2023, the Company issued 518,174 Major Investment Warrants. These Warrants were classified as Derivative liability (see Note 8). On March 28, 2024, all Major Investment Warrant holders agreed to convert the exercise price of the warrants from CAD to the equivalent in USD, based on the exchange rate at the dated of the approval of the Canadian Securities Exchange. Since the warrants have an exercise price denominated in US dollars which is the Company’s functional currency, the Company reclassified the Major Investment Warrants as an equity instrument.
18
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 7 - CONVERTIBLE LOANS (Continued):
B.Convertible loan B (Continued):
As an incentive for early conversion, any investor who converts their investment amount within 12 months following the Closing Date of the convertible loan will receive a warrant for each CAD 10.50 converted (the “Early Conversion Warrant”). Each Early Conversion Warrant will be exercisable to purchase a common share of the Company at an exercise price of CAD 10.50 per share for a period expiring on the maturity date of the convertible loan. On March 28, 2024, all Early Conversion Warrant holders agreed to convert the exercise price of the warrants from CAD to the equivalent in USD, based on the exchange rate at the dated of the approval of the Canadian Securities Exchange. Since the warrants have an exercise price denominated in US dollars, which is the Company’s functional currency, the Company reclassified the Major Investment Warrants as an equity instrument.
During the six-month period ended June 30, 2024, the company issued 1,699,018 shares as a result of the conversion of $10,500 (principal and accrued interest) related to the Convertible loan B and 1,359,216 Early Conversion Warrants to purchase shares of the Company at USD 7.77 per share. 1,178,501 warrants will expire on October 30, 2025, and 180,715 warrants will expire on December 22, 2025 (see Note 5d).
The Convertible Loan is denominated in Canadian dollars and convertible into common shares based on the principal and interest balance. The conversion rate to common shares is variable as it depends on the Company’s share price prevailing at specific dates on the stock exchange. Therefore, the convertible loan is a hybrid instrument that includes a debt host contract and an embedded derivative liability.
As the instrument contains an embedded derivative, it has been designated at fair value through profit or loss on initial recognition and as such the embedded conversion feature is not separated. All transaction costs related to financial instruments designated as fair value through profit or loss are expensed as incurred.
The component of fair value changes relating to the company’s own credit risk is recognized in OCI. Amounts recorded in OCI related to credit risk are not subject to recycling in profit or loss but are transferred to retained earnings when realized. Fair value changes relating to market risk are recognized in profit or loss. There was no change in the company company’s own credit risk since the issuance of the convertible notes.
The fair value of the Convertible Loans has been determined using the Binomial model. The following assumptions were used to determine the fair value of the Convertible Loans:
| Convertible loan B |
Balance as of January 1, 2024 | 11,727 |
Loss recognized in Profit or loss | 2,548 |
Conversion of convertible loans (Note 5d) | (14,275) |
Balance as of June 30, 2024 | - |
Convertible loan B | As of June 30, 2024 | As of December 31, 2023 |
Carrying amount | - | 11,727 |
Amount to be paid at maturity date (principal + accrued interest) | - | 10,342 |
19
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 7 - CONVERTIBLE LOANS (Continued):
C.Convertible loan C:
In April 2023, the Company signed an agreement (“the Agreement”) with certain lenders (the “Lenders”), according to which the Company authorized the sale and issuance to the Lenders a convertible loan (the “Convertible Loan”) with aggregate principal amounts of $3,440 (“Principal Loan Amount”). The Principal Loan Amount, to the extent and for the period of time that such Principal Amount is unconverted, shall bear interest at a rate of 9% per annum from the closing date (the “Anniversary”). The Company will pay the Lenders, to the extent such interest is unconverted any interest accrued up to and including the date that is twelve months following the Closing Date on the Anniversary.
The Convertible Loan shall mature on the date that is twelve months following the Closing Date (the “Maturity Date”). Any unconverted portion of the Principal Loan Amount will be paid on the Maturity Date.
The Lenders may, at any time prior to the Maturity Date, elect to convert any unconverted portion of the Principal Loan Amount together with the accrued Interest thereon (the “Remaining Amount”), into common shares in the capital of the Company as constituted on the date hereof (“Shares”) at the Conversion Price.
The conversion price is CAD 7.00 per share (the “Conversion Price”).
During the six-month period ended June 30, 2024, the company issued 730,976 shares as a result of the conversion of $3,764 (principal and accrued interest) related to Convertible loan C (see Note 5d).
The Convertible Loans are denominated in Canadian dollars and convertible into common shares based on the principal and interest balance. Therefore, the convertible loan is a hybrid instrument that includes a debt host contract and an embedded derivative liability.
As the instrument contains an embedded derivative, it has been designated at fair value through profit or loss on initial recognition and as such the embedded conversion feature is not separated. All transaction costs related to financial instruments designated as fair value through profit or loss are expensed as incurred.
The component of fair value changes relating to the company’s own credit risk is recognized in other comprehensive income. Amounts recorded in OCI related to credit risk are not subject to recycling in profit or loss but are transferred to retained earnings when realized. Fair value changes relating to market risk are recognized in profit or loss. There was no change in the company company’s own credit risk since the issuance of the convertible notes.
The fair value of the Convertible Loans has been determined using the Binomial model. The following assumptions were used to determine the fair value of the Convertible Loans:
| Convertible loan C |
Balance as of January 1, 2024 | 4,303 |
Loss recognized in Profit or loss | 900 |
Conversion of convertible loans (Note 5b) | (5,203) |
Balance as of June 30, 2024 | - |
Convertible loan C | As of June 30, 2024 | As of December 31, 2023 |
Carrying amount | - | 4,303 |
Amount to be paid at maturity date (principal + accrued interest) | - | 3,638 |
20
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 8 - FINANCIAL INSTRUMENTS - FAIR VALUE MEASUREMENT:
This note provides an update on the judgements and estimates made by the Company in determining the fair values of the financial instruments since the last annual financial report.
The following table summarizes the information about the level 3 fair value measurements:
As at June 30, 2024 | ||||
Item | Fair value | Valuation technique | Fair value hierarchy level | Significant unobservable inputs |
Convertible Loans | 1,164 | Binomial model | level 3 | Volatility of firm’s assets returns* |
* A change in the volatility measure by 5% results in a change of +/- $1 of the fair value
Reconciliation of fair value measurements that are categorized within Level 3 of the fair value hierarchy:
Derivative Liability - Warrants |
|
Balance as of January 1, 2023 | - |
Issuance of warrants | 291 |
Exercise of warrants | - |
Loss recognized in profit or loss | 235 |
Balance as of December 31, 2023 | 526 |
Loss recognized in profit or loss | 408 |
Reclassification as an equity instrument (Note 7b) | (934) |
Balance as of June 30, 2024 | - |
Convertible Loans |
|
Balance as of January 1, 2023 | 8,549 |
Issuance of convertible loan | 13,517 |
Loss recognized in profit or loss | 1,024 |
Conversion of convertible loans | (2,557) |
Balance as of December 31, 2023 | 20,533 |
Conversion of Convertible loan (Note 5d) | (22,822) |
Loss recognized in Profit or loss | 3,453 |
Balance as of June 30, 2024 | 1,164 |
21
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 8 - FINANCIAL INSTRUMENTS - FAIR VALUE MEASUREMENT (Continued):
Financial instruments not measured at fair value:
Financial instruments not measured at fair value include cash and cash equivalents, restricted cash, trade accounts receivable, other accounts receivable, trade accounts payable, other accounts payable and Liability to Agricultural Research Organization.
Due to their short-term nature, the carrying value of cash and cash equivalents, restricted cash, trade accounts receivable, other accounts receivable, trade accounts payable, other accounts payable approximates their fair value.
The fair value of Liability to Agricultural Research Organization for June 30, 2024 and December 31, 2023, is not materially different to the carrying amount.
NOTE 9 - RELATED PARTIES TRANSACTIONS:
Related parties including the Company’s CEO, CFO, Chairman of the Board and Directors.
Related party transactions:
| Three months ended June 30, 2024 | Six months ended June 30, 2024 | Three months Ended June 30, 2023 | Six months Ended June 30, 2023 |
Compensation of key management personnel of the Company: |
|
|
|
|
CEO management fees | 87 | 204 | 115 | 238 |
Chairman management fees | 99 | 231 | 365 | 433 |
CFO management fees | 8 | 15 | 8 | 15 |
Share based payment to CEO | - | - | 2 | 11 |
Share based payment to Chairman | - | - | 61 | 175 |
Other related party transactions: |
|
|
|
|
Share based payments | 9 | 11 | 3 | 7 |
Related party balances:
| June 30, 2024 | December 31, 2023 |
Due to CEO | 29 | 29 |
22
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 10 - OPERATING SEGMENTS:
Effective January 1, 2024, the Company has two operating segments or business units: the Products business unit and the CDMO Services business unit. In identifying these operating segments, management generally follows the Company service lines representing its main products and services.
Segment description:
1.Products business unit.
oNutraceuticals: Research, development, manufacturing, marketing and sales of science-based therapeutic nutraceutical solutions (capsules, powders, chews and other delivery mechanisms such as coffee, teas and protein bars);
oCosmeceuticals: Research and development for future manufacturing, marketing, and sales of science-based therapeutic cosmeceutical solutions.
2.CDMO Services business unit
Offering customers from the pharmaceuticals, cosmeceuticals, nutraceuticals, and nutrition industries through an end-to-end service agreement for development and manufacturing of specific plant-based active molecules.
Segment information:
| Three months ended June 30, 2024 | ||
| Products | CDMO Services | Total |
Revenues | 5,952 | 75 | 6,027 |
Segment loss | 1,475 | 301 | 1,776 |
|
|
|
|
Finance income, net |
|
| (1,089) |
Tax expenses |
|
| - |
Net loss and comprehensive loss |
|
| 687 |
| Six months ended June 30, 2024 | ||
| Products | CDMO Services | Total |
Revenues | 11,221 | 150 | 11,371 |
Segment loss | 2,724 | 476 | 3,200 |
|
|
|
|
Finance expense, net |
|
| 4,068 |
Tax expenses |
|
| - |
Net loss and comprehensive loss |
|
| 7,268 |
23
BioHarvest Sciences Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements U.S. dollars in thousands, except per share data |
NOTE 10 - OPERATING SEGMENTS (Continued):
| Three months ended June 30, 2023 | ||
| Products | CDMO Services | Total |
Revenues | 2,750 | - | 2,750 |
Segment loss | 2,875 | - | 2,875 |
|
|
|
|
Finance income, net |
|
| (25) |
Tax expenses |
|
| - |
Net loss and comprehensive loss |
|
| 2,850 |
| Six months ended June 30, 2023 | ||
| Products | CDMO Services | Total |
Revenues | 4,913 | - | 4,913 |
Segment loss | 5,410 | - | 5,410 |
|
|
|
|
Finance income, net |
|
| (1,808) |
Tax expenses |
|
| - |
Net loss and comprehensive loss |
|
| 3,602 |
1)Entity wide disclosures of external revenue by location of customers:
| Six months ended June 31, | |
| 2024 | 2023 |
Israel | 1,059 | 958 |
USA | 10,312 | 3,955 |
| 11,371 | 4,913 |
| Three months ended June 31, | |
| 2024 | 2023 |
Israel | 574 | 475 |
USA | 5,453 | 2,275 |
| 6,027 | 2,750 |
2)Additional information concerning revenues:
There is no single customer from which revenues amount to 10% or more of total revenues reported in the financial statements.
24
BioHarvest Sciences Inc. Management’s Discussion and Analysis For the three and six months ended June 30, 2024 (Expressed in U.S. dollars)
|
INTRODUCTION
The following Management’s Discussion and Analysis (“MD&A”) for BioHarvest Sciences Inc., together with its wholly owned subsidiaries (“BioHarvest Sciences” or the “Company”) prepared as of August 29, 2024, has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (IASB). All amounts (other than per share amounts) are stated in U.S dollars rounded to the nearest thousand, unless otherwise indicated.
The following information should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2024, and the related notes to those financial statements.
Statements in this report that are not historical facts are forward-looking statements involving known and unknown risks and uncertainties, which could cause actual results to vary considerably from these statements. Readers are cautioned not to put undue reliance on forward-looking statements.
The Company is publicly traded on the Canadian Securities Exchange under the symbol BHSC, on the OTC under the symbol CNVCF and on the Frankfurt Stock Exchange under the symbol 8MV, the Munich Stock Exchange under the symbol “8MV”, the Stuttgart Stock Exchange under the symbol “CA09076J1084.SG” and the Tradegate Exchange under the symbol “8MV”.
Continuous disclosure materials are available on our website at www.bioharvest.com. This additional information is not incorporated into this Management’s Discussion and Analysis and does not constitute a part of this Management’s Discussion and Analysis.
1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This MD&A contains certain information that may constitute “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs. Such statements can be identified by the use of forward-looking terminology such as “expect,” “likely”, “may,” “will,” “should,” “intend,” or “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. The forward-looking statements included in this MD&A are made only as of the date of this MD&A. Forward-looking statements in this MD&A may include, but are not limited to, statements with respect to: a) licensing risks; b) regulatory risks; c) change in laws, regulations and guidelines; d) market risks; e) expansion of facilities; f) history of net losses; and g) competition. Certain of the forward-looking statements and forward-looking information and other information contained herein concerning the, nutraceutical, pharmaceutical and cosmeceutical industries, the general expectations of the Company concerning these industries and concerning the Company are based on estimates prepared by the Company using data from publicly available governmental sources, from market research and industry analysis and on assumptions based on data and knowledge of these industries, which the Company believes to be reasonable. The Company is not aware of any misstatement regarding any industry or government data presented herein. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The Company’s forward-looking statements are expressly qualified in their entirety by this cautionary statement. In particular, but without limiting the foregoing, disclosure in this MD&A under “Nature of the Business and Overview of Operations” as well as statements regarding the Company’s objectives, plans and goals, including future operating results and economic performance may make reference to or involve forward-looking statements. A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. See “Risk and Uncertainties” for further details. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. You should not place undue reliance on forward- looking statements contained in this MD&A. The Company undertakes no obligation to update or revise any forward-looking statements.
2
GOING CONCERN
The Company has incurred losses from operations since its inception. As of June 30, 2024, the Company has an Accumulated Deficit of $90,773 thousands. The Company generated negative cash flows from operating activities of $2,536 thousands and a loss in the amount of $7,268 thousands for the six months ended June 30, 2024. As of the date of the issuance of the unaudited interim condensed consolidated financial statements for the three and six Months ended June 30, 2024, the Company has not yet commenced generating sufficient sales to fund its operations, and therefore depends on fundraising from new and existing investors to finance its activities. These factors raise material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern. The Company’s plans to fund near term anticipated activities based on proceeds from capital fund raising and future revenues.
The unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2024, do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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NATURE OF BUSINESS AND OVERVIEW OF OPERATIONS
1.Summary
BioHarvest Sciences Inc. (the “Company” or “BioHarvest Sciences”) was incorporated under the Business Corporations Act of British Columbia on April 19, 2013.
2.Corporate Structure
3.Overview of the business
The Company is a biotechnology company that has developed the Botanical Synthesis Platform Technology, which enables the Company to grow, in bioreactors at an industrial scale, the active and beneficial ingredients in certain fruits and plants without the need to grow the plant itself. The Botanical Synthesis Platform Technology is a non-genetically modified organism platform that can produce plant cells with higher concentrations of active ingredients (as compared to those that are produced naturally), as well as high levels of solubility and bio-availability. The Botanical Synthesis Platform Technology is economical, ensures consistency and avoids the negative environmental impacts associated with traditional agriculture by providing consistent product production, a year-round production cycle and products that are devoid of sugar, calories and contaminants, such as pesticides, heavy metals and residues.
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The Company is currently focused on utilizing the Botanical Synthesis Platform Technology to develop the next generation of science-based and clinically proven health solutions through its two (2) business units:
1.The Products Business Unit, comprising:
(a)Nutraceuticals: Research, development, manufacturing, marketing and sales of science-based health and wellness nutraceutical solutions which are manufactured and sold as dietary supplements and/or functional food (capsules, powders, chews and other delivery mechanisms such as coffee, teas and electrolyte-enhanced beverages); and
(b)Cosmeceuticals: Research and development for future manufacturing, marketing and sales of science-based health and cosmeceutical solutions which are to be developed, manufactured and sold as cosmetic products; and
2.The CDMO Services Business Unit comprising a CDMO that offers customers from the pharmaceuticals, cosmeceuticals, nutraceuticals and nutrition industries, through an end-to-end service agreement, the development and manufacturing of specific plant-based active molecules.
Products Business Unit Activities:
I.Nutraceuticals
The Company is engaged in the research and development of science-based health and wellness solutions for the nutraceutical industry. The Company’s first product entry into this market is a polyphenol/anti-oxidant superfruit product called VINIA®, which is a red grape powder that supplies the benefits of red wine consumption but without the sugar, calories and alcohol found in wine.
VINIA® is made of red grape (Vitis vinifera) cells grown in the Company’s proprietary bioreactor facility. VINIA® is a fine, dry pink-purple powder containing a matrix of polyphenols (with a high concentration of piceid resveratrol) in their natural state (as can be found in red wine) that has additive and synergistic benefits. One of the main active ingredients in VINIA® is piceid resveratrol, maintaining the quality and inherent benefits present in nature without any solvent extraction or genetic modification. VINIA® is soluble when integrated with various liquids or cosmetics.
The Company has invested over $80 million, primarily in R&D activities, to support the business. This investment has enabled the Company to develop a disruptive technology platform which mirrors nature and allows it to efficiently produce plant cells that are identical to those originally sourced from the parent plant, ensuring optimal bio-availability and efficacy of the secondary metabolites.
In terms of manufacturing capacity, the Company has established a 20 ton manufacturing facility and commenced implementation of the required technology and process improvements to drive significant cost reduction through economies of scale. This facility received Good Manufacturing Practice (GMP) approvals from the Israeli Ministry of Health in October 2021 as well as key ISO certifications. The Company completed the biological technology transfer to the new manufacturing facility in March 2022 and has commenced actively scaling up its manufacturing of
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VINIA® red grape cells at this new facility. This enables the Company to better meet the increasing demand for VINIA ® which is driven from the US market as a result of the Company’s marketing activities. The Company continued to focus significant resources in the second quarter of 2024 to increase its bioreactor capacity levels for each bioreactor by 22% to improve capacity levels and operational efficiency. In addition, in April, 2024, the Company validated the successful growing of its red grape cells in a bioreactor with an increased further capacity of 35%. The Company started to commence operationalizing this larger bioreactor size in August and will complete the scale up of all its Bioreactors to this size by the end of year. In addition, the Company has successfully secured additional 3rd party drying capacity to be able to cope with growing quarter on quarter demand levels. The Company expects this to positively impact capacity levels and gross profit delivery in the 2nd half of 2024.
In the second quarter of 2024, VINIA® revenues increased by 119% versus the comparable period in the previous year. This was a major demonstration of the Company’s ability to scale its VINIA® business using its Botanical Synthesis technology. Importantly, as a result of the aggressive scaling of the business and management’s focus on driving efficiencies where possible across the value chain, the Company continues to improve gross profit margin levels of the Products business unit, realizing a gross profit margin increase to 52% during the second quarter of 2024 as compared to 40% during the comparable period in the previous year. Gross margin levels of the Products business unit in the second quarter of 2024 exceeded the 50% threshold. Management continues to focus on accelerating revenue momentum and improving gross profit margins as well as marketing efficiencies.
The Company has a well-developed innovation pipeline in its Products business unit. Over the next 12 months, the Company plans to introduce a number of new products under the VINIA® brand as well as additional cell-based products utilizing its Botanical Synthesis technology. The pipeline of products planned, based on VINIA®, includes the launching of consumer products in major multibillion dollar categories including a hot tea beverages products line and electrolyte enhanced beverage line. The Company has experienced a very successful initial launch of its Keurig compatible coffee pods. Since launch in December 2023 up until the date of this MD&A, the Company has sold more than $878,000 of VINIA Superfood Bloodflow Coffee.
II.Cosmeceuticals
Since Q1 2023, the Company has spent significant resources investigating the opportunities that exist for its Red Grape Cell molecules in the growing beauty and cosmetics skincare market. The skin care market in the United States is worth approximately US$23 billion as of 2023, and the Company believes that consumers are searching for new natural and natural origin molecules to better address their skin care needs.
In Q1 2023, the Company conducted a small-scale skin care assessment in Seoul, South Korea (the “Skin Care Assessment”), which received positive anecdotal feedback from all participants regarding their various skin ailments, such as atopic dermatosis, psoriasis, facial redness and folliculitis, after using VINIA®.
Based on the results of the Skin Care Assessment, the Company is developing a clinical study in the United States to assess the efficacy of VINIA® as both a dietary supplement and a topical cosmetic solution on skin health promotion, with a view to launching a VINIA® topical solution product (the “VINIA® Topical Solution”) in the United States by the end of 2025.
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CDMO Services Business Unit
In Q1 2024, the Company announced the launch of its CDMO Services Business Unit, including its entry into two (2) development agreements to develop complex molecules.
This CDMO Services Business Unit allows pharmaceutical, cosmeceutical, nutraceutical and nutrition industry companies the opportunity to partner with the Company to utilize the Botanical Synthesis Platform Technology through a CDMO contracting model. The Botanical Synthesis Platform Technology enables the development and manufacturing of patentable plant-based small molecules, complex molecules and unique compositions, which include both small and complex molecules. The Botanical Synthesis Platform Technology can develop complex molecules, otherwise known as biologics, which have a number of unique advantages, including lower costs of development and manufacturing, a faster speed of development and non-immunogenic properties that enhance safety. As a result of these advantages, the Company has decided to name these unique plant-derived complex molecules BIOLOGICS+. BIOLOGICS+ will help address unmet needs in the health industry across pharmaceutical, nutraceutical, cosmeceutical and nutrition verticals.
The Company currently has a number of customers in its short-term pipeline and expects to sign a number of additional contracts by the end of 2024 with customers from the pharmaceutical, nutraceutical, cosmeceutical and food ingredients/nutrition industries.
Environmental, Social and Governance Reporting:
On September 2021 the Company announced the publication of its inaugural Environmental, Social, and Governance (ESG) Report, detailing the Company’s performance and ongoing commitment to creating a sustainable future. The report is aligned with the United Nations Sustainable Development Goals and the reporting requirements of the Task Force on Climate-Related Financial Disclosures and the Sustainability Accounting Standards Board.
On September 6, 2022, Business Intelligence Group awarded the Company its prestigious Sustainability Leadership Award. The award recognizes the sustainability impact of the Company’s Botanical Synthesis platform technology, which enables industrial production of plant metabolites without growing the plant itself. The Company received the award with other industry thought leaders such as AstraZeneca, Agilent, and Honeywell.
Significant Developments
To better understand the Company’s financial results, it is important to gain an appreciation of the significant events, transactions and activities that occurred during or have affected the period under review up to and including the date of this MD&A.
1.During the six-month period ended June 30, 2024, the Company issued 2,940,882 common shares as a result of conversion of Convertible Loans.
2.During the six-month period ended June 30, 2024, the Company issued 106,132 common shares as a result of exercise of options.
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3.During the six-month period ended June 30, 2024, the Company issued 1,359,216 Early Conversion Warrants to purchase shares of the Company at $7.77. 1,178,501 warrants will expire on October 30, 2025, and 180,715 warrants will expire on December 22, 2025.
4.During the six-month period ended June 30, 2024, the Company issued 603,904 units at price of $7.17 per unit. Each unit consists of one common share of the Company and one quarter (1/4) of one $7.68 warrant and one quarter (1/4) of one $11.52 warrant. Each whole $7.68 warrant will entitle the holder to purchase one common share and is exercisable for a period of 6 months. Each whole $11.52 warrant will entitle the holder to purchase one common share and is exercisable for a period of 18 months.
5.On May 27, 2024, the Company’s shareholders approved a 35-for-1 share consolidation (hereinafter referred to as the Share Consolidation) of the Company’s common shares pursuant to which the holders of the Company’s common shares received one common share for every 35 common shares held. The 35:1 Share Consolidation was approved by the Canadian Securities Exchange and is effective from June 3, 2024. All common shares (issued and unissued) were consolidated on the basis that every 35 common shares of no-par value were consolidated into 1 common share of no-par value.
Selected Information
| Three-month period ended | Six-month period ended | ||
| June 30, | June 30, | ||
| 2024 | 2023 | 2024 | 2023 |
| USD in thousands | |||
Revenues | 6,027 | 2,750 | 11,371 | 4,913 |
Net loss and comprehensive loss | 687 | 2,850 | 7,268 | 3,602 |
Basic and diluted loss per share (*) | (0.04) | (0.21) | (0.48) | (0.27) |
(*)Restated for giving effect to the reverse stock split (see also ‘Significant Developments’ in section 5)
| As at June 30, | |
| 2024 | 2023 |
| USD in thousands | |
|
|
|
Total Assets | 27,014 | 15,002 |
Total current liabilities | 8,938 | 12,890 |
Total non-current liabilities | 11,374 | 3,789 |
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Three-month period ended June 30, 2024, compared to the three-month period ended June 30, 2023:
Revenues, of which 99% relate to the Products Business Unit of the Company, were $6,027 thousands for the three months ended June 30, 2024, as compared to $2,750 thousands during the same period in the prior year. The increase in the second quarter of 2024 is a result of the Company’s significant scaling of its business-to-consumer and medical practitioner focused e-commerce strategy.
Cost of revenues were $2,925 thousands for the three months ended June 30, 2024, as compared to $1,644 thousands during the same period in the prior year. The increase is due to growth in production, demand and sales during the period.
Gross margins were 52% for the three months ended June 30, 2024, as compared to 40% during the same period in the prior year. The increase in gross margins was a result of the Company’s continuing focus on cost reduction and production scaling.
Research and development expenses were $1,088 thousands for the three months ended June 30, 2024, as compared to $812 thousands during the same period in the prior year. The change is mainly due to an increase in wages and salaries (related to the CDMO services business unit) as well as professional fees and depreciation and amortization to support both segments.
Sales and marketing expenses, which relate mainly to the Products Business Unit, were $2,812 thousands for the three months ended June 30, 2024, as compared to $1,851 thousands during the same period in the prior year. The change is due to the higher marketing expenditure and wages and salaries required to support sales growth.
General and administrative expenses decreased to $978 thousands for the three months ended June 30, 2024, as compared to $1,318 thousands during the same period in the prior year. The decrease was driven by the allocation of wages and salaries of several employees to research and development to support the new CDMO services business unit. General and administrative expenses are incurred to support both of our business segments.
Finance expenses, were $378 thousands for the three months ended June 30, 2024, as compared to 159 thousands during the same period in the prior year. The increase is primarily the result of issuance of warrants. Finance expenses are incurred to support both of our business segments.
Finance income was $1,467 thousands for the three months ended June 30, 2024, as compared to $184 thousands during the same period in the prior year. The increase is primarily the result of fair value adjustments applicable to the Company’s convertible loan recorded in the three-month period ended June 30, 2024. Finance income is incurred to support both of our business segments.
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Six-month period ended June 30, 2024, compared to the six-month period ended June 30, 2023:
Revenues, of which 99% relate to the Products Business Unit of the Company, were $11,371 thousands for the six months ended June 30, 2024, as compared to $4,913 thousands during the same period in the prior year. The increase in the first half of 2024 is a result of the Company’s significant scaling of its business-to-consumer and medical practitioner focused e-commerce strategy.
Cost of revenues were $5,266 thousands for the six months ended June 30, 2024, as compared to $3,015 thousands during the same period in the prior year. The increase is due to an increase in demand and sales, with a corresponding increase in production, during the period.
Gross margins were 54% for the six months ended June 30, 2024, as compared to 39% during the same period in the prior year. The increase in gross margins was a result of the Company’s focus on cost reduction and production scaling.
Research and development expenses were $2,122 thousands for the six months ended June 30, 2024, as compared to $1,423 thousands during the same period in the prior year. The change is mainly due to an increase in wages and salaries, primarily to support the new CDMO Services Business Unit, as well as professional fees, raw materials, share-based compensation and depreciation and amortization to support both segments.
Sales and marketing expenses, which relates mainly the Products Business Unit, were $5,376 thousands for the six months ended June 30, 2024, as compared to $3,692 thousands during the same period in the prior year. The change is due to the higher marketing expenditure and wages and salaries required to support sales growth.
General and administrative expenses decreased to $1,807 thousands for the six months ended June 30, 2024, as compared to $2,193 thousands during the same period in the prior year. The decrease was driven by the allocation of wages and salaries of several employees to research and development to support the new CDMO Services Business Unit. General and administrative expenses are incurred to support both of our business segments.
Finance expenses were $4,117 thousands for the six months ended June 30, 2024, as compared to $302 thousands during the same period in the prior year. The increase is primarily the result of fair value adjustments applicable to the Company’s convertible loans and issuance of warrants. Finance expenses are incurred to support both of our business segments.
Finance income weas $49 thousands for the six months ended June 30, 2024, as compared to $2,110 thousands during the same period in the prior year. The decrease is primarily the result of fair value adjustments applicable to the Company’s convertible loan recorded in the six-month period ended June 30, 2023. Finance income is incurred to support both of our business segments.
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Summary of Quarterly Results
The following represents the summarized quarterly financial results for the past eight quarters:
| Three Months ended | |||
| June 30, 2024 | March 31, 2024 | December 31, 2023 | September 30, 2023 |
| USD in thousands | |||
Revenues | 6,027 | 5,344 | 4,520 | 3,239 |
687 | 6,581 | 7,235 | 1,727 | |
Net loss | 687 | 6,581 | 7,235 | 1,727 |
Net loss per share (*) | (0.04) | (0.48) | (0.53) | (0.13) |
|
| |||
| Three Months ended | |||
| June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 |
| USD in thousands | |||
Revenues | 2,750 | 2,163 | 2,444 | 1,517 |
Net loss before income taxes | 2,850 | 752 | 2,806 | 3,924 |
Net loss | 2,850 | 752 | 2,806 | 3,924 |
Net loss per share (*) | (0.21) | (0.06) | (0.21) | (0.30) |
(*)Restated for giving effect to the reverse stock split (see also ‘Significant Developments’ in section 5)
Financial instruments and risk management
The Company is exposed to a variety of financial risks, which results from its financing, operating and investing activities. The objective of financial risk management is to contain, where appropriate, exposures to these financial risks to limit any negative impact on the Company’s financial performance and position. The Company’s financial instruments are its Cash and cash equivalents, Restricted cash, Trade accounts receivable, Other accounts receivable, Trade accounts payable, Other accounts payable and Liability to Agricultural Research Organization. The main purpose of these financial instruments is to raise finance for the Company’s operation. The Company actively measures, monitors and manages its financial risk exposures by various functions, including the segregation of duties and the application of financial control principals. The risks arising from the Company’s financial instruments are mainly currency risk and liquidity risk. The Company has no interest rate risk as the balances exposure to interest is minimal. The risk management policies employed by the Company to manage these risks are discussed below.
Foreign currency risk
Foreign exchange risk arises when the Company enters into transactions denominated in a currency other than its functional currency. The Company is exposed to currency risk to the extent that there is a mismatch between the currency in which it is denominated and the respective functional currency of the company. The currencies in which some transactions are primarily denominated are CAD, US dollars and NIS. The Company’s policy is not to enter into any economic hedging transactions to neutralize the effects of foreign currency fluctuations.
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Liquidity and Capital resources
The unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2024, have been prepared on a going concern basis whereby the Company is assumed to be able to realize its assets and discharge its liabilities in the normal course of operations. The unaudited interim condensed consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern assumption was not appropriate for the unaudited interim condensed consolidated financial statements, then adjustments of a material nature would be necessary in the carrying value of assets such as property and equipment, liabilities, the reported expenses, and the balance sheet classifications used. Management continues to pursue financing opportunities for the Company to ensure that it will have sufficient cash to carry out its planned programs beyond the next year.
At June 30, 2024, the Company had cash and cash equivalents of $5,168 thousands (June 30, 2023, $1,812 thousands). The Company had current assets of $9,255 thousands (June 30, 2023, $4,891 thousands) and current liabilities of $8,938 thousands (June 30, 2023, $12,890 thousands).
At June 30, 2024, the Company had net working capital of positive $317 thousands (June 30, 2023, negative $7,999 thousands).
During the six months ended June 30, 2024, the Company’s overall position of cash and cash equivalents increase by $187 thousands (June 30, 2023, increased by $76 thousands). This change in cash and cash equivalents held can be attributed to the following:
·The Company’s net cash used in operating activities during the six months ended June 30, 2024, was $2,536 thousands as compared to net cash used of $4,533 thousands for the six months ended June 30, 2023. The amount is primarily a result of the losses incurred in the operations of the Company.
·The Company’s net cash used in investing activities during the six months ended June 30, 2024, was $2,155 thousands as compared to net cash used of $743 thousands for the six months ended June 30, 2023. The amounts used primarily to the purchase of property and equipment.
·The Company’s net cash provided by financing activities during the six months ended June 30, 2024, was $4,490 thousands as compared to net cash provided by financing activities of $5,364 thousands for the six months ended June 30, 2023.
Since the Company will not be able to generate cash from its operations in the foreseeable future, the Company will have to rely on the issuance of shares or the exercise of options, warrants and loans to fund ongoing operations and investment. The ability of the Company to raise capital will depend on market conditions and it may not be possible for the Company to issue shares on acceptable terms or at all.
Off Balance Sheet Agreements
The Company has not entered into any material off-balance sheet arrangements such as guarantee contracts, contingent interests in assets transferred to unconsolidated entities, derivative financial obligations or arrangements with respect to any obligations under a variable interest equity arrangement.
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Transactions with Related Parties
The Company’s key management personnel have the authority and responsibility for overseeing, planning, directing, and controlling the activities of the Company. Key management personnel include members of the Board of Directors, the Chief Executive Officer and the Chief Financial Officer.
Compensation earned by key management for the three- and six-months period ended June 30, 2024, and June 30, 2023, was as follows:
Related party transactions:
| Three months ended June 30, 2024 | Six months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
Compensation of key management personnel of the Company: |
|
|
|
|
CEO management fees | 87 | 204 | 115 | 238 |
Chairman management fees | 99 | 231 | 365 | 433 |
CFO management fees | 8 | 15 | 8 | 15 |
Share based payment to CEO | - | - | 2 | 11 |
Share based payment to Chairman | - | - | 61 | 175 |
Other related party transactions: |
|
|
|
|
Share based payments | 9 | 11 | 3 | 7 |
Related party balances:
| As at June 30, 2024 | As at December 31, 2023 |
Due to CEO | 29 | 29 |
Critical Accounting Estimates and Judgements
The preparation of unaudited interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts
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of assets and liabilities within the next financial period, are described below. The Company based its assumptions and estimates on parameters available when the Unaudited Interim Condensed Consolidated Financial Statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
1.Liability to Agricultural Research Organization:
The Company measures the liability to the Agricultural Research Organization, each period, based on discounted cash flows derived from the Company’s future anticipated revenues. The discount rate reflects the market rate.
2.Determining the transaction price and amounts allocated to the performance obligations:
In transactions with customers that include variable consideration, the Company assesses, based on past experience, business forecasts and current economic conditions, whether it is highly probable that a significant reversal in the amount of revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In determining the transaction price for each contract with a customer, the Company considers the effect of the right of return.
The Company also assesses for each transaction with variable consideration the approach that will best reflect the amount of the consideration to which the Company will be entitled, using either the “expected value” method or the “most likely amount” method.
Common Share Data
As at the date of this MD&A, the Company had the following securities issued and outstanding:
Type of Security | Number Outstanding |
Common shares | 17,327,716 |
Stock options | 1,796,688 |
Warrants | 2,252,903 |
RSU | 20,000 |
Investor Relations Contracts
There are no investor relations contacts outstanding.
Contractual Obligations
The Company has no contractual obligations that have not been disclosed.
Risks and Uncertainties
Global Economic Uncertainty. The Company’s ability to raise capital is subject to the risk of adverse changes in the market value of the Company’s share price. Periods of macroeconomic weakness or recession and heightened market volatility caused by adverse geopolitical
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developments could increase these risks, potentially resulting in adverse impacts on the Company’s ability to raise further capital on favorable terms. The impact of geopolitical tension, such as the conflict in the Middle East, a deterioration in the bilateral relationship between the US and China or an escalation in conflict between Russia and Ukraine, including any resulting sanctions, export controls or other restrictive actions that may be imposed by the US and/or other countries against governmental or other entities in, for example, Russia, also could lead to disruption, instability and volatility in global trade patterns, which may in turn impact the Company’s ability to source necessary raw materials and other inputs for manufacturing or the Company’s ability to close new revenue generating orders.
On October 7, 2023, an attack was launched against Israel by Hamas (a terror organization) which thrust Israel into a state of war (hereinafter: “The state of war”) in Israel and in Gaza strip. The company is continuing with its operations both in Israel and globally, as the state of war had no material impact on its operations or business result. While none of the Company’s facilities or infrastructure have been damaged since the war broke out on October 7, 2023, the import and export of goods may experience disruptions in and out of Israel as a result of such military conflict. The Company currently relies on drying locations in Northern Israel, in areas which may be at greater risk for disruption as a result of such military conflict and is in the process of examining and evaluating other potential drying alternatives and growing inventory levels in the United States to mitigate the risk of disruption. The Company continues to assess the effects of the state of war on its Consolidated Financial Statements and business
Market Risks. The Company’s securities trade on public markets and the trading value thereof is determined by the evaluations, perceptions and sentiments of both individual investors and the investment community taken as a whole. Such evaluations, perceptions and sentiments are subject to change, both in short-term time horizons and long-term time horizons. An adverse change in investor evaluations, perceptions and sentiments could have a material adverse outcome on the Company and its securities.
Financing Risks. The Company will be dependent on raising capital through a combination of debt and/or equity offerings. There can be no assurance that the capital markets will remain favorable in the future, and/or that the Company will be able to raise the financing needed to continue its business at favorable terms, or at all. Restrictions on the Company’s ability to finance could have a material adverse outcome on the Company and its securities.
Share Price Volatility and Price Fluctuations. In recent years, the securities markets in Canada have experienced a high level of price and volume volatility, and the market prices of securities of many corporations have experienced wide fluctuations which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies.
Key Personnel Risks. The Company’s efforts are dependent to a large degree on the skills and experience of certain of its key personnel, including the board of directors. The Company does not maintain “key man” insurance policies on these individuals. Should the availability of these persons’ skills and experience be in any way reduced or curtailed, this could have a material adverse outcome on the Company and its securities.
General Business Risk and Liability. Given the nature of the Company’s business, it may from time to time be subject to claims or complaints from investors or others in the normal course of business. The legal risk facing the Company, its directors, officers and employees in this respect
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includes potential liability for violations of securities laws, breach of fiduciary duty or misuse of investors’ funds. Some violations of securities laws and breach of fiduciary duty could result in civil liability, fines, sanctions or the suspension or revocation of the Company’s right to carry on its existing business. The Company may incur significant costs in connection with such potential liabilities.
Competition. There is the potential that the Company will face intense competition from other companies, some of which can be expected to have more financial resources, industry, manufacturing and marketing experience than the Company. Additionally, there is potential that the industry will undergo consolidation, creating larger companies that may have increased geographic scope and other economies of scale. Increased competition between larger, better-financed competitors with geographic or other structural advantages could materially and adversely affect the business, financial condition and results of operations of the Company. To remain competitive, the Company will require a continued level of investment in research and development, marketing, sales and client support. The Company may not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive basis which could materially and adversely affect the business, financial condition and results of operations of the Company.
Reliance on Key Business Inputs. The Company’s business is dependent on a number of key inputs and their related costs including raw materials and suppliers related to its growing operations as well as electricity, water, and other utilities. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of the Company. Any liability to secure required supplies and services or to do so on appropriate terms could also have a materially adverse impact on the business, financial condition, and operating results of the Company.
Potential product recalls. Manufacturers and distributers of products are sometimes subjected to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packing safety and inadequate or inaccurate labeling disclosers. If the Company’s product is recalled due to an alleged product defect or for any other reason, the Company could be required to incur the unexpected expenses of the recall and any legal proceedings that might arise in connection with the recall.
The Company may lose a significant number of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention.
Although the Company had detailed procedures in place for testing finished products, there can be no assurance that any quality, potency or contamination problem will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuit. Additionally, if one of the Company’s products was subject to recall, the image of the Company could be harmed. A recall for any one of the foregoing reasons could lead to decreased demand for the Company’s products and could have a material adverse effect on the results of operations and financial condition of the Company.
History of Net Losses; Accumulated Deficit; Lack of Revenue from Operations. The Company has incurred net losses to date. The Company may continue to incur losses. There is no certainty that the Company will operate profitably or provide a return on investment in the future.
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Uninsurable risks. The Company may become subject to liability for events against which it cannot insure or against which it may elect not to insure. Such events could result in substantial damage to property and personal injury. The payment of any such liabilities may have a material, adverse effect on the Company’s financial position.
No History of Dividends. Since incorporation, the Company has not paid any cash or other dividends on its common stock and does not expect to pay such dividends in the foreseeable future, as all available funds will be invested primarily to finance the Company’s operations. The Company will need to achieve profitability prior to any dividends being declared.
Additional information related to the Company, is available for viewing on SEDAR+ at www.sedarplus.ca. This additional information is not incorporated into this Management’s Discussion and Analysis and does not constitute a part of this Management’s Discussion and Analysis.
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Form 52-109FV2
Certification of interim filings - venture issuer basic certificate
I, Ilan Sobel, Chief Executive Officer of BioHarvest Sciences Inc., certify the following:
1.Review: I have reviewed the condensed consolidated interim financial report and interim MD&A (together, the “interim filings”) of BioHarvest Sciences Inc. (the “issuer”) for the interim period ended June 30, 2024.
2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: August 29, 2024
/s/ Ilan Sobel
Ilan Sobel CEO
NOTE TO READER In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i)controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii)a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
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Form 52-109FV2
Certification of interim filings - venture issuer basic certificate
I, Alan Rootenberg, Chief Financial Officer of BioHarvest Sciences Inc., certify the following:
1.Review: I have reviewed the condensed consolidated interim financial report and interim MD&A (together, the “interim filings”) of BioHarvest Sciences Inc. (the “issuer”) for the interim period ended June 30, 2024.
2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: August 29, 2024
/s/ Alan Rootenberg
Alan Rootenberg CFO
NOTE TO READER In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i)controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii)a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
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