Grace Therapeutics, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation The following discussion should be read in conjunction with the attached consolidated financial statements and notes thereto. This annual report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see Item 1A, “Risk Factors” of this annual report. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this annual report. We undertake no obligation to update forward-looking statements which reflect events or circumstances occurring after the date of this annual report, unless required by applicable securities laws. Introduction This management’s discussion and analysis, or MD&A, is presented in order to provide the reader with an overview of the financial results and changes to our financial position as at March 31, 2021 and for the three and twelve-month periods then ended. This MD&A explains the material variations in our financial statements of operations, financial position and cash flows for the three and twelve-month periods ended March 31, 2021, and 2020. Market data and certain industry data and forecasts included in this MD&A were obtained from internal corporation surveys, market research, and publicly available information, reports of governmental agencies and industry publications and surveys. We have relied upon industry publications as our primary sources for third-party industry data and forecasts. Industry surveys, publications and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. We have not independently verified any of the data from third-party sources or the underlying economic assumptions they made. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon our management’s knowledge of our industry, have not been independently verified. Our estimates involve risks and uncertainties, including assumptions that may prove not to be accurate, and these estimates and certain industry data are subject to change based on various factors, including those discussed under Item 1.A “Risk Factors” in this annual report. While we believe our internal business, research is reliable and the market definitions we use in this MD&A are appropriate, neither our business research nor the definitions we use have been verified by any independent source. This MD&A may only be used for the purpose for which it has been published. This MD&A, approved by the Board of Directors on June 22, 2021, should be read in conjunction with our audited consolidated financial statements for the year ended March 31, 2021, and 2020. Our audited financial statements were prepared in accordance with generally accepted accounting principles issued by the Financial Accounting Standards Board in the United States, or GAAP. Up to and including the third quarter ended December 31, 2019, we prepared our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board. Our financial results are now published in United States dollars. Effective March 31, 2020, the reporting currency used in the consolidated financial statements changed from Canadian dollars to U.S. dollars. This change in reporting currency has been applied in the financial statements retrospectively such that all amounts expressed in our consolidated financial statements and the accompanying notes thereto are in U.S. dollars. All amounts appearing in this MD&A for the period-by-period discussions are in thousands of U.S. dollars, except share and per share amounts or unless otherwise indicated. 27 Basis of presentation of the financial statements Our consolidated financial statements, which include the accounts of our subsidiary AIAG, have been prepared in accordance with GAAP and the rules and regulations of the SEC related to annual reports filed on Form 10-K. All intercompany transactions and balances are eliminated on consolidation. The following summarizes the principal conditions or events relevant to our going concern assessment, which primarily considers the period of one year from the issuance date of our financial statements. We have incurred operating losses and negative cash flows from operations since our inception. In prior years there was substantial doubt regarding our ability to realize our assets and discharge our liabilities and commitments in the ordinary course of business. During year ended March 31, 2021, we raised net proceeds of $59.3 million under our ATM program. Our assets as at March 31, 2021, include cash and cash equivalents and short-term investments totaling $60.8 million. Our current liabilities total $1.6 million as at March 31, 2021 and are comprised primarily of amounts due to or accrued for creditors. Our ability to continue as a going concern is dependent upon our ability to achieve a successful completion of our proposed merger with Grace or another strategic alternative and ultimately generate cashflows to meet our obligations. To date, we have financed our operations primarily through public offerings of common shares, private placements, and the proceeds from research tax credits, and will require additional financing in the future. There is no assurance that our proposed merger with Grace or another strategic transaction will be consummated as such transaction is not within our control. As a result of our current liquidity profile, the reduction of operating expenses and the limited liabilities, management has assessed that substantial doubt no longer exists regarding our ability to continue as a going concern for one year from the issuance date of these financial statements. Comparative financial information for the three-month periods and years ended March 31, 2021, and 2020. Three-month periods ended Year ended March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020 $ $ $ $ Net income (loss) (5,646 ) 16,625 (19,678 ) (25,513 ) Basic and diluted gain (loss) per share (0.03 ) 0.18 (0.17 ) (0.30 ) Total assets 62,458 22,853 62,458 22,853 Working capital 1 60,793 8,684 60,793 8,684 Total non-current financial liabilities 5,219 2,464 5,219 2,464 Total shareholders’ equity 55,660 12,994 55,660 12,994 _____________________________________ 1 Working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by GAAP, the results may not be comparable to similar measurements presented by other public companies. 28 Statement of Net Loss Three-month periods ended Year ended March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020 $ $ $ Revenue 115 - 196 - Cost sales of products (40 ) - (76 ) - Research and development expenses (453 ) (1,918 ) (4,173 ) (15,974 ) General and administrative expenses (1,443 ) (1,549 ) (5,521 ) (5,799 ) Sales and marketing expenses (66 ) (563 ) (1,142 ) (2,665 ) Impairment of Intangible assets - - (3,706 ) - Impairment of Equipment - - (1,584 ) - Impairment of Other assets and prepaids (413 ) - (413 ) - Financial Income (expenses) (3,346 ) 20,646 (3,259 ) (1,075 ) Net loss (5,646 ) 16,616 (19,678 ) (25,513 ) Results of operations for the three and twelve-month periods ended March 31, 2021, and 2020 Three months ended March 31, 2021, and 2020 The net loss of $5,646 or $0.03 per share for the three months ended March 31, 2021, increased by $22,262 from the net income of $16,616 or $0.18 per share for the three months ended March 31, 2020. The increase in net loss resulted primarily from net financial expenses decreasing by $23,992 to an expense of $3,346 for the three months ended March 31, 2021, as compared to net financial income of $20,646 for the three months ended March 31, 2020. This is due mostly to a decrease from the change in fair value of the derivative warrant liability as compared to the comparative fiscal quarter in 2020 caused by a proportionately higher decrease in the quarter over quarter closing share price partly offset by a reduction in the number of warrants outstanding due to exercises during the prior year. In October 2020, the Corporation entered into an agreement with the Centre Integre Universitaire et des services sociaux de L’Estrie – Centre hospitalier Universitaire de Sherbrooke to start producing and selling viral transport medium tubes to be utilized in testing related to the COVID-19 pandemic. In addition, a decrease in research and development expenses of $1,465 occurred as the TRILOGY Phase 3 clinical program for CaPre was winding down. General and administrative expenses decreased from the prior period, with the current period being impacted by lower legal and professional fees. Sales and marketing expenses also decreased as a result of the termination of CaPre commercialization activities due to the TRILOGY 2 Phase 3 clinical trial results. Fiscal years ended March 31, 2021, and 2020 The net loss of $19,678 or $0.17 per share for the year ended March 31, 2021, decreased by $5,835 from the net loss of $25,513 or $0.30 per share for the year ended March 31, 2020. The decreased net loss resulted in part from a decrease in research and development expenses of $11,801 occurred as the TRILOGY Phase 3 clinical program for CaPre was winding down. General and administrative expenses decreased from the comparative period due to decreased stock-based compensation. Sales and marketing expenses also decreased by $1,523, as a result of the termination of any CaPre commercialization activities due to the TRILOGY 2 Phase 3 clinical trial results. Furthermore, operational events related to the TRILOGY results resulted in increased loss related to the impairment of equipment and intangible assets amounting to $5,290. The decreased net loss also resulted from financial expenses of $3,259 for the year ended March 31, 2021, as compared to net financial expenses of $1,075 for the year ended March 31, 2020, due mostly to the change in fair value of the warrant derivative liability. 29 Two separate derivative warrant liabilities are included in the statement of financial position as at March 31, 2021, and March 31, 2020. These derivative warrant liabilities stem from financing transactions that took place in May 2018 and December 2017. These derivative warrant liabilities are re-measured to fair value at each reporting date using the Black-Scholes option pricing model. The valuations are mainly driven by the fluctuation in our share price resulting in an increased or decreased loss or gain related to the change in fair value of the warrant liabilities and increasing or decreasing the corresponding liability in the balance sheet. Breakdown of major components of the statement of loss and comprehensive loss Research and development expenses Three Months Ended Year Ended March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020 $ $ $ $ Salaries and benefits 344 476 1,459 1,759 Research contracts 2 669 917 10,260 Professional fees 57 119 467 1,117 Other 37 81 188 392 Government grants & tax credits (36 ) (117 ) (127 ) (313 ) Sub-total 404 1,228 2,904 13,215 Stock-based compensation 49 93 353 443 Depreciation and amortization - 597 916 2,316 Total 453 1,918 4,173 15,974 General and administrative expenses Three Months Ended Year Ended March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020 $ $ $ $ Salaries and benefits 434 385 1,321 1,506 Professional fees 593 615 2,337 2,018 Other 294 291 1,027 1,058 Sub-total 1,321 1,291 4,685 4,582 Stock-based compensation 122 258 828 1,217 Depreciation - - 8 - Total 1,443 1,549 5,521 5,799 Sales and Marketing Expenses Three Months Ended Year Ended March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020 $ $ $ $ Salaries and benefits 65 389 1,050 1,206 Professional fees - 48 75 711 Other 1 32 24 455 Sub-total 66 469 1,149 2,372 Stock-based compensation - 94 (7 ) 293 Total 66 563 1,142 2,665 30 Three months ended March 31, 2021, compared to the three months ended March 31, 2020 During the three months ended September 30, 2020, we released our TRILOGY 2 Phase 3 clinical study results for CaPre. TRILOGY 2 failed to meet the primary endpoint, and consequently we decided we will not file an NDA with the FDA. Research and development expenses are reduced due to the completion of the TRILOGY program, and we discontinued all CaPre related marketing activities, while we evaluated a range of strategic alternatives. As a result, research and development expenses before depreciation, amortization and stock-based compensation expense for the three months ended March 31, 2021, totaled $404 compared to $1,228 for the three months ended March 31, 2020. The net decrease of $824 was mainly attributable to a reduction in research contracts with the completion of the TRILOGY research and development activities of $667 as well as a reduction in headcount within the department resulting in a decrease of salaries of $132. The remaining decrease of $23 is a result of various other operational reductions. General and administrative expenses totaled $1,321 before depreciation and stock-based compensation expense for the three-months ended March 31, 2021 and increased by $31 from $1,291 for the three months ended March 31, 2020. This increase is mostly a result of increased salaries of $49 related to retention amounts offset by a decrease in professional fees of $22. Sales and marketing expenses were $66 before stock-based compensation expense for the three months ended March 31, 2021, compared to $469 for the three months ended March 31, 2020. The decrease of $403 was mostly due to a decrease in salaries related to the reduction in headcount in the department of $324 as well as a decrease of $79 related to other sales activities as a result of discontinuing planned pre-launch marketing activities for CaPre. Stock-based compensation expense decreased by $274 to $171 for the three-month period ended March 31, 2021, as compared to $445 for the three-month period ended March 31, 2020. The decrease in expense is due to forfeited options as well as the fact that no options have been granted in the current period. The depreciation expense decreased by $597 for the three-month period ended March 31, 2021, as compared to $597 for the three-month period ended March 31, 2020. This is due to the impact of the equipment being classified as held for resale and no additional depreciation recognized. Year ended March 31, 2021, compared to year ended March 31, 2020 During the three months ended September 30, 2020, we released our TRILOGY 2 Phase 3 clinical study results for our lead product in development, CaPre. TRILOGY 2 failed to meet its primary endpoint, and consequently we will not file an NDA with the FDA. Research and development expenses have been reduced due to the completion of the TRILOGY program, and we discontinued all CaPre related marketing activities while we evaluate a range of strategic alternatives. As a result, research and development expenses before depreciation, amortization and stock-based compensation expense for the year ended March 31, 2021, totaled $2,904 compared to $13,215 for the year ended March 31, 2020. The net decrease of $10,311 was mainly attributable to a reduction in research contracts with the completion of the CaPre R&D activities of $9,343 as well as a reduction in headcount within the department resulting in a decrease of salaries of $300. In addition, a decrease of $854 related to various other operational reductions such as professional fees resulted, as well as a decrease to the government tax credits of $186. General and administrative expenses totaled $4,685 before depreciation and stock-based compensation expense for the year ended March 31, 2021 and increased by $103 from $4,582 for the year ended March 31, 2020. This increase was mainly attributable to a $100 increase associated with our insurance policies, as well as an increase of $186 in legal fees, which was offset by a $185 decrease in salaries related to a reversal in bonus amounts accrued. Sales and marketing expenses were $1,149 before stock-based compensation expense for the year ended March 31, 2021, compared to $2,372 for the year ended March 31, 2020. The decrease of $1,223 was mostly due to a reduction in salaries of $156 due to a reduction in headcount, as well as a reduction in professional fees and other sales activities of $1,067 due to the end of the planned pre-launch marketing activities for CaPre. 31 Stock-based compensation expense decreased by $779 to $1,174 for the year ended March 31, 2021, as compared to $1,953 for the year ended March 31, 2020. The decrease in expense is due to forfeited options as well as the fact that no options have been granted in the current period. The depreciation expense decreased by $1,392 to $924 for the year ended March 31, 2021, as compared to $2,316 for the year ended March 31, 2020. This is due to the impact of the equipment being classified as held for resale and no additional depreciation recognized. Liquidity and Capital Resources Share Capital Structure Our authorized share capital consists of an unlimited number of Class A, Class B, Class C, Class D and Class E shares, without par value. Issued and outstanding fully paid shares, stock options, restricted shares units and warrants, were as follows for the periods ended: March 31, 2021 March 31, 2020 Number outstanding Number outstanding Class A shares, voting, participating and without par value 208,375,549 90,209,449 Stock options granted and outstanding 7,294,919 9,936,486 May 2018 public offering of warrants exercisable at CAD $1.31, until May 9, 2023 6,593,750 6,593,750 Public offering broker warrants May 2018 exercisable at CAD $1.05 until May 9, 2023 1 222,976 December 2017 U.S. public offering of warrants exercisable at US$1.26, until December 19, 2022 7,072,962 7,072,962 December 2017 U.S. broker warrants exercisable at US $1.2625, until December 27, 2022 259,121 259,121 February 2017 public offering of warrants exercisable at CAD $2.15, until February 21, 2022 1,723,934 1,723,934 Total fully diluted shares 231,320,236 116,018,678 Cash Flows and Financial Condition between the years ended March 31, 2021 and 2020 Summary As at March 31, 2021, cash and cash equivalents totaled $50,942, a net increase of $36,702 compared to cash and cash equivalents totaling $14,240 at March 31, 2020. Operating activities During the years ended March 31, 2021, and March 31, 2020, our operating activities used cash of $14,319 and $22,951, respectively, the decrease of which is a reflection of the completion of our Phase 3 program for CaPre and related reduction of accounts payables and accruals. Investing activities During the year ended March 31, 2021, we used cash of $9,858 due primarily to the acquisition of investments. During the year ended March 31, 2020, we generated cash of $8,138 due primarily to the maturity of investments. 32 Financing activities During the year ended March 31, 2021, the Corporation’s financing activities provided cash totaling $59,490 due to proceeds from the sale of shares under the “at-the-market”, or ATM, program, compared to cash generated of $13,183 due to proceeds from the sale of shares under the “at-the-market” and exercise of warrants, net of repayment of convertible debentures of $1,556 during the year ended March 31, 2020. On June 29, 2020, we filed a registration statement on Form S-3 with the SEC to register up to US $200 million of common shares, warrants and units that may be offered and sold by us from time to time (the “Registration Statement”). The Registration Statement was declared effective by the SEC on July 7, 2020. ATM Program On February 14, 2019, the Corporation entered into an “at-the-market” (ATM) sales agreement with B. Riley FBR, Inc. (“B. Riley”) pursuant to which the Common Shares may be sold from time to time for aggregate gross proceeds of up to $30 million, with sales only being made on the NASDAQ Stock Market. The Common Shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 3-year term and requires the Corporation to pay between 3% and 4% commission to B. Riley based on volume of sales made. On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the Sales Agreement) with B. Riley, Oppenheimer& Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the existing ATM program. Under the terms of the Sales Agreement, the Corporation may issue and sell from time to time its common shares having an aggregate offering price of up to US $75,000,000 through the Agents. Subject to the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell the common shares from time to time, based upon the Corporation’s instructions. The Corporation has no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. The Corporation and the Agents may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Corporation has provided the Agents with customary indemnification rights and the Agents will be entitled to compensation, at a commission rate equal to 3.0% of the gross proceeds from each sale of the common shares. As at March 31, 2021, a total of 117.7 million common shares (March 31, 2020 – 4.1 million common shares) were sold for total net proceeds of approximately $59.3 million (March 31, 2020 - $7.0 million) under the ATM program. Commission, legal and costs related to share sale amounted to $2.0 million (March 31, 2020 - $291). The shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.52 per share (March 31, 2020 - $1.79 per share). Accordingly, proportional costs of $18 related to the common shares sold, have been reclassified from deferred financings costs to equity (March 31, 2020 - $40). Total costs incurred to register the Sales Agreements were initially recorded as deferred financing costs in the Consolidated Balance Sheet. As at March 31, 2021, the remaining balance of the costs incurred of $264 were written off to financing expenses. Financial Position The following table details the significant changes to the statements of financial position as at March 31, 2021, compared to the prior fiscal year end at March 31, 2020: Accounts Increase (Decrease) $ Comments Cash and cash equivalents 36,702 See cash flow statement Investments 9,789 Increase in cash available to invest Receivables (16) Timing of reimbursement of sales taxes Deferred financing costs (121) New costs, net of write off Prepaid expenses (634) Expensing of insurance, impairment and other prepaid expenses Other assets (281) Use of other assets in research and development activities and impairment Equipment (1,529) Amortization & Impairment Right of use asset (61) Adjustment to the net present value of lease contract for Sherbrooke Intangible assets (4,244) Amortization and Impairment of license Trade and other payables (5,826) Timing of payments net of accruals Derivative warrant liabilities 2,826 Change in fair value of derivative warrants Lease liability (61) Payment of lease liability 33 See the statement of changes in equity in our financial statements for details of changes to the equity accounts since March 31, 2020. Treasury Operations Our treasury policy is to invest cash that is not required immediately into instruments with an investment strategy based on capital preservation. Cash equivalents and marketable securities are primarily made in guaranteed investment certificates, term deposits and high-interest savings accounts, which are issued and held with Canadian chartered banks, highly rated promissory notes issued by government bodies and commercial paper. We hold cash denominated in both U.S. and CAD dollars. Funds received in U.S. dollars from equity financings are invested as per our treasury policy in U.S. dollar investments and converted to CAD dollars as appropriate to fulfill operational requirements and funding. Impairment loss Intangible assets: The Corporation tests intangible assets for impairment should circumstances change or events occur that would indicate that the fair value of an asset may be below its carrying value. During the second quarter of fiscal 2021, the Corporation released its topline TRILOGY 2 Phase 3 clinical trial results and the resulting decision to not file an NDA to obtain FDA approval for CaPre as a result of TRILOGY 2 not meeting its primary endpoint. As a result, a significant share price reduction occurred. Due to these indicators of impairment under ASC 350, the Corporation undertook an analysis to determine the fair value of its intangible asset this quarter. In prior years, the Corporation entered into agreements with Neptune Wellness Solutions Inc. (“Neptune”) pursuant to which the Corporation obtained a license and exercised its option under this license agreement to pay in advance all of the future royalties payable to Neptune. This license allows the Corporation to exploit the intellectual property rights in-order to develop novel active pharmaceutical ingredients into commercial products for the prescription drugs market. In assessing the magnitude of any impairment of the license the Corporation considered all available evidence including i) significant adverse impact from business climate due to the TRILOGY Phase 3 clinical programs failure to meet its primary endpoints, and the resulting decision to not file an NDA to obtain FDA approval for CaPre, and the resulting internal forecasts that no cash flows from the use of the license was possible, and (ii) management’s estimate that a market place participant would place minimal to no value on the license if it were to be sold on its own or in combination with other assets, recognized or not, which is a level 3 measurement in the fair value hierarchy which included unobservable inputs. Accordingly, an impairment loss of $3,706 was recognized during the year ended March 31, 2021, which represents the totality of the intangible assets net book value prior to the impairment trigger. For the year ended March 31, 2021, amortization expense was $781 (2020 - $1,910) and was included in research and development expenses. Assets held for sale During the period the Corporation committed to a plan and is actively marketing for sale Other assets and Equipment and has met the criteria for classification of assets held for sale: March 31, 2021 March 31, 2020 $ $ Other assets 387 668 Equipment 381 1,910 768 2,578 34 Other assets Other assets represent krill oil (RKO) held by the Corporation that was expected to be used in the conduct of R&D activities and commercial inventory scale up related to the development and commercialization of the CaPre drug. Given that the development of CaPre will no longer be pursued, the Corporation is expected to sell this reserve. The other asset is being recorded at the fair value less costs to sell, which has resulted in an impairment loss of $413. Management’s estimate of the fair value of the RKO less cost -to sell, is based primarily on estimated market prices obtained from an appraiser specialized in the krill oil market. These projections are based on Level 3 inputs of the fair value hierarchy and reflect management’s best estimate of market participants’ pricing of the assets as well as the general condition of the asset. The total impairment loss recognized, includes amounts paid for krill oil in advance, but not yet received and was recorded as a prepaid. Equipment March 31, 2021 Cost Accumulated depreciation Impairment loss Net book value $ $ $ $ Furniture and office equipment 17 (5 ) - 12 Computer equipment 148 (30 ) (54 ) 64 Laboratory equipment 756 (436 ) (171 ) 149 Production equipment 2,538 (1,023 ) (1,359 ) 156 3,459 (1,494 ) (1,584 ) 381 March 31, 2020 Cost Accumulated depreciation Net book value $ $ $ Furniture and office equipment 15 3 12 Computer equipment 64 18 46 Laboratory equipment 684 343 341 Production equipment 2,341 830 1,511 3,104 1,194 1,910 For the year ended March 31, 2021, depreciation expense was $143 (2020 $410) and was included in research and development expenses. Equipment is made up of laboratory, production, computer and office equipment that was utilized in the development of CaPre. Given that the development of CaPre will no longer be pursued by the Corporation, it is expected to sell this equipment. Similar, to how the intangible assets are treated, the announcement of the outcomes of the TRILOGY clinical trials resulted in an impairment trigger for the laboratory and production equipment. The impairment loss is based on management’s estimate of the fair value of the equipment less cost -to sell, which is based primarily on estimated market prices obtained from brokers specialized in selling used equipment. These projections are based on Level 3 inputs of the fair value hierarchy and reflect the management’s best estimate of market participants’ pricing of the assets as well as the general condition of the assets. Derivative warrant liabilities The 10,188,100 warrants issued as part of our May 2018 public offering in Canada were recognized as derivative warrant liabilities with a fair value of $3,323. As of March 31, 2021, the derivative warrant liability for the remaining 6,593,750 warrants totaled $2,597, which represents the fair value of these warrants. The weighted average fair value of the warrants issued in the May 2018 public offering in Canada was determined to be CAD$0.39 per warrant at inception and approximately CAD$0.49 (USD $0.39) per warrant as at March 31, 2021. 35 On December 27, 2017, 9,801,861 warrants were issued as part of our U.S. public offering and recognized as derivative warrant liabilities. The December 2017 warrants are derivative warrant liabilities for accounting purposes due to the currency of the exercise price (US$) being different from our Canadian dollar functional currency. As of March 31, 2021, the derivative warrant liability for the remaining 7,072,962 warrants totaled $2,622 which represents the fair value of these warrants. The weighted average fair value of the 2017 warrants issued was determined to be CAD$0.60 per warrant at inception and approximately CAD$0.47 (USD $0.37) per warrant as at March 31, 2021. The increase in the fair value of both existing derivative warrant liabilities as at March 31, 2021 is due to the decrease in our share price and the dilution factor. During the year ended March 31, 2021, no warrants were exercised. In fiscal 2020, the following warrants were exercised with the resulting cash proceeds: March 31, 2020 Number Proceeds exercised $ May 2018 over-allotment warrants 2018 3,594,350 3,567 December 2017 US public offering warrants 2017 2,676,611 3,373 Canadian public offering warrants February 2017 180,100 292 Canadian public offering broker warrants May 2018 325,000 257 Contingent warrants private placement 2017 150,000 217 6,926,061 7,706 Contractual Obligations and Commitments As at March 31, 2021, our liabilities totaled $6,744, of which $1,525 was due within 1 year, and $5,219 related to derivative warrant liabilities that are expected to be settled in common shares. A summary of the contractual obligations at March 31, 2021, is as follows: Contractual Obligations Total Less than 1 year 1-3 years More than 3 years $ $ $ $ Trade and other payables 1,479 1,479 - - Operating lease obligations 86 86 - - RKO supply agreement 2,800 2,800 - - Total 4,365 4,365 - - Lease On March 5, 2020, we renewed the lease agreement for our research and development and quality control laboratory facility located in Sherbrooke, Québec, resulting in an obligation of $160 over 24 months of the lease term. As at March 31, 2021, the remaining balance of the commitment amounted to $86. RKO supply agreement On October 25, 2019, we signed a supply agreement with Aker to purchase RKO for a committed volume of commercial starting material for CaPre at a fixed price for a total value of $3.1 million (take or pay). The delivery of the RKO has been established following a calendar year basis and it is expected to be completed in the 4 th calendar quarter of 2021. As at March 31, 2021, the remaining balance of the commitment with Aker amounts to $2.8 million. There are no termination provisions within the supply agreement. Management is currently assessing whether the Corporation can recover any value from the raw krill oil product and given the uncertainty of recoverability, there is a risk that the Corporation may have a loss on this contract in the near term. 36 Financial advisor agreement On September 23, 2020, we engaged Oppenheimer & Co., Inc, as our financial advisor to assist in the formal process to explore and evaluate strategic alternatives to enhance shareholder value. This arrangement includes fees of $1.2 million to be paid on the success of a strategic outcome. Contingencies We evaluate contingencies on an ongoing basis and establish loss provisions for matters in which losses are probable and the amount of the loss can be reasonably estimated. Off-Balance Sheet Arrangements As of the date of this annual report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Use of estimates and measurement of uncertainty The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates. Estimates are based on management’s best knowledge of current events and actions that management may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Estimates and assumptions include the measurement of derivative warrant liabilities (see note 10 of the consolidated financial statements), stock-based compensation (see note 14 of the consolidated financial statements), and impairment and recoverability of other assets – RKO (see note 7 of the consolidated financial statements). Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and developments expenditures at each reporting date, are determining which research and development expenses qualify for research and development tax credits and in what amounts. We recognize the tax credits once we have reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and therefore, could be different from the amounts recorded. Critical Accounting Policies Impairment of Long-Lived Assets We review the recoverability of our long-lived assets and Assets held for sale whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount is first compared with the undiscounted cash flows. If the carrying amount is higher than the sum of undiscounted cash flows, then we determine the fair value of the underlying asset group. Any impairment loss to be recognized is measured as the difference by which the carrying amount of the asset group exceeds the estimated fair value of the asset group. Measurement of Assets held for sale Assets that are classified as held for sale are measured at the lower of their carrying amount or fair value less expected selling costs (“estimated selling price”) with a loss recognized to the extent that the carrying amount exceeds the estimated selling price. The classification is applicable at the date upon which the sale of assets is probable, and the assets are available for immediate sale in their present condition. Assets once classified as held for sale, are not subject to depreciation or amortization and both the assets and any liabilities directly associated with the assets held for sale are classified as current in our Consolidated Balance Sheets. Subsequent changes to the estimated selling price of assets held for sale are recorded as gains or losses to the Consolidated Statements of Income wherein the recognition of subsequent gains is limited to the cumulative loss previously recognized. 37 Financial Instruments Credit risk Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations. We have credit risk relating to cash, cash equivalents and marketable securities, which we manage by dealing only with highly rated Canadian institutions. The carrying amount of financial assets, as disclosed in the statements of financial position, represents our credit exposure at the reporting date. Currency risk We are exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates. Foreign currency risk is limited to the portion of our business transactions denominated in currencies other than the Canadian dollar. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in our operating results. A portion of the expenses, mainly related to research contracts and salaries is incurred in U.S. dollars and in Euros, for which no financial hedging is in place. There is a financial risk related to the fluctuation in the value of the U.S. dollar and the Euro in relation to the Canadian dollar. In order to minimize the financial risk related to the fluctuation in the value of the U.S. dollar in relation to the Canadian dollar, funds which were part of U.S. dollar financings continue to be invested as short-term investments in the U.S. dollar. Furthermore, a portion of our cash and cash equivalents and marketable securities are denominated in U.S. dollars, further exposing us to fluctuations in the value of the U.S. dollar in relation to the Canadian dollar. The following table provides an indication of our significant foreign exchange currency exposures as stated in Canadian dollars at the following dates: March 31, 2021 March 31, 2020 Denominated in US $ Euro US $ Euro Cash and cash equivalents 58,176 - 5,694 - Investments 9,475 - - - Trade and other payables (687 ) (2,141 ) (7,275 ) (579 ) 66,964 (2,141 ) (1,581 ) (579 ) The following exchange rates are those applicable to the following periods and dates: March 31, 2021 March 31, 2020 Average Reporting Average Reporting CAD$ per US$ 1.3212 1.2562 1.3120 1.4062 CAD$ per Euro 1.5409 1.4736 1.4789 1.5514 Based on our foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the U.S. dollar and Euro would have an increase (decrease) in net loss as follows, assuming that all other variables remain constant: 38 March 31, 2021 March 31, 2020 $ $ Increase (decrease) in net loss 4,235 156 An assumed 5% weakening of the foreign currencies would have an equal but opposite effect on the basis that all other variables remained constant. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates. Our exposure to interest rate risk as at March 31, 2021 and March 31, 2020 is as follows: Cash and cash equivalents Short-term fixed interest rate Investments Short-term fixed interest rate Our capacity to reinvest the short-term amounts with equivalent return will be impacted by variations in short-term fixed interest rates available on the market. Management believes the risk we will realize a loss as a result of the decline in the fair value of our short-term investments is limited because these investments have short-term maturities and are held to maturity. Liquidity risk Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We manage liquidity risk through the management of our capital structure and financial leverage. We also manage liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves our operating budgets and reviews material transactions outside the normal course of business. Our contractual obligations related to financial instruments and other obligations and liquidity resources are presented in the liquidity and capital resources of this MD&A. Future accounting changes The following new standards, and amendments to standards and interpretations, are not yet effective for the period ended March 31, 2021, and have not been applied in preparing our consolidated financial statements. In June 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-13-Financial Instruments-Credit Losses (Topic 326), which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost, the new guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Management has not yet evaluated the impact of this ASU on the consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosure About Market Risk Information relating to quantitative and qualitative disclosures about market risks is detailed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.” 39 Item 8. Financial Statements and Supplementary Data See our consolidated financial statements beginning on page F-1 of this annual report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.