Ondine Biomedical Reports Robust Growth in H1 2024

8.   Accounts payable and other liabilities

9.   Lease liability

The Company's leases are for office spaces and a laboratory facility. The expense relating to variable lease payments not included in the measurement of lease obligations was $115 (June 30, 2023 - $86). This consists of variable lease payments for operating costs and property taxes. Total cash outflow for leases was $339 (June 30, 2023- $257), including $206 (June 30, 2023 - $150) of principal payments on lease obligations.

As at June 30, 2024, the minimum annual payments under these leases, including an estimate of operational costs for its office and laboratory premises based on current costs, is provided below.

10.   Warrant liability

On May 9, 2024, as part of the Company's finance raise, 25,265,977 warrants were granted with an exercise price of GBP0.15 ($0.26) and an expiration date of February 9, 2025.

The fair value of warrants granted were estimated with the Black-Scholes model using the following assumptions at the time of grant on May 9, 2024:

Volatility was estimated by using the historical volatility of the Company's trading history and volatility history. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on Canadian government benchmark bonds with a term equal to or a remaining term that approximates the expected life of the warrants.

Issuance costs for the warrants of $31 were recorded in the Comprehensive Statements of Loss and Comprehensive Loss.

The fair value of the warrants were determined estimated with the Black-Scholes model using the following assumptions as at June 30, 2024:

As at June 30, 2024, warrants outstanding had a remaining contractual life of 0.6 years (June 30, 2023- nil).

11.   Share capital

Common Stock

Authorized

An unlimited number of common shares without par value.

Issued

As at June 30, 2024, the Company's issued share capital consisted of 277,285,759 common shares (December 31, 2023 - 226,753,789).

On May 9, 2024, the Company issued 50,531,970 common shares at a price of GBP0.07 ($0.12). The Company incurred accounting, legal, advisory and disbursement costs of $550 directly related to the completion of the finance raise. The costs incurred were recorded to equity in the consolidated statement of financial position.

12.  Share-based payments

(a)  Stock Option Plan

On November 1, 2021, the Board of Directors approved and adopted an amended stock option plan for the Company which provides for the grant of stock options to directors, officers, employees and consultants from time to time at the discretion of the directors. Under the terms of the amended stock option plan, the maximum number of options authorized for issuance is 10% of the issued and outstanding common shares in any 10-year period for any employee' share scheme and the maximum number of options authorized for issuance is 5% of the issued and outstanding common shares in any 10-year period for any executive share scheme. As at June 30, 2024, the maximum number of total options that can be outstanding are 27,728,576 (December 31, 2023 - 22,675,379).

A summary of the status of the stock options outstanding is as follows:

Share-based payments expense for the six months ended June 30, 2024, in the amount of $486 (June 30, 2023 - $417) was recorded.

The outstanding options for the six months ended June 30, 2024 is as follows:

The fair value of stock options granted during the six months ended June 30, 2024 and 2023 were estimated with the Black-Scholes model using the following assumptions at the time of grant:

Volatility was estimated by using the historical volatility of other companies that the Company considers comparable that have trading history and volatility history. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on Canadian government benchmark bonds with a term equal to or a remaining term that approximates the expected life of the options.

The weighted average fair value of stock options granted during the twelve months ended June 30, 2024, was $0.12 per option (June 30, 2023 - $0.18). As at June 30, 2024, stock options outstanding had a remaining contractual life of 3.98 years (June 30, 2023 - 2.11 years).

(b) Warrants

On May 30, 2020 and December 1, 2021, the Company granted warrants entitling the holders to acquire common shares of the Company as consideration for ongoing consulting and advisory services. A summary of the status of the warrants outstanding is as follows:

The expense for the six months ended June 30, 2024 was $nil (June 30, 2023 - $nil). As at June 30, 2024, warrants outstanding had a remaining contractual life of 0.5 years (June 30, 2023- 1.5 years).

13.  Related party transactions

(a)  Revenues, product shipments and expenses

(i)   Product sales for the six months ended June 30, 2024 were to a related company. The revenue associated with product shipments was not recognized due to revenue recognition conditions not being met, and the cost of the product shipped to a related company was included in cost of goods sold. The revenue associated with product shipments will be recognized in a subsequent year(s) upon invoice payment. For the six months ended June 30, 2024, there was $11 (June 30, 2023 - $5) of products shipped to a related party company for which revenue was not recognized.

(b) Compensation of key management personnel

The Company's key management personnel have the authority and responsibility for planning, directing and controlling activities of the Company and consists of the Company's executive officers and directors.

(i)   During the six months ended June 30, 2023, the Company reassessed the initial estimates of the key managements' performance against the established criteria, leading to a change in estimate of the bonus accrual and reduced compensation and other short-term benefits by $625.

(ii)   On May 9, 2024, as part of the Company's finance raise, directors' fees of $271 were paid in the form of Common Shares.

(iii)  On January 25, 2024, the Company granted 5,815,000 stock options to key management personnel.

(iv)  Expenses incurred for consulting services provided by companies under the control of an officer and a related party of the Company

(c)  Related party balances

(i)         On May 9, 2024, as part of the Company's finance raise, key management personnel received 2,039,989 warrants

(ii)        Loans payable to related parties are due to the personal holding company of the Company's controlling shareholder. The loans payable to related parties are unsecured. The related party balances included in accounts payable and other liabilities consist of payables for services incurred to related parties

14.  Commitments and contingencies

Open purchase order commitments as at June 30, 2024 were $1,521 (December 31, 2023 - $469) for the purchase of inventory and contracted development and clinical services.

The Company and its subsidiaries may, from time to time, be a party to certain legal disputes and claims arising from employment, environmental or commercial issues in the normal course of business. The Company has the following contingency at June 30, 2024:

(i)         The Company's Barbadian subsidiary held intellectual property in Barbados until December 22, 2022. As a result of the Barbados Companies (Economic Substance) Act passed in 2019, the Barbadian subsidiary must comply with economic substance requirements set out in the legislation. If the Barbadian subsidiary cannot establish economic substance in Barbados, the Barbadian subsidiary could be subject to additional financial penalties and/or could be struck from the register of companies.

On December 22, 2022, the Company transferred the intellectual property from the Barbadian subsidiary to a new Swiss subsidiary via an intercompany sale at a fair value which was determined by an independent third party. Challenges from Barbadian, Swiss, Canadian or United States authorities regarding any of the foregoing, which results in an unfavorable outcome, could have a material impact on the financial position and operating results of the Company.

15.  Segmented information

Management has determined that the Company has one reportable operating segment, aPDT products. This segment accounts for all of the Company's revenue, cost of goods sold and operating expenses. Determination of the operating segment was based on the level of financial reporting to the Company's chief operating decision makers. Revenues are attributed to the geographic area where the customer is located.

Revenue from significant customers are as follows:

A summary of non-current assets (excluding other assets) by geographical area based on the location of the asset is as follows:

16.  Financial risk management and financial instruments

All assets and liabilities for which fair value is measured or disclosed in the unaudited condensed consolidated interim financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1     Unadjusted quoted market prices in active markets for identical assets or liabilities;

Level 2     Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and

Level 3     Valuation techniques for which the lowest level input that is significant to the fair value measurement is not based on observable market data.

As at June 30, 2024, the carrying values of cash, restricted cash, accounts and other receivables, and accounts payable and other liabilities approximate their fair values because of their nature, relatively short maturity dates.

Financial liabilities measured at fair value through profit or loss on a recurring basis include the warrant liabilities (Note 10) which are categorized as Level 2 fair value inputs.

(a)  Management of risks arising from financial instruments

The overall responsibility for the establishment and oversight of the Company's risk management policies resides with the Board of Directors. The Company's risk management policies are established to identify, analyze and manage the risks faced by the Company and to implement appropriate procedures to monitor risks and adherence to established controls. Risk management policies and systems are reviewed periodically in response to the Company's activities and to ensure applicability. The Company, through its financial assets and liabilities, is exposed to certain risks as follows:

Credit risk

The Company is exposed to credit risk arising from the possibility that cash held, and accounts receivable are non-recoverable.  However, the Company believes that its exposure to credit risk in relation to the cash and receivables is low. All of the cash held by the Company and its subsidiaries was held with reputable financial institutions. Since the majority of the Company's customers are considered to have low default risk and its historical default rate and frequency of losses are low, the lifetime expected credit loss allowance as at June 30, 2024 is shown in the table below. The Company's maximum exposure to credit risk is limited to the carrying amount of financial assets recognized as at June 30, 2024 and June 30, 2023 summarized below:

The aging of the Company's accounts receivable is as follows:

The change in the Company's credit loss allowance for provision is as follows:

Foreign currency risk

The results of the Company's operations are subject to currency transaction and translation risks. The fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company operates in Canada, the United States, the United Kingdom, Barbados, and Switzerland and is exposed to foreign exchange risk due to fluctuations in the US Dollar ("US$"), Great British Pound ("GBP"), Barbadian Dollar, and Swiss Franc against the Canadian dollar. Foreign exchange risk arises from financial assets and liabilities denominated in currencies other than the functional currency of the respective entities. The Company's primary risk is associated with fluctuations between the US$ and Canadian dollar, and the GBP and Canadian dollar.

The Company has determined that the effect of a 10% increase or decrease in the US$ and GBP against the Canadian dollar on net financial assets and liabilities, as at June 30, 2024, including cash, accounts receivables, accounts payable and other liabilities denominated in US$, and GBP would result in an increase or decrease of approximately $151 (June 30, 2023 - $261) in the unaudited condensed consolidated interim statements of loss and comprehensive loss for the six months ended June 30, 2024.

Interest rate risk

Interest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The Company did not incur or have any other interest-bearing assets or liabilities.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due.  The Company's objective is to ensure that there is sufficient liquidity to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash. The Company's principal sources of liquidity are cash provided by operations, related party loans, debt and equity issuances. The Company projects and monitors its cash requirements to accommodate changes in liquidity needs (Note 1).

In addition to the commitments in Note 9, Note 10 and Note 14, the Company has the following contractual financial liabilities as at June 30, 2024:

17.  Cost of goods sold

18.  Expenses by nature

General and administration, research and development, marketing and sales, and depreciation and amortization expenses are comprised of the following expenses by nature:

19.  Supplementary cash flow information

20.   Ultimate controlling party

The Company's CEO is the ultimate controlling party of the Company, personally owning and/or controlling through her personal holding company a total of 40.1% of the issued common shares of the Company as at June 30, 2024 (June 30, 2023 - 55.6%).

On May 9, 2024, as part of the Company's finance raise, 1,825,650 Common Shares and 912,825 warrants were issued to the controlling shareholder.

21.   Capital management

The Company's objectives when managing capital are to ensure sufficient liquidity for operations and adequate funding for growth and capital expenditures while maintaining an efficient balance between debt and equity.

The Company's capital consists of items included in shareholders' equity, debt facilities net of cash and restricted cash.

In order to facilitate the management of capital, the Company prepares annual expenditure budgets that are updated as necessary and dependent on various factors, including successful deployment of capital and industry conditions. The annual budgets are approved by the Board of Directors. The Company is not subject to any externally imposed capital requirements.

Management believes that existing cash resources, together with cash generated through operations and funds raised through public or private equity and/or debt financings, will generate sufficient liquidity to meet operating cash requirements for at least the next twelve months.

22.   Subsequent events

Subsequent to June 30, 2024, the following transactions had occurred:

1.   On September 11, 2024 the Company's controlling shareholder advanced $285 as unsecured, non-interest-bearing with no specific terms of repayment related party loan.

2.   On September 23, 2024, the Company has agreed to sell 22,222,222 common shares for $5,000 at a price of $0.225 (GBP0.125). The closing of the transaction is expected to be on or before November 8, 2024.

3.   As of September 27, 2024, the Company's controlling shareholder has agreed to provide the company $400 as unsecured, non-interest-bearing with no specific terms of repayment related party loan by the end of September.