Cautionary Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements that are, or may be considered to be, "forward-looking statements." Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions. All statements other than statements of historical fact included in this Form 10-Q regarding the prospects ofLexaGene Holdings, Inc. , ("LexaGene", the "Company" or "we"), the industry or its prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as "plans," "expects" or "does not expect," "is expected," "look forward to," "budget," "scheduled," "estimates," "forecasts," "will continue," "intends," "the intent of," "have the potential," "anticipates," "does not anticipate," "believes," "should," "should not," or variations of such words and phrases that indicate that certain actions, events or results "may," "could," "would," "might," or "will," "be taken," "occur," or "be achieved," or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that the Company makes with theSEC or press releases or oral statements made by or with the approval of one of the Company's authorized executive officers. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. (All capitalized and undefined terms used in this section shall have the same meanings hereafter defined in this Quarterly Report on Form 10-Q.) The following discussion and analysis of financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the unaudited condensed consolidated financial statements and the accompanying notes in this Form 10-Q and the sections entitled "Item 1A. Risk Factors" and "Item 2. Financial Information" in our Annual Report on Form 10 for the year endedFebruary 28, 2022 . Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties, as discussed in the "Cautionary Note Regarding Forward Looking Statements." Future results could differ materially from those discussed below for many reasons, including the risks described in Item 1A-"Risk Factors" in our Annual Report on Form 10 for the year endedFebruary 28, 2022 , and in Part II, Item 1A-Risk Factors" of this Form 10-Q.
Management's Discussion & Analysis of
For purposes of this discussion, "LexaGene ," "we," or the "Company" refers toLexaGene Holdings, Inc. and its wholly-owned subsidiaries:LexaGene, Inc. andBionomics Diagnostics, Inc. The results herein have been prepared in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP").
Amounts are presented in thousands of
Business OverviewLexaGene is a molecular diagnostics company that develops diagnostic systems for pathogen detection and genetic testing for other molecular markers for on-site rapid testing in veterinary diagnostics, and for use in open-access markets such as food and water safety, clinical research, agricultural testing and biodefense. The MiQLab system delivers excellent sensitivity, specificity, and breadth of detection and can return results in approximately two hours. The unique open-access feature is designed for custom testing so that end-users can load their own real-time PCR assays onto the instrument to target any genetic target of interest.
The Company's shares trade on the TSXV under the symbol LXG and on the OTCQB
Venture Market in
Transition to US GAAP From IFRS
During the year endedFebruary 28, 2022 , the Company transitioned to US GAAP from IFRS. As a result, the information related to the year endedFebruary 28, 2021 has been recast to conform with US GAAP. 26 Table of Contents
Selected Financial Information
Three Months Ended November 30, Nine Months Ended November 30, 2022 2021 2022 2021 Total revenues $ 42,912$ 48,309 $ 117,886 $ 88,934 Cost of revenues $ 189,928$ 148,571 $ 592,296 $ 378,188
Selling, marketing and promotional expenses $ 167,316$ 546,886 $ 629,848 $ 1,736,549 General administrative expenses $ 470,999$ 544,054 $ 1,424,242 $ 1,607,115 Research and development expenses $ 887,336$ 1,506,024 $ 3,357,090 $ 4,709,756 Other income (expense) $ (5,688)$ 5,546 $ (5,688) $ 32,000 Net loss and comprehensive loss$ (1,686,992) $ (2,695,761) $ (5,910,991) $ (8,158,111) Loss per common share $ (0.01)$ (0.02) $ (0.04)$ (0.07) Total assets$ 3,489,764 $ 5,449,980 $ 3,489,764 $ 5,449,980 Long-term liabilities $ 561,160$ 910,287 $ 561,160 $ 910,287 Working capital $ 640,285$ 2,980,475 $ 640,285 $ 2,980,475
Three Months Ended
Revenue The Company's revenue is derived from the sale of MiQLab Systems and its consumables. Three Months Ended November 30, % Increase 2022 2021 (Decrease) Total revenues$ 42,912 $ 48,309 (11) % Revenues remained consistent from year to year. During the three months endedNovember 30, 2022 , the Company recognized revenue of$42,912 from product sales as compared to$48,309 for revenues during the three months endedNovember 30, 2021 as the Company sold two units in both of the three-month periods.
Cost of Revenues
Cost of goods sold includes the cost of inventory sold and production costs expensed. Direct and indirect production costs include direct labor, processing, testing, packaging, quality assurance, shipping, production management and other related expenses. The primary factors that can impact cost of goods sold on a period-to-period basis include the volume of products sold, the mix of product sold, transportation, and overhead allocations.
The components of cost of goods sold are as follows:
Three Months Ended
2022 2021 (Decrease) Cost of revenues$ 189,928 $ 148,571 28 % Inventory expensed to cost of goods sold $ 44,338
$ 49,668 (11) % Other production costs 145,590 98,903 47 % Total$ 189,928 $ 148,571 28 %
During the period endedNovember 30, 2022 , the Company incurred an expense of$189,928 in relation to the MiQLab System product line as compared to$148,571 for the same period in 2021. This increase of$41,357 is primarily the result of the following items:
Wages and salaries increased to
· 30, 2022 compared to
the increase in the number of production staff.
The Company determined that one MiQLab System and its consumables were
· unrecoverable and expensed those material costs to cost of revenues. The
Company made numerous attempts to collect the unit from a customer but was unable to do so. 27 Table of Contents Gross Loss The primary factors that can impact gross margins include the volume of products sold, the mix of products sold, transportation costs and changes in inventory costs. Gross loss is as follows:
Three Months Ended November 30, % Increase 2022 2021 (Decrease) Gross loss$ 147,016 $ 100,262 47 % Gross loss increased by 47% for the three months endedNovember 30, 2022 compared to 2021 caused by an increase in cost of goods sold and minimal changes in revenue. An increase in cost of goods sold is due to an increase in a number of manufacturing employees and the MiQLab System written off by the Company. Selling, General and Administrative Expenses, and Research and Development Total Selling, general, and administrative and research and development expenses are as follows: Three Months Ended November 30, % Increase 2022 2021 (Decrease)
Sales and marketing expenses$ 167,316 $ 546,886 (69) % General and administrative expenses 470,999 544,054 (13) % Research and development expenses 887,336
1,506,024 (41) % Total$ 1,525,651 $ 2,596,964 (41) %
Sales, marketing and promotional expense
Comparing the three months endedNovember 30, 2022 to the same period in 2021, sales, marketing and promotional expenses decreased to$167,316 from$546,866 . This decrease of$379,570 in sales, marketing and promotional expenses is primarily from the following items:
Salaries and wages associated with sales, marketing and promotional activities
decreased to
· compared to
expense in salaries and wages is directly related to the decrease in headcount
year over year.
Marketing, advertising and promotional expenses decreased to
three months ended
· 2021. This decrease of
major conferences during 2022 in addition to reducing the use of outside
marketing consultants in order to conserve capital.
General and administrative expenses
General and administrative expenses remained relatively consistent during the
three months ended
Professional fees expense increased to
· ended
in connection with the convertible debenture, quarterly reviews and
obligations due to the changes related to the Company's filing status.
Transfer agent and filing fees decreased by
· same period in 2021. This decrease is primarily related to the filing fees
incurred during the three months ended
Short Form Base Shelf Prospectus that the Company had filed. Costs associated with investor relations decreased to$8,611 in 2022, as
compared to
? expense for the three months ended
period in 2021, is due to the Company reducing its cash burn by reducing expenses for outside investor relation activities. 28 Table of Contents
Share-based compensation expense decreased to
· the value of new options and restricted share units granted to employees as
compared to the same period in 2021 as well as forfeitures of the previously
granted options and RSUs due to employee departures.
Research and development expenses
Comparing the three months endedNovember 30, 2022 , to the same period in 2021, research and development expenses decreased to$887,336 from$1,506,024 . This decrease in expense of$618,688 in research and development expenses is primarily from the following items:
Salaries and wages decreased to
· 30, 2022, compared to
This decrease of
year over year. For the three months endedNovember 30, 2022 , share-based compensation
decreased to
decrease of
· and restricted share units granted to employees in addition to the forfeiture
of unvested stock options and unvested restricted share units previously
granted to employees that have left the Company during the three months ended
MiQLab System materials decreased by
for the three months ended
· in 2021. Lab administration and supplies decreased from
These decreases were due to the Company's efforts to control costs to reduce
the Company's cash burn.
Net Loss and Comprehensive Loss
For the three months ended
Three Months Ended November 30, % Increase 2022 2021 (Decrease) Net loss$ 1,678,454 $ 2,691,680 (38) % Comprehensive loss$ 1,686,992 $ 2,695,761 (37) %
Nine Months Ended
Revenue The Company's revenue is derived from the sale of MiQLab Systems and its consumables. Nine Months Ended November 30, % Increase 2022 2021 (Decrease) Total revenues$ 117,886 $ 88,934 33 % The increase of 33% in revenue recognized during the nine months endedNovember 30, 2022 is largely due to the Company selling five units and consumables during the nine months endedNovember 30, 2022 compared to four units and consumables in the same period of 2021. Cost of Revenues
Cost of goods sold include the cost of inventory sold and production costs expensed. Direct and indirect production costs include direct labor, processing, testing, packaging, quality assurance, shipping, production management and other related expenses. The primary factors that can impact cost of goods sold on a period-to-period basis include the volume of products sold, the mix of product sold, transportation, and overhead allocations. 29 Table of Contents
The components of cost of goods sold are as follows:
Nine Months Ended
2022 2021 (Decrease) Cost of revenues$ 592,296 $ 378,188 57 % Inventory expensed to cost of goods sold$ 142,149 $
88,048 61 % Other production costs 450,147 290,140 55 % Totals$ 592,296 $ 378,188 57 %
During the nine month period endedNovember 30, 2022 , the Company incurred an expense of$592,296 in relation to the MiQLab System product line as compared to$378,188 for the same period in 2021. This increase of$214,108 is primarily the result of the following items:
Costs of revenues increased during the nine months ended
· compared to the same period in 2021. This increase is directly related to the
increase in MiQLab Systems sold as well as the increase in costs related to raw
materials caused by inflation as compared to the same period in 2021.
Salaries and wages associated with manufacturing units and consumables as well
as costs incurred from the installation of units increased to
· the nine months ended
period in 2021. This increase of
directly related to the increase in manufacturing headcount as compared to the
same period in 2021. Gross Loss The primary factors that can impact gross margins include the volume of products sold, the mix of products sold, transportation costs and changes in inventory costs. Gross loss is as follows:
Nine Months Ended November 30, % Increase 2022 2021 (Decrease) Gross loss$ 474,410 $ 289,254 64 %
Gross loss increased 64% for the nine months ended
Selling, General and Administrative Expenses, and Research and Development
Total Selling, general, and administrative and research and development expenses are as follows: Nine Months Ended November 30, % Increase 2022 2021 (Decrease) Sales, marketing and promotional expenses$ 629,848 $ 1,736,549 (64) % General and administrative expenses 1,424,242 1,607,115 (11) % Research and development expenses 3,357,090
4,709,756 (29) % Totals$ 5,411,180 $ 8,053,420 (33) % 30 Table of Contents
Sales, marketing and promotional expenses
Comparing the nine months endedNovember 30, 2022 to the same period in 2021, sales, marketing and promotional expenses decreased to$629,848 from$1,736,549 . This decrease of$1,106,701 in sales, marketing and promotional expenses is primarily from the following items:
Salaries and wages associated with sales, marketing and promotional activities
decreased to
· compared to
in expense in salaries and wages is directly related to the decrease in headcount year over year.
Marketing, advertising and promotional expenses decreased to
the nine months ended
· 2021. In the nine-month period ended
several outside marketing consultants for a marketing campaign and other work,
which was not repeated in the same period of 2022.
Share-based compensation decreased by
? 30, 2022 compared to the same period in 2021 due to the lower value of awards
granted in 2022 and forfeitures of awards granted in previous years.
General and administrative expenses
Comparing the nine months endedNovember 30, 2022 , to the same period of 2021, general and administrative expenses decreased to$1,424,242 from$1,607,115 . This decrease in expense of$182,873 in general and administrative activities are primarily from the following items:
Share-based compensation expense decreased to
·
the value of new options and restricted share units granted to employees as
compared to the same period in 2021.
Costs associated with investor relations decreased to
compared to
· expense for the nine months ended
in 2021, is due to the Company reducing its cash burn by reducing expenses for
outside investor relation activities.
Transfer agent and filing fees decreased by
· months ended
decrease is mainly attributed to costs associated with the filing of its Short
Form Base Shelf Prospectus in 2021.
During the nine months ended
? services required in relation to the Company's filings of its Form 10 and the
amendment to Form 10,
incurred in relation to the convertible debenture that the Company entered into
during the nine months ended
Research and development expenses
Comparing the nine months endedNovember 30, 2022 , to the same period in 2021, research and development expenses decreased to$3,357,090 from$4,709,756 . This decrease in expense of$1,352,666 in research and development expenses is primarily from the following items:
Salaries and wages decreased to
· 30, 2022, compared to
This decrease of
year over year.
For the nine months ended
to
of
· restricted share units granted to employees, as well as the forfeiture of
unvested stock options and unvested restricted share units previously granted
to employees that have left the Company during the nine months endedNovember 30, 2022 . 31 Table of Contents
Materials used in research and development decreased to
nine-month period ended
· period of 2021. This decrease of
prioritizing research and development projects related to the MiQLab System
product line as compared to materials purchased and optimization required for
the FDA EUA-related projects in 2021.
Lab administration and supplies increased to
?
attributed to the increase in costs associated with inflationary increases in
chemistries, buffers and other materials used within the Company's labs.
Net Loss and Comprehensive Loss
For the nine months ended
Nine Months Ended November 30, % Increase 2022 2021 (Decrease) Net loss$ 5,891,278 $ 8,310,674 (29) % Comprehensive loss$ 5,910,991 $ 8,158,111 (27) %
Liquidity, Capital Resources and Going Concern
The Company's working capital as ofNovember 30, 2022 was$640,285 including cash of$464,131 compared to a working capital of$5,676,454 including cash of$4,722,710 as ofFebruary 28, 2022 . The Company's business currently does not generate positive cash flows from operations. As ofNovember 30, 2022 , the Company had an accumulated deficit of$50,339,236 since inception. Management's plans to meet the Company's current and future obligations are to raise capital in equity and private debt markets, private placements, rely on the financial support of its shareholders and related parties as well as to further expand commercial sales of the MiQLab System. There can be no assurance that the Company will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, the Company may be compelled to reduce the scope of its operations and planned capital expenditures. The Company believes that its cash of$464,131 as ofNovember 30, 2022 will not be sufficient to fund its current operating plan at least one year from issuance of these condensed financial statements unless additional funds are raised. Certain elements of our operating plan cannot be considered probable. These conditions raise substantial doubt regarding the Company's ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, the Company has concluded that substantial doubt exists about the Company's ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements. See Note 1 of the Condensed Consolidated Financial Statements. The Company is subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching the Company's products, development and market acceptance of the Company's product candidates, development by its competitors of new technological innovations, protection of proprietary technology, and raising additional capital. The Company's ability to fund operating expenses and capital expenditures will depend on its future operating performance, the ability to further develop its genetic analyzer, the MiQLab System, which will be affected by general economic conditions, financial, regulatory, and other factors beyond the Company's control (See "Risk Factors").
Cash Flows
The Company's working capital as ofNovember 30, 2022 , was$640,285 including cash of$464,131 compared to a working capital of$2,980,475 including cash of$1,715,440 as ofNovember 30, 2021 . 32 Table of Contents
The Company's business currently does not generate positive cash flows from operations. OnNovember 30, 2022 , the Company had an accumulated deficit of$50,339,236 since inception. The Company is reliant on equity financings to provide the necessary cash to continue the commercialization of the MiQLab System described in the Summary of Operations, and generating cash flow from operations in the future. These factors form a material uncertainty, which may raise significant doubt about the Company's ability to continue as a going concern.
Cash from Operating Activities
Net cash used in operating activities for the nine months ended
Nine Months Ended
2022 2021 (Decrease) Cash used in operating activities$ 5,063,871 $ 7,809,568 (35) % The decrease of$2,745,697 in the amount of cash used was primarily due to the Company significantly reducing its expenses during the period, purchasing less inventory in 2022 and the timing of repayment of accounts payable.
Cash from Investing Activities
Net cash used in investing activities for the nine months ended
Nine Months Ended
2022 2021 (Decrease) Cash used in investing activities $ - $
(17,860) (100) %
During the period ended
Cash Provided by (Used in) Financing Activities
Net cash provided by (used in) financing activities for the nine months ended
Nine Months Ended
2022 2021 (Decrease) Cash provided by (used in) financing activities$ 809,491 $ (239,117) 439 % Cash provided by financing activities during the period endedNovember 30, 2022 increased by 467% or$1,048,608 compared to the same period of 2021, due to cash obtained through a convertible note in the amount of$900,000 and$263,295 generated through warrant exercises by warrant holders.
Critical Accounting Policies and Estimates
Note 2 to the Condensed Consolidated Financial Statements of the Company for 2022 describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. During the period endedNovember 30, 2022 , the Company early adopted ASU 2020-06. There have been no other significant changes in the company's critical accounting policies during the nine months endedNovember 30, 2022 .
Recent Accounting Pronouncements
Note 2 to the Condensed Consolidated Financial Statements describes recent accounting pronouncements under the header Recent Accounting Standards.
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