Exhibit 99.1
Portage Biotech Inc.
Condensed Consolidated Interim Financial Statements
For the Three and Six Months Ended September 30, 2022
(Unaudited – Prepared by Management) as of November 29, 2022
(U.S. Dollars)
Portage Biotech Inc.
Condensed Consolidated Interim Financial Statements
| Index | Page | |
| Notice to Reader | F-1 | |
| Condensed Consolidated Interim Statements of Financial Position | ||
| As of September 30, 2022 (Unaudited) and March 31, 2022 | F-2 | |
| Condensed Consolidated Interim Statements of Operations and Other Comprehensive Income (Loss) (Unaudited) | ||
| Three and six months ended September 30, 2022 and 2021 | F-3 | |
| Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity (Unaudited) | ||
| Six months ended September 30, 2022 and 2021 | F-4 | |
| Condensed Consolidated Interim Statements of Cash Flows (Unaudited) | ||
| Six months ended September 30, 2022 and 2021 | F-5 | |
| Notes to Condensed Consolidated Interim Financial Statements | F-6 to F-34 |
NOTICE TO READER OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The condensed consolidated interim financial statements of Portage Biotech Inc. are comprised of the condensed consolidated statements of financial position as of September 30, 2022 and March 31, 2022, the condensed consolidated interim statements of operations and other comprehensive income (loss) for the three and six months ended September 30, 2022 and 2021 and the statements of equity and cash flows for each of the six months ended September 30, 2022 and 2021 and are the responsibility of Portage Biotech Inc,’s management.
The condensed consolidated interim financial statements of Portage Biotech Inc. have been prepared by Portage Biotech Inc.’s management and include the selection of appropriate accounting principles, judgments and estimates necessary to prepare these condensed consolidated interim financial statements in accordance with International Financial Reporting Standards.
| /s/ Allan Shaw | /s/ Ian Walters |
| Allan Shaw, CFO | Ian Walters, MD, Chairman of the Board and Chief Executive Officer |
| DATE: November 29, 2022 |
F-1
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Financial Position
(U.S. Dollars in thousands)
(Unaudited – see Notice to Reader dated November 29, 2022)
| As of, | Note | September 30, 2022 | March 31, 2022 | |||||||||
| (Audited) | ||||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||
| Prepaid expenses and other receivables | 5 | |||||||||||
| Convertible note receivable, including accrued interest | 6 | |||||||||||
| Total current assets | ||||||||||||
| Long-term assets | ||||||||||||
| Investments in associates | 6 | |||||||||||
| Investments in private companies | 7 | |||||||||||
| Goodwill | 8, 9 | |||||||||||
| In-process research and development | 8, 10 | |||||||||||
| Deferred commitment fee | 17 | |||||||||||
| Other assets, including equipment, net | ||||||||||||
| Total assets | $ | $ | ||||||||||
| Liabilities and Equity | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||||||
| Warrant liability | 13 | |||||||||||
| Total current liabilities | ||||||||||||
| Non-current liabilities | ||||||||||||
| Deferred tax liability | 10, 12 | |||||||||||
| Deferred purchase price payable - Tarus | 8, 19 | |||||||||||
| Deferred obligation - iOx milestone | 18, 19 | |||||||||||
| Total non current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Shareholders’ Equity | ||||||||||||
| Capital stock | 14 | |||||||||||
| Stock option reserve | 15 | |||||||||||
| Accumulated other comprehensive income | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Total equity attributable to owners of the Company | ||||||||||||
| Non-controlling interest | 21 | ( | ) | |||||||||
| Total equity | ||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||
| Commitments and Contingent Liabilities (Note 16) | ||||||||||||
| On behalf of the Board | /s/ Allan Shaw |
Chief Financial Officer |
/s/ Ian Walters | Chairman of the Board and Chief Executive Officer |
| (signed) | (signed) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-2
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Operations and Other Comprehensive Income (Loss)
(U.S. Dollars in thousands, except per share amounts)
(Unaudited – see Notice to Reader dated November 29, 2022)
| Note | Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| In 000’$ | In 000’$ | In 000’$ | In 000’$ | |||||||||||||||||
| Expenses | ||||||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Change in fair value of deferred purchase price payable - Tarus and deferred obligation - iOx milestone | 8, 18 | |||||||||||||||||||
| Share of loss in associate accounted for using equity method | 6 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| Change in fair value of warrant liability | 13 | |||||||||||||||||||
| Foreign exchange transaction loss | 10, 12 | ( | ) | ( | ) | |||||||||||||||
| Interest income | ||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Income tax benefit | ||||||||||||||||||||
| Net loss and other comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Net (loss) income attributable to: | ||||||||||||||||||||
| Owners of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Non-controlling interest | 21 | ( | ) | ( | ) | ( | ) | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Comprehensive (loss) income attributable to: | ||||||||||||||||||||
| Owners of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Non-controlling interest | 21 | ( | ) | ( | ) | ( | ) | |||||||||||||
| Total comprehensive loss for period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Loss per share | 16 | |||||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Weighted average shares outstanding | 16 | |||||||||||||||||||
| Basic and diluted | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-3
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity
For the Six Months Ended September 30, 2022 and 2021
(U.S. Dollars)
(Unaudited – see Notice to Reader dated November 29, 2022)
| Number of Shares | Capital Stock | Stock Option Reserve | Accumulated Other Comprehensive Income | Retained Earnings (Accumulated Deficit) | Equity Attributable to Owners of Company | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||
| In ‘000’ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | |||||||||||||||||||||||||
| Balance, April 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||||||||||
| Shares issued in Tarus acquisition | ||||||||||||||||||||||||||||||||
| Shares issued in iOx exchange | ( | ) | ||||||||||||||||||||||||||||||
| Deferred obligation - iOx milestone | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Excess of non-controlling interest acquired over consideration - iOx | – | ( | ) | |||||||||||||||||||||||||||||
| Shares issued to Lincoln Park’s Committed Purchase | ||||||||||||||||||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||||||||||||||||||
| Net loss for period | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance, April 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Share-based compensation expense | – | |||||||||||||||||||||||||||||||
| Shares issued under ATM | ||||||||||||||||||||||||||||||||
| Shares issued under offering | ||||||||||||||||||||||||||||||||
| Share issuance costs | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||||||||||||||
| Exchange of notes payable and accrued interest for iOx shares | – | |||||||||||||||||||||||||||||||
| Net loss for period | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-4
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Cash Flows
For the Six Months Ended September 30, 2022 and 2021
(U.S. Dollars in thousands)
(Unaudited – see Notice to Reader dated November 29, 2022)
| Six Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments for non-cash items: | ||||||||
| Share-based compensation expense | ||||||||
| Decrease in deferred tax liability | ( | ) | ( | ) | ||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Change in fair value of Deferred purchase price payable - Tarus and Deferred obligation - iOx milestone | ( | ) | - | |||||
| Fair value of shares issued for services | ||||||||
| Share of loss in associate | ||||||||
| Foreign exchange transaction loss | ||||||||
| Changes in operating working capital: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other receivables | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Other | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of convertible note receivable | ( | ) | ||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Repayment of notes payable assumed in Tarus acquisition | ( | ) | ||||||
| Repayment of milestone obligation assumed in Tarus acquisition | ( | ) | ||||||
| Proceeds from shares issued under registered offering | ||||||||
| Share issuance costs | ( | ) | ||||||
| Proceeds from exercise of stock purchase warrants | ||||||||
| Advance payment of warrants exercised | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| (Decrease) increase in cash and cash equivalents during period | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Increase in accounts payable for stock issuance costs | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Fair value of shares issued for Tarus | $ | $ | ||||||
| Fair value of shares issued for non-controlling interest purchase of iOx | $ | $ | ||||||
| Fair value of deferred purchase price payable-Tarus | $ | $ | ||||||
| Fair value of deferred obligation - iOx milestone | $ | $ | ||||||
| Liabilities assumed in Tarus acquisition | $ | $ | ||||||
| Fair value of shares issued for commitment fees - Committed Purchase | $ | $ | ||||||
| Exchange of iOx shares for settlement of notes payable, accrued interest and warrants | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-5
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 1. NATURE OF OPERATIONS
Portage Biotech Inc. (the "Company" or “Portage”) is incorporated in the British Virgin Islands ("BVI") with its registered office located at Clarence Thomas Building, P.O. Box 4649, Road Town, Tortola, BVI. Its USA agent, Portage Development Services Inc. ("PDS"), is located at 61 Wilton Road, Westport, CT, 06880, USA.
The Company is a foreign private issuer under the Securities and Exchange Commission (the “SEC”) rules. It is also a reporting issuer under the securities legislation of the provinces of Ontario and British Columbia. Its ordinary shares were listed on the Canadian Securities Exchange (“CSE”) under the symbol “PBT.U”. On February 25, 2021, the ordinary shares of the Company began trading on the NASDAQ Capital Market (“NASDAQ”) under the symbol “PRTG”. As the principal market for the Company’s ordinary shares is NASDAQ, the Company voluntarily delisted from the CSE on April 23, 2021.
Portage is a clinical-stage immuno-oncology company advancing therapies that target known checkpoint resistance pathways to improve long-term treatment response and quality of life in patients with evasive cancers. Portage’s access to next-generation technologies coupled with a deep understanding of biological mechanisms enable the identification of clinical therapies and product development strategies that accelerate these medicines through the translational pipeline. Portage’s portfolio consists of six diverse platforms, with lead programs including invariant natural killer T-cell (“iNKT”) agonists and a suite of treatments targeting the adenosine pathway. Additional programs leverage delivery by intratumorals, nanoparticles, liposomes, aptamers, and virus-like particles. Within these six platforms, Portage has 14 products currently in development with multiple clinical readouts expected through the end of 2023.
On August 13, 2018, the Company reached a definitive agreement to acquire
On June 5, 2020, the Company effected a 100:1 reverse stock split. All share and per share information included in the condensed consolidated interim financial statements of the Company have been retroactively adjusted to reflect the impact of the reverse stock split. The authorized shares of ordinary shares of the Company remained at an unlimited number of ordinary shares without par value.
NOTE 2. LIQUIDITY
As of September 30, 2022, the Company had cash and cash equivalents of
approximately $
Portage filed a shelf registration statement and prospectus with the SEC under which it may sell shares, debt securities, warrants and units in one or more offerings from time to time, which became effective on March 8, 2021 (“Registration Statement” or “Prospectus”). In connection with the Registration Statement, the Company has filed with the SEC:
F-6
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 2. LIQUIDITY (Cont’d)
| · | a base prospectus, which covers the offering, issuance and sale by us of up to $ |
| · | a prospectus supplement covering the offer, issuance and sale by us in an “at the market” offering of up to a maximum
aggregate offering price of up to $ |
| · | a prospectus supplement dated June 24, 2021, for the offer, issuance and sale by us of 1,150,000 ordinary shares for gross proceeds of approximately $26.5 million in a firm commitment underwriting with Cantor Fitzgerald; and |
| · | a prospectus supplement dated August 19, 2022, for the offer, issuance and sale by us of up to $30,000,000 in ordinary shares from time to time to Lincoln Park Capital Fund, LLC and their resale of those shares and an additional resale of 94,508 shares. |
During the quarter ended June 30, 2021, the Company commenced an “at
the market” offering, under which it sold
On June 24, 2021,
The Company maintains its “at the market” facility with Cantor Fitzgerald. On July 6, 2022, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln”), under which it may require Lincoln to purchase ordinary shares of the Company having an aggregate value of up to $30 million (the “Purchase Shares”) over a period of 36 months. Pursuant to the Purchase Agreement, Lincoln will be obligated to purchase the Purchase Shares in three different scenarios that are based on various market criteria and share amounts. The Company has the right to terminate the Purchase Agreement for any reason, effective upon one business day prior written notice to Lincoln. Lincoln has no right to terminate the Purchase Agreement. The requirement that Lincoln must make a purchase will be suspended based on various criteria such as there not being an effective registration statement for Lincoln to be able to resell the ordinary shares it is committed to purchase and market criteria such as the Company continuing to be DTC eligible, among other things. The Purchase Agreement does not impose any financial or business covenants on the Company, and there are no limitations on the use of proceeds. The Company may raise capital from other sources in its sole discretion; provided, however, that the Company shall not enter into any similar agreement for the issuance of variable priced equity-like securities until the three-year anniversary of the date of the Purchase Agreement, excluding, however, an at-the-market transaction with a registered broker-dealer.
F-7
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 2. LIQUIDITY (Cont’d)
The Company has incurred substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. The losses result primarily from its conduct of research and development activities.
The Company historically has funded its operations principally from proceeds from issuances of equity and debt securities and would expect to enter the capital markets if additional funding is required.
COVID-19 Effect
Beginning in early March 2020, the COVID-19 pandemic and the measures imposed to contain this pandemic have disrupted and are expected to continue to impact the Company’s business operations. The magnitude of the impact of the COVID-19 pandemic on the Company’s productivity, results of operations and financial position, and its disruption to the Company’s business and clinical programs and timelines, will depend, in part, on the length and severity of these restrictions and on the Company’s ability to conduct business in the ordinary course. There was a slowdown and temporary lack of research and development resources, principally due to the focus of third party research on the pandemic. The environment has substantially normalized in 2022.
NOTE 3. BASIS OF PRESENTATION
Statement of Compliance and Basis of Presentation
These condensed consolidated interim financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), IAS 34 Interim Financial Reporting and interpretations of the International Financial Reporting Interpretations Committee. These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended March 31, 2022.
These condensed consolidated interim financial statements have been prepared on an historical cost basis except for items disclosed herein at fair value (see Note 19, “Financial Instruments and Risk Management”). In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
The Company has only one reportable operating segment.
These condensed consolidated interim financial statements were approved and authorized for issuance by the Audit Committee and Board of Directors on November 29, 2022.
Consolidation
The condensed consolidated interim financial statements include the accounts of the Company and;
| (a) | SalvaRx Limited (“SalvaRx”), a wholly-owned subsidiary, incorporated on May 6, 2015 in the British Virgin Islands; |
F-8
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 3. BASIS OF PRESENTATION (Cont’d)
Consolidation (Cont’d)
| (b) | iOx Therapeutics Ltd. (“iOx”), a United Kingdom (“U.K.”) based immune-oncology company, a |
| (c) | Saugatuck, a |
| (d) | Portage Development Services Inc., a 100% owned subsidiary incorporated in Delaware, which provides human resources, and other services to each operating subsidiary via a shared services agreement; |
| (e) | SalvaRx LLC, a 100% owned subsidiary through SalvaRx; |
| (f) | Saugatuck Rx LLC, a wholly-owned subsidiary of Saugatuck; and |
| (g) | Tarus Therapeutics, LLC, a wholly-owned subsidiary of Portage. |
All inter-company balances and transactions have been eliminated in consolidation.
Non-controlling interest in the equity of a subsidiary
is accounted for and reported as a component of stockholders’ equity. As of September 30, 2022, non-controlling interest represents
the
Functional and Presentation Currency
The Company’s functional and presentation currency is the U.S. Dollar.
Use of Estimates and Judgments
The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
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.
Significant areas where estimates are made include valuation of financial instruments (including the convertible note receivable), deferred tax assets, deferred tax liability, research and development costs, fair value used for acquisition of intangible assets, contingent consideration assumed and measurement of share-based compensation. Significant areas where critical judgments are applied include assessment of impairment of investments and goodwill and the determination of the accounting acquirer and acquiree in the business combination accounting.
F-9
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies are set out in Note 4 to the fiscal 2022 audited consolidated financial statements of the Company. These policies have been applied consistently to all periods presented in these condensed consolidated interim financial statements.
Recent Accounting Pronouncements
IFRS Pronouncements Issued
Impact of Adoption of Significant New IFRS Standards in 2022
| (a) | Annual Improvements to IFRS Standards 2018-2020 |
The annual improvements process addresses issues in the 2018-2020 reporting cycles including changes to IFRS 9, “Financial Instruments,” IFRS 1, “First Time Adoption of IFRS,” IFRS 16, “Leases,” and IAS 41, “Biological Assets”.
i) The amendment to IFRS 9 addresses which fees should be included in the 10% test for derecognition of financial liabilities.
ii) The amendment to IFRS 1 allows a subsidiary adopting IFRS at a later date than its parent to also measure cumulative translation differences using the amounts reported by the parent based on the parent’s date of transition to IFRS.
iii) The amendment to IFRS 16’s illustrative example 13 removes the illustration of payments from the lessor related to leasehold improvements.
These amendments were effective for annual periods beginning on or after January 1, 2022. The adoption of these amendments did not have a material effect on the Company’s annual consolidated financial statements or the condensed consolidated interim financial statements for the three and six months ended September 30, 2022.
F-10
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
| (b) | IAS 37: Onerous Contracts – Cost of Fulfilling a Contract |
The amendment to IAS 37 clarifies the meaning of costs to fulfil a contract and that before a separate provision for an onerous contract is established, an entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to the contract. This amendment is effective for annual periods beginning January 1, 2022. The Company’s adoption of IAS 37 did not have a material effect on its consolidated financial statements.
| (c) | IAS 16: Proceeds Before Intended Use |
The amendment to IAS 16 prohibits an entity from deducting from the cost of an item of Property, plant and equipment any proceeds received from selling items produced while the entity is preparing the assets for its intended use (for example, the proceeds from selling samples produced when testing a machine to see if it is functioning properly). It also clarifies that an entity is testing whether the asset is functioning properly when it assesses the technical and physical performance of the asset. The amendment also requires certain related disclosures. This amendment is effective for annual periods beginning January 1, 2022. The Company’s adoption of IAS 16 did not have a material effect on its consolidated financial statements.
New Accounting Standards, Interpretations and Amendments
Standards issued but not yet effective up to the date of issuance of the Company’s condensed consolidated interim financial statements are listed below. This listing is of standards and interpretations issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they become effective.
| (a) | IAS 1: Presentation of Financial Statements |
The amendment to IAS 1 clarifies how to classify debt and other liabilities as either current or non-current. The amendment will be effective for annual periods beginning on or after January 1, 2023. The Company is currently evaluating the new guidance and impacts on its consolidated financial statements.
| (b) | Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and Its Associate or Joint Venture |
The amendment addresses the conflict between IFRS 10, “Consolidated Financial Statements,” and IAS 28, “Investments in Associates and Joint Ventures,” in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, “Business Combinations,” between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. On September 11, 2014, the IASB issued narrow-scope amendments to IFRS 10 and IAS 28. The amendments were to be effective for annual periods commencing on or after January 1, 2016. In December 2015, the IASB decided to postpone the effective date of these amendments indefinitely.
F-11
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 5. PREPAID EXPENSES AND OTHER RECEIVABLES
| (In thousands) | As of September 30, 2022 | As of March 31, 2022 | ||||||
| Prepaid clinical research organization | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Research & development tax credits | ||||||||
| Tax deposits | ||||||||
| Other prepaid expenses | ||||||||
| Other receivables | ||||||||
| Total prepaid expenses and other receivables | $ | $ | ||||||
NOTE 6. INVESTMENT IN ASSOCIATE
Details of the Company’s associate as of September 30, 2022 and March 31, 2022 are as follows:
| Name | Principal Activity |
Place of Incorporation and Principal Place of Business |
Voting Rights Held as of September 30, 2022 |
Voting Rights Held as of March 31, 2022 |
|||||
| % | % |
The following table is a roll-forward of the Company’s investment in Stimunity S.A. (“Stimunity”) as of and for the six months ended September 30, 2022 and 2021:
| As of and for the Six Months Ended September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Share of (loss) | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
On June 1, 2020, the Company made an additional investment of €
On July 13, 2022,
F-12
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 6. INVESTMENT IN ASSOCIATE (Cont’d)
The Company accounts for its investment in Stimunity under the equity
method and, accordingly, records its share of Stimunity’s earnings or loss based on its ownership percentage. The Company recorded
equity in loss in Stimunity of $
Under the Shareholders’ Agreement, Portage has (i) a preferential subscription right to maintain its equity interest in Stimunity in the event of a capital increase from the issuance of new securities by Stimunity, except for issuances of new securities for stock options under a merger plan or for an acquisition, and (ii) the right to vote against any (a) issuances of additional securities that would call for the Company to waive its preferential subscription right, or (b) any dilutive issuance.
NOTE 7. INVESTMENTS IN PRIVATE COMPANIES
The following is a discussion of the Company’s investments in private companies as of September 30, 2022 and March 31, 2022.
Intensity Therapeutics, Inc.
In connection with the SalvaRx Acquisition in fiscal 2019, the Company
acquired a $
On July 11, 2019, the Company entered into an agreement with Fast Forward
Innovations Limited (“Fast Forward”) to purchase Intensity Holdings Limited (“IHL”), a wholly-owned subsidiary
of Fast Forward. The Company paid $1.3 million for IHL through the issuance of
During the year ended March 31, 2020, the Company recorded an unrealized
gain of $
As of each of September 30, 2022 and March 31, 2022, the Company owned
approximately
On October 28, 2021, Intensity filed a Form S-1 Registration Statement with the SEC to register shares for an initial public offering, which was declared effective by the SEC, but subsequently withdrawn prior to closing. Intensity is still evaluating market conditions to determine the timing of an initial public offering. As of September 30, 2022 and March 31, 2022, the Company has valued its investment in Intensity based on Intensity’s Series C Preferred Stock Offering completed in 2020. If the offering is successful, the Company will value its investment in Intensity based upon fair value (market price) and will record periodic changes in carrying value through OCI.
F-13
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 8. ACQUISITION OF TARUS
On July 1, 2022, the Company, its wholly-owned subsidiary, Tarus Acquisition Inc., and Tarus Therapeutics, Inc., a Delaware corporation advancing adenosine receptor agonists for the treatment of solid tumors, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Under the structure of the Merger Agreement, Tarus Therapeutics, Inc. was ultimately merged into a wholly-owned subsidiary of the Company with the surviving entity renamed Tarus Therapeutics, LLC. (“Tarus”). The Tarus merger entitles the Company to the rights, know-how and/or ownership related to the assets developed by Tarus (the “Adenosine Compounds”), including:
| 1. | All rights and obligations related to the License Agreement between Tarus and Impetis Biosciences Limited, dated October 29, 2019, and the Call Option under the License Agreement, which was exercised on November 5, 2020; |
| 2. | All intellectual property and related documents owned or controlled by Tarus, including issued or pending patents, patent applications and trade secrets. Additionally, any draft submissions and/or correspondence with patent authorities; |
| 3. | All documents and supplies related to Adenosine Compounds including inventory, reagents, data, assays, reports, vendor agreements and other information related to the preclinical development; |
| 4. | All clinical supplies, manufacturing know-how, batch records, regulatory documents pertaining to the Adenosine Compounds, certain reservations for manufacturing campaigns and any related agreements; |
| 5. | All regulatory documents and correspondence pertaining to the Adenosine Compounds; |
| 6. | All Contract Research Organization (“CRO”) agreements and protocol related documents for Adenosine Compounds; |
| 7. | All current documents related to market research, forecasting, budgets and competitive intelligence; and |
| 8. | Rights to the use of Tarus Therapeutics name for regulatory purposes. |
As consideration for Tarus, the Company issued to Tarus shareholders an aggregate of ordinary shares of Portage, calculated on the basis of $18 million divided by the 60-day Volume Weighted Average Price per share. The shares have not been registered with the SEC and are subject to lock-up agreements for terms ranging from six to twelve months. Additionally, milestone payments of up to $ million in cash or Portage ordinary shares would be triggered upon achievement of future development and sales milestones. As a result of the transaction:
| · | The Company also assumed $2 million in short-term debt held by Tarus and deferred license milestones obligations ($1 million plus interest). The short-term debt was repaid by the Company in July 2022. |
| · | Upon enrolling the first patient in a Phase 2 clinical trial, Portage will pay an additional one-time milestone
payment of $15 million. Payment will be in the form of cash or Portage ordinary shares (at the discretion of Portage). The remaining $ |
F-14
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 8. ACQUISITION OF TARUS (Cont’d)
In connection with the acquisition of Tarus, the Company performed a fair value analysis of the assets acquired and liabilities assumed. The Company based the analysis on its clinical plan and timing of development events, and the probabilities of success determined primarily based upon empirical third party data and Company experience as well as the relevant cost of capital. In its fair value analysis, the Company used the Multi-Period Excess Earnings Method for PORT-6 and PORT-7 and the Replacement Cost Method for PORT-8 and PORT-9, determined based upon the maturity of the assets and the availability of sufficient data to measure fair value. The Company recorded the shares issued at $17.2 million, which represented the aggregate market value of the shares issued on July 1, 2022. The Company followed the guidance of IAS 3 and IAS 32 and recorded a deferred purchase price payable - Tarus of $8.538 million, which reflected the estimated acquisition date fair value of contractual milestone obligations incurred. The principal assumptions for determining the fair value include the timing of development events, the probabilities of success and the discount rate used. The Company recorded the obligation as a non-current liability, in accordance with the provisions IAS 32 with respect to the classification of financial assets and financial liabilities.
The Company will determine the fair value of the earnout shares at each balance sheet date. Any change to the fair value will be recorded in the Company’s statements of operations and other comprehensive income (loss).
The following table summarizes the preliminary purchase price allocation to the fair value of assets acquired and liabilities assumed for Tarus:
| Assets: | (In thousands) | |||
| Identifiable intangible assets | $ | |||
| Goodwill | ||||
| Total Assets | $ | |||
| Consideration: | ||||
| Fair value of shares issued | $ | |||
| Liabilities assumed | ||||
| Deferred purchase consideration at fair value | ||||
| Total Liabilities | $ | |||
Pro forma Information
Summary unaudited pro forma condensed results of operations for the six months ended September 30, 2022 and 2021, assuming the Tarus acquisition had occurred at the beginning of the earliest period presented are as follows:
| For the Six Months Ended September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | ||
| Net loss and other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share | $ | ( | ) | $ | ( | ) | ||
Summary unaudited pro forma condensed results of operations for the three months ended September 30, 2022 and 2021, assuming the Tarus acquisition had occurred at the beginning of the earliest period presented are as follows:
| For the Three Months Ended September 30, | ||||||||
| (In thousands) | 2022 (1) | 2021 | ||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | ||
| Net loss and other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share | $ | ( | ) | $ | ( | ) | ||
| (1) |
F-15
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 8. ACQUISITION OF TARUS (Cont’d)
These pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the period presented, and they may not be indicative of results expected in the future.
NOTE 9. GOODWILL
The following is a roll-forward of goodwill:
| (In thousands) | As of September 30, 2022 | As of March 31, 2022 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Tarus goodwill | ||||||||
| Balance, end of period | $ | $ | ||||||
The Company’s goodwill arose primarily from the acquisition of SalvaRx and its portfolio of several projects and investments.
In July 2022, as a result of the acquisition of Tarus, the Company recorded
$
Under purchase accounting as of July 1, 2022 (the acquisition date), the assets and liabilities of Tarus Therapeutics, Inc., was recorded at their respective fair values and the excess of the acquisition consideration is goodwill. The purchase was in the form of a merger in which Tarus Therapeutics, Inc. was merged into Tarus Therapeutics, LLC., which is a wholly-owned subsidiary of Portage. All of the consideration for Tarus Therapeutics, LLC was paid or assumed by Portage and Portage will control the voting rights, the Board of Directors and the operations of Tarus Therapeutics, LLC.
As of September 30, 2022, the Company determined that it has only one cash-generating unit (“CGU”), the consolidated Portage Biotech Inc.
Impairment Review
On an annual basis, pursuant to IAS 36, “Impairment of Assets,” the Company assesses its long-lived assets with definite lives, which are not yet available for use, for potential indicators of impairment.
If any such indication exists, the Company estimates the recoverable amount of the asset or CGU and compares it to the carrying value.
The Company performed its annual impairment test in each of fiscal 2022 and fiscal 2021 and estimated the recoverable amount of the above-noted CGU based on its value in use, which was determined using a capitalized cash flow methodology and categorized within level 3 of the fair market value hierarchy.
F-16
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 9. GOODWILL (Cont’d)
The recoverable amount of the CGU has been determined based on its value in use. The recoverable amount considered assumptions based on probabilities of technical, regulatory and clinical acceptances and financial support. Further, management uses risk-adjusted cash flow projections based on financial budgets. Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. The discount rate has been determined based on the Company’s best estimate of a risk adjusted discount rate.
The key assumptions used in the calculation of the recoverable amount include forecasts of the following:
| (a) | revenues; |
| (b) | normalized operating expenses; |
| (c) | income taxes; and |
| (d) | capital expenditures. |
Discounted cash flows are determined with reference to undiscounted risk
adjusted cash flows, and the discount rate approximated
As of September 30, 2022, management assessed whether any indications of impairment existed for the Company’s CGU. As of September 30, 2022, the Company’s market capitalization was less than its net assets, which is an external indicator of potential impairment. The Company evaluated this factor in conjunction with its assessment of the overall market environment and the progress made in developing the Company’s assets. The Company determined that a test for impairment was not required and no impairment was recorded for the three and six months ended September 30, 2022.
NOTE 10. IN-PROCESS RESEARCH AND DEVELOPMENT AND DEFERRED TAX LIABILITY
In-process research and development (“IPR&D”) consists of the following projects (in thousands):
| Project # | Description | Value as of September 30, 2022 | Value as of March 31, 2022 | |||||||
| iOx: | ||||||||||
| PORT 2 (IMM60) | Melanoma & Lung Cancers | $ | $ | |||||||
| PORT 3 (IMM65) | Ovarian/Prostate Cancers | |||||||||
| Oncomer/Saugatuck | DNA Aptamers | |||||||||
| Tarus: | ||||||||||
| PORT 6 & PORT 7 | Adenosine Receptors | |||||||||
| PORT 8 | Adenosine Receptors | |||||||||
| PORT 9 | Adenosine Receptors | |||||||||
| In-process research and development | $ | $ | ||||||||
| Deferred tax liability | $ | $ | ||||||||
Additionally, at the end of each reporting period, the Company is required to assess whether there is any indication that an asset may be impaired. As indicated above, the Company identified an external indicator of potential impairment as of September 30, 2022. Pursuant to IAS 36, the Company completed its review of underlying fundamentals, execution, advancement of assets and value creation activities and concluded that no provision for impairment was required during the three and six months ended September 30, 2022.
F-17
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 10. IN-PROCESS RESEARCH AND DEVELOPMENT AND DEFERRED TAX LIABILITY (Cont’d)
Deferred tax liability represents iOx’s estimated tax on the difference between book and tax basis of the IPR&D, which is taxable in the U.K and the effect of usable net operating loss carryforwards.
As of September 30, 2022 and March 31, 2022, iOx had a net deferred
tax liability of approximately $
NOTE 11. UNSECURED NOTES PAYABLE
The following is a roll-forward of notes payable:
| CURRENT | NON-CURRENT | |||||||||||
| (In thousands) | iOx | SalvaRx | Total | |||||||||
| Balance, April 1, 2021 | $ | $ | $ | |||||||||
| Exchange of notes payable and accrued interest for iOx shares | ( | ) | ( | ) | ||||||||
| Balance, March 31, 2022 | $ | $ | $ | |||||||||
| Balance, September 30, 2022 | $ | $ | $ | |||||||||
SalvaRx Unsecured Notes Payable and Warrants
In connection with the SalvaRx Acquisition in January 2019,
During September 2020, the Company settled the SalvaRx Notes obligations
originally due in June 2021 in an aggregate principal amount of approximately $3.7 million, plus accrued interest of $0.75 million in
exchange for cash payments totaling $1.77 million and
F-18
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 11. UNSECURED NOTES PAYABLE (Cont’d)
iOx Unsecured Notes Payable
In connection with the SalvaRx Acquisition in January 2019,
On September 8, 2021, the
NOTE 12. INCOME TAXES
The Company is a British Virgin Island business company. The Government of the British Virgin Islands does not, under existing legislation, impose any income or corporate tax on corporations.
PDS is a U.S. corporation and is subject to U.S. federal, state and local income taxes, as applicable.
iOx is subject to U.K. taxes.
The benefit from income taxes consists of the following:
| For the Six Months Ended September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State and local | ||||||||
| Foreign | ||||||||
| Current | ||||||||
| Deferred: | ||||||||
| Federal | ||||||||
| State and local | ||||||||
| Foreign | ||||||||
| Deferred | ||||||||
| Benefit from income taxes | $ | $ | ||||||
F-19
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 12. INCOME TAXES (Cont’d)
The following is a reconciliation of the U.S. taxes to the effective income tax rates for the six months ended September 30, 2022 and 2021 ($ in thousands):
| Six Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Income (loss) on ordinary activities before tax | $ | $ | ( | ) | ||||
| Statutory U.S. income tax rate | % | % | ||||||
| Income tax at statutory income tax rate | ||||||||
| Losses recognized | ( | ) | ||||||
| Income tax benefit (expense) | $ | $ | ||||||
The Company has $1.3 million of Federal net operating losses, which carryforward
indefinitely but are limited to 80% of taxable income when utilized. As of each of September 30, 2022 and March 31, 2022, the Company
had U.S. deferred tax assets of $
The following is a reconciliation of the U.K. taxes to the effective income tax rates for the six months ended September 30, 2022 and 2021 ($ in thousands):
| Six Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Loss on ordinary activities before tax | $ | 3,207 | $ | 633 | ||||
| Statutory U.K. income tax rate | 19.0 | % | 19.0 | % | ||||
| Loss at statutory income tax rate | 609 | 120 | ||||||
| Change (increase) in deferred income tax rate | 192 | – | ||||||
| Foreign currency effect | 4,304 | 537 | ||||||
| Research and development credit | – | 45 | ||||||
| Losses (unrecognized) | – | (120 | ) | |||||
| Income tax benefit | $ | 5,105 | $ | 582 | ||||
Research and development credit
receivables of $
The following is a reconciliation of financial statement income (loss) to tax basis income (loss) (in thousands):
| Six Months Ended September 30, 2022 | Six Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||
| United States | BVI | United Kingdom | Total | United States | BVI | Foreign | Total | |||||||||||||||||||||||||
| Pre-tax income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Losses not subject to tax | ||||||||||||||||||||||||||||||||
| Utilization of losses not previously benefitted | ||||||||||||||||||||||||||||||||
| Taxable loss | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||
F-20
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 12. INCOME TAXES (Cont’d)
As of September 30, 2022 and March 31, 2022, the Company’s deferred tax assets and liabilities in the U.K. consisted of the effects of temporary differences attributable to the following (in thousands):
| As of September 30, | As of March 31, | |||||||
| 2022 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss | $ | ( | ) | $ | ( | ) | ||
| Deferred tax asset (unrecognized) | ||||||||
| Deferred tax asset | ( | ) | ( | ) | ||||
| Deferred tax liabilities: | ||||||||
| In-process research and development | ||||||||
| Deferred tax liability | ||||||||
| Net deferred tax liability | $ | $ | ||||||
iOx generated research and development cash credits of approximately $
As of September 30, 2022 and March 31, 2022, iOx had a net deferred
tax liability of approximately $
There is no expiration date for accumulated tax losses in the U.K. entities.
F-21
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 13. WARRANT LIABILITY
Below is the roll-forward of warrants issued by entity (see Note 11, “Unsecured Notes Payable”):
| PBI | ||||||||||||
| Exercise Price | Warrants | Amount | ||||||||||
| In 000’$ | ||||||||||||
| Warrants outstanding, April 1, 2022 | $ | $ | ||||||||||
| Exercise of warrants as of September 30, 2022 | $ | |||||||||||
| Fair value adjustment as of September 30, 2022 (1) (2) | ( | ) | ||||||||||
| Warrants outstanding, September 30, 2022 | $ | $ | ||||||||||
| (1) | Portage warrant liability valued at contract price, adjusted for fair value using the Black-Scholes model. |
The Black-Scholes assumptions used in the fair value calculation of the warrants as of September 30, 2022 were:
Risk free rate: %
Expected Dividend: $
Expected Life: years
Volatility: %
| (2) | The Company recognized a gain of $ |
NOTE 14. CAPITAL STOCK
| (a) | Authorized ordinary shares: Unlimited number of common shares without par value. |
| (b) | Following is a roll-forward of ordinary shares for the six months ended September 30, 2022 and 2021: |
| Six Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Ordinary Shares | Amount | Ordinary Shares | Amount | |||||||||||||
| In 000’ | In 000’$ | In 000’ | In 000’$ | |||||||||||||
| Balance, beginning of period | $ | $ | ||||||||||||||
| Shares issued in Tarus acquisition | ||||||||||||||||
| Shares issued in iOx exchange | ||||||||||||||||
| Excess of non-controlling interest acquired over consideration – iOx | ||||||||||||||||
| Shares issued to Lincoln Park’s Committed Purchase | ||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||
| Shares issued in public offering and ATM | ||||||||||||||||
| Warrants exercised | ||||||||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
On June 16, 2020, the Company completed a private placement of restricted ordinary shares at a price of $ per share for gross proceeds of $ million to accredited investors. Directors of the Company subscribed for shares, or approximately 30.8% of the private placement, for proceeds of $ million. The Company incurred costs of approximately $0.25 million in connection with the offering, which was treated as contra-equity on the Company’s balance sheet.
F-22
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 14. CAPITAL STOCK (Cont’d)
During the quarter ended June 30, 2021, the Company commenced an “at
the market” offering, under which it sold
On June 24, 2021, the Company completed a firm commitment underwritten
public offering of
The Company has issued ordinary shares in connection with the acquisition of Tarus Therapeutics, Inc. and in connection with the Tarus Therapeutics, Inc.’s acquisition we may issue additional ordinary shares. See Note 8, “Tarus Acquisition” for a further discussion.
On July 18, 2022, the Company completed the iOx Share Exchange Agreement
under which it exchanged ordinary shares for the remaining minority interest of
Additionally, on August 19, 2022, the Company issued ordinary shares to Lincoln Park Capital Fund L.L.C. in consideration for entering into the $ million committed share purchase agreement. See Note 17, “Commitments and Contingent Liabilities – Purchase Agreement” for a further discussion.
| (a) | The following table provides the activity for the Company’s stock option reserve for the six months ended September 30, 2022 and 2021: |
| Six Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| (In thousands) | Non-Controlling Interest | Stock Option Reserve | Non-Controlling Interest | Stock Option Reserve | ||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Share-based compensation expense | ||||||||||||||||
| Settled in iOx exchange | ( | ) | ||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
Stock Options
On June 25, 2020, at the annual meeting of shareholders, the Company’s new incentive stock option plan (the “2020 Stock Option Plan”) was approved, which authorized the directors to fix the option exercise price and to issue stock options under the plan as they see fit. The Company’s 2020 Stock Option Plan is a 10% rolling stock option plan under which the directors are authorized to grant up to a maximum of 10% of the issued and outstanding ordinary shares on the date of grant.
F-23
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 15. STOCK OPTION RESERVE (Cont’d)
Effective January 13, 2021, the Company amended and restated its 2020 Stock Option Plan to permit the grant of additional types of equity compensation securities, including restricted stock units and dividend equivalent rights (the “2021 Equity Incentive Plan”). The aggregate number of equity securities, which may be issued under the 2021 Equity Incentive Plan has not been changed. Pursuant to the 2021 Equity Incentive Plan, on January 13, 2021, the Company granted an aggregate of stock options exercisable at a price of $ per share, representing the closing price of the shares on the day immediately preceding the grant date, which expire on January 13, 2031 to various directors, officers and consultants of the Company. options granted to members of the Board of Directors’ vest 1/3 on grant date, 1/3 on the first anniversary of the grant and 1/3 on the second anniversary of the grant. options granted to consultants (one of whom is also a director) vest 1/3 on each of the first three anniversaries of the date of grant.
Additionally, the Company granted
Amended and Restated 2021 Equity Incentive Plan and Grants of Stock Options and Restricted Stock Units
On January 19, 2022, the Board of Directors unanimously approved the Amended and Restated 2021 Equity Incentive Plan (the “Amended and Restated 2021 Equity Incentive Plan”). The Amended and Restated 2021 Equity Incentive Plan provides for:
| (1) | An increase of aggregate number of shares available for awards to 2,001,812, which is equal to 15% of the issued and outstanding common shares of the Company as of January 19, 2022 subject to discretionary annual increases (on a cumulative basis) as may be approved by the Board in future years by a number of shares not to exceed an additional five percent (5%) of the aggregate number of shares then outstanding; |
| (2) | The authorization of incentive stock options (should shareholder approval be sought and obtained) under the Amended and Restated 2021 Equity Incentive Plan; and |
| (3) | The provision of dividend equivalent rights to be issued when authorized. |
Pursuant to the Amended and Restated 2021 Equity Incentive Plan, on January
19, 2022, the Company granted an aggregate of
Additionally, the Company granted
F-24
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 15. STOCK OPTION RESERVE (Cont’d)
On February 15, 2022, James Mellon, Linda Kozick and Mark Simon were appointed
to the Board of Directors of the Company. Mr. Mellon owned approximately 23.9% of the Company’s outstanding shares at that date.
Additionally, Mr. Mellon had previously served as a member of the Board of Directors from 2016 to August 14, 2020. On February 15, 2022,
in connection with the appointments, each of these directors were granted
On June 8, 2022, the Company granted
Following are the weighted average assumptions used in connection with the June 8, 2022 option grant, with respect to the Company’s Amended and Restated 2021 Equity Incentive Plan:
| Assumption | Unvested Options | ||
| Risk free interest rate | % | ||
| Expected dividend | Nil | ||
| Expected volatility | % | ||
| Expected life | years | ||
| Fair value of Portage option | $ |
On July 27, 2022, the Company granted
Following are the weighted average assumptions used in connection with the July 27, 2022 option grant, with respect to the Company’s Amended and Restated 2021 Equity Incentive Plan:
| Assumption | Unvested Options | ||
| Risk free interest rate | % | ||
| Expected dividend | Nil | ||
| Expected volatility | % | ||
| Expected life | years | ||
| Fair value of Portage option | $ |
| (b) | The movements in the number of options issued for the six months ended September 30, 2022 and 2021 were: |
| PBI Amended and Restated 2021 Equity Incentive Plan | iOx Option Plan (Subsidiary Plan) | |||||||||||||||
| Six Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Balance, beginning of period | ||||||||||||||||
| Granted | ||||||||||||||||
| Expired or forfeited | ( | ) | ||||||||||||||
| Balance, end of period | ||||||||||||||||
| Exercisable, end of period | ||||||||||||||||
F-25
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 15. STOCK OPTION RESERVE (Cont’d)
| (c) | The following are the weighted average exercise price and the remaining contractual life for outstanding options by plan as of September 30, 2022 and 2021: |
| PBI Amended and Restated 2021 Equity Incentive Plan | iOx Option Plan (Subsidiary Plan) | |||||||||||||||
| As of September 30, | As of September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted average exercise price | $ | $ | $ | |||||||||||||
| Weighted average remaining contractual life (in years) | – | |||||||||||||||
The vested options can be exercised at any time in accordance with the applicable option agreement. The exercise price was greater than the market price on the date of the grants for all options outstanding as of September 30, 2022 and March 31, 2022.
The Company recorded approximately $
The Company recorded approximately $
Basic earnings per share (“EPS”) is calculated by dividing the net income (loss) attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is calculated by dividing the net income (loss) attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following table reflects the loss and share data used in the basic and diluted EPS calculations (dollars in thousands, except per share amounts):
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator (in 000’$) | ||||||||||||||||
| Net loss attributable to owners of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator (in 000’) | ||||||||||||||||
| Weighted average number of shares – Basic and Diluted | ||||||||||||||||
| Basic and diluted (loss) per share (Actual) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
F-26
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 16. (LOSS) PER SHARE (Cont’d)
The inclusion of the Company’s stock options, restricted stock units and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation. Consequently, there is no difference between basic loss per share and diluted loss per share for the three and six months ended September 30, 2022 and 2021. The following table reflects the outstanding securities by year that would have an anti-dilutive effect on loss per share and, accordingly, were excluded from the calculation.
| As of September 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock options | ||||||||
| Restricted stock units | ||||||||
| Warrants | ||||||||
Inclusion of outstanding options or other common stock equivalents in the computation of diluted loss per share would have an anti-dilutive effect on the loss per share and are therefore excluded from the computation. Consequently, there is no difference between loss per share and diluted loss per share.
NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES
Effective March 15, 2022, iOx entered into a Master Services Agreement (“MSA”) with Parexel International (IRE) Limited (“Parexel”) under which Parexel agrees to provide services as CRO provided in a work order (“Work Order”) effective June 1, 2022 under which Parexel will operate a Phase 2 trial of IMM60 and pembrolizumab in advanced melanoma and non-small lung cancer (“NSCLC”). The MSA provides for a five-year term, and the Work Order provides for a term to be ended upon the completion of the services required. The budget provides for service fees and pass-through expenses and clinical sites totaling $11.5 million.
Stimunity Convertible Note
On July 13, 2022, the Company entered into a commitment with Stimunity
to provide €
Purchase Agreement
On July 6, 2022 (the “Signing Date”), the Company entered
into the Purchase Agreement with Lincoln Park Capital Fund, LLC, pursuant to which the Company may require Lincoln to purchase ordinary
shares having an aggregate value of up to $
F-27
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES (Cont’d)
Upon execution of the Purchase Agreement, the Company issued to Lincoln
ordinary shares, representing a 3% commitment fee valued at $
The Purchase Agreement does not impose any financial or business covenants on the Company and there are no limitations on the use of proceeds received by the Company from Lincoln. The Company may raise capital from other sources in its sole discretion; provided, however, that the Company shall not enter into any similar agreement for the issuance of variable priced equity-like securities until the three year anniversary of the Signing Date, excluding, however, an at-the-market transaction with a registered broker-dealer.
In connection with the Purchase Agreement, the Company and Lincoln entered into a Registration Rights Agreement (the “Registration Rights Agreement”), dated July 6, 2022. Pursuant to the Registration Rights Agreement, the Company agreed, that it will file with the SEC the prospectus supplement to the Company’s shelf registration statement pursuant to Rule 424(b) for the purpose of registering for resale the ordinary shares to be issued to Lincoln under the Purchase Agreement. The prospectus supplement was filed on August 18, 2022.
The Company Is obligated under the Tarus acquisition and the iOx Share Exchange Agreement for certain third party earnouts based on the achievement of certain milestones. See Note 8, “Acquisition of Tarus” and Note 18, “Related Party Transactions – Share Exchange Agreement – iOx” for further discussions.
NOTE 18. RELATED PARTY TRANSACTIONS
Investments
The Company has entered into related party transactions and certain services agreements with its investees. Key management personnel of the Company have also entered into related party transactions with investees. Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the Company. The Board of Directors, Chairman, Chief Executive Officer and Chief Financial Officer are key management personnel.
The following subsidiaries and associates are considered related parties:
| (a) | Stimunity. The CEO of Portage is one of three members of the Board of Directors of Stimunity (see Note 6, “Investment in Associate” and Note 17, “Commitments and Contingent Liabilities – Stimunity Convertible Note”). |
| (b) | iOx. Upon the iOx Share Exchange on July 18, 2022, the non-Portage director resigned leaving two Portage insiders as directors. The CEO of Portage is also the CEO of iOx, and the management team of the Company comprise the management team of iOx. See below for a discussion of the Company’s purchase of the non-controlling interest in iOx. |
| (c) | Saugatuck. One of the three directorships on the Board of Directors of Saugatuck is controlled by Portage. Additionally, the CEO of the Company is also the CEO of Saugatuck and the management team of the Company comprise the management team of Saugatuck. |
F-28
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
| (d) | Intensity. The CEO of Portage is an officer of Intensity and both he and the VP of Projects and Operations of the Company provide
services to Intensity. The Company commenced invoicing Intensity for such services in February 2022 (see Note 7, “Investments in
Private Companies”). Additionally, Intensity provides services (primarily rent) to Portage, which is billed monthly. Portage accrued
approximately $ |
| (e) | Portage Development Services Inc. Portage Development Services Inc. is a 100% owned subsidiary incorporated in Delaware, which provides human resources, and other services to each operating subsidiary of Portage via a shared services agreement. |
Transactions between the parent company and its subsidiaries, which are related parties, have been eliminated in consolidation and are not disclosed in this note.
On September 8, 2021,
Share Exchange Agreement – iOx
On July 18, 2022, the Company and its wholly-owned subsidiary, SalvaRx Ltd. (“SalvaRx”), entered into a Share Exchange Agreement with each of the minority shareholders of iOx (the “Sellers”) resulting in the acquisition of the outstanding non-controlling ownership interest (approximately 22%) of iOx, which is developing the iNKT agonist platform. The Company followed IFRS 3, “Business Combinations,” and IAS 27, “Separate Financial Statements,” (which substantially replaced IAS 3) to account for this transaction. The Company achieved control of iOx, as defined, on January 8, 2019 upon the completion of Portage’s acquisition of SalvaRx. Further transactions whereby the parent entity acquires further equity interests from non-controlling interests, or disposes of equity interests but without losing control, are accounted for as equity transactions (i.e., transactions with owners in their capacity as owners). As such:
| · | the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary; |
| · | any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the parent; and |
| · | there is no consequential adjustment to the carrying amount of goodwill, and no gain or loss is recognized in profit or loss. |
The Company now owns the worldwide rights to its small molecule iNKT agonists, including lead programs PORT-2 and PORT-3. Under the terms of the Share Exchange Agreement, each Seller sold to the Company, and the Company acquired from each Seller, legal and beneficial ownership of the number of iOx Shares held by each Seller, free and clear of any share encumbrances, in exchange for the issuance in an aggregate of Portage ordinary shares to be allocated among the Sellers based upon their relative ownership. As a result of the Share Exchange Agreement, Portage owns 100% of the issued and outstanding shares of iOx.
F-29
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
As additional consideration for the sale of the iOx Exchange Shares to the Company, the Sellers shall have the contingent right to receive additional shares (“Earnout Shares”) from the Company having an aggregate value equal to $25 million calculated at the Per Share Earnout Price, as defined in the Share Exchange Agreement, upon the achievement of certain milestones defined as the dosing of the first patient in a Phase 3 clinical trial for either PORT-2 (IMM60 iNKT cell activator/agonist) or PORT-3 (PLGA-nanoparticle formulation of IMM60 combined with a NY-ESO-1 peptide vaccine). The Company shall have the option, in its sole and absolute discretion, to settle the Earnout Shares in cash. The Company followed IFRS 3 and IAS 32, Financial Instruments: Presentation,” to account for the fair value of the Earnout Shares. The principal assumptions for determining the fair value include the timing of development events, the probabilities of success and the discount rate used. The fundamental principle of IAS 32 is that a financial instrument should be classified as either a financial liability or an equity instrument according to the substance of the contract, not its legal form, and the definitions of financial liability and equity instrument. A financial instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met:
| (a) | the instrument includes no contractual obligation to deliver cash or another financial asset to another entity, and |
| (b) | if the instrument will or may be settled in the issuer's own equity instruments, it is either: |
| (i) | a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or |
| (ii) | a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. |
When a derivative financial instrument gives one party a choice over how it is settled (for instance, the issuer or the holder can choose settlement net in cash or by exchanging shares for cash), it is a financial asset or a financial liability unless all of the settlement alternatives would result in it being an equity instrument. The financial instrument includes the exclusive right of the Company to settle the obligation with cash or equity and, accordingly, accounted for the fair value of the Earnout Shares as a non-current liability.
The Company recorded $5.478 million as the fair value estimate of the Earnout Shares, which is reflected as deferred obligation - iOx milestone on the condensed consolidated balance sheet included herein. The Company will determine the fair value of the Earnout Shares at each balance sheet date. Any change to the fair value will be recorded in the Company’s statements of operations and other comprehensive income (loss). The Company recorded a gain from the change (decrease) in fair value of the liability of $0.054 million as of and for the three and six months ended September 30, 2022.
Employment Agreements
PDS entered into a Services Agreement with our CEO effective December
15, 2021. The Services Agreement provides that the CEO will receive a base salary of $
F-30
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
Under the Services Agreement, the CEO may terminate his employment with PDS at any time for Good Reason, as defined in the Services Agreement. PDS may terminate the CEO’s employment immediately upon his death, upon a period of disability or without “Just Cause”, as defined in the Services Agreement. In the event that the CEO’s employment is terminated due to his death or Disability, for “Good Reason” or without “Just Cause,” (each as defined in the Services Agreement) he will be entitled to accrued obligations (accrued unpaid portion of base salary, accrued unused vacation time and any unpaid expenses). Additionally, he may be entitled to Severance Benefits, as defined in the Services Agreement, which include his then current base salary and the average of his annual bonus for the prior two completed performance years, paid over 12 monthly installments. Additionally, the CEO will be entitled to life insurance benefits and medical and dental benefits for a period of 12 months at the same rate the CEO and PDS shared such costs during his period of employment.
Additionally, all stock options (and any other unvested equity incentive award) held by the CEO relating to shares of the Company will be deemed fully vested and exercisable on the Termination Date, as defined in the Services Agreement, and the exercise period for such stock options will be increased by a period of two years from the Termination Date.
If the CEO’s employment by PDS is terminated by PDS or any successor entity without “Just Cause” (not including termination by virtue of the CEO’s death or Disability) or by the CEO for Good Reason within twelve (12) months following the effective date of a “Change in Control” (as defined in the Services Agreement), then in addition to paying or providing the CEO with the Accrued Obligations (as defined in the Services Agreement), the Company will provide the following “Change in Control Severance Benefits”:
| (1) | PDS will pay the base salary continuation benefit for eighteen (18) months; |
| (2) | PDS will pay the life insurance benefit for eighteen (18) months; |
| (3) | PDS will pay an additional amount equivalent to the CEO’s target annual bonus calculated using the bonus percentage for the performance year in which the CEO’s termination occurs. This bonus will be paid in twelve equal installments commencing on the first payroll date that is more than sixty (60) days following the date of termination of the CEO’s employment, with the remaining installments occurring on the first day of the month for the eleven (11) months thereafter; |
| (4) | PDS will provide the CEO with continued medical and dental benefits, as described above, for eighteen (18) months; and |
| (5) | All stock options (and any other unvested equity incentive award) held by the CEO relating to shares of the Company or its parent will be deemed fully vested and exercisable on the Termination Date, as defined, and the exercise period for such stock options will be increased by a period of two years from the Termination Date. |
PDS entered into Services Agreements with each of our five other senior
officers (individually, “Executive” and collectively, “Executives”), three of which are dated as of December 1,
2021, one of which is dated December 15, 2021 and one of which is dated June 1, 2022. Each of the Services Agreements provides for an
initial term of two years that is automatically renewed for one-year periods (except two of the Services Agreement, which provides for
an initial term of one year and that is automatically renewed for one-year periods). The Services Agreements initially provide for annual
base salaries ranging from $175,000 to $
F-31
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
The Services Agreements with the Executives can be terminated by PDS without “Just Cause”, by death or Disability, or by the Executive (except one) for “Good Reason” (each as defined in the respective Services Agreements). In such instances, the Services Agreements provide for the payment of accrued obligations (accrued unpaid portion of base salary, accrued unused vacation time and any unpaid expenses). Additionally, the Executives (except two) are entitled to 50% of base salary plus 50% of average annual bonus earned over the prior two performance years, as well as prevailing life insurance benefits for a period of six months and medical and dental benefits for a period of six months at the prevailing rate PDS and the Executive were sharing such expenses.
Additionally, all stock options (and any other unvested equity incentive award) held by the Executives relating to shares of the Company will be deemed fully vested and exercisable on the Termination Date, as defined in the respective Services Agreements, and the exercise period for such stock options will be increased by a period of two years from the Termination Date.
If an Executive’s employment by PDS is terminated by the Company or any successor entity without “Just Cause” (not including termination by virtue of the Executive’s death or Disability) or by the Executive (except one) for Good Reason within twelve (12) months following the effective date of a “Change in Control” (as defined), then in addition to paying or providing the Executive with the Accrued Obligations, the Company will provide the following “Change in Control Severance Benefits” (except in two cases in which the Executive is entitled to Item (5) and 50% of Items (1) and (3) below):
| (1) | PDS will pay the Base Salary continuation benefit for twelve (12) months; |
| (2) | PDS will pay the life insurance benefit for twelve (12) months; |
| (3) | The Company will pay an additional amount equivalent to the Executive’s target annual bonus calculated using the bonus percentage for the performance year in which the Executive’s termination occurs. This bonus will be payable in twelve equal installments commencing on the first payroll date that is more than sixty (60) days following the date of termination of the Executive’s employment, with the remaining installments occurring on the first day of the month for the eleven (11) months thereafter; |
| (4) | PDS will provide the Executive with continued medical and dental benefits, as described above, for twelve (12) months; and |
| (5) | All stock options (and any other unvested equity incentive award) held by the Executive relating to shares of the Company or its parent will be deemed fully vested and exercisable on the Termination Date and the exercise period for such stock options will be increased by a period of two years from the Termination Date. |
The Services Agreements also include customary confidentiality, as well as provisions relating to assignment of inventions. The Services Agreements also includes non-competition and non-solicitation of employees and customers provision that run during the Executive’s employment with PDS and for a period of one year after termination of employment.
F-32
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
Bonuses & Board Compensation Arrangements
In December 2021, the Compensation Committee approved performance bonuses payable to senior management totaling $0.7 million. The bonuses were paid in December 2021.
In addition, the Compensation Committee of the Board established board of director compensation. Effective January 1, 2022, each non-executive board member will be entitled to receive cash board fees of $40,000 per annum, payable quarterly in arrears. Additionally, each non-executive board member will be entitled to an annual grant of 6,900 options to purchase Portage ordinary shares, which would vest the first annual anniversary of the date of grant. The Company incurred board fees totaling $82,500 and $157,500 during the three and six months ended September 30, 2022, respectively. There were no board fees incurred during the three and six months ended September 30, 2021.
Non-executive Board chairpersons will be entitled to an annual cash fee
of $30,000, payable quarterly in arrears. In lieu of a non-executive chairperson, the lead director will be entitled to an annual cash
fee of $20,000 per annum paid quarterly in arrears.
NOTE 19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company’s financial instruments recognized in the Company’s condensed consolidated interim statements of financial position consist of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment; and therefore, these estimates cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
The following table summarizes the Company’s financial instruments as of September 30, 2022 and March 31, 2022:
| As of September 30, 2022 | As of March 31, 2022 | |||||||||||||||
| (In thousands) | Amortized Cost | Fair Value through Other Comprehensive Income (FVTOCI) | Amortized Cost | FVTOCI | ||||||||||||
| Financial assets | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Prepaid expenses and other receivables | $ | $ | $ | $ | ||||||||||||
| Convertible note receivable, including accrued interest | $ | $ | $ | $ | ||||||||||||
| Investments | $ | $ | $ | $ | ||||||||||||
| Amortized Cost | Fair Value through Profit or Loss (FVTPL) | Amortized Cost | FVTPL | |||||||||||||
| Financial liabilities | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | ||||||||||||
| Warrant liability | $ | $ | $ | $ | ||||||||||||
| Deferred purchase price payable - Tarus | $ | $ | $ | $ | ||||||||||||
| Deferred obligation - iOx milestone | $ | $ | $ | $ | ||||||||||||
F-33
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont’d)
A summary of the Company’s risk exposures as it relates to financial instruments are reflected below.
Fair value of Financial Instruments
The Company’s financial assets and liabilities are comprised of cash and cash equivalents, receivables and investments in equities and private entities, accounts payable, warrant liability and unsecured notes payable.
The Company classifies the fair value of these transactions according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:
| · | Level 1 – Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date. |
| · | Level 2 – Values are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or indirectly observable as of the reporting date. |
| · | Level 3 – Values are based on prices or valuation techniques that are not based on observable market data. Investments are classified as Level 3 financial instrument. |
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.
Management has assessed that the fair values of cash and cash equivalents, other receivables and accounts payable approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate their fair values:
Convertible Note Receivable: The fair value of the convertible note denominated in euros at initial recognition is the transaction price for the instrument adjusted for the effect of the currency translation rate on the reporting date (Level 3) (see Note 17, “Commitments and Contingent Liabilities – Stimunity Convertible Note”).
Investment in Intensity: Fair value of the asset is determined by considering other comparable equity funding transactions by Intensity with unrelated investors (Level 3).
Accrued Equity Issuable: The fair value is estimated based on the average of the quoted market prices for the period in which the shares were earned (Level 1).
Warrant Liability: The fair value is estimated using a Black-Scholes model (Level 3) (see Note 13, “Warrant Liability”).
Deferred Purchase Price Payable - Tarus: The fair value is the estimated value of a future contingent obligation based upon a fair value analysis performed in accordance with IFRS 3 at acquisition date, adjusted at each reporting date for any change in fair value (Level 3) (see Note 8, “Acquisition of Tarus”). The fair value was determined using the Income Approach and was based upon the analysis on the Tarus clinical plan, the timing of development events and the probabilities of success determined primarily based upon empirical third party data and Company experience, as well as the relevant cost of capital. The Company recorded a gain from the change (decrease) in fair value of the liability of $0.016 million as of and for the three and six months ended September 30, 2022.
Deferred obligation - iOx milestone: The fair value is the estimated value of a future contingent obligation based upon a fair value analysis performed in accordance with IFRS 3 as of July 18, 2022, the date of the iOx Share Exchange Agreement, adjusted at each reporting date for any change in fair value (Level 3) (see Note 18, “Related Party Transactions – Share Exchange Agreement - iOx”). The fair value was determined using the Income Approach and based on factors including the clinical plan, the timing of development events and the probabilities of success determined primarily based upon empirical third party data and Company experience, as well as the relevant cost of capital. The Company recorded a gain from the change (decrease) in fair value of the liability of $0.054 million as of and for the three and six months ended September 30, 2022.
F-34
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont’d)
There have been no transfers between levels of the fair value hierarchy for the six months ended September 30, 2022 and the year ended March 31, 2022.
The Company’s financial instruments are exposed to certain financial risks: credit risk and liquidity risk.
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfil its payment obligations. The credit risk is attributable to various financial instruments, as noted below. The credit risk is limited to the carrying value as reflected in the Company’s condensed consolidated interim statements of financial position.
Cash and cash equivalents. Cash and cash equivalents comprise cash on hand and on-demand deposits that are readily convertible to a known amount of cash with three months or less from date of acquisition and are subject to an insignificant risk of change in value. As of September 30, 2022 and March 31, 2022, cash equivalents was comprised of a money market account with maturities less than 90 days from the date of purchase. Cash and cash equivalents are held with major international financial institutions and therefore the risk of loss is minimal.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due.
The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company’s reputation. The Company holds sufficient cash and cash equivalents to satisfy obligations under accounts payable and accruals.
The Company monitors its liquidity position regularly to assess whether it has the funds necessary to meet its operating needs and needs for investing in new projects. The Company believes that it has sufficient funding to finance the committed drug development work, apart from meeting its operational needs for the foreseeable future.
However, as a biotech company at an early stage of development and without significant internally generated cash flows, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company, or that actual drug development expenditures may exceed those planned. The current uncertainty in global markets could have an impact on the Company’s future ability to access capital on terms that are acceptable to the Company. There can be no assurance that required financing will be available to the Company. See Note 2, “Liquidity” and Note 14, “Capital Stock” for a discussion of the Company’s share offering and Note 17, “Commitments and Contingent Liabilities – Purchase Agreement” for a further discussion.
NOTE 20. CAPITAL DISCLOSURES
The Company considers the items included in shareholders’ equity
as capital. The Company had accounts payable and accrued expenses of approximately $
F-35
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 20. CAPITAL DISCLOSURES (Cont’d)
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.
As of September 30, 2022, shareholders’ equity attributable to the owners of the company was approximately $ million (approximately $ million as of March 31, 2022).
The Company is not subject to any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital. There have been no changes to the Company’s approach to capital management during the six months ended September 30, 2022 and 2021.
NOTE 21. NON-CONTROLLING INTEREST
| (In thousands) | iOx | Saugatuck and subsidiary | Total | |||||||||
| Non-controlling interest as of April 1, 2022 | $ | $ | ( | ) | $ | |||||||
| Net income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||
| Purchase of non-controlling interest pursuant to Share Exchange Agreement | ( | ) | ( | ) | ||||||||
| Non-controlling interest as of September 30, 2022 | $ | $ | ( | ) | $ | ( | ) | |||||
| (In thousands) | iOx | Saugatuck | Total | |||||||||
| Non-controlling interest as of April 1, 2021 | $ | $ | ( | ) | $ | |||||||
| Share-based compensation expense | ||||||||||||
| Exchange of notes payable, accrued interest and warrants for iOx shares | ||||||||||||
| Net (loss) attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Non-controlling interest as of September 30, 2021 | $ | $ | ( | ) | $ | |||||||
On September 8, 2021, the Company, through SalvaRx, completed a settlement of loans (including interest) to and receivables from iOx for services rendered in exchange for 23,772 ordinary shares of iOx at a price of £162. On July 18, 2022, the Company completed the acquisition of the remaining non-controlling interest in iOx, by issuing 1,070,000 shares of its ordinary shares and assuming certain milestone obligations. See Note 11, “Unsecured Notes Payable – iOx Unsecured Notes Payable” and Note 18, “Related Party Transactions – Share Exchange Agreement - iOx” for further discussions.
Saugatuck and subsidiary includes Saugatuck and its wholly-owned subsidiary, Saugatuck Rx LLC.
NOTE 22. EVENTS AFTER THE BALANCE SHEET DATE
| a) | Sale of ordinary shares |
In October, 2022, the Company restarted the ATM and commenced sales of
ordinary shares pursuant to the Sales Agreement. Through November 22, 2022, the Company sold ordinary shares under the ATM and
generated net proceeds of approximately $
F-36
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 22. EVENTS AFTER THE BALANCE SHEET DATE (Cont’d)
| b) | Submission of Matters to a Vote of Security Holders |
The 2022 Annual Meeting of Shareholders (the “Annual Meeting”) of the Company was held on November 10, 2022. At the Annual Meeting, the Company’s shareholders:
| · | Elected seven incumbent directors to serve until the next annual meeting of the Company’s shareholders or until their respective successors have been duly elected and qualified; and |
| · | Approved the Amended and Restated 2021 Equity Incentive Plan, as amended and updated in January 2022. |
The number of votes cast for, against or withheld and the number of broker non-votes with respect to each Proposal is set forth below.
| Proposal 1 | Shares For | Shares Withheld | Broker Non-Votes | |||||||||
| Ian Walters | ||||||||||||
| Gregory Bailey | ||||||||||||
| Steven Mintz | ||||||||||||
| James Mellon | ||||||||||||
| Linda Kozick | ||||||||||||
| Mark Simon | ||||||||||||
| Robert Glassman | ||||||||||||
| Proposal 2 | Shares For | Shares Against | Broker Non-Votes | |||||||||
| Approved the Amended and Restated 2021 Equity Incentive Plan, as amended and updated in January 2022. | ||||||||||||
F-37