Mainz Biomed(MYNZ) - 2023 Q4 - Annual Report

PART I Key Information This section details significant investment risks, highlighting the company's early-stage, loss-making status and substantial doubt about its going concern ability, covering operational, technological, regulatory, and share-related factors Risk Factors The company faces risks from operating losses, financing dependence, growth management, reliance on ColoAlert, market competition, regulatory hurdles including FDA approval, cybersecurity, and share price volatility with delisting potential - The company is an early-stage entity with a history of operating losses, reporting net losses of approximately $26.3 million in both 2023 and 2022. Its ability to achieve profitability is uncertain and depends on successfully marketing its diagnostic tests[36][37] - The auditor's report for the fiscal year ended December 31, 2023, includes an explanatory paragraph indicating substantial doubt about the company's ability to continue as a going concern due to recurring losses and negative cash flows[46] - The company's future revenue is almost entirely dependent on the commercial success of its ColoAlert colon cancer screening test. Success hinges on factors like patient and physician acceptance, competition, and intellectual property protection[57] - The company must navigate complex and conflicting legal and regulatory requirements globally, including obtaining FDA market authorization to enter the U.S. market, which will require a large and costly clinical study (reconAAsense)[81][90][165] - The company's ordinary shares are subject to significant price volatility and the risk of delisting from Nasdaq if the minimum bid price remains below $1.00 for an extended period. As of March 26, 2024, the closing price was $1.01[99][118] Information on the Company Mainz Biomed develops and sells IVD tests for early cancer detection, primarily ColoAlert for colorectal cancer in Europe, while pursuing U.S. market entry and outlining its business, products, strategy, competition, and regulatory landscape History and Development of the Company Mainz Biomed N.V. was incorporated on March 8, 2021, acquired PharmGenomics GmbH on September 20, 2021, and converted to a Dutch public company on November 9, 2021 - The company was incorporated on March 8, 2021, and acquired PharmGenomics GmbH on September 20, 2021, before converting to a public company on November 9, 2021[121] Business Overview The company focuses on early cancer detection with ColoAlert for CRC in Europe, developing an enhanced version with mRNA biomarkers for improved sensitivity and planning a pivotal FDA study for U.S. market entry, while also developing PancAlert and facing competition - The company's flagship product is ColoAlert, a CE-IVD certified diagnostic test for colorectal cancer (CRC) being marketed in Europe. It is also developing PancAlert, a screening test for pancreatic cancer[124][132][133] - The company is enhancing ColoAlert by integrating novel mRNA biomarkers (UdeS Biomarkers) to improve detection of advanced adenomas. Clinical studies (ColoFuture and eAArly DETECT) have shown promising results, with the eAArly DETECT study reporting 97% sensitivity for CRC and 82% for advanced adenomas[139][141][142] - The company's U.S. market entry strategy involves a pivotal FDA study named reconAAsense, a prospective clinical study planned to include approximately 15,000 subjects from 150 sites across the United States[165] - Mainz Biomed competes with traditional CRC screening methods like colonoscopy and FIT tests, as well as other diagnostic companies including Exact Sciences (Cologuard), Freenome, Guardant Health (Shield), and GRAIL (Galleri)[194][208] - For the year ended December 31, 2023, one customer accounted for approximately 21% of revenue. This is a decrease in concentration from 2022 (two customers, 38%) and 2021 (four customers, 56%)[204] Organizational Structure Mainz Biomed N.V. operates through three wholly-owned subsidiaries: Mainz Biomed Germany GmbH, Mainz Biomed USA, Inc., and European Oncology Lab GmbH - The company has three wholly-owned subsidiaries: Mainz Biomed Germany GmbH, Mainz Biomed USA, Inc., and European Oncology Lab GmbH[209] Property, Plant, and Equipment The company leases approximately 22,400 sq. ft. of office and lab space at its principal location in Mainz, Germany, with a total monthly rent and ancillary costs of approximately €31,300 - The company leases approximately 22,400 sq. ft. of office and lab space at its principal location in Mainz, Germany, with a total monthly rent and ancillary costs of approximately €31,300[210] Operating and Financial Review and Prospects This section analyzes the company's financial condition and operations, noting significant revenue growth in FY2023 offset by increased R&D expenses, resulting in continued net losses and a 'going concern' warning, with liquidity dependent on cash and future financing, and detailing key accounting policies Results of Operations In 2023, revenue increased 69% to $895,479 and gross profit grew 180% to $509,659, but R&D expenses rose 91% to $9.6 million, leading to a net loss of $26.3 million, similar to 2022 Financial Performance Comparison (2023 vs. 2022) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $895,479 | $529,877 | $365,602 | 69% | | Gross Profit | $509,659 | $182,151 | $327,508 | 180% | | Gross Margin | 57% | 34% | - | - | | Research and Development | $9,590,393 | $5,019,366 | $4,571,027 | 91% | | Sales and Marketing | $6,158,477 | $6,396,906 | ($238,429) | (4)% | | General and Administrative | $11,405,471 | $15,209,919 | ($3,804,448) | (25)% | | Loss from Operations | $(26,644,682) | $(26,444,040) | $91,609 | 1% | | Net Loss | $(26,295,727) | $(26,387,336) | $91,609 | 0% | - The 91% increase in R&D expenses in 2023 was primarily due to a $1.5 million increase in compensation costs from higher headcount and a $3.0 million increase related to the ColoFuture and eAArly DETECT clinical studies[223] - The 25% decrease in G&A expenses was mainly attributable to a $5.6 million decrease in non-cash stock option expense, partially offset by a $1.7 million increase in consulting and professional fees[225] Liquidity and Capital Resources The company faces substantial doubt about its going concern ability due to recurring losses and negative operating cash flow, with cash on hand at $7.1 million as of December 31, 2023, and relies on future financing to fund operations - The company has an accumulated deficit of $69.3 million and negative operating cash flow of $21.9 million for the year ended Dec 31, 2023, raising substantial doubt about its ability to continue as a going concern[229] Cash Flow Summary (2023 vs. 2022) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Cash used in operating activities | $(21,938,845) | $(14,769,590) | | Cash (used in) investing activities | $(1,898,841) | $(658,483) | | Cash provided by financing activities | $14,226,692 | $23,943,418 | - In 2023, the company raised $16.5 million through a combination of share and warrant sales and the issuance of convertible debt. Management believes current cash and future financing will be sufficient for at least the next year[231][544] Critical Accounting Policies and Significant Judgments and Estimates The company's IFRS financial statements involve significant judgments, with critical policies covering revenue recognition based on delivery or test results, share-based compensation valuation using Black-Scholes or Monte Carlo models, and other areas like impairment and financial instrument valuation - Revenue from sales of testing kits to laboratory partners is recognized upon delivery. Revenue from sales to patients (end users) is deferred until the sample is returned and testing results have been delivered[239][240] - Stock options with time-based vesting are valued using the Black-Scholes model, while those with market-based vesting conditions are valued using a Monte Carlo simulation[250] - The company continually evaluates long-lived assets for impairment when events indicate their carrying balance may not be recoverable, using undiscounted cash flow estimates[254] Directors, Senior Management, and Employees This section details the company's leadership, compensation, board structure, and employee base, including biographies of key executives and directors, compensation agreements, board committees, and employee count Directors and Senior Management The company is led by CEO Guido Baechler and a management team with extensive life sciences and diagnostics experience, complemented by an experienced board of directors Key Directors and Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Guido Baechler | 58 | Chief Executive Officer, Executive Director | | William Caragol | 57 | Chief Financial Officer | | Dr. Moritz Eidens | 41 | Chief Scientific Officer, Executive Director | | Dr. Heiner Dreismann | 70 | Non-Executive Director | | Darin Leigh | 56 | Chief Commercial Officer | Compensation Executive compensation includes base salary and stock options, totaling $2.435 million in cash for seven executives in FY2023, with a new Carve-Out Plan approved in February 2024 for change of control payments and independent directors receiving $228,000 in fees Aggregate Executive Compensation (FY 2023) | (U.S. dollars in thousands) | All executive officers | | :--- | :--- | | Base compensation | $1,859 | | Bonuses | $452 | | Additional benefit payments | $124 | | Total cash compensation | $2,435 | - CEO Guido Baechler's agreement includes a base salary of $450,000, an annual bonus target of 50% of base salary, and severance provisions[311] - In February 2024, the company approved a Carve-Out Plan (COP) for its US subsidiary. The plan creates a payment pool equal to 13% of the consideration in a Change of Control event, to be distributed to key service providers[337][338] - As of March 26, 2024, 2,727,150 stock options have been granted under the company's Omnibus Incentive Plans[335] Board Practices The company operates with a one-tier board of seven directors, five of whom are independent, and has established Audit, Compensation, and Nominating Committees, with Nicole Holden as the audit committee financial expert - The board consists of seven directors, with five deemed independent: Dr. Alberto Libanori, Nicole Holden, Hans Hekland, Dr. Heiner Driesmann, and Gregory Tibbits[295][344] - The board has three primary committees: Audit, Compensation, and Nominating, all comprised of independent directors[346] Board Diversity Matrix (As of March 26, 2024) | Gender Identity | Count | | :--- | :--- | | Female | 1 | | Male | 6 | | Non-Binary | 0 | | Total Directors | 7 | Employees As of March 26, 2024, the company had 71 employees, primarily in Research & Development and Manufacturing/Clinical Laboratory, with no collective bargaining agreements Employee Breakdown by Activity (As of March 26, 2024) | Activity | Full-Time | Part-Time | Total | | :--- | :--- | :--- | :--- | | Manufacturing and Clinical Laboratory | 16 | 1 | 17 | | Research & Development | 26 | 2 | 28 | | Sales & Marketing | 10 | 2 | 12 | | Finance & Administration | 11 | 1 | 12 | | Executives | 2 | 0 | 2 | | Total | 65 | 6 | 71 | Major Shareholders and Related Party Transactions This section discloses beneficial ownership, with directors and executive officers holding 14.9% and KfW 5.7% of ordinary shares, and details related party transactions primarily limited to executive compensation and a historical licensing agreement Beneficial Ownership of Key Shareholders (as of March 26, 2024) | Name | Percentage of Ordinary Shares Beneficially Owned | | :--- | :--- | | Directors and Executive Officers as a Group (10 persons) | 14.9% | | Dr. Moritz Eidens (CSO, Executive Director) | 5.1% | | Kreditanstalt für Wiederaufbau (KfW) | 5.7% | - As of April 8, 2024, approximately 80% of ordinary shares were held by 8 holders with registered addresses in the United States, though this number is skewed by Cede & Co. holding 17.1 million shares as a nominee[364] - Apart from executive employment agreements, the company has not entered into material transactions with related parties, except for historical agreements with ColoAlert AS, which is affiliated with director Hans Hekland[366] Financial Information This section references the company's IFRS consolidated financial statements, audited by Reliant CPA PC, and notes no material legal proceedings or dividend payments since incorporation - The company's financial statements for the year ended December 31, 2023, are prepared in accordance with IFRS and audited by Reliant CPA PC[368] - The company has never paid dividends and does not intend to pay any in the foreseeable future, retaining earnings for business operations and development[370] The Offer and Listing The company's ordinary shares are traded on the Nasdaq Capital Market under the symbol 'MYNZ' - The company's ordinary shares are listed on the Nasdaq Capital Market with the ticker symbol 'MYNZ'[372] Additional Information This section details the company's corporate structure and governance under Dutch law, summarizing articles of association, material contracts like the PharmGenomics and ColoAlert IP acquisitions, Dutch exchange controls, and tax considerations for shareholders Memorandum and Articles of Association The company is a Dutch public limited liability company with a one-tier board, authorized share capital of 45 million ordinary shares and 5 million preferred shares, and the Board is authorized to issue and repurchase shares and limit pre-emptive rights - The company has a one-tier board structure consisting of executive and non-executive directors[383] - Authorized share capital consists of 45,000,000 ordinary shares and 5,000,000 preferred shares, with no preferred shares currently outstanding[388] - The Board of Directors has been authorized by the general meeting until November 9, 2026, to issue shares up to the authorized capital and to limit or exclude pre-emptive rights[393][396] Material Contracts The company has key agreements including the September 2021 Contribution Agreement for PharmGenomics GmbH acquisition, the February 2023 Intellectual Property Asset Purchase Agreement for ColoAlert, and a Technology Rights Agreement for UdeS Biomarkers - On September 20, 2021, the company acquired PharmGenomics GmbH in exchange for 6,000,000 of its ordinary shares[427] - On February 15, 2023, the company acquired the intellectual property for the ColoAlert test for $2 million in cash (paid over four years), 300,000 restricted shares, and a revenue share of $1 per test for 10 years[433] - The company acquired the rights to the UdeS Biomarkers on February 15, 2023, in exchange for €25,000 cash and a 2% profit share on net sales of any products using the biomarkers[437] Taxation This subsection outlines Dutch tax consequences for shareholders, noting that dividends are generally subject to a 15% Dutch withholding tax but are exempt if the company's effective management remains in Germany under the German-Dutch tax treaty, with potential Alternative Dividend Withholding Tax for low-tax jurisdictions - Dividends are generally subject to a 15% Dutch dividend withholding tax. However, as long as the company's place of effective management remains in Germany, it is considered a German tax resident under the German-Dutch tax treaty and is generally exempt from this withholding requirement[442] - An Alternative Dividend Withholding Tax at the highest corporate rate (currently 25.8%) may apply to dividends paid to related entities in designated low-tax jurisdictions, effective January 1, 2024, though the German tax residency provides a likely exemption[447][448] Quantitative and Qualitative Disclosures About Market Risk The company faces foreign currency risk from non-Euro transactions, managed by holding cash in multiple currencies without hedging, and anticipates future interest rate risk from variable-rate debt, which would be managed dynamically - The company is exposed to foreign currency risk as its operations are conducted in Europe (functional currency Euro) while it holds cash and incurs expenses in U.S. dollars. It manages this by holding cash in both currencies but does not currently use hedging instruments[466][54] - The company may be exposed to interest rate risk in the future if it takes on variable-rate debt. It plans to manage this risk through a dynamic hedging approach, potentially using interest rate swaps[468] PART II Material Modifications to the Rights of Security Holders and Use of Proceeds A December 2022 amendment to the Articles of Association eliminated the right for shareholders with over 20% ownership to nominate a director, and offering proceeds have been used for clinical studies, R&D, and general corporate purposes - A December 2022 amendment to the Articles of Association eliminated the right of shareholders holding over 20% of shares to nominate a director[474] - Proceeds from offerings have been used for clinical studies for its next-gen CRC screening product, R&D, and general corporate purposes[478] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes during the fiscal year - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[480] - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[483] Corporate Governance and Other Disclosures This section covers governance and disclosures, identifying Nicole Holden as the audit committee financial expert, detailing the company's code of ethics and insider trading policy, outlining differences in Dutch versus Nasdaq governance practices, and describing its cybersecurity risk management framework Audit Committee Financial Expert The Board has determined that Nicole Holden, Chair of the Audit Committee, qualifies as an audit committee financial expert - The Board has identified Nicole Holden as the audit committee financial expert[488] Principal Accountant Fees and Services In fiscal year 2023, the company was billed $140,000 by its independent auditor, Reliant CPA PC, for audit and audit-related fees, an increase from $105,000 in 2022 Auditor Fees (Reliant CPA PC) | Fee Type | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fees | $80,000 | $60,000 | | Audit-Related Fees | $50,000 | $45,000 | | Tax Fees | $0 | $0 | | Total | $140,000 | $105,000 | Corporate Governance As a foreign private issuer, the company adheres to Dutch corporate governance practices, which differ from Nasdaq rules regarding quorum, proxy solicitation, and shareholder approval for security issuances - The company follows its home country (Dutch) governance practices, which differ from Nasdaq rules regarding quorum requirements, proxy solicitations, and shareholder approvals for certain security issuances[499][502] Cybersecurity The company manages cybersecurity risks through established policies and systems, overseen by the board and audit committee, with the VP of IT responsible for assessments, safeguards, training, and third-party vendor management - The company's board and audit committee oversee cybersecurity risk management[510] - The VP of Information Technology leads the cybersecurity program, which includes risk assessments, technical safeguards, employee training, and management of third-party vendor risks[511][512] PART III Financial Statements This section presents the company's audited consolidated financial statements for 2023 and 2022, prepared under IFRS and audited by Reliant CPA PC, highlighting a 'Going Concern' issue due to significant operating losses and detailing financial position, performance, and cash flows Report of Independent Registered Public Accounting Firm Reliant CPA PC issued an opinion that the financial statements are fairly presented under IFRS, but included a 'Going Concern' paragraph due to significant operating losses raising substantial doubt about continued operations - The auditor's report contains a 'Going Concern' paragraph, citing the company's significant operating losses as a factor that raises substantial doubt about its ability to continue operations[522] Consolidated Statements of Financial Position As of December 31, 2023, total assets decreased to $15.4 million from $20.2 million in 2022, primarily due to reduced cash, while total liabilities increased to $12.2 million, and shareholders' equity decreased to $3.2 million Consolidated Statements of Financial Position (Expressed in US Dollars) | | December 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $8,979,788 | $18,378,341 | | Total Assets | $15,409,028 | $20,241,003 | | Total Current Liabilities | $9,236,936 | $4,242,606 | | Total Liabilities | $12,159,802 | $6,144,936 | | Total Shareholders' Equity | $3,249,226 | $14,096,067 | Consolidated Statements of Comprehensive Loss For 2023, the company reported a net loss of $26.3 million on $0.9 million revenue, similar to the $26.4 million loss in 2022, with basic and diluted loss per share improving to $(1.62) Consolidated Statements of Comprehensive Loss (Expressed in US Dollars) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | $895,479 | $529,877 | $577,348 | | Loss from operations | $(26,644,682) | $(26,444,040) | $(9,724,606) | | Net loss | $(26,295,727) | $(26,387,336) | $(11,690,098) | | Basic and diluted loss per ordinary share | $(1.62) | $(1.86) | $(1.62) | Notes to the Consolidated Financial Statements The notes detail the 'going concern' issue, the February 2023 ColoAlert IP acquisition for $2 million cash and shares, the 2023 issuance of $11 million in convertible promissory notes, equity transactions including a $5 million offering, and related party transactions - (Note 1) The company has recurring losses, an accumulated deficit of $69.3M, and negative operating cash flow of $21.9M for FY2023, raising substantial doubt about its ability to continue as a going concern[543] - (Note 9) On Feb 15, 2023, the company acquired the IP for the ColoAlert test. The consideration included $2M cash (paid over 4 years), 300,000 restricted shares, and a revenue share of $1 per test for 10 years. An intangible asset was recognized with a 10-year useful life[609] - (Note 13) In 2023, the company entered into a Pre-Paid Advance Agreement and sold two Promissory Notes with a total principal of $11 million. The notes are convertible at a variable price with a $2.00 floor. As of Dec 31, 2023, $6.4 million in principal was outstanding[625][627][633] - (Note 16) In November 2023, the company raised approximately $5.0 million in a registered direct offering, selling 4,166,667 units (share and warrant) at a price of $1.20 per unit[647] - (Note 23) Subsequent to year-end, the company made payments on its convertible notes totaling $858,415 in cash and issued 721,093 ordinary shares to reduce the outstanding principal and settle interest/premiums[678]