Kane Biotech Inc Ord

Good day, and thank you for standing by. And welcome to Kean Biotech Quarter 1, 2021 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to Mr. Ray Dupuy, Kane Chief Financial Officer. Sir, please go ahead.

Thank you, operator. Good afternoon and welcome everyone to Kane Biotech's quarterly conference call to discuss the company's financial results for Q1 2021. We are delighted to have you join us today. This call will cover Kane Biotech's financial and operating results for the first quarter ended March 31st, 2021. Kane Biotech's CEO, Mark Edwards, will begin by providing an overview of the quarter. I will then elaborate on the financial performance of the company in the quarter. Following our prepared remarks, we will open the conference call to question and answer session. But before we begin the presentation, let me caution you that our comments and discussions will include forward-looking information within the meaning of applicable securities legislation. Forward-looking information will include, among other things, forecasts and projections which involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from such forecasts and projections. Therefore, although we believe that anticipated future results, performance, or achievements expressed or implied by the forward-looking information are based on reasonable assumptions and expectations, you should not place undue reliance on such forward-looking information. Thank you, and I will now hand the call over to Mark Edwards, CEO of Kane Biotech.

Thank you, Ray, and welcome everyone listening in on today's call. Bonjour à vous tous. Kane has two proprietary technologies, CoactivePlus and DispersinB, that both prevent and disperse microbial biofilms, which are a big problem in multiple markets. What is a biofilm? Put simply, biofilm is is a community of microorganisms irreversibly attached to a surface. Think dental plaque, for example. Kane has identified three multi-billion dollar markets where biofilms are causing big problems and where we feel our technologies provide Kane the ability to win and grow. Throughout Q1, we continued to successfully execute our commercialization plan and made significant progress in all three verticals. With that, I'll hand it over to Ray Dupuy, our CFO, to go over the high-level financials, and I'll be back to share more exciting news about this progress.

Thanks, Mark. To streamline things, all the numbers I will mention are rounded and are therefore approximate. The following figures are all in Canadian dollars. Revenue from product sales in the three months ended March 31, 2021, was 254,000, a decrease of 4% compared to 264,000 in the three months ended March 31, 2020. This decrease is due mainly to the permanent COVID-related store shutdowns across the U.S. at one of the company's major pet retail customers. Partially offsetting this, the company grew its product sales revenue by approximately 27% from other pet retail customers in both Canada and the United States. Revenue from product and services sales grew by 58% in the three months ended March 31st, 2021, when compared to the three months ended December 31st, 2020 due mainly to growth in pet retail channel demand and increased product availability as well as increased demand for contract manufacturing services from DECRAF. Gross profit for the first quarter of 2021 was $166,000, a decrease of 7% compared to $179,000 for the quarter ended March 31, 2020. Total operating expenses for the three months ended March 31, 2021, were $1,150,000, an improvement of 29% compared to $1,624,000 for the quarter ended March 31, 2020. This decrease is due mainly to lower marketing, business development, legal and research expenditures in the current period in combination with funding received in the current period related to the company's U.S. Department of Defense research funding grant. Loss for the first quarter of 2021 was $1,011,000, an improvement of 26% compared to $1,364,000 for the quarter ended March 31, 2020. Cash used in operating activities for the three months ended March 31, 2021 was $427,000, a decrease of 71% compared to $1,475,000 for the three months ended March 31, 2020. This decrease reflects both reduced operating spending during the current period, as well as the company's increased use of government grants and subsidies. Cash at March 31, 2021 was $633,000, compared to $1,008,000 as at December 31, 2020. I will now hand it back over to Mark.

Thank you, Ray. Firstly, I'd like to thank our shareholders for their continued support. Our stock has done well these past few months, and because of this, we saw shareholders exercise $4.2 million warrants, including $1 million warrants from our Vice Chair, Philip Renaud, and 100,000 warrants from our CFO during the quarter, which is a sign of continued support and optimism for Kane, both from insiders and non-insiders. The main highlight for me of the quarter was a confirmation that our patented Coactive Plus technology is a platform technology that has been proven highly effective. We did this in two ways. First, We announced that our PEP oral care water additive clinical trial had met its clinical endpoints, which should enable us to obtain a veterinary efficacy certification. This certification will trigger milestone payments from both DECRA, our licensing partner for the veterinary markets in the Americas, and Animal Care, our strategic partner who has the right to commercialize their technology in the veterinary markets in Europe and Asia. It will also trigger minimum royalty payments from DECRA, and we expect it to help DECRA drive increased sales. I love our STEM animal health business. Pet oral care is a surprisingly big market. Our product is proven effective. We have two great partners who are commercializing our technology in the veterinary market, and we have an industry veteran CEO, Kevin Cole, who is putting all the right pieces in place for substantial growth in the pet specialty market. The second way we demonstrated that our CoActive Plus technology is highly effective in the quarter is with our DermaKB shampoo line consumer trial. We received overwhelmingly positive results on our DermaKB shampoo consumer trial. We've published the results, but the key elements for me are that we signed up over 4,000 people, none of which were compensated, 82% of trial participants saw an improvement in their scalp-related issues, And on average, participants saw a 33% improvement from a single three-ounce bottle of shampoo. The consumer trial also demonstrated that Derma KB shampoo can go head-to-head or shoulder-to-shoulder, if you know what I mean, with the biggest brands in the market and come out ahead. Gordier's CSO, who spent 25 years at P&G as a research fellow, was very impressed by this particular metric and thinks it will help us go a long way. Congrats to our OTC team for all their hard work in bringing those products to market. We are leveraging these numbers to put sales and distribution agreements in place, as well as talking to partners about potential licensing opportunities for our DermaKB shampoo line, as well as other products we have in our pipeline. As for our wound care business, we continue to talk with potential partners and review opportunities. We are confident we'll be putting an agreement in place by the end of the year. Our products are world-class, and we want to ensure that we have the right partner. We're making great progress with development and regulatory approval of both our wound care products. Finally, I would like to welcome Dr. Alan Mandelzies, who was appointed to our board at our recent AGM, which was actually yesterday, and we look forward to the support and advice that Alan brings. Thank you for your support and interest in Keen Biotech, and we look forward to our continued success. We'll open up the line for questions. Operator, we're ready for questions.

Thank you. And as a reminder, to ask a question, you will need to press star and then the number one on your telephone keypad. Again, just press star and then the number one on your telephone keypad. And to withdraw your questions, just press the pound key.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Jonathan Victor from Diamond Bridge Capital. Sir, your line is open.

Hi, thank you. I just wanted to confirm, you may have just mentioned this, the awards or grants from the U.S. Department of Defense related to the wound care business. You're still receiving those, right?

Yes, so we were awarded that award. last year at around this time, and yes, we are still receiving that. And we're still delivering on that research project for which we've received the funding.

Okay. And the shampoo products, do you have an idea of when they're going to hit the shelves in the stores, sort of like a timeline or something, or a best guess?

So we're commercializing them today online and growing that network through the online retail. And we're also talking with distributors through the hair salon channel. What we've found is that a lot of people with these conditions can't go to their hair don't have access to a dermatologist, and that a lot of them are getting advice from their hairstylist or whoever they're working with at their various salons. So we're expecting our first distribution agreements to happen by the end of next quarter. Okay.

And I guess just in terms of cash and cash in the balance sheet, cash in the books, you know, you've got three businesses, two separate technologies. You can have another runway in terms of cash. Do you have some plans for that?

Yeah. So that's a great question. Thank you for that. So we've got, I think, a number of funding sources that aren't reflected on our balance sheet. And I think I love... Highlighting those. Right now, we have about $8 million of warrants that are in the money. Philip Renaud and other investors have committed to exercising those and aiming to have done so by the end of the third quarter, which could drive up to $8 million in the bank. We've got $2.5 million U.S. dollars from the U.S. Department of Defense that we haven't spent yet. We have another $2.5 million from the Western Economic Diversification Fund, the Canadian government, again for our wound care initiative that we also haven't received. Our partnership with animal care for our animal health business saw them putting in 5 million into our animal health business with 4 million to be received and the partnerships we're talking about both on the wound care side and on the wound care side and on the OTC business will be driving between 5 and 10 million dollars into the business so If we are successful in materializing and all of that, it'll drive upwards of $20 million into the business in a company that I would say has a very, very lean burn at this time there compared to other companies out there. So we're making good progress on all fronts, and we'll have the necessary capital to execute on all fronts.

Great. Thank you very much.

Thank you very much.

Once again, to ask a question, just press star and then the number one on your telephone keypad.

There are no further questions at this time.

I'm now turning the call back to Mr. Mark Edwards.

Thank you very much, operator, and thank you, everyone, for listening in. For those who are interested in getting further information, we will be releasing a business update video next week featuring myself and Ray and Gordon Guay, our CSO, Kevin Cole, who's the CEO of STEM, our animal health business, And Wendy, who's been leading the charge, Wendy Noctegal, who's been leading the charge with regards to our OTC business. So look forward to sharing that with you next week and, yeah, excited with everything going on at Kane. Thank you very much for listening in. Have a great day.

This concludes today's conference call. Thank you all for participating. You may now disconnect.