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ZEN Graphene Solutions Ltd.

Other OTC: ZENYF $2.30

TSXV: ZEN.V C$2.88

August 4, 2021

 

Business Overview

 

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ZEN Graphene Solutions Ltd. is a healthcare-focused nanomaterials company, with an emphasis on illness prevention (PPE and indoor air quality), aptamer-based rapid detection of viruses and other pathogens, and therapeutics.

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The R&D effort is producing an expanding body of intellectual property and a growing number of potential markets.

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Management expects revenue and cash flow generation to begin this year, and the initial target markets appear to be quite substantial.

 

 

ZENGuard Antimicrobial Coatings

 

Antimicrobials are agents that kill or slow the spread of microorganisms such as viruses, bacteria, and fungi. COVID-19, which is presently a serious global issue, represents a substantial immediate market opportunity for the Company with its novel, graphene-based antimicrobial coating (ZENGuardTM).

 

Initial testing at Western University and Mount Sinai Hospital demonstrated that ZENGuardTM was 99+% effective against numerous pathogens including COVID-19. Tests also showed that ZENGuardTM on masks did not lead to any shedding or skin irritation. Management is targeting the personal protective equipment (PPE) and HVAC air filtration markets and has filed USPTO provisional patents for this product.

 

The Company sources the raw materials for ZENGuardTM from third parties and has transitioned its ZENGuardTM production from bench scale to pilot scale. It is investing in additional pilot-scale capacity to help meet immediate demand. A new 25,000 square foot manufacturing facility in Guelph, Ontario is designed for ZENGuardTM production. Production capacity, on a coated mask equivalent basis, is planned to reach approximately 800 million per month by late this year. The Company has hired an engineering company (Bantrel) to design and source the equipment necessary for production at an industrial scale, which management hopes to come online in first-half 2022.

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Personal Protective Equipment (PPE). PPE sold to hospitals, long-term care residences, and healthcare professionals includes face masks, gloves, boots, gowns, etc. The Company has an agreement with Trebor Rx Corp., a Canadian PPE technology company, that includes an initial purchase by Trebor of ZENGuardTM for 100+ million masks/filters and 100+ million nitrile gloves during the first year. Health Canada has the marketing application under review, and management expects a decision shortly.

 

Management estimates that steady state mask demand on a global basis will be approximately 930 billion per annum and that the ZEN gross margin per mask could range from $0.03 to $0.06. On this basis (for illustrative purposes only) each 0.5% market penetration could result in annual demand for approximately 4.6 billion masks.

 

Steady state demand for exam and single-use gloves on a global basis could be approximately 439 billion, each with a gross margin of $0.01 to $0.04. This exercise indicates that each 0.5% market penetration could generate annual glove demand of about 2.2 billion.

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Indoor Air Quality. The Company is working with HVAC filter manufacturers with the goal of supplying pre-coated antimicrobial filtration media or the coatings themselves to manufacturers for use in their production lines.

 

The market for air filters in homes, schools, hospitals, commercial and industrial spaces, and aircraft is estimated (by fortunebusinessinsights.com) to have been US$66 billion in 2020, with an average cost per filter of approximately US$12. Each 0.5% penetration of that market (for illustrative purposes only) could generate demand for 27.6 million filters, with a ZEN gross margin of $1 to $4 per filter.

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Other Opportunities. Management is exploring other potential ZENGuardTM markets that include PPE gowns and footwear, high-touch surfaces in public spaces, and antimicrobial packaging.

 

 

Next-Gen Rapid Detection

 

The Company recently licensed rights to be the exclusive global commercializing partner with McMaster University for an aptamer-based testing technology that recognizes the SARS-CoV-2 spike protein. The saliva-based technology can detect the virus in very low quantities (less than 1,000 copies per ml). Accuracy is similar to current PCR tests (clinical sensitivity of 82% and specificity of 100%, both of which are within FDA regulations for home use), and results are available in less than 10 minutes. Provisional patents are pending.

 

Equipment required for testing includes a cell phone, mobile electric reader, and sensor.

 

Management is pursuing discussions with potential partners for manufacturing, marketing, and distribution. It believes that startup of marketing, which will require approval in Canada by Health Canada and in the U.S. by the FDA, might begin as soon as this Fall. Pricing should be very competitive, helping to open up markets worldwide.

 

According to worldometers.info, there were more than 2.6 billion COVID tests administered globally. The market for rapid test kits that same year, was estimated by researchandmarkets.com to have been $23.4 billion.

 

The scientists are working to adapt the technology to new variants, other coronaviruses, viruses more generally, and other pathogens. ZEN has a collaboration with McMaster to further develop this technology in the disease detection arena. The technology shows early promise to be able to identify bacteria, fungi, HIV, STDs, TB, and cancer markers.

 

 

Therapeutics

 

The Company has a patent-pending graphene-based compound that is highly effective against pathogens, including antimicrobial resistant (AMR) organisms. AMR occurs when viruses, bacteria, and fungi change over time and no longer respond to existing antimicrobials.

 

The Western Biosafety Level 3 laboratory completed viricidal testing against SARS-CoV-2, and McMaster University and Mount Sinai Hospital completed antibacterial testing. A minimum inhibitory concentration was able to achieve 99.9% efficacy against SARS-CoV-2 and other harmful pathogens, and there were no adverse effects from cytotoxicity testing on animals and minimal gross findings at necropsy.

 

Applications potentially include upper and lower respiratory tract infections, digestive tract pathogens, and topical use for eyes, nose, ears, feet, wounds, etc.

 

 

A Primer on Graphite, Graphene, and Graphene Oxide

 

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Graphite is a commonly found mineral that occurs in metamorphic rocks as well as igneous rocks and meteorites. It is a crystalline form of carbon, with its atoms arranged in a hexagonal structure. As an efficient conductor of electricity and heat, graphite is used in electrodes, batteries, and solar panels. It is also a used in lubricants and pencils. A vast majority of graphite production is from metamorphic stock, but that from igneous origin, exhibits superior conversion (exfoliation) into graphene.

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Graphene is a single atomic layer of graphite, with its bonded carbon atoms arranged in a hexagonal, honeycomb-like lattice. Graphene is produced by a variety of methods from graphite raw material. Graphene is exceptionally strong and an outstanding conductor that holds promise for uses in solar cells, LEDs, touch panels, smart windows, and cell phones. Worldwide demand has been rising rapidly.

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Graphene oxide is the oxidized form of graphene that is produced as monomolecular sheets that can be used to prepare membranes, thin films, and composites. The films consist of randomly stacked flakes, leaving nano-sized capillaries between them. Graphene oxide has a demonstrated strong antibacterial activity.

 

 

Officers, Directors, and Advisors

 

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Greg Fenton, CEO since 12/08/20 and a Director, has 30+ years of banking and investment management experience, including positions at Scotiabank and National Bank Financial. He presently leads a company (Fortem Partners International Limited) that provides balance sheet optimization and investment services.

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Dr. Francis Dube, O.D., B. Sc., Executive Chairman and a Director, was previously co-founder and a director of a private cannabis company that had a $40 M buyout.

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Peter C. Wood, President since 2018.

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James Jordan, VP/Operations since December 2020.

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Dr. Colin van der Kuur, VP/Science & Research since December 2020.

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Brian Bosse, CFO since 2018 and a Director, has a background of 30+ years as a professional investor. He previously served as portfolio manager of the Goodman Bluespring Fund.

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Ryan Shacklock, Market Development & Investor Relations.

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John Cornish, Senior Project Manager.

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Monique Manaigre, Government Relations Director.

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Deepak Sridhar, PhD, Science & Research - MITACS.

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Arash Haddadi, PhD, Science & Research - MITACS.

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Eric Wallman, Director.

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Frank Klees, Director.

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Dr. Kenneth Reed, Medical Director at DermASAP, is a dermatologist with 38 years of clinical experience. He is also the co-founder of two healthcare companies, has been a clinical investigator for various pharma companies, sits on the board of a NASDAQ-listed biopharma company, and advises a number of medical technology companies.

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On July 27, 2021, management and directors as a group beneficially owned 3,810,013 common shares (4.3% of the total outstanding). The also owned significant warrant and option positions.

 

 

Financials (03/31 FY)(CAD)

 

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Income Statement (12 months through 03/31/21 vs. 03/31/20)

 

G&A expense: 969,207 vs. 703,496

Professional fees: 548,922 vs. 241,498

Stock-based compensation: 2,018,416 vs. 293,575

Other expenses: 785,990 vs. 439,306

Income (loss) before other income: (4,322,535) vs. (1,677,875)

Total other income: 453,885 vs. 136,998

Net income (loss): (3,868,650) vs. (1,540,877)

Earnings (loss) per basic and diluted common share: (0.05) vs. (0.02)

Weighted average common shares outstanding:

 

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Balance Sheet (03/31/21)

 

Cash: 3,091,549

Other current assets: 293,829

Total current assets: 3,385,378

Property & equipment: 705,221

Exploration and evaluation assets: 26,159,729

Total assets: 30,250,328

Current liabilities: 2,506,167

Non-current liabilities: 281,873

Equity by stockholders: 27,462,288

Common shares outstanding (07/27/21): 89,011,363

Stock options outstanding: 7,021,667 at a weighted average exercise price of $1,13.

Warrants outstanding: 3,393,965 at a weighted average exercise price of $0.67.

 

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On April 8, 2021, the Company issued 1,735,199 units at $2.50 per unit for gross proceeds of $4,337,998. Each unit consisted of a common share and one-half of a two-year common share purchase warrant exercisable at $3.00.

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Subsequent to March 21, 2021, ZEN received $738,783 from exercise of options and share purchase warrants. In addition, it issued 250,000 stock options to employees and consultants.

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In addition to successfully raising $8.6 million since May 2018, the Company has received $3 million in government grants.

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The financial statements for March 31, 2021, included a going-concern qualification. Such a qualification is not unusual for early stage companies. The financial statement auditor for fiscal 2021 was McGovern Hurley LLP (Toronto).

 

 

Valuation Considerations

 

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Management has guided the Company to considerable early value creation, broadening its scope of operations in many promising directions and establishing a number of important partnerships.

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The ZENGuardTM antimicrobial coatings initiatives are expected to lead to near-term revenue and cash flow generation, and the addressable markets are substantial.

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The IP portfolio is expanding, and there appear to be many other opportunities. The pending patent applications are important to the long-term competitive outlook.

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The Company may require significant additional financial resources to carry out its business plans.

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The ongoing impact of COVID-19 is an uncertainty. The SEDAR filings expand upon this risk and list other risk factors which are hereby incorporated by reference.

 

 

Contacts

 

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Address: 210-1205 Amber Drive, Thunder Bay, Ontario P7B 6M4, Canada

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Website: www.zengraphene.com

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Transfer agent: Capital Transfer Agency Inc., 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2

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Investor contact: Ryan Shacklock

 

 

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