Covalon Technologies Ltd. (COV) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Fiscal 2020 Annual and Special Meeting of Shareholders of Covalon Technologies Ltd. My name is Brian Pedlar. I'm the President and Chief Executive Officer of Covalon and a member of the Board of Directors. I'm speaking to you from Covalon's offices in Mississauga, Ontario. Also in attendance virtually is Danny Brannagan, Covalon's Chief Financial Officer. This is our second virtual meeting, and although we are once again disappointed that we can't see each of you in person today, we hope that we will again soon. We appreciate your patience with this online format. As this meeting is being held virtually via live webcast, we think it is necessary to set out a few rules for the orderly conduct of the meeting. [Operator Instructions] Please note that there will be a slight delay in the publication of the communications received. [Operator Instructions] The questions regarding procedural matters or directly related to the motions before the meeting may be addressed during the meeting. Questions unrelated to procedural matters will only be addressed during the question period at the end of the meeting. For the purposes of the meeting today, voting on all matters will be conducted by a single electronic poll. Registered shareholders and duly appointed proxyholders may vote on each business item at any point during the meeting. Only registered shareholders and duly appointed proxyholders of the corporation are permitted to participate in the voting. Instructions on the voting procedure and how to ask questions will appear on your screens. As with any new technology, expected glitches may occur, but our service providers for this platform at Lumi are very experienced at running this type of meeting and are -- they're ready to help if necessary. The Annual and Special Meeting of Shareholders of Covalon Technologies Ltd. will now come to order. With the consent of the meeting and in accordance with the bylaws of the corporation, I will preside as Chair with respect to the meeting, and Laura Levine of Stikeman Elliott will act as Secretary of the meeting. Emily Hill of Covalon will act as Moderator to help with the virtual communication. To expedite the formal part of the meeting, I will move and second all motions. I would ask that Oliver Keung of TSX Trust Company act as Scrutineer for this meeting. The purpose of today's meeting was set out in the notice of Annual and Special Meeting of Shareholders dated April 19, 2021, and the management information circular dated May 26, 2021. I do not propose to read the notice. However, copies of the meeting materials are available under the corporation's profile on the SEDAR website. I direct that a copy of the Notice of Meeting be attached to the minutes of this meeting. I have been advised that the notice calling this meeting, together with the management proxy circular and the form of proxy, were mailed to shareholders of record as of May 14, 2021, on -- and mailed on June 9, 2021, in accordance with applicable law. A copy was also mailed to each of the corporation's Directors and to its Auditor. TSX Trust Company has provided proof of service of such mailing, and I direct that a copy of such proof of service be annexed to the minutes of this meeting. According to registrations, the Scrutineer has advised me that there are a total of 75 shareholders present in person or by proxy, representing a total of 11,030,811 shares. It's roughly 43% of the shares that are entitled to vote at this meeting. I therefore declare that a quorum is present, and accordingly, the meeting is constituted for the transaction of business. Registered shareholders and duly appointed proxyholders attending this meeting may address the meeting when there is a call to discuss a motion before the meeting. Before you -- should you like to address the Chair on a motion, please type your question or comment into the message section once it opens during the discussion period. If there is any discussion or question, the question will be read aloud. Today, we will be conducting the following orders of business: the presentation of Covalon Technologies Ltd.'s annual financial statements for the year ended September 30, 2020; the election of Covalon Technologies Ltd.'s Directors; the appointment of Covalon Technologies Ltd.'s Auditor; and the reapproval and confirming effective of Covalon's 2019 Amended and Restated Stock Option Plan. As previously noted, we will conduct the votes on these matters by a single electronic poll. On the poll, every shareholder entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that shareholder. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of the discussion on each resolution prior to casting your vote. If you have already submitted your vote by proxy, you should not vote during the meeting unless you wish to change your vote. I now declare the polls open. I now declare that this meeting is regularly called and properly constituted for the transaction of business. The first formal item of business is the presentation of Covalon Technologies Ltd.'s audited consolidated financial statements for the year ended September 30, 2020, together with the Auditor's report thereon. These financial statements in this report were previously provided, and I would not propose to review them as part of the formal part of the meeting. After the formal part of the meeting has been completed and the various presentations made, we'll be pleased to respond to any questions shareholders may have on these financial statements. We now move to the next point on today's agenda, election of Directors. The next matter to be dealt with is the election of Directors. As indicated in the Circular, management is nominating 7 Directors for election by the shareholders. Management nominates Amir Boloor, Joseph Cordiano, Myrna Francis, Martin Goldfarb, Abe Schwartz, Ron Smith and Brian Pedlar. Each of the persons nominated has confirmed that he or she is prepared to serve as a Director. Each of them qualifies as a Director under the provisions of the Business Corporations Act of Ontario. Are there any further nominations?

There are no further nominations.

As there are no further nominations, I declare the nominations closed. I move and second a motion with respect to the resolution that the following persons be and they are hereby elected Directors of the corporation to hold office until the next Annual Meeting of the Shareholders of the corporation or until their respective successors are duly appointed: Amir Boloor, Joseph Cordiano, Myrna Francis, Martin Goldfarb, Abe Schwartz, Ron Smith and Brian Pedlar. Is there any discussion on the motion?

There is no discussion at this time.

As there is no discussion, the motion is now on the floor. The act requires that the Board of Directors be elected. Proxies have been solicited for each of the 7 proposed qualified persons listed in the management information circular. The form of proxy for voting on the election of Directors sets out each proposed nominee separately and allows shareholders to vote for each Director individually. As mentioned at the beginning of this meeting, voting today will be conducted by a single electronic poll. You may choose to vote on each resolution immediately or wait until the conclusion of the discussion on each resolution prior to casting your vote. We will now continue with the next item of business. The next matter to be dealt with is the appointment of PricewaterhouseCoopers, LLP, Chartered Accountants, to serve as Auditor of the corporation until the close of the next Annual Meeting of the Shareholders or until its successor is duly appointed and to authorize the Directors of the corporation to fix the remuneration of the Auditor. I move and second the motion. Does anyone wish to discuss the motion?

There is no discussion at this time.

The motion is now on the floor. We will now continue with the next item of business. The next matter to be dealt with is to approve a resolution in the form set out in Appendix A to the Circular to reapprove and confirm effective the corporation's Amended and Restated rolling Stock Option Plan, a copy of which was attached to the corporation's management information circular dated October 8, 2020, as Appendix B. In order for the resolution to pass, the corporation must receive a majority of the votes cast by all shareholders at the meeting, either in person or by proxy. I move and second this motion. Does anyone wish to discuss the motion?

There is no discussion at this time.

I now call for any registered shareholders or proxyholders who have not yet voted in the matters discussed in this meeting to please do so now. [Voting]

I now declare the polls closed. Based on the preliminary Scrutineers' report, I declare all motions are carried. I direct that the results of the voting be included in the minutes of this meeting. This completes the matters of business to be conducted as set out in the notice. As there is no more formal business to which we must attend, I would request a motion to terminate the meeting. And I move and second the motion. Does anyone wish to discuss the motion?

There is no discussion at this time.

As there is no discussion, this concludes the formal orders of business for today. On behalf of the Directors and management, I would like to thank you for your support. With national vaccination on the horizon, we wish you and your families good health. Thank you for joining us today. I invite all of you to stay for our business presentation and the opportunity to ask questions. The Q&A following the presentation will be open to registered shareholders, duly appointed proxyholders and guests. I'll now turn it over to Danny to start the business presentations.

Thank you, Brian. I would like to remind everyone that the presentation today is covered by Covalon's safe harbor statement, and we disclaim any intention to update any forward-looking statements. There will be a Q&A period at the end of this presentation. The fiscal year ended September 30, 2020, was a year of change and challenges that saw Covalon emerge in a strong position for fiscal 2021 and beyond. While the revenue remains strong in the early commercialization phase in fiscal 2020, we did see a year-over-year decrease of 24%, and this was primarily driven by COVID-19 impacts and a delay in the transition of our business partner in Saudi Arabia. With regards to COVID-19, like many companies, Covalon was negatively impacted by the global pandemic and the actions taken by countries, companies and individuals as a result of the virus and related uncertainty. The direct sales channel in the United States was interrupted as face-to-face sales calls became more difficult. The company has noted that accounts were not being lost but that the types of procedures that were performed were heavily shifted away from those that utilize Covalon products, and facilities were drawing down on their existing inventories. The company has seen signs of recovery in the end market use of its products and expects its revenue growth to accelerate again as facilities, customers and distributors readjust in the Middle East, the U.S.A. and international markets. With regards to the distribution partner in Saudi Arabia, Covalon has replaced the previous distributor with a major European medical and health care provider. The new distribution partner will also be responsible for other countries in the GCC region and has the resources to put behind Covalon products and support them in market. During fiscal 2020, Covalon engaged in 39 customer development projects of various sizes with 10 medical product companies, including work associated with our previously announced major licensing agreement with one of the world's largest medical device companies. For the year ended September 30, 2020, revenue in the United States was down by $2.9 million due primarily to COVID-19 impacts and the postponement of elective surgeries. To date, in fiscal 2021, the company is seeing signs of recovery in this market as hospitals and health care facilities start returning to normal levels of activities and types of procedures. Middle East revenue was down $6.4 million compared to the year ended September 30, 2019. The new distribution partner was fully transitioned during fiscal 2020, and this delay led to a decrease in revenue. Looking at the trailing 12 months of the Middle East revenue, the company has seen an improvement compared to fiscal 2020 with revenues of $3.1 million compared to $2.3 million. As previously discussed, Covalon has been able to diversify its customer base so that no individual customer has more than 10% share of revenue. In spite of the COVID-19 pandemic, Covalon was able to continue selling products into our existing markets while managing the challenges that have been seen throughout supply chains and in transportation logistics in many sectors. Covalon derived approximately 80% of sales from the United States, 10% from the Middle East and 10% from the rest of the world. The increased focus on the U.S. activities has helped Covalon to achieve diversification and shows that we still have upside growth potential in future years. Covalon was able to reduce operating expenses by approximately $11.5 million in fiscal 2020 as compared to fiscal 2019. These expenses were primarily driven by a decrease in personnel costs, travel costs, agency fees payable in the Middle East, but the company is looking to maintain these reductions until revenue returns to a level that requires more support. The trailing 12-month period reflects the operating expense level with these reductions fully incorporated since some of these measures were taken during the fiscal 2020 year. Adding back government subsidies to the trailing 12-month period, we see that there has been a 47% decrease in operating expenses compared to fiscal 2019. Subsequent to year-end, the company has received waivers for all breaches related to our banking facility with HSBC. At year-end, the company was offside on financial covenants, which resulted in the full amount of outstanding debt to be classified as a current liability. Covalon has a strong relationship with HSBC and a history of obtaining waivers for covenant breaches, which has been the approach taken as it relates to the COVID-19 impacts. We believe that we will be able to obtain waivers in the future but recognize that there are no guarantees, and we continue to pay down our debt as it is becoming due. The acquisition note payable on the company's balance sheet relates to a vendor take-back note from the acquisition of AquaGuard. The full amount is listed as current liability. However, the noteholder entered into a subordination agreement with HSBC that unconditionally and irrevocably deferred, postponed and subordinated in all respects this note to the HSBC debt. The noteholder does not currently have recourse under the signed subordination agreement until the HSBC debt has been fully paid off, which is currently scheduled to be in fiscal 2025. Subsequent to fiscal 2020, the company and the noteholder entered into a call option agreement that allows the company to settle at its option the full vendor take-back note for a payment of USD 4 million and the issuance of 200,000 common share purchase warrants with an exercise price of CAD 4. The exercise of the call option by the company is conditional on approval from HSBC and regulators. If the call option is not exercised and settled by October 1, 2021, then the company remains obligated to settle the vendor take-back note in accordance with its original terms. Covalon continues to have a strong cash position, and we closely monitor our working capital while continuing to make required debt payments and pay other obligations as they become due. Adjusted EBITDA for fiscal 2020 was a loss of $2.6 million compared to the prior year's adjusted EBITDA loss of $5.7 million. The adjustments are outlined in Covalon's MD&A but the net result is that Covalon was able to improve upon our fiscal 2019 year by over $3 million while navigating the many disruptions that impacted our supply chain, customers, staff and partners around the world. Covalon was able to make important strides as a company during fiscal 2020 that put the company in a position to be successful going forward. The first 6 months of fiscal 2021 support this change by reflecting a net profit and positive cash generated from operating activities. I would now like to turn the call over to Covalon's CEO, Brian Pedlar.

Thanks, Danny. I'm going to spend a bit of time just talking about Covalon, where we see ourselves positioned in the market and some of the things that I think are of -- should be of extreme importance and value to shareholders. And that's -- a lot of that is focused around our technology platforms, our products and our distribution channels into the market. Now at our heart, Covalon is a lab. I mean we were built on the strength of our scientific and technical team. And our mission is to use science and technology to protect patients from infection and help them heal. We've actually got a really strong portfolio of intellectual property, which I'll talk about throughout this presentation. And -- but even our most simple products that we have actually have a lot of know-how and technology built into them. And that's what really makes them simple to use and also very effective. Now we generate revenue in 2 major ways. We develop products and market and sell those products under the -- under Covalon's brand name. And we also developed products based on our technology for other medical companies. And we usually do that underdevelopment or license agreements. So we have those 2 streams of revenue. Think of it as consumable medical products and development, licensing and services. Throughout most of our markets, we develop -- we enter the market through distributors and make use of distributors that have relationships with hospitals and clinicians in almost every country, including the United States. We also have a small sales team in the U.S. that sells directly into hospitals. Now when we look at Covalon as an investment because we are all shareholders, I think of it in a couple of different buckets, but I wanted to highlight a few, so -- and give you some sense of operationally where we are. There's no question that we overcame some challenges that we had in the Middle East. We've had some challenges with COVID. But I really think our recovery from COVID is very much underway. And I think we're positioned for growth again. I can -- we can see that in how we've controlled our operating expenses, the fact that year-to-date in fiscal 2021 we're profitable. And we're seeing the signs of the market that we were impacted most in, in the United States. We're seeing the signs of things opening up there. And as we go through and look at the opportunities for Covalon, we actually have more growth opportunities than we can currently properly exploit under our capital structure. So when we look at our capital structure, we have announced previously, and we've talked several times about the strategic review process that commenced. I think it was in November time frame. We've discussed that on previous calls and in press releases. And it was driven by a response -- by a need to respond by our Board and the company to expressions of interest made by a number of medical industry and private equity organizations. So we formed a special committee, and the special committee has worked extremely hard. And we also hired outside advisers to help us undertake this strategic review. The main goals of that were to find a way to improve the capital structure of the company, help the company focus its business model and do so by improving our balance sheet without incurring unnecessary shareholder dilution. And I can tell you that each strategic alternative that has been -- that has come forward during this process has been assessed. We've received several expressions of interest. The process is still underway. I feel really good about the progress that we've made in engaging in that process. And no matter which path the strategic process takes, we are going to update shareholders on the outcome of the process when it is completed. So when we look at shareholder value, the big question is always, okay, well, how do we -- how does that translate into our share price? There's no question and I think we've talked about this before, that our setbacks in the Middle East and the challenges of COVID-19 have affected our stock. Our ongoing business, I think, demonstrates that our stock price doesn't represent the true value of Covalon. So the question we ask ourselves and I get asked this a lot is, okay, why is that? But part of that is because our stock is illiquid. And the share price will fluctuate based on what I would consider illogical trading patterns. And it trades well below what I think the intrinsic value of the company is. One of the things that I think shareholders have to understand is that the majority of the shares are held by insiders, who are very, very experienced, long-term investors. And as a shareholder myself, I take comfort in that fact because these shareholders that are holding -- that have been shareholders of Covalon for a long period of time see the value. I think we've talked about that in past press releases and on past conference calls that the entire Board believes that Covalon's true value vastly exceeds our current market cap. One of the drivers of that, to be honest, that has really driven the recognition of the value that we have in our company is what I would consider our platform technologies. And they fall into really 4 broad buckets. One is our biological Collagen Matrix, which has been in the market. It's probably a little bit more mature platform, has been in the market for quite a period of time. And we have a great product in our ColActive Plus, which is our flagship, and our ColActive Plus Ag product. And it targets a big market in advanced wound care. We also have antimicrobial silicone adhesive, which is a portfolio of products that I think are at the early stages of really creating value for shareholders. The third sort of major bucket is our moisture barrier product line and our vascular line -- vascular access line protection product that we've just recently -- very recently launched called VALGuard. And to remind shareholders, the AquaGuard product line came to us through an acquisition that we closed in -- very late in 2018. And the fourth technology platform is our medical device coding platform, which is -- has been one of the key pillars of strength of Covalon but, again, is only now beginning to come into its own as far as its impact on our operations and our future value as a company. And I'll try to talk about all of these in a little bit more detail. But I got to tell you, in looking at our portfolio, we have a serious portfolio of intellectual property for a small company. And I -- that should not be dismissed lightly by anybody. It certainly is not dismissed in the industry. I think that's one thing that is very clear to me in engaging with a lot of industry players and companies over the years is that we are well respected for our technology. We also have competitors for each one of these platforms, and some of them are very big companies that have significant resources. They have scale and they have massive reach but we compete against them. And we actually compete quite well against them. I know we've talked about this in the past as well. 3M is obviously a big competitor of ours in a couple of our platform technologies. I was talking to a shareholder just yesterday actually. And they came up with a very interesting analogy. I can't certainly take -- I can't take credit for it. But he said to me, "Brian, your platforms -- or when you talk and look at your competitors, it's almost like you are the electric vehicle to all the gas guzzlers that are out in the market. You're a better product, a better car, a better product. Not only are you better, but it's -- you're almost transformative in a way." And I tend to agree with that. And I think there's a lot of opportunity for us to leverage that advantage that we have and create additional value for us as a company. The one I'm going to talk about first is our collagen platform. I can't stress enough the fact that our collagen products work. They help people every day to avoid things like amputation. This is a great case study that was done of someone who is scheduled to have an amputation and tried many, many different products and nothing could help close their pretty large diabetic wound. After 6 months of treatment -- after actually years of treatment of other products, but 6 months of using ours, their foot was healed and saved. So when you look at that and look at our collagen platform and who we compete against in the market, not only do we compete with strong clinical outcomes, but we actually have reasonably strong distribution partners, particularly in the United States. This market is dominated by 3M, and the sort of #2 market position players, Medline, both big companies with lots of resources. But we have a pretty strong distribution channel that is growing rapidly. Our business in the United States right now, as we speak, is growing. And I think on our last call, I indicated that we have probably increased our customer orders and have good visibility into the future, and our collagen business is extremely strong. Our products are premium products, but they can compete, and they can compete in the market for several reasons. Clinical outcomes is one of them, but also the fact that our patented manufacturing process allows us to scale up our production in a way that some other companies cannot because they use a process that is limited severely by expensive equipment. So I think that's an advantage. And our platform also allows us to accelerate the creation of new products by years actually compared to other technologies to create additional products to go into the market. So as we look at that, I believe we have a very, very clear path to what I consider substantial revenue growth over the medium to long term with our collagen business. In the United States, with our existing products, there's definite growth opportunities. We can see that in the orders in the market that's going on right now in the U.S. We also have the opportunity to add more sales resources that are exclusively focused on pushing our collagen into the U.S. market and also supplementing that -- those sales efforts with things like clinical education. But a really good example is the Middle East. Back in 2018, we had $5 million of business. Because of the setbacks we had, that shrunk considerably. We now have a partner that can take us back to those levels and potentially higher in that market. They have the resources, they have the team, and they have the presence on the ground in the key markets in the Middle East to help us advance our products and regain some of the ground that we've lost over the last year and a bit. We also have a number of new products that we're looking at launching. We've got one launch that we expect to be completed in the fourth quarter of 2021. Another product that's scheduled to be introduced in 2022. And I think what is a -- what really is exciting for me is an opportunity to enter the biological skin substitute market with our platform technology, which opens up a very huge market for us. So all in all, I look at our opportunities, everything from entering the market, from improving our margins through manufacturing integration, and the progress that we have to date in our fiscal 2021. And I'm actually really encouraged with our collagen business opportunities. We have the world's only dual antimicrobial silicone IV dressing. We also have the world's only dual antimicrobial surgical dressing. That's quite an interesting proposition. When you look at our patented antimicrobial silicone platform, again, you'll notice a trend. We're competing against 3M in the film dressing market in the United States and elsewhere, also Medline. And in the IV dressing, our market focus there is really converting a spend that currently exists, and there's some healthy numbers there. Our goal with our sales team is to convert that to have clinicians and organizations spend their money with us on what I consider to be the electric vehicle of IV dressings as opposed to the old-school technology that's in 3M and Medline's products. The surgical dressing market is a little different. We have something that no one else has there, which is a clear, see-through surgical dressing that helps protect against infection and also helps the healing process. And so from that perspective, again, that's a market -- again, we're estimating it at about a $200 million market, and I think we have a competitive advantage in that arena. So when we look at that and we look at beyond COVID-19, when we're able to get back into hospitals and facilities and we're able to present our products and have clinicians trial them when things open up, I think there's a very unique opportunity for us to capture some serious market share. And we've already had a down payment on it. These are some patients that -- it was actually a social media campaign coming out of a facility that is a customer of ours. And every single child who had cardiac surgery, these 4 patients, they've had social media posts, and they were all wearing our dressing. And we were a big part of the course of care to help protect these kids against infection. And that's just an example of where the feedback we get from patients, from clinicians, from parents of patients is always very positive. Another platform that we have is the AquaGuard platform. This is one where we are the large player in this market. We own about an 80% market share. That said, only 35% of hospitals in the United States use a moisture barrier as part of their shower protocols. So there's actually a lot of the market that's left to be opened up. And so when we look at that, you look at the 6,000 hospitals in the U.S., there's a lot of market left to be attacked by our sales team. This is the area of our business that over the past -- since COVID hit last March we've been probably most affected. However, we're seeing that turnaround. We're seeing -- and we monitor the -- our accounts, and we monitor the volumes used in those accounts. And we stay very close to them on an ongoing basis. The -- I don't think we've lost any market share. Volumes and usage are down, but we've been able to retain all of our key customers throughout the -- COVID-19. I think that's a testament to our team's ability to build relationships with key accounts and service those accounts even in times of crisis. So when we take a look at -- here's 6 opportunities for significant growth, I believe, in the AquaGuard moisture barrier market. We've talked a little bit about the hospital penetration. Markets outside of hospitals, in extended care and home care, there's probably 10x the number of showers outside of hospitals as there are in. And we're just beginning to tap into international sales opportunities. Combining AquaGuard with opportunities in the diabetic foot ulcer market, where patients who have those terrible wounds that we saw have dressings and wraps and other things, but they still need to shower. And we're seeing -- we do expect us -- our business to rebound back to levels and continue to grow under -- based upon our historical growth that the AquaGuard product has seen year-over-year for the past decade. And again, we're very proud of the fact that we've been able to land some very lucrative GPO contracts, but there's lots of large opportunities to go after other major GPOs in the United States as well. So from that perspective, I think there's a lot of market upside certainly in the United States and also internationally with AquaGuard. And the final platform I want to talk about is what we consider our medical coding platform. There's a lot of value that we bring to big medical companies. And we've talked -- Danny mentioned it and we've talked several times about a large opportunity that we have with a major medical company. We announced that a couple of years ago and have continued to work very hard on that. And they were -- they chose to work with us over all the other organizations that they -- that we competed against for that business for lots of reasons, but it comes down to the strength of our team but also the strength of our platform technology that has a significant number of added value that it brings to an existing product line. So this is a business where we take a product that a company already sells in the market and we upgrade it with new characteristics. We make it antimicrobial. We make it able to be inserted in the bloodstream and not cause clotting issues and a number of other things that we can do to that product to add extra functionality. And this is done under quite lucrative development contracts. When we look at what we're able to do on these projects, it's often hard to see the full value of this platform. I kind of think of it as when you look at our financial statements and you see development services revenue, think of that as the tip of the iceberg. We've done some analysis and figured out that for every dollar of development revenue, that could translate into up to $17 of license, royalty and manufacturing revenue for us on a go-forward basis. Assuming that, that project goes all the way through to product in the market. So this has created an opportunity for us to generate some significant value from this platform. And we're just at the beginning of seeing this impact us as a company. The reason we're able to come up with these platforms, the reason that we are able to drive the -- this innovation into the market in these areas is largely based on the strength of our experience as an organization. There's a number of partners that have -- that do business with us, that work with us, that have hired us to develop products for them. And there's some massive companies. And there's some -- also small organizations as well. So we've actually built a really strong reputation as an organization. We're very experienced in getting products through into the market. And we have a really strong facility to help us do that here in Toronto. We've got a facility in Seattle as well. The real strength, though, to be honest, lies with our team, not only our management team, which is a very experienced team, but also the staff in general. I am continually impressed with the Covalon team, what they're capable of, what they've been capable of through this period of adapting to COVID-19, figuring out how to continue while working at home and juggling all the things that we've all had to juggle. I'm truly proud of our team. I think we've accomplished a lot. The team has worked very hard, and I would like to extend an extremely heartfelt thank you to everyone on the Covalon team for the effort and the investment they've made in helping us to get to the point where we are so far in 2021. So in summary, I really do think we've got a very strong lab. We've got game-changing intellectual property and products. We are recognized by -- as such by our industry peers. And we've derisked a lot of our revenue. We've derisked our Middle East exposure. We've got a strong focus in the United States, Danny talked about that. I think we have significant upsides as an organization. I think our strategic process that's underway is going to help us to unlock shareholder value. And I think we have the team that can help create value on an ongoing basis. So again, I encourage you to ask questions. I encourage you to continue to engage with Danny and I on an ongoing basis. And I look forward to talking and providing more updates when we announce our results that -- for a quarter that ends today, actually. So now we're going to open up for questions. [Operator Instructions] We'll answer as many questions as we can. [Operator Instructions] And please try to limit your questions to topics that are relevant to today's subject. And we'll give attendees a brief moment to type in some questions. The way this is going to work, we're -- for each question we answer, we'll -- Emily will summarize the question and read it aloud and who it comes from and the entity the person represents if applicable. So we'll now start answering questions. So I turn it over to Emily to start with the first one.

Okay. Our first question comes from [ Arnold Shell ], private investor, who has requested some further color on the status of the special committee to work on the strategic review process referenced earlier in the presentation.

Thanks for that question, Arnold. No, we've not disbanded it with no result. I think you might have asked that one before I got to that part in the presentation. But no, as I mentioned, we're continuing with the process. I'm very encouraged with the hard work that's gone into it. And as I said, no matter what the outcome is, whether it results in a form of transaction or not, we will certainly update shareholders. Not only do we have a fiduciary obligation to do so, but it's the right thing to do. So we will update when there's progress that we can talk about.

Our next question also comes from [ Mr. Shell ]. Considering all of Covalon's leading-edge technology, which competitors recognize, do you have any insight into why the company hasn't yet been acquired by a competitor?

Great question, Arnold. And I can only point to the strategic process. If you recall back to my earlier remarks, that was initiated because we actually received expressions of interest made by medical industry and private equity players. And so I really think that we certainly do have a lot of engagement with organizations that are potentially competitors but also compete with our competitors. So I think that, that will be addressed during the outcome of the strategic process, specifically. But we continue to engage all the time with the industry partners. Thanks for that question, Arnold.

Our next question comes from [ Bob Laurian ], private investor, regarding CovaGuard. They are in -- wondering how CovaGuard had an impact on Covalon's sales.

Yes. So a good question, Bob. We, like a lot of organizations, saw an opportunity to create a -- what we thought and still think is a very strong technology in CovaGuard. And the way we could get into the market with that technology was through launching a hand sanitizer. While we were doing that, hundreds of other companies launched very inexpensive alcohol-based hand sanitizers, and the market became flooded with new entrants. We took a path of trying to create a technology that could persist on the skin and continue to protect people over time, which I think we have a very strong technology. We've conducted a clinical study that we're looking to get published that has some very, very exciting results with it. But the market was, again, for a lot of factors, including the CDC, focusing only on alcohol-based sanitizers and recommending those to the exclusion of many other products, we found it very difficult to compete with, again, a premium product in a market that was being flooded with low-cost hand sanitizers. We still see some great opportunity with the platform, the -- what I would call a skin-and-surface-coating platform that formed the basis of CovaGuard in applications in other areas. And so we continue to pursue those opportunities. And we do have distribution of CovaGuard, but it has not met our expectations. And so that part of it was disappointing, but I think it is still a really good technology, and we continue to work towards finding the best way to unlock that value. Thanks for that question, Bob. Okay. So there being no further questions at this time, we're now going to wrap up the question period. On behalf of management, the Board of Directors and the Covalon team, I would sincerely like to take the opportunity to thank everyone for attending the meeting today. I would like to thank all of our shareholders for their commitment and continued support. And I hope everyone has a wonderful Canada Day or a July 4th Independence Day, if you're located in the U.S. I look forward to speaking with as many of you as possible over the coming months and reporting on our progress. And we look forward to seeing you, hopefully in person, at next year's AGM.