Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
1
|
|
Nature
of operations and liquidity risk
|
Nature
of operations
DelMar
Pharmaceuticals, Inc. (the “Company”) is a clinical stage drug development company with a focus on the treatment of
cancer. We are conducting clinical trials in the United States with our product candidate, VAL-083, as a potential
new treatment for glioblastoma multiforme (“GBM”), the most common and aggressive form of brain cancer. We
have also acquired certain exclusive commercial rights to VAL-083 in China where it is approved as a chemotherapy for the treatment
of chronic myelogenous leukemia (“CML”) and lung cancer. In order to accelerate our development timelines
and reduce technical risk, we leverage existing clinical and commercial data from a wide range of sources. We plan
to seek marketing partnerships in China in order to potentially generate future royalty revenue.
The
Company is a Nevada corporation formed on June 24, 2009 under the name Berry Only Inc. On January 25, 2013 (the “Closing
Date”), the Company entered into and closed an exchange agreement (the “Exchange Agreement”), with Del Mar Pharmaceuticals
(BC) Ltd. (“DelMar (BC)”), 0959454 B.C. Ltd. (“Callco”), and 0959456 B.C. Ltd. (“Exchangeco”)
and the security holders of DelMar (BC). Upon the closing of the Exchange Agreement, DelMar (BC) became a wholly-owned subsidiary
of the Company (the “Reverse Acquisition”). As a result of the shareholders of DelMar (BC) having a controlling interest
in the Company subsequent to the Reverse Acquisition, for accounting purposes the transaction is a capital transaction with DelMar
(BC) being the accounting acquirer even though the legal acquirer is the Company.
DelMar
Pharmaceuticals, Inc. is the parent company of DelMar (BC), a British Columbia, Canada corporation, and Callco and Exchangeco
which are British Columbia, Canada corporations. Callco and Exchangeco were formed to facilitate the Reverse Acquisition.
The
address of the Company’s administrative offices is Suite 720 - 999 West Broadway, Vancouver, British Columbia, V5Z 1K5 and
the Company’s clinical operations are located at 3485 Edison Way, Suite R, Menlo Park, California, 94025.
References
to the Company refer to the Company and its wholly-owned subsidiaries, DelMar (BC), Callco and Exchangeco.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Liquidity
risk
For
the nine-month period ended March 31, 2016, the Company reported a loss of $5,408,479 and an accumulated deficit of $24,028,040
at that date. As at March 31, 2016, the Company had cash and cash equivalents on hand of $937,355. The Company does not have the
prospect of achieving revenues in the near future and the Company will require additional funding to maintain its research and
development projects and for general operations. There is a great degree of uncertainty with respect to the expenses the Company
will incur in executing its business plan. In addition, the Company has not begun to commercialize or generate revenues from its
product candidate.
Consequently,
management is pursuing various financing alternatives to fund the Company’s operations so it can continue as a going
concern (note 9) in the medium to longer term. Subsequent to March 31, 2016, the Company completed a convertible preferred
share private placement for gross proceeds of $6.1 million. We believe, based on our current estimates, that we will be able to fund
our operations beyond the next twelve months.
There is no assurance that our cost estimates
will prove to be accurate or that unforeseen events, problems or delays will not occur that would require us to seek additional
debt and/or equity funding. The ability of the Company to meet its obligations and continue the research and development of its
product candidate is dependent on its ability to continue to raise adequate financing. There can be no assurance that such financing
will be available to the Company in the amount required at any time or for any period or, if available, that it can be obtained
on terms satisfactory to the Company. The Company may tailor its drug candidate development program based on the amount of funding
the Company raises.
2
|
|
Restatement
of previously issued financial statements
|
In
our 2015 Annual Report on Form 10-K/A, we restated our previously issued consolidated financial statements and the related disclosures
for the fiscal years ended June 30, 2015 and June 30, 2014 and for each of the quarters ended March 31, 2013, June 30, 2013, September
30, 2013, December 31, 2013, March 31, 2014, September 30, 2014, December 31, 2014, and March 31, 2015 (the "Restated Periods").
The
restatement is the result of our corrections for the effect of financial statement errors attributable to the incorrect accounting
for certain warrants issued for placement agent services issued on March 6, 2013 (the “2013 Placement Agent Warrants”).
The 2013 Placement Agent Warrants were improperly accounted for as equity instruments at the time they were issued. During the
preparation of our financial statements for the first quarter of fiscal 2016, we discovered that the 2013 Placement Agent Warrants
represented a derivative liability and should not have been recognized as equity. The exercise price of the 2013 Placement Agent
Warrants is subject to adjustment in certain circumstances. The public equity financing that we completed in August 2015 resulted
in the exercise price of the 2013 Placement Agent Warrants being reduced. Accordingly, we have classified the 2013 Placement Agent
Warrants as a derivative liability on the Consolidated Balance Sheets at June 30, 2015 and June 30, 2014 as well as recognized
the gain/loss from the revaluation of the derivative liability in the Consolidated Statement of Operations and Comprehensive Loss
of the years ended June 30, 2015 and June 30, 2014. We have also reflected the cumulative impact of the fair value adjustments
from March 6, 2013 to June 30, 2014 in the accumulated deficit.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
The aggregate
impacts of correcting the errors relating to the 2013 Placement Agent Warrants, as of, and for the three and nine months ended
March 31, 2015 were as follows:
|
|
Three Months Ended March
31, 2015
|
|
|
|
As
previously reported
$
|
|
|
Restatement
adjustment
$
|
|
|
As
restated
$
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liability
|
|
|
343,569
|
|
|
|
437,583
|
|
|
|
781,152
|
|
Loss
for the period
|
|
|
1,649,136
|
|
|
|
437,583
|
|
|
|
2,086,719
|
|
Basic
and diluted loss per share
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2015
|
|
|
|
As
previously reported
$
|
|
|
Restatement
adjustment
$
|
|
|
As
restated
$
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liability
|
|
|
276,963
|
|
|
|
174,831
|
|
|
|
451,794
|
|
Loss
for the period
|
|
|
4,048,256
|
|
|
|
174,831
|
|
|
|
4,223,087
|
|
Basic
and diluted loss per share
|
|
|
0.11
|
|
|
|
0.00
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
At March 31, 2015
|
|
|
|
As previously reported
$
|
|
|
|
Restatement adjustment
$
|
|
|
|
As restated
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
|
1,487,137
|
|
|
|
1,956,471
|
|
|
|
3,443,608
|
|
Additional
paid-in capital
|
|
|
17,455,279
|
|
|
|
(136,800
|
)
|
|
|
17,318,479
|
|
Warrants
|
|
|
6,138,426
|
|
|
|
(6,048,994
|
)
|
|
|
89,432
|
|
Accumulated
deficit
|
|
|
(22,715,848
|
)
|
|
|
4,229,323
|
|
|
|
(18,486,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
assessed the impact of these errors on our previously issued financial statements and concluded that the combined impact of these
errors was material to our financial statements. Consequently, we have restated the prior period financial statements identified
above. All amounts in our consolidated financial statements in this Quarterly Report on Form 10-Q affected by the restatement
adjustments reflect such amounts as restated.
3
|
|
Significant
accounting policies
|
Basis
of presentation
The
consolidated condensed interim financial statements of the Company have been prepared in accordance with United States Generally
Accepted Accounting Principles (“U.S. GAAP”) and are presented in United States dollars. The Company’s functional
currency is the United States dollar.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
The
accompanying consolidated condensed interim financial statements include the accounts of the Company and its wholly-owned subsidiaries,
DelMar BC, Callco, and Exchangeco. All intercompany balances and transactions have been eliminated.
The
principal accounting policies applied in the preparation of these financial statements are set out below and have been consistently
applied to all periods presented.
Unaudited
interim financial data
The
accompanying unaudited March 31, 2016 consolidated condensed interim balance sheet, the consolidated condensed interim statements
of loss and comprehensive loss for the three and nine months ended March 31, 2016 and 2015, and consolidated condensed cash flows
for the nine months ended March 31, 2016 and 2015, and the related interim information contained within the notes to the consolidated
condensed interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not include all of the information and the notes required by
U.S. GAAP for complete financial statements. These consolidated condensed interim financial statements should be read in conjunction
with the audited financial statements of the Company as at June 30, 2015 filed in our amended Form 10-K/A filed with the Securities
and Exchange Commission on November 16, 2015. In the opinion of management, the unaudited consolidated condensed interim financial
statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the
Company’s financial position at March 31, 2016 and results of its operations for the three and nine months ended March 31,
2016 and 2015, and its cash flows for the nine months ended March 31, 2016 and 2015. The results for three and nine months ended
March 31, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2016 or for any
other future annual or interim period.
Use
of estimates
The
preparation of consolidated condensed interim financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions about future events that affect the reported amounts of assets, liabilities, expenses, contingent assets and contingent
liabilities as at the end or during the reporting period. Actual results could significantly differ from those estimates. Significant
areas requiring management to make estimates include the derivative liability and the valuation of equity instruments issued for
services. There have been no changes to the methodology used in determining these estimates from the period ended June 30, 2015.
Intangible assets
Website development costs
Website
development costs are stated at cost less accumulated amortization. The Company capitalizes website development costs associated
with graphics design and development of the website application and infrastructure. Costs related to planning, content input,
and website operations are expensed as incurred. The Company amortizes website development costs on a straight-line basis over
three years. The website costs consist of $16,762 in cash costs and $29,543 in non-cash consideration in the form of the issuance
of warrants. The Company recognized $3,858 and $6,430 respectively, in amortization during the three and nine months ended March
31, 2016. There was no amortization in either the three or nine months ended March 31, 2015.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Loss
per share
Loss
per share is calculated based on the weighted average number of common shares outstanding. For the three and nine month periods
ended March 31, 2016 and 2015 diluted loss per share does not differ from basic loss per share since the effect of the Company’s
warrants and stock options are anti-dilutive. At March 31, 2016, potential common shares of 18,388,945 (March 31, 2015 –
13,472,870) relating to warrants and 3,465,000 (March 31, 2015 – 3,595,000) relating to stock options were excluded from
the calculation of net loss per common share because their inclusion would be anti-dilutive.
Recent
accounting pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other
standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe
that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position
or results of operations upon adoption.
Accounting
Standards Update (“ASU”) 2014-15 - Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
The
objective of the guidance is to require management to explicitly assess an entity's ability to continue as a going concern, and
to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management
will assess if there is substantial doubt about an entity's ability to continue as a going concern within one year after the issuance
date of an entity’s financial statements. The new standard defines substantial doubt and provides examples of indicators
thereof. The definition of substantial doubt incorporates a likelihood threshold of "probable" similar to the current
use of that term in U.S. GAAP for loss contingencies. The new standard will be effective for all entities in the first annual
period ending after March 15, 2016 (March 31, 2016 for calendar year-end entities). Earlier application is permitted. The Company
is currently assessing this standard for its impact on future reporting periods.
4
|
|
Valent
Technologies, LLC
|
On
September 30, 2014, the Company entered into an exchange agreement (the “Valent Exchange Agreement”) with Valent Technologies,
LLC (“Valent”), an entity owned by the Company’s Chief Scientific Officer and director, and DelMar (BC). Pursuant
to the Valent Exchange Agreement, Valent exchanged its loan payable in the outstanding amount of $278,530 (including aggregate
accrued interest to March 31, 2015 of $28,530), issued to Valent by DelMar (BC), for 278,530 shares of the Company’s Series
A Preferred Stock. The shares of Series A Preferred Stock have a stated value of $1.00 per share (the “Stated Value”)
and are not convertible into common stock. The holder of the Series A Preferred Stock is entitled to dividends at the rate of
3% of the Stated Value per year, payable quarterly in arrears.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
For
the three and nine months ended March 31, 2016, the Company recorded $2,089 and $6,267 respectively related to the dividend payable
to Valent. The dividends have been recorded as a direct increase in accumulated deficit. For the nine months ended March 31, 2015
the Company accrued $2,091 in interest expense on the loan payable to the date of the conversion on September 30, 2014 and $4,178
related to the dividend for the period from October 1, 2014 to March 31, 2015.
5
|
|
Related
party transactions
|
During
the nine months ended March 31, 2016
Pursuant
to consulting agreements with the Company’s officers, the Company recognized a total of $360,000 (2015 - $385,000) in compensation
expense for the nine months ended March 31, 2016.
At
March 31, 2016 there is an aggregate amount of $29,018 (June 30, 2015 - $90,820) owed to the Company’s officers and directors
for fees and expenses. The Company pays related party payables incurred for fees and expenses under normal commercial terms.
The
Company paid $127,583 in directors’ fees (2015 - $77,667) during the nine months ended March 31, 2016.
The
Company recorded $6,267 in dividends related to the Series A Preferred Stock issued to Valent (note 4).
During
the nine months ended March 31, 2015
Effective
September 30, 2014, the Company entered into and closed an agreement with Valent to exchange its loan with Valent for 278,530
shares of preferred stock of the Company (note 4).
The
Company accrued $2,091 in interest expense on the loan payable to Valent to the date of the conversion on September 30, 2014 and
$4,178 related to the dividend on the Series A Preferred Stock for the period from October 1, 2014 to March 31, 2015 (note 4).
The
Company has issued common stock purchase warrants. Based on the terms of certain of these warrants the Company determined that
the warrants were a derivative liability which is recognized at fair value at the date of the transaction and re-measured at fair
value each reporting period with the changes in fair value recorded in the consolidated condensed statement of loss and comprehensive
loss.
Investor
Warrants
In
connection with the Reverse Acquisition (note 1), during the quarter ended March 31, 2013 the Company issued units consisting
of one share of common stock and one five-year warrant (the “Investor Warrants”) to purchase one share of common stock
at an exercise price of $0.80. The exercise price of the Investor Warrants is subject to adjustment in the event that the Company
issues common stock at a price lower than the exercise price, subject to certain exceptions. As a result of the financing completed
by the Company during the three months ended September 30, 2015 (note 7) the exercise price of the Investor Warrants was reduced
from $0.80 to $0.786. As a result of the price being reduced, the Company has recognized a loss of $8,098 on the revaluation of
the warrants.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Investor
Warrant exercises
During
the nine months ended March 31, 2016, 515,500 Investor Warrants were exercised at an exercise
price of $0.786 per share. The Company received proceeds of $405,183 from these exercises. The warrants that have been exercised
were revalued at their exercise date and then the reclassification to equity was recorded resulting in $247,440 of the derivative
liability being reclassified to equity.
During
the nine months ended March 31, 2015 the Company concluded a tender offer whereby the holders of the Investor Warrants had the
opportunity to exercise their warrants at an exercise price of $0.65. Under the tender offer, a total of 762,227 warrants were
exercised for net proceeds of $470,676 after payment by the Company of a 5% warrant agent fee of $24,772. In addition, during
the nine months ended March 31, 2015, 1,223,847 warrants were exercised at an exercise price
of $0.65 per warrant. The Company received proceeds of $795,501 from these exercises.
As
a result of all of the Investor Warrant exercises during the nine months ended March 31, 2015, the Company received net proceeds
of $1,266,177 from the exercise of 1,986,074 warrants. The Investor Warrants that have been exercised were revalued at their exercise
date and then the reclassification to equity was recorded resulting in $391,422 of the derivative liability being reclassified
to equity.
Investor
Warrant exchanges
On
December 31, 2014, the Company issued 414,889 shares of common stock in exchange for 1,244,666 Investor Warrants. The Investor
Warrants that have been exchanged were revalued at their exchange date and then a reclassification to equity was recorded. The
reclassification to equity upon the exchange was $305,112. The Company recognized a loss of $92,843 at the time of the exchange.
On
January 8, 2015, the Company filed a tender offer statement with the Securities and Exchange Commission, and on January 23, 2015,
the Company filed an amendment thereto. The tender offer provided the holders of the Investor Warrants with the opportunity to
receive one share of common stock for every three Investor Warrants tendered. On February 9, 2015 the Company’s tender
offer expired. A total of 1,591,875 Investor Warrants were exchanged for 530,625 shares of common stock. The Investor Warrants
that have been exchanged were revalued at their exchange date and then a reclassification to equity was recorded. The reclassification
to equity upon the exchange was $423,723. The Company recognized a loss of $156,219 at the time of the exchange.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Investor
Warrant amendments
On
March 29, 2016, the Company entered into amendments (the “Investor Warrant Amendments”) with the holders of certain
Investor Warrants. Pursuant to the Investor Warrant Amendments, 250,000 Investor Warrants were amended to extend the expiration
date to March 31, 2019 and remove the provision requiring an adjustment of the exercise price in the event the Company sells common
stock at a purchase price lower than the current warrant exercise price. As a result of the Investor Warrant Amendments, the Company
has recognized a loss of $7,000 and has reclassified $65,750 from the derivative liability to equity resulting in an increase
to equity of $58,750. The Investor Warrants were revalued to the date of the amendment and were then reclassified to equity.
2013
Placement Agent Warrants
Also
in connection with the Reverse Acquisition (note 1), on March 6, 2013 the Company issued 5,250,000 warrants (the “2013 Placement
Agent Warrants”) that are exercisable at $0.80 per share until March 6, 2018 but can be exercised on a cashless basis. The
exercise price of the 2013 Placement Agent Warrants is subject to adjustment in the event that the Company sells common stock
at a price lower than the exercise price, subject to certain exceptions. As a result of the financing completed by the Company
during the quarter ended September 30, 2015 (note 7) the exercise price of the 2013 Placement Agent Warrants was reduced from
$0.80 to $0.786. As a result of the price being reduced, the Company has recognized a loss of $13,467.
On
December 30, 2015, the Company entered into amendments (the “2013 Placement Agent Warrant Amendments”) with the holders
of the 2013 Placement Agent Warrants. Pursuant to the 2013 Placement Agent Warrant Amendments, 5,050,000 2013 Placement Agent
Warrants were amended to extend the expiration date to June 30, 2019 and remove the provision requiring an adjustment of the exercise
price in the event the Company sells common stock at a purchase price lower than the current warrant exercise price. As a result
of the 2013 Placement Agent Warrant Amendments, the Company has recognized a loss of $242,400 and has reclassified $2,277,550
from the derivative liability to equity resulting in an increase to equity of $2,035,150. The 2013 Placement Agent Warrants were
revalued to the date of the amendment and were then reclassified to equity.
Dividend
Warrants
In
connection with the Reverse Acquisition (note 1), effective January 24, 2013, the Company effected a warrant dividend (the “Warrant
Dividend”) pursuant to which the Company issued one five-year warrant to purchase one share of common stock at an exercise
price of $1.25 for each outstanding share of common stock (the “Dividend Warrants”). Pursuant to the Warrant Dividend,
the Company issued an aggregate of 3,250,007 Dividend Warrants.
On
October 31, 2014, the Company and all of its Dividend Warrant holders entered into amendments to the Dividend Warrants such that
the Company’s redemption rights and certain provisions of the Dividend Warrant agreements relating to potential cash settlement
of the Dividend Warrants were removed. The Dividend Warrants were revalued to the date of the amendment on October 31, 2014 which
resulted in a reclassification to equity of $975,278.
2015
Agent Warrants
As
part of the Company’s financing completed during the quarter ended September 30, 2015 (note 7), the Company
issued 93,908 warrants to certain placement agents (“2015 Agent Warrants”). The 2015 Agent Warrants are
exercisable at a per share price equal to $0.75 during the five-year period commencing six months from the effective date of
the Public Offering, which period shall not extend further than five years from the effective date of the Public Offering.
Therefore, all 2015 Agent Warrants expire on July 15, 2020.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Warrants
issued for services
In
a prior period, the Company issued 300,000 warrants for services. The warrants were issued on September 12, 2013 and are exercisable
on a cashless basis at an exercise price of $1.76 for five years.
The
Company’s derivative liability is summarized as follows:
|
|
March
31,
2016
$
|
|
|
June
30,
2015
$
|
|
|
|
|
|
|
(as
restated)
|
|
Opening
balance
|
|
|
2,364,381
|
|
|
|
5,111,007
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 2015 Agent Warrants
|
|
|
29,594
|
|
|
|
–
|
|
Change in
fair value of warrants
|
|
|
943,050
|
|
|
|
(627,433
|
)
|
Change in
fair value due to change in warrant terms
|
|
|
270,965
|
|
|
|
(23,658
|
)
|
Reclassification
to equity upon amendment of warrants
|
|
|
(2,343,300
|
)
|
|
|
(975,278
|
)
|
Reclassification
to equity upon exchange of warrants
|
|
|
–
|
|
|
|
(728,835
|
)
|
Reclassification
to equity upon exercise of warrants
|
|
|
(247,440
|
)
|
|
|
(391,422
|
)
|
|
|
|
|
|
|
|
|
|
Closing
balance
|
|
|
1,017,250
|
|
|
|
2,364,381
|
|
Preferred
stock
Authorized
5,000,000
preferred shares, $0.001 par value
Issued
and outstanding
Special
voting shares – at March 31, 2016 – 1 (June 30, 2015 – 1)
Series
A shares – at March 31, 2016 – 278,530 (June 30, 2015 – 278,530)
Effective
September 30, 2014 pursuant to the Company’s Valent Exchange Agreement (note 4), the Company filed the Series A Certificate
of Designation with the Secretary of State of Nevada. Pursuant to the Series A Certificate of Designation, the Company designated
278,530 shares of preferred stock as Series A Preferred Stock. The shares of Series A Preferred Stock have a stated value of $1.00
per share (the “Stated Value”) and are not convertible into common stock. The holder of the Series A Preferred Stock
is entitled to dividends at the rate of 3% of the Stated Value per year, payable quarterly in arrears. Upon any liquidation of
the Company, the holder of the Series A Preferred Stock will be entitled to be paid, out of any assets of the Company available
for distribution to stockholders, the Stated Value of the shares of Series A Preferred Stock held by such holder, plus any accrued
but unpaid dividends thereon, prior to any payments being made with respect to the common stock.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Common
stock
Authorized
200,000,000
common shares, $0.001 par value
Issued
and outstanding
March
31, 2016 – 44,309,098 (June 30, 2015 – 39,455,931)
The
issued and outstanding common shares at March 31, 2016 include 4,056,042 shares of common stock on an as-exchanged basis with
respect to the shares of Exchangeco that can be exchanged for shares of common stock of the Company.
|
|
|
Shares
of common stock
outstanding
|
|
|
|
Common
stock
|
|
|
|
Additional
paid-in capital
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
June
30, 2015 – as previously reported
|
|
|
39,455,931
|
|
|
|
39,456
|
|
|
|
17,500,008
|
|
|
|
6,138,426
|
|
Restatement
adjustments
|
|
|
–
|
|
|
|
–
|
|
|
|
(136,800
|
)
|
|
|
(6,048,994
|
)
|
June 30,
2015 – as restated
|
|
|
39,455,931
|
|
|
|
39,456
|
|
|
|
17,363,208
|
|
|
|
89,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares and warrants – net of issue costs (i)
|
|
|
4,277,667
|
|
|
|
4,278
|
|
|
|
1,198,453
|
|
|
|
671,189
|
|
Reclassification
of warrants (ii)
|
|
|
–
|
|
|
|
–
|
|
|
|
2,343,300
|
|
|
|
–
|
|
Exercise
of warrants for cash (iii)
|
|
|
515,500
|
|
|
|
515
|
|
|
|
652,108
|
|
|
|
–
|
|
Warrants
issued for services (iv)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
429,932
|
|
Shares issued
for services (v)
|
|
|
60,000
|
|
|
|
60
|
|
|
|
80,340
|
|
|
|
–
|
|
Stock-based
compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
138,711
|
|
|
|
–
|
|
Reclassification
of stock option liability
|
|
|
–
|
|
|
|
–
|
|
|
|
29,747
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
44,309,098
|
|
|
|
44,309
|
|
|
|
21,805,867
|
|
|
|
1,190,553
|
|
(i)
On July 15, 2015 the Company’s Registration Statement on Form S-1 relating to a public offering by the Company
of common stock and common stock purchase warrants (the “Public Offering”) was declared effective by
the Securities and Exchange Commission. Pursuant to the Offering, the Company issued 4,277,667 shares of common stock
at $0.60 per share and 4,277,667 warrants (the “2015 Public Offering Warrants”) to purchase shares of common
stock at $0.001 per warrant for total gross proceeds of $2,566,660. The 2015 Public Offering Warrants are exercisable at
$0.75 per share for a period of five years until they expire on July 31, 2020.
The Company engaged certain placement
agents for the sale of a portion of the shares and 2015 Public Offering Warrants. Under the Company’s
engagement agreements with these placement agents, the Company agreed to pay up to a 7% cash commission and issue warrants to
purchase shares of common stock (the “2015 Agent Warrants”) up to the number of shares of our common stock equal
to 5% of the aggregate number of shares sold in the Offering by such placement agents. Pursuant to the placement agent
agreements the Company paid a total cash commission of $80,575 and issued 93,908 2015 Agent Warrants (note 6). The 2015 Agent
Warrants are exercisable at a per share price equal to $0.75 during the five-year period commencing six months from the
effective date of the Public Offering, which period shall not extend further than five years from the effective date of the
2015 Public Offering. Therefore, all 2015 Agent Warrants expire on July 15, 2020.
In
addition to the cash commission of $80,575 the Company also incurred additional cash issue and closing costs of $582,511 (including
costs deferred at June 30, 2015 of $550,119) resulting in net cash proceeds of $1,903,514. The 2015 Agent Warrants have been recognized
as non-cash issue costs of $29,594.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
(ii)
Upon the amendment of the Investor Warrants and the 2013 Placement Agent Warrants, the Company reclassified the related derivative
liability to equity (note 6).
(iii)
During the nine months ended March 31, 2016, 515,500 Investor Warrants were exercised for proceeds of $405,183 (note
6).
(iv) During the nine months ended March 31,
2016, the Company issued 1,060,000 warrants for services. All warrants have an exercise price of $0.75. Of these warrants,
60,000 expire on July 31, 2020, 500,000 expire March 1, 2020, and 500,000 expire February 1, 2021.
(v)
During the nine months ended March 31, 2016, the Company issued 60,000 shares of common stock for services.
Stock
Options
The
following table sets forth the stock options outstanding:
|
|
|
Number
of
stock
options
outstanding
|
|
|
Weighted
average
exercise
price
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2015
|
|
|
|
3,595,000
|
|
|
|
0.94
|
|
|
Granted
|
|
|
|
390,000
|
|
|
|
1.01
|
|
|
Forfeited
|
|
|
|
(470,000
|
)
|
|
|
1.08
|
|
|
Cancelled
|
|
|
|
(50,000
|
)
|
|
|
1.05
|
|
|
March
31, 2016
|
|
|
|
3,465,000
|
|
|
|
0.92
|
|
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
The
following table summarizes stock options currently outstanding and exercisable at March 31, 2016:
Weighted average exercise
price
$
|
|
Number
outstanding at
March 31,
2016
|
|
Weighted
average
remaining
contractual
life
(years)
|
|
Number
exercisable
at
March 31,
2016
|
|
Weighted average
exercise
price
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.39
|
|
|
|
775,000
|
|
|
|
5.88
|
|
|
|
775,000
|
|
|
|
0.39
|
|
|
0.74
|
|
|
|
180,000
|
|
|
|
8.84
|
|
|
|
180,000
|
|
|
|
0.74
|
|
|
0.80
|
|
|
|
120,000
|
|
|
|
9.00
|
|
|
|
120,000
|
|
|
|
0.80
|
|
|
0.94
|
|
|
|
180,000
|
|
|
|
9.75
|
|
|
|
15,000
|
|
|
|
0.94
|
|
|
1.00
|
|
|
|
140,000
|
|
|
|
4.92
|
|
|
|
140,000
|
|
|
|
1.00
|
|
|
1.05
|
|
|
|
1,770,000
|
|
|
|
7.37
|
|
|
|
1,696,796
|
|
|
|
1.05
|
|
|
1.12
|
|
|
|
120,000
|
|
|
|
9.77
|
|
|
|
9,333
|
|
|
|
1.12
|
|
|
1.54
|
|
|
|
60,000
|
|
|
|
7.00
|
|
|
|
60,000
|
|
|
|
1.54
|
|
|
2.30
|
|
|
|
120,000
|
|
|
|
7.17
|
|
|
|
120,000
|
|
|
|
2.30
|
|
|
0.92
|
|
|
|
3,465,000
|
|
|
|
|
|
|
|
3,116,129
|
|
|
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in the number of stock options outstanding are 775,000 stock options granted at an exercise price of CDN $0.50. The exercise prices
shown in the above table have been converted to $0.39 using the period ending closing exchange rate.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Certain
stock options have been granted to non-employees and will be revalued at each reporting date until they have fully vested. The
stock options have been re-valued using a Black-Scholes pricing model using the following assumptions:
|
|
|
March
31,
2016
|
|
|
|
|
|
|
Dividend
rate
|
|
|
0
|
%
|
Volatility
|
|
|
84.8%
to 118
|
%
|
Risk-free
rate
|
|
|
1.00
|
%
|
Term - years
|
|
|
0.5
to 3.0
|
|
The Company has recognized the following amounts
as stock option expense for the periods noted:
|
|
Three
months ended
March 31,
|
|
|
Nine
months ended
March
31,
|
|
|
|
2016
$
|
|
|
2015
$
|
|
|
2016
$
|
|
|
2015
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
20,165
|
|
|
|
26,853
|
|
|
|
36,395
|
|
|
|
39,909
|
|
General
and administrative
|
|
|
3,678
|
|
|
|
35,995
|
|
|
|
102,316
|
|
|
|
102,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,843
|
|
|
|
62,848
|
|
|
|
138,711
|
|
|
|
142,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the total stock option expense of $138,711
for the nine months ended March 31, 2016 has been recognized as additional paid in capital. Of the stock option expense of $142,171
for the nine months ended March 31, 2015 $142,447 has been recognized as additional paid in capital and $276 has been recognized
as a reduction of the stock option liability. The aggregate intrinsic value of stock options outstanding at March 31, 2016 was
$396,538 (March 31, 2015 - $345,131) and the aggregate intrinsic value of stock options exercisable at March 31, 2016 was $396,538
(March 31, 2015 - $333,139). As of March 31, 2016 there was $93,016 in unrecognized compensation expense that will be recognized
over the next three years. No stock options granted under the plan have been exercised to March 31, 2016. Upon the exercise of
stock options new shares will be issued.
A summary of status of the Company’s unvested
stock options under the plan is presented below:
|
|
|
|
Number
of
Options
|
|
|
|
Weighted
average
exercise
price
$
|
|
|
|
Weighted
average
grant
date
fair
value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at June 30, 2015
|
|
|
|
722,361
|
|
|
|
0.95
|
|
|
|
0.41
|
|
Granted
|
|
|
|
390,000
|
|
|
|
1.01
|
|
|
|
0.73
|
|
Vested
|
|
|
|
(481,634
|
)
|
|
|
0.91
|
|
|
|
0.64
|
|
Forfeited
|
|
|
|
(260,370
|
)
|
|
|
0.92
|
|
|
|
0.24
|
|
Cancelled
|
|
|
|
(21,486
|
)
|
|
|
1.05
|
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at March 31, 2016
|
|
|
|
348,871
|
|
|
|
1.02
|
|
|
|
0.55
|
|
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Warrants
Certain of the Company’s warrants have
been recognized as a derivative liability (note 6). The following table summarizes all of the Company’s outstanding
warrants as of March 31, 2016:
Description
|
|
|
Number
|
|
|
|
|
|
|
Balance
– June 30, 2015
|
|
|
13,472,870
|
|
2015 Public
Offering Warrants (i)
|
|
|
4,277,667
|
|
2015 Agent Warrants (ii)
|
|
|
93,908
|
|
Warrants
issued for services (iii)
|
|
|
1,060,000
|
|
Warrants
exercised for cash (iv)
|
|
|
(515,500
|
)
|
|
|
|
|
|
Balance
- March 31, 2016
|
|
|
18,388,945
|
|
|
i)
|
Issued
as part of the Company’s financing completed in August 2015. Warrants are exercisable
at $0.75 until July 31, 2020.
|
|
ii)
|
Issued
as part of the Company’s financing completed in August 2015. The 2015 Agent Warrants
are exercisable at a price of $0.75 during the period commencing January 15, 2016 until
their expiry on July 15, 2020.
|
|
iii)
|
Warrants
have an exercise price of $0.75. Of the total, 60,000 vest in tranches of 20,000 warrants
each on November 30, 2015, March 31, 2016, and January 31, 2016 and are exercisable commencing
January 1, 2016 until they expire on July 31, 2020. In addition, 500,000 of the warrants
vest in tranches of 150,000 on March 1, 2015, and 50,000 on each of March 31, 2016, January
31, 2016, February 29, 2016, March 31, 2016, April 30, 2016, May 31, 2016, and June 30,
2016 until they expire on March 1, 2020. Also, 500,000 of the warrants vest in tranches
of 83,333 on each of February 29, 2016, March 31, 2016, April 30, 2016, May 31, 2016,
June 30, 2016 and July 31, 2016 until they expire on February 1, 2021.
|
|
iv)
|
515,500
Investor Warrants were exercised for cash at $0.786 per share for proceeds of $405,183.
|
The
Company has financial instruments that are measured at fair value. To determine the fair value, we use the fair value hierarchy
for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs
by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use
to value an asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are
inputs based on assumptions about the factors market participants would use to value an asset or liability. The three levels of
inputs that may be used to measure fair value are as follows:
|
·
|
Level
one - inputs utilize quoted prices (unadjusted) in active markets for identical
assets or liabilities;
|
|
·
|
Level
two - inputs are inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly such as interest rates, foreign
exchange rates, and yield curves that are observable at commonly quoted intervals; and
|
|
·
|
Level
three - unobservable inputs developed using estimates and assumptions, which are
developed by the reporting entity and reflect those assumptions that a market participant
would use.
|
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
Assets
and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes
in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value
hierarchy.
The
Company’s financial instruments consist of cash and cash equivalents, other receivables, accounts payable, related party
payables and derivative liability. The carrying values of cash and cash equivalents, other receivables, accounts payable and related
party payables approximate their fair values due to the immediate or short-term maturity of these financial instruments.
Derivative
liability
The
Company accounts for certain warrants under the authoritative guidance on accounting for derivative financial instruments indexed
to, and potentially settled in, a company’s own stock, on the understanding that in compliance with applicable securities
laws, the warrants require the issuance of securities upon exercise and do not sufficiently preclude an implied right to net cash
settlement. The Company classifies these warrants on its balance sheet as a derivative liability which is fair valued at each
reporting period subsequent to the initial issuance. The Company has used a simulated probability valuation model to value the
warrants. Determining the appropriate fair-value model and calculating the fair value of warrants requires considerable judgment.
Any change in the estimates (specifically probabilities) used may cause the value to be higher or lower than that reported. The
estimated volatility of the Company’s common stock at the date of issuance, and at each subsequent reporting period, is
based on the historical volatility of similar life sciences companies. The risk-free interest rate is based on rates published
by the government for bonds with a maturity similar to the expected remaining life of the warrants at the valuation date. The
expected life of the warrants is assumed to be equivalent to their remaining contractual term.
|
a)
|
Fair
value of derivative liability
|
The
derivative is not traded in an active market and the fair value is determined using valuation techniques. The Company uses judgment
to select a variety of methods to make assumptions that are based on specific management plans and market conditions at the end
of each reporting period. The Company uses a fair value estimate to determine the fair value of the derivative liability. The
carrying value of the derivative liability would be higher or lower as management estimates around specific probabilities change.
The estimates may be significantly different from those recorded in the consolidated financial statements because of the use of
judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.
All changes in the fair value are recorded in the consolidated statement of operations and comprehensive loss each reporting period.
This is considered to be a Level 2 financial instrument.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
The
Company has the following liabilities under the fair value hierarchy:
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Liability
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
|
–
|
|
|
|
1,017,250
|
|
|
|
–
|
|
|
|
June
30, 2015
|
|
|
(as
restated)
|
|
|
|
|
|
|
|
|
|
|
Liability
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
|
–
|
|
|
|
2,364,381
|
|
|
|
–
|
|
Series B Preferred Share
Issuance
On April 29, 2016, May 4, 2016, and May 12, 2016 the Company entered into Securities Purchase Agreements (the “Purchase
Agreements”), pursuant to which it issued an aggregate of 764,363 shares of Series B Preferred Stock at a purchase price
of at $8.00 per share for total gross proceeds of $6.1 million. Each share of Series B Preferred Stock is convertible into ten
shares of common stock equating to a conversion price of $0.80 (the “Conversion Price”) and will automatically convert
to common stock at the earlier of 24 hours following regulatory approval of VAL-083 with a minimum closing bid price of $2 or
five years from the final closing dates. The holders of the Series B Preferred Stocks are entitled to an annual cumulative, in
arrears dividend at the rate of 9% payable quarterly. The 9% dividend shall accrue quarterly commencing on the date of issue and
be payable quarterly on June 30, September 30, December 31, and March 31 of each year commencing on June 30, 2016. Dividends
shall be payable solely by delivery of shares of common stock (the “PIK Shares”), in an amount for each holder equal
to the aggregate dividend payable to such holder with respect to the shares of Series B Preferred Stock held by such holder divided
by the Conversion Price. The Series B Preferred Shares do not contain any repricing features.
In addition, the Company and the holders entered
into a royalty agreement, pursuant to which the Company will pay the holders of the Series B preferred shares, in aggregate, a
low, single-digit royalty based on their pro rata ownership of the Series B preferred shares on products sold directly by the
Company or sold pursuant to a licensing or partnering arrangement (the “Royalty Agreement”).
Upon conversion of a holder’s shares to
common stock, such holder shall no longer receive ongoing royalty payments under the Royalty Agreement but will be entitled to
receive any residual royalty payments that have vested. Rights to the royalties shall vest during the first three years following
the applicable closing date, in equal thirds to holders of the Series B Preferred Stock on each of the three vesting dates, upon
which vesting dates such royalty amounts shall become “Vested Royalties”.
DelMar Pharmaceuticals, Inc.
Notes
to Consolidated Condensed Interim Financial Statements
(Unaudited)
March
31, 2016
(expressed
in US dollars unless otherwise noted)
The Company engaged certain placement agents
for the sale of a portion of the Series B Preferred Stock. Under the Company’s engagement agreements with these placement
agents, the Company agreed to pay up to an 8% cash commission and issue warrants to purchase shares of common stock (the “2016
Agent Warrants”) up to the number of shares of our common stock equal to 8% of the aggregate number of shares underlying
the Series B Preferred Stock sold in the offering by such placement agents. Pursuant to the placement agent agreements the Company
paid a total cash commission of approximately $283,000 and issued 356,050 2016 Agent Warrants. The 2016 Agent Warrants are exercisable
at a per share price equal to $1.00 during the five-year period commencing six months from May 12, 2016 which period shall not
extend further than five years from the closing dates. Therefore, all 2016 Agent Warrants expire on May 12, 2021.
In addition to the cash commission the Company
also incurred additional cash issue and closing costs of approximately $340,000 (including costs deferred at March 31, 2016 of
$60,647) resulting in net cash proceeds of approximately $5.5 million.
Investor Warrant Amendments
Subsequent to March 31,
2016, the Company amended an additional 1,970,238 Investor Warrants (note 6). As a result of the amendments, the Company has reclassified
a portion of its derivative liability to equity resulting in an increase in equity of approximately $500,000.
Stock Options
Subsequent to March 31,
2016, 320,000 stock options were granted and 270,000 stock options were forfeited.