Notes
to Unaudited Consolidated Financial Statements
NOTE
1 - BUSINESS
Relmada Therapeutics, Inc. (“Relmada” or the
“Company”) (a Nevada corporation), is a clinical-stage, publicly traded biotechnology company developing new chemical
entities (NCEs) together with novel versions of proven drug products that potentially address areas of high unmet medical need
in the treatment of central nervous system (CNS) diseases - primarily depression and chronic pain. The Company has a diversified
portfolio of four products at various stages of development, including d-Methadone (dextromethadone, REL-1017), an N-methyl-D-aspartate
(NMDA) receptor antagonist for treating depression and neuropathic pain; LevoCap ER (REL-1015), an abuse resistant, sustained release
dosage form of the opioid analgesic levorphanol; BuTab (oral buprenorphine, REL-1028), an oral dosage form of the opioid analgesic
buprenorphine; and MepiGel (topical mepivacaine, REL-1021), an orphan drug designated topical formulation of the local anesthetic
mepivacaine.
In addition to the normal risks associated with a new business
venture, there can be no assurance that the Company’s research and development will be successfully completed or that any
product will be approved or commercially viable. The Company is subject to risks common to companies in the biotechnology industry
including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology, and compliance with the FDA and other governmental
regulations and approval requirements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements
and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim unaudited consolidated financial information. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete consolidated financial statements. The unaudited consolidated financial
statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative
of the results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended June 30, 2016 and notes thereto contained in the Company’s
Annual Report on Form 10-K.
Principles of Consolidation
The unaudited consolidated financial statements include the
Company’s accounts and those of the Company’s wholly-owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of these financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the unaudited consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash
and Cash Equivalents
The Company considers cash deposits and all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. The Company’s cash deposits are held at two high-credit-quality
financial institutions. The Company’s cash deposits of approximately $6,000,000 as of September 30, 2016 at these institutions
exceed federally insured limits.
Patents
Costs
related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred
since recoverability of such expenditures is uncertain.
Fixed
Assets
Fixed
assets are stated at cost less accumulated depreciation. Fixed assets are comprised of Computers and Software, Leasehold Improvements
and Furniture and Fixtures. Depreciation is calculated using the straight-line method over the estimated useful life of the assets.
Computers and software have an estimated useful life of three years. Furniture and Fixtures have an estimated useful life of approximately
seven years. Leasehold improvements are amortized over the lesser of the estimated life of the asset and the lease term (approximately
seven years).
Fair
Value of Financial Instruments
The
Company’s financial instruments primarily include cash, accounts payable, derivative liabilities and note payable. Due to
the short-term nature of cash, accounts payable, derivative liabilities and note payable, the carrying amounts of these assets
and liabilities approximate their fair value. Derivatives are recorded at fair value at each period end. Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants at the reporting date.
A
fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets
for identical assets or liabilities and the lowest priority to unobservable inputs. The accounting guidance establishes a three-tiered
hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level
1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date.
Level
2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset
or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally
from or corroborated by market data by correlation or other means.
Level
3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
Fair
Value on a Recurring Basis
As
required by Accounting Standard Codification (“ASC”) Topic No. 820 - 10
Fair Value Measurement
, financial assets
and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s
assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation
of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value
of the derivative instruments which include warrants with down-round protection provisions is calculated with the Black Scholes
option pricing model. Sensitivity Analysis for the Black-Scholes has many inputs and is subject to judgement which includes volatility.
Volatility and the expected term is based upon the Company’s peer group and the expected term is based upon expiration date
of the warrants.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
Value of Financial Instruments (continued)
The
following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted
for at fair value on a recurring basis as of September 30, 2016 and June 30, 2016:
|
|
Markets for
Identical
Assets
|
|
|
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Carrying
Value as of
September 30,
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2016
|
|
Derivative liabilities - warrant instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
972,546
|
|
|
$
|
972,546
|
|
|
|
Markets for
Identical
Assets
|
|
|
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Carrying
Value as of
June 30,
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2016
|
|
Derivative liabilities - warrant instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
892,503
|
|
|
$
|
892,503
|
|
The
following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as level 3 in the
fair value hierarchy:
|
|
Significant Unobservable
Inputs (Level 3)
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
892,503
|
|
|
$
|
14,001,369
|
|
Change in fair value of derivative liabilities
|
|
|
80,043
|
|
|
|
(9,293,339
|
)
|
Ending balance
|
|
$
|
972,546
|
|
|
$
|
4,708,030
|
|
Income
Taxes
The Company accounts for income taxes using the asset and
liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when
it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that
all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility
is uncertain. As of September 30, 2016 and June 30, 2016, the Company had recognized a valuation allowance to the full extent of
the Company’s net deferred tax assets since the likelihood of realization of the benefit does not meet the more likely than
not threshold.
The Company files U.S. Federal and various state/local income tax returns.
Uncertain tax positions taken on the Company’s tax returns will be accounted for as liabilities for unrecognized tax benefits.
The Company will recognize interest and penalties, if any, related to unrecognized tax benefits in general and administrative
expenses in the statements of operations. There were no liabilities recorded for uncertain tax positions at September 30, 2016
and June 30, 2016. The open tax years, subject to potential examination by the applicable taxing authority, for the Company are
for the year ended June 30, 2012 and all subsequent years.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Research
and Development
Research
and development costs primarily consist of research contracts for the advancement of product development, salaries and benefits,
stock-based compensation, and consultants. The Company expenses all research and development costs in the period incurred. The
Company makes an estimate of costs in relation to clinical study contracts. The Company analyzes the progress of studies, including
the progress of clinical studies and phases, invoices received and contracted costs when evaluating the adequacy of the amount
expensed and the related prepaid asset and accrued liability.
Stock-Based
Compensation
The
Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange
for the award over the requisite service period. The grant-date fair value of employee share options is estimated using the Black-Scholes
option pricing model adjusted for the unique characteristics of those instruments. Compensation expense for warrants granted to
non-employees is determined by the fair value of the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured, and is recognized over the service period. The expense is subsequently adjusted to fair value
at the end of each reporting period until such warrants vest, and the fair value of such instruments, as adjusted, is expensed
over the related vesting period. Adjustments to fair value at each reporting date may result in income or expense, depending upon
the estimate of fair value and the amount of expense recorded prior to the adjustment. The Company reviews its agreements and
the future performance obligation with respect to the unvested warrants for its vendors or consultants. When appropriate, the
Company will expense the unvested warrants at the time when management deems the service obligation for future services has ceased.
Net
Income (Loss) per Common Share
Basic
net income or loss per common share attributable to common stockholders is calculated by dividing the net income (loss) attributable
to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common
stock equivalents. Diluted net income per common share attributable to common stockholders is computed by dividing the net income
attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined
using the treasury-stock method. Dilutive common stock equivalents are comprised of Class A convertible preferred stock, restricted
stock, warrants for the purchase of common stock and stock options.
For the three months ended September 30, 2016, potentially
dilutive securities were not included in the calculation of diluted net loss per share because to do so would be anti-dilutive.
Following is a reconciliation of basic earnings per common share (“EPS”) and diluted EPS for the three months ended
September 30, 2015:
|
|
Three
months ended
September, 2015
|
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic
EPS
|
|
$
|
4,663,142
|
|
|
|
10,804,073
|
|
|
$
|
0.43
|
|
Dilutive
effect of exercise of options
|
|
|
-
|
|
|
|
144,633
|
|
|
|
(0.01
|
)
|
Dilutive
effect of exercise of warrants
|
|
|
-
|
|
|
|
1,913,507
|
|
|
|
(0.08
|
)
|
Dilutive
effect of convertible preferred stock
|
|
|
-
|
|
|
|
71,672
|
|
|
|
(0.00
|
)
|
Restricted common stock
|
|
|
-
|
|
|
|
3,500
|
|
|
|
(0.00
|
)
|
Diluted
EPS
|
|
$
|
4,663,142
|
|
|
|
12,937,385
|
|
|
$
|
0.36
|
|
For the three months ended September 30, 2016, the following
potentially dilutive securities were excluded from the computation of diluted net loss per share, as the inclusion of such shares
would be anti-dilutive:
Stock
options
|
|
|
605,982
|
|
Restricted
common stock
|
|
|
42,625
|
|
Common
stock warrants
|
|
|
4,224,573
|
|
Total
|
|
|
4,873,180
|
|
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board issued
Accounting Standards Update 2014-15, Presentation of Financial Statements- Going Concern. The Update provides U.S. GAAP guidance
on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue
as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate
whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern
within one year from the date the financial statements are issued. The amendments in this update are effective for the annual
period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently evaluating
the effects of this pronouncement on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), whereby lessees will be required
to recognize for all leases at the commencement date a lease liability, which is a lessee‘s obligation to make lease payments
arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s
right to use, or control the use of, a specified asset for the lease term. A modified retrospective transition approach for leases
existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements must
be applied. The modified retrospective approach would not require any transition accounting for leases that expired before the
earliest comparative period presented. Companies may not apply a full retrospective transition approach. ASU 2016-02 is effective
for annual and interim periods beginning after December 15, 2018. Early application is permitted. The Company is currently evaluating
the effects of this pronouncement on the consolidated financial statements.
NOTE
3 - PREPAID EXPENSES
Prepaid
expenses consisted of the following (rounded to nearest $00):
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
Rent
|
|
$
|
3,200
|
|
|
$
|
-
|
|
Research
and development
|
|
|
29,800
|
|
|
|
17,600
|
|
Insurance
|
|
|
250,400
|
|
|
|
346,100
|
|
Biotechnology
tax credit receivable
|
|
|
231,900
|
|
|
|
231,900
|
|
Legal
|
|
|
231,100
|
|
|
|
171,100
|
|
Other
|
|
|
1,100
|
|
|
|
31,400
|
|
Total
|
|
$
|
747,500
|
|
|
$
|
798,100
|
|
New York City allows investors and owners of merging technology companies
focused on biotechnology to claim a tax credit against the General Corporation Tax and Unincorporated Business Tax for amounts
paid or incurred for certain facilities, operations, and employee training in New York City. During the years ended June 30, 2016
and 2015, the Company obtained certificates of biotechnology tax credit from New York City of approximately $82,000 and $149,000,
respectively.
NOTE
4 - FIXED ASSETS
Fixed
assets, net of accumulated depreciation, consist of the following (rounded to nearest $00):
|
|
Useful lives
|
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
Computer and software
|
|
|
3 years
|
|
|
$
|
47,400
|
|
|
$
|
48,200
|
|
Furniture and fixtures
|
|
|
7 years
|
|
|
|
184,800
|
|
|
|
160,000
|
|
Leasehold improvements
|
|
|
7 years
|
|
|
|
386,900
|
|
|
|
386,900
|
|
Total
|
|
|
|
|
|
$
|
619,100
|
|
|
$
|
595,100
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(83,100
|
)
|
|
|
(63,700
|
)
|
Fixed assets, net
|
|
|
|
|
|
$
|
536,000
|
|
|
$
|
531,400
|
|
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
5 - ACCRUED EXPENSES
Accrued
expenses consisted of the following (rounded to nearest $00):
|
|
September 30,
2016
|
|
|
June
30,
2016
|
|
Research
and development
|
|
$
|
59,300
|
|
|
$
|
49,300
|
|
Professional
fees
|
|
|
58,700
|
|
|
|
310,000
|
|
Accrued
vacation
|
|
|
75,200
|
|
|
|
66,700
|
|
Consulting
fees
|
|
|
187,500
|
|
|
|
150,000
|
|
Other
|
|
|
24,200
|
|
|
|
58,900
|
|
Total
|
|
$
|
404,900
|
|
|
$
|
634,900
|
|
NOTE
6 - NOTE PAYABLE
In
June 2016, the Company entered into a note for approximately $273,700 in conjunction with a renewal of its director and officer
insurance policy. The interest rate was 2.1% per annum.
In
June 2015, the Company entered into a note for approximately $263,800 in conjunction with a renewal of its director and officer
insurance policy. The interest rate was 2.8% per annum.
At
September 30, 2016 and June 30, 2016, the note payable outstanding balances were approximately $164,400 and $273,700, respectively.
NOTE
7 - DERIVATIVE LIABILITIES
As
required by Accounting Standard Codification (“ASC”) Topic No. 820 - 10
Fair Value Measurement
, financial assets
and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s
assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation
of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value
of the derivative liabilities included B warrants and agent warrants that have a down-round protection provision was calculated
with the Black-Scholes Option pricing model
The
following is a summary of the assumptions used in the valuation model of the derivative liabilities at September 30, 2016 and
June 30, 2016:
|
|
September
30,
|
|
|
June
30,
|
|
|
|
2016
|
|
|
2016
|
|
Common
stock issuable upon exercise of warrants
|
|
|
2,574,570
|
|
|
|
2,574,570
|
|
Market
value of common stock on measurement date (1)
|
|
$
|
1.47
|
|
|
$
|
2.28
|
|
Exercise
price
|
|
$
|
7.50 and 11.25
|
|
|
$
|
7.50 and 11.25
|
|
Risk
free interest rate (2)
|
|
|
0.88
|
%
|
|
|
0.71
|
%
|
Expected
life in years
|
|
|
2.69
|
|
|
|
2.95
|
|
Expected
volatility (3)
|
|
|
107
|
%
|
|
|
75
|
%
|
Expected
dividend yield (4)
|
|
|
None
|
|
|
|
None
|
|
(1)
|
Quoted
market value of the common stock, reflects a one-for-five reverse stock split.
|
(2)
|
The
risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date.
|
(3)
|
The
historical trading volatility was determined by calculating the volatility of the Company’s stock at September 30, 2016 and the Company’s peer group at June 30, 2016.
|
(4)
|
The
Company does not expect to pay a dividend in the foreseeable future.
|
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
8 - STOCKHOLDERS’ EQUITY
Exercise
of warrants for non-cash
During the three months ended September 30, 2015, the Company
issued approximately 220,000, shares of common stock resulting from the exercise on a non-cash basis of approximately 257,000
warrants.
Common
stock issued for services
During the three months ended September 30, 2016 and 2015, the Company
issued 0 and 15,834 shares of common stock for consulting services, respectively. These shares had an aggregate fair value of
approximately $0 and $78,900, respectively, based upon the stock price at the date of issuances. The Company recorded stock-based
compensation to general and administrative expense.
Options
In December 2014, the Board of Directors adopted and the shareholders approved
Relmada’s 2014 Stock Option and Equity Incentive Plan, as amended (the “Plan”), which allows for the granting
of common stock awards, stock appreciation rights, and incentive and nonqualified stock options to purchase shares of the Company’s
common stock to designated employees, non-employee directors, and consultants and advisors. The Plan allows for the granting of
1,611,769 options or stock awards. In August 2015, the board approved an amendment to the Plan. Among other things, the Plan Amendment
updates the definition of “change of control” and provides for accelerated vesting of all awards granted under the
plan in the event of a change of control of the Company. At September 30, 2016, no stock appreciation rights have been issued.
Stock options are exercisable generally for a period of 10 years from the date of grant and generally vest over four years. As
of September 30, 2016, 963,162 shares were available for future grants under the Plan.
The
Company utilizes the Black-Scholes option pricing model to estimate the fair value of stock options and warrants. The price of
common stock prior to the Company being public was determined from a third party valuation. The risk-free interest rate assumptions
were based upon the observed interest rates appropriate for the expected term of the equity instruments. The expected dividend
yield was assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends
in the foreseeable future. The expected volatility was based upon its peer group. The Company routinely reviews its calculation
of volatility changes in future volatility, the Company’s life cycle, its peer group, and other factors.
The
Company uses the simplified method for share-based compensation to estimate the expected term for employee option awards for stock-based
compensation in its option-pricing model. The Company uses the contractual term for non-employee options to estimate the expected
term, for share-based compensation in its option-pricing model.
The Company did not grant any options during the three months ended September 30, 2016.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
8 - STOCKHOLDERS’ EQUITY (continued)
At September 30, 2016, the Company has unrecognized stock-based compensation
expense of approximately $975,500 related to unvested stock options over the weighted average remaining service period of
2.3 years.
|
|
Number of
Options
|
|
|
Weighted
Average Exercise Price For Share
|
|
|
Weighted
Average Remaining Contractual Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at June 30, 2016
|
|
|
642,204
|
|
|
$
|
6.41
|
|
|
|
7.7
|
|
|
$
|
21,500
|
|
Forfeited
|
|
|
(36,222
|
)
|
|
|
6.08
|
|
|
|
|
|
|
$
|
-
|
|
Outstanding
at September 30, 2016
|
|
|
605,982
|
|
|
$
|
6.43
|
|
|
|
7.4
|
|
|
$
|
-
|
|
Options
exercisable at September 30, 2016
|
|
|
391,886
|
|
|
$
|
5.87
|
|
|
|
7.6
|
|
|
$
|
-
|
|
For the three months ended September 30, 2016, the Company did not grant
any stock options.
For the three months ended September 30, 2015, the Company granted a director
options to purchase 25,765 shares of common stock. The options have a ten year term and an exercise price of $8.45 per share.
25% of options vests on the one year anniversary of the grant date and the remaining options vest quarterly over the following
3 years.
Following is the Black-Scholes option pricing model assumptions
used to determine the fair value of options granted during the three months ended September 30, 2015:
Risk free interest rate
|
|
|
1.6 to 1.8
|
%
|
Dividend yield
|
|
|
0
|
%
|
Volatility
|
|
|
72 to 76
|
%
|
Expected term (in years)
|
|
|
6.25
|
|
Restricted
stock
A
summary of the changes in restricted stock awards during the three months ended September 30, 2016, is as follows:
|
|
Number
of Shares
|
|
|
Weighted
Average Price Per Share
|
|
Outstanding
and expected to issue at June 30, 2016
|
|
|
49,625
|
|
|
$
|
14.10
|
|
Forfeited
|
|
|
(7,000
|
)
|
|
|
13.45
|
|
Outstanding
and expected to issue at September 30, 2016
|
|
|
42,625
|
|
|
$
|
14.21
|
|
There were no restricted stock awards granted during the three months ended
September 30, 2016. Restricted stock grants vest over four years. The Company has an unrecognized expense of approximately $159,000
related to unvested restricted stock grants which will be recognized over the remaining weighted average service period of 2.09
years. During the three months ended September 30, 2016, the Company issued 875 shares in relation to vested restricted stock
and 2,750 shares were vested and are to be issued.
Warrants
There were no changes in outstanding warrants during the
three months ended September 30, 2016.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
8 - STOCKHOLDERS’ EQUITY (continued)
At September 30, 2016, the Company does not have any unrecognized
stock-based compensation expense related to outstanding warrants. At September 30, 2016, the aggregate intrinsic value of warrants
that have vested and outstanding is approximately
$984,000.
There were no common stock
warrants granted by the Company during the quarter ended September 30, 2016 and 2015.
The
following summarizes the components of stock-based compensation expense which includes stock options, warrants and restricted
stock in the consolidated statements of operations for the three months ended September 30, 2016 and 2015 (rounded to nearest
$00):
|
|
Three
Months Ended September 30,
2016
|
|
|
Three
Months Ended September 30,
2015
|
|
Research
and development
|
|
$
|
42,600
|
|
|
$
|
52,300
|
|
General
and administrative
|
|
|
129,500
|
|
|
|
231,200
|
|
Total
|
|
$
|
172,100
|
|
|
$
|
283,500
|
|
NOTE
9 - RELATED PARTY TRANSACTIONS
Placement
Agent
On
February 18, 2014 and May 19, 2014, the Company entered into two engagement agreements with the Placement Agent for the May
2014 offering. The Company agreed to pay Placement Agent: (a) a cash commission in the amount of ten percent (10%) of the
gross proceeds of the Offering received from investors at a Closing as well as a non-accountable expense reimbursement equal
to two percent; and (b) (2%) of the gross proceeds of the Offering received from investors at a Closing and an activation fee
of $25,000. The Placement Agent or its designees also received five-year warrants to purchase 858,190 shares of
Relmada’s common stock at a price of $7.50 per share. The Placement Agent shall also be entitled to the compensation
set forth above as well for any cash exercise of Warrants within six (6) months of the final closing of the Offering as well
as a five percent (5%) solicitation fee for any Warrants exercised as a result of any redemption of any Warrants. If the
Company elects to call the warrants, the Placement Agent shall receive a warrant solicitation fee equal to 5% of the funds
solicited by the Placement Agent upon exercise of the warrants. The Company shall pay the Placement Agent a nonrefundable
financial advisory fee to be paid monthly, at the rate of $25,000 per month for a period of six months commencing after the
May offerings. The Company extended the monthly $25,000 financial advisory fee to May 2015 and the Company did not renew the
agreement.
Sublease
On
March 10, 2016 and effective as of January 1, 2016, Relmada entered into an Office Space License Agreement (the
“License”) with
Actinium Pharmaceuticals, Inc. (“Actinium”), with whom we share two common
board members, for office space located at 275 Madison Avenue, 7th Floor, New York, NY 10016. The term of the License is
three years from the effective date, with an automatic renewal provision. The cost of the License is approximately $16,620
per month for Actinium, subject to customary escalations and adjustments. The Company records the license fees as other
income in the consolidated income statements. At September 30, 2016 and June 30, 2016, the Company had a lease deposit of
approximately $40,000 in long-term liabilities.
Advisory
Firm
On
August 4, 2015, the Company entered into an Advisory and Consulting Agreement (the “Consulting Agreement”) with Sandesh
Seth, the Company’s Chairman of the Board. The effective date of the Consulting Agreement is June 30, 2015. Mr. Seth has
substantial experience in, among other matters, business development, corporate planning, corporate finance, strategic planning,
investor relations and public relations, and an expansive network of connections spanning the biopharmaceutical industry, accounting,
legal and corporate communications professions. Mr. Seth will provide advisory and consulting services to assist the Company with
strategic advisory services, assist in prioritizing product development programs per strategic objectives, assist in recruiting
of key personnel and directors, corporate planning, business development activities, corporate finance advice, and assist in investor
and public relations services. In consideration for the services to be provided, the Company agrees to pay Mr. Seth $12,500 per
month on an ongoing basis.
Relmada Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
10 - COMMITMENTS AND CONTINGENCIES
Legal
From
time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of
business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from
time to time that may harm business. Except as disclosed below, the Company is currently not aware of any such legal proceedings
or claims that will have, individually or in the aggregate, a material adverse effect on its business, financial condition or
operating results.
Lawsuit
Brought by a Former Officer:
In 2014, Relmada dismissed with prejudice its lawsuit against Najib Babul, which had sought to
compel Mr. Babul, Relmada’s former President, to account for questionable expenditures of Relmada funds made while Babul
controlled the Company. Relmada’s decision to surrender its claims was informed by the fact that Babul came forward with
plausible explanations for some of the expenditures, and the fact that, because Babul was a former officer and director of Relmada
being sued for his conduct in office, the Company was required to advance his expenses of the litigation; hence, Relmada was paying
all the lawyers and consultants on both sides of the dispute. Relmada also agreed to reinstate certain stock purchase warrants
in Babul’s name, which had been cancelled during the pendency of the litigation, and offered Babul the right to exchange
his shares in RTI for shares in the Company.
Babul
has brought a second lawsuit against Relmada. Ruling on Relmada’s motion, the United States District Court for
the Eastern District of Pennsylvania dismissed Babul’s claims for breach of contract and intentional infliction
of emotional distress, and left intact his claims for defamation, and wrongful use of civil process. Management believes
that the Company has good defenses to all of Babul’s claims, and that the outcome of the Babul litigation, even
if unfavorable, would not materially affect the Company’s operations, financial position, or cash flows of the Company.
However, litigation is an inherently uncertain process, and there can be no assurances with respect to either the outcome or
the consequences of this litigation.
Proceeding with Laidlaw:
On December 9, 2015,
Relmada filed a lawsuit in the U.S. District Court for the District of Nevada (the “Court”) against Laidlaw & Company
(UK) Ltd. and its two principals, Matthew Eitner and James Ahern (collectively, the “Defendants”), Relmada Therapeutics,
Inc. v. Laidlaw & Company (UK) Ltd., et al. (Case No. 15-cv-2338) (the “Lawsuit”). The Lawsuit alleges that the
press release issued by the Defendants on December 4, 2015, which was subsequently filed with the Securities and Exchange Commission
(“SEC”) on Schedule 14A, contained materially misleading proxy statements regarding, among other things, Defendants’
ability to nominate directors at Relmada’s December 30, 2015 annual stockholders’ meeting (the “Meeting”),
in violation of Section 14(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9. Relmada sought a temporary restraining
order and preliminary injunction to enjoin the Defendants from continuing to disseminate false and misleading proxy statements.
On December 10, 2015, the Court issued a temporary
restraining order and associated injunction to enjoin the Defendants from “continuing to disseminate false and misleading
proxy materials” and require that Defendants, among other things, “immediately must retract or correct its false and
misleading proxy materials” (the “Temporary Restraining Order”). The Temporary Restraining Order was set to expire
on December 22, 2015, when the parties were scheduled to appear for a hearing before the Court.
On December 16, 2015, the Defendants filed an answer
in response to the Lawsuit as well as a counterclaim against Relmada and its Board of Directors (the “Counterclaim”).
The Counterclaim alleges that (i) Relmada has disseminated materially false and misleading proxy statements concerning Defendants’
previous actions and conduct, in violation of Section 14(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9, and (ii)
members of Relmada’s Board of Directors breached their fiduciary duties by, among other things, approving certain changes
to Relmada’s stockholder election procedures. The Counterclaim sought the dissolution of the Temporary Restraining Order
and injunctive relief that would postpone the Meeting.
On December 22, 2015, after a hearing before the Court,
the Court entered the Company’s requested preliminary injunction, ordering the Defendants to continue to comply with similar
terms to the Temporary Restraining Order (the “Preliminary Injunction Order”). The Preliminary Injunction Order will
remain in place pending a full trial on the merits.
On February 18, 2016, Relmada filed an amended complaint
in connection with the Lawsuit. The amended complaint includes an additional legal claim based on the Defendants’ breach
of the fiduciary duty that they owed to Relmada when the Defendants disclosed and mischaracterized confidential information that
they acquired in their capacity as Relmada’s investment banker. Relmada is also seeking monetary damages arising from fees
and costs that it incurred responding to the Defendants’ false and misleading proxy materials in December 2015.
On April 4, 2016, Laidlaw filed a motion to dismiss
Relmada’s amended complaint. On April 15, 2016, Relmada filed a partial motion to dismiss the Counterclaim and Laidlaw filed
a motion to transfer venue to the U.S. District Court for the Southern District of New York. Relmada’s motion to dismiss
was mooted by stipulation.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
10 - COMMITMENTS AND CONTINGENCIES (continued)
On September 6, 2016, Relmada moved for leave to amend
the complaint for a second time to allege additional claims against Defendants, including defamation/business disparagement, defamation
per se, tortious interference with prospective economic advantage, violations of sections 1962(c) and 1962(d) of the Racketeer
Influenced and Corrupt Organizations Act, and violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. The Court granted Relmada’s motion to amend on September 27, 2016, which mooted the pending motion to dismiss
the amended complaint. Shortly thereafter, on September 29, 2016, the Court granted Defendants’ motion to transfer venue
to the U.S. District Court for the Southern District of New York (the “SDNY Court”). Relmada filed its second amended
complaint on or about October 5, 2016, the same date on which the Lawsuit was officially transferred to the SDNY Court.
The SDNY Court held an initial pretrial conference on October
21, 2016 during which it set a briefing schedule for Defendants’ contemplated motion to dismiss. Pursuant to the schedule,
the briefing on the motion to dismiss is expected to be completed by January 6, 2017. During the conference, Defendants’
counsel represented that Defendants have no outstanding counterclaims against Relmada at this time.
Litigation is an inherently uncertain process, and there can be no assurances with respect to either the outcome or the consequences
of this litigation. The Company recorded no contingent liability or expense associated with litigation during the three months
ended September 30, 2016.
Leases
and Sublease
On
October 1, 2015, the Company commenced a lease with a term of seven years and three months for office space in a building in New
York City. Rent expense is recognized on a straight-line basis over the term of the lease. Accordingly, rent expense recognized
in excess of rent paid is reflected as a liability in the accompanying consolidated balance sheets. Rent expense for the three
months ended September 30, 2016 was $82,461.
Contractual
Obligations
The
following tables sets forth our contractual obligations for the next five years and thereafter:
|
|
Total
|
|
|
Less
than
1 year
|
|
|
1
- 2 years
|
|
|
3
- 5 years
|
|
|
More
than
5 years
|
|
Office
lease
|
|
$
|
2,192,268
|
|
|
$
|
353,416
|
|
|
$
|
666,128
|
|
|
$
|
1,078,339
|
|
|
$
|
94,385
|
|
Note
payable
|
|
|
164,436
|
|
|
|
164,436
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
obligations
|
|
$
|
2,356,704
|
|
|
$
|
517,852
|
|
|
$
|
666,128
|
|
|
$
|
1,078,339
|
|
|
$
|
94,385
|
|
On March 10, 2016 and effective as of January 1, 2016, Relmada
entered into an Office Space License Agreement with Actinium,
with whom we share two common board members, for office space located at 275 Madison Avenue, 7th Floor, New York, NY 10016. The
term of the License is three years from the effective date, with an automatic renewal provision. The cost of the License is approximately
$16,620 per month for Actinium, subject to customary escalations and adjustments.
Letter
Of Credit
The
Company has an outstanding letter of credit of approximately $392,600 in connection with the Company’s New York City corporate
office lease. The letter of credit is secured by a restricted certificate of deposit in the same amount which is included in other
assets at September 30, 2016 and June 30, 2016. On the second anniversary of the lease commencement date, the letter of credit
will be reduced to approximately $234,400. In October 2022, the letter of credit will be reduced to approximately $156,000.