|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
2,042,478
|
|
|
724,141
|
|
|
3,492,459
|
|
|
2,188,990
|
|
Research and development
|
|
1,348,172
|
|
|
1,531
|
|
|
2,002,055
|
|
|
1,522,355
|
|
Total operating expenses
|
|
3,390,650
|
|
|
725,672
|
|
|
5,494,514
|
|
|
3,711,345
|
|
Loss from operations
|
|
(3,390,650
|
)
|
|
(725,672
|
)
|
|
(5,494,514
|
)
|
|
(3,711,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
1,120
|
|
|
27,801
|
|
|
110,619
|
|
|
27,748
|
|
Change in fair value of derivative liability
|
|
288,375
|
|
|
1,894,305
|
|
|
(1,021,007
|
)
|
|
2,407,089
|
|
Foreign exchange gain
|
|
114,527
|
|
|
588,978
|
|
|
333,849
|
|
|
507,553
|
|
Total other income (expense)
|
|
404,022
|
|
|
2,511,084
|
|
|
(576,539
|
)
|
|
2,942,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
(2,986,628
|
)
|
|
1,785,412
|
|
|
(6,071,053
|
)
|
|
(768,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(172,635
|
)
|
|
(567,519
|
)
|
|
(266,177
|
)
|
|
(526,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
(3,159,263
|
)
|
|
1,217,893
|
|
|
(6,337,230
|
)
|
|
(1,295,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.04
|
)
|
|
0.03
|
|
|
(0.07
|
)
|
|
(0.01
|
)
|
Diluted
|
|
(0.04
|
)
|
|
0.03
|
|
|
(0.07
|
)
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
84,366,692
|
|
|
64,408,500
|
|
|
82,694,046
|
|
|
64,055,508
|
|
Diluted
|
|
85,004,192
|
|
|
69,121,373
|
|
|
82,694,046
|
|
|
71,191,503
|
|
(The accompanying notes are an integral part of the condensed
consolidated financial statements.)
3
Helius Medical Technologies,
Inc.
Condensed Consolidated
Statement of Stockholders Deficit
For the
six months ended September 30, 2015 (Unaudited)
(Expressed in United States
Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Shares
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
to be
|
|
|
Comprehensive
|
|
|
|
|
|
|
Common
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Issued
|
|
|
Loss
|
|
|
Total
|
|
|
|
Stock
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance as of April 1,
2015
|
|
63,104,788
|
|
|
16,358,093
|
|
|
2,434,552
|
|
|
(19,423,451
|
)
|
|
39,545
|
|
|
(971,640
|
)
|
|
(1,562,901
|
)
|
Exercise of finders warrants
|
|
14,400
|
|
|
11,926
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,926
|
|
Issuance of common stock for
private placement
|
|
849,273
|
|
|
1,465,524
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,465,524
|
|
Issuance of common stock for private
placement
|
|
335,463
|
|
|
585,702
|
|
|
-
|
|
|
-
|
|
|
(39,545
|
)
|
|
-
|
|
|
546,157
|
|
Issuance of common stock for
private placement
|
|
125,756
|
|
|
233,806
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
233,806
|
|
Stock option exercise
|
|
94,640
|
|
|
42,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
42,500
|
|
Fair value of options
exercised
|
|
-
|
|
|
20,454
|
|
|
(20,454
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Share issuance cost
|
|
-
|
|
|
(141,100
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(141,100
|
)
|
Stock-based compensation
expense
|
|
-
|
|
|
-
|
|
|
250,415
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,415
|
|
Fair value of non-employee vested options
reallocated to derivative liability
|
|
-
|
|
|
-
|
|
|
(690,885
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(690,885
|
)
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(768,955
|
)
|
|
-
|
|
|
-
|
|
|
(768,955
|
)
|
Foreign currency translation adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(526,893
|
)
|
|
(526,893
|
)
|
Balance as of September 30, 2015
|
|
64,524,320
|
|
|
18,576,905
|
|
|
1,973,628
|
|
|
(20,192,406
|
)
|
|
-
|
|
|
(1,498,533
|
)
|
|
(1,140,406
|
)
|
(The accompanying notes are an integral part of the condensed
consolidated financial statements)
4
Helius Medical Technologies,
Inc.
Condensed Consolidated
Statement of Stockholders Equity
(Deficit)
For the six months ended September 30, 2016 (Unaudited)
(Expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Common
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Total
|
|
|
|
Stock
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance as of April 1,
2016
|
|
72,193,209
|
|
|
24,347,930
|
|
|
2,940,539
|
|
|
(26,305,263
|
)
|
|
(999,398
|
)
|
|
(16,192
|
)
|
Exercise of finders warrants
|
|
1,825,600
|
|
|
1,548,863
|
|
|
(151,184
|
)
|
|
-
|
|
|
-
|
|
|
1,397,679
|
|
Issuance of common stock in
public offering and private placement
|
|
10,305,125
|
|
|
6,547,997
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,547,997
|
|
Issuance of warrants in public offering and
private placement
|
|
-
|
|
|
-
|
|
|
1,504,914
|
|
|
-
|
|
|
-
|
|
|
1,504,914
|
|
Share issuance cost
|
|
-
|
|
|
(1,875,190
|
)
|
|
366,271
|
|
|
-
|
|
|
-
|
|
|
(1,508,919
|
)
|
Stock-based compensation expense
|
|
-
|
|
|
-
|
|
|
924,291
|
|
|
-
|
|
|
-
|
|
|
924,291
|
|
Fair value of non-employee
vested options reallocated to derivative liability
|
|
-
|
|
|
-
|
|
|
(268,135
|
)
|
|
-
|
|
|
-
|
|
|
(268,135
|
)
|
Agent compensation option exercise
|
|
750
|
|
|
1,129
|
|
|
(548
|
)
|
|
-
|
|
|
-
|
|
|
581
|
|
Stock option exercise
|
|
210,000
|
|
|
326,335
|
|
|
(230,649
|
)
|
|
-
|
|
|
-
|
|
|
95,686
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,071,053
|
)
|
|
-
|
|
|
(6,071,053
|
)
|
Foreign currency translation adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(266,177
|
)
|
|
(266,177
|
)
|
Balance as of September 30, 2016
|
|
84,534,684
|
|
|
30,897,064
|
|
|
5,085,499
|
|
|
(32,376,316
|
)
|
|
(1,265,575
|
)
|
|
2,340,672
|
|
(The accompanying notes are an integral part of the condensed
consolidated financial statements)
5
Helius Medical Technologies, Inc.
Condensed
Consolidated Statements of Cash Flows
For the six months ended September
30, 2016 and 2015 (Unaudited)
(Expressed in United States Dollars)
|
|
Six Months Ended
|
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
|
|
$
|
|
|
$
|
|
Cash flows from operating activities
:
|
|
|
|
|
|
|
Net loss
|
|
(6,071,053
|
)
|
|
(768,955
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
Change in
fair value of derivative liability
|
|
1,021,007
|
|
|
(2,407,089
|
)
|
Stock-based compensation
expense
|
|
924,291
|
|
|
250,415
|
|
Unrealized foreign exchange loss
|
|
-
|
|
|
(429,494
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Receivables
|
|
229,011
|
|
|
(110,329
|
)
|
Prepaid expenses and
other current assets
|
|
42,934
|
|
|
119,112
|
|
Accounts
payable and accrued liabilities
|
|
(239,324
|
)
|
|
(47,405
|
)
|
Net cash used in operating activities
|
|
(4,093,134
|
)
|
|
(3,393,745
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activities
:
|
|
|
|
|
|
|
Proceeds from the sale of
short term investment
|
|
-
|
|
|
378,000
|
|
Net cash provided by investing
activities
|
|
-
|
|
|
378,000
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
:
|
|
|
|
|
|
|
Proceeds from the issuance of
common stock and warrants
|
|
7,902,912
|
|
|
2,832,436
|
|
Share issuance costs
|
|
(1,508,919
|
)
|
|
(141,100
|
)
|
Proceeds from issuance of
promissory note
|
|
-
|
|
|
200,000
|
|
Proceeds from exercise of stock options and
warrants
|
|
1,493,946
|
|
|
-
|
|
Net cash provided by
financing activities
|
|
7,887,939
|
|
|
2,891,336
|
|
|
|
|
|
|
|
|
Effect of foreign exchange
rate changes on cash
|
|
(266,178
|
)
|
|
(102,228
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash and cash equivalents
|
|
3,528,627
|
|
|
(226,637
|
)
|
|
|
|
|
|
|
|
Cash and cash equivalents
at beginning of period
|
|
2,643,937
|
|
|
418,893
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
at end of period
|
|
6,172,564
|
|
|
192,256
|
|
|
|
|
|
|
|
|
Supplemental disclosure of
non-cash activity:
|
|
|
|
|
|
|
Fair value of warrants issued to agent for
services in conjunction with the Offering
|
|
366,271
|
|
|
-
|
|
Fair value of liability
classified warrants issued in conjunction with Private Placement
|
|
-
|
|
|
532,523
|
|
(The accompanying notes are an integral part of the condensed
consolidated financial statements.)
6
Helius Medical Technologies, Inc.
Notes to
Unaudited Condensed Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION
Helius Medical Technologies, Inc. (the Company) is engaged
primarily in the medical technology industry focused on neurological wellness.
The Companys planned principal operations include the development, licensing
and acquisition of unique and non-invasive platform technologies to amplify the
brains ability to heal itself. To date, the Company has not generated any
revenue.
The Company was incorporated in British Columbia, Canada, on
March 13, 2014. On May 28, 2014, the Company completed a continuation via a plan
of arrangement whereby the Company moved from being a corporation governed by
the British Columbia Corporations Act to a corporation governed by the Wyoming
Business Corporations Act. The Companys head office is located in Newtown,
Pennsylvania.
The Company has two wholly-owned subsidiaries,
Neurohabilitation Corporation (Neuro) and Helius Medical Technologies
(Canada), Inc. (Helius Canada).
The Company is currently listed on the Toronto Stock Exchange
(the TSX). The Company began trading on the Canadian Securities Exchange on
June 23, 2014, under the ticker symbol HSM, and subsequently moved to the TSX
on April 18, 2016. The Company also began trading on the OTCQB under the ticker
symbol HSDT on February 10, 2015. The financial information is presented in
United States Dollars.
Going Concern
As of September 30, 2016, the Companys cash and cash
equivalents were $6,172,564. During the six months ended September 30, 2016, the
Company incurred a net loss of $6,071,053 and as of September 30, 2016 its
accumulated deficit was $32,376,316. The Company expects to continue to incur
operating losses and net cash outflows until such time as it generates a level
of revenue to support its cost structure. There is no assurance that profitable
operations will ever be achieved, and, if achieved, will be sustained on a
continuing basis. These factors raise substantial doubt about the Companys
ability to continue as a going concern.
The Company intends to fund ongoing activities by utilizing
current cash and cash equivalents and by raising additional capital through
equity or debt financings. There can be no assurance that the Company will be
successful in raising additional capital or that such capital, if available,
will be on terms that are acceptable to the Company. If the Company is unable to
raise sufficient additional capital, the Company may be compelled to reduce the
scope of its operations and planned capital expenditure or sell certain assets,
including intellectual property assets.
Revision of Prior Period Financial Statements
In the fourth quarter of fiscal year 2016, the Company revised
and corrected the accounting for stock compensation expense related to certain
non-employee awards for prior interim periods in fiscal year 2016. The Company
evaluated the materiality of this revision and concluded that it was not
material to any of the previously issued financial statements. However, had this
not been revised, the accounting may have resulted in a material misstatement to
the financial statements for the full year fiscal 2016. Accordingly, the Company
revised previously reported periods included in Form 10-Q for the three-month
periods ended June 30, 2015 and December 31, 2015. The Company will revise all
other previously reported periods as such financial information is included in
future filings.
The effects of this revision on the Companys Condensed
Consolidated Statements of Operations and Comprehensive Income (loss) were as follows:
|
|
Three Months Ended September 30, 2015
|
|
|
Six Months Ended September 30, 2015
|
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Revised
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Revised
|
|
Research and development
|
$
|
1,531
|
|
$
|
-
|
|
$
|
1,531
|
|
$
|
1,372,457
|
|
$
|
149,898
|
|
$
|
1,522,355
|
|
Loss from operations
|
$
|
(725,672
|
)
|
$
|
-
|
|
$
|
(725,672
|
)
|
$
|
(3,561,447
|
)
|
$
|
(149,898
|
)
|
$
|
(3,711,345
|
)
|
Net income (loss)
|
$
|
1,785,412
|
|
$
|
-
|
|
$
|
1,785,412
|
|
$
|
(619,057
|
)
|
$
|
(149,898
|
)
|
$
|
(768,955
|
)
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
$
|
0.03
|
|
$
|
-
|
|
$
|
0.03
|
|
$
|
(0.01
|
)
|
$
|
-
|
|
$
|
(0.01
|
)
|
Total comprehensive income (loss)
|
$
|
1,217,893
|
|
$
|
-
|
|
$
|
1,217,893
|
|
$
|
(1,145,950
|
)
|
$
|
(149,898
|
)
|
$
|
(1,295,848
|
)
|
7
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Helius Medical Technologies, Inc. have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP), applicable to interim periods and, in the opinion of
management, include all normal and recurring adjustments that are necessary to
state fairly the results of operations for the reported periods. The condensed
consolidated financial statements have also been prepared on a basis
substantially consistent with, and should be read in conjunction with, the
Companys audited consolidated financial statements for the year ended March 31, 2016,
included its Annual Report on Form 10-K that was filed
with the Securities and Exchange Commission, or SEC, on June 28, 2016. The
year end condensed consolidated balance sheet data was derived from the audited
financial statements, but does not include all disclosures required by GAAP. The
results of our operations for any interim period are not necessarily indicative
of the results of the Companys operations for any other interim period or for a
full fiscal year.
Use of Estimates
The preparation of the consolidated financial statements in
accordance U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of expenses during the reporting
period. Significant estimates include the assumptions used in the fair value
pricing model for share-based payment transactions and deferred income tax asset
valuation allowances. Financial statements include estimates which, by their
nature, are uncertain. Actual outcomes could differ from these estimates.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements
reflect the operations of Helius Medical Technologies, Inc. and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash at banks and on hand,
and short-term highly liquid investments that have an original maturity of three months or less.
Concentrations of Credit Risk
The Company is subject to credit risk in respect of its cash.
Amounts invested in such instruments are limited by credit rating, maturity,
industry group, investment type and issuer. The Company is not currently exposed
to any significant concentrations of credit risk from these financial
instruments. The Company seeks to maintain safety and preservation of principal
and diversification of risk, liquidity of investments sufficient to meet cash
flow requirements and a competitive after-tax rate of return.
Receivables
Accounts receivable are stated at their net realizable value.
At September 30, 2016, the accounts receivable balance consisted primarily of
GST and QST refunds as well as reimbursements from the U.S. Army related to the
Companys expenditures.
Stock-Based Compensation
The Company accounts for all stock-based payments and awards
under the fair value based method. The Company recognizes its stock-based
compensation using the straight-line method.
Stock-based payments to non-employees are measured at the fair
value of the consideration received, or the fair value of the equity instruments
issued, or liabilities incurred, whichever is more reliably measurable. The fair
value of stock-based payments to non-employees is periodically re-measured until
the counterparty performance is complete, and any change therein is recognized
over the vesting period of the award and in the same manner as if the Company
had paid cash instead of paying with or using equity based instruments. The fair value of the stock-based payments to
non-employees that are fully vested and non-forfeitable as at the grant date are
measured and recognized at that date.
8
The Company accounts for the granting of share purchase options
to employees using the fair value method whereby all awards to employees will be
measured at fair value on the date of the grant. The fair value of all share
purchase options is expensed over their vesting period with a corresponding
increase to additional paid-in capital. Upon exercise of share purchase options,
the consideration paid by the option holder, together with the amount previously
recognized in additional paid-in capital is recorded as an increase to share
capital. Share purchase options granted to employees are accounted for as
liabilities when they contain conditions or other features that are indexed to
other than a market, performance or service condition.
The Company uses the Black-Scholes option pricing model to
calculate the fair value of share purchase options. The use of the Black-Scholes
option pricing model requires management to make assumptions with respect to the
expected term of the option, the expected volatility of the common stock
consistent with the expected term of the option, risk-free interest rates, the
value of the common stock and expected dividend yield of the common stock.
Changes in these assumptions can materially affect the fair value estimate.
Foreign Currency
The functional currency of the Company and Helius Canada is the
Canadian dollar (CAD) and the functional currency of Neuro is the U.S. dollar
(USD). The Companys reporting currency is the U.S. dollar. Transactions in
foreign currencies are remeasured into the functional currency of the relevant
subsidiary at the exchange rate in effect at the date of the transaction. Any
monetary assets and liabilities arising from these transactions are translated
into the functional currency at exchange rates in effect at the balance sheet
date or on settlement. Resulting gains and losses are recorded in other foreign
exchange gain (loss) within the condensed consolidated statements of operations.
The foreign exchange adjustment in the books of Neuro relating to inter-company
advances from Helius that are denominated in Canadian dollars is recorded in the
condensed consolidated statements of operations and comprehensive income (loss).
Income Taxes
The Company accounts for income taxes using the asset and
liability method. The asset and liability method provides that deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial reporting and tax bases of assets
and liabilities, and for operating loss and tax credit carry-forwards. Deferred
tax assets and liabilities are measured using the currently enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
The Company records a valuation allowance to reduce deferred tax assets to the
amount that is believed more likely than not to be realized.
The Company has adopted the provisions of Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) 740
Income
Taxes
regarding accounting for uncertainty in income taxes. The Company
initially recognizes tax provisions in the financial statements when it is more
likely than not the position will be sustained upon examination by the tax
authorities. Such tax positions are initially and subsequently measured as the
largest amount of the tax benefit that is greater than 50% likely of being
realized upon ultimate settlement with the tax authority, assuming full
knowledge of the position and all relevant facts. Application requires numerous
estimates based on available information. The Company considers many factors
when evaluating and estimating its tax positions and tax benefits. These
periodic adjustments may have a material impact on the consolidated statements
of operations and comprehensive income (loss). When applicable, the Company classifies
penalties and interest associated with uncertain tax positions as a component of
income tax expense in its consolidated statements of operations and
comprehensive income (loss).
Research and Development Expenses
Research and development (R&D) expenses consist primarily
of personnel costs, including salaries, benefits and stock-based compensation,
clinical studies performed by contract research organizations and materials and
supplies. R&D costs are charged to operations when they are incurred.
Segment Information
Operating segments are defined as components of an enterprise
about which separate discrete information is available for evaluation by the
chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Company, through its chief
operating decision maker, views its operations and manages the business in one
segment.
9
Derivative Liabilities
The Company evaluates its financial instruments and other
contracts to determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for in accordance
with ASC 815
Derivatives and Hedging
. The result of this accounting
treatment is that the fair value of the derivative is marked-to-market at each
balance sheet date and recorded as a liability and the change in fair value is
recorded in the consolidated statements of operations and comprehensive income (loss).
Upon conversion or exercise of a derivative instrument, the instrument is marked
to fair value at the conversion date and then that fair value is reclassified to
equity.
The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is reassessed
at the end of each reporting period. Derivative instruments that become subject
to reclassification are reclassified at the fair value of the instrument on the
reclassification date. Derivative instrument liabilities will be classified in
the balance sheet as current or non-current based on whether or not the right to
exercise or settle the derivative instrument lies with the holder.
Fair Value Measurements
The Companys financial instruments consist primarily of cash
and cash equivalents, receivables, accounts payable and accrued liabilities.
The book values of these instruments approximate their fair values due to the
immediate or short-term nature of those instruments.
ASC 820 establishes a fair value hierarchy based on the level
of independent, objective evidence surrounding the inputs used to measure fair
value. A financial instruments categorization within the fair value hierarchy
is based upon the lowest level of input that is significant to the fair value
measurement. ASC 820 prioritizes the inputs into three levels that may be used
to measure fair value:
Level 1 Quoted prices in active markets for identical assets
or liabilities;
Level 2 Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities; and
Level 3 Unobservable inputs that are supported by little or
no market activity and that are significant to the fair value of the assets or
liabilities. To the extent that the valuation is based on models or inputs that
are less observable or unobservable in the market, the determination of fair
value requires more judgment. Accordingly, the degree of judgment exercised by
the Company in determining fair value is greatest for instruments categorized in
Level 3. A financial instruments level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair value
measurement.
The Company had certain Level 3 derivative liabilities required
to be recorded at fair value on a recurring basis in accordance with U.S. GAAP.
Unobservable inputs used in the valuation of these liabilities includes
volatility of the underlying share price and the expected term. See Note 4 for
the inputs used in the Black-Scholes option pricing model at September 30, 2016
and the roll forward of the warrant liability and see Note 5 for the inputs used
in the Black-Scholes option pricing model at September 30, 2016 and 2015 for
the roll forward of the derivative liability for non-employee options.
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee options
|
|
974,473
|
|
|
-
|
|
|
-
|
|
|
974,473
|
|
Warrants
|
|
2,040,429
|
|
|
-
|
|
|
-
|
|
|
2,040,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee options
|
|
521,179
|
|
|
-
|
|
|
-
|
|
|
521,179
|
|
Warrants
|
|
1,204,581
|
|
|
-
|
|
|
-
|
|
|
1,204,581
|
|
10
There were no transfers between any of the levels during the
three and six months ended September 30, 2016 and 2015.
Basic and Diluted Income (Loss) per Share
Earnings or loss per share (EPS) is computed by dividing net
income (loss) by the weighted average number of common shares outstanding for
the period. Diluted EPS is computed by dividing net income (loss) by the
weighted-average of all potentially dilutive shares of common stock that were
outstanding during the periods presented.
The treasury stock method is used in calculating diluted EPS
for potentially dilutive stock options and share purchase warrants, which
assumes that any proceeds received from the exercise of in-the-money stock
options and share purchase warrants, would be used to purchase common shares at
the average market price for the period.
EPS for convertible debt is calculated under the if-converted
method. Under the if-converted method, EPS is calculated as the more dilutive of
EPS (i) including all interest (both cash interest and non-cash discount
amortization) and excluding all shares underlying the convertible debt or; (ii)
excluding all interest and costs directly related to the convertible debt (both
cash interest and non-cash discount amortization) and including all shares
underlying the convertible debt.
The basic and diluted net income (loss) per share for the three
and six months ended September 30, 2016 and 2015 was calculated as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(2,986,628
|
)
|
$
|
1,785,412
|
|
$
|
(6,071,053
|
)
|
$
|
(768,955
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
84,366,692
|
|
|
64,408,500
|
|
|
82,694,046
|
|
|
64,055,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
$
|
(0.04
|
)
|
$
|
0.03
|
|
$
|
(0.07
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), basic
|
$
|
(2,986,628
|
)
|
$
|
1,785,412
|
|
$
|
(6,071,053
|
)
|
$
|
(768,955
|
)
|
Effect of dilutive securities: Change in fair value of
derivative liability
|
|
(139,518
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Net income (loss), diluted
|
|
(3,126,146
|
)
|
|
1,785,412
|
|
|
(6,071,053
|
)
|
|
(768,955
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
84,366,692
|
|
|
64,408,500
|
|
|
82,694,046
|
|
|
64,055,508
|
|
Potential share issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share options
|
|
637,500
|
|
|
2,135,104
|
|
|
-
|
|
|
2,652,859
|
|
Common share warrants
|
|
-
|
|
|
2,577,769
|
|
|
-
|
|
|
4,483,136
|
|
Weighted average common shares outstanding
|
|
85,004,192
|
|
|
69,121,373
|
|
|
82,694,046
|
|
|
71,191,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
$
|
(0.04
|
)
|
$
|
0.03
|
|
$
|
(0.07
|
)
|
$
|
(0.01
|
)
|
During the three and six months ended September 30, 2016, a total of 8,135,000 and 9,335,000 options were excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive. During the three and six months ended September 30, 2016, a total of 10,182,254 and 10,182,254 warrants were excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive.
11
Recent Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15,
Statement of
Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payment
, providing additional guidance on several cash flow classification
issues, with the goal of the update to reduce the current and potential future
diversity in practice. The amendments in this update are effective for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal
years, with early adoption permitted. The amendments should be applied
retrospectively to all periods presented. For issues that are impracticable to
apply retrospectively, the amendments may be applied prospectively as of the
earliest date practicable. The Company is currently evaluating the potential
impact of the adoption of this standard.
In March 2016, the FASB issued ASU 2016-09,
CompensationStock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting
. The amendments in this update change
existing guidance related to accounting for employee share-based payments
affecting the income tax consequences of awards, classification of awards as
equity or liabilities, and classification on the statement of cash flows. ASU
2016-09 is effective for annual reporting periods beginning after December 15,
2016, including interim periods within those annual periods, with early adoption
permitted. The Company is currently evaluating the potential impact of the
adoption of this standard.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic
842)
. The new standard establishes a right-of-use (ROU) model that
requires a lessee to record a ROU asset and a lease liability on the
consolidated balance sheet for all leases with terms longer than 12 months.
Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the consolidated income
statement. ASU 2016-02 is effective for annual periods beginning after December
15, 2018, including interim periods within those annual periods, with early
adoption permitted. A modified retrospective transition approach is required for
lessees for capital and operating leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial
statements, with certain practical expedients available. The Company is
currently evaluating the potential impact of the adoption of this standard.
In January 2016, the FASB issued ASU 2016-01,
Recognition
and Measurement of Financial Assets and Financial Liabilities
. The
amendments in this update revise the accounting related to the classification
and measurement of investments in equity securities and the presentation of
certain fair value changes for financial liabilities measured at fair value. The
amendments are effective for annual reporting periods after December 15, 2017,
including interim periods within those fiscal years. Early adoption is
permitted. The Company is currently evaluating the potential impact of the
adoption of this standard.
In August 2014, the FASB issued ASU 2014-15,
Presentation of
Financial Statements - Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entitys Ability to Continue as a Going Concern
,
which is intended to define managements responsibility to evaluate whether
there is substantial doubt about an organizations ability to continue as a
going concern within one year after the date that the financial statements are
issued (or within one year after the date that the financial statements are
available to be issued when applicable) and to provide related footnote
disclosures. The ASU provides guidance to an organizations management, with
principles and definitions that are intended to reduce diversity in the timing
and content of disclosures that are commonly provided by organizations today in
the financial statement footnotes. The ASU is effective for annual periods
ending after December 15, 2016, and interim periods within annual periods
beginning after December 15, 2016, which for the Company is April 1, 2017. Early
adoption is permitted. The adoption of this standard will not have a material
impact on the Companys financial position or results of operations.
The amendments also clarify that the guidance in Topic 275,
Risks and Uncertainties
, is applicable to entities that have not
commenced planned principal operations. The central feature of the guidance on
disclosure requirements is that required disclosures are limited to matters
significant to a particular entity. The disclosures focus primarily on risks and
uncertainties that could significantly affect the amounts reported in the
financial statements in the near term or the near-term functioning of the
reporting entity.
12
3. PROMISSORY NOTE
On August 25, 2015, the Company received $200,000 in exchange
for the issuance of a promissory note. The promissory note was to be repaid six
months from the date of issuance with interest at the rate of 6% per annum. In
addition, the lender was entitled to receive 30,000 common shares of the Company
on the date of the promissory note and 30,000 common every three months
thereafter so long as the principal of the loan remained outstanding.
On October 28, 2015, the Company repaid the loan in its
entirety and issued 30,000 common shares that were owed the lender in accordance
with the terms of the promissory note.
4. COMMON STOCK AND WARRANTS
As of September 30, 2016, the Companys certificate of
incorporation authorized the Company to issue unlimited Class A common shares
without par value. Each Class A common share is entitled to have the right to
vote at any shareholder meeting on the basis of one vote per share. Each Class A
share held entitles the holder to receive dividends as declared by the
directors. No dividends have been declared through September 30, 2016. In the
event of the liquidation, dissolution or winding-up of the Company other
distribution of assets of the Company among its shareholders for the purposes of
winding-up its affairs or upon a reduction of capital the holders of the Class A
common shares shall, share equally, share for share, in the remaining assets and
property of the Company.
The Company is subject to a stockholders agreement, which
places certain restrictions on the Companys stock and its stockholders. These
restrictions include approvals prior to sale or transfer of stock, a right of
first refusal to purchase stock held by the Company and a secondary right of
refusal to stockholders, right of co-sale whereby certain stockholders may be
enabled to participate in a sale of other stockholders to obtain the same price,
term and conditions on a pro-rata basis, rights of first offer of new security
issuances to current stockholders on a pro-rata basis and certain other
restrictions.
On April 30, 2015, the Company closed a non-brokered private
placement (the First Financing) raising gross proceeds of $1,825,937 by the
issuance of 849,273 units (each a First Financing Unit) at a price of $2.15
per First Financing Unit. Each First Financing Unit consists of one (1) common
share and one half of one (1/2) common share purchase warrant (each a First
Financing Warrant). Each whole First Financing Warrant entitles the holder
thereof to purchase one additional common share of the Company at a price of
$3.00 per share for a period of thirty-six (36) months from the closing date of
the Financing. The Company paid a cash finders fee of $84,074 in connection
with this First Financing, as well as 27,396 finders warrants (the First
Financing Finders Warrants). Each First Financing Finders Warrant entitles
the holder thereof to purchase one additional common share of the Company at a
price of $3.00 per share for a period of thirty-six (36) months from the closing
date of the First Financing.
On June 26, 2015, the Company closed a non-brokered private
placement (the Second Financing) raising gross proceeds of $721,243 by the
issuance of 335,463 units (each a Second Financing Unit) at a price of $2.15
per Second Financing Unit. Each Second Financing Unit consists of one (1) common
share and one half of one (1/2) common share purchase warrant (each a Second
Financing Warrant). Each whole Second Financing Warrant entitles the holder
thereof to purchase one additional common share of the Company at a price of
$3.00 per share for a period of thirty-six (36) months from the closing date of
the Second Financing. The Company paid a cash finders fee of $40,803 in
connection with this Second Financing, as well as 18,978 finders warrants (the
Second Financing Finders Warrants). Each Second Financing Finders Warrant
entitles the holder thereof to purchase one additional common share of the
Company at a price of $2.15 per share for a period of sixty (60) months from the
closing date of the Second Financing.
On July 17, 2015, the Company closed a non-brokered private
placement (the Third Financing) raising gross proceeds of $270,375 by the
issuance of 125,756 units (each a Third Financing Unit) at a price of $2.15
per Third Financing Unit. Each Third Financing Unit consists of one (1) common
share and one half of one (1/2) common share purchase warrant (each a Third
Financing Warrant). Each whole Third Financing Warrant entitles the holder
thereof to purchase one additional common share of the Company at a price of
$3.00 per share for a period of thirty-six (36) months from the closing date of
the Third Financing. The Company paid a cash finders fee of $16,223 in
connection with this Third Financing, as well as 7,545 finders warrants (the
Third Financing Finders Warrants). Each Third Financing Finders Warrant
entitles the holder thereof to purchase one additional common share of the
Company at a price of $2.15 per share for a period of sixty (60) months from the
closing date of the Third Financing.
On November 10, 2015, upon conversion of the $2.0 million Note,
the Company issued 2,083,333 shares of common stock at a price of $0.96 per
share and 1,041,667 warrants exercisable at $1.44 for a period of three years
from the date of issuance.
On December 29, 2015, the Company drew down the remaining $5.0
million commitment through the issuance of 5,555,556 shares of common stock at a
price of $0.90 per share and 2,777,778 warrants exercisable at $1.35 for a
period of three years from the date of issuance. The shares of common stock and
the warrants were issued on January 7, 2016.
13
On April 18, 2016, the Company closed its short form prospectus
offering in Canada and a concurrent U.S. private placement (the "Offering") of
units (the "Units") with gross proceeds to the Company of CAD $9,215,000 through
the issuance of Units at a price of CAD $1.00 per Unit. Each Unit consists of
one Class A common share in the capital of the Company (a Common Share) and
one half of one Common Share purchase warrant (each whole warrant, a Warrant).
Each Warrant entitles the holder thereof to acquire one additional Common Share
at an exercise price of CAD $1.50 on or before April 18, 2019. Mackie Research
Capital Corporation (the "Agent") acted as agent and sole bookrunner in
connection with the Offering. The Company paid the Agent a cash commission of
CAD $436,050 and has granted to the Agent compensation options exercisable to
purchase 436,050 Units at an exercise price of CAD $1.00 per Unit for a period
of 24 months from the closing of the Offering. The Company incurred other cash
issuance costs of USD $1,238,566 related to this offering.
On May 2, 2016, the Company closed the sale of the additional
units issued pursuant to the exercise of the over-allotment option
(Over-Allotment Option) granted to the Agent in connection with the Offering.
The Offering was made pursuant to a short form prospectus filed with the
securities regulatory authorities in each of the provinces of Canada, except
Québec. Pursuant to the exercise of the Over-Allotment Option, the Company
issued an additional 1,090,125 Units (the "Over-Allotment Units") at a price of
CAD $1.00 per Over-Allotment Unit for additional gross proceeds to the Company
of CAD $1,090,125, bringing the total aggregate gross proceeds to the Company
under the Offering to CAD $10,305,125. Each Over-Allotment Unit consists of one
Class A common share in the capital of the Company (an Over-Allotment Common
Share) and one half of one Common Share purchase warrant (each whole warrant,
an Over-Allotment Warrant). Each Over-Allotment Warrant entitles the holder
thereof to acquire one additional Over-Allotment Common Share at an exercise
price of CAD $1.50 on or before April 18, 2019. In connection with the closing
of the Over-Allotment Option, the Company paid the Agent a cash commission of
CAD $65,408 and granted to the Agent compensation options exercisable to
purchase 65,407 Over-Allotment Units at an exercise price of CAD $1.00 per
Over-Allotment Unit for a period of 24 months from the closing of the Offering.
The warrants issued in each of the April 18, 2016 and May 2,
2016 closings are classified within equity. The proceeds from the Offering were
allocated on a relative fair value basis between the Class A common shares and
the warrants issued. The compensation options are accounted for as warrants.
These warrants represent additional share issuance costs and are recorded within
equity at their fair value. The fair value of both the warrants and the
compensation options was determined using a Black-Scholes option pricing model.
The fair value of the warrants granted during the six months
ended September 30, 2016 was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions:
|
September 30, 2016
|
Stock price
|
$1.09 CAD
|
Exercise price
|
$1.50 CAD
|
Expected life
|
3.0 years
|
Expected volatility
|
83.83%
|
Risk-free interest rate
|
0.60%
|
Dividend rate
|
0.00%
|
The fair value of the compensation options granted during the
six months ended September 30, 2016 was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions:
|
September 30, 2016
|
Stock price
|
$1.36 CAD
|
Exercise price
|
$1.00 CAD
|
Expected life
|
2.0 years
|
Expected volatility
|
126.76%
|
Risk-free interest rate
|
0.61%
|
Dividend rate
|
0.00%
|
On June 6, 2016, the Company announced that it received
proceeds of CAD $1,825,600 from the exercise of 1,825,600 outstanding warrants
which were issued in connection with the Companys private placement of
subscription receipts that closed on May 30, 2014. The remaining 6,604,400
warrants issued in this offering expired unexercised.
On July 7, 2016, the Company received proceeds of CAD $750 from
the exercise of 750 outstanding agent compensation options which were issued in
connection with the Companys private placement of subscription prospectus
offering that closed on April 18, 2016. Upon exercise of these compensation options, an
additional 375 warrants to purchase the Companys stock were issued to the
agent.
14
Pursuant to the guidance of ASC 815
Derivatives and
Hedging
, the Company determined that all of the warrants issued during the
year ended March 31, 2016 as described above are required to be accounted for as
liabilities because they are considered not to be indexed to the Companys stock
due to the exercise price being denominated in a currency other than the
Companys functional currency. Consequently, the Company determined the fair
value of each warrant issuance using the Black-Scholes option pricing model,
with the remainder of the proceeds allocated to the common shares.
The warrants having an exercise price denominated in a currency
other than the functional currency of the Company that are required to be
accounted for as liabilities are summarized as follows for the six months ended
September 30, 2016 and 2015:
|
Six Months Ended
September 30, 2016
$
|
Six Months Ended
September 30, 2015
$
|
Fair value of warrants, beginning of the period
|
1,204,581
|
-
|
Issuance of warrants
|
-
|
532,523
|
Change in fair value of warrants during the
period
|
835,848
|
(496,669)
|
|
|
|
Fair value of warrants, end of the period
|
2,040,429
|
35,854
|
The warrants are required to be re-valued with the change in
fair value of the liability recorded as a gain or loss in the change of fair
value of derivative liability, included in other income (expense) in the
Companys consolidated statements of operations and comprehensive income (loss). The fair
value of the warrants will continue to be classified as a liability until such
time as they are exercised, expire or there is an amendment to the respective
agreements that renders these financial instruments to be no longer classified
as a liability.
The fair value of liability classified warrants outstanding
during the periods ended September 30, 2016 and 2015 were estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
|
As of
September 30, 2016
|
As of
September 30, 2015
|
Stock price
|
$1.09
|
$0.61
|
Exercise price
|
$1.62
|
$2.97
|
Expected life
|
2.15 years
|
2.72 years
|
Expected volatility
|
91.69%
|
67.85%
|
Risk-free interest rate
|
0.77%
|
0.94%
|
Dividend rate
|
0%
|
0%
|
The following is a summary of warrant activity for the six
months ended September 30, 2016:
|
|
|
|
|
|
|
|
Weighted Average Exercise
|
|
|
|
Number of Warrants
|
|
|
Price
|
|
|
|
CAD
|
|
|
US
|
|
|
CAD$
|
|
|
US$
|
|
Outstanding as of April 1, 2016
|
|
8,430,000
|
|
|
4,528,609
|
|
$
|
1.00
|
|
$
|
1.62
|
|
Granted
|
|
5,152,563
|
|
|
-
|
|
|
1.50
|
|
|
-
|
|
Granted (Agent Compensation)
|
|
501,832
|
|
|
-
|
|
|
1.00
|
|
|
-
|
|
Expired
|
|
(6,604,400
|
)
|
|
-
|
|
|
1.00
|
|
|
-
|
|
Exercised
|
|
(1,826,350
|
)
|
|
-
|
|
|
1.00
|
|
|
-
|
|
Outstanding as of September 30, 2016
|
|
5,653,645
|
|
|
4,528,609
|
|
$
|
1.46
|
|
$
|
1.62
|
|
15
The warrants outstanding and exercisable at September 30, 2016
are as follows:
Number of Warrants Outstanding
|
Exercise Price
|
Expiry Date
|
452,032
|
US $3.00
|
April 30, 2018
|
167,731
|
US $3.00
|
June 26, 2018
|
18,978
|
US $2.15
|
June 26, 2020
|
62,878
|
US $3.00
|
July 17, 2018
|
7,545
|
US $2.15
|
July 17, 2020
|
1,041,667
|
US $1.44
|
November 10, 2018
|
2,777,778
|
US $1.35
|
December 29, 2018
|
5,152,563
|
CAD $1.50
|
April 18, 2019
|
501,082
|
CAD $1.00
|
April 18, 2018
|
5. SHARE BASED PAYMENTS
On June 18, 2014, the Companys Board of Directors authorized
and approved the adoption of the 2014 Plan (2014 Plan), under which an
aggregate of 12,108,016 shares of common stock may be issued. Pursuant to the
terms of the 2014 Plan, the Company is authorized to grant stock options, as
well as awards of stock appreciation rights, restricted stock, unrestricted
shares, restricted stock units and deferred stock units. These awards may be
granted to directors, officers, employees and eligible consultants. Vesting and
the term of an option is determined at the discretion of the Board of Directors
of the Company.
On August 8, 2016, the Companys Board of Directors authorized
and approved the adoption of the 2016 Plan (2016 Plan), under which an
aggregate of 15,000,000 shares of common stock may be issued. Pursuant to the
terms of the 2016 Plan, the Company is authorized to grant stock options, as
well as awards of stock appreciation rights, restricted stock, unrestricted
shares, restricted stock units, stock equivalent units and performance based
cash awards. These awards may be granted to directors, officers, employees
and eligible consultants. Vesting and the term of an option is determined at the
discretion of the Board of Directors of the
Company. At September 30, 2016, there were an aggregate of 17,468,376 common
shares remaining available for grant under the 2014 and 2016 Plans.
The following is a summary of stock option activity for the six
months ended September 30, 2016:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Exercise Price
|
|
|
Intrinsic Value
|
|
|
|
of Options
|
|
|
(CAD$)
|
|
|
(CAD$)
|
|
Outstanding as of
April 1, 2016
|
|
6,675,360
|
|
$
|
1.08
|
|
$
|
1,580,883
|
|
Granted
|
|
3,025,000
|
|
|
1.39
|
|
|
|
|
Forfeited
|
|
(31,250
|
)
|
|
0.60
|
|
|
|
|
Cancelled
|
|
(124,110
|
)
|
|
0.60
|
|
|
|
|
Exercised
|
|
(210,000
|
)
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2016
|
|
9,335,000
|
|
$
|
1.19
|
|
$
|
3,533,800
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2016
|
|
6,325,835
|
|
$
|
1.16
|
|
$
|
3,062,850
|
|
16
The options outstanding and exercisable at September 30, 2016
were as follows:
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Grant Date
|
|
|
Number of
|
|
Number of
|
|
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Fair Value
|
|
|
Options
|
|
Options
|
|
Expiry Date
|
|
|
(years)
|
|
|
Price (CAD$)
|
|
|
(CAD$)
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,310,000
|
|
June 18, 2019
|
|
|
2.72
|
|
$
|
0.60
|
|
$
|
0.26
|
|
|
3,310,000
|
|
100,000
|
|
July 14, 2017
|
|
|
0.79
|
|
$
|
2.52
|
|
$
|
1.05
|
|
|
100,000
|
|
450,000
|
|
December 8, 2019
|
|
|
3.19
|
|
$
|
2.92
|
|
$
|
1.65
|
|
|
450,000
|
|
100,000
|
|
December 8, 2019
|
|
|
3.19
|
|
$
|
2.92
|
|
$
|
1.31
|
|
|
66,667
|
|
400,000
|
|
December 8, 2019
|
|
|
3.19
|
|
$
|
2.96
|
|
$
|
1.29
|
|
|
400,000
|
|
100,000
|
|
March 16, 2020
|
|
|
3.46
|
|
$
|
3.20
|
|
$
|
1.42
|
|
|
66,667
|
|
50,000
|
|
August 15, 2020
|
|
|
3.87
|
|
$
|
0.98
|
|
$
|
0.39
|
|
|
33,334
|
|
750,000
|
|
October 21, 2020
|
|
|
4.06
|
|
$
|
0.87
|
|
$
|
0.36
|
|
|
187,500
|
|
550,000
|
|
October 28, 2020
|
|
|
4.08
|
|
$
|
0.84
|
|
$
|
0.44
|
|
|
550,000
|
|
400,000
|
|
October 28, 2020
|
|
|
4.08
|
|
$
|
0.84
|
|
$
|
0.36
|
|
|
120,000
|
|
100,000
|
|
December 31, 2020
|
|
|
4.25
|
|
$
|
1.24
|
|
$
|
0.50
|
|
|
33,334
|
|
3,025,000
|
|
July
13, 2020
|
|
|
3.79
|
|
$
|
1.39
|
|
$
|
0.65
|
|
|
1,008,333
|
|
9,335,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,325,835
|
|
Included in the table above are non-employee awards that are
subject to re-measurement each reporting period until vested. As a result, the
grant date fair value is not representative of the total expense that will be
recorded for these awards. As of September 30, 2016, the unrecognized
compensation cost related to non-vested stock options outstanding, was
$1,446,647 to be recognized over a weighted-average remaining vesting period of
approximately 1.81 years. The Company recognizes compensation expense for only
the portion of awards that are expected to vest. For the six months ended
September 30, 2016 and 2015, the Company applied an expected forfeiture rate of
0% based on its historical experience.
Non-Employee Stock Options
In accordance with the guidance of ASC 815-40-15, stock options
awarded to non-employees that are performing services for Neuro are required to
be accounted for as derivative liabilities once the services have been performed
and the options have vested because they are considered not to be indexed to the
Companys stock due to their exercise price being denominated in a currency
other than Neuros functional currency. Stock options awarded to non-employees
that are not vested are re-measured at their respective fair values at each
reporting period and accounted for as equity awards until the terms associated
with their vesting requirements have been met. The changes in fair value of the
unvested non-employee awards are reflected in their respective operating expense
classification in the Companys consolidated statements of operations and
comprehensive income (loss).
The non-employee stock options that are required to be
accounted for as liabilities are summarized as follows for the six months ended
September 30, 2016 and 2015:
|
Six Months Ended
September 30,
2016
$
|
Six Months Ended
September 30,
2015
$
|
Fair value of non-employee options, beginning of the period
|
521,179
|
1,581,444
|
Reallocation of vested non-employee options
|
268,135
|
690,885
|
Change in fair value of non-employee stock options during the
period
|
185,159
|
(1,910,420)
|
|
|
|
Fair value of non-employee options, end of the period
|
974,473
|
361,909
|
The non-employee options that have vested are required to be
re-valued with the change in fair value of the liability recorded as a gain or
loss on the change of fair value of derivative liability and included in other
items in the Companys consolidated statements of operations and comprehensive
income (loss) at the end of each reporting period. The fair value of the options will
continue to be classified as a liability until such time as they are exercised,
expire or there is an amendment to the respective agreements that renders these
financial instruments to be no longer classified as a liability.
17
The fair value of non-employee liability classified awards at
September 30, 2016 and 2015 was estimated using the Black-Scholes option pricing
model with the following weighted-average assumptions:
|
September 30, 2016
|
September 30, 2015
|
Stock price
|
$1.38 CAD
|
$0.84 CAD
|
Exercise price
|
$1.23 CAD
|
$1.52 CAD
|
Expected life
|
2.84 years
|
3.73 years
|
Expected volatility
|
70.52%
|
67.85%
|
Risk-free interest rate
|
0.51%
|
0.68%
|
Dividend rate
|
0.00%
|
0.00%
|
Share-based payments are classified in the Companys statements
of operations and comprehensive income (loss) as follows for the six months ended
September 30, 2016 and 2015:
|
Six Months Ended
September 30,
2016
$
|
Six Months Ended
September 30,
2015
$
|
General and administrative
|
817,359
|
357,999
|
Research and development
|
106,932
|
(107,584)
|
|
|
|
Total
|
924,291
|
250,415
|
6. COMMITMENTS AND CONTINGENCIES
(a)
|
On January 22, 2013, The Company entered into a license
agreement with Advanced NeuroRehabilitation, LLC (ANR) for an exclusive
right on ANRs patent pending technology, claims and knowhow. In addition
to the issuance of 16,035,026 shares, the Company agreed to pay a 4%
royalty on net revenue on the sales of devices covered by the
patent-pending technology and services related to the therapy or use of
devices covered by the patent-pending technology. The Company has not made
any royalty payments to date under this agreement.
|
|
|
(b)
|
On March 7, 2014, the Company entered into a commercial
development-to-supply program with Ximedica, LLC (Ximedica) where
Ximedica will design, develop and produce the PoNS product solution suitable
for clinical trial and commercial sale. The multi-phased development
program contains total contracted amounts of $5,900,000, of which
$5,714,062 was expensed as research and development since inception
through September 30, 2016. Invoices are to be issued monthly for work in
progress. The Company can cancel the project at any time with a written
notice at least 30 days prior to the intended date of cancellation. During the six months ended September 30, 2016 and 2015, the
Company incurred R&D charges of $676,246 and $1,047,425 pursuant to
this agreement. As the development agreement progresses, the company
expects to contract for additional phases.
|
|
|
(c)
|
Under the Companys Asset Purchase Agreement with
A&B, if the Company fails to obtain FDA clearance for
commercialization of or otherwise fails to ensure that the PoNS device is
available for purchase by the U.S. Government by December 31, 2017, the
Company is subject to a US$2,000,000 contract penalty payable to A&B,
unless the Company receives an exemption for the requirement of FDA
clearance from the US Army Medical Material Agency. The Company has
determined that the possibility of an economic outlay under this
contractual penalty is remote.
|
|
|
(d)
|
In November 2014, the Company signed a development and
distribution agreement with the Altair company in Russia to apply for
registration and distribute the PoNS device in the territories of the
former Soviet Union. However, there is no assurance that such
commercialization will occur.
|
18
7. RELATED PARTY TRANSACTIONS
During the three months ended September 30, 2016 and 2015, the
Company paid $34,441 and $9,400 in consulting fees to certain directors of the
Company. During the six months ended September 30, 2016 and 2015, the Company
paid $63,548 and $49,560 in consulting fees to certain directors of the
Company. At September 30, 2016 and March 31, 2016, the Company owed $11,957 and
$3,450 to a director for consulting services.
During the three months ended September 30, 2016 and 2015, an
expense of $0 and a benefit of $241,731 was included in research &
development expense as the fair value of stock-based compensation attributed to
the options granted to two directors and a consultant for consulting services
rendered with respect to the design and development of the PoNS device. During
the six months ended September 30, 2016 and 2015, an expense of $106,932 and a
benefit $257,481 was included in research & development expense as the fair
value of stock-based compensation attributed to the options granted to two
directors and a consultant for consulting services rendered with respect to the
design and development of the PoNS device.
8. SOLE-SOURCE COST-SHARING AGREEMENT
During the year ended March 31, 2016, the Company entered into
a sole source cost sharing contract executed with the U.S. Army Medical Research
and Materiel Command (USAMRMC). Under the terms of the contract, the USAMRMC
will reimburse the Company up to a maximum of $2,996,244 representing
approximately 62% of the Companys estimated costs for the registrational trial
(the trial) investigating the safety and effectiveness of the portable
neuromodulation stimulator for mild to moderate traumatic brain injury. The
original contract expires on December 31, 2016; however, the Company has
extended the contract with the USAMRMC through December 31, 2017 based on the
current trial forecast timelines. As of September 30, 2016, the Company has
received a total of $1,789,727 in respect of expenses reimbursed. All
reimbursement amounts received are credited directly to the accounts in which
the original expense is recorded, including research and development, wages and
salaries, and legal expenses.
9. SUBSEQUENT EVENTS
During September 2016, the Company was assessed by Lloyds
Register Quality Assurance Limited (LQRA), an independent certifying agency,
and recommended for ISO 13485 certification for its PoNS
TM
device.
LQRA concluded that the Company complies with the requirements of ISO 13485 for
an integrated quality management system for medical devices across all functions
of the business, from design and development to manufacturing and distribution.
Achievement of ISO 13485 certification constitutes an important regulatory
milestone in the commercialization process for the Companys products.
19
ITEM 2. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form 10-Q, unless otherwise
specified, references to we, us or our mean Helius Medical Technologies,
Inc. and its wholly owned subsidiaries, NeuroHabilitation Corporation, or NHC,
and Helius Medical Technologies (Canada), Inc., unless the context otherwise
requires. All financial information is stated in U.S. dollars unless otherwise
specified. Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States, or U.S. GAAP.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking
statements that involve risks and uncertainties, including statements regarding
our market, strategy, competition, capital needs, business plans and
expectations. Such forward-looking statements involve risks and uncertainties
regarding the success of our business plan, availability of funds, our ability
to maintain and enforce our intellectual property rights, government
regulations, operating costs, our ability to achieve significant revenues and
other factors. Forward-looking statements are made, without limitation, in
relation to operating plans, availability of funds and operating costs. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as may, will, should,
expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms or other comparable
terminology. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors, including the risks outlined in
our Annual Report on Form 10-K. These factors may cause our actual results to differ
materially from any forward-looking statements. While these forward-looking
statements, and any assumptions upon which they are based, are made in good
faith, based on information available to us as of the date hereof, and reflect
our current judgment regarding our business plans, our actual results will
almost always vary, sometimes materially, from any estimates, predictions,
projections, assumptions or other future performance suggested herein. We do not
intend to update any of the forward-looking statements to conform these
statements to actual results, except as required by applicable law, including
the securities laws of the United States. The forward-looking statements are
subject to a number of risks and uncertainties which are discussed in the
section entitled Item 1A. Risk Factors in this Quarterly Report on Form 10-Q
and in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission (SEC) on June 28, 2016, and those described from time to time in
our future reports filed with the SEC. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we cannot guarantee
future results, events, levels of activity, performance or achievement. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
unless required by law.
INDUSTRY AND MARKET DATA
Within this Quarterly Report on Form 10-Q, we reference
information, statistics and estimates regarding the medical devices and
healthcare industries. We have obtained this information from various
independent third party sources, including independent industry publications,
reports by market research firms and other independent sources. This information
involves a number of assumptions and limitations, and we have not independently
verified the accuracy or completeness of this information. Some data and other
information is also based on the good faith estimates of management, which are
derived from our review of internal surveys and independent sources. We believe
that these external sources and estimates are reliable but have not
independently verified them. The industries in which we operate are subject to a
high degree of uncertainty and risk due to a variety of factors, including those
described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the
fiscal year ended March 31, 2016, as filed with the Securities and Exchange
Commission (the SEC) on June 28, 2016, and in Item 1A. Risk Factors in Part
II of this Quarterly Report on Form 10-Q. These and other factors could cause
results to differ materially from those expressed in these publications and
reports.
Overview
We are a medical technology company focused on neurological
wellness. We seek to develop, license or acquire unique and non-invasive
platform technologies that amplify the brains ability to heal itself.
Our mission is to develop, license and acquire non-invasive
treatments designed to help patients affected by neurological symptoms caused by
disease or trauma. Applying the principles of neuroplasticity, our patented
PoNS device induces Cranial Nerve Non Invasive Neuromodulation that utilizes the
brains innate ability to achieve neuroplastic change to aid persons with
neurological, cognitive, sensory, and motor disorders when combined with the
rehabilitation process.
20
The following discussion and analysis of our financial condition and results of
operations should be read in
conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The discussion below contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward looking statements as a result of many
factors, including, but not limited to, those set forth under Item 1. Business
Business Uncertainties and Going Concern Risk in our Annual Report on Form
10-K for the fiscal year ended March 31, 2016, as filed with the SEC on June 28,
2016 and elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations
Comparison of Three Months Ended September 30, 2016 and
2015
The following table summarizes our results of operations for
the three months ended September 30, 2016 and 2015:
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
2,042,478
|
|
|
724,141
|
|
|
1,318,337
|
|
Research and development
|
|
1,348,172
|
|
|
1,531
|
|
|
1,346,641
|
|
Total
operating expenses
|
|
3,390,650
|
|
|
725,672
|
|
|
2,664,978
|
|
Loss from operations
|
|
(3,390,650
|
)
|
|
(725,672
|
)
|
|
(2,664,978
|
)
|
Other income:
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
1,120
|
|
|
27,801
|
|
|
(26,681
|
)
|
Change in fair value of
derivative liability
|
|
288,375
|
|
|
1,894,305
|
|
|
(1,605,930
|
)
|
Foreign exchange gain
|
|
114,527
|
|
|
588,978
|
|
|
(474,451
|
)
|
Total other income
|
|
404,022
|
|
|
2,511,084
|
|
|
(2,107,062
|
)
|
Net income (loss)
|
$
|
(2,986,628
|
)
|
$
|
1,785,412
|
|
$
|
(4,772,040
|
)
|
Revenue
During the three months ended September 30, 2016 and 2015, we
did not generate any revenue.
General and administrative expenses
General and administrative expenses were $2,042,478 for the
three months ended September 30, 2016 compared to $724,141 for the three months
ended September 30, 2015. The increase of $1,318,337 was primarily attributable
to an increase in headcount due to increased business activities as well as an
increase in stock-based compensation expense.
Research and development expenses
Research and development expenses were $1,348,172 for the three
months ended September 30, 2016 compared to $1,531 for the three months ended
September 30, 2015. The increase of $1,346,641 was primarily attributable to an
increase in the Companys activities as it was recruiting and performing its
clinical trial.
Other income
Other income was $1,120 for the three months ended September
30, 2016 compared to $27,801 for the three months ended September 30, 2015. The
decrease of $26,681 was primarily attributable to the fact that the Company
experienced sales of prototype PoNS
TM
devices to various trial sites
in the previous year and none in the current interim period.
21
Change in fair value of derivative liability
The gain in fair value of derivative liability was $288,375 for
the three months ended September 30, 2016 compared to $1,894,305 for the three
months ended September 30, 2015. The change in fair value of derivative
liability is attributable to the change in our stock price during the period, as
this is an input to the Black-Scholes option pricing model that is used to
re-measure the derivative liability at each reporting period. The derivative
liabilities do not represent cash liabilities.
Foreign exchange gain
Foreign exchange gain was $114,527 for the three months ended
September 30, 2016 as compared to $588,978 for the three months ended September
30, 2015. This is primarily due to fluctuations in the foreign exchange rate as
related to the amount of Canadian dollars held at the end of each reporting
period.
Comparison of Six Months Ended September 30, 2016 and
2015
The following table summarizes our results of operations for
the six months ended September 30, 2016 and 2015:
|
|
Six Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
3,492,459
|
|
|
2,188,990
|
|
|
1,303,469
|
|
Research and development
|
|
2,002,055
|
|
|
1,522,355
|
|
|
479,700
|
|
Total
operating expenses
|
|
5,494,514
|
|
|
3,711,345
|
|
|
1,783,169
|
|
Loss from operations
|
|
(5,494,514
|
)
|
|
(3,711,345
|
)
|
|
(1,783,169
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
110,619
|
|
|
27,748
|
|
|
82,871
|
|
Change in fair value of
derivative liability
|
|
(1,021,007
|
)
|
|
2,407,089
|
|
|
(3,428,096
|
)
|
Foreign exchange gain
|
|
333,849
|
|
|
507,553
|
|
|
(173,704
|
)
|
Total other income (expense)
|
|
(576,539
|
)
|
|
2,942,390
|
|
|
(3,518,929
|
)
|
Net loss
|
$
|
(6,071,053
|
)
|
$
|
(768,955
|
)
|
$
|
(5,302,098
|
)
|
Revenue
During the six months ended September 30, 2016 and 2015, we did
not generate any revenue.
General and administrative expenses
General and administrative expenses were $3,492,459 for the six
months ended September 30, 2016, compared to $2,188,990 for the six months ended
September 30, 2015. The increase of $1,303,469 was primarily attributable to an
increase in headcount due to increased business activities as well as an
increase in stock-based compensation expense.
Research and development expenses
Research and development expenses were $2,002,055 for the six
months ended September 30, 2016, compared to $1,522,355 for the six months ended
September 30, 2015. The increase of $479,700 was primarily attributable to an
increase in the Companys activities as it was recruiting and performing its
clinical trial.
Other income
Other income was $110,619 for the six months ended September
30, 2016, compared to $27,748 for the six months ended September 30, 2015. The
increase of $82,871 was primarily attributable to an increase in the sale of
prototype PoNS
TM
devices through the Companys Russian distribution
agreement.
22
Change in fair value of derivative liability
The change in fair value of derivative liability was a loss of
$1,021,007 for the six months ended September 30, 2016, compared to a gain of
$2,407,089 for the six months ended September 30, 2015. The change in fair value
of derivative liability is attributable to the change in our stock price during
the period, as this is an input to the Black-Scholes option pricing model that
is used to re-measure the derivative liability at each reporting period. The
derivative liabilities do not represent cash liabilities.
Foreign exchange gain
Foreign exchange gain was $333,849 for the six months ended
September 30, 2016 as compared to $507,553 for the six months ended September
30, 2015. This is primarily due to fluctuations in the foreign exchange rate as
related to the amount of Canadian dollars held at the end of each reporting
period.
Statement of Cash Flows
Comparison of the Six Months ended September 30, 2016 and
2015
The following table summarizes our cash flows for each of the
periods presented:
|
|
Six Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net cash used in operating
activities
|
$
|
(4,093,134
|
)
|
$
|
(3,393,745
|
)
|
Net cash provided by investing activities
|
|
-
|
|
|
378,000
|
|
Net cash provided by
financing activities
|
|
7,887,939
|
|
|
2,891,336
|
|
Effect of foreign exchange rate changes on
cash
|
|
(266,178
|
)
|
|
(102,228
|
)
|
Net increase (decrease) in
cash and cash equivalents
|
|
3,528,627
|
|
|
(226,637
|
)
|
Net Cash Used in Operating Activities
Net cash used in operating activities during the six months
ended September 30, 2016 was $4,093,134. This was comprised of a net loss of
$6,071,053 less adjustments for non-cash items such as change in fair value of
derivative liability of $1,021,007, stock-based compensation of $924,291,
receivables of $229,011, prepaid expenses and other current assets of $42,934 and accounts payable and accrued expenses of ($239,324).
Net cash used in operating activities during the six months
ended September 30, 2015 was $3,393,745. This was comprised of a net loss of
$768,955 less adjustments for non-cash items such as change in fair value of
derivative liability of ($2,407,089), stock-based compensation of $250,415,
receivables of ($110,329), prepaid expenses and other
current assets of $119,112, unrealized foreign exchange loss of $(429,494) and accounts payable and accrued liabilities of $(47,405). Receivables increased due to the higher amount of refundable Canadian commodity
tax.
Net Cash Provided by Investing Activities
Net cash provided by investing activities during the six months
ended September 30, 2015 totaled $378,000. This consisted of the receipt of funds from a
short-term investment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities during the six months
ended September 30, 2016 was $7,887,939 which was comprised of $7,902,912
received from our Offering as well as $1,493,946 received from the exercise of
stock options and warrants. These amounts were partially offset by $1,508,919 in
share issuance costs incurred in connection with our Offering.
Net cash provided by financing activities during the six months
ended September 30, 2015 was $2,891,336 which was comprised of $2,832,436
received from the issuance of common stock and warrants as well as $200,000 from
the issuance of a promissory note. These amounts were partially offset by
$141,100 in share issuance costs incurred in connection with our private
placement.
23
Liquidity and Capital Resources
Our financial statements have been prepared assuming that we
will continue as a going concern and, accordingly, does not include adjustments
relating to the recoverability and realization of assets and classification of
liabilities that might be necessary should we be unable to continue in
operation.
The following table sets out our cash and working capital as of
September 30, 2016 and March 31, 2016:
|
|
September 30, 2016
|
|
|
March 31, 2016
|
|
Cash and cash equivalents
|
$
|
6,172,564
|
|
$
|
2,643,937
|
|
Working capital (deficit)
|
$
|
2,340,672
|
|
$
|
(16,192
|
)
|
Our cash and cash equivalents as of September 30, 2016 were
$6,172,564. To date we have not generated any revenue from the commercial sales
of products or services. There are a number of conditions that we must satisfy
before we will be able to generate revenue, including but not limited to
successful completion of the clinical trial, FDA clearance of the PoNS device
for treating balance disorder associated with mild to moderate TBI,
manufacturing of a commercially-viable version of the PoNS device and
demonstration of effectiveness sufficient to generate commercial orders by
customers for our product. While we are currently seeking additional funding, we
do not currently have sufficient resources to accomplish any of these conditions
necessary for us to generate revenue. We will therefore require substantial
additional funds in order to continue to conduct the research and development
and regulatory clearance and approval activities necessary to bring our product
to market, to establish effective marketing and sales capabilities and to
develop other product candidates.
The Company intends to fund ongoing activities by utilizing
current cash and cash equivalents and by raising additional capital through
equity or debt financings. There can be no assurance that the Company will be
successful in raising additional capital or that such capital, if available,
will be on terms that are acceptable to the Company. If the Company is unable to
raise sufficient additional capital, the Company may be compelled to reduce the
scope of its operations and planned capital expenditure or sell certain assets,
including intellectual property assets.
Off Balance Sheet Arrangements
To the best of managements knowledge, there are no off-balance
sheet arrangements that have, or are reasonably likely to have, a current or
future effect on our results of operations or financial condition.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our financial statements that have been
prepared in accordance with U.S. GAAP. This preparation requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities. U.S. GAAP provides the framework from which to make these
estimates, assumption and disclosures. We choose accounting policies within U.S.
GAAP that management believes are appropriate to accurately and fairly report
our operating results and financial position in a consistent manner. Management
regularly assesses these policies in light of current and forecasted economic
conditions. Actual results could differ from those estimates made by management.
While there are a number of significant accounting policies affecting our
financial statements, we believe the critical accounting policies involving the
most complex, difficult and subjective estimates and judgments are: valuation of
non-monetary transactions, stock compensation for services, valuation of options
and valuation of income taxes.
Stock-Based Compensation
We account for all stock-based payments and awards under the
fair value based method. We recognize our stock-based compensation using the
straight-line method.
Stock-based payments to non-employees are measured at the fair
value of the consideration received, or the fair value of the equity instruments
issued, or liabilities incurred, whichever is more reliably measurable. The fair
value of stock-based payments to non-employees is periodically re-measured until
the counterparty performance is complete, and any change therein is recognized
over the vesting period of the award and in the same manner as if we had paid
cash instead of paying with or using equity based instruments. The fair value of
the stock-based payments to non-employees that is fully vested and
non-forfeitable as at the grant date is measured and recognized at that date.
24
We account for the granting of share purchase options to
employees using the fair value method whereby all awards to employees will be
recorded at fair value on the date of the grant. The fair value of all share
purchase options are expensed over their vesting period with a corresponding
increase to additional capital surplus. Upon exercise of share purchase options,
the consideration paid by the option holder, together with the amount previously
recognized in additional paid-in capital is recorded as an increase to share
capital. Share purchase options granted to employees are accounted for as
liabilities when they contain conditions or other features that are indexed to
other than a market, performance or service condition.
We use the Black-Scholes option pricing model to calculate the
fair value of our share purchase options. We lack historical and implied
volatility information. Therefore, we estimate our expected stock volatility
based on the historical volatility of a publicly traded set of peer companies
and expect to continue to do so until such time as we have adequate historical
data regarding the volatility of our own traded stock price. The expected term
of our stock options has been determined utilizing the simplified method for
awards that qualify as plain vanilla options. The expected term of stock
options granted to non-employees is equal to the contractual term of the option
award. The risk-free interest rate is determined by reference to the U.S.
Treasury yield curve in effect at the time of grant of the award for time
periods approximately equal to the expected term of the award. Expected dividend
yield is based on the fact that we have never paid cash dividends and do not
expect to pay any cash dividends in the foreseeable future.
Derivative Liabilities
We evaluate our financial instruments and other contracts to
determine if those contracts or embedded components of those contracts qualify
as derivatives to be separately accounted for in accordance with ASC 815. The
result of this accounting treatment is that the fair value of the embedded
derivative is marked-to-market at each balance sheet date and recorded as a
liability and the change in fair value is recorded in the consolidated
statements of operations and comprehensive income (loss). Upon conversion or exercise of
a derivative instrument, the instrument is marked to fair value at the
conversion date and then that fair value is reclassified to equity.
The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is reassessed
at the end of each reporting period. Derivative instruments that become subject
to reclassification are reclassified at the fair value of the instrument on the
reclassification date. Derivative instrument liabilities will be classified in
the balance sheet as current or non-current based on whether or not the right to exercise or settle the derivative instrument lies with the holder.
We use the Black-Scholes option valuation model to value
derivative liabilities. This model uses Level 3 inputs in the fair value
hierarchy established by ASC 820 -
Fair Value Measurement
.
Recently Issued Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15,
Statement of
Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payment
, providing additional guidance on several cash flow classification
issues, with the goal of the update to reduce the current and potential future
diversity in practice. The amendments in this update are effective for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal
years. We are currently evaluating the potential impact of the adoption of this
standard.
In March 2016, the FASB issued ASU 2016-09,
CompensationStock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting
. The amendments in this update change
existing guidance related to accounting for employee share-based payments
affecting the income tax consequences of awards, classification of awards as
equity or liabilities, and classification on the statement of cash flows. ASU
2016-09 is effective for annual reporting periods beginning after December 15,
2016, including interim periods within those annual periods, with early adoption
permitted. We are currently evaluating the potential impact of the adoption of
this standard.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic
842)
. The new standard establishes a right-of-use (ROU) model that
requires a lessee to record a ROU asset and a lease liability on the
consolidated balance sheet for all leases with terms longer than 12 months.
Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the consolidated income
statement. ASU 2016-02 is effective for annual periods beginning after December
15, 2018, including interim periods within those annual periods, with early
adoption permitted. A modified retrospective transition approach is required for
lessees for capital and operating leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial
statements, with certain practical expedients available. We are currently
evaluating the potential impact of the adoption of this standard.
In January 2016, the FASB issued ASU 2016-01,
Recognition
and Measurement of Financial Assets and Financial Liabilities
. The
amendments in this update revise the accounting related to the classification
and measurement of investments in equity securities and the presentation of
certain fair value changes for financial liabilities measured at fair value. The
amendments are effective for annual reporting periods after December 15, 2017, including interim
periods within those fiscal years. Early adoption is permitted. We are currently
evaluating the potential impact of the adoption of this standard.
25
In August 2014, the FASB issued ASU 2014-15,
Presentation of
Financial Statements - Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entitys Ability to Continue as a Going Concern
,
which is intended to define managements responsibility to evaluate whether
there is substantial doubt about an organizations ability to continue as a
going concern within one year after the date that the financial statements are
issued (or within one year after the date that the financial statements are
available to be issued when applicable) and to provide related footnote
disclosures. The ASU provides guidance to an organizations management, with
principles and definitions that are intended to reduce diversity in the timing
and content of disclosures that are commonly provided by organizations today in
the financial statement footnotes. The ASU is effective for annual periods
ending after December 15, 2016, and interim periods within annual periods
beginning after December 15, 2016, which for the Company is April 1, 2017. Early
adoption is permitted. The adoption of this standard will not have a material
impact on our financial position or results of operations.
The amendments also clarify that the guidance in Topic 275,
Risks and Uncertainties
, is applicable to entities that have not
commenced planned principal operations. The central feature of the guidance on
disclosure requirements is that required disclosures are limited to matters
significant to a particular entity. The disclosures focus primarily on risks and
uncertainties that could significantly affect the amounts reported in the
financial statements in the near term or the near-term functioning of the
reporting entity.
JOBS Act
In April 2012, the JOBS Act was enacted in the United States.
Section 107 of the JOBS Act provides that an emerging growth company can take
advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. Thus,
an emerging growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We
have irrevocably elected not to avail ourselves of this extended transition
period and, as a result, we will adopt new or revised accounting standards on
the relevant dates on which adoption of such standards is required for
non-emerging growth public companies.