Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
1.)
|
Nature
of the Business and Going Concern
|
Algae
Dynamics Corp. (the “Company”) was incorporated under the Canada Business Corporations Act on October 7, 2008 as Converted
Carbon of Canada Corp. On November 19, 2010, the Company amended its Articles of Incorporation to change its name to Converted
Carbon Technologies Corp. and a further amendment was approved by the shareholders on August 28, 2014 to change the name to Algae
Dynamics Corp.
The
Company is a nutrient ingredient company and has developed a scalable Pure-BioSilo™ for sanitary cultivation of microalgae
targeted to the functional food and beverage additives and supplement markets. The Company’s planned principal operations
are the design, engineering and manufacturing of a proprietary algae cultivation system for the high volume production of pure
contaminant-free algae biomass. The Company is currently conducting research and development activities to operationalize certain
technology currently in the allowed patent application stage, so it can produce pure contaminate-free algae biomass.
During
the year ended March 31, 2014, the Company secured a research facility in Mississauga, Ontario, which houses all of its employees
and research and development activities. In May 2016, the Company signed a Letter of Engagement with Midtown Partners & Co,
LLC to raise additional equity capital to support the implementation of its business plan.
The
Company filed a Form S-1 registration Statement with the U.S Securities and Exchange Commission (SEC) as an initial registration
of common shares. The registration was declared effective by the SEC on November 21, 2014. The Company’s stock began trading
on September 17, 2015.
The
Company’s activities are subject to significant risks and uncertainties, including failing to obtain patents and failing
to secure additional funding to operationalize the Company’s current technology before another company develops similar
technology.
These condensed interim financial
statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the settlement
of liabilities in the normal course of business. The Company is in the development stage and has not yet realized profitable operations
and has relied on non-operational sources to fund operations. The Company has suffered recurring losses and additional future
losses are anticipated as the Company has not yet been able to generate revenue. In addition, as of December 31, 2016, the Company
has a working capital deficiency of $95,640 (March 31, 2016 - $765,356) and an accumulated deficit of $5,295,800 (March 31, 2016
- $3,723,368). The Company’s ability to continue as a going concern is dependent on successfully executing its business
plan, which includes the raising of additional funds. The Company will continue to seek additional forms of debt or equity financing,
but it cannot provide assurances that it will be successful in doing so. These circumstances raise substantial doubt as to the
ability of the Company to meet its obligations as they come due and accordingly, the appropriateness of the use of accounting
principles applicable to a going concern. The accompanying condensed interim financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern. Such adjustments could be material.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
2.)
|
Presentation
of Financial Statements
|
Basis
of Presentation
These
unaudited condensed interim financial statements should be read in conjunction with the financial statements for the Company’s
most recently completed fiscal year ended March 31, 2016. These condensed interim financial statements do not include all disclosures
required in annual financial statements, but rather are prepared in accordance with recommendations for interim financial statements
in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These unaudited
condensed interim financial statements have been prepared using the same accounting policies, and methods as those used by the
Company in the annual financial statements for the year ended March 31, 2016, except when disclosed below.
The
unaudited condensed interim financial statements contain all adjustments (consisting of only normal recurring adjustments) which
are necessary to present fairly the financial position of the Company as at December 31, 2016, and the results of its operations
for the nine month periods ended December 31, 2016 and 2015 and its cash flows for the nine month periods ended December 31, 2016
and 2015. Note disclosures have been presented for material updates to the information previously reported in the annual financial
statements.
Estimates
The
preparation of these condensed interim financial statements has required management to make estimates and assumptions that affect
the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of the revenues and expenses during the reporting period.
On
an ongoing basis, the Company evaluates its estimates, including those related to provision for doubtful accounts, accrued liabilities
and contingencies, and the valuation of income taxes, stock based compensation, warrants, convertible debt and intangible assets.
The Company bases its estimates on historical experiences and on various other assumptions believed to be reasonable under the
circumstances. Actual results could differ from those estimates. As adjustments become necessary, they are reported in earnings
in the period in which they become known.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
3.)
|
Equipment
and Leasehold Improvements
|
|
|
|
December 31,
2016
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Amortization
|
|
|
Computer equipment
|
|
$
|
3,558
|
|
|
$
|
2,419
|
|
|
$
|
3,558
|
|
|
$
|
2,089
|
|
|
Production equipment
|
|
|
67,367
|
|
|
|
33,682
|
|
|
|
67,367
|
|
|
|
27,738
|
|
|
Leasehold improvements
|
|
|
49,812
|
|
|
|
32,452
|
|
|
|
42,290
|
|
|
|
18,136
|
|
|
Total
|
|
$
|
120,737
|
|
|
$
|
68,553
|
|
|
$
|
113,215
|
|
|
$
|
47,963
|
|
|
Net carrying amount
|
|
|
|
|
|
$
|
52,184
|
|
|
|
|
|
|
$
|
65,252
|
|
During
the nine month periods ended December 31, 2016, the Company recorded total amortization of $13,068 (2015 - $13,316) which was
recorded to amortization expense on the statements of operations.
|
4.)
|
Advances
from Shareholders and Related Parties
|
As at December 31, 2016, the Company
had received cumulative net working capital advances in the amount of $5,326 (March 31, 2016 - $383,990) from two shareholders
who are also officers and directors of the Company. The advances from shareholders are unsecured, non-interest bearing and payable
upon demand. During the three month period ended December 31, 2016, the two shareholders converted advances of $469,056 and $52,030
of accounts payable into 1,316,173 common shares of the Company. The common shares were valued at $1,065,152 based upon an estimated
fair value of USD$0.60 ($0.81) per share at the time of issuance. The difference between the fair market value of the common shares
and the carrying value of the advances from shareholders and the amount included in accounts payable was recorded as a loss on
extinguishment of related party debt of $544,066.
On May 4, 2016, the Company agreed
to a term loan of $40,000 for bridge financing with a relative of one of the officers of the Company. The loan matures on February
28, 2017 and the terms specify a 30% premium to be paid at that time. The 30% premium is recognized as an expense over the term
of the loan and is amortized on the condensed interim statements of operations. During the three and nine month periods ended
December 31, 2016 the Company recorded accretion expense of $2,000 and $10,956, respectively (2015 - $nil and $nil, respectively).
The loan was initially scheduled to mature on August 28, 2016 but an extension of three months, followed by a second extension
of three months was agreed to with the same terms.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
Securities
Purchase Agreement and Convertible Note
On
November 18, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with GHS Investments,
LLC (“GHS”). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein,
GHS shall purchase from the Company a senior convertible note with a principal amount of USD$56,500 ($76,382) for a purchase price
of USD$50,000 ($67,595).
The convertible note matures upon
the earlier of successfully raising at least $200,000 or August 18, 2017 and accrues interest at the rate of 10% per annum. The
convertible note is convertible following ninety (90) days of the execution of the note, in whole or in part, at GHS’ option
into common shares of the Company’s capital stock at a variable conversion price equal to a 38% discount from the lowest
trading price in the twenty (20) trading days prior to the day that GHS requests conversion. At no time will GHS be entitled to
convert any portion of the convertible note to the extent that after such conversion, GHS (together with its affiliates) would
beneficially own more than 4.99% of the outstanding common shares, although GHS can modify this limit to 9.99% of the outstanding
common shares.
The convertible note includes customary
event of default provisions, and provides for a default interest rate of 20%. The Company has the right at any time prior to May
18, 2017 to redeem all, but not less than all, of the total outstanding amount then remaining under the Convertible Note in cash
at a price ranging from 125% to 135% of the total amount of the Convertible Note then outstanding.
The beneficial conversion feature
was recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital in accordance with ASC 470-20. The intrinsic value at issuance was $67,595.
The issuance of convertible debt
with a beneficial conversion feature results in a tax basis difference. The recognition of deferred taxes for the temporary difference
of the convertible debt with a beneficial conversion feature is recorded as an adjustment to additional paid-in capital. A deferred
income tax liability of $17,913 was recognized upon the issuance of the convertible note.
The
discount to the carrying value of the convertible note is being amortized as a non-cash interest expense over the term of the
convertible note using the effective interest rate method, at a rate of 144%. During the three and nine months periods ended December
31, 2016, the Company accreted $11,941 and $11,941, respectively (2015 - $Nil and $Nil, respectively) in non-cash accretion expense
in connection with the convertible note, which is included in accretion expense on the condensed interim statements of operations.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
(a)
Common Shares
Authorized
The
Company is authorized to issue an unlimited number of common shares with no par value.
Issued
and Outstanding
On
May 18, 2016, 44,500 common shares purchase warrants were exercised at USD$0.04 ($0.052) per warrant for total cash proceeds of
USD$1,780 ($2,318).
On May 15, 2016, 13,874 shares
to be issued to a consulting firm were issued as common shares for services rendered during the year ended March 31, 2016.
On June 22, 2016, 15,264 shares
to be issued to a consulting firm were issued as common shares for services rendered during the year ended March 31, 2016.
On
June 30, 2016, 66,667 common shares were issued to a consultant in settlement of a debt at a value of $64,585 based upon an estimated
fair market value of USD$0.75 ($0.97) per share at the time of issuance.
On
June 30, 2016, 250,000 common shares were issued to a consulting firm as a portion of the compensation for services initiated
on June 24, 2016 and to be provided over a 6 month period at a value of $201,481 based upon an estimated fair market value of
USD$0.62 ($0.81) per share at the date of issue. This amount was expensed during the nine months ended December 31, 2016 as professional
fees on the condensed interim statements of operations. A second issuance of 250,000 common shares was made on October 17, 2016
at a value of $113,225 based upon an estimated fair market value of USD$0.35 ($0.45) per share at the date of issue and the final
issuance of 250,000 common shares was made on October 18, 2016 at a value of $125,766 based upon an estimated fair market value
of USD$0.38 ($0.50) per share at the date of issue.
On
July 6, 2016, the Company committed to issue 20,000 common shares to a consultant in settlement of a debt at a value of $19,500
(USD$15,000) based upon an estimated fair market value of USD$0.75 ($0.97) per share at the time of commitment. These common shares
were issued on October 17, 2016.
On May 19, 2016,
the Company signed a letter of engagement with an agent in connection with proposed placements of up to US$10,000,000 ($13,427,000),
which included as part of the fee the issuance of 100,000 common shares as a non-refundable retainer at a value of $101,579 based
upon an estimated fair market value of USD$0.78 ($1.02) per share at the time of the agreement (See Note 9). The retainer has
been recorded as a prepaid expense on the condensed interim balance sheet as at December 31, 2016. The common shares were issued
on December 5, 2016.
On December 19, 2016, 25,000 stock
options were exercised at an exercise price of $0.31 per common share for gross proceeds of $7,750. The proceeds were allocated
to settle a debt with the consultant who exercised the stock options.
On December 29, 2016, a consulting
firm was issued 78,027 common shares for services rendered in the amount of USD$45,000 ($58,500), this amount has been recorded
as professional fees on the statement of operations.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
7.)
|
Capital
Stock (continued)
|
On December 29, 2016, 117,465 shares
to be issued were issued as common shares, 72,465 of these shares were committed to be issued during the year ended March 31,
2016 in settlement of debt and 45,000 of these shares were committed to be issued during the year ended March 31, 2016 as compensation
to three members of management.
On December 29, 2016, an aggregate
of 600,000 shares were issued to three members of management as compensation at a value of $485,458 based upon an estimated fair
market value of USD$0.60 ($0.81) per share at the date of issue.
On December 29, 2016, 1,316,173
shares were issued to two officers and directors as conversion of shareholder advances and accounts payable. See Note 4.
Equity to be issued
On April 18, 2016, the Company
signed an agreement with a consultant pursuant to which it committed to issue 250,000 common shares of the Company as compensation
for services to be rendered over a period of 5 months. Two directors and officers of the Company transferred 250,000 of their
personal shares to the consultant and as such the Company has agreed to reimburse the directors and officers for these common
shares transferred by issuance of common shares from treasury. The commitment was valued at $86,381 based upon an estimated fair
market value of USD$0.27 ($0.35) per share at the date of issue and was expensed during the nine months ended December 31, 2016
as professional fees on the condensed interim statements of operations. These shares were issued on January 10, 2017 (see Note
12)
|
|
|
Common shares
to be issued
|
|
Value ($)
|
|
Balance, March 31, 2016
|
|
|
146,603
|
|
|
|
339,949
|
|
|
Equity to be issued as compensation
|
|
|
250,000
|
|
|
|
86,381
|
|
|
Equity issued
|
|
|
(146,603
|
)
|
|
|
(339,949
|
)
|
|
Balance, December 31, 2016
|
|
|
250,000
|
|
|
|
86,381
|
|
Equity
Purchase Agreement (“EPA”)
On
September 10, 2015 the Company entered into the EPA. The holder of the EPA is committed to purchase up to USD$750,000 worth of
the Company’s common shares (the “Put Shares”) over the 12 month term of the EPA. The Company paid to the holder
of the EPA a commitment fee for entering into the EPA equal to 50,000 restricted common shares of the Company, valued at $67,195,
based on the stock price in the most recent private placement as the Company’s shares had not yet begun to trade on a public
market.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
7.)
|
Capital
Stock (continued)
|
Equity
Purchase Agreement (“EPA”) (continued)
From
time to time over the EPA, commencing on the trading day immediately following the date on which the registration statement covering
the resale of the Put Shares (the “Registration Statement”) is declared effective by the Securities and Exchange Commission
(the “Commission”), the Company may, in its sole discretion, draw upon the EPA periodically during the term by the
Company’s delivery to the holder of the EPA, a written notice requiring the holder to purchase a dollar amount in common
shares (the “Draw Down Notice”). The shares issuable pursuant to a Draw Down Notice, when aggregated with the shares
then held by the holder on the date of the draw down may not exceed the lessor of (i) 4.99% of the Company’s outstanding
common shares, (ii) USD$62,500 in any 30 days period or (iii) 100% of the aggregate trading volume for the 10 trading days immediately
preceding the date of the Draw Down Notice without the prior written consent of the holder. The purchase price per common share
purchased under the EPA shall equal 65% of the lowest closing bid for the 10 days immediately preceding the date of the Draw Down
Notice. The Registration Statement was filed with the Commission on October 1, 2015 and was declared effective by the Commission
on March 3, 2016.
On June 23, 2016, the Company agreed
in conjunction with RY Capital Group, LLC and GHS Investments, LLC to assign the EPA to GHS Investments, LLC. The changes made
to the EPA included increasing the share purchase price per common share to 80% from 65% of the lowest closing bid for the 10
trading days immediately preceding the date of the draw down notice, increasing the upper limit on individual draws to USD$75,000
from USD$62,500 and including a true-up feature whereby if the lowest volume-weighted average price (“VWAP”) for the
ten trading days following a draw down (the “Trading Period”) is less than 85% of the purchase price of the common
shares issued in connection with a draw down, then the Company shall issue such additional common shares as maybe necessary to
adjust the purchase price for such draw down to equal the VWAP during the Trading Period.
(b)
Warrants
As
at December 31, 2016, the following warrants were outstanding:
|
|
|
|
|
|
Number
of
|
|
|
Weighted
|
|
|
Grant
Date
|
|
|
Fair
Value at
|
|
|
|
|
Number
of
|
|
|
Warrants
|
|
|
Average
|
|
|
Fair
Value -
|
|
|
December
31, 2016
|
|
|
Expiration
Date
|
|
Warrants
|
|
|
Exercisable
|
|
|
Exercise
Price
|
|
|
Equity
|
|
|
of
Vested Warrants - Liability
|
|
|
June 6, 2017
|
|
|
22,500
|
|
|
|
22,500
|
|
|
$
|
1.12
|
|
|
$
|
16,110
|
|
|
$
|
-
|
|
|
December 31, 2017
|
|
|
325,000
|
|
|
|
-
|
|
|
USD $
|
0.04
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.054
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
347,500
|
|
|
|
22,500
|
|
|
$
|
0.12
|
|
|
$
|
16,110
|
|
|
$
|
-
|
|
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
7.)
|
Capital
Stock (continued)
|
(b)
Warrants (continued)
|
|
i)
|
During
the year ended March 31, 2015, the Company issued 27,500 warrants of the Company valued at $19,290 for services rendered of
which 22,500 warrants were granted to an officer of the Company. Each warrant entitles the holder to purchase one common share
at an exercise price of $1.12 for a period ranging from 2.15 to 3 years after the date of issuance. The fair value of the
warrants at the date of grant of $19,290 was estimated using the Black-Scholes option pricing model, based on the following
weighted average assumptions: expected dividend yield of 0%; risk free interest rate of 1.14%; expected volatility of 182%;
and expected term of 2.85 years.
|
|
|
|
|
|
|
ii)
|
In
connection with a consulting agreement with Connectus, Inc. (see Note 8), the Company granted 625,000 common share purchase
warrants with each warrant entitling the grantee to acquire one common share in the capital of the Company at an exercise
price of USD$0.04 ($0.054) at any time prior to April 1, 2017. Of the warrants granted, 300,000 vested on September 3, 2014
with the unvested portion vesting pro-rata for each USD$250,000 ($335,675) raised in an offering, fully vesting upon USD$1,500,000
($2,014,050) being raised. The fair value of the 625,000 warrants at the date of grant of $500,000 was estimated using the
Black-Scholes option pricing model, based on the following assumptions: expected dividend yield of 0%; expected volatility
of 159%; risk free interest rate of 1.25%; and expected term of 3 years.
|
On
December 27, 2016, the Company extended the contract and expiry date of the warrants to December 31, 2017. Subsequent to December
31, 2016, the Company agreed to vest 100,000 warrants.
For the nine month period ended
December 31, 2016, the Company recorded $Nil, (2015 - $Nil) as compensation expense for warrants issued to a consultant for service,
net of a market adjustment for the three and nine month periods ended December 31, 2016 of $nil and $16,042, respectively (2015
- $Nil and $Nil, respectively). The expense was recorded as professional fees on the statements of operations.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
7.)
|
Capital
Stock (continued)
|
(b)
Warrants (continued)
ASC
815 “Derivatives and Hedging” indicates that warrants with exercise prices denominated in a currency other than an
entity’s functional currency should not be classified as equity. As a result, warrants with a USD exercise price have been
treated as derivatives and recorded as liabilities carried at their fair value, with period-to-period changes in the fair value
recorded as a gain or loss in the statements of operations.
The
continuity of warrants for the period ended December 31, 2016 is as follows:
|
|
|
Number
|
|
|
Weighted Average
|
|
|
|
|
of Warrants
|
|
|
Exercise Price
|
|
|
Balance, March 31, 2016
|
|
|
709,583
|
|
|
$
|
1.06
|
|
|
Exercised
|
|
|
(44,500
|
)
|
|
|
0.05
|
|
|
Expired, unexercised
|
|
|
(317,583
|
)
|
|
|
2.23
|
|
|
Balance, December 31, 2016
|
|
|
347,500
|
|
|
$
|
0.12
|
|
As
at December 31, 2016, the fair value of the 325,000 (March 31, 2016 – 381,700) warrants exercisable in US dollars was $244,075
(March 31, 2016 - $222,803) which was estimated using the Black-Scholes option pricing model based on the following weighted average
assumptions: expected dividend yield of 0% (March 31, 2016 - 0%); expected volatility of 265% (March 31, 2016 – 150%); risk-free
interest rate of 0.74% (March 31, 2016 – 0.54%) and expected term of 1.00 years (March 31, 2016 – 0.99 years). Of
this amount, $Nil (March 31, 2016 - $27,479) was reflected as a liability as at December 31, 2016, representing the percentage
of the fair value of the warrants that is equal to the percentage of the requisite service that has been rendered at December
31, 2016.
The
warrant liability is classified as Level 3 within the fair value hierarchy (See Note 11). The Company’s computation of expected
volatility during the periods ended December 31, 2016 and 2015 is based on the market close price of comparable public entities
over the period equal to the expected life of the warrants. The Company’s computation of expected life is calculated using
the contractual life.
(c)
Stock-based compensation
The
Company’s stock-based compensation program (the “Plan”) includes stock options in which some options vest based
on continuous service. For those equity awards that vest based on continuous service, compensation expense is recorded over the
service period from the date of grant.
The total number of options outstanding
as at December 31, 2016 was 770,000 (March 31, 2016 – 930,000). The weighted average grant date fair value of options granted
during the nine-month period ended December 31, 2016 was $0.34 (2015 - $nil). The maximum number of options that may be issued
under the Plan is floating at an amount equivalent to 15% of the issued and outstanding common shares, or 1,927,203 as at December
31, 2016 (March 31, 2016 – 1,455,158).
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
7.)
|
Capital
Stock (continued)
|
(c)
Stock-based compensation (continued)
During the nine-month period ended
December 31, 2016, 525,000 options were granted to officers and consultants of the Company. The weighted average exercise price
of these options is $0.37. Of this grant, 340,000 options vest as to one-third on the grant date and one-third on each of the
first anniversary and the second anniversary of the grant date; 85,000 options vest as to one quarter on the date of grant and
one quarter at 90 days, 180 days and 270 days from the grant date and 100,000 options vested immediately. Since stock-based compensation
is recognized only for those awards that are ultimately expected to vest, the Company has applied an estimated forfeiture rate
(based on historical experience and projected employee turnover) to unvested awards for the purpose of calculating compensation
expense. The weighted average grant date fair value of these options was estimated as $0.34 using the Black-Scholes option pricing
model, based on the following weighted average assumptions: expected dividend yield of 0%; expected volatility of 154%; expected
risk free interest rate of 0.76%; and expected term of 5 years. Of the stock options issued, 100,000 were issued to a consultant
of the Company in settlement of debt of $131,256. These stock options were valued at $27,600. The proceeds from the exercise of
the stock options ($31,000) will be applied against the balance outstanding. As a result a gain on settlement of debt of $72,656
was recognized and recorded on the condensed interim statement of operations.
The
activities in options outstanding are as noted below:
|
|
|
Number
of
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted
Average
|
|
|
|
|
Granted
|
|
|
Exercise
Price
|
|
|
Balance,
March 31, 2016
|
|
|
930,000
|
|
|
$
|
2.05
|
|
|
Forfeited
|
|
|
(660,000
|
)
|
|
$
|
2.09
|
|
|
Granted
|
|
|
525,000
|
|
|
$
|
0.37
|
|
|
Exercised
|
|
|
(25,000
|
)
|
|
$
|
0.31
|
|
|
Balance,
December 31, 2016
|
|
|
770,000
|
|
|
$
|
0.92
|
|
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
7.)
|
Capital
Stock (continued)
|
(c)
Stock-based compensation (continued)
The
following table presents information relating to stock options outstanding and exercisable at December 31, 2016.
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Number of
|
|
|
Contractual
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Exercise
Price
|
|
|
Options
|
|
|
Life
(Years)
|
|
|
Options
|
|
|
Price
|
|
|
Life
(Years)
|
|
|
$
|
1.73
|
|
|
|
185,000
|
|
|
|
2.95
|
|
|
|
185,000
|
|
|
$
|
1.73
|
|
|
|
2.95
|
|
|
$
|
2.43
|
|
|
|
85,000
|
|
|
|
4.00
|
|
|
|
85,000
|
|
|
$
|
2.43
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.38
|
|
|
|
425,000
|
|
|
|
4.81
|
|
|
|
134,583
|
|
|
$
|
0.38
|
|
|
|
4.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.31
|
|
|
|
75,000
|
|
|
|
4.90
|
|
|
|
75,000
|
|
|
$
|
0.31
|
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.92
|
|
|
|
770,000
|
|
|
|
4.00
|
|
|
|
479,583
|
|
|
$
|
1.25
|
|
|
|
3.96
|
|
For the three and nine month periods
ended December 31, 2016, the Company recorded a recovery of ($326,995) and ($49,441), respectively (2015 - $94,849 and $282,875,
respectively) as Additional Paid in Capital for options and $485,568 and $485,568, respectively for common shares issued to directors,
officers and consultants based on continuous service. This expense was recorded as stock based compensation on the statements
of operations. Additionally, for the three and nine month periods ended December 31, 2016, the Company recorded $211,312 and $526,855
respectively (2015 - $nil and $nil) as professional fees for services rendered related to common shares issued as retainers to
consultants.
The Company has no taxable income
under Canadian federal and provincial tax laws for the three and nine month periods ended December 31, 2016 and 2015. The Company
has non-capital loss carryforwards at December 31, 2016 totaling approximately $4,039,000, which may be offset against future
taxable income. If not used, the loss carryforwards will expire between 2029 and 2037.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
9.)
|
Commitments
and Contingencies
|
The
Company entered into a five year operating lease for office and production facilities. The lease commenced on December 1, 2013
and expires on November 30, 2018. The base monthly rental is $1,390 plus the Company’s estimated portion of property taxes
and operating expenses which are currently $810 per month. The future commitments pursuant to this lease arrangement, including
property taxes and operating expenses for the fiscal periods ending March 31 are:
|
2017
(remaining)
|
|
$
|
8,947
|
|
|
2018
|
|
$
|
26,399
|
|
|
2019
|
|
$
|
17,600
|
|
For
the three and nine month periods ended December 31, 2016, rental expenses related to this lease were $6,544 and $19,577 (2015
- $6,500 and $19,499)
On March 11, 2014, and as amended
on July 18, September 3, 2014, September 5, 2014, December 31, 2015 and again on December 20, 2016, the Company entered into a
consulting agreement with Connectus, Inc. (“Connectus”) to assist and advise the Company in matters concerning corporate
finance and the Company’s current and proposed financing activities for the period commencing April 1, 2014 and ending December
31, 2014. Pursuant to this agreement, the Company agreed to issue to Connectus, 625,000 warrants of the Company. Each warrant
is exercisable at USD$0.04 ($0.054) per share for a period of three years. Of the warrants granted, 300,000 vested on September
3, 2014 with the unvested portion vesting pro-rata for each USD$250,000 ($335,675) raised in an offering, fully vesting upon USD$1,500,000
($2,014,050) being raised. During the year ended March 31, 2015, the President of Connectus became a director of the Company.
On December 31, 2015, the Company extended the contract to December 31, 2016. In consideration of the contract extension, the
Company issued 93,000 common shares to Connectus as compensation, which has been recorded as professional fees on the statements
of operations during the year ended March 31, 2016. On December 27, 2016, the Company extended the contract and expiry date of
the warrants to December 31, 2017. Subsequent to December 31, 2016, the Company agreed to vest 100,000 warrants. Connectus assigned
the warrants to Apollo Marketing, LLC.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
9.)
|
Commitments
and Contingencies (continued)
|
On
April 23, 2014, the Company entered into employment agreements with three officers of the Company effective July 1, 2014. The
initial contracts contain minimum aggregate commitments of approximately $427,000 per year for three years and additional contingent
payments of up to approximately $600,000 in aggregate upon the occurrence of a change of control. As a triggering event has not
taken place, the contingent payments have not been reflected in these financial statements. If employment is terminated by the
Company other than upon a change of control or for just cause, the officers will be entitled to an amount equal to twelve months
compensation including benefits, which shall be increased by one month for each full year of service completed. The employment
agreements were amended whereby any salary from the commencement of the employment agreements has been waived until such a time
when the Company is able to raise additional financing. Salaries will be earned based upon the Company’s success in raising
future capital in accordance with the following schedule:
|
Cumulative
Funds Raised
1
|
|
Effective Monthly Salary %
|
|
|
$
|
100,000
|
|
|
10.0
|
%
|
|
$
|
175,000
|
|
|
15.0
|
%
|
|
$
|
250,000
|
|
|
25.0
|
%
|
|
$
|
375,000
|
|
|
37.5
|
%
|
|
$
|
500,000
|
|
|
50.0
|
%
|
|
$
|
750,000
|
|
|
62.5
|
%
|
|
$
|
1,000,000
|
|
|
75.0
|
%
|
|
$
|
1,250,000
|
|
|
87.5
|
%
|
|
$
|
1,500,000
|
|
|
100.0
|
%
|
1
Cumulative funds raised is inclusive of all sources including without limitation capital raised, grants received, revenue
recorded, debt raised, and assets sold.
On
May 18, 2016, the Company signed a consulting agreement with an agent in connection with proposed placements of up to USD$10,000,000
($13,427,000) in a combination of equity and or debt of the Company for a term of one year. Consideration payable under the consulting
agreement include a non-refundable equity retainer of 100,000 restricted shares of the Company (see Note 7a), a placement fee
equal to 8% of the gross purchase price paid for equity of the Company, an administrative fee of 4% of the gross purchase price
paid for equity, a placement fee of 4% of the gross purchase price paid for non-convertible debt and warrants to purchase common
shares of the Company equal to 8% of the number of shares of common stock issuable by the Company upon exercise or conversion
of any and all securities issued at each closing. See Note 12.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
10.)
|
Related
Party Transactions
|
Included in accounts payable and
accrued liabilities as at December 31, 2016 is $Nil (March 31, 2016 - $52,030) owing to two directors who are also officers and
significant shareholders of the Company for unpaid management fees. In December 2016, common shares were issued to the two directors
to satisfy the amount of the outstanding debt.
See also Notes 4, 5, 7(a), 7(b)
and 7(c), 9 and 12.
Amounts receivable from officer
as at December 31, 2016 of $18,395 (March 31, 2016 - $21,064) is owing from a shareholder, who is also a director and officer
of the Company for funds advanced under his employment agreement (See Note 9). The amount receivable is unsecured, non-interest
bearing and repayable upon demand.
|
11.)
|
Financial
Instruments
|
(a)
Liquidity risk
Liquidity risk is the risk that
the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s liquidity
and operating results may be adversely affected if its access to the capital market is hindered, whether as a result of a downturn
in stock market conditions generally or matters specific to the Company. The Company generates cash flow primarily from its financing
activities and advances from shareholders. As at December 31, 2016, the Company had cash of $2,850 (March 31, 2016 - $173) to
settle current liabilities of $248,871 (March 31, 2016 - $809,347). All of the Company’s financial liabilities other than
the warrant liability of $Nil (March 31, 2016 - $27,479), the term loan of $50,956 (March 31, 2016 - $nil) and a convertible note
of $11,993 (March 31, 2016 - $nil) have contractual maturities of less than 30 days and are subject to normal trade terms. The
Company regularly evaluates its cash position to ensure preservation and security of capital as well as liquidity.
In
the normal course of business, management considers various alternatives to ensure that the Company can meet some of its operating
cash flow requirements through financing activities, such as private placements of common stock, preferred stock offerings and
offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. Management may also
consider strategic alternatives, including strategic investments and divestitures. As future operations may be financed out of
funds generated from financing activities, the ability to do so is dependent on, among other factors, the overall state of capital
markets and investor appetite for investments in the green technology industry and the Company’s securities in particular.
Should the Company elect to satisfy its cash commitments through the issuance of securities, by way of either private placement
or public offering or otherwise, there can be no assurance that the efforts to obtain such additional funding will be successful,
or achieved on terms favorable to the Company or its existing shareholders. If adequate funds are not available on favorable terms,
the Company may have to reduce substantially or eliminate expenditures or obtain funds through other sources such as divestiture
or monetization of certain assets or sublicensing (where permitted) of certain rights to certain of the Company’s technologies
or products.
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
11.)
|
Financial
Instruments (continued)
|
(b)
Concentration of credit risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Cash deposits
with a major Canadian chartered bank are insured by the Canadian Deposit Insurance Corporation up to $100,000. As at December
31, 2016, the Company held $2,850 (March 31, 2016 - $173) with a major Canadian chartered bank.
(c)
Foreign exchange risk
The
Company principally operates within Canada. The Company’s functional currency is the Canadian dollar and major purchases
are transacted in Canadian dollars. Management believes the foreign exchange risk derived from currency conversions is negligible
and therefore does not hedge its foreign exchange risk. See also Note 11 (e).
(d)
Interest rate risk
As
at December 31, 2016, the Company does not have any non-fixed interest-bearing debt. The Company invests any cash surplus to its
operational needs in investment-grade short-term deposit certificates issued by highly rated Canadian banks. The Company periodically
assesses the quality of its investments and is satisfied with the credit rating of the bank.
(e)
Derivative liability – warrant liability
In
connection with a consulting agreement, the Company granted warrants to purchase up to 625,000 common shares of the Company as
disclosed in Note 7(b). The warrants have an exercise price of USD$0.04 ($0.054). The warrants are exercisable at any time prior
to December 31, 2017. The warrants are accounted for as derivative liabilities because the exercise price is denominated in a
currency other than the Company’s functional currency.
|
|
|
|
Fair
Value at
|
|
|
|
Fair
Value Measurement Using
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
Derivative liability – Warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative
liability) for the periods ended December 31, 2016 and March 31, 2016:
|
|
|
Nine months ended December 31,
2016
|
|
Year ended
March 31,2016
|
|
Balance at beginning of period
|
|
$
|
27,479
|
|
|
$
|
364,878
|
|
|
Derivative instruments exercised
|
|
|
(43,521
|
)
|
|
|
(509,054
|
)
|
|
Change in fair market value, recognized in operations
as professional fees
|
|
|
16,042
|
|
|
|
171,655
|
|
|
Balance at end of period
|
|
$
|
—
|
|
|
$
|
27,479
|
|
Algae
Dynamics Corp.
Notes
to the Condensed Interim Financial Statements
(Stated
in Canadian Dollars)
(Unaudited)
December
31, 2016 and 2015
|
11.)
|
Financial
Instruments (continued)
|
(e)
Derivative liability – warrant liability (continued)
These
instruments were valued using pricing models that incorporate the price of a share of common stock, expected volatility, risk
free rate, expected dividend rate and expected estimated life. The Company estimated the value of the warrants using the Black-Scholes
model. There were no transfers of assets or liabilities between Level 1, Level 2, or Level 3 during the periods ended December
31, 2016 and March 31, 2016.
The
following are the key weighted average assumptions used in connection with the estimation of fair value as at December 31, 2016:
|
|
|
December 31, 2016
|
|
|
Number of shares underlying the warrants
|
|
|
325,000
|
|
|
Fair market value of the stock
|
|
$
|
0.78
|
|
|
Exercise price
|
|
USD$
|
0.04
($0.054)
|
|
|
Expected volatility
|
|
|
265
|
%
|
|
Risk-free interest rate
|
|
|
0.74
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
Expected warrant life (years)
|
|
|
1.00
|
|
On January 9, 2017, the Company
entered into a three month contract with an investor relations firm. The terms of the contract specified a cash payment of USD$10,000
($13,427) and 50,000 shares of restricted stock (issued subsequent to December 31, 2016).
On January 10, 2017, two directors
and officers of the Company were issued a total of 250,000 replacement shares. See Note 7(a).
On January 10, 2017, 75,000 stock
options were exercised at $0.31 per common share for total proceeds of $23,250.
On January 17, 2017, the Company
entered into an addendum to an agreement signed on May 18, 2016 (see Note 9) which provided for a grant of 900,000 warrants at
an exercise price of USD$0.65 ($0.86) for a period of five years with a cashless exercise option.
On January 23, 2017, the Company
vested 100,000 warrants for Connectus (Apollo Marketing LLC). See Note 9.