NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying financial
statements are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash flows at September 30, 2017 and 2016 and for the periods
then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that
these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s
June 30, 2017 audited financial statements. The results of operations for the periods ended September 30, 2017 and 2016 are not
necessarily indicative of the operating results for the full year.
Business and Basis
of Presentation -
DanDrit Biotech USA, Inc. (“DanDrit USA”, the “Company”, “we”, “us”,
or “Parent”) (formerly Putnam Hills Corp.) was originally incorporated in the State of Delaware on January 18, 2011
as a vehicle to pursue a business combination through the acquisition of, or merger with, an operating business.
DanDrit BioTech A/S,
a Danish corporation was incorporated on April 1, 2001 (“DanDrit Denmark”) and is a 96.92% owned subsidiary of the
Company. The Company engages in the research and development, manufacturing and clinical trials of pharmaceutical and biological
products for the human treatment of cancer.
Year End
- In
June 2015, DanDrit’s board of directors approved a change to DanDrit’s fiscal year end from December 31 to June 30.
Share Exchange /
Reverse Acquisition
— On February 12, 2014, pursuant to the Share Exchange Agreement (the "Share Exchange Agreement"),
DanDrit USA completed the acquisition of 100% (subject to 123,464 common shares of DanDrit Denmark or 3.08% of outstanding shares
to be acquired with the 185,053 common shares of the DanDrit Biotech USA held in escrow according to Danish law) of the issued
and outstanding capital stock of DanDrit Denmark (the “Share Exchange”) and as a result became DanDrit Denmark’s
parent company (the “Parent”). Prior to the Share Exchange there were 5,000,000 shares of the common stock, par value
$.0001 per share (the “Common Stock”) of Parent outstanding. Parent and an existing shareholder agreed to cancel 4,400,000
shares of Common Stock and issued 1,440,000 shares of Common Stock for legal and consulting services related to the Share Exchange
and a future public offering. At the time of the Share Exchange each outstanding share of common stock of DanDrit Denmark was exchanged
for 1.498842 shares of Common Stock, for a total of 6,000,000 shares of Common Stock, resulting in 8,040,000 shares of Common Stock
outstanding immediately following the Share Exchange, including 185,053 shares of Common Stock reserved for issuance in accordance
with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark to the DanDrit Denmark shareholders
who have not consented to the Share Exchange (the “Non-Consenting Shareholders”), and deemed issued and outstanding
for accounting purposes.
Consolidation
—
For the three months ended September 30, 2017 and 2016, the consolidated financial statements include the accounts and operations
of DanDrit Denmark, and the accounts and operations of DanDrit USA. All material inter-company transactions and accounts have been
eliminated in the consolidation.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Consolidation
-
For the years ended June 30, 2017 and 2016, the consolidated financial statements include the accounts and operations of the DanDrit
Denmark, and the accounts and operations of DanDrit USA. All material inter-company transactions and accounts have been eliminated
in the consolidation.
Functional Currency
/ Foreign currency translation
— The functional currency of DanDrit USA is the U.S. Dollar. The functional currency of
DanDrit Denmark is the Danish Kroner (“DKK”). The Company’s reporting currency is the U.S. Dollar for the purpose
of these financial statements. The Company’s balance sheet accounts are translated into U.S. Dollars at the period-end exchange
rates and all revenue and expenses are translated into U.S. Dollars at the average exchange rates prevailing during the periods
ended September 30, 2017 and 2016. Translation gains and losses are deferred and accumulated as a component of other comprehensive
income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions
denominated in a currency other than the functional currency are included in the statement of operations as incurred.
Cash and Cash Equivalents
— The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash
equivalents. The Company had balances held in financial institutions in Denmark and in the United States in excess of federally
insured States amounts at September 30, 2017 and 2016 of $2,444,659 and $0, respectively.
Property and Equipment
— Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful
lives of the assets which range from four to nine years (See Note 3).
Intangible Assets
— Definite life intangible assets include patents. The Company accounts for definite life intangible assets in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350,
“Goodwill and Other Intangible Assets” and amortized the patents on a straight line basis over the estimated useful
life of twenty years. Costs incurred in relation to patent applications are capitalized cost and amortized over the estimated useful
life of the patent. If it is determined that a patent will not be issued, the related remaining patent application costs are charged
to expense.
Impairment of Long-Lived
Assets
— Long-lived assets, such as property, plant, and equipment and patents are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances which could trigger
a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in
the business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast
of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be
sold or disposed of significantly before the end of its estimated useful life.
Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or
fair value less costs to sell, and would no longer be depreciated. The depreciable basis of assets that are impaired and continue
in use is their respective fair values.
Revenue Recognition
and Sales
—The sale of the Company’s product is limited to compassionate use within approved countries. The Company
accounts for revenue recognition in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue
Recognition in Financial Statements” (SAB 101), and FASB ASC 605 Revenue Recognition. The Company recognizes revenue when
rights and risk of ownership have passed to the customer, when there is persuasive evidence of an arrangement, product has been
shipped or delivered to the customer, the price and terms are finalized, and collections of resulting receivable is reasonably
assured. Products are primarily shipped FOB shipping point at which time title passes to the customer.
Value Added Tax
—
In Denmark, Value Added Tax (“VAT”) of 25% of the invoice amount is collected in respect of the sales of
goods on behalf of tax authorities. The VAT collected is not revenue of the Company; instead, the amount is recorded as a liability
on the balance sheet until such VAT is paid to the authorities. VAT of 25% is also paid to Danish and EU vendors on invoices these
amounts are refundable from the respective governmental authority and recorded as other receivables in the accompanying financial
statements.
Research and Development
Expenses
— The Company expenses research and development costs incurred in formulating, improving, validating and creating
alternative or modified processes related to and expanding the use of our MAGE –A dendrite cell cancer therapy. Research
and development expenses were included in operating expenses for the three months ended September 30, 2017 and 2016, totaled $153,652
and $17,104, respectively.
Our research and development
expenses may fluctuate substantially from quarter to quarter depending on the clinical studies and the timing of samples supporting
the clinical studies.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes
—
The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes. This statement requires
an asset and liability approach for accounting for income taxes.
Loss Per Share
—
The Company calculates earnings/(loss) per share in accordance with FASB ASC 260 Earnings Per Share. Basic earnings per common
share (EPS) are based on the weighted average number of common shares outstanding during each period. Diluted earnings per common
share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential common shares
included in the diluted earnings per share calculation include in-the-money stock options that have been granted but have not been
exercised. Because of the net loss for the three months ended September 30, 2017 and September 30, 2016, the dilutive shares for
both periods were excluded from the Diluted EPS calculation as the effect of these potential common shares is anti-dilutive.
Fair Value of Financial
Instruments
— The Company accounts for fair value measurements for financial assets and financial liabilities in accordance
with FASB ASC Topic 820, “Fair Value Measurements”. The authoritative guidance, which, among other things, defines
fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability
category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing
the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes
a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
●
|
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
|
|
●
|
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
●
|
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
Unless otherwise disclosed,
the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses, investments,
accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded values due to their
short-term maturities.
Stock Options and
Warrants
-
The Company has granted stock options to certain employees, officers and directors (See Note 10).
During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and warrants.
The Company accounts for options and warrants in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock
Compensation. Non-cash compensation costs of $0 and $626,487 have been recognized for the vesting of options and warrants granted
to employees and consultants with an associated recognized tax benefit of $0 and $0 for the years ended June 30, 2017 and 2016,
respectively.
Stock-Based Compensation
-
The Company accounts for employee stock-based compensation in accordance with the guidance of Financial Accounting
Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation, which requires
all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements
based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited
to additional paid-in capital over the period during which services are rendered.
The Company follows ASC
Topic 505 - 50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring,
or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In
accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company
are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant,
whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense
and additional paid-in capital over the period during which services are rendered.
Accounting Estimates
— The preparation of financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimated.
Recently Issued
Accounting Standards:
In February 2016, the
FASB issued ASU No. 2016-02 - Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation
and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply
a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease
is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based
on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required
to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.
Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new
standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type
leases, direct financing leases and operating leases. The standard is effective on January 1, 2019, however early adoption is permitted.
The Company is in the process of evaluating the impact of this new guidance.
Other recent accounting
pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company's present
or future financial statements.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 — PROPERTY AND EQUIPMENT
Property and equipment
consisted of the following at September 30, 2017 and June 30, 2017:
|
|
Useful Life
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
Lab equipment and instruments
|
|
4-6
|
|
$
|
174,417
|
|
|
$
|
168,627
|
|
Computer equipment
|
|
4-6
|
|
|
59,737
|
|
|
|
57,754
|
|
|
|
|
|
|
234,154
|
|
|
|
226,381
|
|
Less Accumulated Depreciation
|
|
|
|
|
(234,154
|
)
|
|
|
(226,381
|
)
|
Net Property and Equipment
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Depreciation expense
amounted to $0 and $0 for the three month period ended September 30, 2017 and 2016, respectively.
NOTE 3 — DEFINITE-LIFE INTANGIBLE
ASSETS
At September 30, 2017
and June 30, 2017, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s
products and processes of $124,699 and $124,393, respectively. The patents are recorded at cost and amortized over twenty years
from the date of application. Amortization expense for the three months ended September 30, 2017 and 2016 was $3,946 and $3,749,
respectively. Expected future amortization expense for the years ended are as follows:
Year ending June 30,
|
|
|
|
2018
|
|
|
15,784
|
|
2019
|
|
|
15,784
|
|
2020
|
|
|
15,784
|
|
2021
|
|
|
15,784
|
|
2022
|
|
|
15,784
|
|
Thereafter
|
|
|
45,779
|
|
|
|
|
|
|
|
|
$
|
124,699
|
|
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 4 — NOTE RECEIVABLE
On
July 14, 2017, the Company agreed to loan to a biopharmaceutical company up to $500,000 in exchange for a promissory note executed
by the Company. The note matures on July 13, 2020, bears interest of 5% per annum and can be repaid early without penalty. The
Company may accelerate payment under the note upon certain events of default provided therein, whereby all amounts owed will become
immediately due and payable. The loan is a long-term debt obligation as defined in Item 303(a)(5)(ii)(A) of Regulation S-K that
is material to the Company. As of September 30, 2017, the Company has loaned $422,340 under the note with up to an additional $77,660
available to be lent.
The following represents
the future maturities of long-term receivables as of September 30, 2017:
Year ending September 30,
|
|
|
|
2018
|
|
|
-
|
|
2019
|
|
|
-
|
|
2020
|
|
|
422,340
|
|
2021
|
|
|
-
|
|
2022
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
422,340
|
|
NOTE 5 — NOTES PAYABLE –
RELATED PARTY
Notes payable to related
parties consists of the following as of September 30, 2017 and June 30, 2017:
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
Non-Interest Bearing Loan Payable Sunrise Financial Group Inc.
|
|
$
|
38,235
|
|
|
$
|
38,235
|
|
Advances to purchase common shares in connection with a private placement
|
|
|
-
|
|
|
|
1,600,355
|
|
6% Promissory Note payable to NLBDIT 2010 Enterprises, LLC
|
|
|
50,173
|
|
|
|
49,581
|
|
Total Notes Payable – Related Party
|
|
|
88,408
|
|
|
|
1,688,171
|
|
Less Current Maturities
|
|
|
(88,408
|
)
|
|
|
(1,688,171
|
)
|
Note Payables – Related Party Long Term
|
|
$
|
-
|
|
|
$
|
-
|
|
As of September 30,
2017, the outstanding balance of $38,235 for professional fees paid by a shareholder and amounts advanced to the Parent are reported
as notes payable - related party. The $38,235 in notes payable were acquired in the reverse acquisition. The amounts are unsecured,
non-interest bearing and have no stipulated repayment terms.
A 6% promissory note
payable to NLBDIT 2010 Enterprises, LLC, an entity controlled by a shareholder of the Company, was acquired by the Company in the
reverse acquisition, payable on February 12, 2014 upon the completion date of the Share Exchange. As of June 30,
2017, and 2016, the outstanding balance on such note, including accrued interest, was $50,173 and $47,233, respectively. During
the three months ended June 30, 2017 and 2016 the Company recorded related party interest on the note of $592 and $592, respectively.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6 — CONVERTIBLE NOTES PAYABLE
– RELATED PARTY
Convertible notes payable
to related parties consisted of the following as of September 30, 2017 and June 30, 2017:
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
Non-Interest Bearing Notes Payable to a Shareholder
|
|
$
|
120,300
|
|
|
$
|
120,300
|
|
Non-Interest Bearing Notes Payable to a Former Director and Shareholder
|
|
|
240,600
|
|
|
|
240,600
|
|
Non-Interest Bearing Notes Payable to a Former Director and Shareholder
|
|
|
52,770
|
|
|
|
52,770
|
|
Less Discount
|
|
|
(11,997
|
)
|
|
|
(11,997
|
)
|
Total Convertible Notes Payable – Related Party
|
|
|
401,673
|
|
|
$
|
401,673
|
|
Less Current Maturities
|
|
|
(401,673
|
)
|
|
|
(401,673
|
)
|
Net Convertible Note Payables – Related Party Long Term
|
|
$
|
-
|
|
|
|
-
|
|
The following represents
the future maturities of short-term debt as of September 30, 2017:
September 30, 2017
|
|
|
|
2018
|
|
|
413,670
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
2021
|
|
|
-
|
|
2022
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
|
413,670
|
|
On
July 1, 2016, the Company entered into a non-interest bearing convertible note for $60,150 with a shareholder of the Company (the
“July 1 Note”). The July 1 Note matures on December 31, 2017 and was originally convertible into shares of Common Stock
at $2.00 per share (see Note 11). As the Common Stock was trading at $2.50 on July 1, 2016, the Company bifurcated the intrinsic
value of the beneficial conversion feature and recorded a discount of $15,038. As the July 1 Note is non-interest bearing, the
Company imputed the interest at 3% and further recorded a discount of $2,639. The interest is being amortized to expense using
the effective interest method through the December 31, 2017 maturity. For the three months ended September 30, 2017 and September
30, 2016, interest expense of $3,219 and $2,527, respectively, was recorded for the amortization of the discount.
On July 19, 2016, the
Company entered into a non-interest bearing convertible note for $60,150 with a shareholder of the Company (the “July 19
Note”). The July 19 Note matures on December 31, 2017 and was originally convertible into shares of Common Stock at $2.00
per share (see Note 11). As the July 19 Note is non-interest bearing, the Company imputed the interest at 3% and further recorded
a discount of $2,555. The interest will be amortized to expense using the effective interest method through the December 31, 2017
maturity. For the three months ended September 30, 2017 and September 30, 2016, interest expense of $448 and $346, respectively,
was recorded for the amortization of the discount.
On
August 24, 2016, the Company entered into a non-interest bearing convertible note for $90,225
with a shareholder of the
Company (the “August 24 Note”)
. The
August 24 Note
was
later acquired by an entity controlled by a then board member and shareholder of the Company. The
August 24 Note
had
a maturity date of December 31, 2017 and was originally convertible into shares of Common Stock at $2.00 per share
and the
holder of the note has provided the Company with a notice of conversion to convert such note (see Note 11)
.
As the Common Stock was trading at $2.05 on August 24, 2016, the Company bifurcated the intrinsic value of the beneficial conversion
feature and recorded a discount of $2,256. As the
August 24 Note
was non-interest
bearing, the Company imputed the interest at 3% and further recorded a discount of $3,577. Interest is amortized to expense using
the effective interest method through maturity. For three months ended September 30, 2017 and September 30, 2016, interest expense
of $1,102 and $425, respectively, was recorded for the amortization of the discount.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6 — CONVERTIBLE NOTES PAYABLE
– RELATED PARTY (continued)
On September 21, 2016
the Company entered into a non-interest bearing convertible note for $150,375 with a shareholder of the Company (the “September
21 Note”).
The
September 21 Note
was later
acquired by an entity controlled by a then board member and shareholder of the Company
. The September 21 Note had a maturity
date of December 31, 2017 and was originally convertible into shares of Common Stock at $2.00 per share, and the holder of the
note has provided the Company with a notice of conversion to convert such note (see Note 11). As the note was non-interest bearing
the Company imputed the interest at 3% and further recorded a discount of $5,630. Interest is amortized to expense using the effective
interest method through maturity. For the three months ended September 30, 2016, interest expense of $107 was recorded for the
amortization of the discount.
On
March 9, 2017, the Company entered into a non-interest bearing convertible note for $52,770 with an entity controlled by shareholder
and former board member of the Company
(the “March 9 Note” and together with the September 21 Note, August 24
Note, July 19 Note and the July 1 Note, the “ 2016/2017 Notes”)
. The note was
originally convertible into shares of Common Stock at $2.00 per share (See Note 11), and had an original maturity date of June
30, 2017
(see Note 11)
. As the note is non-interest bearing the Company imputed the
interest at 3% and further recorded a discount of $486. The interest will be amortized to expense using the effective interest
method through the June 30, 2017 maturity.
NOTE 7 — LEASES
Operating Leases
— The Company leased laboratory and production space under an operating lease agreement which terminated September 30,
2017. The lease called for monthly payments of DKK 6,300 (approximately $1,000 at September 30, 2017).
The Company
has an agreement for use of virtual office space at a rate of $450 per month on a month-to-month basis, which can be terminated
by either party on one month’s notice. This lease terminates November 30, 2017.
For the three months
ended September 30, 2017 and September 30, 2016 the lease expense charged to operations was $1,450 and $1,395, respectively.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 8 — STOCKHOLDERS’ EQUITY
Common Stock
—
The Company has 100,000,000 authorized shares of Common Stock, par value $0.0001 per share. As of September 30, 2017 and June 30,
2017 there were 13,727,538 and 12,433,290 shares issued and outstanding, respectively.
Voting —
Holders
of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including
the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends —
Holders of Common Stock are entitled to receive ratably such dividends as our Board of Directors from time to time may declare
out of funds legally available.
Liquidation Rights
—
In the event of any liquidation, dissolution or winding-up of affairs of the Company, after payment of all of our debts
and liabilities, the holders of Common Stock will be entitled to share ratably in the distribution of any of our remaining assets.
Common Stock
Issuances
- On May 15, 2017, the Company completed a private placement offering of units, with each unit consisting of
one share of Common Stock and warrants to purchase two shares of Common Stock at a strike price of $1.30 per share (each, a “Unit”),
for $1.30 per Unit. In total, the Company issued and sold 2,700,000 shares of Common Stock and warrants to acquire 5,400,000 shares
of Common Stock for total proceeds to the Company of $3,510,000.
On June 9, 2017, the
Company issued 200,000 common shares valued at $240,000 in connection with a consulting agreement at $1.20 per share.
On July 12, 2017, the Company completed
a private placement offering of 1,231,561 Units for total proceeds to the Company of $1,601,029.
On August 30, 2017, the Company issued 62,687
shares to the CEO and recorded non-cash compensation expense of $112,837 with a cost basis of $1.80.
Share Exchange Agreement
/
Reverse Acquisition
- On February 12, 2014, in accordance with the terms and conditions of the Share Exchange Agreement
we completed the acquisition of 100% (subject to 123,464 common shares of DanDrit Denmark or 3.08% of outstanding shares to be
acquired with the 185,053 common shares of the DanDrit Biotech USA held in escrow according to Danish law) of the issued and outstanding
capital stock of DanDrit Denmark (Share Exchange) and as a result became DanDrit Denmark’s parent company. In connection
with the Share Exchange, each outstanding share of common stock of DanDrit Denmark was exchanged for 1.498842 shares of Common
Stock for an aggregate of 6,000,000 shares, including 185,053 shares of Common Stock reserved for issuance, in accordance with
Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark, to the DanDrit Denmark shareholders
who did not consent to the Share Exchange and deemed issued and outstanding for accounting purposes. In addition, in connection
with the Share Exchange (1) the sole shareholder prior to the Share Exchange agreed to cancel 4,400,000 shares of outstanding Common
Stock owned by it and (2) the board of directors and executive management of DanDrit Denmark was appointed to serve as the Board
of Directors and executive management of DanDrit USA effective upon the resignation of the sole officer and director of DanDrit
USA prior to the closing of the Share Exchange.
Stock Options
—
On
September 15, 2016, Parent’s Board of Directors approved grant stock options to an officer and two directors of the
Company. The Board granted 300,000 options at a strike price of $2.00 per share to each of Eric Leire, APE Invest A/S
for Aldo Petersen and N.E. Nielson, in consideration of their services to the Company, for an aggregate of 900,000 options
(the “September 2016 Grants”). The options vested upon grant, contain certain anti-dilution provisions and expire December 31,
2019.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 8 — STOCKHOLDERS’ EQUITY
(Continued)
The Company recognizes
compensation costs for stock option awards to employees based on their grant-date fair value. The value of each stock option is
estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions used to estimate
the fair values of the stock options granted during 2016 using the Black-Scholes option-pricing model are as follows:
|
|
DanDrit Biotech USA, Inc.
|
|
Expected term (in years)
|
|
|
3.29
|
|
Volatility
|
|
|
189.65
|
%
|
Risk free interest rate
|
|
|
0.87
|
%
|
Dividend yield
|
|
|
0
|
%
|
The Company recognized
stock based compensation expense related to the options of $0 and $626,487 for the three months ended September 30, 2017 and
September 30, 2016, respectively. At September 30, 2017 and September 30, 2016, the Company had approximately $0 of unrecognized
compensation cost related to non-vested options.
A summary of the status
of the options originally issued to an officer and two (now former) directors outstanding at September 30, 2017 is presented below:
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Exercise Prices
|
|
|
Number Outstanding
|
|
|
Weighted Average Remaining Contractual Life (years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Weighted Average Exercise Price
|
|
|
|
$
|
2.00
|
|
|
|
900,000
|
|
|
|
2.25
|
|
|
$
|
2.00
|
|
|
|
900,000
|
|
|
$
|
2.00
|
|
Total
|
|
|
|
|
|
|
900,000
|
|
|
|
2.25
|
|
|
$
|
2.00
|
|
|
|
900,000
|
|
|
$
|
2.00
|
|
A summary of the status
of the options at September 30, 2017, and changes during the period are presented below:
|
|
September 30, 2017
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Life
|
|
|
Weighted
Average
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
900,000
|
|
|
$
|
2.00
|
|
|
|
2.25
|
|
|
$
|
675,000
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at end of period
|
|
|
900,000
|
|
|
$
|
2.00
|
|
|
|
2.25
|
|
|
$
|
675,000
|
|
Vested and expected to vest
|
|
|
900,000
|
|
|
$
|
2.00
|
|
|
|
2.25
|
|
|
$
|
675,000
|
|
Exercisable end of period
|
|
|
900,000
|
|
|
$
|
2.00
|
|
|
|
2.25
|
|
|
$
|
675,000
|
|
At September 30, 2017,
all options issued are exercisable. The total intrinsic value of options at September 30, 2017 was $675,000. Intrinsic value
is measured using the fair market value at the date of exercise (for shares exercised) or at September 30, 2017 (for outstanding
options), less the applicable exercise price.
Common Stock Purchase Warrants
A summary of the status of common shares
which can be purchased underlying the warrants outstanding at September 30, 2017 is presented below:
|
|
|
Equivalent Shares Underlying Warrants Outstanding
|
|
|
Equivalent Shares Exercisable
|
|
Exercise Prices
|
|
|
Equivalent Shares
|
|
|
Weighted
Average
Remaining
Contractual Life
(years)
|
|
Weighted
Average Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average Exercise
Price
|
|
$
|
1.30
|
|
|
|
5,500,000
|
|
|
4.6
|
|
$
|
1.30
|
|
|
|
5,500,000
|
|
|
$
|
1.30
|
|
$
|
1.30
|
|
|
|
2,463,122
|
|
|
4.3
|
|
$
|
1.30
|
|
|
|
2,463,122
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
7,963,122
|
|
|
4.5
|
|
$
|
1.30
|
|
|
|
7,963,122
|
|
|
$
|
1.30
|
|
At September 30, 2017,
the Company had 0 non-vested warrants. On April 21, 2017, the Company recorded non-cash compensation expense of $115,754 related
to the 100,000 warrants issued for consulting services. The warrants were valued using the Black-Scholes option pricing model using
the following assumptions 5 year expected term, 188% volatility, 1.77% risk free interest rate and 0% dividend yield.
The exercise price
of certain warrants and the number of shares underlying the warrants are subject to adjustment for stock dividends, subdivisions
of the outstanding shares of Common Stock and combinations of the outstanding shares of Common Stock. For so long as the warrants
remain outstanding, we are required to keep reserved from our authorized and unissued shares of Common Stock a sufficient number
of shares to provide for the issuance of the shares underlying the warrants.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Shares held for
Non-Consenting Shareholders
– In connection with the Share Exchange agreement certain shareholders of Dandrit Denmark
had not been identified or did not consent to the exchange of shares. In accordance with Section 70 of the Danish Companies Act
and the Articles of Association of DanDrit Denmark, the Non-Consenting Shareholders that did not exchange the DanDrit Denmark equity
interests owned by such Non-Consenting Shareholders for shares of the Company, will be entitled to receive up to 185,053 shares
of common stock of the Company that each such Non-Consenting Shareholder would have been entitled to receive if such shareholder
had consented to the Share Exchange. The 185,053 shares have been reflected as issued and outstanding in the accompanying financial
statements.
Clinical Trial
Agreements
– The Company’s subsidiary, DanDrit Biotech A/S signed a contract of collaboration with the University
Hospital IRCCS “San Martino” - IST – National Institute for Cancer Research, known as the San Martino Hospital
of Genoa. The collaboration relates to a Phase III adjuvant study of DanDrit’s vaccine in patients with no evident disease
(“NED”) stage IV colorectal cancer (“CRC”). The primary goal of the study is to evaluate the efficacy of
DanDrit’s MelCancerVac® (“MCV”) in stage IV CRC patients rendered disease free after the completion of standard
treatments in accordance with local practices.
On April 28, 2015 the
Company entered into a service agreement with Fondazione Giscad per la RicercasuiTumori to support Dandrit in a clinical trial
to be conducted in Italy.
Patient Name
Use Program Agreements
- On December 16, 2013, DanDrit Denmark entered into an agreement with a Dutch company (the “MCV
Partner”) regarding a Patient Name Use Program (PNU) for the Company’s MCV. This program will allow DanDrit
Denmark to sell MCV for a year of treatment (10 vaccines) to cancer patients through the MCV Partner. The MCV Partner
offers a worldwide online platform providing access to non-registered medicines for patients with life threatening diseases. The
MCV Partner is a turnkey solution and will be in charge of regulatory, recruitment, logistics, and pharmaco vigilance.
The Company will pay the MCV Partner a royalty on a country to country basis for 20 years on MCV sales sold under the agreement.
Either party may terminate the agreement with 180 day written notice.
On April 23, 2015,
the Company entered into a collaboration agreement with Riyadh Pharma in Saudi Arabia to promote cooperation in the manufacturing
and marketing of DanDrit's dendritic cell cancer vaccine.
Manufacturing
Agreements -
On January 28, 2014, the Company entered into an agreement with Cellin Technologies for the manufacture of
the MCV Cancer vaccine.
On August 8, 2014,
the Company entered into an agreement with Cellin Technologies for the manufacture of the Melanoma Cell Lysate.
Food and Drug Administration
(FDA) -
The FDA has extensive regulatory authority over biopharmaceutical products (drugs and biological products), manufacturing
protocols and procedures and the facilities in which they will be manufactured. Any new bio product intended for use in humans
is subject to rigorous testing requirements imposed by the FDA with respect to product efficacy and safety, possible toxicity and
side effects. FDA approval for the use of new bio products (which can never be assured) requires several rounds of extensive preclinical
testing and clinical investigations conducted by the sponsoring pharmaceutical company prior to sale and use of the product. At
each stage, the approvals granted by the FDA include the manufacturing process utilized to produce the product. Accordingly, the
Company’s cell systems used for the production of therapeutic or bio therapeutic products are subject to significant regulation
by the FDA under the Federal Food, Drug and Cosmetic Act, as amended.
Product liability
-
The contract production services for therapeutic products offered exposes an inherent risk of liability as bio therapeutic
substances manufactured, at the request and to the specifications of customers, could foreseeably cause adverse effects. The Company
seeks to obtain agreements from contract production customers indemnifying and defending the Company from any potential liability
arising from such risk. There can be no assurance, however, that the Company will be successful in obtaining such agreements in
the future or that such indemnification agreements will adequately protect the Company against potential claims relating to such
contract production services. The Company may also be exposed to potential product liability claims by users of its products. A
successful partial or completely uninsured claim against the Company could have a material adverse effect on the Company’s
operations.
Employment Agreements
- The Company and its Subsidiary have employment agreements with officers of the Company.
Contingencies
-
The Company is from time to time involved in routine legal and administrative proceedings and claims of various types. While any
proceedings or claim contains an element of uncertainty, management does not expect a material impact on our results of operations
or financial position.
DANDRIT BIOTECH USA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 10 — RELATED PARTY TRANSACTIONS
At September 30, 2017,
and September 30, 2016, the Company had a payable to a law firm at which the former Chairman of the Board of Directors was a partner
in the amount of $0 and $97,718, respectively.
On July 1, 2016, the
Company entered into a financial services agreement with APE Invest AS (an entity owned by a former director of the Company) for
consultancy services related to the Company raising additional equity financing in the US and Danish capital markets. The
agreement called for a monthly payment of $20,000 with a $100,000 retainer payment due November 1, 2016. The agreement was
terminated June 9, 2017.
On September 15, 2016,
the Company recorded $626,487 in non-cash compensation for the grant of 900,000 stock options to employees, officers, and directors
of the Company, which shall be fully vested upon grant, to purchase shares of Common Stock at $2.00 per share, and expire December
31, 2019. The options contain certain anti-dilution provisions.
NOTE 11 — SUBSEQUENT EVENTS
In accordance with ASC 855-10, Company
management reviewed all material events through the date of this report. The following material subsequent events occurred:
Between July 1, 2016
and March 9, 2017, the Company entered into the 2016/2017 Notes with shareholders of the Company, one of whom is a former director
of the Company (see Note 6). On October 31, 2017, the Company executed amendments to the 2016/2017 Notes and issued replacement
notes to the current holders of such notes. The 2016/2017 Notes, as amended, are convertible into shares of Common Stock at $1.60
per share and mature on December 31, 2017. The holder of the August 24 Note, as amended and the September 21 Note, as amended,
provided the Company with a notice of conversion to convert such notes to 150,374 shares of Common Stock.
On October 9, 2017, the
Board of Directors of the Company accepted the amicable resignation of Torben Bjørn Christensen as a director of the Company
and appointed Henrik Grønfeldt-Sørensen to replace Mr. Christensen as a director.
On
October 13, 2017, the Company and two former directors of the Company agreed that the right of each to purchase 300,000 shares
of the Company’s common stock at a strike price of $2.00 per share pursuant to the September 16 Grants would be treated
as warrants on terms materially identical to the September 2016 Grants. The Board subsequently approved such treatment and the
issuance of warrants to evidence the September 16 Grants to such directors.
On
November 13, 2017, the Company entered into a Lease Agreement (the “Lease Agreement”) for a term of five years and
two months (the “Term”) with Plaza Medical Office Building, LLC, a California Limited Liability Company (the “Landlord”),
as landlord, pursuant to which the Company agreed to lease from the Landlord certain premises (the “Leased Premises”)
located in Los Angeles, to be used as the Company’s head office. The Leased Premises consist of approximately 2,325 rentable
square feet. The base rent for the Leased Premises increases by 3% each year over the Term, and ranges from approximately $8,718.75
per month for the first year to $10,107.42 per month for the two months of the sixth year. The Company is entitled to $70,800
in tenant improvement allowance in the form of free rent applied over 10 months in equal installments beginning in January of
2018.