Notes
to Unaudited Consolidated Financial Statements
NOTE
1 - BUSINESS
Relmada
Therapeutics, Inc. (“Relmada” or the “Company”) (a Nevada corporation), is a clinical-stage, publicly
traded biotechnology company focused on the development of d-methadone (dextromethadone, REL-1017), an N-methyl-D-aspartate (NMDA)
receptor antagonist. d-methadone is a new chemical entity that potentially addresses areas of high unmet medical need in the treatment
of central nervous system (CNS) diseases and other disorders. REL-1017 is in Phase II for the treatment of major depressive disorder.
In
addition, the Company has a portfolio of three 505b2 product candidates at various stages of development. These products are:
LevoCap ER (REL-1015), an abuse resistant, sustained release dosage form of the opioid analgesic levorphanol; BuTab (oral buprenorphine,
REL-1028), an oral dosage form of the opioid analgesic buprenorphine; and MepiGel (topical mepivacaine, REL-1021), an orphan drug
designated topical formulation of the local anesthetic mepivacaine. These products are not currently in active development.
In
addition to the normal risks associated with a new business venture, there can be no assurance that the Company’s research
and development will be successfully completed or that any product will be approved or commercially viable. The Company is subject
to risks common to companies in the biotechnology industry including, but not limited to, dependence on collaborative arrangements,
development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary
technology, and compliance with the FDA and other governmental regulations and approval requirements.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim unaudited consolidated financial information.
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial
statements. The unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim
results are not necessarily indicative of the results for the full year. These unaudited consolidated financial statements should
be read in conjunction with the audited consolidated financial statements of the Company for the year ended June 30, 2018 and
notes thereto contained in the Company’s Annual Report on Form 10-K.
Going Concern
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period
following the issuance of these consolidated financial statements. As shown in the accompanying financial statements, the
Company incurred negative operating cash flows of $1,670,983 for the quarter ended September 30, 2018 and accumulated losses
of $97,724,400 from inception through September 30, 2018. These conditions raise doubt as to the Company’s ability to
continue as a going concern. These financial statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. The Company will need to raise additional funds in order to continue our clinical
trials. Insufficient funds may cause us to delay, reduce the scope of or eliminate one or more of our development programs.
Our future capital needs and the adequacy of our available funds will depend on many factors, including the cost of clinical
studies and other actions needed to obtain regulatory approval of our products in development. Management plans to raise
additional funds through public or private sales of equity or debt securities or from bank or other loans or through
strategic collaboration and/or licensing agreements, to fund operations until the Company is able to generate enough revenues
to cover operating costs. Financing may not be available on acceptable terms, or at all, and our failure to raise capital
when needed could materially adversely impact our growth plans and our financial condition or results of operations.
Additional equity financing, if available, may be dilutive to our shareholders. In addition, the Company may never be able to
generate sufficient revenue if any from its potential products.
On October 12, 2018, October 18, 2018 and
November 2, 2018 closed on financings with combined gross proceeds of $4,629,507, see Subsequent Events. As of November 12, 2018,
we have cash on hand of approximately $3.2 million.
Principles
of Consolidation
The
unaudited consolidated financial statements include the Company’s accounts and those of the Company’s wholly-owned
subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those
estimates. The significant estimates are the valuation of derivative liabilities, stock-based compensation expenses and recorded
amounts related to income taxes.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash
and Cash Equivalents
The
Company considers cash deposits and all highly liquid investments with a maturity of three months or less when purchased to be
cash equivalents. The Company’s cash deposits are held at two high-credit-quality financial institutions. The Company’s
cash deposits at these institutions exceed federally insured limits.
Patents
Costs
related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred
since recoverability of such expenditures is uncertain.
Fixed
Assets
Fixed
assets are stated at cost less accumulated depreciation. Fixed assets are comprised of computers and software, leasehold improvements,
and furniture and fixtures. Depreciation is calculated using the straight-line method over the estimated useful life of the assets.
Computers and software have an estimated useful life of three years. Furniture and fixtures have an estimated useful life of approximately
seven years.
Unit to be issued
Units to be issued represents funds received by the Company prior to the issuance of units. See Subsequent
Events footnote for sale of units in October and November 2018.
Fair
Value of Financial Instruments
The
Company’s financial instruments primarily include cash, derivative liabilities and accounts payable. Due to the short-term
nature of cash, other receivable and accounts payable the carrying amounts of these assets and liabilities approximate their fair
value. Derivatives are recorded at fair value at each period end. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting
date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies
in measuring fair value:
Fair
value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority
to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair
value hierarchy is as follows:
Level
1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date.
Level
2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset
or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally
from or corroborated by market data by correlation or other means.
Level
3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
Fair
Value on a Recurring Basis
As
required by Accounting Standard Codification (“ASC”) Topic No. 820 - 10
Fair Value Measurement
, financial assets
and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s
assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation
of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value
of the derivative instruments resulting from equity offerings in May 2014 and June 2014 have a down-round protection provision
that was calculated with the Black Scholes option pricing model. Sensitivity analysis for the Black-Scholes has many inputs and
is subject to judgement which includes volatility. Volatility is based upon the Company’s historical volatility and the
expected term is based upon the expiration date of the warrants. The estimated fair value of the derivative instruments from the
convertible promissory notes issued during the year ended June 30, 2018, which have a redemption feature was estimated using the
Monte Carlo pricing model. The assumptions used in the valuation model at September 30, 2018 consider the probability of redemption,
the length of time to maturity and the value of the redemption feature.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change
is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established
when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to
realize the benefit, or that future deductibility is uncertain. As of September 30, 2018 and June 30, 2018, the Company had recognized
a valuation allowance to the full extent of the Company’s net deferred tax assets since the likelihood of realization of
the benefit does not meet the more likely than not threshold.
The
Company files a U.S. Federal income tax return and, various state returns. Uncertain tax positions taken on the Company’s
tax returns will be accounted for as liabilities for unrecognized tax benefits. The Company will recognize interest and penalties,
if any, related to unrecognized tax benefits in general and administrative expenses in the statements of operations. There were
no liabilities recorded for uncertain tax positions at September 30, 2018 and June 30, 2018. The open tax years, subject to potential
examination by the applicable taxing authority, for the Company are from June 2015 through June 30, 2018.
Research
and Development
Research
and development costs primarily consist of research contracts for the advancement of product development, salaries and benefits,
stock-based compensation, and consultants. The Company expenses all research and development costs in the period incurred. The
Company makes an estimate of costs in relation to clinical study contracts. The Company analyzes the progress of studies, including
the progress of clinical studies and phases, invoices received and contracted costs when evaluating the adequacy of the amount
expensed and the related prepaid asset and accrued liability.
Stock-Based
Compensation
The
Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange
for the award - the requisite service period. The grant-date fair value of employee share options is estimated using the Black-Scholes
option pricing model adjusted for the unique characteristics of those instruments. Compensation expense for warrants granted to
non-employees is determined by the fair value of the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured, and is recognized over the service period. The expense is subsequently adjusted to fair value
at the end of each reporting period until such warrants vest, and the fair value of such instruments, as adjusted, is expensed
over the related vesting period. Adjustments to fair value at each reporting date may result in income or expense, depending upon
the estimate of fair value and the amount of expense recorded prior to the adjustment. The Company reviews its agreements and
the future performance obligation with respect to the unvested warrants for its vendors or consultants. When appropriate, the
Company will expense the unvested warrants at the time when management deems the service obligation for future services has ceased.
Net
Loss per Common Share
Basic
net loss per common share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders
by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents.
Diluted net loss per common share attributable to common stockholders is computed by dividing the net loss attributable to common
stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock
method. Dilutive common stock equivalents are comprised of Class A convertible preferred stock, Series A preferred stock, restricted
stock awards, options and warrants to purchase common stock. For all periods presented, there is no difference in the number of
shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
For
the three months ended September 30, 2018 and 2017, the following potentially dilutive securities were excluded from the computation
of diluted net loss per share, as the inclusion of such shares would be anti-dilutive:
|
|
Three months ended
|
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
Stock options
|
|
|
3,043,240
|
|
|
|
503,972
|
|
Restricted common stock
|
|
|
-
|
|
|
|
42,625
|
|
Common stock warrants
|
|
|
9,807,525
|
|
|
|
7,254,762
|
|
Total
|
|
|
12,850,765
|
|
|
|
7,801,359
|
|
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), whereby lessees will be required to recognize for
all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from
a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right
to use, or control the use of, a specified asset for the lease term. The new standard is effective for us on July 1, 2019. with
early adoption permitted. We expect to adopt the new standard on its effective date. A modified retrospective transition approach
is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use
either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as
its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also
apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative
period financial statements and provide the disclosures required by the new standard for the comparative periods. We expect to
adopt the new standard on July 1, 2019. and use the effective date as our date of initial application. Consequently, financial
information will not be updated and the disclosures required under the new standard will not be provided for dates and periods
before July 1, 2019.
In July 2017, the FASB issued ASU No. 2017-11,
Earnings Per Share
(Topic 260);
Distinguishing Liabilities from Equity
(Topic 480);
Derivatives and Hedging
(Topic
815): (Part I)
Accounting for Certain Financial Instruments with Down Round Features.
These amendments simplify the accounting
for certain financial instruments with down round features. The amendments require companies to disregard the down round feature
when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
This ASU is effective for Relmada beginning July 1, 2019. Early adoption is permitted. The Company is currently evaluating the
effects of this pronouncement on the consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
Compensation-Stock
Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting
, which simplifies the accounting for
share-based payments made to non-employees so the accounting for such payments is substantially the same as those made to employees.
Under this ASU, share based awards to non-employees will be measured at fair value on the grant date of the awards, entities will
need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified
according to ASC 718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted
to employees. This ASU is effective for Relmada beginning July 1, 2019. Early adoption is permitted. The Company is currently
evaluating the effects of this pronouncement on the consolidated financial statements.
NOTE
3 - PREPAID EXPENSES
Prepaid
expenses consisted of the following (rounded to nearest $00):
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
Rent
|
|
$
|
9,700
|
|
|
$
|
9,200
|
|
Research and development
|
|
|
4,900
|
|
|
|
20,800
|
|
Insurance
|
|
|
251,100
|
|
|
|
345,700
|
|
Taxes
|
|
|
6,000
|
|
|
|
-
|
|
Legal
|
|
|
24,600
|
|
|
|
10,000
|
|
Other
|
|
|
20,500
|
|
|
|
41,200
|
|
Total
|
|
$
|
316,800
|
|
|
$
|
426,900
|
|
NOTE
4 - FIXED ASSETS
Fixed
assets, net of accumulated depreciation, consisted of the following (rounded to nearest $00):
|
|
Useful lives
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
Computer and Software
|
|
3 years
|
|
$
|
16,700
|
|
|
$
|
16,700
|
|
Less: accumulated depreciation
|
|
|
|
|
(6,000
|
)
|
|
|
(4,600
|
)
|
Fixed Assets
|
|
|
|
$
|
10,700
|
|
|
$
|
12,100
|
|
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
5 - ACCRUED EXPENSES
Accrued
expenses consisted of the following (rounded to nearest $00):
|
|
September 30,
2018
|
|
June 30,
2018
|
Research and development
|
|
$
|
47,400
|
|
|
$
|
10,400
|
|
Professional fees
|
|
|
314,200
|
|
|
|
173,600
|
|
Interest on promissory notes
|
|
|
497,700
|
|
|
|
371,600
|
|
Accrued vacation
|
|
|
53,700
|
|
|
|
48,000
|
|
Other
|
|
|
53,100
|
|
|
|
55,900
|
|
Total
|
|
$
|
966,100
|
|
|
$
|
659,500
|
|
NOTE
6 - NOTES PAYABLE
In
June 2018, the Company entered into a note for approximately $285,200 in conjunction with a renewal of its director and officer
insurance policy. The interest rate was 2.35% per annum. The note matures on April 9, 2019.
At September 30, 2018 and June 30, 2018, the
note payable outstanding balances were approximately $200,200 and $285,200, respectively.
NOTE
7 - DERIVATIVE LIABILITIES
ASC Topic No. 815 -
Derivatives and Hedging
provides guidance on determining what types of instruments or embedded features in an instrument issued by a reporting entity
can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement
on accounting for derivatives. These requirements can affect the accounting for warrants and convertible preferred instruments
issued by the Company. At September 30, 2018 and June 30, 2018, the Company had warrants resulting from equity offerings in May
2014 and June 2014 that do not have fixed settlement provisions because their exercise prices may be lowered if the Company issues
securities at lower prices in the future, the Company concluded that the instruments are not indexed to the Company’s stock
and are to be treated as derivative liabilities. In determining the fair value of the derivative liabilities, the Company used
the Black-Scholes option pricing model at September 30, 2018 and June 30, 2018.
The
following is a summary of the assumptions used in the valuation model at September 30, 2018 and June 30, 2018:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Common stock issuable upon exercise of warrants
|
|
|
2,574,570
|
|
|
|
2,574,570
|
|
Market value of common stock on measurement date
|
|
$
|
1.12
|
|
|
$
|
1.01
|
|
Exercise price
|
|
$
|
7.50 and $11.25
|
|
|
$
|
7.50 and $11.25
|
|
Risk free interest rate (1)
|
|
|
2.50
|
%
|
|
|
2.33
|
%
|
Expected life in years
|
|
$
|
0.69
|
|
|
$
|
0.95
|
|
Expected volatility (2)
|
|
|
125
|
%
|
|
|
102
|
%
|
Expected dividend yields (3)
|
|
|
None
|
|
|
|
None
|
|
(1)
|
The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date.
|
(2)
|
The historical trading volatility was determined by calculating the volatility of the Company’s stock at September 30, 2018 and June 30, 2018.
|
(3)
|
The Company does not expect to pay a dividend in the foreseeable future.
|
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
7 - DERIVATIVE LIABILITIES (continued)
At September 30, 2018, the Company had
promissory notes with a redemption feature which is not clearly and closely related to the host instrument and therefore is considered
an embedded derivative which was bifurcated and recorded as a derivative liability. In determining the fair value of the derivative
liabilities, the Company used the Monte-Carlo pricing model. The assumptions used in the valuation model considers the probability
of redemption, the length of time to maturity and value of the redemption feature.
The
following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted
for at fair value on a recurring basis as of September 30, 2018:
|
|
Markets for
Identical
Assets
|
|
|
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Carrying
Value as of
September 30,
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2018
|
|
Derivative liabilities - warrant instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
59,397
|
|
|
$
|
59,397
|
|
Derivative liability –
embedded redemption feature of promissory notes
|
|
|
-
|
|
|
|
-
|
|
|
|
4,453,778
|
|
|
|
4,453,778
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,513,175
|
|
|
$
|
4,513,175
|
|
The
following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted
for at fair value on a recurring basis as of June 30, 2018:
|
|
Markets for
Identical
Assets
|
|
|
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Carrying
Value as of
June 30,
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2018
|
|
Derivative liability – warrant instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,526
|
|
|
$
|
30,526
|
|
Derivative liabilities –
embedded redemption feature of promissory notes
|
|
|
-
|
|
|
|
-
|
|
|
|
4,164,108
|
|
|
|
4,164,108
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,194,634
|
|
|
$
|
4,194,634
|
|
The
following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as level 3 in the
fair value hierarchy:
|
|
Significant Unobservable
Inputs (Level 3)
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
4,194,634
|
|
|
$
|
175,853
|
|
Fair value of derivative liabilities for redemption feature of promissory notes payable
|
|
|
289,670
|
|
|
|
2,336,456
|
|
Change in fair value of derivative liabilities - warrants
|
|
|
28,871
|
|
|
|
5,702
|
|
Ending balance
|
|
$
|
4,513,175
|
|
|
$
|
2,518,011
|
|
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
8 - PROMISSORY NOTES PAYABLE
Between September 2017 and January
2018, the Company issued two-year Convertible Promissory Notes (the “Notes”) and warrants, for aggregate gross
proceeds of $7,205,000, $6,534,400 net of direct debt issuance costs. The notes have an interest rate of 7% per annum. The
notes are convertible at the option of the holder at any time prior to maturity into shares of the Company’s common
stock at $0.75 per share. In addition, the notes automatically convert at a discount upon the Company attaining an Equity
Financing, as defined in the note agreements. An Equity Financing occurred on October 18, 2018, see Note 12 - Subsequent
Events. The warrants have a 7-year term and are exercisable at $1.50 per share for 4,803,330 common shares. The redemption
features in the Notes is an embedded derivative which has been bifurcated and are being adjusted to fair value at each
reporting period.
In
connection with the Notes, the Company incurred fees to the placement agent and other professionals. In addition, the placement
agent received 804,000 warrants exercisable into the Company’s common stock at $1.65 per share. The warrants had an aggregate
fair value of approximately $200,700 using the Black Scholes option pricing model. The fees were recorded as a reduction to the
Notes and will be amortized over the term of the Notes as additional interest using the effective interest method.
NOTE
9 - STOCKHOLDERS’ EQUITY
Units
to be Issued
During the three months ended September 30, 2018, the Company received $404,500 from investors for the
purchase of units under a private placement. Each unit offered in the private placement includes (i) one share of common stock,
and (ii) a five-year warrant to purchase 0.65 shares of common stock at an exercise price of $1.50 per share. The private placement
closed in three financings dated October 12, 2018, October 18, 2018 and November 2, 2018 (See Note 12 – Subsequent Events).
Accordingly, the $404,500 is reflected in current liabilities at September 30, 2018 as units to be issued.
Common Stock
During the three months ended September 30, 2018, the Company did
not issue any shares of common stock resulting from the exercise on a non-cash basis warrants.
Options
and warrants
In December 2014, the Board of Directors
adopted and the shareholders approved Relmada’s 2014 Stock Option and Equity Incentive Plan, as amended (the “Plan”),
which allows for the granting of common stock awards, stock appreciation rights, and incentive and nonqualified stock options to
purchase shares of the Company’s common stock to designated employees, non-employee directors, and consultants and advisors.
The Plan allows for the granting of 1,611,769 options or stock awards. In August 2015, the board approved an amendment to the Plan.
Among other things, the Plan Amendment updates the definition of “change of control” and provides for accelerated vesting
of all awards granted under the plan in the event of a change of control of the Company. In January 2017, the stockholders approved
an increase of 2,500,000 shares authorized to be issued under the Plan, raising the total shares allowed under the Plan to 4,111,769.
In December 2017 the board approved, and in February 2018 the shareholders approved, an amendment to the Plan that increased the
number of shares of Common Stock authorized for issuance under the Plan by an additional 2,500,000 shares from 4,111,768 to 6,611,768.
As of September 30, 2018, no stock appreciation rights have been issued. Stock options are exercisable generally for a period of
10 years from the date of grant and generally vest over four years. As of September 30, 2018 3,568,528 shares were available for
future grants under the Plan.
The
Company utilizes the Black-Scholes option pricing model to estimate the fair value of stock options and warrants. The price
of common stock prior to the Company being public was determined from a third party valuation. The risk-free interest rate
assumptions were based upon the observed interest rates appropriate for the expected term of the equity instruments. The
expected dividend yield was assumed to be zero as the Company has not paid any dividends since its inception and does not
anticipate paying dividends in the foreseeable future. The expected volatility was based on historical volatility. The
Company routinely reviews its calculation of volatility changes in future volatility, the Company’s life cycle, its
peer group, and other factors.
The
Company uses the simplified method for share-based compensation to estimate the expected term for employee option awards for share-based
compensation in its option-pricing model. The Company uses the contractual term for non-employee options to estimate the expected
term, for share-based compensation in its option-pricing model.
On
February 13, 2017, Mr. Michael Becker, the Company’s Chief Financial Officer, resigned and entered into a consulting agreement
with the Company to provide financial, investor, digital media, and public relations services for the Company. As a result of
Mr. Becker’s change from an employee to a consultant, his options and shares of restricted stock outstanding on such date
continued to vest pursuant to the awards’ original terms and were reclassified as non-employee awards. On December 15, 2017
Mr. Becker’s consulting agreement expired and all unvested options were cancelled.
During
the three months ended September 30, 2018, there were no options granted.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
9 - STOCKHOLDERS’ EQUITY (continued)
At September 30, 2018, the Company has
unrecognized stock-based compensation expense of approximately $1,367,000 related to unvested stock options over the weighted
average remaining service period of 2.92 years.
Options
A
summary of the changes in options during the three months ended September 30, 2018 is as follows:
|
|
Number
of
Options
|
|
|
Weighted Average Exercise Price For Share
|
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
|
Aggregate Intrinsic
Value
|
|
Outstanding and expected to vest at June 30, 2018
|
|
|
3,068,865
|
|
|
$
|
1.45
|
|
|
|
8.8
|
|
|
$
|
511,000
|
|
Forfeited
|
|
|
25,625
|
|
|
$
|
7.59
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding and expected to vest at September 30, 2018
|
|
|
3,043,240
|
|
|
$
|
1.40
|
|
|
|
8.6
|
|
|
$
|
802,500
|
|
Options exercisable at September 30, 2018
|
|
|
788,300
|
|
|
$
|
2.87
|
|
|
|
7.2
|
|
|
$
|
129,500
|
|
Warrants
A
summary of the changes in outstanding warrants during the three months ended September 30, 2018 is as follows:
|
|
Number of Shares
|
|
Weighted Average Exercise Price Per Share
|
Outstanding and vested at June 30, 2018
|
|
|
9,815,025
|
|
|
$
|
3.96
|
|
Forfeited
|
|
|
(7,500
|
)
|
|
|
-
|
|
Outstanding and vested at September 30, 2018
|
|
|
9,807,525
|
|
|
$
|
3.96
|
|
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
9 - STOCKHOLDERS’ EQUITY (continued)
During
the quarter ended September 30, 2018, the Company issued no warrants.
At
September 30, 2018 and June 30, 2018, the aggregate intrinsic value of warrants vested and outstanding was approximately $265,000
and $215,000, respectively.
The
following summarizes the components of stock-based compensation expense which includes stock options and restricted stock in the
consolidated statements of operations for the three months ended September 30, 2018 and 2017 (rounded to nearest $00):
|
|
Three Months Ended September 30,
2018
|
|
Three Months Ended September 30,
2017
|
Research and development
|
|
$
|
13,400
|
|
|
$
|
7,100
|
|
General and administrative
|
|
|
139,400
|
|
|
|
61,800
|
|
Total
|
|
$
|
152,800
|
|
|
$
|
68,900
|
|
NOTE
10 - RELATED PARTY TRANSACTIONS
Consulting
Agreements
On
August 4, 2015, the Company entered into an Advisory and Consulting Agreement with Sandesh Seth, the Company’s Chairman
of the Board. The effective date of the consulting agreement is June 30, 2015. Mr. Seth has substantial experience in, among other
matters, business development, corporate planning, corporate finance, strategic planning, investor relations and public relations,
and an expansive network of connections spanning the biopharmaceutical industry, accounting, legal and corporate communications
professions. Mr. Seth will provide advisory and consulting services to assist the Company with strategic advisory services, assist
in prioritizing product development programs per strategic objectives, assist in recruiting of key personnel and directors, corporate
planning, business development activities, corporate finance advice, and assist in investor and public relations services. In
consideration for the services to be provided, the Company agreed to pay Mr. Seth $12,500 per month on an ongoing basis. On June
6, 2017, Mr. Seth resigned from the Company to focus his attention on matters external to Relmada. The Company agreed to continue
its advisory and consulting arrangement with Mr. Seth until December 31, 2017.
On
June 12, 2017, the Company and Maged Shenouda, a director of the Company, entered into a Consulting Agreement. Pursuant to the
terms of the agreement, Mr. Shenouda will assist the Company with matters that may be requested by the Company. Mr. Shenouda will
be paid a consulting fee of $10,000 per month. The term of the agreement is for one year. On November 13, 2017, Mr. Shenouda and
the Company agreed to terminate the Consulting Agreement effective December 31, 2017.
NOTE
11 - COMMITMENTS AND CONTINGENCIES
Legal
From
time to time, the Company may become involved in lawsuits and other legal proceedings that arise in the course of business. Litigation
is subject to inherent uncertainties, and it is not possible to predict the outcome of litigation with total confidence. Except
as disclosed below, the Company is currently not aware of any legal proceedings or potential claims against it whose outcome would
be likely, individually or in the aggregate, to have a material adverse effect on the Company’s business, financial condition,
operating results, or cash flows.
In
2014, Relmada dismissed with prejudice its lawsuit against Najib Babul, which had sought to compel Dr. Babul, Relmada’s
former President, to account for questionable expenditures of Relmada funds made while Babul controlled the Company. Relmada’s
decision to end its claims was informed by the fact that Babul came forward with plausible explanations for some of the expenditures,
and the fact that, because Babul was a former officer and director of Relmada being sued for his conduct in office, the Company
was required to advance his expenses of the litigation; hence, Relmada was paying all the lawyers and consultants on both sides
of the dispute. Relmada also agreed to reinstate certain stock purchase warrants in Babul’s name, which had been cancelled
during the pendency of the litigation, and offered Babul the right to exchange his shares in Relmada Therapeutics, Inc. (a Delaware
corporation and subsidiary of the Company) for shares in the Company.
Relmada
Therapeutics, Inc.
Notes
to Unaudited Consolidated Financial Statements
NOTE
11 - COMMITMENTS AND CONTINGENCIES (continued)
Babul
has brought a second lawsuit against Relmada. Ruling on Relmada’s Motion to Dismiss, the United States District Court for
the Eastern District of Pennsylvania dismissed Babul’s claims for breach of contract and intentional infliction of emotional
distress, and left intact his claims for defamation, and wrongful use of civil process. Litigation is an inherently uncertain
process, and there can be no assurances with respect to either the outcome or the consequences of this litigation. A trial date
is scheduled for February 2019. The Company recorded no contingent liability associated with litigation during the three months
ended September 30, 2018.
Leases
and Sublease
The Company leases its corporate headquarters
at 750 Third Avenue, 9th Floor, New York, New York 10017. The monthly rental fee for is $9,454 per month. The lease expires on
January 31, 2019.
On
March 10, 2016 and effective as of January 1, 2016, the Company entered into an Office Space License Agreement (the “License”)
with Actinium Pharmaceuticals, Inc. (“Actinium”), with whom the Company shared two common board members until June
6, 2017, for the office space. The term of the License is three years from the effective date, with an automatic renewal provision.
The cost of the License is approximately $16,620 per month for Actinium, subject to customary escalations and adjustments. The
Company recorded the license fees as other income in the consolidated statements of operations.
On
June 6, 2017, the landlord and the Company agreed to assign the Lease for all of the office space to Actinium, pursuant to an
Assignment and Consent Agreement. As of such date all rights, titles, and interest to the Lease, including related duties, liabilities,
and obligations, were transferred from the Company to Actinium for a gain of $101,597.
On June 8, 2017, the Company entered into
an Amended and Restated License Agreement with Actinium. Pursuant to the terms of the agreement, Actinium will continue to license
the furniture, fixtures, equipment and tenant improvements located in the office (“FFE”) for a license fee of $7,529
per month until December 8, 2022. Actinium shall have at any time during the term of this agreement the right to purchase the
FFE for $496,914, less any previously paid license fees. The license of FFE qualifies as a sales-type lease. At inception, the
Company derecognized the underlying assets of $493,452, recognized discounted lease payments receivable of $397,049 using the
discount rate of 8.38% and recognized loss on sales-type lease of fixed assets of $96,403. As of September 30, 2018, the balance
of unearned interest income was approximately $61,869.
Contractual
Obligations
The
following tables sets forth our contractual obligations for the next five years and thereafter:
|
|
Total
|
|
|
Less than
1 year
|
|
|
1 - 2 years
|
|
|
3 - 5 years
|
|
|
More than
5 years
|
|
Office lease
|
|
$
|
37,820
|
|
|
$
|
37,820
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note payable
|
|
|
200,200
|
|
|
|
200,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible promissory notes payable
|
|
|
7,205,000
|
|
|
|
4,480,000
|
|
|
|
2,725,000
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
7,443,020
|
|
|
$
|
4,718,020
|
|
|
$
|
2,725,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
12 - SUBSEQUENT EVENTS
On October 12, 2018, October 18, 2018 and November 2, 2018, Relmada closed on its private placement of
securities pursuant to Unit Purchase Agreements, dated as of October 12, 2018, October 18, 2018 and November 2, 2018 and Subscription
Agreements, dated as of October 12, 2018, October 18, 2018 and November 2, 2018, with investors pursuant to which the investors
at the closings purchased (i) an aggregate of 5,143,896 shares of common stock (the “Shares”) at $0.90 per share and
(ii) five-year warrants to purchase an aggregate of 3,343,532 shares of common stock at an exercise price of $1.50 per share (the
“Warrants”). The Company received $4,629,507 in gross proceeds from the sale of securities under the Unit Purchase
Agreements.
In connection with the closings, the
placement agent received cash fees of $442,267 and warrants to purchase 670,101 shares of common stock at an exercise price
of $0.99 per share.
As required by the Unit Purchase Agreements,
the investors also became parties to Registration Rights Agreements dated as of October 12, 2018, October 18, 2018 and November
2, 2018 pursuant to which the Company will be required to register with the Securities and Exchange Commission such common shares
and the shares of common stock underlying the warrants. If the registration statement is not filed or declared effective within
the timeframe set forth in the Registration Rights Agreements, the Company is obligated to pay the investors an amount equal to
1% of the total purchase price of the securities per month (up to a maximum of 6% in the aggregate) until such failure is cured.
As a result of the closings, the principal
and accumulated interest on Relmada’s outstanding 7% Convertible Promissory Notes issued in 2017 and 2018 (see Note 8: Promissory
Note) automatically converted into 10,731,669 shares of its common stock, based on a conversion price of $0.72 per share. The derivative
liability associated with the conversion feature of the Convertible Promissory Notes, was reclassified as paid in capital in October
2018.