The accompanying notes are an integral part of these unaudited consolidated financial statements.
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 2 for the treatment of major depressive disorder.
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 $6,830,774 for the nine months ended March 31, 2019 and accumulated
deficit of $107,539,775 from inception through March 31, 2019. These conditions raise doubt as to the Company’s ability to
continue as a going concern for one year after the date the financial statements are issued. These financial statements do not
include any adjustments that might be necessary if the Company is unable to continue as a going concern. We 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.
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.
Fair
Value of Financial Instruments
The
Company’s financial instruments primarily include cash, accounts payable and notes payable. Due to the short-term nature
of cash, accounts payable and notes payable the carrying amounts of these assets and liabilities approximate their 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, prior to the adoption of ASU 2017-11, 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, prior to the debt conversion. On the date of debt conversion, when
the conversion price of the notes was established and there was no uncertainty as to the conversion of the debt, the estimated
fair value of the derivative instrument from the convertible promissory notes was valued using the Black-Scholes model which closely
approximates the value under the Monte Carlo pricing model.
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 March 31, 2019 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 March 31, 2019 and June 30, 2018. The open tax years, subject to potential
examination by the applicable taxing authority, for the Company are from June 30, 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 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.
Loss
per Common Share
Basic
loss per common share attributable to common stockholders is calculated by dividing the loss attributable to common stockholders
by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents.
Diluted 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 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 nine months ended March 31, 2019 and 2018, 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:
|
|
|
Nine months ended
|
|
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
Stock options
|
|
|
5,743,240
|
|
|
|
2,573,240
|
|
|
Common stock warrants
|
|
|
16,047,775
|
|
|
|
9,816,025
|
|
|
Total
|
|
|
21,791,015
|
|
|
|
12,389,265
|
|
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. The Company is still evaluating the expected impact on its financials.
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.
The Company elected to early adopt ASU 2017-11 effective October 1, 2018.
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. The Company elected to early adopt ASU 2018-07 effective October 1, 2018 and will apply the guidance to any future
equity-classified share based awards to nonemployees.
NOTE
3 – PREPAID EXPENSES
Prepaid
expenses consisted of the following (rounded to nearest $00):
|
|
|
March 31,
2019
|
|
|
June 30,
2018
|
|
|
Rent
|
|
$
|
-
|
|
|
$
|
9,200
|
|
|
Research and development
|
|
|
-
|
|
|
|
20,800
|
|
|
Insurance
|
|
|
115,200
|
|
|
|
345,700
|
|
|
Legal
|
|
|
12,100
|
|
|
|
10,000
|
|
|
Other
|
|
|
80,500
|
|
|
|
41,200
|
|
|
Total
|
|
$
|
207,800
|
|
|
$
|
426,900
|
|
NOTE
4 – FIXED ASSETS
Fixed
assets, net of accumulated depreciation, consisted of the following (rounded to nearest $00):
|
|
|
Useful lives
|
|
March 31,
2019
|
|
|
June 30,
2018
|
|
|
Computer and software
|
|
3 years
|
|
$
|
16,700
|
|
|
$
|
16,700
|
|
|
Less: accumulated depreciation
|
|
|
|
|
(8,400
|
)
|
|
|
(4,600
|
)
|
|
Fixed assets
|
|
|
|
$
|
8,300
|
|
|
$
|
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):
|
|
|
March 31,
2019
|
|
|
June 30,
2018
|
|
|
Research and development
|
|
$
|
9,700
|
|
|
$
|
10,400
|
|
|
Professional fees
|
|
|
132,900
|
|
|
|
173,600
|
|
|
Interest on promissory notes
|
|
|
-
|
|
|
|
371,600
|
|
|
Accrued vacation
|
|
|
77,800
|
|
|
|
48,000
|
|
|
Litigation settlement, net
|
|
|
750,000
|
|
|
|
-
|
|
|
Other
|
|
|
50,600
|
|
|
|
55,900
|
|
|
Total
|
|
$
|
1,021,000
|
|
|
$
|
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 matured on April 9, 2019.
At
March 31, 2019 and June 30, 2018, the note payable outstanding balances were approximately $28,800 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
March 31, 2019 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.
Until
September 30, 2018, the Company followed ASC Topic No 815 and treated the warrants as derivative liabilities. In determining the
fair value of the derivative liabilities, the Company used the Black-Scholes option pricing model at September 30 and June 30,
2018.
As
noted in Note 2, the Company elected to early adopt ASU 2017-11 and reversed the derivative liability into equity effective July
1, 2018. The warrants balance of $59,397 was reversed to equity effective July 1, 2018.
The
following is a summary of the assumptions used in the valuation model at June 30, 2018:
|
|
|
June 30,
|
|
|
|
|
2018
|
|
|
Common stock issuable upon exercise of warrants
|
|
|
2,574,570
|
|
|
Market value of common stock on measurement date
|
|
$
|
1.01
|
|
|
Exercise price
|
|
|
$7.50 and $11.25
|
|
|
Risk free interest rate (1)
|
|
|
2.33
|
%
|
|
Expected life in years
|
|
$
|
0.95
|
|
|
Expected volatility (2)
|
|
|
102
|
%
|
|
Expected dividend yields (3)
|
|
|
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.
|
|
(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)
Until
October 18, 2018, the Company had promissory notes with a redemption feature that was 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.
On October 12 and 18, 2018, the Company conducted closings on its private placement of securities.
As a result of these closings, the outstanding promissory notes converted into common stock. The redemption feature associated
with the promissory notes was valued on October 18, 2018 using the Black-Scholes model. The change in value of the derivative between
October 1, 2018 and the October 18, 2018 was recorded as income. The notes were converted to common stock on October 18, 2018.
The
Company had no financial liabilities accounted for at fair value on a recurring basis as of March 31, 2019.
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 for the nine months ended March 31, 2019 and 2017:
|
|
|
Nine months ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Beginning balance
|
|
$
|
4,194,634
|
|
|
$
|
175,853
|
|
|
Adoption of ASU 2017-11 – warrants
|
|
|
(59,397
|
)
|
|
|
-
|
|
|
Fair value of derivative liabilities for redemption feature of promissory notes payable
|
|
|
-
|
|
|
|
3,862,095
|
|
|
Change in fair value of derivative liabilities
|
|
|
54,634
|
|
|
|
(80,542
|
)
|
|
Extinguishment of derivative liabilities on conversion of promissory notes.
|
|
|
(4,189,871
|
)
|
|
|
-
|
|
|
Ending balance
|
|
$
|
-
|
|
|
$
|
3,957,406
|
|
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 had an interest rate of 7% per annum.
As a result of financings in October 2018,
the principal and accumulated interest on the Convertible Promissory Notes was automatically converted into 10,731,669 shares of
its common stock in accordance with the terms of the Notes. This resulted in a loss on extinguishment of debt, a non cash item,
of approximately $3,774,500 in the quarter ended December 31, 2018.
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
During the nine months ended March 31,
2019, the Company closed on private placements of securities pursuant to Unit Purchase Agreements and Subscription Agreements,
each dated as shown below. The price per unit (comprising one common stock and a warrant to purchase 0.65 common stock) was $0.90.
The Company issued an aggregate of 7,288,225 shares of common stock to investors in these closings, for net proceeds of $5,941,547.
|
Date of closing
|
|
Common Stock Issued
|
|
|
Warrants issued
|
|
|
Unit Price
|
|
|
Net proceeds
|
|
|
October 12, 2018
|
|
|
2,004,106
|
|
|
|
1,302,669
|
|
|
$
|
0.90
|
|
|
$
|
1,630,991
|
|
|
October 18, 2018
|
|
|
1,640,334
|
|
|
|
1,066,218
|
|
|
$
|
0.90
|
|
|
$
|
1,287,007
|
|
|
November 2, 2018
|
|
|
1,499,456
|
|
|
|
974,645
|
|
|
$
|
0.90
|
|
|
$
|
1,215,242
|
|
|
December 5, 2018
|
|
|
1,338,775
|
|
|
|
870,200
|
|
|
$
|
0.90
|
|
|
$
|
1,083,307
|
|
|
February 12, 2019
|
|
|
805,554
|
|
|
|
523,610
|
|
|
$
|
0.90
|
|
|
$
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,288,225
|
|
|
|
4,737,342
|
|
|
|
|
|
|
$
|
5,941,547
|
|
The
exercise price of each warrant issued to investors was $1.50 with a 5-year term. Approximately $40,000 of legal costs were incurred
that were not allocated to the individual closings.
In addition to the above, on March 27,
2019, the Company closed on a private placement of securities pursuant to Unit Purchase Agreements and Subscription Agreements
dated March 27, 2019. The price per unit of the March 27, 2019 Units (comprising one common stock and a warrant to purchase 0.50
common stock) was $1.40. The Company issued an aggregate of 714,285 shares of common stock and 357,142 warrants to investors in
these closings, for net proceeds of $1,000,000. The exercise price of the March 27, 2019 warrants was $2.25.
The October 12, 2018 and October 18, 2018
financings represented an Equity Financing as defined in the Convertible Promissory Note agreement.
As
a result of the
October 12, 2018 and October 18, 2018 financings
, the Company’s
outstanding 7% Convertible Promissory Notes and accumulated interest converted into 10,731,669 shares of common stock.
Placement Agent Warrants
During the nine months ended March 31,
2019, the Company additionally issued an aggregate of 854,334 warrants to the placement agent in connection with the closings.
The agent warrants have an exercise price of $0.99, are non-cancellable, vest upon issuance and expire on the fifth anniversary
of the warrant date of issuance.
Options
In December 2014, the Board of Directors adopted and the shareholders approved Relmada’s 2014 Stock
Option and Equity Incentive Plan, as amended (the “Plan”), which allows for the granting of common stock awards, stock
appreciation rights, and incentive and nonqualified stock options to purchase shares of the Company’s common stock to designated
employees, non-employee directors, and consultants and advisors. The Plan allowed 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 4,111,768. 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. In December 2018 the Board of Directors approved
an amendment to the Plan to increase the number of shares of common stock authorized for issuance under the Plan by an additional
4,000,000 shares from 6,611,768 to 10,611,768.
Stock options are exercisable generally
for a period of 10 years from the date of grant and generally vest over four years. As of March 31, 2019, 4,868,528 shares were
available for future grants under the Plan.
As of March 31, 2019, no stock appreciation
rights have been issued.
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. Prior to the adoption of ASU 2018-07 on October 1, 2018, the Company used the contractual term for non-employee options
to estimate the expected term, for share-based compensation in its option-pricing model.
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
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.
On December 20, 2018, the Company awarded
a total of 2,700,000 options to its chief executive officer, chief medical officer and board members with exercise price of $1.15
and a 10-year term vesting over 4-year period. The options have an aggregate fair value of $2.5 million calculated using the Black-Scholes
option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 2.69% (2) expected
life of 6.25 years, (3) expected volatility of 102.3%, and (4) zero expected dividends.
At March 31, 2019, the Company has unrecognized
stock-based compensation expense of approximately $3,448,900 related to unvested stock options over the weighted average remaining
service period of 3.35 years.
Options
A summary of the changes in options during
the nine months ended March 31, 2019 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
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Issued
|
|
|
2,700,000
|
|
|
$
|
1.15
|
|
|
|
9.7
|
|
|
$
|
1,674,000
|
|
|
Outstanding and expected to vest at March 31, 2019
|
|
|
5,743,240
|
|
|
$
|
1.28
|
|
|
|
8.9
|
|
|
$
|
4,199,110
|
|
|
Options exercisable at March 31, 2019
|
|
|
1,278,687
|
|
|
$
|
2.22
|
|
|
|
7.6
|
|
|
$
|
799,763
|
|
Warrants
A summary of the changes in outstanding warrants during the
nine months ended March 31, 2019 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
|
)
|
|
|
4.00
|
|
|
Issued
|
|
|
6,240,247
|
|
|
|
1.46
|
|
|
Outstanding and vested at March 31, 2019
|
|
|
16,047,772
|
|
|
$
|
2.15
|
|
Included in the warrants outstanding at June
30, 2018, and March 31, 2019 are 2,574,570 warrants with an exercise price that is subject to downward adjustment on the sale
of equity at prices below their original exercise price. The issuance of common stock in the three months ended March 31, 2019
resulted in a reduction of the exercise price of these warrants. This reduction had a di minimis effect on the financial statements.
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
On December 20, 2018, the Company granted
100,000 warrants to a contractor with exercise price of $1.15, a 10-year term and immediate vesting. The warrants have an aggregated
fair value of $93,762 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing
model include: (1) discount rate of 2.69% (2) expected life of 6.25 years, (3) expected volatility of 102.3%, and (4) zero expected
dividends.
On January 1, 2019, the Company granted
120,000 warrants to a contractor with exercise price of $1.15, a 10-year term and quarterly vesting over four years vesting. The
warrants have an aggregated fair value of $112,183 that was calculated using the Black-Scholes option-pricing model. Variables
used in the Black-Scholes option-pricing model include: (1) discount rate of 2.49% (2) expected life of 6.25 years, (3) expected
volatility of 102.0%, and (4) zero expected dividends.
On March 9, 2019, the Company granted 71,429
warrants to a consultant with exercise price of $1.75, a 5-year term and immediate vesting. The warrants have an aggregated fair
value of $95,131 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing
model include: (1) discount rate of 2.42% (2) expected life of 5 years, (3) expected volatility of 102.0%, and (4) zero expected
dividends.
At March 31, 2019 and June 30, 2018, the aggregate intrinsic value of warrants vested and outstanding
was approximately $4,057,000 and $215,000, respectively.
The following summarizes the components of stock-based compensation expense which includes stock options
in the consolidated statements of operations for the nine months ended March 31, 2019 and 2018 (rounded to nearest $00):
|
|
|
Nine months ended March 31,
2019
|
|
|
Nine months ended March 31,
2018
|
|
|
Research and development
|
|
$
|
65,700
|
|
|
$
|
44,500
|
|
|
General and administrative
|
|
|
744,800
|
|
|
|
320,700
|
|
|
Total
|
|
$
|
810,500
|
|
|
$
|
365,200
|
|
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.
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Legal
On February 6, 2019 the Company entered
into a settlement agreement with Najib Babul, Relmada’s former President. Dr Babul relinquished his 303,392 shares in Relmada
and signed a consulting contract and Relmada committed to a $500,000 initial payment and four subsequent payments of $250,000 on
March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019. For accounting purposes no fair value was attributed to
the consulting agreement.
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. 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.
Leases and Sublease
The Company leased its corporate headquarters
at 750 Third Avenue, 9th Floor, New York, New York 10017. The monthly rental fee was $9,454 per month. The lease was terminated
effective January 1, 2019. Effective January 1, 2019, the Company entered a one year lease for its headquarters at 880 Third Avenue,
12
th
floor, New York, NY 10022. The annualized monthly rent for 2019 is approximately $7,500.
On June 8, 2017, the Company entered into
an Amended and Restated License Agreement with Actinium Pharmaceuticals, Inc. (“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 March 31, 2019, the balance of unearned interest income was approximately $48,900.
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
|
|
$
|
67,500
|
|
|
$
|
67,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Note payable
|
|
|
28,800
|
|
|
|
28,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total obligations
|
|
$
|
96,300
|
|
|
$
|
96,300
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 12 – SUBSEQUENT EVENTS
On April 1, 2019 the Company awarded 150,000
options to a new employee with exercise price of $1.76 and a 10-year term vesting over 4-year period. The options have an aggregate
fair value of $213,803 calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing
model include: (1) discount rate of 2.31% (2) expected life of 6.25 years, (3) expected volatility of 101.5%, and (4) zero expected
dividends.
On April 12, 2019,
the Company filed a Certificate of Amendment to its Articles of Incorporation to increase the number of authorized shares of the
Company’s common stock from 100,000,000 to 200,000,000 shares.
On April 15, 2019, the Company executed an
amendment to the Company’s 2014 Stock Option and Equity Incentive Plan. The amendment increases the number of shares of common
stock that the Company is authorized to issue under the plan to 10,111,718 shares.
On May 14,
2019, the Company closed on a private placement of securities pursuant to Unit Purchase Agreements and Subscription
Agreements dated May 14, 2019. The price per unit of the May 14, 2019 Units (comprising one common stock and a warrant to
purchase 0.50 common stock) was $1.50. The Company issued an aggregate of 2,276,329 shares of common stock and 1,138,161
warrants to investors in this closing, for net proceeds of approximately $3,106,000. The exercise price of the May 14, 2019
investor warrants was $2.25 and they have a term of five years. The Company additionally issued warrants to brokers who acted as
co-placement agents with respect to the private placement.
One agent received warrants to purchase 48,433
shares at an exercise price of $1.65 and the other agent a warrant to purchase 99,000 shares of common stock at an exercise price
of $2.25. Both warrants have a term of 5 years. The warrants have aggregate fair value of $66,800 and $122,942 respectively, calculated
using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate
of 2.26% (2) expected life of 5 years, (3) expected volatility of 101%, and (4) zero expected dividends.