Form: 6-K

Current report of foreign issuer pursuant to Rules 13a-16 and 15d-16 Amendments

October 14, 2015

Exhibit 99.2

 

 

 

Interim Financial Statements of

(Unaudited)

 

Acasti pharma inc.

 

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

Notice:

 

These interim financial statements have not been reviewed by the Corporation’s auditors.

 

 

 

 
 

Acasti pharma inc.

Interim Financial Statements

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

Financial Statements

 

Interim Statements of Financial Position 1
Interim Statements of Earnings and Comprehensive Loss 2
Interim Statements of Changes in Equity 3
Interim Statements of Cash Flows 4
Notes to Interim Financial Statements 5

 
 

Acasti Pharma inc.

Interim Statements of Financial Position

(Unaudited)

 

As at August 31, 2015 and February 28, 2015

             
    August 31,     February 28,  
    2015     2015  
Assets                
                 
Current assets:                
Cash   $ 2,605,257     $ 1,310,556  
Short-term investments     13,161,025       17,071,344  
Trade and other receivables     194,896       384,886  
Receivable from corporation under common control     49,658       49,658  
Tax credits receivable     164,832       419,992  
Inventories     78,888       87,370  
Prepaid expenses     162,586       318,457  
      16,417,142       19,642,263  
                 
Equipment     197,598       69,937  
Intangible assets     16,412,760       17,495,905  
                 
Total assets   $ 33,027,500     $ 37,208,105  
                 
Liabilities and Equity                
                 
Current liabilities:                
Trade and other payables   $ 1,080,934     $ 1,083,847  
Payable to parent corporation (note 8 (b))     141,583       538,531  
      1,222,517       1,622,378  
                 
Derivative warrant liabilities (notes 4 and 10)     625,327       2,357,408  
Total liabilities     1,847,844       3,979,786  
                 
Equity (note 4):                
Share capital     61,860,291       61,627,743  
Contributed surplus     4,836,521       4,911,381  
Deficit     (35,517,156 )     (33,310,805 )
Total equity     31,179,656       33,228,319  
                 
Commitments and contingencies (note 7)                
Subsequent event (note 11)                
                 
Total liabilities and equity   $ 33,027,500     $ 37,208,105  

 

 See accompanying notes to unaudited interim financial statements.

 

1
 

Acasti pharma INC.

Interim Statements of Earnings and Comprehensive Loss

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

             
    Three-month periods ended     Six-month periods ended  
    August 31,     August 31,  
    2015     2014     2015     2014  
                         
Revenue from sales   $ 6,999     $ 7,539     $ 12,153     $ 63,612  
Cost of sales     (2,334 )     (4,511 )     (4,989 )     (30,542 )
Gross profit     4,665       3,028       7,164       33,070  
                                 
Research and development expenses, net of tax credits of $15,912 and $28,912 (2014 - $38,008 and $56,415)     (1,115,742 )     (1,802,899 )     (2,462,265 )     (3,021,892 )
General and administrative expenses     (1,048,973 )     (1,655,355 )     (2,314,030 )     (3,437,184 )
Loss from operations
    (2,160,050 )     (3,455,226 )     (4,769,131 )     (6,426,006 )
                                 
Finance income (note 5)     920,473       62,534       2,564,771       4,370,594  
Finance costs (note 5)     (1,028 )     (319,483 )     (1,991 )     (300,342 )
Net finance income (expense)
    919,445       (256,949 )     2,562,780       4,070,252  
                                 
Net loss and total comprehensive loss for the period   $ (1,240,605 )   $ (3,712,175 )   $ (2,206,351 )   $ (2,355,754 )
                                 
Basic and diluted loss per share   $ (0.01 )   $ (0.03 )   $ (0.02 )   $ (0.02 )
                                 
Weighted average number of shares outstanding     106,550,106       106,227,896       106,476,162       106,048,298  

 

See accompanying notes to unaudited interim financial statements.

 

2
 

Acasti pharma INC.

Interim Statements of Changes in Equity

(Unaudited)

 

Six-month periods ended August 31, 2015 and 2014

                               
    Share capital           Contributed              
    Number     Dollar     Warrants     surplus     Deficit     Total  
                                                 
Balance, February 28, 2015     106,444,012     $ 61,627,743     $     $ 4,911,381     $ (33,310,805 )   $ 33,228,319  
                                                 
Net loss and total comprehensive loss for the period                             (2,206,351 )     (2,206,351 )
      106,444,012       61,627,743             4,911,381       (35,517,156 )     31,021,968  
                                                 
Transactions with owners, recorded directly in equity                                                
Contributions by and distribution to owners                                                
Share-based payment transactions (note 6)                       157,063             157,063  
Share options exercised (note 6)     2500       625                         625  
RSUs released (note 6)     169,750       231,923             (231,923 )            
Total contributions by and distribution to owners     172,250       232,548             (74,860 )           157,688  
                                                 
Balance at August 31, 2015     106,616,262     $ 61,860,291     $     $ 4,836,521     $ (35,517,156 )   $ 31,179,656  
                                                 
Balance, February 28, 2014     105,862,179     $ 61,027,307     $ 406,687     $ 3,501,587     $ (31,656,081 )   $ 33,279,500  
                                                 
Net loss and total comprehensive loss for the period                             (2,355,754 )     (2,355,754 )
      105,862,179       61,027,307       406,687       3,501,587       (34,011,835 )     30,923,746  
                                                 
Transactions with owners, recorded directly in equity                                                
Contributions by and distribution to owners                                                
Share-based payment transactions (note 6)                       1,115,181             1,115,181  
Share options exercised (note 6)     200,000       50,000                         50,000  
RSUs released (note 6)     197,999       285,361             (285,361 )            
Total contributions by and distribution to owners     397,999       335,361             829,820             1,165,181  
                                                 
Balance at August 31, 2014     106,260,178     $ 61,362,668     $ 406,687     $ 4,331,407     $ (34,011,835 )   $ 32,088,927  

 

See accompanying notes to unaudited interim financial statements.

 

3
 

ACASTI PHARMA INC.

Interim Statements of Cash Flows

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

             
    Three-month periods ended     Six-month periods ended  
    August 31,     August 31,  
    2015     2014     2015     2014  
Cash flows from operating activities:                                
Net loss for the period   $ (1,240,605 )   $ (3,712,175 )   $ (2,206,351 )   $ (2,355,754 )
Adjustments:                                
Depreciation of equipment     11,416       913       15,665       1,827  
Amortization of intangible assets     583,193       584,318       1,166,789       1,165,785  
Stock-based compensation     81,430       421,369       157,063       1,115,181  
Net finance (income) expenses     (919,445 )     256,949       (2,562,780 )     (4,070,252 )
Realized foreign exchange gain (loss)     15,344       (5,734 )     12,486       (11,016 )
      (1,468,667 )     (2,454,360 )     (3,417,128 )     (4,154,229 )
                                 
Changes in non-cash operating working capital items:                                
Trade and other receivables     77,543       73,492       189,990       278,986  
Tax credits receivable     (15,912 )     (38,008 )     255,160       (56,415 )
Inventories     4,063       6,724       8,482       (25,687 )
Prepaid expenses     51,793       121,374       155,871       392,034  
Receivable from parent corporation                       47,140  
Trade and other payables     (107,501 )     (269,663 )     (49,232 )     243,858  
Payable to parent corporation     (830,631 )     716,154       (396,948 )     929,166  
      (820,645 )     610,073       163,323       1,809,082  
                                 
Net cash used in operating activities
    (2,289,312 )     (1,844,287 )     (3,253,805 )     (2,345,147 )
                                 
Cash flows from investing activities:                                
Interest received     80,412       10,287       92,300       30,875  
Acquisition of equipment     (14,554 )     (34,650 )     (143,326 )     (34,650 )
Addition of intangible assets     (37,325 )     (13,226 )     (37,325 )     (21,966 )
Acquisition of short-term investments     (2,512,000 )     (13,958,100 )     (2,512,000 )     (14,478,186 )
Maturity of short-term investments     6,083,700       15,556,811       7,083,700       16,056,811  
Net cash from investing activities
    3,600,233       1,561,122       4,483,349       1,552,884  
                                 
Cash flows from financing activities:                                
Proceeds from exercise of options     625             625       50,000  
Interest paid     (1,028 )     (1,784 )     (1,991 )     (1,949 )
Net cash (used in) from financing activities
    (403 )     (1,784 )     (1,366 )     48,051  
                                 
Foreign exchange gain on cash held in foreign currencies     69,912       7,551       66,523       2,548  
Net increase (decrease) in cash
    1,380,430       (277,398 )     1,294,701       (741,664 )
                                 
Cash, beginning of period     1,224,827       211,224       1,310,556       675,490  
                                 
Cash (bank indebtedness), end of period   $ 2,605,257     $ (66,174 )   $ 2,605,257     $ (66,174 )
                                 
Supplemental cash flow disclosure:                                
Non-cash transaction:                                
Acquired intangible assets included in trade and other payables   $ 46,319     $     $ 46,319     $  
                                 

 

See accompanying notes to unaudited interim financial statements.

 

4
 

acasti pharma INC.

Notes to Interim Financial Statements

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

1. Reporting entity

Acasti Pharma Inc. (the "Corporation") is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 545, Promenade du Centropolis, Laval, Québec, H7T 0A3. The Corporation is a subsidiary of Neptune Technologies and Bioressources Inc. (“Neptune”).

 

On August 7, 2008, the Corporation commenced operations after having acquired from Neptune an exclusive worldwide license to use its intellectual property to develop, clinically study and market new pharmaceutical products to treat human cardiovascular conditions. Neptune’s intellectual property is related to the extraction of particular ingredients from marine biomasses, such as krill. The eventual products are aimed at applications in the over-the-counter medicine, medical foods and prescription drug markets.

 

Operations essentially consist in the development of new products and the conduct of clinical research studies on animals and humans. Almost all research and development, administration and capital expenditures incurred by the Corporation since the start of the operations are associated with the project described above.

 

The Corporation is subject to a number of risks associated with the successful development of new products and their marketing, the conduct of its clinical studies and their results, the meeting of development objectives set by Neptune in its license agreement, and the establishment of strategic alliances. The Corporation has incurred significant operating losses and negative cash flows from operations since inception. To date, the Corporation has financed its operations through public offering and private placement of common shares, proceeds from exercises of warrants, rights and options and research tax credits. To achieve the objectives of its business plan, the Corporation plans to establish strategic alliances, raise the necessary capital and make sales. It is anticipated that the products developed by the Corporation will require approval from the U.S Food and Drug Administration and equivalent organizations in other countries before their sale can be authorized. The ability of the Corporation to ultimately achieve profitable operations is dependent on a number of factors outside of the Corporation’s control.

 

2. Basis of preparation

(a) Statement of compliance:

 

These interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (IASB), on a basis consistent with those accounting policies followed by the Corporation in the most recent audited annual financial statements. Certain information, in particular the accompanying notes, normally included in the annual financial statements prepared in accordance with IFRS has been omitted or condensed. Accordingly the condensed interim financial statements do not include all of the information required for full annual financial statements, and therefore, should be read in conjunction with the audited financial statements and the notes thereto for the year ended February 28, 2015.

 

The financial statements were authorized for issue by the Board of Directors on October 14, 2015.

 

(b) Basis of measurement:

 

The financial statements have been prepared on the historical cost basis, except for:

 

· Stock-based compensation which is measured pursuant to IFRS 2, Share-based payments (note 6); and,

 

· Derivative warrant liabilities measured at fair value on a recurring basis (note 10).

 

(c) Functional and presentation currency:

 

These financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.

 

(d) Use of estimates and judgments:

 

The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates are based on management’s best knowledge of current events and actions that the Corporation may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

 

5
 

acasti pharma INC.

Notes to Interim Financial Statements, Continued

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

2. Basis of preparation (continued):

(d) Use of estimates and judgments (continued):

 

Critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements include the following:

 

· Identification of triggering events indicating that the intangible assets might be impaired.

 

· The use of the going concern basis of preparation of the financial statements. At each reporting period, management assesses the basis of preparation of the financial statements. These financial statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of presentation assumes that the Corporation will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

 

Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year include the following:

 

· Measurement of derivative warrant liabilities (note 10) and stock-based compensation (note 6).

 

· Allocation of shared costs with Neptune, its parent company (note 8).

 

Also, management uses judgment to determine which research and development (“R&D”) expenses qualify for R&D tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and therefore, could be different from the amounts recorded.

 

3. Significant accounting policies:

The accounting policies and basis of measurement applied in these interim financial statements are the same as those applied by the Corporation in its financial statements for the year ended February 28, 2015.

 

New standards and interpretations not yet adopted:

 

(i) Financial instruments:

 

On July 24, 2014, the International Accounting Standards Board (IASB) issued the final version of IFRS 9, Financial Instruments, which addresses the classification and measurement of financial assets and liabilities, impairment and hedge accounting, replacing IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The Corporation has not yet assessed the impact of adoption of IFRS 9, and does not intend to early adopt IFRS 9 in its financial statements.

 

(ii) Revenue:

 

On May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 will replace IAS 18, Revenue, among other standards. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The new standard applies to contracts with customers. The new standard is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The Corporation has not yet assessed the impact of adoption of IFRS 15, and does not intend to early adopt IFRS 15 in its financial statements.

 

6
 

acasti pharma INC.

Notes to Interim Financial Statements, Continued

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

4. Capital and other components of equity:

Warrants:

 

The warrants of the Corporation are composed of the following as at August 31, 2015 and February 28, 2015:

             
   

August 31,

2015

   

February 28,

2015

 
    Number           Number        
    outstanding     Amount     outstanding     Amount  
                                 
Liability                                
Series 8 Public offering warrants 2014 (note 10)     18,400,000     $ 625,327       18,400,000     $ 2,357,408  
                                 
Equity                                
Private placement warrants                                
Series 9 Private placement warrants 2014     1,616,542     $       1,616,542     $  

 

5. Finance income and finance costs:

(a) Finance income:

 

             
    Three-month periods ended     Six-month periods ended  
    August 31,     August 31,  
    2015     2014     2015     2014  
Interest income   $ 7,170     $ 26,319     $ 28,515     $ 54,389  
Change in fair value of Derivative warrant liabilities (note 10)     23,679             1,732,081       4,316,205  
Foreign exchange gain     889,624       36,215       804,175        
    $ 920,473     $ 62,534     $ 2,564,771     $ 4,370,594  

 

(b) Finance costs:

 

             
    Three-month periods ended     Six-month periods ended  
    August 31,     August 31,  
    2015     2014     2015     2014  
Interest charges   $ (1,028 )   $ (1,200 )   $ (1,991 )   $ (1,906 )
Change in fair value of Derivative warrant liabilities (note 10)           (318,283 )            
Foreign exchange loss                       (298,436 )
    $ (1,028 )   $ (319,483 )   $ (1,991 )   $ (300,342 )

 

7
 

acasti pharma INC.

Notes to Interim Financial Statements, Continued

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

6. Share-based payment:

At August 31, 2015 the Corporation has the following share-based payment arrangements:

 

(a) Corporation stock option plan:

 

The Corporation has established a stock option plan for directors, officers, employees and consultants of the Corporation. The plan provides for the granting of options to purchase Acasti Class A shares. The exercise price of the stock options granted under this plan is not lower than the closing price of the shares listed on the eve of the grant. Under this plan, the maximum number of options that can be issued is 10% of the number of Acasti Class A shares issued and outstanding from time to time. The terms and conditions for acquiring and exercising options are set by the Corporation’s Board of Directors, subject, among others, to the following limitations: the term of the options cannot exceed ten years and every stock option granted under the stock option plan will be subject to conditions no less restrictive than a minimum vesting period of 18 months, a gradual and equal acquisition of vesting rights at least on a quarterly basis. The total number of shares issued to a single person cannot exceed 5% of the Corporation’s total issued and outstanding shares, with the maximum being 2% for any one consultant.

 

Activities within the plan are detailed as follows:

                     
   

Weighted

average
exercise
price

    Number of
options
   

Weighted

average
exercise
price

    Number or
options
 
                                 
Outstanding at March 1, 2015 and 2014   $ 1.53       4,296,250     $ 1.57       4,911,000  
Granted     0.46       1,091,885       1.20       282,500  
Exercised     0.25       (2,500 )     0.25       (200,000 )
Forfeited     1.57       (160,000 )     1.03       (79,750 )
Expired     2.10       (50,000 )     1.80       (100,000 )
Outstanding at August 31, 2015 and 2014   $ 1.30       5,175,635     $ 1.61       4,813,750  
                                 
Exercisable at August 31, 2015 and 2014   $ 1.57       3,744,375     $ 1.56       3,762,625  

 

The fair value of options granted has been estimated according to the Black-Scholes option pricing model and based on the weighted average of the following assumptions for options granted during the six-month periods ended:

             
    Six-month     Six-month  
    period ended     period ended  
    August 31, 2015     August 31, 2014  
                 
Exercise price   $ 0.46     $ 1.20  
Share price   $ 0.44     $ 1.15  
Dividend            
Risk-free interest     0.66 %     1.13 %
Estimated life     4.20 years       2.60 years  
Expected volatility     65.63 %     56.62 %

 

The weighted average of the fair value of the options granted to employees during the six-month period is $0.21 (2014 - $0.40). No options were granted to non-employees during the six-month periods ended August 31, 2015 and 2014.

 

The weighted average share price at the date of exercise for options exercised during the six-month period is $0.42 (2014 - $0.92).

 

For the three and six month periods ended August 31, 2015, the Corporation recognized stock-based compensation under this plan in the amount of $40,939 and $83,752, respectively (2014 - $121,274 and $316,963).

 

8
 

acasti pharma INC.

Notes to Interim Financial Statements, Continued

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

6. Share-based payment (continued):

(b) Corporation equity incentive plan :

 

The Corporation has established an equity incentive plan for employees, directors and consultants of the Corporation. The plan provides for the issuance of restricted share units, performance share units, restricted shares, deferred share units and other share-based awards, under restricted conditions as may be determined by the Board of Directors. Upon fulfillment of the restricted conditions, as the case may be, the plan provides for settlement of the award through shares.

 

The Corporation’s issued RSUs will vest gradually overtime with an expiry date of no later than January 15, 2017, based on a specific rate, depending on each holder’s category, but sixty percent (60%) of such awards will vest upon achievement of the performance objectives identified by the Corporation.  Performance objectives are based in part on the Corporation’s specific and global goals, but also on each holder’s individual performance. The fair value of the RSUs is determined to be the share price at date of grant and is recognized as stock-based compensation, through contributed surplus, over the vesting period.

 

Activities within the plan are detailed as follows:

             
    Number of RSU     Number of RSU  
RSUs outstanding at March 1, 2015 and 2014     184,000       775,001  
Released     (169,750 )     (197,999 )
Forfeited     (3,000 )     (5,834 )
Outstanding at August 31, 2015 and 2014     11,250       571,168  

 

For the three and six month periods ended August 31, 2015, the Corporation recognized stock-based compensation under this plan in the amount of $37,435 and $64,388, respectively (2014 – $143,814 and $355,589).

 

(c) Neptune stock-based compensation plan:

 

Neptune maintains various stock-based compensation plans for the benefit of directors, officers, employees, and consultants that provide services to its subsidiaries, including the Corporation. The Corporation records as stock-based compensation expense a portion of the expense being recorded by Neptune that is commensurate to the fraction of overall services that the grantees provide directly to the Corporation.

 

(i) Neptune stock options:

 

For the three and six-month periods ended August 31, 2015, the Corporation recognized stock-based compensation related to the Neptune plans in the amount of $2,346 and 5,950, respectively (2014 - $32,744 and $52,314).

 

(ii) Neptune equity incentive plan:

 

For the three and six-month periods ended August 31, 2015, the Corporation recognized stock-based compensation related to this plan in the amount of $710 and $2,973, respectively (2014 - $83,122 and $276,806).

 

(iii) Neptune-owned Acasti call-options:

 

For the three and six-month periods ended August 31, 2015, the Corporation recognized stock-based compensation related to this plan in the amount of nil (2014 - $40,415 and $113,509).

 

7. Commitments and contingencies:

Research and development agreements:

 

In the normal course of business, the Corporation has signed agreements with various partners and suppliers for them to execute research projects and to produce and market certain products.

 

The Corporation initiated research and development projects that will be conducted over a 12 to 24 month period for a total cost of $4,886,576 , of which an amount of $3,201,966 has been paid to date. As at August 31, 2015, an amount of $175,696 is included in ''Trade and other payables'' in relation to these projects.

 

9
 

acasti pharma INC.

Notes to Interim Financial Statements, Continued

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

7. Commitments and contingencies (continued):

Contingencies:

 

In the normal course of operations, the Corporation is involved in various claims and legal proceedings. The most significant of which is as follows:

 

· A former officer of the Corporation is claiming the payment of approximately $8,500,000 and the issuance of equity instruments. As the Corporation’s management believes that these claims are not valid, no provision has been recognized.

 

Although the outcome of this and various other claims and legal proceedings against the Corporation as at August 31, 2015 cannot be determined with certainty, based on currently available information, management believes that the ultimate outcome of these matters, individually and in aggregate, will not have a material adverse effect on the Corporation’s financial position or overall trends in results of operations.

 

8. Related parties:

(a) Administrative and research and development expenses:

 

During the three-month and six-month periods ended August 31, 2015 and 2014, the Corporation was charged by Neptune for certain costs incurred by Neptune for the benefit of the Corporation, as follows:

             
    Three-month periods ended     Six-month periods ended  
    August 31,     August 31,  
    2015     2014     2015     2014  
                                 
Administrative costs   $ 398,398     $ 441,269     $ 695,689     $ 845,710  
Research and development costs, before tax credits     235,083       181,888       747,454       282,339  
  $ 633,481     $ 623,157     $ 1,443,143     $ 1,128,049  

 

Where Neptune incurs specific incremental costs for the benefit of the Corporation, it charges those amounts directly. Costs that benefit more than one entity of Neptune’s subsidiaries are being charged by allocating a fraction of costs incurred by Neptune that is commensurate to the estimated fraction of services or benefits received by each entity for those items.

 

These charges do not represent all charges incurred by Neptune that may have benefited the Corporation, because, amongst others, Neptune does not allocate certain common office expenses and does not charge interest on indebtedness. Also, these charges do not necessarily represent the cost that the Corporation would otherwise need to incur should it not receive these services or benefits through the shared resources of Neptune or receive financing from Neptune.

 

(b) Payable to parent corporation:

 

Payable to parent corporation has no specified maturity date for payment or reimbursement and does not bear interest.

 

10
 

acasti pharma INC.

Notes to Interim Financial Statements, Continued

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

8. Related parties (continued):

(c) Key management personnel compensation:

 

The key management personnel of the Corporation are the members of the Board of Directors and certain officers. They control 2% of the voting shares of the Corporation.

 

Key management personnel compensation includes the following for the three-month and six-month periods ended August 31, 2015 and 2014:

             
    Three-month periods ended     Six-month periods ended  
    August 31,     August 31,  
    2015     2014     2015     2014  
                         
                                 
Short-term benefits   $ 144,865     $ 290,598     $ 295,323     $ 389,640  
Severance           4,268       102,900       144,230  
Share-based compensation costs     29,946       362,991       94,545       1,031,261  
    $ 174,811     $ 657,857     $ 492,768     $ 1,565,131  

 

9. Operating segments:

The Corporation has one reportable operating segment: the development and commercialization of pharmaceutical applications of its licensed rights for cardiovascular diseases.

 

The majority of the Corporation’s assets are located in Canada.

 

The Corporation’s sales are attributed based on the customer’s area of residence. All of the sales were made to the United States.

 

10. Determination of fair values:

Certain of the Corporation’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods.

 

Financial and non-financial assets and liabilities:

 

In establishing fair value, the Corporation uses a fair value hierarchy based on levels as defined below:

 

· Level 1: defined as observable inputs such as quoted prices in active markets.

 

· Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.

 

· Level 3: defined as inputs that are based on little or no little observable market data, therefore requiring entities to develop their own assumptions.

 

The Corporation has determined that the carrying values of its short-term financial assets and liabilities approximate their fair value given the short-term nature of these instruments.

 

11
 

acasti pharma INC.

Notes to Interim Financial Statements, Continued

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

10. Determination of fair values (continued):

Derivative warrant liabilities:

 

The Corporation measured its derivative warrant liabilities at fair value on a recurring basis. These financial liabilities were measured using level 3 inputs. The fair value of the public offering warrants 2014 was estimated according to the Black-Scholes option pricing model and based on the following assumptions:

             
  August 31, 2015     February 28, 2015  
Exercise price   US$1.50     US$1.50  
Share price   $0.36     $0.55  
Dividend            
Risk-free interest     1.13 %     1.20 %
Estimated life     3.26 years       3.76 years  
Expected volatility     58.42 %     62.94 %

 

The fair value of the Warrants issued was determined to be $0.03 per warrant as at August 31, 2015 ($0.13 per warrant as at February 28, 2015).

 

The effect of an increase or a decrease of 5% of the volatility used, which is the significant unobservable input in the fair value estimate, would result in a loss of $207,286 or a gain of $182,835 respectively.

 

The reconciliation of changes in level 3 fair value measurements of financial liabilities for the six-month period ended August 31, 2015 and 2014 is presented in the following table:

             
    August 31,     August 31,  
    2015     2014  
Opening balance at March 1, 2015 and 2014   $ 2,357,408     $ 11,181,475  
Change in fair value of derivative warrant liabilities (Note 5 (a))     (1,732,081 )     (4,316,205 )
Closing balance at August 31, 2015 and 2014   $ 625,327     $ 6,865,270  

 

For the three-month period ended August 31, 2015, the change in fair value of the derivative warrant liabilities was a gain of $23,679 recognized in finance income (2014 - $318,283 loss, recognized in finance costs).

 

Share-based payment transactions:

 

The fair value of share-based payment transaction is measured based on the Black-Scholes valuation model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions, if any, are not taken into account in determining fair value.

 

11. Subsequent event:

On September 29, 2015, the Corporation announced that in order to regain compliance with NASDAQ Minimum Bid Price Rules, it will consolidate the issued and outstanding Class A common shares of the Corporation on the basis of one (1) post-Consolidation Common Share for every ten (10) pre-Consolidation Common Shares, provided that each fractional Common Share that results from the Consolidation shall be rounded up.

 

In accordance with TSX Venture Exchange’s and NASDAQ’s bulletins, the Consolidation will be effective at the open of trading on October 15, 2015 (the “Effective Date”) and the Common Shares shall begin trading on the NASDAQ Stock Market and TSX Venture Exchange on a reverse split-adjusted basis on such date, which shall result into approximately 10,661,626 Common Shares issued and outstanding on a post-Consolidation basis.

 

12
 

acasti pharma INC.

Notes to Interim Financial Statements, Continued

(Unaudited)

 

Three-month and six-month periods ended August 31, 2015 and 2014

 

 

 

11. Subsequent event (continued):

The exercise price in effect on the Effective Date, in the case of incentive stock options, warrants and other securities convertible into Common Shares (the “Convertible Securities”), will be increased proportionally to reflect the Consolidation. The number of Common Shares subject to a right of purchase under such Convertible Securities shall also be decreased proportionally to reflect the Consolidation, provided that no fractional Common Share shall be issued or otherwise provided theretofore upon the exercise of any Convertible Securities.

 

 

 

 

 

 

 

 

13