EX-99.2 3 exh_992.htm EXHIBIT 99.2

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