EX-99.2 3 exh_992.htm EXHIBIT 99.2

Exhibit 99.2

 

 

 

 

 

Condensed unaudited interim consolidated financial statements of

 

Intellipharmaceutics

International Inc.

 

May 31, 2016

 

 

 

 

 

 

 

 

 

 

Intellipharmaceutics International Inc.

May 31, 2016

 

Table of contents

 

 

 

Condensed unaudited interim consolidated balance sheets 2
   
Condensed unaudited interim consolidated statements of operations and comprehensive loss 3
   
Condensed unaudited interim consolidated statements of shareholders’ deficiency 4
   
Condensed unaudited interim consolidated statements of cash flows 5
   
Notes to the condensed unaudited interim consolidated financial statements 6-19

 

 

 

 

 

 

 

 

 

 

Intellipharmaceutics International Inc.

Condensed unaudited interim consolidated balance sheets

As at

(Stated in U.S. dollars)

       
     May 31,      November 30,  
     2016      2015  
     $      $  
Assets          
Current          
Cash   173,328    1,755,196 
Accounts receivable, net   390,074    478,674 
Investment tax credits   612,078    458,021 
Prepaid expenses, sundry and other assets   257,260    229,225 
    1,432,740    2,921,116 
Deferred offering costs (Note 5)   741,154    543,745 
Property and equipment, net   1,645,095    1,759,438 
    3,818,989    5,224,299 
Liabilities          
Current          
Accounts payable   3,479,203    3,027,974 
Accrued liabilities   436,295    454,290 
Employee costs payable   207,302    175,172 
Current portion of capital lease obligations   21,990    20,460 
Convertible debenture (Note 4)   1,488,841    1,518,429 
    5,633,631    5,196,325 
Capital lease obligations   4,659    15,660 
Deferred revenue (Note 3)   150,000    150,000 
    5,788,290    5,361,985 
Shareholders' deficiency          
Capital stock (Notes 5 and 6)          
Authorized          
Unlimited common shares without par value          
Unlimited preference shares          
Issued and outstanding          
25,057,793 common shares    23,145,958    21,481,242 
(2015 - 24,244,050)         
Additional paid-in capital   31,592,879    30,969,093 
Accumulated other comprehensive income   284,421    284,421 
Accumulated deficit   (56,992,559)   (52,872,442)
    (1,969,301)   (137,686)
    3,818,989    5,224,299 

 

See accompanying notes to condensed unaudited interim consolidated financial statements

 

Page 2
 

Intellipharmaceutics International Inc.

Condensed unaudited interim consolidated statements of operations and comprehensive loss

(Stated in U.S. dollars)

 

    Three months ended      Six months ended  
    May 31, 2016      May 31, 2015      May 31, 2016      May 31, 2015  
     $      $      $      $  
                             
Revenue                    
Licensing (Note 3)   556,044    1,268,245    1,122,981    2,407,930 
    556,044    1,268,245    1,122,981    2,407,930 
Expenses                    
Research and development   1,458,647    1,593,753    3,271,255    2,612,075 
Selling, general and administrative   909,402    964,147    1,665,830    1,848,102 
Depreciation   93,891    88,359    186,126    173,033 
    2,461,940    2,646,259    5,123,211    4,633,210 
Loss from operations   (1,905,896)   (1,378,014)   (4,000,230)   (2,225,280)
Net foreign exchange (loss) gain   (35,444)   (7,105)   (5,549)   23,097 
Interest income   61    17    201    17 
Interest expense   (58,798)   (122,168)   (114,539)   (219,764)
Net loss and comprehensive loss   (2,000,077)   (1,507,270)   (4,120,117)   (2,421,930)
Loss per common share, basic and diluted   (0.08)   (0.06)   (0.17)   (0.10)
Weighted average number of common                    
shares outstanding, basic and diluted   24,752,589    23,558,387    24,592,773    23,516,683 

 

See accompanying notes to condensed unaudited interim consolidated financial statements

 

 

Page 3
 

Intellipharmaceutics International Inc.

Condensed unaudited interim consolidated statements of shareholders' equity (deficiency)

for the six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

                   
              Accumulated         Total  
           Additional      other         shareholders'  
        Capital stock      paid-in      comprehensive      Accumulated      equity  
     Number      amount      capital      (loss) income      deficit      (deficiency)  
        $      $      $      $      $  
Balance, November 30, 2014   23,456,611    18,941,067    31,119,930    284,421    (45,436,054)   4,909,364 
Shares issued for options exercised (Note 6)   85,000    288,538    (129,271)   -    -    159,267 
DSU's to non-management board members (Note 7)   -    -    11,557    -    -    11,557 
Stock options to employees (Note 6)   -    -    17,052    -    -    17,052 
Stock options to non-management board members (Note 6)   -    -    34,115    -    -    34,115 
Proceeds from at-the-market financing (Note 5)   82,700    252,212    -    -    -    252,212 
Offering costs (Note 5)   -    (16,802)   -    -    -    (16,802)
Net loss   -    -    -    -    (2,421,930)   (2,421,930)
Balance, May 31, 2015   23,624,311    19,465,015    31,053,383    284,421    (47,857,984)   2,944,835 
                               
Balance, November 30, 2015   24,244,050    21,481,242    30,969,093    284,421    (52,872,442)   (137,686)
DSU's to non-management board members (Note 7)   -    -    15,995    -    -    15,995 
Stock options to employees (Note 6)   -    -    700,859    -    -    700,859 
Proceeds from at-the-market financing (Note 5)   755,604    1,548,015    -    -    -    1,548,015 
Offering costs (Note 5)   -    (145,762)   -    -    -    (145,762)
Issuance of shares on exercise of warrants (Note 8)   58,139    262,463    (140,371)   -    -    122,092 
Modification of convertible debt (Note 4)   -    -    47,303    -    -    47,303 
Net loss   -    -    -    -    (4,120,117)   (4,120,117)
Balance, May 31, 2016   25,057,793    23,145,958    31,592,879    284,421    (56,992,559)   (1,969,301)

 

See accompanying notes to condensed unaudited interim consolidated financial statements

 

Page 4
 

Intellipharmaceutics International Inc.

Condensed unaudited interim consolidated statements of cash flows

(Stated in U.S. dollars)

 

     Three months ended  Six months ended
     May 31, 2016      May 31, 2015      May 31, 2016      May 31, 2015  
     $      $      $      $  
             
Net loss   (2,000,077)   (1,507,270)   (4,120,117)   (2,421,930)
Items not affecting cash                    
Depreciation   93,891    88,359    186,126    173,033 
Stock-based compensation (Note 6)   40,749    25,655    700,859    51,167 
Deferred shared units (Note 7)   8,200    9,448    16,144    17,246 
Accreted interest on convertible debt (Note 4)   8,884    53,217    17,714    104,523 
Unrealized foreign exchange loss/(gain)   28,851    (23,673)   10,911    (41,409)
Change in non-cash operating assets & liabilities                    
Accounts receivable   (103,729)   (301,623)   88,600    290,637 
Investment tax credits   (71,495)   9,588    (154,057)   (47,037)
Prepaid expenses, sundry assets and other assets   41,538    (34,480)   (28,037)   75,160 
Accounts payable and accrued liabilities   628,143    530,417    172,745    370,701 
Deferred revenue   -    -    -    150,000 
Cash flows used in operating activities   (1,325,045)   (1,150,362)   (3,109,112)   (1,277,909)
                     
Financing activities                    
Repayment of capital lease obligations   (4,149)   (4,580)   (9,471)   (14,699)
Issuance of common shares on at-the-market financing (Note 5)   1,150,771    252,212    1,548,015    252,212 
Proceeds from issuance of shares on exercise of warrants (Note 8)   -    -    122,092    - 
Issuance of common shares on option exercise   -    -    -    159,267 
Offering costs   (50,467)   (137,738)   (61,609)   (137,738)
Cash flows from financing activities   1,096,155    109,894    1,599,027    259,042 
                     
Investing activity                    
Purchase of property and equipment   (22,466)   (153,894)   (71,783)   (185,387)
Cash flows used in investing activities   (22,466)   (153,894)   (71,783)   (185,387)
                     
Decrease in cash   (251,356)   (1,194,362)   (1,581,868)   (1,204,254)
Cash, beginning of period   424,684    4,224,083    1,755,196    4,233,975 
                     
Cash, end of period   173,328    3,029,721    173,328    3,029,721 
                     
Supplemental cash flow information                    
Interest paid (Note 4)   29,569    45,339    44,846    89,692 
Taxes paid   -    -    -    - 

 

See accompanying notes to condensed unaudited interim consolidated financial statements

 

Page 5
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

1.Nature of operations

 

Intellipharmaceutics International Inc. (“IPC” or the “Company”) is a pharmaceutical company specializing in the research, development and manufacture of novel and generic controlled-release and targeted-release oral solid dosage drugs.

 

On October 22, 2009, IntelliPharmaCeutics Ltd. (“IPC Ltd. “) and Vasogen Inc. (“Vasogen”) completed a court approved plan of arrangement and merger (the “IPC Arrangement Agreement”), resulting in the formation of the Company, which is incorporated under the laws of Canada. The Company’s common shares are traded on the Toronto Stock Exchange and NASDAQ.

 

The Company earns revenues from development contracts which provide upfront fees, milestone payments, reimbursement of certain expenditures and licensing income upon commercialization of its products. In November 2013, the U.S. Food and Drug Administration (“FDA”) granted the Company final approval to market the Company’s first product, the 15 mg and 30 mg strengths of our generic Focalin XR® (dexmethylphenidate hydrochloride extended-release) capsules.

 

Going concern

 

The condensed unaudited interim consolidated financial statements are prepared on a going concern basis, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months. The Company has incurred losses from operations since inception and has reported losses of $4,120,117 for the six months ended May 31, 2016 (May 31, 2015 - loss of $2,421,930), and has an accumulated deficit of $56,992,559 as at May 31, 2016 (November 30, 2015 - $52,872,442). The Company has funded its research and development (“R&D”) activities principally through the issuance of securities, loans from related parties, funds from the IPC Arrangement Agreement and funds received under development agreements. There is no certainty that such funding will be available going forward. These conditions raise substantial doubt about its ability to continue as a going concern and realize its assets and pay its liabilities as they become due.

 

In order for the Company to continue as a going concern and fund any significant expansion of its operation or R&D activities, the Company will require significant additional capital. Although there can be no assurances, such funding may come from revenues from the sales of the Company’s generic Focalin XR® (dexmethylphenidate hydrochloride extended-release) capsules, from proceeds of the Company’s at-the-market offering program and from potential partnering opportunities. Other potential sources of capital may include payments from licensing agreements, cost savings associated with managing operating expense levels, other equity and/or debt financings, and/or new strategic partnership agreements which fund some or all costs of product development, although there can be no assurance that the Company will be able to obtain any such capital on terms or in amounts sufficient to meet its needs or at all. The Company’s ultimate success will depend on whether its product candidates receive the approval of the FDA or Health Canada and whether it is able to successfully market approved products. The Company cannot be certain that it will be able to receive FDA or Health Canada approval for any of its current or future product candidates, or that it will reach the level of sales and revenues necessary to achieve and sustain profitability.

 

The availability of equity or debt financing will be affected by, among other things, the results of the Company’s research and development, its ability to obtain regulatory approvals, the market acceptance of its products, the state of the capital markets generally, strategic alliance agreements, and other relevant commercial considerations. In addition, if the Company raises additional funds by issuing equity securities, its then existing security holders will likely experience dilution, and the incurring of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that would restrict its operations. Any failure on its part to raise additional funds on terms favorable to the Company or at all, may require the Company to significantly change or curtail its current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in the Company not taking advantage of business opportunities, in the termination or delay of clinical trials or the Company not taking any necessary actions required by the FDA or Health Canada for one or more of the Company’s product candidates, in curtailment of the Company’s product development programs designed to identify new product candidates, in the sale or assignment of rights to its technologies, products or product candidates, and/or its inability to file Abbreviated New Drug Applications (“ANDAs”), Abbreviated New Drug Submissions (“ANDSs”) or New Drug Applications (“NDAs”) at all or in time to competitively market its products or product candidates. See Note 12, subsequent events.

 

Page 6
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

1.Nature of operations (Continued)

 

Going concern (continued)

 

The condensed unaudited interim consolidated financial statements do not include any adjustments that might result from the outcome of uncertainties described above. If the going concern assumption no longer becomes appropriate for these financial statements, then adjustments would be necessary to the carrying values of assets and liabilities, the reported expenses and the balance sheet classifications used. Such adjustments could be material.

 

2.Basis of presentation

 

(a)Basis of consolidation

 

These condensed unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned operating subsidiaries, IPC Ltd., Intellipharmaceutics Corp. (“IPC Corp”), and Vasogen Corp.

 

The condensed unaudited interim consolidated financial statements do not conform in all respects to the annual requirements of accounting principles generally accepted in the U.S. (“U.S. GAAP”). Accordingly, these condensed unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended November 30, 2015.
   
These condensed unaudited interim consolidated financial statements have been prepared using the same accounting policies and methods as those used by the Company in the annual audited consolidated financial statements for the year ended November 30, 2015. The condensed unaudited interim consolidated financial statements reflect all adjustments necessary for the fair presentation of the Company’s financial position and results of operation for the interim periods presented. All such adjustments are normal and recurring in nature.
   
All inter-company accounts and transactions have been eliminated on consolidation.
   
(b)Use of estimates
   

The preparation of the condensed unaudited interim consolidated 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 revenue and expenses during the year. Actual results could differ from those estimates.

 

Areas where significant judgment is involved in making estimates are: the determination of the functional currency; the fair values of financial assets and liabilities; the determination of units of accounting for revenue recognition; the accrual of licensing and milestone revenue; and forecasting future cash flows for assessing the going concern assumption.

 

Page 7
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

3.Significant accounting policies

 

(a)Revenue recognition

 

The Company accounts for revenue in accordance with the provisions of Accounting Standards Codification (“ASC”) topic 605 Revenue Recognition. The Company earns revenue from non-refundable upfront fees, milestone payments upon achievement of specified research or development, exclusivity milestone payments and licensing payments on sales of resulting products and other incidental services. Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectability is reasonably assured. From time to time, the Company enters into transactions that represent multiple-element arrangements. Management evaluates arrangements with multiple deliverables to determine whether the deliverables represent one or more units of accounting for the purpose of revenue recognition.

 

A delivered item is considered a separate unit of accounting if the delivered item has stand-alone value to the customer, the fair value of any undelivered items can be reliably determined, and the delivery of undelivered items is probable and substantially in the Company's control.

 

The relevant revenue recognition accounting policy is applied to each separate unit of accounting.

 

Licensing

 

The Company recognizes revenue from the licensing of the Company's drug delivery technologies, products and product candidates. Licensing revenue is recognized as earned in accordance with the contract terms when the amounts can be reasonably estimated and collectability is reasonably assured.

The Company has a license and commercialization agreement with Par Pharmaceutical Inc. (“Par”). Under the exclusive territorial license rights granted to Par, the agreement requires that Par manufacture, promote, market, sell and distribute the product. Licensing revenue amounts receivable by the Company under this agreement are calculated and reported to the Company by Par, with such amounts generally based upon net product sales and net profit which include estimates for chargebacks, rebates, product returns, and other adjustments. Licensing revenue payments received by the Company from Par under this agreement are not subject to deductions for chargebacks, rebates, product returns, and other pricing adjustments. Based on this arrangement and the guidance per ASC topic 605, the Company records licensing revenue as earned in the consolidated statements of operations and comprehensive loss.

 

Milestones

 

The milestone method recognizes revenue on substantive milestone payments in the period the milestone is achieved. Milestones are considered substantive if all of the following conditions are met: (i) the milestone is commensurate with either the vendor’s performance to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone; (ii) the milestone relates solely to past performance; and (iii) the milestone is reasonable relative to all of the deliverables and payment terms within the arrangement. Non-substantive milestone payments that might be paid to the Company based on the passage of time or as a result of a partner’s performance are allocated to the units of accounting within the arrangement; they are recognized as revenue in a manner similar to those units of accounting.

 

Research and development

 

Under arrangements where the license fees and research and development activities can be accounted for as a separate unit of accounting, non-refundable upfront license fees are deferred and recognized as revenue on a straight-line basis over the expected term of the Company's continued involvement in the research and development process.

 

Page 8
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

3.Significant accounting policies (continued)

 

Deferred revenue

 

Deferred revenue represents the funds received from clients, for which the revenues have not yet been earned, as the milestones have not been achieved, or in the case of upfront fees for drug development, where the work remains to be completed. During the three and six months ended May 31, 2016 the Company did not receive any upfront fees. In the three and six months ended May 31, 2015, the Company received an amount of $Nil and $150,000, respectively, and recorded it as deferred revenue, as it did not meet the criteria for recognition.

 

Other incidental services

 

Incidental services which the Company may provide from time to time include consulting advice provided to other organizations regarding FDA standards. Revenue is earned and realized when all of the following conditions are met: (i) there is persuasive evidence of an arrangement; (ii) service has been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.

 

(b)Research and development costs
   
Research and development costs related to continued research and development programs are expensed as incurred in accordance with ASC topic 730. However, materials and equipment are capitalized and amortized over their useful lives if they have alternative future uses.
   
(c)Translation of foreign currencies
   
Transactions denominated in currencies other than the Company and its wholly owned operating subsidiaries’ functional currencies, the monetary assets and liabilities are translated at the period end rates. Revenue and expenses are translated at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these other transactions are recognized in the consolidated statements of operations and comprehensive loss.
   

The Company’s functional and reporting currency is the U.S. dollar.

 

(d)Future Accounting pronouncements
   
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016 the FASB issued ASU No. 2016-08 to clarify the implementation guidance on considerations of whether an entity is a principal or an agent, impacting whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued ASU No. 2016-10 to clarify guidance on identifying performance obligations and the implementation guidance on licensing. In May 2016, the FASB issued amendments ASU No. 2016-11 and 2016-12 to amend certain aspects of the new revenue guidance (including transition, collectability, noncash consideration and the presentation of sales and other similar taxes) and provided certain practical expedients. The guidance is effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods). Early adoption is permitted but not before the annual reporting period (and interim reporting period) beginning January 1, 2017. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. The Company is in the process of evaluating the amendments to determine if they have a material impact on the Company’s financial position, results of operations or cash flows.
   
In June 2014, the FASB issued ASU No. 2014-12 in response to the consensus of the Emerging Issues Task Force on EITF Issue 13-D.2 The ASU clarifies that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. No new disclosures are required under the ASU. The ASU’s guidance is effective for all entities for reporting periods (including interim periods) beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the adoption of the amendments to have a material impact on the Company’s financial position, results of operations or cash flow. In March 2016, the FASB issued new guidance ASU No. 2016-09 which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification on the statement of cash flows. The guidance is effective for reporting periods (including interim periods) beginning after December 15, 2016. Early adoption is permitted. The Company is in the process of evaluating the amendments to determine if they have a material impact on the Company’s financial position, results of operations or cash flows.
   

Page 9
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

3.Significant accounting policies (continued)

 

(d)Future Accounting pronouncements
   
In 2014, the FASB issued ASU No. 2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is in the process of evaluating the amendments to determine if they have a material impact on the Company’s financial position, results of operations, cash flows or disclosures.
   
In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity, which applies to any entity that is an issuer of, or invests in, hybrid financial instruments that are issued in the form of a share. The amendments in ASU No. 2014-16 clarify that an entity must take into account all relevant terms and features when reviewing the nature of the host contract. Additionally, the amendments state that no one term or feature would define the host contract’s economic characteristics and risks. Instead, the economic characteristics and risks of the hybrid financial instrument as a whole would determine the nature of the host contract. ASU No. 2014-16’s amendments will be effective for public business entities for fiscal years, and interim periods within those fiscal years, starting after December 15, 2015, with early adoption permitted. The Company is in the process of evaluating the amendments to determine if they have a material impact on the Company’s financial position, results of operations or cash flows.
   
In January 2016, the FASB issued ASU No. 2016-01, which makes limited amendments to the guidance in U.S. GAAP on the classification and measurement of financial instruments. The new standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. The Company is in the process of evaluating the amendments to determine if they have a material impact on the Company’s financial position, results of operations, cash flows or disclosures.
   
In February 2016, the FASB issued new guidance, ASU No. 2016-02, Leases (Topic 842). The main difference between current GAAP and the new guidance is the recognition of lease liabilities based on the present value of remaining lease payments and corresponding lease assets for operating leases under current GAAP with limited exception. Additional qualitative and quantitative disclosures are also required by the new guidance. Topic 842 is effective for annual reporting periods (including interim reporting periods) beginning after December 15, 2018. Early application is permitted. The Company is in the process of evaluating the amendments to determine if they have a material impact on the Company’s financial position, results of operations, cash flows or disclosures.
   
Page 10
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

4.Due to related parties

 

Convertible debenture

 

Amounts due to the related parties are payable to entities controlled by two shareholders who are also officers and directors of the Company.

 

    May 31,      November 30,  
     2016      2015  
     $      $  
               
Convertible debenture payable to two directors and officers          
of the Company, unsecured, 12% annual interest rate,          
payable monthly   1,488,841    1,518,429 

 

On January 10, 2013, the Company completed a private placement financing of an unsecured convertible debenture in the principal amount of $1.5 million (the “Debenture”), which had an original maturity date of January 1, 2015. The Debenture bears interest at a rate of 12% per annum, payable monthly, is pre-payable at any time at the option of the Company, and is convertible at any time into 500,000 common shares at a conversion price of $3.00 per common share at the option of the holder.

 

Dr. Isa Odidi and Dr. Amina Odidi, principal shareholders, directors and executive officers of the Company purchased the Debenture and provided the Company with the $1.5 million of the proceeds for the Debenture.

 

Effective October 1, 2014, the maturity date of the Debenture was extended to July 1, 2015. Under ASC 470-50, the change in the debt instrument was accounted for as a modification of debt. The increase in the fair value of the conversion option at the date of the modification, in the amount of $126,414, was recorded as a reduction in the carrying value of the debt instrument with a corresponding increase to additional paid-in-capital. The carrying amount of the debt instrument is accreted over the remaining life of the Debenture using an imputed rate of interest.

 

Effective June 29, 2015, the July 1, 2015 maturity date for the Debenture was further extended to January 1, 2016. Under ASC 470-50, the change in the maturity date of the debt instrument resulted in a constructive extinguishment of the original convertible Debenture as the change in the fair value of the embedded conversion option was greater than 10% of the carrying amount of the debt. In accordance with ASC 470-50-40, the convertible Debenture was recorded at fair value. The difference between the fair value of the convertible Debenture after the extension and the net carrying value of the convertible Debenture prior to the extension of $114,023 was recognized as a loss on the statement of operations and comprehensive loss. The carrying amount of the debt instrument will be accreted down to the face amount of the convertible Debenture over the remaining life of the Debenture using an imputed rate of interest.

 

Effective December 8, 2015, the January 1, 2016 maturity date of the Debenture was extended to July 1, 2016. Under ASC 470-50, the change in the debt instrument was accounted for as a modification of debt. The increase in the fair value of the conversion option at the date of the modification, in the amount of $42,095, was recorded as a reduction in the carrying value of the debt instrument with a corresponding increase to additional paid-in-capital. The carrying amount of the debt instrument is accreted over the remaining life of the Debenture using an imputed rate of interest.

 

Effective May 26, 2016, the July 1, 2016 maturity date of the Debenture was extended to December 1, 2016. Under ASC 470-50, the change in the debt instrument was accounted for as a modification of debt. The increase in the fair value of the conversion option at the date of the modification, in the amount of $5,208, was recorded as a reduction in the carrying value of the debt instrument with a corresponding increase to additional paid-in-capital. The carrying amount of the debt instrument is accreted over the remaining life of the Debenture using an imputed rate of interest.

 

Page 11
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

4.Due to related parties (continued)

 

Convertible debenture

 

Accreted interest expense during the three and six months ended May 31, 2016 is $8,884 and $17,714 (three and six months ended May 31, 2015 - $53,217 and $104,523) and has been included in the condensed unaudited interim consolidated statements of operations and comprehensive loss. In addition, the coupon interest on the Debenture for the three and six months ended May 31, 2016 is $45,339 and $90,185 (three and six months ended May 31, 2015 – $45,339 and $89,692) and has also been included in the condensed unaudited interim consolidated statements of operations and comprehensive loss.

 

5.Capital stock

 

Authorized, issued and outstanding

 

(a)The Company is authorized to issue an unlimited number of common shares, all without nominal or par value and an unlimited number of preference shares. As at May 31, 2016 the Company has 25,057,793 (November 30, 2015 – 24,244,050) common shares issued and outstanding, and no preference shares issued and outstanding.
   
(b)In November 2013, the Company entered into an equity distribution agreement with Roth Capital Partners, LLC (“Roth”), pursuant to which the Company may from time to time sell up to 5,305,484 of the Company’s common shares for up to an aggregate of $16.8 million (or such lesser amount as may be permitted under applicable securities laws and regulations) through at-the-market issuances on the NASDAQ or otherwise. Under the equity distribution agreement, the Company may at its discretion, from time to time, offer and sell common shares through Roth or directly to Roth for resale. The Company will pay Roth a commission, or allow a discount, of 2.75% of the gross proceeds that the Company received from any additional sales of common shares under the equity distribution agreement. The Company has also agreed to reimburse Roth for certain expenses relating to the offering.

 

An aggregate of 471,439 common shares were sold for net proceeds of $1,290,168 in the year ended November 30, 2015. During the three and six months ended May 31, 2016, an aggregate of 562,561 and 755,604 of common shares were sold on NASDAQ for gross proceeds of $1,150,771 and $1,548,015, net proceeds of $1,115,804 and $1,501,906, respectively, under the at-the-market offering program. During the three and six months ended May 31, 2015, an aggregate of 82,700 of common shares were sold on NASDAQ for gross proceeds of $252,212 and net proceeds of $244,976 under the at-the-market offering program. As a result of prior sales of our common shares under the equity distribution agreement, the Company may in the future offer and sell its common shares with an aggregate purchase price of up to $7,390,145 (or such lesser amount as may be permitted under applicable securities laws and regulations, such amount the Company currently can offer and sell being limited to approximately $1.6 million) pursuant to our at-the-market program. There can be no assurance that any additional shares will be sold under the at-the-market program.

 

(c)   Direct costs related to the Company’s filing of a base shelf prospectus filed in May 2014 and declared effective in June 2014 and certain other on-going costs related to the at the-market facility are recorded as deferred offering costs and are being amortized and recorded as share issuance costs against share offerings. During the three and six months ended May 31, 2016, costs directly related to the at the-market facility of $34,967 and $46,109 (three and six months ended May 31, 2015 - $7,835) were recorded in share offering costs and an additional $85,001 and $99,653 (three and six months ended May 31, 2015 - $8,967) of deferred costs were amortized and recorded in share offering costs related to the at the-market facility.

 

 

Page 12
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

6.Options

 

All grants of options to employees after October 22, 2009 are made from the Employee Stock Option Plan (the “Employee Stock Option Plan”). The maximum number of common shares issuable under the Employee Stock Option Plan is limited to 10% of the issued and outstanding common shares of the Company from time to time, or 2,505,779 based on the number of issued and outstanding common shares as at May 31, 2016. As at May 31, 2016, 2,293,085 options are outstanding and there were 212,694 options available for grant under the Employee Stock Option Plan. Each option granted allows the holder to purchase one common share at an exercise price not less than the closing price of the Company's common shares on the Toronto Stock Exchange on the last trading day prior to the grant of the option. Options granted under these plans generally have a maximum term of 10 years and generally vest over a period of up to three years.

 

In August 2004, the Board of Directors of IPC Ltd. approved a grant of 2,763,940 performance-based stock options, to two executives who were also the principal shareholders of IPC Ltd. The vesting of these options is contingent upon the achievement of certain performance milestones. A total of 1,934,758 performance-based stock options have vested as of February 29, 2016. Under the terms of the original agreement these options were to expire in September 2014. Effective March 27, 2014, and on April 19, 2016, the Company’s shareholders approved the two year extension of the performance-based stock option expiry date to September 2016 and September 2018 respectively. These options were outstanding as at May 31, 2016.

 

In the three and six months ended May 31, 2016, Nil (three and six months ended May 31, 2015 – Nil) stock options were granted.

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option-Pricing Model, consistent with the provisions of ASC topic 718.

 

Option pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options.

 

The Company calculates expected volatility based on historical volatility of the Company’s peer group that is publicly traded for options that have an expected life that is more than six years. For options that have an expected life of less than six years the Company uses its own volatility.

 

The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on an average of the term of the options.

 

The risk-free rate assumed in valuing the options is based on the U.S. treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield percentage at the date of grant is Nil as the Company is not expected to pay dividends in the foreseeable future.

 

Details of stock option transactions in Canadian dollars (“C$”) are as follows:

 

    May 31, 2016  May 31, 2015  




  
 
 
 
 		  
 
 
 
 


Number of
options		  
 
 
 
 		  
 
 
 
 		 Weighted
average
exercise
price per
share		  
 
 
 
 		  
 
 
 
 		  
 
 
 
 		  
Weighted
average
grant date
fair value		  
 
 
 
 		  
 
 
 
 		  
 
 
 
 		  
 
 
Number of
options		  
 
 
 
 		  
 
 
 
 		  
 
 
 
 		 Weighted
average
exercise
price per
share		  
 
 
 
 		  
 
 
 
 		  
 
 
 
 		  
Weighted
average
grant date
fair value		  
 
 
 
 
                 $      $      $      $  
                                         
Outstanding, beginning of period   5,062,007    3.89    2.17    4,858,208    3.96    2.21 
Exercised   -    -    -    (85,000)   2.38    1.93 
Expired   (4,982)   244.48    162.34    -    -    - 
Forfeited   -    -    -    (39,166)   3.60    2.44 
Balance at                              
end of period   5,057,025    3.65    2.01    4,734,042    3.99    2.21 
Options exercisable end of period   4,084,342    3.69    2.10    3,516,215    4.14    2.41 

 

 

Page 13
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

6.Options (continued)

 

Total unrecognized compensation cost relating to the unvested performance-based stock options at May 31, 2016 is approximately $1,861,896 (May 31, 2015 - $2,482,528). During the six months ended May 31, 2016, a performance condition was met as the FDA approved an ANDA for a certain drug, resulting in the vesting of 276,394 performance-based stock options. As a result, a stock-based compensation expense of $620,632 relating to these stock options was recognized in research and development expense (six months ended May 31, 2015 - $Nil).

 

For the three and six months ended May 31, 2016, no options were exercised. For the three and six months ended May 31, 2015, Nil and 85,000 options were exercised for a cash consideration of $Nil and $159,267, respectively.

 

The following table summarizes the components of stock-based compensation expense.

 

Stock-based compensation  Three months ended  Six months ended
related to:    May 31, 2016      May 31, 2015      May 31, 2016      May 31, 2015  
     $      $      $      $  
             
Research and development   15,629    823    651,404    1,642 
Selling, general and administrative   25,120    24,832    49,455    49,526 
    40,749    25,655    700,859    51,168 

 

The Company has estimated its stock option forfeitures to be approximately 4% for the three and six months ended May 31, 2016 (three and six months ended May 31, 2015 - $Nil).

 

7.Deferred share units

 

Effective May 28, 2010, the Company’s shareholders approved a Deferred Share Unit (“DSU”) Plan to grant DSUs to its non-management directors and reserved a maximum of 110,000 common shares for issuance under the plan. The DSU Plan permits certain non-management directors to defer receipt of all or a portion of their board fees until termination of the board service and to receive such fees in the form of common shares at that time. A DSU is a unit equivalent in value to one common share of the Company based on the trading price of the Company's common shares on the Toronto Stock Exchange.

 

Upon termination of board service, the director will be able to redeem DSUs based upon the then market price of the Company's common shares on the date of redemption in exchange for any combination of cash or common shares as the Company may determine.

 

During the three and six months ended May 31, 2016, one non-management board member elected to receive director fees in the form of DSUs under the Company’s DSU Plan. As at May 31, 2016, 67,539 DSUs are outstanding and 42,461 DSUs are available for grant under the DSU Plan.

 

   Three months ended  Six months ended
   May 31, 2016  May 31, 2015  May 31, 2016  May 31, 2015
   $  shares  $  shares  $  shares  $  shares
                         
Additional paid in capital   7,944    3,265    7,798    3,046    15,995    7,537    11,557    4,384 
Accrued liability   8,200    5,121    9,448    2,914    8,200    5,121    9,448    2,914 

 

 

Page 14
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

8.Warrants

 

In the registered direct unit offering completed in March 2013, gross proceeds of $3,121,800 were received through the sale of the Company’s units comprised of common stock and warrants.

 

The offering was the sale of 1,815,000 units at a price of $1.72 per unit, with each unit consisting of one share of common stock and a five year warrant to purchase 0.25 of a share of common stock at an exercise price of $2.10 per share (“March 2013 Warrants”).

 

The fair value of the March 2013 Warrants of $407,558 were initially estimated at closing using the Black-Scholes Option Pricing Model, using volatilities of 63%, risk free interest rates of 0.40%, expected life of 5 years, and dividend yield of Nil.

 

In the underwritten public offering completed in July 2013, gross proceeds of $3,075,000 were received through the sale of the Company’s units comprised of common stock and warrants. The offering was the sale of 1,500,000 units at a price of $2.05 per unit, each unit consisting of one share of common stock and a five year warrant to purchase 0.25 of a share of common stock at an exercise price of $2.55 per share (“July 2013 Warrants”).

 

The fair value of the July 2013 Warrants of $328,350 were initially estimated at closing using the Black-Scholes Option Pricing Model, using volatilities of 62.4%, risk free interest rates of 0.58%, expected life of 5 years, and dividend yield of Nil.

 

The following table provides information on the 2,361,744 warrants outstanding and exercisable as of May 31, 2016:

 

        Number         Shares issuable  
Warrant    Exercise price      outstanding      Expiry      upon exercise  
                     
March 2013 Warrants  $2.10    1,491,744    March 22, 2018    372,936 
July 2013 Warrants  $2.55    870,000    July 31, 2018    217,500 
         2,361,744         590,436 

 

During the three and six months ended May 31, 2016, there were cash exercises in respect of Nil and 232,556 warrants, respectively (three and six months ended May 31, 2015 – Nil), resulting in the issuance of Nil and 58,139, respectively (three and six months ended May 31, 2015 – Nil) common shares.

 

For the warrants exercised the Company recorded a charge to capital stock of $262,463 (six months ended May 31, 2015 – Nil) comprised of proceeds of $122,092 (six months ended May 31, 2015 – Nil) and the associated amount of $140,371 (six months ended May 31, 2015 – Nil) previously recorded in additional paid in capital.

 

Details of warrant transactions are as follows:

             
   Series A  March 2013  July 2013   
   Warrants  Warrants  Warrants  Total
             
Outstanding, December 1, 2015   2,835,000    1,724,300    870,000    5,429,300 
Exercised   -    (232,556)   -    (232,556)
Expired   (2,835,000)   -    -    (2,835,000)
Outstanding, May 31, 2016   -    1,491,744    870,000    2,361,744 

 

Page 15
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

8.Warrants (continued)

             
   Series A  March 2013  July 2013   
   Warrants  Warrants  Warrants  Total
             
Outstanding, December 1, 2014   3,285,000    1,724,300    870,000    5,879,300 
Issued   -    -    -    - 
Exercised   -    -    -    - 
Expired   -    -    -    - 
Outstanding, May 31, 2015   3,285,000    1,724,300    870,000    5,879,300 

 

9.Income taxes

 

The Company has had no taxable income under the Federal and Provincial tax laws of Canada for the three and six months ended May 31, 2016 and May 31, 2015. The Company has non-capital loss carry-forwards at May 31, 2016, totaling $26,549,423 in Canada and $50,605 in United States federal income tax losses that must be offset against future taxable income. If not utilized, the loss carry-forwards will expire between 2016 and 2032. The Company has provided a full valuation allowance on the Company’s loss carry-forwards as it is more likely than not that its loss carry-forwards will not be realized.

 

For the six months ended May 31, 2016, the Company had a cumulative carry-forward pool of Canadian Federal Scientific Research & Experimental Development expenditures in the amount of $12,408,000 which can be carried forward indefinitely.

 

At May 31, 2016, the Company had approximately $2,710,000 of unclaimed Investment Tax Credits which expire from 2025 to 2035. These credits are subject to a full valuation allowance as they are not more likely than not to be realized.

 

10.Financial instruments

 

(a)Fair values

 

The Company follows ASC topic 820, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC topic 820 apply to other accounting pronouncements that require or permit fair value measurements. ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and establishes a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

 

Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are defined as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument.

 

Level 3 inputs are unobservable inputs for asset or liabilities.

 

Page 16
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

10.Financial instruments (continued)

 

(a) Fair values (continued)

 

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

(i)The Company calculates expected volatility based on historical volatility of the Company’s peer group that is publicly traded for options that have an expected life that is more than four years.
   
(ii)The Company calculates the interest rate for the conversion option based on the Company’s estimated cost of raising capital.
   

An increase/decrease in the volatility and/or a decrease/increase in the discount rate would have resulted in an increase/decrease in the fair value of the conversion option and warrant liabilities.

 

The change in fair value of the conversion option and the warrant liabilities was recorded as a fair value adjustment of derivative liabilities in the consolidated statements of operations and comprehensive loss.

 

Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis are as follows:

 

   May 31, 2016  November 30, 2015
     Carrying      Fair      Carrying      Fair  
     Amount      Value      Amount      Value  
     $      $      $      $  
                     
Financial Liabilities                    
Convertible debt(i)   1,488,841    1,379,808    1,518,429    1,481,663 

 

(i)The Company calculates the interest rate for the convertible debt and due to related parties based on the Company’s estimated cost of raising capital and uses the discounted cash flow model to calculate the fair value of the convertible debt and the amounts due to related parties.

 

The carrying values of cash, accounts receivable, accounts payable, accrued liabilities and employee cost payable approximates their fair values because of the short-term nature of these instruments.

 

(b)Interest rate and credit risk

 

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates, relative to interest rates on cash and cash equivalents, due to related parties and capital lease obligations due to the short-term nature of these balances.

 

Trade accounts receivable potentially subjects the Company to credit risk. The Company provides an allowance for doubtful accounts equal to the estimated losses expected to be incurred in the collection of accounts receivable.

 

The following table sets forth details of the aged accounts receivable that are not overdue as well as an analysis of overdue amounts and the related allowance for doubtful accounts:

 

Page 17
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

10.Financial instruments (continued)

 

(b) Interest rate and credit risk

 

     May 31,      November 30,  
     2016      2015  
     $      $  
       
Total accounts receivable   390,074    478,674 
Less allowance for doubtful accounts   -    - 
Total accounts receivable, net   390,074    478,674 
           
Not past due   355,181    453,662 
Past due for more than 31 days          
but no more than 60 days   5,073    5,003 
Past due for more than 91 days          
but no more than 120 days   29,820    20,009 
Total accounts receivable, net   390,074    478,674 

 

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of uncollateralized accounts receivable. The Company’s maximum exposure to credit risk is equal to the potential amount of financial assets. For the three and six months ended May 31, 2016 and May 31, 2015, Par accounted for substantially all the revenue and all the accounts receivable of the Company.

 

The Company is also exposed to credit risk at period end from the carrying value of its cash. The Company manages this risk by maintaining bank accounts with a Canadian Chartered Bank. The Company’s cash is not subject to any external restrictions.

 

(c)Foreign exchange risk

 

The Company has balances in Canadian dollars that give rise to exposure to foreign exchange (“FX”) risk relating to the impact of translating certain non-U.S. dollar balance sheet accounts as these statements are presented in U.S. dollars. A strengthening U.S. dollar will lead to a FX loss while a weakening U.S. dollar will lead to a FX gain. For each Canadian dollar balance of $1.0 million, a +/- 10% movement in the Canadian currency held by the Company versus the U.S. dollar would affect the Company’s loss and other comprehensive loss by $0.1 million.

 

(d)Liquidity risk

 

Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the Company closely monitors its forecasted cash requirements with expected cash drawdown.

 

The following are the contractual maturities of the undiscounted cash flows of financial liabilities as at May 31, 2016:

 

               May 31 , 2016
    Less than
3 months		     3 to 6
months		     6 to 9
months		     9 months
1 year		     Greater than
1 year		     Total  
     $      $      $      $      $      $  
                   
Third parties                              
Accounts payable   3,479,203    -    -    -    -    3,479,203 
Accrued liabilities   436,295    -    -    -    -    436,295 
Capital lease   5,278    5,422    5,569    5,721    4,659    26,649 
Related parties                              
Employee costs payable   207,302    -    -    -    -    207,302 
Convertible debenture   90,678    44,846    1,500,493    -    -    1,636,017 
    4,218,756    50,268    1,506,062    5,721    4,659    5,785,466 

 

 

Page 18
 

Intellipharmaceutics International Inc.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended May 31, 2016 and 2015

(Stated in U.S. dollars)

 

11.Segmented information

 

The Company's operations comprise a single reportable segment engaged in the research, development and manufacture of novel and generic controlled-release and targeted-release oral solid dosage drugs. As the operations comprise a single reportable segment, amounts disclosed in the financial statements for revenue, loss for the period, depreciation and total assets also represent segmented amounts. In addition, all of the Company's long-lived assets are in Canada. The Company’s license and commercialization agreement with Par accounts for substantially all of the revenue of the Company.

 

   Three months ended    Six months ended  
     May 31,      May 31,      May 31,      May 31,  
     2016      2015      2016      2015  
     $      $      $      $  
             
Revenue                    
Canada   -    -    -    - 
United States   556,044    1,268,245    1,122,981    2,407,930 
    556,044    1,268,245    1,122,981    2,407,930 
                     
               May 31,      November 30,  
              2016    2015 
               $      $  
Total assets                    
Canada             3,818,989    5,224,299 
                     
Total property and equipment                    
Canada             1,645,095    1,759,438 

 

12.Subsequent Events

 

In June 2016, the Company announced the closing of its underwritten public offering of 3,229,814 units of common shares and warrants, at a price of $1.61 per unit. In connection with the offering, the Company issued an aggregate of 3,229,814 common shares and warrants to purchase an additional 1,614,907 common shares. The underwriter also purchased additional warrants at a purchase price of $0.001 per warrant to acquire 240,390 common shares pursuant to the over-allotment option exercised in part by the underwriter. The warrants are exercisable immediately, have a term of five years and an exercise price of $1.93 per common share. After underwriting discounts, commissions and estimated offering expenses, the Company received net proceeds of approximately $4.6 million. The Company subsequently consummated closings of the sales of an aggregate of 459,456 additional common shares at the public offering price of $1.61 per share. The Company received net proceeds of approximately $0.7 million from the subsequent partial exercises of the over-allotment option, after deducting the underwriting discount. The closings of these partial exercises brought the total net proceeds from the offering to approximately $5.3 million, after deducting the underwriter’s discount and estimated offering expenses.

 

 

 

 

Page 19