CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2016 and 2015
Two Carlson Parkway, Suite 165
Minneapolis, Minnesota 55447
www.diamedica.com
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of DiaMedica Therapeutics Inc.
We have audited the accompanying consolidated financial statements of DiaMedica Therapeutics
Inc., which comprise the consolidated statements of financial position as at December 31, 2016,
December 31, 2015 and January 1, 2015, the consolidated statements of loss and comprehensive
loss, changes in equity (deficiency) and cash flows for the years ended December 31, 2016 and
December 31, 2015, and notes, comprising a summary of significant accounting policies and other
explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant
to the entity’s preparation and fair presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
KPMG LLP Suite 2000 - One Lombard Place Winnipeg MB R3B 0X3 Canada Telephone (204) 957-1770 Fax (204) 957-0808 Internet www.kpmg.ca KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG Network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity KPMG Canada provides services to KPMG LLP. Sender Name Title / Enclosures Letter Template.Docx
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of DiaMedica Therapeutics Inc. as at December 31, 2016,
December 31, 2015 and January 1, 2015, and its consolidated financial performance and its
consolidated cash flows for the years ended December 31, 2016 and December 31, 2015 in
accordance with International Financial Reporting Standards.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 2(b) in the consolidated financial statements
which indicates that DiaMedica Therapeutics Inc. has experienced operating losses and cash
outflows from operations since incorporation and has an accumulated deficit of $46.7 million at
December 31, 2016. These conditions, along with other matters as set forth in Note 2(b) in the
consolidated financial statements, indicate the existence of material uncertainties that cast significant
doubt upon DiaMedica Therapeutic Inc.’s ability to continue as a going concern.
Chartered Professional Accountants
April 27, 2017
Winnipeg, Canada
DIAMEDICA THERAPEUTICS INC.
Consolidated Statements of Financial Position
Amounts in United States Dollars
As at
As at
Note December 31, 2016 December 31, 2015
$
$
As at
January 1, 2015
$
ASSETS
Current
Cash
Amounts receivable
Prepaid expenses
Total current assets
Property and equipment
Total non-current assets
Total assets
LIABILITIES
Current
Accounts payable and accrued liabilities
Deferred revenue
Total current liabilities
Other liabilities
Total non-current liabilities
Total liabilities
EQUITY (DEFICIENCY)
Share capital
Warrants
Contributed surplus
Deficit
Accumulated other comprehensive income
Total equity (deficiency)
Total liabilities and equity
4
5
6,8
7
8
9
9
9
1,736,361
51,974
65,222
1,853,557
19,395
19,395
1,872,952
626,966
-
626,966
-
-
626,966
166,134
9,616
32,918
208,668
14,332
14,332
223,000
1,033,462
33,116
1,066,578
389,208
389,208
1,455,786
203,920
8,406
53,876
266,202
15,571
15,571
281,773
1,811,660
-
1,811,660
-
-
1,811,660
40,993,676
161,430
6,211,111
(46,707,308)
587,077
1,245,986
1,872,952
36,374,849
946,010
5,181,533
(44,484,164)
748,986
(1,232,786)
223,000
35,177,774
1,218,849
4,462,695
(42,890,270)
501,065
(1,529,887)
281,773
Going concern (note 2(b))
Approved by the Board and authorized for issue on April 27, 2017:
(signed) Michael Giuffre, Director
(signed) James Parsons, Director
See accompanying notes to the consolidated financial statements
- 1 -
DIAMEDICA THERAPEUTICS INC.
Consolidated Statements of Loss and Comprehensive Loss
Amounts in United States Dollars
Year Ended
Year Ended
Note
December 31, 2016
December 31, 2015
$
$
EXPENSES
Research and development
General and administrative
Finance costs (income)
Other income
Loss before income taxes
Income tax expense
Net loss for the year
11
12
13
7
10
OTHER COMPREHENSIVE LOSS (INCOME)
Foreign currency translation adjustment
3(b)
Comprehensive loss for the year
Basic and diluted loss per common share
See accompanying notes to the consolidated financial statements
1,763,415
718,045
2,481,460
(58,728)
(221,902)
2,200,830
22,314
2,223,144
161,909
2,385,053
0.02
979,030
467,768
1,446,798
136,658
(3,318)
1,580,138
13,756
1,593,894
(247,921)
1,345,973
0.02
- 2 -
DIAMEDICA THERAPEUTICS INC.
Consolidated Statements of Changes in Equity (Deficiency)
Amounts in United States Dollars
Share capital
Warrants
Number
#
(note 9)
Amount
$
Number
#
(note 9)
Amount
$
Contributed
surplus
$
Accumulated Other
Comprehensive
Income (Loss)
$
Deficit
$
Total
$
Balance, January 1, 2015
Common shares issued, net of issue costs
Units issued, net of issue costs
Compensation warrants issued
Warrants expired
Share-based compensation
Foreign currency translation
Net loss for the year
Balance, December 31, 2015
Common shares issued, net of issue costs
Units issued, net of issue costs
Common shares issued, settlement of debt
Compensation warrants issued
Common shares issued, warrant exercise
Common shares issued, DSU redemption
Warrants expired
Share-based compensation
Foreign currency translation
Net loss for the year
Balance, December 31, 2016
See accompanying notes to the consolidated financial statements
62,025,430
6,000,000
14,250,000
-
-
-
-
-
82,275,430
20,000,000
4,687,500
50,000
-
3,482,150
25,880
-
-
-
-
110,520,960
35,177,774
425,500
771,575
-
-
-
-
-
36,374,849
3,605,051
355,365
7,890
-
617,212
33,309
6,916,966
-
9,375,000
902,150
(2,820,879)
-
-
-
14,373,237
-
2,343,750
-
218,300
(3,482,150)
-
- (10,891,087)
-
-
-
-
-
-
2,562,050
40,993,676
1,218,849
-
252,255
55,460
(580,554)
-
-
-
946,010
-
139,385
-
22,044
(146,432)
-
(799,577)
-
-
-
161,430
4,462,695
-
-
-
580,554
138,284
-
-
5,181,533
-
-
-
-
-
(33,309)
799,577
263,310
-
-
6,211,111
- 3 -
-
-
-
-
-
247,921
-
501,065 (42,890,270)
-
-
-
-
-
-
(1,593,894)
748,986 (44,484,164)
-
-
-
-
-
-
-
-
-
(2,223,144)
587,077 (46,707,308)
-
-
-
-
-
-
-
-
(161,909)
-
(1,529,887)
425,500
1,023,830
55,460
-
138,284
247,921
(1,593,894)
(1,232,786)
3,605,051
494,750
7,890
22,044
470,780
-
-
263,310
(161,909)
(2,223,144)
1,245,986
DIAMEDICA THERAPEUTICS INC.
Consolidated Statements of Cash Flows
Amounts in United States Dollars
OPERATING ACTIVITIES
Net loss for the period
Adjustments for items not affecting cash
Share-based compensation
Depreciation of property and equipment
Gain on sale of property and equipment
Research and development
Interest on other liabilities
Unrealized foreign exchange loss (gain) on other liabilities
Interest paid
Changes in non-cash working capital items
Amounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Deferred revenue
Other liabilities
Cash used in operating activities
FINANCING ACTIVITIES
Issue of common shares, net of cash issue costs
Units issued, net of cash issue costs
Issue of common shares on exercise of warrants,
net of cash issue costs
Cash provided by financing activities
INVESTING ACTIVITIES
Acquisition of property and equipment, net of disposals
Cash used in investing activities
Effects of foreign exchange on cash
Net increase (decrease) in cash during the year
Cash, beginning of the year
Cash, end of year
Supplemental cash flow information
Common share purchase warrants issued as agent’s
consideration
See accompanying notes to the consolidated financial statements.
Note
Year Ended
December 31, 2016
$
Year Ended
December 31, 2015
$
(2,223,144)
(1,593,894)
9
5
8
6,8
7
8
9
9
9
5
9
263,310
2,196
(366)
-
48,375
(169,583)
(25,517)
(42,358)
(32,304)
(599,065)
(33,116)
(211,607)
138,284
4,543
-
(46,713)
43,738
136,316
(20,824)
(1,210)
20,958
(125,370)
33,116
(152,277)
(3,023,179)
(1,563,333)
3,605,051
516,794
470,780
4,592,625
(6,893)
(6,893)
7,674
1,570,227
166,134
1,736,361
480,960
1,023,829
-
1,504,789
(3,304)
(3,304)
24,062
(37,786)
203,920
166,134
22,044
55,460
- 4 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
1. Corporate information
DiaMedica Therapeutics Inc. (formerly DiaMedica Inc.) (the “Company” or “DiaMedica”) is a clinical-stage
biopharmaceutical company that is developing innovative treatments where there is significant unmet clinical
need or where no current therapies are available with a focus on neurological and kidney diseases.
The Company is a listed company incorporated under the Canada Business Corporations Act and domiciled in
British Columbia, Canada, whose shares are publicly traded on the TSX Venture Exchange in Canada under the
symbol “DMA” and the OTCQB in the United States (“U.S.”) under the symbol “DMCAF”. The Company’s
registered office is at 301 – 1665 Ellis Street, Kelowna, British Columbia V1Y 2B3. The Company’s U.S. office
is DiaMedica USA Inc., Two Carlson Parkway, Suite 165, Minneapolis, Minnesota 55447. The Company’s
Australian office is DiaMedica Australia Pty Ltd, 58 Gipps Street, Collingwood VIC 3066.
2. Basis of presentation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
The policies applied in these consolidated financial statements are based on IFRS issued and in effect as of April
27, 2017, the date the Board of Directors approved the financial statements.
(b) Basis of measurement and going concern
These consolidated financial statements have been prepared on the historical cost basis.
These consolidated financial statements have been prepared using IFRS that are applicable to a going concern,
which contemplates the realization of assets and settlement of liabilities and commitments as they come due for
the foreseeable future. There are material uncertainties that cast significant doubt about the appropriateness of the
use of the going concern assumption because the Company has experienced operating losses and cash outflows
from operations since incorporation and has an accumulated deficit of $46.7 million as at December 31, 2016.
The Company’s cash resources are not sufficient for the next twelve months of planned operations; additional
funding will be required in order to continue the Company’s research and development and other operating
activities as it has not reached successful commercialization of its products. These circumstances cast significant
doubt as to the ability of the Company to continue as a going concern and hence the appropriateness ultimately
of the use of accounting principles applicable to a going concern. The Company is actively pursuing additional
financing to further develop the Company’s scientific initiatives.
The Company’s future operations are therefore dependent upon its ability to generate product revenues, negotiate
license agreements with partners, and secure additional funds. There can be no assurance that the Company will
be successful in commercializing its products, entering into strategic agreements with partners, raising additional
capital on favorable terms or that these or other strategies will be sufficient to permit the Company to continue as
a going concern.
These consolidated financial statements do not reflect adjustments in the carrying values of the Company’s assets
and liabilities, expenses, and the statement of financial position classification used, that would be necessary if the
going concern assumption was not appropriate. Such adjustments could be material.
(c) Functional and presentation currency
The Company’s functional currency is Canadian dollars (“CAD$”). The Company has retroactively changed its
presentation currency to the United States dollar (“USD$”) from CAD$. The change is detailed in Note 3(b).
- 5 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
(d) Use of significant estimates and assumptions
The preparation of 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
and liabilities, revenue and expenses, and the related disclosures of contingent assets and liabilities. Actual results
could differ materially from these estimates and assumptions. We review our estimates and underlying
assumptions on an ongoing basis. Revisions are recognized in the period in which the estimates are revised and
may impact future periods.
We have applied significant judgments, estimates, and assumptions to the determination of functional currency,
and the valuation of share-based compensation and warrants.
Functional currency
Judgment is required in determining the appropriate functional currency of the Company. The Canadian
functional currency was determined by assessing the currency that mainly influences costs and the currency in
which the Company finances its operations. A change in the functional currency could result in material
differences in the amounts recorded in the statements of loss and comprehensive loss for foreign exchange gains
or losses.
Valuation of share-based compensation and warrants
Management measures the costs for share-based compensation and warrants using market-based option valuation
techniques. Assumptions are made and estimates are used in applying the valuation techniques. These include
estimating the future volatility of the share price, expected dividend yield, expected risk-free interest rate, future
employee turnover rates, future exercise behaviours, and corporate performance. Such estimates and assumptions
are inherently uncertain. Changes in these assumptions affect the fair value estimates of share-based payments
and warrants.
3. Significant accounting policies
The Company’s principal accounting policies set out below have been applied consistently to all periods presented
in these consolidated financial statements.
(a) Basis of consolidation
These financial statements include the accounts of the Company and its wholly-owned and controlled subsidiaries,
DiaMedica USA Inc. and DiaMedica Australia Pty Ltd. Control exists when the Company has the power, directly
or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using
consistent accounting policies. The financial statements of the subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases. DiaMedica USA Inc.
was incorporated May 15, 2012. DiaMedica Australia Pty Ltd was incorporated on July 11, 2016. All
intercompany transactions and balances have been eliminated.
(b) Foreign currency
The functional currency of an entity is the currency of the primary economic environment in which the entity
operates. The functional currency of the Company is the CAD$. The functional currency determination was
conducted through an analysis of the consideration factors identified in IAS 21, The Effects of Changes in Foreign
Exchange Rates.
During the fourth quarter of 2016, the Company has adopted the USD$ as the presentation currency for the
consolidated entity to better reflect the total business activities of its entities and improves investors’ ability to
- 6 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
compare the Company’s total financial results with other publicly traded businesses in the Company’s industry
(most of which are based in the United States and report in USD$). In making this change to the USD$
presentation currency, the Company followed the guidelines in IAS 21, The Effects of Changes in Foreign
Exchange Rates, and has applied the change retrospectively as if the new presentation currency had always been
the Company’s presentation currency. In accordance with IAS 21, the financial statements for all years presented
have been translated to the new USD$ presentation currency whereby assets and liabilities have been translated
from their functional currency at the closing exchange rate in effect at the end of each consolidated statement of
financial position date; income and expenses for each consolidated statement of loss and comprehensive loss were
translated at the average exchange rate in effect during each reporting period and equity transactions were
translated at historic rates during the period incurred. All resulting exchange differences have been recognized in
other comprehensive loss (income) and accumulated as a separate component of equity (foreign currency
translation disclosed as accumulated other comprehensive income on the consolidated statement of financial
position). In addition to the comparative financial statements, the Company has presented a third statement of
financial position as at January 1, 2015. The historic translation had an impact of $501,065 as accumulated other
comprehensive income as at January 1, 2015.
(c) Financial instruments
Financial assets
A financial asset is classified as fair value through profit or loss if it is held for trading or is designated as such
upon initial recognition. Financial assets are designated at fair value through profit or loss where the Company
manages such investments and makes purchase and sale decisions based on their fair value in accordance with its
documented risk management and investment strategy. Attributable transaction costs are recognized in profit or
loss as incurred. Financial assets at fair value through profit and loss are measured at fair value and changes
therein are recognized in profit or loss. The Company does not have any financial assets at fair value through
profit or loss.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. Loans and receivables are recognized initially at fair value plus transaction costs and
subsequently measured at amortized cost using the effective interest rate method less any impairment losses. The
Company has classified cash and amounts receivable as loans and receivables.
Derecognition
A financial asset is derecognized when the rights to receive cash flows from the asset have expired or when the
Company has transferred its rights to receive cash flows from the asset.
Financial liabilities
Other financial liabilities are recognized initially at fair value plus any directly attributable transaction costs, and
subsequently at amortized cost using the effective interest method. The Company has classified its accounts
payable and accrued liabilities, and other liabilities as other financial liabilities.
Derecognition
A financial liability is derecognized when its contractual obligations are discharged or cancelled or expire.
Equity
Common shares and warrants to purchase common shares are classified as equity. Incremental costs directly
attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.
- 7 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
(d) Property and equipment
Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an
item or property and equipment have different useful lives, they are accounted for as separate items (major
components) of property and equipment. Gains and losses on disposal of an item of property and equipment are
determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and
are recognized in profit or loss.
Subsequent costs
The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item
if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost
can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day
servicing of property and equipment are recognized in profit or loss as incurred.
Depreciation
The estimated useful lives and the methods of depreciation for the current and comparative periods are as follows:
Asset
Computer equipment
Office equipment
Basis
Straight-line over 4 years
Diminishing balance at 20%
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting period-end
and adjusted if appropriate. Depreciation expense is recognized in research and development expenses.
(e) Intangible assets
Research and development
Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge
and understanding, are recognized in profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products and
processes. Development expenditures are capitalized only if development costs can be measured reliably, the
product or process is technically and commercially feasible, future economic benefits are probable, and the
Company intends and has sufficient resources to complete development and to use or sell the asset. Other
development expenditures are expenses as incurred. No development costs have been capitalized to date.
Research and development expenses include all direct and indirect operating expenses supporting the products in
development.
Intangible assets
Intangible assets that are acquired separately and have finite useful lives are measured at cost less accumulated
amortization and accumulated impairment losses. Subsequent expenditures are capitalized only when they
increase future economic benefits embodied in the specific asset to which it relates. All other expenditures are
recognized in profit or loss as incurred.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible
assets from the date they are available for use in the manner intended by management.
- 8 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
The costs of servicing the Company’s patents are expensed as incurred.
(f) Impairment
Financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is objective evidence that is impaired. A financial asset is impaired if objective evidence indicates
that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect
on the estimated future cash flows of that asset that can be estimated reliably.
An impairment test is performed, on an individual basis, for each material financial asset. Other individually non-
material financial assets are tested as groups of financial assets with similar risk characteristics. Impairment losses
are recognized in profit or loss.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s
original effective interest rate. Losses are recognized in net profit or loss and reflected in an allowance account
against the respective financial asset. Interest on the impaired asset continues to be recognized through the
unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the
decrease in impairment loss is reversed through profit or loss.
Non-financial assets
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine
whether there is any indication of impairment. If such an indication exists, the recoverable amount is estimated.
The recoverable amount of an asset or a cash-generating unit is the greater of its value in use and its fair value
less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset or cash-generating unit. For the purpose of impairment testing, assets that cannot be tested
individually are grouped together into the smallest group of assets that generates cash inflows from continuing
use that largely are independent of cash inflows of other assets or cash-generating units. An impairment loss is
recognized if the carrying amount of an asset or its related cash-generating unit exceeds its estimated recoverable
amount. Impairment losses for intangible assets are recognized in research and development expenses.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss
has deceased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortization, if no impairment loss had been recognized.
(g) Provision
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are assessed by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability. The unwinding of
the discount on provisions is recognized in finance costs. No provisions have been recognized.
(h) Government assistance
Government assistance relating to research and development is recorded as a reduction of expenses when the
related expenditures are incurred.
- 9 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
Investment tax credits
The Company is eligible to receive certain refundable investment tax credits, which are earned as a result of
qualifying research and development expenditures and are recognized when the expenditures are made and their
realization is reasonably assured. They are applied to reduce research and development expense in the year
recognized.
(i) Share-based compensation
The grant-date fair value of share-based payment awards granted to employees is recognized as personnel costs,
with a corresponding increase in contributed surplus, over the period that the employees unconditionally become
entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which
the related service and non-market vesting conditions are expected to be met, such that the amount ultimately
recognized as an expense is based on the number of awards that met the related service and non-market
performance conditions at the vesting date.
For equity-settled share-based payment transactions, including deferred share units and stock options granted to
non-employees, the Company measures the goods or services received, and the corresponding increase in
contributed surplus, directly, at the fair value of the goods or services received, unless that fair value cannot be
estimated reliably. If the Company cannot estimate reliably the fair value of the goods or services received, it
measures their value by reference to the fair value of the equity instruments granted. Transactions measured by
reference to the fair value of the equity instruments granted, have their fair values remeasured each vesting and
reporting date until fully vested.
(j) Income taxes
Deferred tax is recognized in respect of temporary differences between carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects accounting income, taxable income or loss.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax
asset is recognized for unused tax losses, tax credits and deductible temporary differences, the extent that it is
probably that future taxable profits will be available against which they can be utilized.
(k) Loss per share
Basis loss per share is computed by dividing the net loss available to common shareholders by the weighted
average number of shares outstanding during the reporting period. Diluted loss per share is computed similar to
basic loss per share except that the weighted average shares outstanding are increased to include additional shares
for the assumed exercise of stock options, warrants and deferred share units, if dilutive. The number of additional
shares is calculated by assuming that outstanding stock options, warrants and deferred share units were exercised
and that the proceeds from such exercises were used to acquire common stock at the average market price during
the reporting periods. The inclusion of the Company’s stock options, warrants and deferred share units in the
computation of diluted loss per share has an anti-dilutive effect on the loss per share and therefore, they have been
excluded from the calculation of diluted loss per share.
- 10 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
(l) New standards and interpretations adopted
Amendments to IAS 1, Presentation of Financial Statements (“IAS 1”)
The IASB issued amendments to IAS 1 as part of its initiative to improve presentation and disclosure in financial
reports. These amendments do not require any significant change to current practice, but are intended to facilitate
improved financial statement disclosures. The amendments are effective for annual periods beginning on or after
January 1, 2016 and were adopted by the Company in these consolidated financial statements. The adoption of
the amendments was not material to these consolidated financial statements.
(m) New standards and interpretations not yet effective
IAS 7, Disclosure Initiative ("IAS 7")
Amendments to IAS 7 require disclosures that enable users of financial statements to evaluate changes in
liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes.
The amendments apply prospectively for annual periods beginning on or after January 1, 2017. The Company
will adopt the amendments to IAS 7 in its financial statements for the annual period beginning on January 1, 2017.
Early application is permitted. The extent of the impact of adoption of the amendments has not yet been
determined.
IFRS 2, Share Based Payments ("IFRS 2")
The amendments to IFRS 2 provide clarification on how to account for certain types of share-based payment
transactions. The amendments provide requirements on the accounting for: the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a
net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-
based payment that changes the classification of the transaction from cash-settled to equity-settled. The
amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification, the
amendments can be applied prospectively. Retrospective, or early, application is permitted if information is
available without the use of hindsight. The extent of the impact of adoption of the amendments has not yet been
determined.
IFRS 9, Financial Instruments (“IFRS 9”)
IFRS 9 which replaces IAS 39, Financial Instruments: Recognition and Measurement establishes principles for
the financial reporting of financial assets and financial liabilities that will present relevant and useful information
to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future
cash flows. Under IFRS 9, financial assets are classified and measured based on the business model in which they
are held and the characteristics of their cash flows. In addition, under IFRS 9 for financial liabilities measured at
fair value, changes in fair value attributable to changes in credit risk will be recognized in other comprehensive
income, with the remainder of the changes recognized in profit or loss. However, if this requirement creates or
enlarges an accounting mismatch in profit or loss, the entire change in fair value will be recognized in profit or
loss. This new standard is effective for annual periods beginning on or after January 1, 2018. Early adoption is
permitted. The extent of the impact of adoption of the amendments has not yet been determined.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15 issued by the IASB in May 2014, is applicable to all revenue contracts and provides a model for the
recognition and measurement of gains or losses from sales of some non-financial assets. The core principle is that
revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard
will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously
addressed comprehensively [for example, service revenue and contract modifications] and improve guidance for
multiple-element arrangements. IFRS 15 is effective for annual periods beginning on or after January 1, 2018 and
- 11 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
is to be applied retrospectively, with earlier adoption permitted. Entities will transition following either a full or
modified retrospective approach. The extent of the impact of adoption of the standard has not yet been determined.
IFRS 16, Leases (“IFRS 16”)
This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities
for all leases with a term of more than twelve months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. This standard substantially carries forward the lessor
accounting requirements of IAS 17, Leases, while requiring enhanced disclosures to be provided by lessors. Other
areas of the lease accounting model have been impacted, including the definition of a lease. The new standard is
effective for annual periods beginning on or after January 1, 2019, which is when the Company intends to adopt
IFRS 16 in its financial statements. The extent of the impact of adoption of the standard has not yet been
determined.
4. Amounts receivable
Other receivables
Sales taxes receivable
5. Property and equipment
Cost
Balance, December 31, 2014
Additions
Disposals
Balance, December 31, 2015
Additions
Disposals
Balance, December 31, 2016
Accumulated depreciation
Balance, December 31, 2014
Depreciation
Balance, December 31, 2015
Disposals
Depreciation
Balance, December 31, 2016
Net carrying amounts
December 31, 2015
December 31, 2016
December 31, 2016
$
-
51,974
51,974
December 31, 2015
$
379
9,237
9,616
Computer and
office equipment
$
29,903
7,010
(1,608)
35,305
8,393
(1,500)
42,198
16,850
4,123
20,973
(366)
2,196
22,803
14,332
19,395
- 12 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
6. Accounts payable and accrued liabilities
Trade and other payables (note 8)
Accrued liabilities
Due to related parties (note 15)
7. Deferred revenue
December 31, 2016
$
326,627
245,333
55,006
626,966
December 31, 2015
$
674,148
220,712
138,602
1,033,462
In the fourth quarter of 2015, the Company received a non-refundable upfront payment of $39,099 (CAD$50,000)
from a third party for a twelve-month exclusivity period related to certain patent and technology rights owned by
the Company. The Company recorded the payment as deferred revenue and recognized it in other income over
the twelve-month exclusivity period. In accordance with the agreement, the Company sold its patent and
technology rights of its DM-71 product for type 2 diabetes to the third party during the year ended December 31,
2016 for an additional $188,594 (CAD$250,000) and a royalty stream linked to future sales.
8. Other liabilities
During the first quarter of 2015, the Company negotiated deferred payment terms with a vendor for the payment
of services which occurred prior to January 1, 2015. In accordance with the agreement, the Company has paid the
vendor €381,860 which was interest bearing at a rate of 0.5% per month compounded annually.
Additionally, €379,922 which is non-interest bearing is due and payable to the vendor on or about February 2017.
On initial recognition, the payable was measured at its fair value of €338,129 using a market interest rate of 6%.
The payable was measured at amortized cost at the end of each reporting period and accreted to its face value
using the market interest rate of 6%. Under the terms of the agreement, these payment terms were accelerated and
are now due. The deferred payments are unsecured.
The liability as at December 31, 2016 and December 31, 2015 and reflecting payments made are as follows:
Amounts due in 2016
Amounts due in 2017
December 31,
2016
€
-
189,961
189,961
Less unrecognized interest
-
Total principle and interest
189,961
Amounts were recorded in financial statements as follows:
Included in accounts payable and
accrued liabilities
Other liabilities
(189,961)
-
December 31,
2016
$
-
200,459
200,459
-
200,459
December 31,
2015
€
250,494
379,922
630,416
(30,368)
600,048
December 31,
2015
$
272,014
412,561
684,575
(32,977)
651,598
(200,459)
-
(241,631)
358,417
(262,390)
389,208
9. Share capital
(a) Authorized
The Company has authorized share capital of an unlimited number of common voting shares.
- 13 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
Common shareholders are entitled to receive dividends as declared by the Company at its discretion and are
entitled to one vote per share at the Company's annual general meeting.
(b) Common shares issued – for the year ended December 31, 2016
On September 8, 2016, the Company completed the second tranche of a non-brokered private placement of
15,000,000 common shares at a price of $0.20 per share for aggregate gross proceeds of $3,000,000 ($2,614,282
net of issue costs).
On August 22, 2016, the Company completed the first tranche of a non-brokered private placement of 5,000,000
common shares at a price of $0.20 per share for aggregate gross proceeds of $1,000,000 ($990,769 net of issue
costs).
On April 22, 2016, the Company issued 50,000 common shares for settlement of a debt to a vendor at an issue
price of CAD$0.20 per common share.
On February 18, 2016, the Company completed the first tranche of a non-brokered private placement of 3,812,500
units at a price of CAD$0.16 per unit for aggregate gross proceeds of approximately $445,544 and $409,160 net
of issue costs (CAD$610,000 and CAD$560,188 respectively). Each unit consisted of one common share and one
half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common
share at a price of CAD$0.25 at any time prior to expiry on February 18, 2018. In connection with the financing,
the Company issued 148,300 compensation warrants and paid a finder’s fee of 4% of the aggregate gross
proceeds. Each compensation warrant entitles the holder to acquire one common share at an exercise price of
CAD$0.25 prior to expiry on February 18, 2018.
The CAD$0.16 unit issue price was allocated to common shares in the amount of CAD$0.12 per common share
and the unit warrants were allocated a price of CAD$0.04 per half-warrant. The costs of the issue were allocated
on a pro rata basis to the common shares and unit warrants. Accordingly, $294,597 (CAD$403,335) was allocated
to common shares and $114,563 (CAD$156,853) to the unit warrants, net of issue costs. Assumptions used to
determine the value of the unit warrants and compensation warrants were: dividend yield 0%; risk-free interest
rate 0.4%; expected volatility 192%; and average expected life of 24 months.
On February 25, 2016, the Company completed the second tranche of a non-brokered private placement of
875,000 units at a price of CAD$0.16 per unit for aggregate gross proceeds of approximately $101,710 and
$85,590 net of issue costs (CAD$140,000 and CAD$117,810 respectively). Each unit consisted of one common
share and one half of one common share purchase warrant. Each whole warrant entitles the holder to purchase
one common share at a price of CAD$0.25 at any time prior to expiry of February 25, 2018. In connection with
the financing, the Company issued 70,000 compensation warrants and paid a finder’s fee of 8% of the aggregate
gross proceeds. Each compensation warrant entitles the holder to acquire one common share at an exercise price
of CAD$0.25 prior to expiry on February 25, 2018.
The CAD$0.16 unit issue price was allocated to common shares in the amount of CAD$0.11 per common share
and the unit warrants were allocated a price of CAD$0.05 per half-warrant. The costs of the issue were allocated
on a pro rata basis to the common shares and unit warrants. Accordingly, $60,768 (CAD$83,645) was allocated
to common shares and $24,822 (CAD$34,165) to the unit warrants, net of issue costs. Assumptions used to
determine the value of the unit warrants and compensation warrants were: dividend yield 0%; risk-free interest
rate 0.5%; expected volatility 192%; and average expected life of 24 months.
During the year ended December 31, 2016, 25,880 common shares were issued on the redemption of deferred
share units and 3,482,150 common shares were issued on the exercise of warrants for gross proceeds of $617,212,
and 10,891,087 warrants expired unexercised.
- 14 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
Common shares issued – for the year ended December 31, 2015
On March 13, 2015, the Company completed a non-brokered private placement of 6,000,000 shares at a price of
CAD$0.10 per share for aggregate gross proceeds of approximately $472,086 and $425,500 net of issue costs
(CAD$600,000 and CAD$554,205 respectively). In connection with the financing, the Company issued 227,350
compensation warrants and paid a finder’s fee of 5% of the aggregate gross proceeds. Each compensation warrant
entitles the holder to acquire one common share at an exercise price of CAD$0.10 prior to expiry on March 13,
2016.
On June 19, 2015, the Company completed a non-brokered private placement of 9,750,000 units at a price of
CAD$0.10 per unit for aggregate gross proceeds of approximately $796,611 and $719,929 net of issue costs
(CAD$975,000 and CAD$922,094 respectively). Each unit consisted of one common share and one-half common
share purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of
CAD$0.20 at any time prior to expiry on June 19, 2016. In connection with the financing, the Company issued
420,000 compensation warrants and paid a finder’s fee of 5% of the aggregate gross proceeds. Each compensation
warrant entitles the holder to acquire one common share at an exercise price of CAD$0.10 prior to expiry on June
19, 2016.
The CAD$0.10 unit issue price was allocated to common shares in the amount of CAD$0.08 per common share
and the unit warrants were allocated a price of CAD$0.02 per half-warrant. The costs of the issue were allocated
on a pro rata basis to the common shares and unit warrants. Accordingly, $547,772 (CAD$701,547) was allocated
to common shares and $172,157 (CAD$220,547) to the unit warrants, net of issue costs. Assumptions used to
determine the value of the unit warrants and compensation warrants were: dividend yield 0%; risk-free interest
rate 0.6%; expected volatility 202%; and average expected life of 12 months.
On November 25, 2015, the Company completed a non-brokered private placement of 4,500,000 units at a price
of CAD$0.10 per unit for aggregate gross proceeds of approximately $337,686 and $303,901 net of issue costs
(CAD$450,000 and CAD$417,719 net of issue costs). Each unit consisted of one common share and one common
share purchase warrant. Each warrant entitles the holder to purchase one common share at a price of CAD$0.20
at any time prior to expiry on November 25, 2016. In connection with the financing, the Company issued 254,800
compensation warrants and paid a finder’s fee of 5% of the aggregate gross proceeds. Each compensation warrant
entitles the holder to acquire one common share at an exercise price of CAD$0.10 prior to expiry on November
25, 2016.
The CAD$0.10 unit issue price was allocated to common shares in the amount of CAD$0.07 per common share
and the unit warrants were allocated a price of CAD$0.03 per warrant. The costs of the issue were allocated on a
pro rata basis to the common shares and unit warrants. Accordingly, $223,803 (CAD$307,622) was allocated to
common shares and $80,098 (CAD$110,097) to the unit warrants, net of issue costs. Assumptions used to
determine the value of the unit warrants and compensation warrants were: dividend yield 0%; risk-free interest
rate 0.6%; expected volatility 145%; and average expected life of 12 months.
During the year ended December 31, 2015, 2,820,879 warrants expired unexercised.
(c) Weighted average number of shares
The weighted average number of shares for the year ended December 31, 2016 was 94,715,025 (2015 –
72,494,608). The Company has not adjusted its weighted average number of shares outstanding for the purpose
of calculating the diluted loss per share as any adjustment related to stock options, warrants, or deferred share
units would be anti-dilutive.
- 15 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
(d) Warrants
The following table shows the number of warrants outstanding, the exercise prices, and the number of common
shares issuable on exercise of the warrants as at December 31, 2016:
Expiry Date
February 18, 2018
February 25, 2018
(e) Shareholder rights plan
Exercise Price
CAD$
$0.25
$0.25
Warrants
#
2,054,550
507,500
2,562,050
The Company adopted a shareholder rights plan agreement (the “Plan”). The Plan is designed to provide adequate
time for the Board of Directors and the shareholders to assess an unsolicited takeover bid for DiaMedica, to
provide the Board of Directors with sufficient time to explore and develop alternatives for maximizing
shareholder value if a takeover bid is made, and to provide shareholders with an equal opportunity to participate
in a takeover bid and receive full and fair value for their Common Shares. The Plan is set to expire at the close of
the Company’s annual meeting of shareholders in 2017.
The rights issued under the Plan will initially attach to and trade with the Common Shares and no separate
certificates will be issued unless an event triggering these rights occurs. The rights will become exercisable only
when a person, including any party related to it, acquires or attempts to acquire 20 percent (20%) or more of the
outstanding Common Shares without complying with the "Permitted Bid" provisions of the Plan or without
approval of the Board of Directors. Should such an acquisition occur or be announced, each right would, upon
exercise, entitle a rights holder, other than the acquiring person and related persons, to purchase Common Shares
at a 50 percent (50%) discount to the market price at the time.
Under the Plan, a Permitted Bid is a bid made to all holders of the Common Shares and which is open for
acceptance for not less than sixty (60) days. If at the end of sixty (60) days at least 50 percent (50%) of the
outstanding Common Shares, other than those owned by the offeror and certain related parties have been tendered,
the offeror may take up and pay for the Common Shares but must extend the bid for a further ten (10) days to
allow other shareholders to tender.
The issuance of Common Shares upon the exercise of the rights is subject to receipt of certain regulatory
approvals.
(f) Deferred Share Units Plan
The 2012 Deferred Share Unit Plan (the “2012 DSU Plan”) promotes greater alignment of long-term interests
between non-executive directors and executive officers of the Company and its shareholders through the issuance
of deferred share units (“DSUs”). Since the value of a DSU increases or decreases with the market price of the
common shares, DSUs reflect a philosophy of aligning the interests of directors and executive officers by tying
compensation to share price performance. For the years ended December 31, 2016, a total of 375,000 units were
issued (2015 – nil) in the amount of $53,167 (2015 – nil) for payment of directors’ fees. The Company has
reserved for issuance up to 2,000,000 common shares under the 2012 DSU Plan and 423,676 DSUs (2015 –
74,556) were outstanding as at December 31, 2016.
(g) Stock option plan
The Company has a stock option plan which is administered by the Board of Directors of the Company with stock
options granted to directors, management, employees, and consultants as a form of compensation. The
shareholders approved the adoption of a stock option plan on September 22, 2011 as amended and restated on
- 16 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
October 23, 2015 reserving for issuance up to 10% of the Company’s issued and outstanding common shares.
The aggregate number of shares reserved includes all compensation and incentive plans, including the stock
option plan and the DSU Plan. Options granted vest at various rates and have terms of up to 10 years.
Changes in the number of options outstanding during the year ended December 31, 2016 and 2015 were as
follows:
Balance, beginning of year
Granted
Expired/cancelled
Forfeited
Balance, end of year
Options exercisable, end of year
2016
Number of
Options
6,412,000
2,775,000
(480,000)
(150,000)
8,557,000
4,041,833
2016
Weighted average
exercise price
in CAD$
$0.49
$0.24
$0.72
$1.31
$0.38
$0.58
2015
Number of
Options
5,153,000
4.404.000
(1,170,000)
(1,975,000)
6,412,000
1,899,167
2015
Weighted average
exercise price
in CAD$
$1.01
$0.14
$1.04
$0.73
$0.49
$1.26
For the year ended December 31, 2016, 500,000 (2015 – 1,250,000) options were granted to non-employees for
services. The weighted average grant date fair value of these options was CAD$0.07 (2015 – CAD$0.12).
The contributed surplus balance represents accumulated share-based compensation expenses and the fair value of
warrants that have expired.
The following table reflects stock options outstanding at December 31, 2016:
Range of
exercise prices
in CAD$
$0.10-$0.13
$0.14-$0.16
$0.17-$0.48
$0.49-$1.11
$1.12-$1.70
Stock options outstanding
Weighted average
remaining
contractual life
8.7years
7.2years
8.9years
4.8years
3.0years
7.2years
Weighted average
exercise price
in CAD$
$0.10
$0.15
$0.25
$0.96
$1.46
$0.38
Number
outstanding
1,100,000
3,304,000
2,525,000
653,000
975,000
8,557,000
Stock options exercisable
Exercisable
number
1,058,333
1,205,500
187,500
615,500
975,000
4,041,833
Weighted average
exercise price
in CAD$
$0.10
$0.15
$0.17
$0.97
$1.46
$0.58
The following table reflects stock options outstanding at December 31, 2015:
Range of
exercise prices
in CAD$
$0.10-$0.50
$0.51-$1.00
$1.01-$1.50
$1.51-$1.70
Stock options outstanding
Weighted average
remaining
contractual life
9.8years
7.5years
5.2years
5.3years
8.5years
Weighted average
exercise price
in CAD$
$0.14
$0.76
$1.14
$1.69
$0.49
Number
outstanding
4,404,000
250,000
1,108,000
650,000
6,412,000
Stock options exercisable
Exercisable
number
87,500
129,168
1,032,499
650,000
1,899,167
Weighted average
exercise price
in CAD$
$0.12
$0.78
$1.15
$1.69
$1.26
- 17 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
The fair value of the stock options granted was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions:
Expected option life
Risk free interest rate
Dividend yield
Expected volatility
December 31, 2016
4.6 years
0.8%
nil
113%
December 31, 2015
4.4 years
0.8%
nil
113%
The Black-Scholes model used by the Company to calculate option values was developed to estimate the fair
value of freely tradable, fully transferable options without vesting restrictions, which significantly differs from
the Company's stock option awards. This model also requires highly subjective assumptions, including future
stock price volatility and average option life, which greatly affect the calculated values. The risk-free interest rate
is based on the yield of a Canadian Government bond with a remaining term equal to the expected term of the
option. The volatility is based solely on historical volatility equal to the expected life of the option. The life of the
options is estimated considering the vesting period at the grant date, the life of the option and the average length
of time similar grants have remained outstanding in the past. The dividend yield is assumed to be nil since it is
the present policy of the Company to retain all earnings to finance operations and future growth.
During the year ended December 31, 2016, the Company issued 2,725,000 (2015 – 4,404,000) stock options with
a fair value of $290,862 (2015 – $349,375). The weighted average grant-date fair value of the stock options
granted during the year ended December 31, 2016 was CAD$0.14 (2015 – CAD$0.14).
10. Income taxes
Tax expense is recognized based on management’s best estimate of the weighted-average annual income tax rate
expected for the full year multiplied by the pre-tax income of each legal entity during the reporting period. The
income tax recognized by the Company for the year ended December 31, 2016 represents estimated taxes owed
in the United States.
(a) Unrecognized deferred tax assets:
As at December 31, deferred tax assets have not been recognized with respect to the following items:
Non-capital losses carried forward
Research and development expenditures
Share issue costs
Intangible assets and other
Property and equipment
December 31, 2016
$
6,916,591
697,639
190,795
211,189
663
8,016,877
December 31, 2015
$
6,052,523
674,438
156,460
241,070
641
7,125,132
(b) As at December 31, 2016, the company has available research and development expenditures for income purposes
of approximately $3,075,758 (2015 – $2,973,342), which may be carried forward indefinitely to reduce future
years’ taxable income.
(c) As at December 31, 2016, the company has non-capital income tax loss carry-forwards of approximately
$25,618,104 (2015 – $22,416,751), available to reduce future years’ taxable income with expiry dates ranging
from 2027 to 2036.
- 18 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
(d) As at December 31, 2016, the company has approximately $491,800 (2015 – $475,424) for non-refundable
Federal investment tax credits available to offset future income taxes with expiry dates ranging from 2020 to
2034.
(e) The reconciliation of the Canadian statutory income tax rate applied to the net loss for the period to the income
tax recovery is as follows:
Statutory income tax rate
Income tax recovery based on statutory rate
Stock-based compensation
Share issue costs
Other
Change in unrecognized temporary difference
Income tax expense
11. Research and development
2016
$
27.0%
(594,224)
70,052
(87,608)
(257,651)
891,745
22,314
2015
$
27.0%
(426,637)
37,436
(40,538)
78,146
365,349
13,756
Components of research and development expenses for the years ended December 31, 2016 and 2015 were as
follows:
Research and development programs, excluding the below
Salaries, fees, and short-term benefits
Share-based compensation
Depreciation of property and equipment
2016
$
1,159,412
514,673
87,119
2,211
1,763,415
2015
$
415,703
459,568
99,216
4,543
979,030
12. General and Administrative
Components of general and administrative expenses for the years ended December 31, 2016 and 2015 were as
follows:
General and administrative, excluding the below
Salaries, fees, and short-term benefits
Share-based compensation
2016
$
436,522
103,849
177,674
718,045
2015
$
359,467
68,865
39,436
467,768
- 19 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
13. Finance costs (income)
Finance costs (income) for the years ended December 31, 2016 and 2015 was as follows:
Interest expense
Interest income
Bank charges
Net foreign currency loss (gain)
14. Commitments and contingencies
2016
$
48,375
(1,729)
4,292
(109,666)
(58,728)
2015
$
43,738
(1,922)
4,829
90,013
136,658
As at December 31, 2016 and in the normal course of business, the Company had obligations to make future
payments, representing research and development contracts and other commitments that are known and
committed in the amount of $368,721 over the next 12 months, $25,520 from 13-24 months, and $10,811 from
25 to 36 months. These contracts relate to preclinical, clinical, and development activities including with the
clinical research organizations in connection with their agreement to conduct the bridging study and with the
leasing company for DiaMedica’s U.S. office. The Company’s largest commitment is with the clinical site for its
Phase I bridging study. As at December 31, 2016, the Company has future commitments totaling $147,791
(AUD$204,442) to this company.
The Company enters into research, development, and license agreements in the ordinary course of business where
the Company receives research services and rights to proprietary technologies. Milestone and royalty payments
that may become due under various agreements are dependent on, among other factors, clinical trials, regulatory
approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain.
The Company periodically enters into research and license agreements with third parties that include
indemnification provisions customary in the industry. These guarantees generally require the Company to
compensate the other party for certain damages and costs incurred as a result of claims arising from research and
development activities undertaken by or on behalf of the Company. In some cases, the maximum potential amount
of future payments that could be required under these indemnification provisions could be unlimited. These
indemnification provisions generally survive termination of the underlying agreement. The nature of the
indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential
amount it could be required to pay. Historically, the Company has not made any indemnification payments under
such agreements and no amount has been accrued in the accompanying condensed consolidated interim financial
statements with respect to these indemnification obligations.
15. Related parties
The Company has two subsidiaries, DiaMedica USA Inc. and DiaMedica Australia Pty Ltd. All intercompany
balances have been eliminated.
The key management personnel of the Company are the Directors, the President and Chief Executive Officer, the
Chief Scientific Officer, and the Vice Presidents.
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DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
Compensation for key management personnel of the Company for the years ended December 31, 2016 and 2015
was as follows:
Salaries, fees, and short-term benefits
Share-based compensation
2016
$
523,041
134,626
657,667
2015
$
430,898
35,761
466,659
Executive officers and directors participate in the stock option plan and certain officers participate in the
Company’s health plan. Directors receive annual and meeting fees for their services. As at December 31, 2016,
the key management personnel control 3.0% (2015 – 4.1%) of the voting shares of the Company.
Amounts due to related parties, including amounts due to key management personnel are unsecured and interest
free, and settlement occurs in cash. Additionally, amounts due to related parties in note 6 relate to accrued
bonuses, vacation payable, and accounts payable. There have been no guarantees provided or received for any
related party receivables or payables.
16. Operating segment
The Company has a single operating segment, the discovery and development of innovative treatments where
there is no significant unmet clinical need or where no current therapies are available with a focus on neurological
and kidney diseases. The majority of the Company’s operations and employees are in the United States, while the
intellectual property resides in Canada. All non-current assets of $19,395 (2015 – $14,332) are held in the United
States.
17. Management of capital
The Company defines its capital as capital stock, warrants, and contributed surplus. The Company’s objectives
when managing capital are to ensure there are sufficient funds available to carry out its research and development
programs. To date, these programs have been funded primarily through the sale of equity securities and the
conversion of common share purchase warrants. The Company also sources non-dilutive funding by accessing
grants, government assistance and tax incentives, and through partnerships with corporations and research
institutions. The Company uses budgets and purchasing controls to manage its costs. There has been no change
to the capital management strategy during the year.
The Company is not exposed to any externally imposed capital requirements.
18. Financial instruments
Fair value
Certain of the Company’s accounting policies and disclosures require the determination of fair value for both
financial and non-financial assets and liabilities. Financial instruments of the Company consist of cash amounts
receivable and accounts payable and accrued liabilities. As at December 31, 2016, there were no significant
differences between the carrying values of these amounts and their estimated fair values due to their short-term
nature. The Company has classified its cash as Level 1 as fair values are determined by quoted prices of identical
assets in active markets.
Risk
The Company has exposure to credit risk, liquidity risk and market risk. The Company’s Board of Directors has
overall responsibility for the establishment and oversight of the Company’s risk management framework. The
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DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
audit committee of the board is responsible to review the Company’s risk management policies.
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Company’s cash and amounts receivable. The carrying
amount of these financial assets represents the maximum credit exposure. The Company follows an investment
policy to mitigate against the deterioration of principal and to enhance the Company’s ability to meet its liquidity
needs. Cash is on deposit with a credit union and guaranteed by the Credit Union Deposit Guarantee Corporation
of Manitoba in Canada, and in bank accounts in the United States guaranteed by the Federal Deposit Insurance
Corporation. Amounts receivable are primarily comprised of amounts due from the Federal government.
(b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company is a development stage company and is reliant on external sources of capital to support its operations.
Once funds have been raised, usually through equity offerings, the Company manages its liquidity risk by
depositing its money in immediately callable investments. The Board of Directors reviews and approves the
Company’s operating and capital budgets, as well as any material transactions not in the ordinary course of
business. The majority of the Company’s accounts payable and accrued liabilities have maturities of less than
three months (see also note 2(b)).
(c) Market risk
(i) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. The Company’s cash is in highly liquid holdings in bank accounts
or savings accounts which have a variable rate of interest.
(ii) Currency risk
The Company is exposed to currency risk related to the fluctuation of foreign exchange rates of its U.S. and
Australian subsidiaries. The Company manages its exposure to US currency fluctuations by holding cash
denominated in US dollars in amounts approximating current US dollar financial liabilities and US dollar
planned expenditures.
Currency risk as at December 31, 2016 were as follows:
Cash
Accounts payable & accrued liabilities
Net exposure
Net exposure in CAD$
10% change in foreign exchange in USD$
USD$
1,270,385
(143,822)
1,126,563
1,512,636
112,656
AUD$
227,572
(166,430)
61,142
59,351
4,420
EUR €
-
(189,961)
(189,961)
(269,156)
(20,046)
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DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2016 and 2015
Amounts in United States Dollars
Currency risk as at December 31, 2015 were as follows:
Cash
Accounts payable & accrued liabilities
Net exposure
Net exposure in CAD$
10% change in foreign exchange in USD$
USD$
138,285
(259,881)
(121,596)
(168,289)
(12,160)
AUD$
-
-
-
-
-
EUR €
-
(642,120)
(642,120)
(965,042)
(69,728)
19. Events after the balance sheet date
On April 17, 2017, the Company completed a non-brokered private placement of 10,526,315 units at a price of
$0.19 per unit for aggregate proceeds of approximately $2,000,000. Each unit consists of one common share and
one half common share purchase warrant. Each whole warrant entitles the holder to purchase one common share
at a price of $0.23 at any time prior to expiry on April 17, 2019. The warrant expiry date can be accelerated at the
option of the Company, in the event that the volume-weighted average trading price of the Company’s common
shares exceeds $0.30 per common share for any 10 consecutive trading days.
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