CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2017 and 2016
Two Carlson Parkway, Suite 260
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, 2017 and
December 31, 2016, the consolidated statements of loss and comprehensive loss, changes in equity
(deficiency) and cash flows for the years then ended, 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 One Lombard Place Suite 2000 Winnipeg MB R3B 0X3 Telephone (204) 957-1770 Fax (204) 957-0808 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. Document Classification: KPMG Confidential
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, 2017 and
December 31, 2016, and its consolidated financial performance and its consolidated cash flows for the
years then ended 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 $50.9 million at
December 31, 2017. 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 30, 2018
Winnipeg, Canada
DIAMEDICA THERAPEUTICS INC.
Consolidated Statements of Financial Position
Amounts in United States Dollars
ASSETS
Current
Cash
Amounts receivable
Prepaid expenses
Total current assets
Deposits
Property and equipment
Total non-current assets
Total assets
LIABILITIES
Current
Accounts payable and accrued liabilities
Total current liabilities
Warrant liability
Total non-current liabilities
Total liabilities
EQUITY (DEFICIENCY)
Share capital
Warrants
Contributed surplus
Deficit
Accumulated other comprehensive income
Total equity
Total liabilities and equity
Going concern (Note 2(b))
Note
As at
December 31, 2017
$
As at
December 31, 2016
$
4
5
6
7
8
9
9
9
1,360,232
85,705
63,772
1,509,709
271,074
37,483
308,557
1,818,266
913,424
913,424
112,856
112,856
1,026,280
44,336,310
156,017
6,571,534
(50,882,759)
610,884
791,986
1,818,266
1,736,361
51,974
65,222
1,853,557
-
19,395
19,395
1,872,952
626,966
626,966
-
-
626,966
40,993,676
161,430
6,211,111
(46,707,308)
587,077
1,245,986
1,872,952
Approved by the Board and authorized for issue on April 30, 2018:
(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, 2017
December 31, 2016
$
$
EXPENSES
Research and development
General and administrative
Finance (income) expense, net
Other income
Gain on revaluation of warrant liability, net
Loss before income taxes
Income tax expense
Net loss for the year
11
12
13
8
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
3,271,110
900,079
4,171,189
63,574
-
(93,604)
4,141,159
34,292
4,175,451
(23,807)
4,151,644
0.04
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
- 2 -
DIAMEDICA THERAPEUTICS INC.
Consolidated Statements of Changes in Equity (Deficiency)
Amounts in United States Dollars
Share capital
Number
#
(Note 9)
Amount
$
Warrants
Number
#
(Note 9)
Amount
$
Contributed
surplus
$
Accumulated Other
Comprehensive
Income (Loss)
$
Deficit
$
Total
$
Balance, December 31, 2015
82,275,430 36,374,849
14,373,237
946,010
5,181,533
748,986 (44,484,164) (1,232,786)
Common shares issued, net of issuance
costs
Units issued, net of issuance costs
Common shares issued, settlement of
debt
Common shares issued on exercise of
warrants
Compensation warrants issued
Common shares issued, DSU redemption
Warrants expired
Share-based compensation
Foreign currency translation adjustment
Net loss for the year
Balance, December 31, 2016
Units issued, net of issuance costs
Common shares issued on exercise of
derivative warrants
Common shares issued on exercises of
warrants
Shares issued on exercise of options
Share-based compensation
Foreign currency translation adjustment
Net loss for the year
Balance, December 31, 2017
20,000,000
4,687,500
3,605,051
355,365
-
2,343,750
-
139,385
50,000
7,890
-
-
-
-
-
617,212
3,482,150
-
-
33,309
25,880
-
-
-
-
-
-
-
-
110,520,960 40,993,676
2,532,816
14,150,723
(3,482,150)
218,300
-
(10,891,087)
-
-
-
2,562,050
-
(146,432)
22,044
-
(799,577)
-
-
-
161,430
-
-
-
(33,309)
799,577
263,310
-
-
6,211,111
-
-
-
-
3,605,051
494,750
7,890
-
-
-
-
-
-
-
-
(161,909)
-
-
-
-
-
-
-
470,780
22,044
-
-
263,310
(161,909)
(2,223,144) (2,223,144)
1,245,986
2,532,816
587,077 (46,707,308)
-
-
2,631,579
782,979
-
-
-
-
-
782,979
15,326
50,000
11,513
60,000
-
-
-
-
-
-
127,413,262 44,336,310
(50,000)
-
-
-
-
2,512,050
(5,413)
-
-
-
-
156,017
-
(4,764)
365,187
-
-
6,571,534
-
-
-
23,807
-
-
-
-
-
9,913
6,749
365,187
23,807
(4,175,451) (4,175,451)
791,986
610,884 (50,882,759)
See accompanying notes to the consolidated financial statements
- 3 -
DIAMEDICA THERAPEUTICS INC.
Consolidated Statements of Cash Flows
Amounts in United States Dollars
OPERATING ACTIVITIES
Net loss for the year
Adjustments for items not affecting cash
Share-based compensation
Gain on revaluation of warrant liability, net
Depreciation of property and equipment
Unrealized foreign exchange gain
Gain on sale of property and equipment
Interest expense on other liabilities
Interest paid
Changes in non-cash working capital items
Amounts receivable
Prepaid expenses
Deposit
Accounts payable and accrued liabilities
Deferred revenue
Other liabilities
Cash used in operating activities
FINANCING ACTIVITIES
Units issued, net of cash issuance costs
Issue of common shares on exercise of warrants
Issue of common shares on exercise of options
Issue of common shares, net of cash issuance 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, 2017
$
Year Ended
December 31, 2016
$
(4,175,451)
(2,223,144)
9
8
6
5
7
7
9
9
9
9
6
9
365,187
(93,604)
3,343
(43,618)
-
-
-
(33,731)
1,450
(271,074)
286,458
-
-
263,310
-
2,196
(169,583)
(366)
48,375
(25,517)
(42,358)
(32,304)
-
(599,065)
(33,116)
(211,607)
(3,961,040)
(3,023,179)
2,916,992
615,176
6,749
-
3,538,917
(21,431)
(21,431)
67,425
(376,129)
1,736,361
1,360,232
516,794
470,780
-
3,605,051
4,592,625
(6,893)
(6,893)
7,674
1,570,227
166,134
1,736,361
-
22,044
- 4 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
1. Corporate information
DiaMedica Therapeutics 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 260, 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
30, 2018, 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, except for derivative
financial liabilities which are measured at fair value.
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 in the normal course
of business. 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 $50.9 million as at December 31, 2017. The
Company’s cash resources at December 31, 2017 are not sufficient for the next twelve months of planned
operations; additional funding will be required to continue the Company’s research and development and other
operating activities as it has not reached successful commercialization of its product. These circumstances cast
significant doubt as to the ability of the Company to continue as a going concern and hence the appropriateness
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.
After the balance sheet date, the Company successfully raised additional cash (Note 19). During March 2018, the
Company completed a brokered and non-brokered private placement of 26,489,284 units at a price of $0.245 per
unit for aggregate gross proceeds of approximately $6.3 million (CAD$8.3 million). During February 2018,
2,425,125 common shares were issued on the exercise of warrants for gross proceeds of approximately $483,000
(CAD$606,000).
However, notwithstanding the additional cash raised after the balance sheet date, the Company’s future operations
are expected to continue to be dependent upon its ability to secure additional funds, negotiate license agreements
with partners and/or generate product revenues in order to fully execute its business plan. There can be no
assurance that the Company will be successful in commercializing its products, entering into strategic agreements
with partners, raising additional capital on favorable terms or that these or other strategies will be sufficient to
permit the Company to continue as a going concern.
- 5 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
These consolidated financial statements do not reflect adjustments in the carrying values of the Company’s assets
and liabilities, expenses, and the statement of financial position classification used, that would be necessary if the
going concern assumption was not appropriate. Such adjustments could be material.
(c) Functional and presentation currency
The Company’s functional currency is Canadian dollars (“CAD$”). During the year ended December 31, 2016,
the Company retroactively changed its presentation currency to the United States dollar (“USD$”) from CAD$.
(Note 3(b)).
(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 dollar is
the functional currency that represents the economic effects of the underlying transactions, events and conditions
and various other factors including the currency of historical and future expenditures and the currency in which
funds from financing activities are mostly generated by the Company. A change in the functional currency occurs
only when there is a material change in the underlying transactions, events and condition. A change in functional
currency could result in material differences in the amounts recorded in the consolidated statement of loss and
comprehensive loss for foreign exchange gains and losses.
Valuation of share-based compensation and warrants
Management measures the costs for share-based compensation, warrants and warrant liability 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 behaviors, and corporate performance. Such estimates
and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates of share-
based payments, warrants and warrant liability.
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.
- 6 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
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$. The functional currency determination was
conducted through an analysis of the consideration factors identified in IAS 21, The Effects of Changes in Foreign
Exchange Rates.
During the fourth quarter of 2016, the Company adopted the USD$ as the presentation currency for the
consolidated entity to better reflect the total business activities of its entities and improves investors’ ability to
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 applied the change retrospectively. In accordance with IAS 21, the financial statements have
been translated to the 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 and presented as “Accumulated other comprehensive income,” a separate component
of equity.
(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 when they have 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 impairment losses, if
any. The Company has classified cash, amounts receivable and deposits 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
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition at fair value through profit or loss. The Company has issued warrants
that are considered to be derivative liabilities due to the warrants being exercisable in a currency (USD$) other
than the Company’s functional currency (CAD$). Accordingly, the warrants are recognized at fair value through
profit and loss and measured at fair value at each reporting date, with changes in fair value included in the
consolidated statement of loss and comprehensive loss for the applicable reporting period.
- 7 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
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 as other financial liabilities.
Derecognition
A financial liability is derecognized when its contractual obligations are discharged, cancelled or expire.
Equity
Common shares and warrants to purchase common shares issued in CAD$ are classified as equity. Incremental
costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of tax
effects, if any.
(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.
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
Straight-line over 3 to 10 years
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.
Patents
The costs of servicing the Company’s patents are expensed as incurred.
- 8 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
(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 it 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, 2017 and 2016
Amounts in United States Dollars
(i) 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
collectability is reasonably assured. They are applied to reduce research and development expense in the year
recognized.
(j) 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 re-measured each vesting and
reporting date until fully vested.
(k) 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, to the extent that it is
probable that future taxable profits will be available against which they can be utilized.
(l) Loss per share
Basic 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, 2017 and 2016
Amounts in United States Dollars
(m) New standards and interpretations adopted
IAS 7, Statement of Cash Flows ("IAS 7")
Effective for years beginning on or after January 1, 2017, IAS 7 was amended to 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. Adoption of this amendment did not have a material impact
on the consolidated financial statements.
(n) New standards and interpretations not yet effective
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 Company does not expect the amendments to have a material impact
on the consolidated financial statements.
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. The Company is in
the process of evaluating the impact that the amendments may have on the consolidated financial statements.
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. Entities can apply one of two transition methods: retrospective or modified
respective. Retrospective application requires applying the new guidance to each prior reporting period presented
whereas the modified retrospective approach results in the cumulative effect, if any, of adoption being recognized
at the date of initial applicable. IFRS 15 is effective for annual periods beginning on or after January 1, 2018.
The Company will adopt this accounting standard on January 1, 2018 using the modified retrospective approach.
The Company is currently in the process of evaluating the impact of this standard. The standard is not expected
- 11 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
to have a significant impact on the consolidated financial statements of the Company as there are currently no
product sales or significant sources of revenue.
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
Sales taxes receivable
5. Deposits
Advances to vendors
December 31, 2017
$
85,705
85,705
December 31, 2016
$
51,974
51,974
December 31, 2017
$
271,074
271,074
December 31, 2016
$
-
-
The Company has advanced funds to a vendor engaged to support the performance of the REMEDY Phase 2
clinical trial. The funds advanced will be held, interest free, by this vendor until the completion of the trial and
applied to final trial invoices or refunded. This deposit is classified as non-current as the trial is not expected to
be completed during 2018.
6. Property and equipment
Cost
Balance, December 31, 2015
Additions
Disposals
Balance, December 31, 2016
Additions
Disposals
Balance, December 31, 2017
- 12 -
Computer and
office equipment
$
35,305
8,393
(1,500)
42,198
21,431
-
63,629
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
Accumulated depreciation
Balance, December 31, 2015
Depreciation
Disposals
Balance, December 31, 2016
Depreciation
Balance, December 31, 2017
Net carrying amounts
December 31, 2016
December 31, 2017
Computer and
office equipment
$
20,973
2,196
(366)
22,803
3,343
26,146
19,395
37,483
7. Accounts payable and accrued liabilities
Trade and other payables
Accrued liabilities
Due to related parties (Note 15)
8. Warrant liability
Balance as at December 31, 2016
Issued in private placement April 2017 (Note 9)
Loss on revaluation of warrant liability prior to exercise
Reclassification to share capital on exercise of warrants
Reclassification to gain on revaluation of warrant liability
on expiration of warrants
Issued in private placement December 2017 (Note 9)
Gain on revaluation of warrant liability
Balance as at December 31, 2017
December 31, 2017
$
636,484
229,156
47,784
913,424
December 31, 2016
$
326,627
245,333
55,006
626,966
Warrants
#
-
5,263,158
-
(2,631,579)
(2,631,579)
1,812,204
-
1,812,204
Warrants
$
-
267,283
88,149
(177,716)
(177,716)
116,893
(4,037)
112,856
On April 17, 2017, the Company completed a non-brokered private placement of 10,526,315 units with each unit
consisting 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 $0.23 at any time prior to expiry on April 17, 2019.
Warrants are subject to early expiry, at the option of the Company, if on any date the volume-weighted average
closing trading price of the common shares on any recognized Canadian stock exchange equals or exceeds $0.30
for a period of 10 consecutive trading days.
As the warrants are denominated in US dollars, and the Company’s functional currency is the Canadian dollar,
the warrants are recognized as a financial liability measured at fair value with changes recognized in profit and
loss. The Company allocated $1,715,754 of the net proceeds to common shares and the balance of $267,283 to
the warrant liability (Note 9). The fair value of the warrants was determined using a barrier option pricing model
- 13 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
with the following assumptions: expected volatility of 92%, risk-free interest rate of 0.73%, and expected life of
2 years.
On October 27, 2017, after the early expiry provision of the warrants was triggered, the warrant holder exercised
2,631,579 warrants for gross proceeds of $605,263 and allowed the remaining 2,631,579 warrants to expire. At
October 27, 2017, the warrant liability was revalued to $355,432. The fair value of the warrant liability was
determined using a barrier option pricing model with the following assumptions: expected volatility of 79%, risk-
free interest rate of 1.41%, and expected life of 1.5 years. Accordingly, the Company recorded a cumulative loss
on revaluation of the warrant liability of $88,149 prior to the exercise of the warrants. The warrant liability
associated with the warrants exercised, $177,716, was reclassified to share capital. The warrant liability associated
with the warrants which expired, $177,716, was reclassified to gain on revaluation of warrant liability.
On December 18, 2017, the Company completed a non-brokered private placement of 3,624,408 units with each
unit consisting 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 $0.35 at any time prior to expiry on December 19,
2019. Warrants are subject to early expiry, at the option of the Company, if on any date the volume-weighted
average closing trading price of the common shares on any recognized Canadian stock exchange equals or exceeds
$0.60 for a period of 21 consecutive trading days
As the warrants are denominated in US dollars, and the Company’s functional currency is the Canadian dollar,
the warrants are recognized as a financial liability measured at fair value with changes recognized in profit and
loss. The Company allocated $817,062 of the net proceeds to common shares and the balance of $116,893 to the
warrant liability (Note 9). The fair value of the warrants was determined using a barrier option pricing model with
the following assumptions: expected volatility of 84%, risk-free interest rate of 1.56%, and expected life of 2
years.
At December 31, 2017, the warrant liability was revalued to $112,856. The fair value of the warrant liability was
determined using a barrier option pricing model with the following assumptions: expected volatility of 82%, risk-
free interest rate of 1.67%, and expected life of 2 years. Accordingly, the Company recorded a gain on revaluation
of the warrant liability of $4,037 at December 31, 2017.
9. Share capital
(a) Authorized
The Company has authorized share capital of an unlimited number of common voting shares.
Common shareholders are entitled to receive dividends as declared by the Company, if any, 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, 2017
On December 18, 2017, the Company completed a non-brokered private placement of 3,624,408 units at a price
of $0.26 (CAD$0.335) per unit for aggregate gross proceeds of approximately $944,000, $934,000 net of issuance
costs. 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 $0.35 at any time prior to expiry on
December 19, 2019. Warrants are subject to early expiry, at the option of the Company, if on any date the volume-
weighted average closing trading price of the common shares on any recognized Canadian stock exchange equals
or exceeds $0.60 for a period of 21 consecutive trading days.
The $0.26 unit issue price was allocated first to the warrants as a financial liability and the remainder to the
common shares. As a result, the unit warrants were allocated a price of $0.03 per half-warrant and the remaining
amount of $0.23, was allocated to each common share. The costs of the issuance were allocated on a pro rata
basis to the common shares and unit warrants. Accordingly, $817,062 was allocated to common shares and
- 14 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
$116,893 to the unit warrants, net of issuance costs. Assumptions used to determine the value of the unit warrants
were: dividend yield 0%; risk-free interest rate 1.56%; expected volatility 84%; and average expected life of 2
years. As the warrants are denominated in US dollars, and the Company’s functional currency is the Canadian
dollar, the warrants are recognized as a financial liability measured at fair value with changes recognized in profit
and loss (Note 8).
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 gross proceeds of approximately $2,000,000 and $1,983,037 net of issuance costs.
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 $0.23 at any time prior to expiry on April
17, 2019. Warrants are subject to early expiry, at the option of the Company, if on any date the volume-weighted
average closing trading price of the common shares on any recognized Canadian stock exchange equals or exceeds
$0.30 for a period of 10 consecutive trading days.
The $0.19 unit issue price was allocated first to the warrants as a financial liability and the remainder to the
common shares. As a result, the unit warrants were allocated a price of $0.03 per half-warrant and the remaining
amount of $0.16, was allocated to each common share. The costs of the issuance were allocated on a pro rata
basis to the common shares and unit warrants. Accordingly, $1,715,754 was allocated to common shares and
$267,283 to the unit warrants, net of issuance 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 2 years. As the warrants are denominated in US dollars, and the Company’s functional
currency is the Canadian dollar, the warrants are recognized as a financial liability measured at fair value with
changes recognized in profit and loss (Note 8).
During the year ended December 31, 2017, 50,000 common shares were issued on the exercise of warrants for
gross proceeds of $9,913 and 60,000 common shares were issued on the exercise of options for gross proceeds of
$6,749.
(c) 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 issuance 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 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 issuance 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 issuance 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 issuance costs. Assumptions
- 15 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
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 2 years.
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 ($409,160 net of
issuance 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 issuance 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 issuance 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 2 years.
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 $617,212,
and 10,891,087 warrants expired unexercised.
(d) Weighted average number of shares
The weighted average number of shares for the year ended December 31, 2017 was 118,715,801 (2016 –
94,715,025). The Company has not adjusted its weighted average number of shares outstanding for the purpose
of calculating the diluted loss per share as any adjustment related to stock options, warrants, or deferred share
units would be anti-dilutive.
(e) Warrants
The following table shows the number of warrants outstanding, the exercise prices, and the number of common
shares issuable on exercise of the warrants as at December 31, 2017:
Expiry Date
February 18, 2018
February 25, 2018
(f) Shareholder rights plan
Exercise Price
CAD$
$0.25
$0.25
Warrants
#
2,039,550
472,500
2,512,050
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 was renewed at the Company’s
annual meeting of shareholders in December 2017 and is set to expire at the close of the Company’s annual
meeting of shareholders in 2020.
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
- 16 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
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.
(g) 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 DSUs 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 year ended December 31, 2017, no units were issued (2016 –
375,000) in the amount of nil (2016 – $53,167) for payment of directors’ fees. The Company has reserved for
issuance up to 2,000,000 common shares under the 2012 DSU Plan and 423,676 DSUs (2016 – 423,676) were
outstanding at December 31, 2017.
(h) Stock option plan
DiaMedica has adopted a Stock Option Plan where the board of directors may from time to time, in their
discretion, and in accordance with the TSX-V requirements, grant to directors, officers, management company
employees, investor relations consultants and Consultants (as such terms are used in the Stock Option Plan) to
DiaMedica, non-transferable options to purchase Common Shares. The shareholders approved the adoption of a
stock option plan on September 22, 2011, and as amended and restated on October 23, 2015 and December 21,
2017, reserving for issuance up to 10% of the Company’s issued and outstanding common shares. The aggregate
number of shares reserved includes all compensation and incentive plans, including the stock option plan and the
2012 DSU Plan. Options granted vest at various rates and have terms of up to 10 years.
Changes in the number of options outstanding during the years ended December 31, 2017 and 2016 were as
follows:
Balance, beginning of year
Granted
Exercised
Expired/cancelled
Forfeited
Balance, end of year
Options exercisable, end of year
2017
Number of
Options
8,557,000
2,552,689
(60,000)
(1,449,000)
-
9,600,689
5,264,857
2017
Weighted average
exercise price
in CAD$
$0.38
$0.31
$0.15
$0.66
-
$0.32
$0.37
2016
Number of
Options
6,412,000
2,775,000
-
(480,000)
(150,000)
8,557,000
4,041,833
2016
Weighted average
exercise price
in CAD$
$0.49
$0.24
-
$0.72
$1.31
$0.38
$0.58
For the year ended December 31, 2017, 177,689 (2016 – 500,000) options were granted to non-employees for
- 17 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
services. The weighted average grant date fair value of these options was CAD$0.20 (2016 – CAD$0.07).
The contributed surplus balance represents accumulated share-based compensation expenses and the fair value of
warrants that have expired.
The following table reflects stock options outstanding at December 31, 2017:
Stock options outstanding
Stock options exercisable
Range of
exercise prices
in CAD$
$0.10-$0.13
$0.14-$0.16
$0.17-$0.26
$0.27-$0.51
$0.52-$1.70
Number
outstanding
1,100,000
2,670,000
2,689,355
2,138,334
1,003,000
9,600,689
Weighted average
remaining
contractual life
7.7 years
7.9 years
9.0 years
9.5 years
4.9 years
8.7 years
Weighted average
exercise price
in CAD$
$0.10
$0.15
$0.26
$0.32
$1.21
$0.32
Exercisable
number
1,091,667
1,780,000
1,022,688
367,502
1,003,000
5,264,857
Weighted average
exercise price
in CAD$
$0.10
$0.15
$0.26
$0.32
$1.21
$0.37
The following table reflects stock options outstanding at December 31, 2016:
Stock options outstanding
Stock options exercisable
Range of
exercise prices
in CAD$
$0.10-$0.13
$0.14-$0.16
$0.17-$0.48
$0.49-$1.11
Number
outstanding
1,100,000
3,304,000
2,525,000
653,000
8,557,000
Weighted average
remaining
contractual life
8.7 years
7.2 years
8.9 years
4.8 years
7.2 years
Weighted average
exercise price
in CAD$
$0.10
$0.15
$0.25
$0.96
$0.38
Exercisable
number
1,058,333
1,205,500
187,500
615,500
4,041,833
Weighted average
exercise price
in CAD$
$0.10
$0.15
$0.17
$0.97
$0.58
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
2017
4.5 years
1.1%
nil
118%
2016
4.6 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, 2017, the Company issued 2,552,689 (2016 – 2,775,000) stock options with
- 18 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
a fair value of $609,692 (2016 – $290,862). The weighted average grant-date fair value of the stock options
granted during the year ended December 31, 2017 was CAD$0.24 (2016 – 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, 2017 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
Patents and other
Property and equipment
2017
$
8,084,558
886,808
116,926
280,200
-
9,368,492
2016
$
6,916,591
697,639
190,795
211,189
663
8,016,877
(b) As at December 31, 2017, the company has available research and development expenditures for income purposes
of approximately $3,284,474 (2016 – $3,075,758), which may be carried forward indefinitely to reduce future
years’ taxable income.
(c) As at December 31, 2017, the Company has non-capital income tax loss carry-forwards of approximately
$29,942,806 (2016 – $25,618,104), available to reduce future years’ taxable income with expiry dates ranging
from 2026 to 2037.
(d) As at December 31, 2017, the Company has approximately $525,172 (2016 – $491,800) 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 year to the income tax
expense is as follows:
Statutory income tax rate
Income tax recovery based on statutory rate
Stock-based compensation
Gain on revaluation of warrant liability
Australian research and development incentive
Share issue costs
Other
Change in unrecognized temporary differences
Income tax expense
2017
$
27.0%
(1,118,113)
102,897
(26,499)
315,845
(94,381)
(497,072)
1,351,615
34,292
2016
$
27.0%
(594,224)
70,052
-
-
(87,608)
(257,651)
891,745
22,314
- 19 -
DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
11. Research and development
Components of research and development expenses for the years ended December 31, 2017 and 2016 were as
follows:
Research and development programs, excluding the below
Salaries, fees, and short-term benefits
Share-based compensation
Depreciation of property and equipment
Government assistance
2017
$
2,271,109
1,000,781
226,422
3,507
(230,709)
3,271,110
2016
$
1,159,412
514,673
87,119
2,211
-
1,763,415
12. General and administrative
Components of general and administrative expenses for the years ended December 31, 2017 and 2016 were as
follows:
General and administrative, excluding the below
Salaries, fees, and short-term benefits
Share-based compensation
2017
$
492,798
268,516
138,765
900,079
13. Finance costs (income)
Finance costs (income) for the years ended December 31, 2017 and 2016 was as follows:
Interest expense
Interest income
Bank charges
Net foreign currency (gain) loss
14. Commitments and contingencies
2017
$
-
(3,806)
4,770
62,610
63,574
2016
$
436,522
103,849
177,674
718,045
2016
$
48,375
(1,729)
4,292
(109,666)
(58,728)
In the normal course of business, the Company incurs obligations to make future payments as it executes its
business plan. As of December 31, 2017, the Company estimates that its outstanding commitments including
research and development contracts and other commitments, that are known and committed, are approximately
$2.2 million over the next 12 months and approximately $700,000 in the following 12 months. These contracts
relate to preclinical, clinical, and development activities, including the clinical research organization conducting
the Phase II clinical trial for acute ischemic stroke. These commitments are subject to significant change and the
ultimate amounts due may be materially different as these obligations are affected by, among other factors, the
number and pace of patients enrolled, the number of clinical study sites, amount of time to complete study
enrollments and the time required to finalize the analysis and reporting of study results. These are generally
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DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
cancelable upon 30 days notice, with the Company’s obligation then limited to costs incurred up to that date. The
Company has renewed its commitment with the leasing company for DiaMedica’s U.S. office for a term through
August 2022. As at December 31, 2017, the Company has future commitments totaling approximately $305,000
over the remainder of the lease of which $62,000 is due over the next 12 months.
The Company has entered into a research, development, and license agreements whereby the Company receives
research services and rights to proprietary technologies. Milestone and royalty payments that may become due
under this agreement with such payments dependent upon, 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 have no limits. 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 unaudited 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.
Compensation for key management personnel of the Company for the years ended December 31, 2017 and 2016
was as follows:
Salaries, fees, and short-term benefits
Share-based compensation
2017
$
792,206
319,503
1,111,708
2016
$
523,041
134,626
657,667
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, 2017,
the key management personnel control 2.6% (2016 – 3.0%) 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 7 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 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
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DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
intellectual property resides in Canada. Non-current assets of $37,483 (2016 – $19,395) are held in the United
States and $271,074 (2016 – nil) are held in Australia.
17. Management of capital
The Company defines its capital as share capital, 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, deposits, accounts payable and accrued liabilities and warrant liability. As at December 31, 2017,
there were no significant differences between the carrying values of cash, amounts receivable, deposits and
accounts payable and accrued liabilities and their estimated fair values due to their short-term nature. The fair
value of the warrant liability is estimated using the barrier option pricing model incorporating various inputs
including the underlying valuation and discount rate (Note 8).
Financial instruments recorded at fair value on the consolidated balance sheet are classified using a fair value
hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy
has the following levels:
Level 1 – valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – valuation techniques based on inputs other than quoted prices included in Level 1, that are observable
for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices.
Level 3 – valuation techniques using inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The warrant liability is measured at Level 2 of the fair value hierarchy.
Risk
The Company has exposure to credit risk, liquidity risk and market risk. The Company’s Board of Directors has
overall responsibility for the oversight of the Company’s risk management framework. The 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
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DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
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 Company’s accounts payable and accrued liabilities generally 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, 2017 were as follows:
Cash
Accounts payable and accrued liabilities
Net exposure
Net exposure in CAD$
10% change in foreign exchange in USD$
19. Events after the balance sheet date
USD$
252,172
(213,296)
38,876
48,879
3,888
AUD$
350,599
(439,029)
(88,430)
(86,882)
(6,910)
On March 29, 2018, the Company completed, in two tranches, a brokered and non-brokered private placement of
26,489,284 units at a price of $0.245(CAD$0.31) per unit for aggregate gross proceeds of approximately $6.3
million (CAD$8.3 million). 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 $0.35 at any time
prior to expiry on March 19, 2020 and March 29, 2020 for Tranche 1 and Tranche 2, respectively. The warrants
are subject to early expiry under certain conditions. 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 $0.60 per common share for any 21 consecutive trading days. In connection with this offering, the
Company paid aggregate finder’s fees of approximately $384,000 and issued an aggregate of 1,610,174
compensation warrants. Each compensation warrant entitles the holder to purchase one common share at $0.245
for a period of 2 years from the closing of this offering, subject to acceleration on the same terms as the common
share purchase warrants.
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DIAMEDICA THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017 and 2016
Amounts in United States Dollars
During February 2018, 2,425,125 common shares were issued on the exercise of warrants for gross proceeds of
approximately $483,000 (CAD$606,000).
On April 17, 2018, the Compensation Committee of the Board of Directors awarded 3,336,000 stock options to
various officers, directors and employees of the Company. The options were issued at CAD$0.56 per share, the
closing price of the Company’s common stock on the date of grant, and have a ten-year term.
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