Note 2 - Summary of Significant Accounting Policies
|12 Months Ended|
Mar. 31, 2020
|Notes to Financial Statements|
|Significant Accounting Policies [Text Block]||
Adoption of U.S. GAAP
The consolidated financial statements of the Corporation have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Comparative figures, which were previously presented in accordance with International Financial Reporting Standards (”IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Corporation’s accounting policies under U.S. GAAP and are described in note
Basis of presentation
These consolidated financial statements of Acasti Pharma Inc., which include the accounts of its subsidiary have been prepared in accordance with U.S. GAAP. All intercompany transactions and balances are eliminated on consolidation.
Going concern uncertainty:
The following summarizes the principal conditions or events relevant to the Corporation’s going concern assessment, which primarily considers the period of
oneyear from the issuance date of these financial statements. The Corporation has incurred operating losses and negative cash flows from operations since its inception. The Corporation’s current assets of
$16.1million as at
March 31, 2020include cash and cash equivalents totaling
$14.2million. The Corporation’s current liabilities total
March 31, 2020and are comprised primarily of amounts due to or accrued for creditors. Management projects that assuming positive Phase
3results, additional funds will be needed in the future for us to file an NDA to obtain FDA approval for CaPre in the United States, to further scale up our manufacturing capabilities, and to complete marketing and other pre-commercialization activities. The Corporation’s plans include raising additional capital through additional securities offerings, as well as non-dilutive sources of capital such as grants or loans and strategic alliances, but there can be
noassurance as to when or whether Acasti will complete any financings or strategic alliances. In particular, raising additional equity capital is subject to market conditions
notwithin the Corporation’s control. If the Corporation does
notraise additional funds or find
oneor more strategic partners, it
notbe able to realize its assets and discharge its liabilities in the normal course of business. The Corporation currently has
noarranged sources of financing other than its “At-the-market” sales agreement which provides for only conditional selling of the Corporation’s shares.
As a result, there is a substantial doubt about the Corporation’s ability to continue as a going concern.
Going concern uncertainty (continued):
The consolidated financial statements have been prepared on a going concern basis, which assumes the Corporation will continue its operations in the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the ordinary course of business. These consolidated financial statements do
notinclude any adjustments to the carrying values and classification of assets and liabilities and reported expenses that might result from the outcome of this uncertainty and that
maybe necessary if the going concern basis was
notappropriate for these consolidated financial statements. If the Corporation was unable to continue as a going concern, material impairment of the carrying values of the Corporation’s assets, including the intangible asset, could be required.
Significant accounting policies, estimates and judgments:
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results
maydiffer from these estimates.
Estimates are based on management’s best knowledge of current events and actions that management
mayundertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Estimates and assumptions include the measurement of derivative warrant liabilities (
note) and stock-based compensation (
note). Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and developments expenditures at each reporting date, are determining which research and development expenses qualify for research and development tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and, therefore, could be different from the amounts recorded.
Functional and reporting currency:
March 31, 2020,the consolidated financial statements reporting currency has changed from Canadian dollars to U.S dollars. This change in reporting currency has been applied retrospectively such that all amounts are expressed in the consolidated financial statements of the Corporation and the accompanying notes thereto are expressed in thousands of U.S dollars, except for per share data. References to “$” are U.S dollars and references to “CAD $” are to Canadian dollars. For comparative purposes, historical consolidated financial statements were recast in U.S. dollars by translating assets and liabilities at the closing exchange rate in effect at the end of the respective period, expenses and cash flows at the average exchange rate in effect for the respective period and equity transactions at historical exchange rates. Translation gains and losses from the application of the U.S. dollar as the reporting currency while the Canadian dollar is the functional currency are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.
The Corporation’s functional currency is the Canadian dollar. The effects of exchange rate fluctuations on translating foreign currency monetary assets and liabilities into Canadian dollars are included in the statement of loss and comprehensive loss as foreign exchange gain/loss. Expense transactions are translated into the U.S. dollar reporting currency at the average exchange rate during the period, and assets and liabilities are translated at end of period exchange rates, except for equity transactions, which are translated at historical exchange rates.
Cash and Cash Equivalents:
Cash and cash equivalents comprise cash balances and highly liquid investments purchased with original maturities of
threemonths or less. Cash and cash equivalents consist of term deposits, commercial papers, promissory notes and bankers’ acceptances held at the bank and recorded at cost, which approximates fair value.
The Corporation’s investments consists of guaranteed investment certificates, term deposits and treasury bills and are classified as held-to-maturity securities. These investments are recorded at amortized cost. Investments with original maturities exceeding
threemonths and less than
oneyear are categorized as short-term.
Receivables are classified at amortized cost and recorded at the outstanding amount net of any provisions for uncollectible amount.
Deferred Financing Costs:
Deferred financing costs consists of fees charged by underwriters, attorneys, accountants, and other fees directly attributable to future issuances of shares. Provided these costs are determined to be recoverable, these costs are deferred and charged subsequently against the gross proceeds of the related equity transaction when it occurs. If at such time, the Corporation deems that these costs are
nolonger recoverable, they will be expensed as a component of finance expenses.
(i) Recognition and measurement:
Equipment is measured at cost less accumulated depreciation and accumulated impairment losses, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset, including all costs incurred in bringing the asset to its present location and condition.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
Gains and losses on disposal of equipment are determined by comparing the proceeds from disposal with the carrying amount of equipment and are recognized net within operating expenses in the Consolidated Statement of Loss and Comprehensive Loss.
(ii) Subsequent costs:
The costs of the day-to-day servicing of equipment are recognized in profit or loss as incurred.
Depreciation is recognized in profit or loss on either a straight-line basis or a declining basis over the estimated useful lives of each part of an item of equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Items of equipment are depreciated from the date that they are available for use or, in respect of assets
notyet in service, from the date they are ready for their intended use.
The estimated useful lives and rates for the current and comparative periods are as follows:
Depreciation methods, useful lives and residual values are reviewed periodically and adjusted prospectively if appropriate.
Intellectual property and licenses that are acquired by the Corporation from a
thirdparty are capitalized and subsequently measured at cost less accumulated amortization and accumulated impairment losses, if they have finite useful lives, they are for approved products or if there are alternative future uses.
Amortization is calculated over the cost of the intangible asset less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditure on internally generated goodwill and brands, are recognized in profit or loss as incurred.
Research and Development Costs
Research and developments expenditures are expensed as incurred. These costs primarily consist of employees’ salaries and benefits related to research and development activities, consultants that conduct the Corporation’s clinical trials, independent auditors and consultants to perform investigation activities on behalf of the Corporation, clinical trial materials, stock-based compensation expense, and other non-clinical costs and regulatory approvals. Advance payments for goods and services that will be used in future research and development are recognized in prepaids or other assets and are expensed when the services are performed, or the goods are used.
Impairment of Long-Lived Assets:
The Corporation reviews the recoverability of its long-lived assets whenever events or changes in circumstances indicate that it is carrying amount
notbe recoverable. The carrying amount is
firstcompared with the undiscounted cash flows. If the carrying amount is higher than the sum of undiscounted cash flows, then the Corporation determines the fair value of the underlying asset group. Any impairment loss to be recognized is measured as the difference by which the carrying amount of the asset group exceeds the estimated fair value of the asset group.
March 31, 2020and
Stock based compensation:
The Corporation has in place a stock option plan for directors, officers, employees and consultants of the Corporation, with grants under the stock option plan approved by the Corporation’s Board of Directors. The plan provides for the granting of options to purchase Common Shares and the exercise price of each option equals the closing trading price of Common Shares on the day prior to the grant. The terms and conditions for acquiring and exercising options are set by the Corporation’s Board of Directors in accordance with and subject to the terms and conditions of the stock option plan. The Corporation measures the cost of such awards based on the fair value of the award at grant date, net of estimated forfeiture, and recognizes stock based compensation expense in the Consolidated Statements of Loss and Comprehensive Loss on a graded vesting basis over the requisite service period. The requisite service period equals the vesting periods of the awards. The fair value of options is estimated for each tranche of an award that vests on a graded basis. The fair value of options is estimated using the Black-Scholes option pricing model, which uses various inputs including estimated fair value of the Common Shares at the grant date, expected term, estimated volatility, risk-free interest rate and expected dividend yields of the Common Shares. The Corporation applies an estimated forfeiture rate derived from historical employee termination behaviour. If the actual forfeitures differ from those estimated by management, adjustment to compensation expense
maybe required in future periods.
Non-employee stock-based compensation transactions in which the Corporation receives goods or services as consideration for its own equity instruments are accounted for as stock-based compensation transactions. In
June 2018,FASB issued Accounting Standards Update
07,Improvements to Nonemployee Share-Based Payment Accounting. The amendment establishes that nonemployee share-based payment awards within the scope of Topic
718be measured at grant-date fair value of the equity instruments issued and makes other amendments to align non-employee accounting more with employee accounting. The amendments are effective for fiscal years beginning after
December 15, 2018.Early adoption is permitted, and the Corporation elected to early adopt this policy on
April 1, 2018.Therefore, the Corporation establishes the fair value at the grant date for non-employee awards and measures the fair value based on the fair value of equity instruments issued. The fair value of a non employee award is estimated using the Black-Scholes option pricing model, which uses various inputs including estimated fair value of the Common Shares at the grant date, contractual term, estimated volatility, risk-free interest rate and expected dividend yields of the Common Shares. Non-employee awards remain within the scope of Topic
718unless they are modified after service has been rendered. There was
noeffect of adopting the amendments on opening retained earnings at
April 1, 2018;refer to note
13(e) for additional information.
The Corporation records accruals for contingencies expected to be incurred in connection with a loss contingency when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Government grants are recorded as a reduction of the related expense or cost of the asset acquired. Government grants are recognized when there is reasonable assurance that the Corporation has met the requirements of the approved grant program and there is reasonable assurance that the grant will be received.
Grants that compensate the Corporation for expenses incurred are recognized in profit or loss in reduction thereof on a systematic basis in the same years in which the expenses are recognized. Grants that compensate the Corporation for the cost of an asset are recognized in profit or loss on a systematic basis over the useful life of the asset.
Adoption of Topic
2019,the Corporation adopted Topic
nomaterial impact on the consolidated financial statement from adopting the new standard given the Corporation only had short term leases at the time of adoption and the Corporation elected to apply the short-term lease exemption.
April 1, 2019,at the inception of an arrangement, the Corporation determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement and in accordance with the guidance of ASC Topic
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset
maybe required for items such as incentives received. The interest rate implicit in lease contracts is typically
notreadily determinable. As a result, the Corporation utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Corporation could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. The Corporation does
nothave financing leases.
The Corporation has elected
notto recognize leases with an original term of
oneyear or less on the balance sheet. The Corporation typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are
notincluded in the Corporation’s assessment unless there is reasonable certainty that the Corporation will renew. In the year ended
March 31, 2020the Corporation modified the lease for its lab facility and recognized a right of use asset and a corresponding lease liability of
$The new lease is for a
two-year term and it was discounted using an incremental borrowing rate of
$80per year. The Corporation’s lease expense is recognized in research and development expenses.
Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in profit or loss except to the extent that they relate to items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts (tax base) of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rate expected to apply when the underlying asset or liability is realised (settled) based on the rates that are enacted at the reporting date. Deferred tax assets and liabilities are offset if the Corporation has the right to set off the amount owed by with the amount owed by the other party, the Corporation intends to set off and the offset right is enforceable at law. A deferred tax asset is recognized for unused tax losses and tax credits, reduced by a valuation allowance to the extent that it is more likely than
notthat some portion or all of the deferred tax asset will
Earnings per share:
The Corporation presents basic and diluted earnings per share (
EPS) data for its Common Shares. Basic EPS is calculated by dividing the profit or loss attributable to the holders of Common Shares by the weighted average number of Common Shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to the holders of Common Shares and the weighted average number of Common Shares outstanding adjusted for the effects of all dilutive potential Common Shares, which comprise warrants and share options granted to employees.
An operating segment is a component of the Corporation that engages in business activities from which it
mayearn revenues and incur expenses. The Corporation has
onereportable operating segment: the development and commercialization of pharmaceutical applications of its patent portfolio and licensed rights for cardiovascular diseases. The majority of the Corporation’s assets are located in Canada, while
onemajor production unit, with a carrying value of
March 31, 2019 -
$1,873), is located in France at a
third-party contract manufacturing facility.
The unsecured convertible debentures that existed in the financial statements as at
March 31, 2019,were fully paid at maturity in
February 2020.The unsecured convertible debentures could have been converted to Common Shares at the option of the holder, and the number of shares to be issued was fixed. The embedded conversion option in the convertible debentures meet the criteria to
notbe separately accounted for as a derivative. The convertible debentures were separated into liability and equity components. The liability component was recognized initially at the fair value of a similar liability that does
nothave an equity conversion option. The equity component was recognized initially as the difference between the fair value of the financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs were allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component is measured at amortized cost using the effective interest method. The equity component of the convertible debt is
notremeasured subsequent to initial recognition.
Derivative financial instruments:
The Corporation has issued warrants of which some are accounted for as liability-classified derivatives over its own equity. Derivatives are recognized initially at fair value; attributable transaction costs are recognized in profit and loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and all changes in their fair value are recognized immediately in profit or loss as a component of financial expenses
Other equity instruments:
Warrants that do
notmeet the definition of a liability instrument are recognized in equity as additional paid in capital.
Fair Value Measurements
Certain of the Corporation’s accounting policies and disclosures require the determination of fair value, for both financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods.
Financial assets and liabilities:
In establishing fair value, the Corporation uses a fair value hierarchy based on levels as defined below:
The Corporation has determined that the carrying values of its short-term financial assets and liabilities (cash and cash equivalents, and trade and other payables) approximate their fair value given the short-term nature of these instruments. The fair value of the liability component of the convertible debenture is determined by discounting future cash flows using a rate that the Corporation could obtain for loans with similar terms, conditions and maturity dates. The fair value of this liability at
March 31, 2019approximates the carrying amount and was measured using level
3inputs. The Corporation measured its derivative warrant liabilities at fair value on a recurring basis using level
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef