acst20210630

acst20210630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35776

______________________________________

Acasti Pharma Inc.

(Exact name of registrant as specified in its charter)

______________________________________

Québec, Canada	98-1359336
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

3009 boul. de la Concorde East, Suite 102

Laval, Québec, CA H7E 2B5

(Address of principal executive offices, including zip code)

450-686-4555

(Registrant’s telephone number, including area code)

______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, no par value per share	ACST	NASDAQ Stock Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

The number of outstanding common shares of the registrant, no par value per share, as of August 12, 2021, was 208,375,549.

ACASTI PHARMA INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2021

Table of Contents

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	28

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains information that may be forward-looking information within the meaning of Canadian securities laws and forward-looking statements within the meaning of U.S. federal securities laws, both of which we refer to in this quarterly report as forward-looking information. Forward-looking information can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not statements about the present or historical facts. Forward-looking information in this quarterly report includes, among other things, information or statements about:

●

our strategy, future operations, prospects and the plans of our management with a goal to enhance shareholder value, including our proposed merger with Grace Therapeutics Inc. (“Grace”);

●

the outcome of our formal review process to explore and evaluate strategic alternatives to enhance shareholder value;

●

our intellectual property position and duration of our patent rights;

●

the potential adverse effects that the COVID-19 pandemic may have on our business and operations;

●

our need for additional financing, and our estimates regarding our future financing and capital requirements;

●

our expectation regarding our financial performance, including our costs and expenses, liquidity, and capital resources; and

●

our projected capital requirements to fund our anticipated expenses.

●

our ability to establish collaborations or obtain additional funding;

Although the forward-looking information in this quarterly report is based upon what we believe are reasonable assumptions, you should not place undue reliance on that forward-looking information since actual results may vary materially from it. Important assumptions made by us when making forward-looking statements include, among other things, assumptions by us that:

●

we are able to complete our proposed merger with Grace;

●

we are able to attract and retain key management and skilled personnel;

●

third parties provide their services to us on a timely and effective basis;

●

we are able to take advantage of new business opportunities in the pharmaceutical industry;

●

we are able to secure and defend our intellectual property rights, and to avoid infringing upon the intellectual property rights of third parties;

●

The shareholder litigation relating to our proposed merger with Grace is resolved in a manner favorable to us and we face no additional lawsuits or other proceedings, or any such matters, if they arise, are satisfactorily resolved;

●

there are no material adverse changes in relevant laws or regulations; and

●

we are able to obtain the additional capital and financing we require when we need it;

In addition, the forward-looking information in this quarterly report is subject to a number of known and unknown risks, uncertainties and other factors, including those described in our annual report on Form 10-K under the heading “Item 1A. Risk Factors”, many of which are beyond our control, that could cause our actual results and developments to differ materially from those that are disclosed in or implied by the forward-looking information, including, among others:

Risks related to the Merger:

●

The equity exchange ratio will not be adjusted in the event of any change in Acasti's share price;

●

Because the merger will be completed after the date of the Acasti annual and special shareholders meeting and the Grace stockholder approval, you will not know, at the time of the Acasti annual and special shareholder meeting or the Grace stockholder approval, the market value of the Acasti common shares that Grace stockholders will receive upon completion of the merger;

●

Failure to complete the merger could negatively impact the share prices and the future business and financial results of Acasti;

●

The merger agreement contains provisions that could discourage a potential competing acquirer of either Acasti or Grace;

●

The merger may be completed even though certain events occur prior to the closing that materially and adversely affect Acasti or Grace;

●

If the conditions to the merger are not satisfied or waived, the merger may not occur. If the merger is consummated, it will result in substantial dilution to Acasti shareholders and may not deliver the anticipated benefits Acasti expects;

●

The combined company may become involved in securities class action litigation that could divert management’s attention and harm the combined company’s business and insurance coverage may not be sufficient to cover all costs and damages;

●

Acasti has received notice from Nasdaq of non-compliance with the Nasdaq Listing Rules;

Risks Related to Intellectual Property

●

We may not realize any additional value in a strategic transaction for our intellectual property;

●

It is difficult and costly to protect our intellectual property rights;

●

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming, and unsuccessful;

●

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect product candidates;

●

We may not be able to protect our intellectual property rights throughout the world;

Risks Relating to Our Common Shares

●

The price of our common shares may be volatile;

●

Raising additional capital may cause dilution to our existing shareholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates;

●

The market price of our common shares could decline as a result of operating results falling below the expectations of investors or fluctuations in operating results each quarter;

●

There can be no assurance that an active market for our common shares will be sustained;

●

A large number of common shares may be issued and subsequently sold upon the exercise of existing warrants. The sale or availability for sale of existing warrants or other securities convertible into common shares may depress the price of our common shares;

●

We do not currently intend to pay any cash dividends on our common shares in the foreseeable future;

●

If we fail to meet applicable listing requirements, the NASDAQ Stock Market or the TSXV may delist our common shares from trading, in which case the liquidity and market price of our common shares could decline;

●

We may pursue opportunities or transactions that adversely affect our business and financial condition;

●

We are a “smaller reporting company” under the SEC’s disclosure rules and have elected to comply with the reduced disclosure requirements applicable to smaller reporting companies;

●

As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act;

●

U.S. investors may be unable to enforce certain judgments; and

●

There is a significant risk that we may be classified as a PFIC for U.S. federal income tax purposes.

All of the forward-looking information in this quarterly report is qualified by this cautionary statement. There can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the consequences or effects on our business, financial condition, or results of operations that we anticipate. As a result, you should not place undue reliance on the forward-looking information. Except as required by applicable law, we do not undertake to update or amend any forward-looking information, whether as a result of new information, future events or otherwise. All forward-looking information is made as of the date of this quarterly report.

We express all amounts in this quarterly report in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” or “CAD$” are to Canadian dollars.

Except as otherwise indicated, references in this quarterly report to “Acasti,” “the Corporation,” “we,” “us” and “our” refer to Acasti Pharma Inc. and its consolidated subsidiaries.

PART I. FINANCIAL INFORMATION

Item 1: Financial Information

Unaudited Condensed Consolidated Interim Financial Statements

Condensed Consolidated Interim Balance sheets		7

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss		8

Condensed Consolidated Interim Statements of Changes Shareholders’ Equity		9

Condensed Consolidated Interim Statements of Cash Flows		10

Notes to the Condensed Consolidated Interim Financial Statements		11

Condensed Consolidated Interim Financial Statements of
(Unaudited)

ACASTI PHARMA INC.

Three-month periods ended June 30, 2021 and 2020

ACASTI PHARMA INC.

Condensed Consolidated Interim Balance sheet

(Unaudited)


			June 30, 2021			March 31, 2021
(Expressed in thousands of U.S. dollars except share data)	Notes			$			$
Assets

Current assets:
Cash and cash equivalents				40,975			50,942
Short-term investments		4		16,747			9,789
Receivables				448			530
Assets held for sale		5		778			768
Prepaid expenses				1,439			343
Total current assets				60,387			62,372

Right of Use Asset				66			86
Total assets				60,453			62,458

Liabilities and Shareholders’ Equity
Current liabilities:
Trade and other payables				2,279			1,493
Lease liability				66			86
Total current liabilities				2,345			1,579


Derivative warrant liabilities		6		4,651			5,219
Total liabilities				6,996			6,798

Shareholders’ Equity:
Common shares	7(a)			197,194			197,194
Additional paid-in capital				10,970			10,817
Accumulated other comprehensive loss				(5,571	)		(6,333	)
Accumulated deficit				(149,136	)		(146,018	)
Total shareholder’s equity				53,457			55,660

Commitments and contingencies		12
Subsequent events		13
Total liabilities and shareholders’ equity				60,453			62,458

See accompanying notes to unaudited Interim financial statements.

ACASTI PHARMA INC.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

(Unaudited)

Three-month periods ended June 30, 2021 and 2020


			June 30, 2021			June 30, 2020
(Expressed in thousands of U.S. dollars except share data)	Notes			$			$

Research and development expenses, net of government assistance		8		(469	)		(1,756	)
General and administrative expenses				(2,676	)		(1,649	)
Sales and marketing expenses				-			(716	)

Loss from operating activities				(3,145	)		(4,121	)

Net financial Income (Expenses)		9		27			(545	)

Net loss and comprehensive loss				(3,118	)		(4,666	)

Basic and diluted loss per share				(0.01	)		(0.05	)

Weighted average number of shares outstanding				208,375,549			90,691,726

See accompanying notes to unaudited interim financial statements

ACASTI PHARMA INC.

Condensed Consolidated Interim Statements of Changes in Shareholder’s Equity

(Unaudited)

Three-month periods ended June 30, 2021 and 2020


			Common Shares
(Expressed in thousands of U.S. dollars except share data)	Notes		Number		Dollar		Additional Paid-in Capital		Accumulated other comprehensive loss			Accumulated Deficit		Total
						$		$		$		$			$
Balance, March 31, 2021				208,375,549		197,194		10,817		(6,333	)	(146,018	)		55,660
Net loss and total comprehensive loss for the period				-		-		-		-		(3,118	)		(3,118	)
Cumulative translation adjustment				-		-		-		762		-			762
Net proceeds from shares issued under the at-the-market (ATM) program	7(a)			-		-		-		-		-			-
Stock based compensation		10		-		-		153		-		-			153
Balance at June 30, 2021				208,375,549		197,194		10,970		(5,571	)	(149,136	)		53,457


			Common Shares
(Expressed in thousands of U.S. dollars except share data)	Notes		Number		Dollar		Additional Paid-in Capital		Accumulated other comprehensive loss			Accumulated Deficit			Total
						$		$		$			$			$
Balance, March 31, 2020				90,209,449		137,424		9,797		(7,887	)		(126,340	)		12,994
Net loss and total comprehensive loss for the period				-		-		-		-			(4,666	)		(4,666	)
Cumulative translation adjustment				-		-		-		308			-			308
Net proceeds from shares issued under the at-the-market (ATM) program	7(a)			2,278,936		1,765		-		-			-			1,765
Stock based compensation		10		-		-		635		-			-			635
Balance at June 30, 2020				92,488,385		139,189		10,432		(7,579	)		(131,006	)		11,036

ACASTI PHARMA INC.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

Three-month periods ended June 30, 2021 and 2020


			June 30, 2021			June 30, 2020
(Expressed in thousands of U.S. dollars except share data)	Notes			$			$

Cash flows used in operating activities:
Net loss for the period				(3,118	)		(4,666	)
Adjustments:
Amortization of intangible assets				-			462
Depreciation of equipment				-			86
Stock-based compensation		10		153			632
Change in fair value of warrant liabilities		6		(643	)		509
Write off-of deferred financing costs of at-the-market (ATM) program	7(a)			-			121
Unrealized foreign exchange loss (gain)				740			(134	)
Changes in non-cash working capital items		11		(533	)		(1,179	)
Net cash used in operating activities				(3,401	)		(4,169	)

Cash flows from (used in) investing activities:
Acquisition of equipment				-			(36	)
Acquisition of short-term investments				(8,301	)		-
Maturity of short-term investment				1,374			-
Net cash from (used in) investing activities				(6,927	)		(36	)

Cash flows from (used in) financing activities:
Net proceeds from issuance of common shares under the at-the-market (ATM)	7(a)			-			1,775
Deferred financing costs	7(a)			-			(140	)
Net cash from (used in) financing activities				-			1,635

Effect of exchange rate fluctuations on cash and cash equivalents				(511	)		(120	)
Translations effects on cash and cash equivalents related to reporting currency				872			572

Net (decrease) increase in cash and cash equivalents				(9,967	)		(2,118	)
Cash and cash equivalents, beginning of period				50,942			14,240
Cash and cash equivalents, end of period				40,975			12,122

Cash and cash equivalents are comprised of:
Cash				40,975			5,270
Cash equivalents				-			6,852

See accompanying notes to unaudited interim financial statements.

ACASTI PHARMA INC.

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except share data)

Three-month periods ended June 30,2021 and 2020

1.	Nature of Operation:

Acasti Pharma Inc. (“Acasti” or the “Corporation”) is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 3009 boul. de la Concorde East, Suite 102, Laval, Québec, Canada H7E 2B5.

In January 2020 and August 2020, the Corporation released Phase 3 clinical study results for the Corporation’s lead drug candidate, CaPre. The TRILOGY studies did not to meet the primary endpoint which resulted in the Board of Directors making a decision not to proceed with a filing of an NDA with the FDA. With the completion of the TRILOGY studies research and development activities and expenses were reduced.

In September 2020, the Corporation commenced a formal process to explore and evaluate strategic alternatives to enhance shareholder value. Towards this end, the Corporation has engaged a financial advisor to assist in the process. The Corporation has also greatly reduced its commercial activities including a reduction in workforce to reduce operating expenses, while it evaluates these opportunities. In addition, some CaPre related equipment and other assets are classified as held for resale as they are expected to be sold.

In May 2021, the Corporation announced a definitive agreement to acquire Grace Therapeutics Inc. (“Grace”), a privately held emerging biopharmaceutical company focused on developing innovative drug delivery technologies for the treatment of rare and orphan diseases (the “Proposed Transaction”). Subject to the completion of the Proposed Transaction, the Corporation will acquire Grace’s pipeline of drug candidates. The Proposed Transaction has been approved by the boards of directors of both companies and is supported by Grace’s stockholders through voting and lock-up agreements with the Corporation. The transaction remains subject to approval of Acasti stockholders, as well as applicable stock exchanges. The Corporation remains subject to a number of risks similar to other companies in the biotechnology industry, including compliance with government regulations, protection of proprietary technology, dependence on third party contractors and consultants and product liability.

2.	Summary of significant accounting policies:

Basis of presentation:

These unaudited Consolidated Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and on a basis consistent with those accounting principles followed by the Corporation and disclosed in note 2 of its most recent Annual Consolidated Financial Statements, except as disclosed in note 3 – Recent accounting pronouncements and policies and should be read in conjunction with such statements and Notes thereto.

The following summarizes the principal conditions or events relevant to the Corporation’s going concern assessment, which primarily considers the period of one year from the issuance date of these financial statements.

The Corporation has incurred operating losses and negative cash flows from operations since its inception. In prior years there was substantial doubt regarding the Corporation’s ability to realize its assets and discharge its liabilities and commitments in the ordinary course of business. During year ended March 31, 2021, the Corporation has raised net proceeds of $59.3 million under its At-the-Market (“ATM”) program. The Corporation’s assets as at June 30, 2021, include cash and cash equivalents and short-term investments totaling $57.7 million. The Corporation’s current liabilities total $2.3 million as at June 30, 2021 and are comprised primarily of amounts due to or accrued for creditors.

The Corporation’s ability to continue as a going concern is dependent upon its ability to achieve a successful strategic alternative and ultimately generate cashflows to meet its obligations. To date, the Corporation has financed its operations primarily through public offerings of common shares, private placements, and the proceeds from research tax credits, and will require additional financing in the future. Refer to note 1 Nature of Operation regarding the Corporation’s agreement to acquire Grace Therapeutics Inc. There is no assurance that a strategic transaction will be consummated, as completion of such transaction is not wholly within the Corporation’s control. As a result of the Corporation’s current liquidity profile, the reduction of operating expenses and limited liabilities management has assessed that substantial doubt no longer exists regarding the Corporation’s ability to continue as a going concern for one year from the issuance date of these financial statements.

Use of estimates:

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 may differ from these estimates.

Estimates are based on management’s best knowledge of current events and actions that management may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

ACASTI PHARMA INC.

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except share data)

Three-month periods ended June 30,2021 and 2020

2.	Summary of significant accounting policies (continued):

Estimates and assumptions include the measurement of derivative warrant liabilities (note 6) and stock-based compensation (note 10), assets held for sale (notes 5) and the take-or-pay contract (note 12(a)). Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and developments expenditures at each reporting date, whether or not contingencies should be accrued for as well as in determining which research and development expenses qualify for investment tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and, therefore, could be different from the amounts recorded.

3.	Recent accounting pronouncements

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13-Financial Instruments-Credit Losses (Topic 326), which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost, the new guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Management has not yet evaluated the impact of this ASU on the consolidated financial statements.

4.	Short-term investments

The Corporation holds various marketable securities, with maturities greater than 3 months at the time of purchase, as follows:


	June 30, 2021		March 31, 2021
		$		$
Term deposits issued in US currency earning interest at ranges between 0.23% and 0.35% and maturing on various dates from July 27, 2021 to December 20,2021		12,406		7,542
Term deposits issued in CAD currency earning interest at ranges between 0.53% and 0.60% and maturing on various dates from July 7, 2021 to December 20, 2021		4,341		2,247
Total short-term investments		16,747		9,789

5.	Assets held for sale

During the period the Corporation committed to a plan and is actively marketing for sale Other assets and Equipment and has met the criteria for classification of assets held for sale:


	June 30, 2021		March 31, 2021
		$		$
Other assets (a)		392		387
Equipment (b)		386		381
		778		768

Other assets

Other assets represent krill oil (RKO) held by the Corporation that was expected to be used in the conduct of research and development activities and commercial inventory scale up related to the development and commercialization of the CaPre drug candidate. Given that the development of CaPre will no longer be pursued, the Corporation is expected to sell this reserve. The other asset is being recorded at the fair value less costs to sell. Management’s estimate of the fair value of the RKO less cost -to sell, was based primarily on estimated market prices at year end obtained from an appraiser specializing in the krill oil market. Market prices have not changed materially since year end. These projections are based on Level 3 inputs of the fair value hierarchy and reflect management’s best estimate of market participants’ pricing of the assets as well as the general condition of the asset.

ACASTI PHARMA INC.

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except share data)

Three-month periods ended June 30,2021 and 2020

5.	Assets held for sale (continued):

Equipment


June 30, 2021	Cost, net of impairment		Accumulated depreciation			Net book value
		$		$			$
Furniture and office equipment		17		(5	)		12
Computer equipment		95		(30	)		65
Laboratory equipment		592		(442	)		150
Production equipment		1,195		(1,036	)		159
		1,899		(1,513	)		386

Equipment is made up of laboratory, production, computer, and office equipment that was utilized in the development of CaPre. Similarly, to the intangible assets and Other assets, the announcement of the failed Phase 3 clinical trials for CaPre resulted in an impairment trigger for the laboratory and production equipment. The impairment loss is based on management’s estimate of the fair value of the equipment less cost -to sell, which is based primarily on estimated market prices obtained from brokers specialized in selling used equipment. These projections are based on Level 3 inputs of the fair value hierarchy and reflect the Corporation’s best estimate of market participants’ pricing of the assets as well as the general condition of the assets.

6.	Derivative warrant liabilities:

In connection with the Canadian public offering closed on May 9, 2018, the Corporation issued a total 10,959,500 warrants. Each warrant entitles the holder thereof to acquire one common share at an exercise price of CAD $1.31 at any time until May 9, 2023. The warrants issued are derivative warrant liabilities given the warrant indenture contains certain contingent provisions that allow for cash settlement.

In connection with the U.S. public offering on December 27, 2017, the Corporation issued a total of 9,802,935 warrants. Each warrant entitles the holder thereof to acquire one common share at an exercise price of $1.26 at any time until December 27, 2022. The warrants issued are derivative warrant liabilities given the currency of the exercise price is different from the Corporation’s functional currency.

The derivative warrant liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value is presented in the following tables:


	Warrant liabilities issued May 2018					Warrant liabilities issued December 27, 2017
	June 30, 2021			June 30, 2020		June 30, 2021			June 30, 2020
		$			$		$			$
Balance – beginning of period		2,597			1,146		2,622			1,247
Change in fair value		(296	)		378		(347	)		131
Translation effect		38			80		37			89
Balance – end of period		2,339			1,604		2,312			1,467

Fair value per share issuable		0.35			0.23		0.33			0.21

The fair value of the derivative warrant liabilities was estimated using the Black-Scholes option pricing model and based on the following assumptions:


	Warrant liabilities issued May 2018						Warrant liabilities issued December 27, 2017
	June 30, 2021			March 31, 2021			June 30, 2021				March 31, 2021
Exercise price	CAD$	1.31		CAD$	1.31		USD$		1.26		USD$		1.26
Share price	CAD$	0.70		CAD$	0.76		USD$		0.56		USD$		0.60
Risk-free interest		0.97	%		1.39	%			0.87	%			0.92	%
Estimated life (years)		1.86			2.11				1.49				1.74
Expected volatility		163.54	%		156.00	%			178.31	%			171.12	%
Dividend	nil			nil				nil				nil

ACASTI PHARMA INC.

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except share data)

Three-month periods ended June 30,2021 and 2020

7.	Capital and other components of equity:

(a)

“At-the-market” sales agreement:

On February 14, 2019, the Corporation entered into an ATM sales agreement with B. Riley FBR, Inc. (“B. Riley”) pursuant to which the common shares may be sold from time to time for aggregate gross proceeds of up to $30 million, with sales only being made on the NASDAQ Stock Market. The common shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 3-year term and requires the Corporation to pay between 3% and 4% commission to B. Riley based on volume of sales made. On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the “Sales Agreement”) with B. Riley, Oppenheimer& Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the existing ATM program. Under the terms of the Sales Agreement, which has a three-year term, the Corporation may issue and sell from time-to-time common shares having an aggregate offering price of up to $75,000,000 through the Agents. Subject to the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell the common shares from time to time, based upon the Corporation’s instructions. The Corporation has no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. The Corporation and the Agents may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Corporation has provided the Agents with customary indemnification rights and the Agents will be entitled to compensation, at a commission rate equal to 3.0% of the gross proceeds from each sale of the common shares. The remaining balance of the costs incurred during February 2019 for an amount of $115 were written off to financing expenses.

During the three-month period ended June 30, 2021, no common shares were sold under the ATM program. During the three-month period ended June 30, 2020, 2.3 million common shares were sold for total net proceeds of approximately $1.8 million with commission, legal and costs related to the share sale amounting to $84. The shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.81 per share. Accordingly, proportional costs of $10 related to the common shares sold, have been reclassified from deferred financings costs to equity.

(b)

Warrants:

The warrants of the Corporation are composed of the following as at June 30, 2021, and March 31, 2021:


	June 30, 2021				March 31, 2021
	Number outstanding		Amount		Number outstanding		Amount
				$				$
Liability
May 2018 public offering warrants 2018 (i)		6,593,750		2,339		6,593,750		2,597
Series December 2017 U.S. public offering warrants 2017 (ii)		7,072,962		2,312		7,072,962		2,622
		13,666,712		4,651		13,666,712		5,219

Equity
Public offering warrants
Public offering Broker warrants May 2018(iii)		1		-		1		-
Series December 2017 US Broker warrants (iv)		259,121		161		259,121		161
Public offering warrants February 2017 (v)		1,723,934		631		1,723,934		631

SEC Form 10-Q filed by Acasti Pharma, Inc.