Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.6.0.2
Stockholders' Equity
6 Months Ended
Dec. 31, 2016
Stockholders' Equity [Abstract]  
Stockholders' equity
6 Stockholders’ equity

 

Preferred stock

 

Authorized

 

5,000,000 preferred shares, $0.001 par value

 

Issued and outstanding

 

Special voting shares – at December 31, 2016 – 1 (June 30, 2016 – 1)

Series A shares – at December 31, 2016 – 278,530 (June 30, 2016 – 278,530)

Series B shares – at December 31, 2016 – 889,863 (June 30, 2016 – 902,238)

 

Series B Preferred Shares

 

During the year ended June 30, 2016 the Company issued an aggregate of 902,238 shares of Series B Preferred Stock at a purchase price of at $8.00 per share. Each share of Series B Preferred Stock is convertible into 2.5 shares of common stock equating to a conversion price of $3.20 (the “Conversion Price”) and will automatically convert to common stock at the earlier of 24 hours following regulatory approval of VAL-083 with a minimum closing bid price of $8.00 or five years from the final closing dates. The holders of the Series B Preferred Stocks are entitled to an annual cumulative, in arrears dividend at the rate of 9% payable quarterly. The 9% dividend shall accrue quarterly commencing on the date of issue and be payable quarterly on June 30, December 31, December 31, and March 31 of each year commencing on June 30, 2016. Dividends shall be payable solely by delivery of shares of common stock (the “PIK Shares”), in an amount for each holder equal to the aggregate dividend payable to such holder with respect to the shares of Series B Preferred Stock held by such holder divided by the Conversion Price. The Series B Preferred Shares do not contain any repricing features.

 

In addition, the Company and the holders entered into a royalty agreement, pursuant to which the Company will pay the holders of the Series B preferred shares, in aggregate, a low, single-digit royalty based on their pro rata ownership of the Series B preferred shares on products sold directly by the Company or sold pursuant to a licensing or partnering arrangement (the “Royalty Agreement”).

 

Upon conversion of a holder’s shares to common stock, such holder shall no longer receive ongoing royalty payments under the Royalty Agreement but will be entitled to receive any residual royalty payments that have vested. Rights to the royalties shall vest during the first three years following the applicable closing date, in equal thirds to holders of the Series B Preferred Stock on each of the three vesting dates, upon which vesting dates such royalty amounts shall become “Vested Royalties”.

 

Pursuant to the Series B stock dividend, during the three months ended December 31, 2016, the Company issued 50,096 (2015 – 0) shares of common stock and recognized $159,756 (2015 – 0) as a direct increase in accumulated deficit and during the six months ended December 31, 2016, the Company issued 100,889 (2015 – 0) shares of common stock and recognized $467,054 (2015 – 0) as a direct increase in accumulated deficit.

 

During the three and six months ended December 31, 2016, a total of 12,375 (2015 – 0) shares of Series B preferred stock were converted for an aggregate 30,938 (2015 – 0) shares of common stock.

 

Series A Preferred Shares

 

Effective December 31, 2014 pursuant to the Company’s Valent Exchange Agreement (note 3), the Company filed the Series A Certificate of Designation with the Secretary of State of Nevada. Pursuant to the Series A Certificate of Designation, the Company designated 278,530 shares of preferred stock as Series A Preferred Stock. The shares of Series A Preferred Stock have a stated value of $1.00 per share (the “Series A Stated Value”) and are not convertible into common stock. The holder of the Series A Preferred Stock is be entitled dividends at the rate of 3% of the Series A Stated Value per year, payable quarterly in arrears. Upon any liquidation of the Company, the holder of the Series A Preferred Stock will be entitled to be paid, out of any assets of the Company available for distribution to stockholders, the Series A Stated Value of the shares of Series A Preferred Stock held by such holder, plus any accrued but unpaid dividends thereon, prior to any payments being made with respect to the common stock.

 

Common stock

 

Authorized - 50,000,000 common shares, $0.001 par value

 

Issued and outstanding - December 31, 2016 – 11,485,219 (June 30, 2016 – 11,187,023)

 

      Shares of common stock      Common stock     Additional paid-in capital     Warrants  
      outstanding     $     $     $  
                           
  Balance – June 30, 2016     11,187,023       11,187       28,833,105       1,658,382  
  Warrants exercised for cash     105,775       105       595,047       (25,202 )
  Cashless exercise of warrants     594       1       5,158       -  
  Shares issued for services     60,000       60       563,940       -  
  Warrants issued for services     -       -       -       50,244  
  Amendment of warrants     -       -       53,006       -  
  Amendment of stock options     -       -       260,969       -  
  Series B Preferred stock dividends     100,889       101       466,953       -  
  Conversion of Series B preferred stock     30,938       31       86,300       -  
  Stock option (income) expense     -       -       (43,384 )     -  
  Balance – December 31, 2016     11,485,219       11,485       30,821,094       1,683,424  

 

The issued and outstanding common shares at December 31, 2016 include 1,014,011 shares of common stock on an as-exchanged basis with respect to the shares of Exchangeco that can be exchanged for shares of common stock of the Company.

 

Six months ended December 31, 2015

 

During the six months December 31, 2015, pursuant to a public offering under a Registration Statement on Form S-1, the Company issued 1,069,417 shares of common stock at $2.40 per share and 1,069,417 warrants (the “2015 Investor Warrants”) to purchase shares of common stock at $0.004 per warrant for total gross proceeds of $2,566,660. The 2015 Investor Warrants are exercisable at $3.00 per share for a period of five years until they expire on July 31, 2020.

 

The Company engaged certain placement agents for the sale of a portion of the shares and 2015 Investor Warrants. Under the Company’s engagement agreements with these placement agents, the Company agreed to pay up to a 7% cash commission and issue warrants to purchase shares of common stock (the “2015 Agent Warrants”) up to the number of shares of our common stock equal to 5% of the aggregate number of shares sold in the offering by such placement agent. Pursuant to the placement agent agreements the Company paid a total cash commission of $80,575 and issued 23,477 2015 Agent Warrants (note 5). The 2015 Agent Warrants are exercisable at a per share price equal to $3.00 until July 15, 2020.

 

In addition to the cash commission of $80,575 the Company also incurred additional cash issue and closing costs of $582,511 resulting in net cash proceeds from the public offering of $1,903,514. The 2015 Agent Warrants have been recognized as non-cash issue costs of $29,594.

 

Stock Options

 

The following table sets forth the options outstanding:

 

      Number of 
stock 
options 
outstanding
    Weighted 
average 
exercise 
price
$
 
               
  Balance – June 30, 2016     856,250       3.77  
  Granted     40,000       4.10  
                   
  Balance – December 31, 2016     896,250       3.78  

 

The following table summarizes stock options currently outstanding and exercisable at December 31, 2016:

 

  Exercise price 
$
    Number 
Outstanding at 
December 31, 
2016
    Weighted 
average 
remaining 
contractual 
life 
(years)
    Number 
exercisable 
at 
December 31, 
2016
 
                       
    1.49       25,000       5.14       25,000  
    2.00       131,250       5.14       131,250  
    2.96       45,000       8.09       45,000  
    3.20       30,000       8.25       30,000  
    3.32       30,000       9.08       9,167  
    3.60       25,000       9.21       6,551  
    3.76       45,000       9.00       15,000  
    4.00       12,500       2.75       12,500  
    4.10       40,000       9.86       1,889  
    4.20       412,500       6.62       412,500  
    4.48       30,000       9.02       9,833  
    4.76       25,000       9.33       5,556  
    6.16       15,000       6.25       15,000  
    9.20       30,000       6.42       30,000  
                               
            896,250               749,246  

 

Included in the number of stock options outstanding are 25,000 stock options granted at an exercise price of CDN $2.00. The exercise prices shown in the above table have been converted to $1.49 using the period ending closing exchange rate. Certain stock options have been granted to non-employees and will be revalued at each reporting date until they have fully vested. The stock options have been re-valued using a Black-Scholes pricing model using the following assumptions:

 

      December 31, 
2016
 
         
  Dividend rate     0 %
  Volatility     78.3% to 88.7 %
  Risk-free rate     1.1% to 1.7 %
  Term - years     2.0 to 3.0  

 

 

The Company has recognized the following amounts as stock option expense (income) for the periods noted:

 

      Three months ended December 31,     Six months ended
December 31,
 
      2016
$
    2015
$
    2016
$
    2015
$
 
                           
  Research and development     (65,727 )     9,775       (35,012 )     16,230  
  General and administrative     (9,475 )     65,187       (8,372 )     98,638  
                                   
        (75,202 )     74,962       (43,384 )     114,868  

 

All of the reversal of stock option expense of $43,384 for the six months ended December 31, 2016 and the stock option expense of $114,868 for the six months ended December 31, 2015 has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at December 31, 2016 was $208,846 (2015 - $530,269) and the aggregate intrinsic value of stock options exercisable at December 31, 2016 was also $208,846 (2015 - $515,424). As of December 31, 2016, there was $148,834 in unrecognized compensation expense that will be recognized over the three years. No stock options granted under the Plan have been exercised to December 31, 2016. Upon the exercise of stock options new shares will be issued.

 

A summary of status of the Company’s unvested stock options under all plans is presented below:

 

      Number of 
Options
    Weighted 
average 
exercise 
price 
$
    Weighted 
average 
grant date 
fair value 
$
 
                     
  Unvested at June 30, 2016     141,016       3.17       1.73  
  Granted     40,000       4.10       2.32  
  Vested     (34,012 )     4.00       2.19  
                           
  Unvested at December 31, 2016     147,004       3.37       1.85  

 

Stock option liability

 

Certain of the Company’s stock options have been issued in CA$. Of these, a portion were classified as a stock option liability which is revalued at each reporting date. During the six months ended December 31, 2016, the Company amended 43,750 of these stock options held by five optionees such that the exercise price of the options was adjusted to be denominated in US$. No other terms of the stock options were amended. As a result of the amendment, the Company recognized $85,094 in stock option liability expense and $260,969 was reclassified to equity during the six months ended December 31, 2016.

 

Warrants

 

Certain of the Company’s warrants have been recognized as a derivative liability (note 5). The following table summarizes all of the Company’s outstanding warrants as of December 31, 2016:

 

  Description   Number  
         
  Balance – June 30, 2016     4,612,627  
  2013 Investor Warrants (i)     (65,095 )
  2015 Investor Warrants (ii)     (40,000 )
  2015 Agent Warrants (iii)     (1,680 )
           
  Balance - December 31, 2016     4,508,852  

 

i) 2013 Investor Warrants were exercised for cash proceeds of $204,659.
     
ii) 2015 Investor Warrants were exercised for cash proceeds of $120,000.
     
iii) 680 of the 2015 Agent Warrants were exercised for cash proceeds of $2,040 and 1,000 of the 2015 Agent Warrants were exercised on a cashless basis for 594 shares of common stock.