Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity (Deficiency)

v3.7.0.1
Stockholders' Equity (Deficiency)
12 Months Ended
Jun. 30, 2017
Stockholders' Equity (Deficiency) [Abstract]  
Stockholders' equity (deficiency)
5 Stockholders’ equity (deficiency)

 

Preferred stock

 

Authorized

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

 

Issued and outstanding

Special voting shares – at June 30, 2017 and 2016 – 1

Series A shares – at June 30, 2017 – 278,530 (June 30, 2016 – 278,530)

Series B shares – at June 30, 2017 – 881,113 (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 date. The holders of the Series B Preferred Stock are entitled to an annual cumulative, in arrears, dividend at the rate of 9% payable quarterly. The 9% dividend accrues quarterly commencing on the date of issue and is payable quarterly on June 30, September 30, December 31, and March 31 of each year commencing on June 30, 2016. Dividends are payable solely by delivery of shares of common stock, 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 Stock does not contain any repricing features. Each share of Series B Preferred Stock entitles its holder to vote with the common stock on an as-converted basis.

 

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 Stock, in aggregate, a low, single-digit royalty based on their pro rata ownership of the Series B Preferred Stock 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 Series B Preferred Stock 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 Preferred Stock dividend, during the year ended June 30, 2017, the Company issued 200,446 (2016 – 30,360) shares of common stock and recognized $790,454 (2016 – $238,326) as a direct increase in accumulated deficit. During the year ended June 30, 2017, a total of 21,125 (2016 – 0) shares of Series B Preferred Stock were converted for an aggregate 52,813 (2016 – 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 a Certificate of Designation of Series A Preferred Stock (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 entitled to 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.

 

Special voting shares

 

In connection with the Exchange Agreement (note 1), on the Reverse Acquisition Closing Date, the Company, Callco, Exchangeco and Computershare Trust Company of Canada (the “Trustee”) entered into a voting and exchange trust agreement (the “Trust Agreement”). Pursuant to the Trust Agreement, Company issued one share of Special Voting Preferred Stock (the “Special Voting Share”) to the Trustee, and the parties created a trust for the Trustee to hold the Special Voting Share for the benefit of the holders of the shares of Exchangeco acquired as part of the Reverse Acquisition (the “Exchangeable Shares”) (other than the Company and any affiliated companies) (the “Beneficiaries”). Pursuant to the Trust Agreement, the Beneficiaries will have voting rights in the Company equivalent to what they would have had they received shares of common stock in the same amount as the Exchangeable Shares held by the Beneficiaries.

 

In connection with the Exchange Agreement and the Trust Agreement, on January 17, 2013, the Company filed a certificate of designation of Special Voting Preferred Stock (the “Special Voting Certificate of Designation”) with the Secretary of State of Nevada. Pursuant to the Special Voting Certificate of Designation, one share of the Company’s blank check preferred stock was designated as Special Voting Preferred Stock. The Special Voting Preferred Stock votes as a single class with the common stock and is entitled to a number of votes equal to the number of Exchangeable Shares of Exchangeco outstanding as of the applicable record date (i) that are not owned by the Company or any affiliated companies and (ii) as to which the holder has received voting instructions from the holders of such Exchangeable Shares in accordance with the Trust Agreement.

 

The Special Voting Preferred Stock is not entitled to receive any dividends or to receive any assets of the Company upon any liquidation, and is not convertible into common stock of the Company.

 

The voting rights of the Special Voting Preferred Stock will terminate pursuant to and in accordance with the Trust Agreement. The Special Voting Preferred Stock will be automatically cancelled at such time as the share of Special Voting Preferred Stock has no votes attached to it.

 

Common stock

 

Authorized

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

 

Issued and outstanding at June 30, 2017 – 14,509,633 (2016 – 11,187,023). The issued and outstanding common shares at June 30, 2017 include 982,761 (2016 – 1,014,011) shares of common stock on an as-exchanged basis with respect to the Exchangeable Shares.

 

Public offering financings

 

Year ended June 30, 2017

 

On April 12, 2017 the Company completed a registered public offering (the “2017 Public Offering”) of an aggregate of 2,769,232 shares of common stock and warrants to purchase an additional 2,076,924 shares of common stock at a price of $3.25 per share and related warrant for gross proceeds of approximately $9.0 million. The related warrants have an exercise price of $3.50 per share, are immediately exercisable, and have a term of exercise of five years (the “2017 Investor Warrants”).

 

The Company engaged a placement agent for the 2017 Public Offering. Under the Company’s engagement agreement with the placement agent, the Company agreed to pay up to an 8% cash commission and issue warrants to purchase shares of common stock (the “2017 Agent Warrants”) up to the number of shares of common stock equal to 5% of the aggregate number of shares issued in the 2017 Public Offering. Pursuant to the placement agent agreement the Company issued 138,462 2017 Agent Warrants. The 2017 Agent Warrants are exercisable at a per share price equal to $4.06 and have a term of exercise of five years.

 

In addition to the cash commission the Company also incurred additional cash issue costs of $347,897 resulting in net cash proceeds of $7,932,107. The 2017 Agent Warrants have been recognized as non-cash issue costs of $424,401. Including the fair value of the 2017 Agent Warrants, total issue costs were $1,492,298.

 

Year ended June 30, 2016

 

On July 15, 2015 the Company’s Registration Statement on Form S-1 relating to a public offering by the Company of common stock and common stock purchase warrants (the “2015 Public Offering”) was declared effective by the Securities and Exchange Commission. Pursuant to the 2015 Public Offering, 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 $0.001 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 2015 Public Offering by such placement agents. Pursuant to the placement agent agreements the Company paid a total cash commission of $80,575 and issued 23,477 2015 Agent Warrants (note 4). The 2015 Agent Warrants are exercisable at a per share price equal to $3.00 during the five-year period commencing six months from the effective date of the 2015 Public Offering, which period shall not extend further than five years from the effective date of the 2015 Public Offering. Therefore, all 2015 Agent Warrants expire on 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 (including costs deferred at June 30, 2015 of $550,119) resulting in net cash proceeds of $1,903,514. The 2015 Agent Warrants have been recognized as non-cash issue costs of $29,594.

 

Shares issued for services

 

During the year ended June 30, 2017, the Company issued 60,000 (2016 – 27,500) shares of common stock for services resulting in the recognition of $564,000 (2016 – $146,900) in expense. All of the shares issued for services for the years ended June 30, 2017 and 2016 have been recognized as general and administrative expense.

 

Stock options

 

The Company’s Board of Directors has approved and adopted a stock option plan (the “Legacy Plan”). Under the Legacy Plan, the number of common shares that will be reserved for issuance to officers, directors, employees and consultants under the Legacy Plan will not exceed 7.5% of the share capital of the Company on a fully diluted basis. The requisite service period of the options ranges from six months to three years and also has a range of six months to three years contractual term.

 

The following table sets forth the options outstanding under the Legacy Plan as of June 30, 2017:

 

      Number of 
stock
options
outstanding
    Weighted
average
exercise
price
 
               
  Balance – June 30, 2015     898,750       3.76  
  Granted     177,500       3.96  
  Cancelled     (12,500 )     4.20  
  Forfeited     (207,500 )     4.02  
                   
  Balance – June 30, 2016     856,250       3.77  
  Granted     264,600       4.82  
                   
  Balance – June 30, 2017     1,120,850       4.18  

 

The following table summarizes stock options currently outstanding and exercisable at June 30, 2017:

 

  Exercise price
$
  Number
Outstanding at
June 30,
2017
    Weighted
average
remaining
contractual
life
(years)
    Number
exercisable
at
June 30,
2017
 
                     
  1.54     25,000       4.64       25,000  
  2.00     131,250       4.64       131,250  
  2.96     45,000       7.60       45,000  
  3.20     30,000       7.75       30,000  
  3.76     45,000       8.61       20,833  
  4.00     12,500       2.25       12,500  
  4.10     40,000       9.36       8,519  
  4.20     412,500       6.13       412,500  
  4.48     30,000       8.61       13,889  
  4.95     224,600       9.63       27,659  
  5.32     80,000       8.85       30,667  
  6.16     15,000       5.75       15,000  
  9.20     30,000       5.92       30,000  
                           
        1,120,850               802,817  

  

Included in the number of stock options outstanding are 25,000 stock options granted at an exercise price of CA $2.00. The exercise prices for these stock options shown in the above table have been converted to US $1.54 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 valued using a Black-Scholes pricing model using the following assumptions:

 

      June 30,
2017
    June 30,
2016
 
  Dividend rate     0 %     0 %
  Volatility     77.5% to 88.7 %     84% to 118 %
  Risk-free rate     1.00% to 1.74 %     1.00 %
  Term  years     3.0       0.5 to 3.0  

 

The Company has recognized the following amounts as stock-based compensation expense for the periods noted:

 

      Years ended June 30,  
      2017
$
    2016
$
 
               
  Research and development     77,706       263,509  
  General and administrative     47,041       130,623  
                   
        124,747       394,132  

 

Of the total stock option expense of $124,747 (2016  $394,132) for the years ended June 30, 2017 and 2016, all of it has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at June 30, 2017 was $56,783 (2016  $3,486,910) and the aggregate intrinsic value of stock options exercisable at June 30, 2017 was $56,783 (2016  $2,941,031). As at June 30, 2017 there was $334,518 in unrecognized compensation expense that will be recognized over the next 2.67 years. No stock options granted under the Plan have been exercised to June 30, 2017. Upon the exercise of stock options new shares will be issued.

 

A summary of the status of the Company’s unvested stock options as at June 30, 2017 under all plans is presented below:

 

      Number of
options
    Weighted
average
exercise
price
$
    Weighted
average
grant date
fair value
$
 
                     
  Unvested at June 30, 2015     180,590       3.80       1.64  
  Granted     177,500       3.96       2.24  
  Vested     (147,293 )     3.71       2.09  
  Forfeited     (65,093 )     3.67       0.91  
  Cancelled     (4,688 )     4.20       2.28  
                           
  Unvested at June 30, 2016     141,016       3.17       1.73  
  Granted     264,600       4.82       2.61  
  Vested     (87,583 )     4.68       2.48  
                           
  Unvested at June 30, 2017     318,033       4.81       2.57  

 

The aggregate intrinsic value of unvested stock options at June 30, 2017 was $0 (2016  $547,279). The unvested stock options have a remaining weighted average contractual term of 9.35 (2016 – 9.51) years.

 

Stock option liability

 

Certain of the Company’s stock options have been issued in CA$. Of these, a portion have been classified as a stock option liability which is revalued at each reporting date. During the year ended June 30, 2017, the Company amended 43,750 (2016 – 87,500) of these stock options held by five (2016 – three) optionees such that the exercise price of the options was adjusted to be denominated in US$. No other terms of the stock options were amended. As a result of the amendment, the Company recognized $85,094 (2016  $377,927) in stock option liability expense and $260,969 (2016  $351,750) was reclassified to equity during the year ended June 30, 2017.

 

Warrants

 

      Number of
warrants
    Amount 
$
 
               
  Balance – June 30, 2015     125,000       89,432  
                   
  Issuance of 2015 Investor Warrants (i)     1,069,417       671,189  
  Exercise of 2015 Investor Warrants (i)     (41,667 )     (26,250 )
  Issuance of 2016 Agent Warrants (ii)     103,963       246,566  
  Warrants issued for services (iii)     265,000       677,445  
                   
  Balance – June 30, 2016     1,521,713       1,658,382  
                   
  Issuance of 2017 Investor Warrants (iv)     2,076,924       2,526,336  
  Issuance of 2017 Agent Warrants (iv)     138,462       424,401  
  Exercise of Valent warrants (v)     (125,000 )     (89,432 )
  Exercise of 2015 Investor Warrants (i)     (48,750 )     (30,715 )
  Warrants issued for services (iii)     41,400       81,602  
                   
  Balance - June 30, 2017     3,604,749       4,570,574  

 

i) The 2015 Investor Warrants are exercisable at a price of $3.00. The warrants expire on July 31, 2020. During the year ended June 30, 2017, 48,750 (2016  41,667) warrants were exercised for proceeds of $146,250 (2016  $125,001).
 
ii) As part of its Series B Preferred Stock financing the Company issued to the placement agent for this financing warrants (the “2016 Agent Warrants”) which are exercisable at a price of $4.00 until May 12, 2021.
 
iii) During the year ended June 30, 2017, the Company issued 41,400 (2016  265,000) warrants for services at an exercise price of $5.93 (2016  $3.00). The warrants expire at the various dates noted in the table.
 
iv) As part of the financing completed by the Company in April 2017, the Company issued the 2017 Investor Warrants and the 2017 Agent Warrants. The 2017 Investor Warrants are exercisable at $3.50 until April 19, 2022 and the 2017 Agent Warrants are exercisable at $4.06 until April 12, 2022.
 
v) The Valent warrants were exercised at $1.54 (CA$2.00) for proceeds of $192,075.

 

Certain of the Company’s warrants have been recognized as a derivative liability (note 4).

  

The following table summarizes the changes in the Company’s outstanding warrants as of June 30, 2017:

 

  Description   Number  
         
  Balance – June 30, 2016     4,612,627  
           
  Issuance of 2017 Investor Warrants     2,076,924  
  Issuance of 2017 Agent Warrants     138,462  
  Exercise of 2013 Investor Warrants     (65,077 )
  Exercise of Valent warrants     (125,000 )
  Exercise of 2015 Investor Warrants     (48,750 )
  Exercise of 2015 Agent Warrants     (1,680 )
  Issuance of warrants issued for services     41,400  
           
  Balance – June 30, 2017     6,628,906  

   

The following table summarizes the Company’s outstanding warrants as of June 30, 2017:

  

  Description   Number     Exercise
price
$
    Expiry date
                   
  2017 Investor     2,076,924       3.50     April 19, 2022
  2013 Placement Agent     1,262,500       3.14     June 30, 2019
  2015 Investor     979,003       3.00     July 31, 2020
  2013 Investor  Amended     778,504       3.14     March 31, 2019
  2013 Investor  Unamended     105,129       3.14     January 25 to March 6, 2018
  Dividend     812,502       5.00     January 24, 2018
  Issued for services     265,000       3.00     March 1, 2020 to February 1, 2021
  Issued for services     43,750       7.04     September 12, 2018
  Issued for services     41,400       5.93     February 27, 2020
  2017 Agent     138,462       4.06     April 12, 2022
  2016 Agent     103,964       4.00     May 12, 2021
  2015 Agent     21,768       3.00     July 15, 2020
                       
        6,628,906       3.53