Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
3 Months Ended
Sep. 30, 2017
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 September 30, 2017 – 1 (June 30, 2017 – 1)

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

Series B shares – at September 30, 2017 – 881,113 (June 30, 2017 – 881,113)

 

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 September 30, December 31, March 31, and June 30 of each year commencing on June 30, 2016. Dividends are 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 Stock does 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 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 three months ended September 30, 2017, the Company issued 49,602 (2016 – 50,793) shares of common stock and recognized $41,666 (2016 – $307,298) as a direct increase in accumulated deficit.

 

A total of 881,113 (2016 – 902,238) shares of Series B Preferred Stock are outstanding as of September 30, 2017, such that a total of 2,202,792 (2016 – 2,255,605) shares of common stock are issuable upon conversion of the Series B Preferred Stock as at September 30, 2017. Converted shares are rounded up to the nearest whole share.

 

No shares of the Series B Preferred Stock were converted to common stock during the three months ended September 30, 2017 or 2016.

 

Series A Preferred Shares

 

Effective September 30, 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.

 

Common stock

 

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

 

Issued and outstanding - September 30, 2017 – 22,559,235 (June 30, 2016 – 14,509,633)

 

      Shares of common stock 
outstanding
    Common stock
$
    Additional paid-in capital
$
    Warrants
$
    Accumulated deficit
$
 
                                 
                                 
  Balance – June 30, 2017     14,509,633       14,510       36,665,285       4,570,574       (41,118,433 )
  Issuance of shares and warrants     8,000,000       8,000       6,184,585       2,752,751       -  
  Series B Preferred stock dividend     49,602       49       41,617       -       (41,666 )
  Stock option expense     -       -       64,870       -       -  
  Warrants issued for services     -       -       -       (1,481 )     -  
  Series A Preferred cash dividend     -       -       -       -       (2,089 )
  Loss for the period     -       -       -       -       (2,666,406 )
                                           
  Balance – September 30, 2017     22,559,235       22,559       42,956,357       7,321,844       (43,828,594 )

 

The issued and outstanding common shares at September 30, 2017 include 957,761 (June 30, 2017 – 982,761) 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.

 

Three months ended September 30, 2017

 

During the three months ended September 30, 2017 the Company completed a registered direct offering (the “2018 Registered Offering”) of an aggregate of 8,000,000 shares of common stock and warrants to purchase an additional 8,000,000 shares of common stock at a price of $1.25 per share and related warrant for gross proceeds of $10.0 million. The warrants have an exercise price of $1.25 per share, are immediately exercisable and have a term of exercise of five years (the “2018 Investor Warrants”).

 

The Company engaged a placement agent for the 2018 Registered Offering. Under the Company’s engagement agreement with the placement agent, the Company paid $800,000 in cash commission and other fees to the placement agent and issued warrants to purchase 400,000 shares of common stock to the placement agent (the “2018 Agent Warrants”). The 2018 Agent Warrants are exercisable at a per share price of $1.25 and have a term of exercise of five years.

 

In addition to the cash commission and other placement agent fees, the Company also incurred additional cash issue costs of $254,664 resulting in net cash proceeds of $8,945,336.

 

2017 Omnibus Incentive Plan

  

During the three months ended September 30, 2017, and subject to approval by the Company’s stockholders, the Company’s board of directors approved adoption of the Company’s 2017 Omnibus Equity Incentive Plan (the “2017 Plan”). The board of directors also approved a form of Performance Stock Unit Award Agreement to be used in connection with grants of performance stock units (“PSUs”) under the 2017 Plan.

 

Under the 2017 Plan, 3,487,785 shares of Company common stock are reserved for issuance, less the number of shares of common stock subject to grants of stock options made, or that may be made, under the Del Mar Pharmaceuticals (BC) Ltd. 2013 Amended and Restated Stock Option Plan (the “Legacy Plan”). If all shares available under the Legacy Plan were used, there would remain 1,730,906 shares available for issuance under the 2017 Plan. The number of shares of Company common stock available for issuance under the 2017 Plan will automatically increase as needed such that the number of shares of common stock available for issuance with respect to awards at any time under the 2017 Plan is thirteen percent (13%) of the Company’s fully diluted shares of common stock (less the number of shares of common stock subject to outstanding awards granted under the 2017 Plan and options granted under the Legacy Plan). The maximum number of shares of Company common stock with respect to which any one participant (other than an outside director) may be granted stock options or stock appreciation rights during any calendar year is 500,000 shares. The maximum number of shares of common stock that may be subject to awards to outside directors, in the aggregate, during any calendar year is 1,500,000. No award will be granted under the 2017 Plan on or after July 7, 2027, but awards granted prior to that date may extend beyond that date.

  

Performance Stock Unit grants

  

Subject to approval by the Company’s stockholders of the 2017 Plan, the Company’s board of directors granted a total of 1,000,000 PSUs under the 2017 Plan to the Company’s independent directors. In total, the awards represent the right to receive an aggregate of 1,000,000 shares of the Company’s common stock upon vesting of the PSU based on targets approved by the Company’s board of directors related to the Company’s fully diluted market capitalization. The PSUs will vest in full upon the later of one year from the grant date and the Company achieving a fully diluted market capitalization of at least $500 million for five consecutive business days. The PSUs expire on July 7, 2022.

 

Stock Options (granted under the Legacy Plan)

 

The following table sets forth the stock options outstanding under the Legacy Plan:

 

      Number of 
stock 
options 
outstanding
    Weighted 
average 
exercise 
price
$
 
               
               
  Balance – June 30, 2017     1,120,850       4.18  
  Granted     180,000       2.11  
                   
  Balance – September 30, 2017     1,300,850       3.90  

 

The following table summarizes stock options currently outstanding and exercisable at September 30, 2017 under the Legacy Plan:

 

  Exercise price 
$
  Number 
Outstanding at 
September 30, 
2017
    Weighted 
average 
remaining 
contractual 
life 
(years)
    Number 
exercisable 
at 
September 30, 
2017
 
                     
  1.60     25,000       4.39       25,000  
  2.00     131,250       4.39       131,250  
  2.11     180,000       9.77       -  
  2.96     45,000       7.35       45,000  
  3.20     30,000       7.50       30,000  
  3.76     45,000       8.36       24,583  
  4.00     12,500       2.00       12,500  
  4.10     40,000       9.11       11,852  
  4.20     412,500       5.88       412,500  
  4.48     30,000       8.36       16,389  
  4.95     224,600       9.38       46,376  
  5.32     80,000       8.60       37,333  
  6.16     15,000       5.50       15,000  
  9.20     30,000       5.67       30,000  
                           
        1,300,850               837,783  

 

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 $1.60 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:

 

      September 30, 
2017
 
         
  Dividend rate     0 %
  Volatility     72.7% to 82.2 %
  Risk-free rate     1.5% to 1.8 %
  Term - years     1.3 to 3.0  

 

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

 

      Three months ended 
September 30,
 
      2017
$
    2016
$
 
               
  Research and development     (4,974 )     30,715  
  General and administrative     69,844       1,103  
                   
        64,870       31,818  

 

All of the stock option expense for the periods ended September 30, 2017 and 2016 has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at September 30, 2017 was $nil (2016 - $1,982,263) and the aggregate intrinsic value of stock options exercisable at September 30, 2017 was also $nil (2016 - $1,728,712). As of September 30, 2017, there was $381,265 in unrecognized compensation expense that will be recognized over the next 2.75 years. No stock options granted under the Plan have been exercised to September 30, 2017. Upon the exercise of stock options new shares will be issued.

 

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

 

      Number of 
Options
    Weighted 
average 
exercise 
price 
$
    Weighted 
average 
grant date 
fair value 
$
 
                     
  Unvested at June 30, 2017     318,033       4.81       2.57  
  Granted     180,000       2.11       1.13  
  Vested     (34,966 )     4.78       2.58  
                           
  Unvested at September 30, 2017     463,067       3.76       2.03  

 

Stock option liability

 

Certain of the Company’s stock options have been issued in $CDN. Of these, a portion were classified as a stock option liability which is revalued at each reporting date. During the three months ended September 30, 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 $USD. 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 three months ended September 30, 2016.

 

Warrants

 

Certain of the Company’s warrants have been recognized as a derivative liability (note 5). The following table summarizes changes in the Company’s outstanding warrants as of September 30, 2017:

 

  Description   Number  
         
  Balance – June 30, 2017     6,628,906  
  Issuance of 2018 Investor Warrants (i)     8,000,000  
  Issuance of 2018 Agent Warrants (ii)     400,000  
           
  Balance - September 30, 2017     15,028,906  

 

i) The 2018 Investor Warrants are exercisable at $1.25 per share until September 22, 2022.

 

ii) The 2018 Agent Warrants are exercisable at $1.25 per share until September 20, 2022.

 

The following table summarizes the Company’s outstanding warrants as of September 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
  2018 Investor     8,000,000       1.25     September 22, 2022
  2015 Investor     979,003       3.00     July 31, 2020
  2013 Investor  Amended     778,504       3.14     March 31, 2019
  2013 Investor  Un-amended (note 5)     105,129       2.68     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
  2018 Agent     400,000       1.25     September 20, 2022
  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
                       
        15,028,906       2.25