Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
6 Months Ended
Dec. 31, 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 December 31, 2017 – 1 (June 30, 2017 – 1)

Series A shares – at December 31, 2017 – 278,530 (June 30, 2017 – 278,530)

Series B shares – at December 31, 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 December 31, 2017, the Company issued 49,602 (2016 – 50,096) shares of common stock and recognized a total of $54,066 (2016 – $159,756). During the six months ended December 31, 2017, the Company issued 99,204 (2016 – 100,889) shares of common stock and recognized a total of $95,732 (2016 – $467,054). All dividends have been recognized as a direct increase in accumulated deficit.

 

A total of 881,113 (2016 – 889,863) shares of Series B Preferred Stock are outstanding as of December 31, 2017, such that a total of 2,202,792 (2016 – 2,224,668) shares of common stock are issuable upon conversion of the Series B Preferred Stock as at December 31, 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 and six months ended December 31, 2017. During the three and six months ended December 31, 2016, a total of 12,375 shares of Series B preferred stock were converted for an aggregate 30,938 shares of common stock.

 

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 - December 31, 2017 – 22,608,837 (June 30, 2017 – 14,509,633)

 

      Shares of common stock     Common stock     Additional paid-in capital     Warrants     Accumulated deficit  
      outstanding     $     $     $     $  
                                 
  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     99,204       99       95,633       -       (95,732 )
  Stock option expense     -       -       293,377       -       -  
  Warrants issued for services     -       -       -       (1,481 )     -  
  Series A Preferred cash dividend     -       -       -       -       (4,178 )
  Loss for the period     -       -       -       -       (5,828,004 )
                                           
  Balance – December 31, 2017     22,608,837       22,609       43,238,880       7,321,844       (47,046,347 )

 

The issued and outstanding common shares at December 31, 2017 include 932,761 (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.

  

Six months ended December 31, 2017

 

During the six months ended December 31, 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

 

On July 7, 2017, as amended on February 9, 2018, 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, 7,800,000 shares of Company common stock are reserved for issuance, less the number of shares of common stock issued under the Del Mar Pharmaceuticals (BC) Ltd. 2013 Amended and Restated Stock Option Plan (the “Legacy Plan”) or that are subject to grants of stock options made, or that may be made, under the Legacy Plan. A total of 1,420,850 shares of common stock have been issued under the Legacy Plan and/or are subject to outstanding stock options granted under the Legacy Plan, leaving a potential 6,379,150 shares of common stock available for issuance under the 2017 Plan if all such options under the Legacy Plan were exercised and no new grants are made under the Legacy Plan. The number of shares of Company common stock available for issuance under the 2017 Plan has been set at approximately 20% of the Company’s fully diluted shares of common stock as of February 9, 2018 (excluding the number of shares of common stock issued under the 2017 Plan and/or the Legacy Plan or subject to outstanding awards granted under the 2017 Plan and/or the Legacy Plan). The maximum number of shares of Company common stock with respect to which any one participant may be granted awards during any calendar year is 8% of the Company’s fully diluted shares of common stock on the date of grant (excluding the number of shares of common stock issued under the 2017 Plan and/or the Legacy Plan or subject to outstanding awards granted under the 2017 Plan and/or the Legacy Plan). 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     300,000       1.61  
                   
  Balance – December 31, 2017     1,420,850       3.64  

 

The following table summarizes stock options currently outstanding and exercisable at December 31, 2017 under the Legacy Plan:

 

  Exercise price
$
  Number 
Outstanding at 
December 31, 
2017
    Weighted 
average 
remaining 
contractual 
life 
(years)
    Number 
exercisable 
at 
December 31, 
2017
 
                     
  0.87     120,000       9.84       10,000  
  1.59     25,000       3.87       25,000  
  2.00     131,250       3.87       131,250  
  2.11     180,000       9.52       -  
  2.96     45,000       7.09       45,000  
  3.20     30,000       7.25       30,000  
  3.76     45,000       8.11       27,495  
  4.00     12,500       1.75       12,500  
  4.10     40,000       8.86       14,443  
  4.20     412,500       5.62       412,500  
  4.48     30,000       8.11       18,332  
  4.95     224,600       6.56       129,990  
  5.32     80,000       8.35       42,223  
  6.16     15,000       5.25       15,000  
  9.20     30,000       5.42       30,000  
                           
        1,420,850               943,733  

 

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 $1.59 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, 
2017
 
         
  Dividend rate     0 %
  Volatility     76.4% to 80.0 %
  Risk-free rate    

1.90% to 2.17

%
  Term - years     1.0 to 2.0  

 

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

 

      Three months ended
December 31,
    Six months ended
December 31,
 
      2017     2016     2017     2016  
      $     $     $     $  
  Research and development     126,375       (65,727 )     121,401       (35,012 )
  General and administrative     102,132       (9,475 )     171,976       (8,372 )
                                   
        228,507       (75,202 )     293,377       (43,384 )

 

All of the stock option expense for the periods ended December 31, 2017 and 2016 has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at December 31, 2017 was $26,400 (2016 - $208,846) and the aggregate intrinsic value of stock options exercisable at December 31, 2017 was $2,200 (2016 - $208,846). As of December 31, 2017, there was $257,895 in unrecognized compensation expense that will be recognized over the next 2.50 years. No stock options granted under the Plan have been exercised to December 31, 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     300,000       1.61       0.86  
  Vested     (140,916 )     4.58       2.47  
                           
  Unvested at December 31, 2017     477,117       2.87       1.54  

 

Stock option modification

 

During the three and six months ended December 31, 2017, certain stock options were modified pursuant to a separation agreement with the Company’s former President and Chief Operating Officer. A total of 67,600 options had their vesting accelerated such that they became fully vested on December 22, 2017, resulting in additional stock option expense of $93,777. In addition, a total of 218,600 options were modified such that their remaining exercise period was increased from one year to three years, resulting in additional stock option expense of $28,561.

 

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 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 $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 December 31, 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 - December 31, 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 December 31, 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