Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.10.0.1
Stockholders' Equity
3 Months Ended
Sep. 30, 2018
Stockholders' Equity [Abstract]  
Stockholders' equity
5        Stockholders’ equity

 

Preferred stock

 

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 three months ended September 30, 2018, the Company issued 49,602 (2017 – 49,602) shares of common stock and recognized $36,085 (2017 – $41,666) as a direct increase in accumulated deficit.

 

A total of 881,113 (2017 – 881,113) shares of Series B Preferred Stock are outstanding as of September 30, 2018, such that a total of 2,202,792 (2017 – 2,202,792) shares of common stock are issuable upon conversion of the Series B Preferred Stock as at September 30, 2018. Converted shares are rounded up to the nearest whole share.

 

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

 

     

Shares of common stock

    Common stock     Additional paid-in capital    

Warrants

   

Accumulated deficit

 
      outstanding     $     $     $     $  
                                 
  Balance – June 30, 2018     22,966,668       22,967       43,177,523       8,229,482       (52,441,337 )
                                           
  Series B Preferred stock dividend     49,602       49       36,036       -       (36,085 )
  Warrants issued for services     -       -       -       30,661       -  
  Shares issued for services     7,063       7       4,132       -       -  
  Stock option expense     -       -       132,902       -       -  
  Performance stock unit expense     -       -       61,514       -       -  
  Series A Preferred cash dividend     -       -       -       -       (2,089 )
  Loss for the period     -       -       -       -       (1,991,804 )
                                           
  Balance – September 30, 2018     23,023,333       23,023       43,412,107       8,260,143       (54,471,315 )

 

The issued and outstanding common shares at September 30, 2018 include 562,761 (June 30, 2018 – 912,761) 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

  

As approved by the Company’s stockholders at the annual meeting of stockholders held on April 11, 2018, on July 7, 2017, as amended on February 1, 2018, 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 (BC) 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 1,699,850 shares of common stock have been issued under the Legacy Plan and/or are subject to outstanding stock options granted under the Legacy Plan, and a total of 926,979 shares of common stock have been issued under the 2017 Plan and/or are subject to outstanding stock options granted under the 2017 Plan. In addition, 1,200,000 PSU’s have been issued under the 2017 Plan leaving a potential 3,973,171 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 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 units

  

The Company’s board of directors has granted PSUs under the 2017 Plan to the Company’s directors. The awards represent the right to receive 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 vest at various fully diluted market capitalization levels with full vesting occurring 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. There are 1,200,000 PSUs outstanding as of September 30, 2018 and June 30, 2018.

 

The Company has recognized $61,514 (2017 - $0) in expense related to the PSUs during the three months ended September 30, 2018 with all of it being recognized as general and administrative expense. As at September 30, 2018 there was $464,626 (2017 - $0) in unrecognized compensation expense that will be recognized over the next 2.99 years.

 

The PSUs have been valued using the following assumptions:

 

  Dividend rate     0 %
  Volatility     79.0 to 82.5 %
  Risk-free rate     2.56% to 2.71 %
  Term years     1.67 to 3.24  

  

Stock Options

 

The following table sets forth the stock options outstanding under all plans as of September 30, 2018:

 

     

Number of

stock

options

outstanding

   

Weighted

average

exercise

price

$

 
               
  Balance – September 30 and June 30, 2018     2,626,829       2.43  

  

The following table summarizes stock options currently outstanding and exercisable at September 30, 2018 under all plans:

 

 

Exercise price

$

   

 

Number

Outstanding

   

Weighted

average

remaining

contractual

life

(years)

   

Number

exercisable

   
                         
    0.70       54,514       9.73       -    
    0.87       120,000       9.09       100,000    
    0.98       836,465       9.64       -    
    1.06       36,000       9.54       -    
    1.17       300,000       4.41       200,000    
    1.55       25,000       3.67       25,000    
    2.00       131,250       3.02       131,250    
    2.11       159,000       8.01       63,000    
    2.96       45,000       6.35       45,000    
    3.20       30,000       0.67       30,000    
    3.76       45,000       7.36       38,742    
    4.00       12,500       1.00       12,500    
    4.10       40,000       8.11       24,442    
    4.20       412,500       4.31       412,500    
    4.48       30,000       7.36       25,831    
    4.95       224,600       5.82       162,741    
    5.32       80,000       7.60       62,223    
    6.16       15,000       4.50       15,000    
    9.20       30,000       4.67       30,000    
                                 
            2,626,829               1,378,229    

 

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 shown in the above table have been converted to US $1.55 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,

2018

 
         
  Dividend rate     0 %
  Volatility     72.1% to 76.4 %
  Risk-free rate     2.1% to 3.0 %
  Term - years     0.8 to 2.8  

  

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

 

     

Three months ended

September 30,

 
     

2018

$

   

2017

$

 
               
  Research and development     28,450       (4,974 )
  General and administrative     104,452       69,844  
                   
        132,902       64,870  

 

All of the stock option expense for the periods ended September 30, 2018 and 2017 has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at September 30, 2018 was $1,499 (2017 - $o) and the aggregate intrinsic value of stock options exercisable at September 30, 2018 was $0 (2017 - $0). As of September 30, 2018, there was $388,964 in unrecognized compensation expense that will be recognized over the next 2.8 years. No stock options granted under the Plan have been exercised to September 30, 2018. 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, 2018     1,381,599       1.44       0.76  
  Vested     (132,999 )     1.85       1.01  
                           
  Unvested at September 30, 2018     1,248,600       1.40       0.74  

  

Warrants

 

Certain of the Company’s warrants have been recognized as a derivative liability (note 4). The following table summarizes changes in the Company’s outstanding warrants as of September 30, 2018:

 

  Description   Number  
         
  Balance – June 30, 2018     14,281,275  
  Issued for services (i)     120,000  
 

Forfeited (ii)

    (24,000 )
  Expired (iii)     (43,750 )
           
  Balance - September 30, 2018     14,333,525  

 

  i) Warrants issued for services are exercisable at $0.90 until September 15, 2023. They vest pro rata monthly over twelve months commencing September 15, 2018.

 

  ii) Warrants issued for services exercisable at $1.17 were forfeited upon termination of the underlying agreement.

 

  iii) Warrants issued for services exercisable at $7.04 expired September 12, 2018.

 

The following table summarizes the Company’s outstanding warrants as of September 30, 2018:

 

  Description   Number     Exercise
price $
    Expiry date
                   
  2018 Investor     7,750,000       1.25     September 22, 2022
  2017 Investor     2,076,924       3.50     April 19, 2022
  2015 Investor     979,003       3.00     July 31, 2020
  2013 Investor – Amended     778,504       3.14     March 31, 2019
  2013 Placement Agent     1,262,500       3.14     June 30, 2019
  Issued for services     265,000       3.00     July 1, 2020 to February 1, 2021
  Issued for services     60,000       1.78     January 25, 2023
  Issued for services     336,000       1.17     February 27, 2023
  Issued for services     120,000       0.90     September 15, 2023
  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
        14,333,525       2.08