Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.19.1
Stockholders' Equity
9 Months Ended
Mar. 31, 2019
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 0.25 shares of common stock equating to a conversion price of $32.00 (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 $80.00 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, March 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 March 31, 2019, the Company issued 4,735 (2018 – 4,960) shares of common stock and recognized $23,202 (2018 – $46,626). During the nine months ended March 31, 2019, the Company issued 14,430 (2018 – 14,881) shares of common stock and recognized $75,477 (2018 – $142,358). These dividends have been recognized as a direct increase in accumulated deficit.

 

During the nine months ended March 31, 2019, 40,000 Series B Preferred shares were converted to 10,000 shares of common stock. There were no conversions during the three months ended March 31, 2019 and 2018 or for the nine months ended March 31, 2018. A total of 841,113 (2018 – 881,113) shares of Series B Preferred Stock are outstanding as of March 31, 2019, such that a total of 210,279 (2018 – 220,279) shares of common stock are issuable upon conversion of the Series B Preferred Stock as at March 31, 2019. 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
outstanding
    Common stock     Additional paid-in capital     Warrants     Accumulated deficit  
          $     $     $     $  
Nine months ended March 31, 2019                        
Balance – June 30, 2018     2,296,667       2,297       43,198,193       8,229,482       (52,441,337 )
                                         
Exercise and exchange of warrants     296,667       297       2,920,695       (2,210,697 )     -  
Warrants issued for services     -       -       -       36,534       -  
Conversion of Series B preferred stock to common stock     10,000       10       279,041       -       -  
Series B Preferred stock dividend     14,430       14       75,463       -       (75,477 )
Shares issued for services     2,269       2       10,267       -       -  
Stock option expense     -       -       355,388       -       -  
Performance stock unit expense     -       -       183,205       -       -  
Series A Preferred cash dividend     -       -       -       -       (6,267 )
Loss for the period     -       -       -       -       (5,465,486 )
                                         
Balance – March 31, 2019     2,620,033       2,620       47,022,252       6,055,319       (57,988,567 )
                                         
Three months ended March 31, 2019                        
Balance – December 31, 2018     2,614,342       2,614       46,851,817       6,046,587       (56,299,291 )
                                         
Exercise and exchange of warrants – issue costs     -       -       (16,186 )     -       -  
Warrants issued for services     -       -       -       8,732       -  
Series B Preferred stock dividend     4,735       5       23,197       -       (23,202 )
Shares issued for services     956       1       3,512       -       -  
Stock option expense     -       -       99,735       -       -  
Performance stock unit expense     -       -       60,177       -       -  
Series A Preferred cash dividend     -       -       -       -       (2,089 )
Loss for the period     -       -       -       -       (1,663,985 )
                                         
Balance – March 31, 2019     2,620,033       2,620       47,022,252       6,055,319       (57,988,567 )

 

    Shares of common stock
outstanding
    Common stock     Additional paid-in capital     Warrants     Accumulated deficit  
          $     $     $     $  
Nine months ended March 31, 2018                        
Balance – June 30, 2017     1,450,963       1,451       36,678,344       4,570,574       (41,118,433 )
                                         
Issuance of shares and warrants     800,000       800       6,191,785       2,752,751       -  
Warrants exercised for cash     25,000       25       312,475       -       -  
Warrants issued for services     -       -       -       155,204       -  
Series B Preferred stock dividend     14,881       15       142,343       -       (142,358 )
Shares issued for services     407       -       4,821       -       -  
Stock option expense     -       -       430,673       -       -  
Series A Preferred cash dividend     -       -       -       -       (6,267 )
Loss for the period     -       -       -       -       (8,761,061 )
                                         
Balance – March 31, 2018     2,291,251       2,291       43,760,441       7,478,529       (50,028,119 )
                                         
Three months ended March 31, 2018                        
Balance – December 31, 2017     2,260,884       2,261       43,259,228       7,321,844       (47,046,347 )
                                         
Warrants exercised for cash     25,000       25       312,475       -       -  
Warrants issued for services     -       -       -       156,685       -  
Series B Preferred stock dividend     4,960       5       46,621       -       (46,626 )
Shares issued for services     407       -       4,821       -       -  
Stock option expense     -       -       137,296       -       -  
Series A Preferred cash dividend     -       -       -       -       (2,089 )
Loss for the period     -       -       -       -       (2,933,057 )
                                         
Balance – March 31, 2018     2,291,251       2,291       43,760,441       7,478,529       (50,028,119 )

 

The issued and outstanding common shares at March 31, 2019 include 9,063 (June 30, 2018 – 91,276) 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.

 

Nine months ended March 31, 2018

 

On September 22, 2017, the Company completed a registered direct offering (the "2018 Registered Offering") of an aggregate of 800,000 shares of common stock and warrants to purchase an additional 800,000 shares of common stock at a price of $12.50 per share and related warrant for gross proceeds of $10.0 million. The warrants have an exercise price of $12.50 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 40,000 shares of common stock to the placement agent (the "2018 Agent Warrants"). The 2018 Agent Warrants are exercisable at a per share price of $12.50 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, 780,000 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 169,985 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 122,698 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, 120,000 PSU's have been issued under the 2017 Plan leaving a potential 367,317 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 120,000 PSUs outstanding as of March 31, 2019 and June 30, 2018.

 

The Company has recognized $60,177 (2018 - $0) and $183,205 (2018 - $0) in expense related to the PSUs during the three and nine months ended March 31, 2019, respectively, with all of it being recognized as general and administrative expense. As at March 31, 2019 there was $342,936 (2018 - $0) in unrecognized compensation expense that will be recognized over the next 2.47 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 March 31, 2019:

 

    Number of
stock
options
outstanding
    Weighted
average
exercise
price
 
             
Balance – June 30, 2018     262,683       24.27  
Granted     30,000       6.10  
                 
Balance – March 31, 2019     292,683       22.40  

 

The following table summarizes stock options currently outstanding and exercisable at March 31, 2019 under all plans:

 

Exercise price
$
    Number
Outstanding
    Weighted
average
remaining
contractual
life
(years)
    Number
exercisable
 
                     
  6.10       30,000       9.60       6,666  
  7.00       5,451       9.23       -  
  8.70       12,000       8.59       12,000  
  9.83       83,647       9.14       23,235  
  10.60       3,600       9.03       1,200  
  11.70       30,000       3.91       30,000  
  14.98       2,500       3.17       2,500  
  20.00       13,125       2.52       13,125  
  21.10       15,900       7.51       8,700  
  29.60       4,500       5.84       4,500  
  32.00       3,000       0.17       3,000  
  37.60       4,500       6.86       4,500  
  40.00       1,250       0.50       1,250  
  41.00       4,000       7.61       3,111  
  42.00       41,250       3.81       41,250  
  44.80       3,000       6.86       3,000  
  49.50       22,460       5.31       18,458  
  53.20       8,000       7.10       7,555  
  61.60       1,500       4.00       1,500  
  92.00       3,000       4.17       3,000  
                             
          292,683               188,550  

 

Included in the number of stock options outstanding are 2,500 stock options granted at an exercise price of CA $20.00. The exercise prices shown in the above table have been converted to US $14.98 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 granted, and those being re-valued, have been valued using a Black-Scholes pricing model using the following assumptions:

 

    March 31,
2019
 
       
Dividend rate     0 %
Volatility     70.6% to 79.1 %
Risk-free rate     2.1% to 3.2 %
Term - years     0.1 to 3.0  

 

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

 

    Three months ended
March 31,
    Nine months ended
March 31,
 
    2019
$
    2018
$
    2019
$
    2018
$
 
                         
Research and development     12,889       9,145       64,466       130,546  
General and administrative     86,846       128,151       290,922       300,127  
                                 
      99,735       137,296       355,388       430,673  

 

All of the stock option expense for the periods ended March 31, 2019 and 2018 has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at March 31, 2019 was $0 (2018 - $8,400) and the aggregate intrinsic value of stock options exercisable at March 31, 2019 was $0 (2018 - $2,800). As of March 31, 2019, there was $234,974 in unrecognized compensation expense that will be recognized over the next 2.61 years. No stock options granted under any plan have been exercised to March 31, 2019. Upon the exercise of stock options new shares will be issued.

 

A summary 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, 2018     138,160       14.39       7.63  
Granted     30,000       6.10       2.56  
Vested     (64,027 )     14.82       7.88  
                         
Unvested at March 31, 2019     104,133       11.62       5.95  

 

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 March 31, 2019:

 

 

Description

  Number  
       
Balance – June 30, 2018     1,428,128  
         
Exercised for cash (i)     (197,500 )
Cashless exchange (i)     (297,500 )
Issued for services (ii)     14,000  
Forfeited (iii)     (2,400 )
Expired (iv)     (82,225 )
         
Balance - March 31, 2019     862,503  

 

i) On November 25, 2018, the Company entered into Warrant Exercise and Exchange Agreements (the "Warrant Exercise Agreements") with certain holders (the "Exercising Holders") of the 2018 Investor Warrants. Pursuant to the Warrant Exercise Agreements, in order to induce the Exercising Holders to exercise the 2018 Investor Warrants for cash, the Company agreed to reduce the exercise price from $12.50 to $4.00 per share. Pursuant to the Warrant Exercise Agreements, the Exercising Holders exercised their 2018 Investor Warrants with respect to an aggregate of 197,500 shares of common stock underlying such 2018 Investor Warrants (the "Exercised Shares"). The Company received net proceeds of $726,481, comprising aggregate gross proceeds of $790,000 net of expenses of $63,519, from the exercise of the 2018 Investor Warrants.

  

In addition, in order to further induce the Exercising Holders to exercise the 2018 Investor Warrants, the Warrant Exercise Agreements also provided for the issuance of one share of common stock to the Exercising Holders in exchange for every three shares of common stock underlying the 2018 Investor Warrants held by the Exercising Holders that are not being exercised for cash pursuant to the Warrant Exercise Agreements, if any. On November 26, 2018, the Company issued an aggregate of 99,167 shares of common stock in exchange for 297,500 2018 Investor Warrants, resulting in a 198,333 reduction in the Company's total shares of common stock outstanding on a fully-diluted basis.

 

ii) All of the warrants issued for services are exercisable at $9.00 with 12,000 expiring on September 15, 2023 and 2,000 expiring on October 11, 2021. Of the total, 12,000 vest pro rata monthly over twelve months commencing September 15, 2018 and 2,000 are fully vested as of November 11, 2018.

 

iii) Warrants issued for services exercisable at $11.70 were forfeited upon termination of the underlying agreement.

 

iv) Warrants issued for services exercisable at $70.40 expired September 12, 2018. In addition, warrants exercisable at $31.40 expired March 31, 2019.

 

The following table summarizes the Company's outstanding warrants as of March 31, 2019:

 

 

Description

  Number     Exercise
price
$
    Expiry date
                 
2018 Investor     280,000       12.50     September 22, 2022
2017 Investor     207,693       35.00     April 19, 2022
2015 Investor     97,900       30.00     July 31, 2020
2013 Placement Agent     126,250       31.40     June 30, 2019
Issued for services     26,500       30.00     July 1, 2020 to February 1, 2021
Issued for services     6,000       17.80     January 25, 2023
Issued for services     33,600       11.70     February 27, 2023
Issued for services     12,000       9.00     September 15, 2023
Issued for services     4,140       59.30     February 27, 2020
Issued for services     2,000       9.00     October 11, 2021
2018 Agent     40,000       12.50     September 20, 2022
2017 Agent     13,846       40.60     April 12, 2022
2016 Agent     10,396       40.00     May 12, 2021
2015 Agent     2,178       30.00     July 15, 2020
      862,503       24.80