Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.19.3
Stockholders' Equity
3 Months Ended
Sep. 30, 2019
Equity [Abstract]  
Stockholders' equity

5 Stockholders' equity

 

Preferred stock

 

    Series B Preferred Stock  
       
    Number of shares     $  
             
Opening balance – June 30, 2019     673,613      

4,699,304

 
Conversion of Series B Preferred stock to common stock     (25,000 )     (174,407 )
                 
Closing balance – September 30, 2019     648,613       4,524,897  

 

There was no change to the Series B Preferred stock for the three months ended September 30, 2018 nor to the Series A Preferred stock for either of the three months ended September 30, 2019 or 2018.

 

Series B Preferred Stock

 

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 (i) 24 hours following regulatory approval of VAL-083 with a minimum closing bid price of $80.00 or (ii) 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.

 

The Series B Preferred Stock shall with respect to distributions of assets and rights upon the occurrence of a liquidation, rank (i) senior to the Company's common stock and (ii) senior to the Special Voting Preferred Stock and (iii) senior to any other class or series of capital stock of the Company hereafter created which does not expressly rank pari passu with, or senior to, the Series B Preferred Stock. The Series B Preferred Stock shall be pari passu in liquidation to the Company's Series A Preferred Stock. The liquidation value of the Series B Preferred Stock at September 30, 2019 is the stated value of $5,188,904 (June 30, 2019 - $5,388,904).

 

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, 2019, the Company issued 3,700 (2018 – 4,960) shares of common stock and recognized $2,046 (2018 – $36,085) as a direct increase in accumulated deficit.

 

A total of 648,613 (2018 – 881,113) shares of Series B Preferred Stock are outstanding as of September 30, 2019, such that a total of 162,177 (2018 – 220,280) shares of common stock are issuable upon conversion of the Series B Preferred Stock as at September 30, 2019. Converted shares are rounded up to the nearest whole share.

 

Series A Preferred Stock

 

Effective September 30, 2014, 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. The Series A Preferred Stock is held by Valent (note 3).

 

The Series A Preferred Stock shall with respect to distributions of assets and rights upon the occurrence of a liquidation, rank (i) senior to the Company's common stock, and (ii) senior to the Company's Special Voting Preferred Stock and (iii) senior to any other class or series of capital stock of the Company hereafter created which does not expressly rank pari passu with, or senior to, the Series A Preferred Stock. The Series A Preferred Stock shall be pari passu in liquidation to the Company's Series B Preferred Stock. The liquidation value of the Series A Preferred stock at September 30, 2019 and June 30, 209 is the stated value of $278,530.

 

Common stock

 

Stock Issuances

 

Three months ended September 30, 2019

 

Underwritten public offering

 

On August 16, 2019, the Company closed on the sale of (i) 4,895,000 shares of its common stock, par value $0.001 per share (the "Common Stock"), (ii) pre-funded warrants ("PFW") to purchase an aggregate of 2,655,000 shares of Common Stock and (iii) common warrants to purchase an aggregate of 7,762,500 shares of Common Stock ("2020 Investor Warrants"), including 800,000 shares of Common Stock and 2020 Investor Warrants to purchase an aggregate of 1,012,500 shares of Common Stock sold pursuant to a partial exercise by the underwriters of the underwriters' option to purchase additional securities, in the Company's underwritten public offering (the "Offering"). Each share of Common Stock or PFW, as applicable, was sold together with a 2020 Investor Warrant to purchase one share of Common Stock at a combined effective price to the public of $1.00 per share of Common Stock and accompanying 2020 Investor Warrant.

 

The net proceeds from the Offering, including from the partial exercise of the underwriters' option to purchase additional securities, were $6,582,966, after deducting underwriting discounts and commissions, and other offering expenses.

 

The 2020 Investor Warrants are exercisable at $1.00 per share until their expiry on August 16, 2024 and the PFW are exercisable at $0.01 per share at any time after August 16, 2019. The Company also issued 377,500 warrants to the underwriters of the Offering (the "2020 Underwriter Warrants"). The 2020 Underwriter Warrants are exercisable at $1.15 per share commencing February 10, 2020 until their expiry on August 14, 2022.

 

The Company granted the underwriters a 45-day option, ending September 28, 2019, to purchase up to an additional 1,012,500 shares of Common Stock and/or 2020 Investor Warrants to purchase up to 1,012,500 shares of Common Stock, at the public offering price. On August 15, 2019, the underwriters partially exercised this option by purchasing 800,000 shares of Common Stock and 2020 Investor Warrants to purchase an aggregate of 1,012,500 shares of Common Stock.

 

During the three months ended September 30, 2019, all of the 2,655,000 PFW were exercised at $0.01 per PFW for proceeds of $26,550.

 

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 165,485 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 614,515 shares of common stock have been issued under the 2017 Plan and/or are subject to outstanding stock options granted under the 2017 Plan leaving no shares of common stock available at September 30, 2019 for issuance under the 2017 Plan if all such options under the Legacy Plan were exercised.

 

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.

 

During the three months ended September 30, 2019, and subject to approval by the Company's stockholders, the Company's board of directors approved an increase in the number of shares of common stock available to be issued under the 2017 Plan by 1,500,000. The increase brings the total number of shares available under the 2017 Plan to 2,280,000.

 

During the three months ended September 30, 2019, the Company also granted 1,041,016 stock options to officers and directors of the Company. The total grant date aggregate fair value of the stock options was $505,385. Of the total stock options granted of 1,041,016, 491,817 were granted under the existing 2017 Plan limit and 549,199 will be exercisable subject to approval by the Company's stockholders of the 2017 Plan share increase. All of these stock options granted to officers and directors have an exercise price of $0.61 and expire on September 5, 2029. Of the 1,041,016 stock options granted, 375,000 vest pro rata monthly over one year from the date of grant and 666,016 vest as to one-sixth on the six month anniversary of the grant date with the remaining five-sixths vesting pro rate monthly over 30 months commencing on the seven month anniversary of the grant date. 

  

Stock Options

 

The following table sets forth the aggregate stock options outstanding under all plans as of September 30, 2019:

 

    Number of
stock
options
outstanding
    Weighted
average
exercise
price
 
             
Balance – June 30, 2019     288,183       22.31  
Granted     491,817       0.61  
                 
Balance – September 30, 2019     780,000       8.63  

  

The following table summarizes stock options outstanding and exercisable under all plans at September 30, 2019:

 

Exercise price
$
  Number
Outstanding at
September 30,
2019
    Weighted
average
remaining
contractual
life (years)
    Number
exercisable at
September 30,
2019
 
                   
0.61     491,817       9.93       -  
6.10     30,000       9.11       19,443  
7.00     5,451       8.73       2,271  
8.70     12,000       8.09       12,000  
9.83     83,647       8.64       37,176  
10.60     3,600       8.54       1,800  
11.70     30,000       3.41       30,000  
15.10     2,500       2.67       2,500  
20.00     13,125       2.02       13,125  
21.10     14,400       7.77       9,600  
29.60     4,500       5.35       4,500  
37.60     4,500       6.36       4,500  
40.00     1,250       -       1,250  
41.00     4,000       7.11       3,778  
42.00     41,250       3.31       41,250  
44.80     3,000       6.36       3,000  
49.50     22,460       4.82       20,641  
53.20     8,000       6.60       8,000  
61.60     1,500       3.50       1,500  
92.00     3,000       3.67       3,000  
                         
      780,000               219,334  

 

The above table excludes 549,199 granted stock options that are exercisable subject to approval by the Company's stockholders of the share reserve increase under the 2017 Plan. These options are exercisable at $0.61 per share until September 5, 2029.

 

There are 560,666 unvested stock options at September 30, 2019.

 

Included in the number of stock options outstanding are 2,500 stock options granted at an exercise price of CA $20.00. The exercise price of these options shown in the above table have been converted to US $15.10 using the period ending closing exchange rate. Stock options issued during the three months ended September 30, 2019 have been valued using a Black-Scholes pricing model with the following assumptions:

 

 

 

 

September 30,

2019

     
Dividend rate   0%
Volatility   99% to 102%
Risk-free rate   1.50%
Term - years   5.5 to 6.5

 

The estimated volatility of the Company's common stock at the date of issuance of the stock options is based on the historical volatility of the Company. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the stock options at the valuation date. The expected life of the stock options has been estimated using the plain vanilla method.

 

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

 

    Three months ended
September 30,
 
    2019
$
    2018
$
 
             
Research and development     8,153       28,450  
General and administrative     42,832       104,452  
                 
      50,985       132,902  

 

All of the stock option expense for the periods ended September 30, 2019 and 2018 has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at September 30, 2019 was $0 (2018 - $1,499) and the aggregate intrinsic value of stock options exercisable at September 30, 2019 was also $0 (2018 - $0). As of September 30, 2019, there was $352,104 in unrecognized compensation expense that will be recognized over the next 2.93 years. No stock options granted under the Company's equity plans have been exercised to September 30, 2019. Upon the exercise of stock options new shares will be issued.

  

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, 2019:

 

Description   Number  
       
Balance – June 30, 2019     1,543,596  
         
2020 Investor Warrants issued in underwritten offering     7,762,500  
PFW issued in underwritten offering     2,655,000  
2020 Underwriter Warrants issued in underwritten offering     377,500  
Exercise of PFW     (2,655,000 )
         
Balance - September 30, 2019     9,683,596  

 

The following table summarizes the Company's outstanding warrants as of September 30, 2019:

 

Description   Number     Exercise
price $
    Expiry date
                 
2020 Investor     7,762,500       1.00     August 16, 2024
2019 Investor     760,500       3.10     June 5, 2024
2018 Investor     280,000       12.50     September 22, 2022
2017 Investor     207,721       35.00     April 19, 2022
2015 Investor     97,905       30.00     July 31, 2020
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
2020 Underwriter     377,500       1.15     August 14, 2022
2019 Agent     46,800       3.875     June 3, 2024
2018 Agent     40,000       12.50     September 20, 2022
2017 Agent     13,848       40.60     April 12, 2022
2016 Agent     10,402       40.00     May 12, 2021
2015 Agent     2,180       30.00     July 15, 2020
      9,683,596