Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.19.3.a.u2
Stockholders' Equity
6 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Stockholders' equity

 

5 Stockholders' equity

 

Series B Preferred Stock

 

    Series B Preferred Stock  
    2019  
    Number
of shares
    $  
Balance – June 30, 2019     673,613       4,699,304  
Conversion of Series B Preferred stock to common stock     (25,000 )     (174,407 )
                 
Balance – December 31, 2019     648,613       4,524,897  

 

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 $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 respective final closing dates. 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 December 31, 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 December 31, 2019, the Company issued 3,700 (2018 – 4,735) shares of common stock for an amount of $2,552 (2018 – $16,190) and during the six months ended December 31, 2019, the Company issued 7,400 (2018 – 9,695) shares of common stock for an amount of $4,598 (2018 – $52,275). These dividends have been recognized as a direct increase in accumulated deficit.

 

A total of 648,613 (2018 – 841,113) shares of Series B Preferred Stock are outstanding as of December 31, 2019, such that a total of 162,177 (2018 – 210,279) shares of common stock are issuable upon conversion of the Series B Preferred Stock as at December 31, 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 December 31, 2019 and June 30, 2019 is the stated value of $278,530.

 

There was no change to the Series A Preferred stock for the three or six month periods ended December 31, 2019 or 2018.

 

Common stock

 

Stock Issuances

 

Six months ended December 31, 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 underwriter warrants are exercisable at $1.15 per share commencing February 10, 2020 until their expiry on August 14, 2022.

 

During the six months ended December 31, 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 164,235 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 1,250 shares of common stock available at December 31, 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 six months ended December 31, 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 six months ended December 31, 2019, the Company 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 during the six months ended December 31, 2019, 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.

 

In addition, during the six months ended December 31, 2019, the Company granted 250,000 stock options to an officer of the Company, subject to stockholder approval of the share increase to the 2017 Plan. The options have an exercise price of $0.735 and expire November 12, 2029. The options vest upon the achievement of certain clinical development milestones.

 

Stock Options

 

The following table sets forth the aggregate stock options outstanding under all plans as of December 31, 2019:

 

    Number of
stock
options
outstanding
    Weighted
average
exercise
price
$
 
Balance – June 30, 2019     288,183       22.31  
Granted     491,817       0.61  
Expired     (1,250 )     (40.00 )
                 
Balance – December 31, 2019     778,750       8.58  

  

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

 

Exercise price
$
    Number
Outstanding at
December 31,
2019
    Weighted
average
remaining
contractual
life
(years)
    Number
exercisable
at
December 31,
2019
 
  0.61       491,817       9.68       93,750  
  6.10       30,000       8.85       23,611  
  7.00       5,451       8.48       2,726  
  8.70       12,000       7.84       12,000  
  9.83       83,647       8.39       44,147  
  10.60       3,600       8.28       2,100  
  11.70       30,000       3.16       30,000  
  15.36       2,500       2.42       2,500  
  20.00       13,125       1.77       13,125  
  21.10       14,400       7.52       10,800  
  29.60       4,500       5.09       4,500  
  37.60       4,500       6.11       4,500  
  41.00       4,000       6.86       4,000  
  42.00       41,250       3.06       41,250  
  44.80       3,000       6.11       3,000  
  49.50       22,460       4.56       21,733  
  53.20       8,000       6.35       8,000  
  61.60       1,500       3.25       1,500  
  92.00       3,000       3.42       3,000  
                             
          778,750               326,242  

 

The above table excludes 799,199 granted stock options that are exercisable subject to approval by the Company's stockholders of the share reserve increase under the 2017 Plan. Of these options, 549,199 are exercisable at $0.61 per share until September 5, 2029 and 250,000 are exercisable at $0.735 until November 12, 2029.

 

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 $15.36 using the period ending closing exchange rate. Stock options issued during the six months ended December 31, 2019 have been valued using a Black-Scholes pricing model with the following assumptions:

 

    December 31,
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
December 31,
    Six months ended
December 31,
 
    2019
$
    2018
$
    2019
$
    2018
$
 
Research and development     24,151       23,127       32,304       51,577  
General and administrative     135,701       99,624       178,533       204,076  
                                 
      159,852       122,751       210,837       255,653  

 

All of the stock option expense for the periods ended December 31, 2019 and 2018 has been recognized as additional paid in capital. The aggregate intrinsic value of stock options outstanding at December 31, 2019 was $39,198 (2018 - $0) and the aggregate intrinsic value of stock options exercisable at December 31, 2019 was $7,472 (2018 - $0). As of December 31, 2019, there was $192,252 in unrecognized compensation expense that will be recognized over the next 2.43 years. No stock options granted under the Company's equity plans have been exercised during the six months ended December 31, 2019. Upon the exercise of stock options new shares will be issued.

 

The following table sets forth unvested stock options under all plans at December 31, 2019:

 

    Number of
Options
    Weighted
average
exercise
price
$
    Weighted
average
grant date
fair value
$
 
Unvested at June 30, 2019     84,990       11.35       5.82  
                         
Granted     491,817       0.61       0.41  
Vested     (124,299 )     3.60       1.90  
                         
Unvested at December 31, 2019     452,508       1.81       1.01  

  

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 December 31, 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     377,500  
Exercise of PFW     (2,655,000 )
Warrants issued for services (i)     280,000  
         
Balance - December 31, 2019     9,963,596  

 

(i) The Company issued 280,000 warrants for services during the six months ended December 31, 2019. The warrants are exercisable at $0.75 per share until November 18, 2023 and they vest pro rata monthly commencing December 18, 2019. The total fair value of the warrants issued was $132,519 with $34,672 being recognized during the six months ended December 31, 2019.

 

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

 

Description   Number     Exercise
price $
    Expiry date
2020 Investor Warrants     7,762,500       1.00     August 16, 2024
2019 Investor Warrants     760,500       3.10     June 5, 2024
2018 Investor Warrants     280,000       12.50     September 22, 2022
2017 Investor Warrants     207,721       35.00     April 19, 2022
2015 Investor Warrants     97,905       30.00     July 31, 2020
Warrants issued for services     280,000       0.75     November 18, 2023
Warrants issued for services     26,500       30.00     July 1, 2020 to February 1, 2021
Warrants issued for services     6,000       17.80     January 25, 2023
Warrants issued for services     33,600       11.70     February 27, 2023
Warrants issued for services     12,000       9.00     September 15, 2023
Warrants issued for services     4,140       59.30     February 27, 2020
Warrants issued for services     2,000       9.00     October 11, 2021
2020 Underwriter Warrants     377,500       1.15     August 14, 2022
2019 Agent Warrants     46,800       3.875     June 3, 2024
2018 Agent Warrants     40,000       12.50     September 20, 2022
2017 Agent Warrants     13,848       40.60     April 12, 2022
2016 Agent Warrants     10,402       40.00     May 12, 2021
2015 Agent Warrants     2,180       30.00     July 15, 2020
      9,963,596