Stockholders' equity (deficiency) | 5 Stockholders’ equity (deficiency) Preferred stock Authorized 5,000,000 preferred shares, $0.001 par value Issued and outstanding Special voting shares – at June 30, 2018 and 2017 – 1 Series A shares – at June 30, 2018 – 278,530 (June 30, 2017 – 278,530) Series B shares – at June 30, 2018 – 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 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 year ended June 30, 2018, the Company issued 198,408 (2017 – 200,446) shares of common stock and recognized $176,236 (2017 – $790,454) as a direct increase in accumulated deficit. During the year ended June 30, 2018, a total of 0 (2017 – 21,125) shares of Series B Preferred Stock were converted for an aggregate 0 (2017 – 52,813) shares of common stock. A total of 881,113 (2017 – 881,113) shares of Series B Preferred Stock are outstanding as of June 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 June 30, 2018. Converted shares are rounded up to the nearest whole share. Series A Preferred Shares Effective December 31, 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. Special voting shares In connection with the Exchange Agreement (note 1), on the Reverse Acquisition Closing Date, the Company, Callco, Exchangeco and Computershare Trust Company of Canada (the “Trustee”) entered into a voting and exchange trust agreement (the “Trust Agreement”). Pursuant to the Trust Agreement, Company issued one share of Special Voting Preferred Stock (the “Special Voting Share”) to the Trustee, and the parties created a trust for the Trustee to hold the Special Voting Share for the benefit of the holders of the shares of Exchangeco acquired as part of the Reverse Acquisition (the “Exchangeable Shares”) (other than the Company and any affiliated companies) (the “Beneficiaries”). Pursuant to the Trust Agreement, the Beneficiaries will have voting rights in the Company equivalent to what they would have had they received shares of common stock in the same amount as the Exchangeable Shares held by the Beneficiaries. In connection with the Exchange Agreement and the Trust Agreement, on January 17, 2013, the Company filed a certificate of designation of Special Voting Preferred Stock (the “Special Voting Certificate of Designation”) with the Secretary of State of Nevada. Pursuant to the Special Voting Certificate of Designation, one share of the Company’s blank check preferred stock was designated as Special Voting Preferred Stock. The Special Voting Preferred Stock votes as a single class with the common stock and is entitled to a number of votes equal to the number of Exchangeable Shares of Exchangeco outstanding as of the applicable record date (i) that are not owned by the Company or any affiliated companies and (ii) as to which the holder has received voting instructions from the holders of such Exchangeable Shares in accordance with the Trust Agreement. The Special Voting Preferred Stock is not entitled to receive any dividends or to receive any assets of the Company upon any liquidation, and is not convertible into common stock of the Company. The voting rights of the Special Voting Preferred Stock will terminate pursuant to and in accordance with the Trust Agreement. The Special Voting Preferred Stock will be automatically cancelled at such time as the share of Special Voting Preferred Stock has no votes attached to it. Common stock Authorized 70,000,000 as at June 30, 2018 (2017 - 50,000,000) common shares, $0.001 par value Issued and outstanding at June 30, 2018 – 22,966,668 (2017 – 14,509,633). The issued and outstanding common shares at June 30, 2018 include 912,761 (2017 – 982,761) shares of common stock on an as-exchanged basis with respect to the Exchangeable Shares. Public offering financings Year ended June 30, 2018 On September 22, 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. Year ended June 30, 2017 On April 12, 2017 the Company completed a registered public offering (the “2017 Public Offering”) of an aggregate of 2,769,232 shares of common stock and warrants to purchase an additional 2,076,924 shares of common stock at a price of $3.25 per share and related warrant for gross proceeds of approximately $9.0 million. The related warrants have an exercise price of $3.50 per share, are immediately exercisable, and have a term of exercise of five years (the “2017 Investor Warrants”). The Company engaged a placement agent for the 2017 Public Offering. Under the Company’s engagement agreement with the placement agent, the Company agreed to pay up to an 8% cash commission and issue warrants to purchase shares of common stock (the “2017 Agent Warrants”) up to the number of shares of common stock equal to 5% of the aggregate number of shares issued in the 2017 Public Offering. Pursuant to the placement agent agreement the Company issued 138,462 2017 Agent Warrants. The 2017 Agent Warrants are exercisable at a per share price equal to $4.06 and have a term of exercise of five years. In addition to the cash commission the Company also incurred additional cash issue costs of $347,897 resulting in net cash proceeds of $7,932,107. The 2017 Agent Warrants have been recognized as non-cash issue costs of $424,401. Including the fair value of the 2017 Agent Warrants, total issue costs were $1,492,298. Shares issued for services During the year ended June 30, 2018, the Company issued 8,627 (2017 – 60,000) shares of common stock for services resulting in the recognition of $8,582 (2017 – $564,000) in expense. All of the shares issued for services for the year ended June 30, 2018 have been recognized as general and administrative expense and all of the shares issued for services for the year ended June 30, 2017 have been recognized as research and development expense. 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, net of forfeitures, 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. The following table sets forth the PSUs outstanding under the 2017 Plan as of June 30, 2018: Number of Balance – June 30, 2016 and 2017 - Granted 1,400,000 Forfeited (200,000 ) Balance – June 30, 2018 1,200,000 The Company has recognized $48,624 (2017 - $0) in expense related to the PSUs during the year ended June 30, 2018 with all of it being recognized as general and administrative expense. As at June 30, 2018 there was $526,140 (2017 - $0) in unrecognized compensation expense that will be recognized over the next 3.24 years. The PSUs have been valued using the following assumptions: June 30, Dividend rate 0 % Volatility 79.0 to 82.5 % Risk-free rate 2.56% to 2.71 % Term – 1.67 to 3.24 Stock options The following table sets forth the aggregate stock options outstanding under all plans as of June 30, 2018: Number of Weighted Balance – June 30, 2016 856,250 3.77 Granted 264,600 4.82 Balance – June 30, 2017 1,120,850 4.18 Granted 1,526,979 1.14 Forfeited (21,000 ) 2.11 Balance – June 30, 2018 2,626,829 2.43 The following table summarizes stock options currently outstanding and exercisable under all plans at June 30, 2018: Exercise price Number Weighted Number 0.70 54,514 9.98 - 0.87 120,000 9.34 70,000 0.98 836,465 9.89 - 1.06 36,000 9.79 - 1.17 300,000 4.66 125,000 1.55 25,000 3.92 25,000 2.00 131,250 3.27 131,250 2.11 159,000 8.26 63,000 2.96 45,000 6.60 45,000 3.20 30,000 0.92 30,000 3.76 45,000 7.61 34,993 4.00 12,500 1.25 12,500 4.10 40,000 8.36 21,109 4.20 412,500 4.56 412,500 4.48 30,000 7.61 22,498 4.95 224,600 6.07 151,824 5.32 80,000 7.85 55,556 6.16 15,000 4.75 15,000 9.20 30,000 4.92 30,000 2,626,829 1,245,230 Included in the number of stock options outstanding are 25,000 stock options granted at an exercise price of CA$ $2.00. The exercise prices for these stock options shown in the above table have been converted to $1.55 US$ 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 valued using a Black-Scholes pricing model using the following assumptions: June 30, June 30, Dividend rate 0 % 0 % Volatility 72.4 to 87.1 % 77.5% to 88.7 % Risk-free rate 1.49% to 2.86 % 1.00% to 1.74 % Term – 0.6 to 3.03 3.0 The Company has recognized the following amounts as stock option expense for the periods noted: Years ended June 30, 2018 2017 Research and development 140,870 77,706 General and administrative 355,055 47,041 495,925 124,747 All of the stock option expense of $495,925 (2017 – – – A summary of the status of the Company’s unvested stock options as at June 30, 2018 under all plans is presented below: Number of Weighted Weighted Unvested at June 30, 2016 141,016 3.17 1.73 Granted 264,600 4.82 2.61 Vested (87,583 ) 4.68 2.48 Unvested at June 30, 2017 318,033 4.81 2.57 Granted 1,526,979 1.14 0.60 Vested (442,413 ) 2.78 1.50 Forfeited (21,000 ) 2.11 1.13 Unvested at June 30, 2018 1,381,599 1.44 0.76 The aggregate intrinsic value of unvested stock options at June 30, 2018 was $0 (2017 – Stock option modifications During the year ended June 30, 2018, 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. Also, during the year ended June 30, 2018, certain stock options were modified pursuant to the resignation of the Company’s former Chairman. A total of 15,000 options had their vesting accelerated such that they became fully vested on June 2, 2018, resulting in additional stock option expense of $679. In addition, a total of 45,000 (including the 15,000 whose vesting was accelerated) options were modified such that their remaining exercise period was increased from 90 days to one year, resulting in additional stock option expense of $2,182. Stock option liability Certain of the Company’s stock options have been issued in CA$. Of these, a portion was classified as a stock option liability which was revalued at each reporting date. During the year ended June 30, 2017, 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 US$. 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 year ended June 30, 2017. Warrants Number of Amount Balance – June 30, 2016 1,521,713 1,658,382 Issuance of 2017 Investor Warrants (i) 2,076,924 2,526,336 Issuance of 2017 Agent Warrants (i) 138,462 424,401 Exercise of Valent Warrants (ii) (125,000 ) (89,432 ) Exercise of 2015 Investor Warrants (iii) (48,750 ) (30,715 ) Warrants issued for services (iv) 41,400 81,602 Balance – June 30, 2017 3,604,749 4,570,574 Issuance of 2018 Investor and 2018 Agent Warrants (v) 8,400,000 3,572,843 Exercise of 2018 Investor Warrants (v) (250,000 ) (106,335 ) Warrants issued for services (iv) 420,000 192,400 Balance – June 30, 2018 12,174,749 8,229,482 i) As part of the financing completed by the Company on April 12, 2017, the Company issued the 2017 Investor Warrants and the 2017 Agent Warrants. The 2017 Investor Warrants are exercisable at $3.50 until April 19, 2022 and the 2017 Agent Warrants are exercisable at $4.06 until April 12, 2022. ii) The Valent warrants were exercised at $1.54 (CA$2.00) for proceeds of $192,075. iii) The 2015 Investor Warrants are exercisable at a price of $3.00. The warrants expire on July 31, 2020. During the year ended June 30, 2018, nil (2017 – – iv) Warrants issued for services are exercisable at various prices and expire at the various dates noted in the table below. v) As part of the financing completed by the Company on September 22, 2017, the Company issued the 2018 Investor Warrants and the 2018 Agent Warrants. The 2018 Investor Warrants are exercisable at $1.25 until September 22, 2022 and the 2018 Agent Warrants are exercisable at $1.25 until September 20, 2022. Certain of the Company’s warrants have been recognized as a derivative liability (note 4). The following table summarizes the changes in the Company’s outstanding warrants as of June 30, 2018: Description Number Balance – June 30, 2017 6,628,906 Issuance of 2018 Investor Warrants 8,000,000 Exercise of 2018 Investor Warrants (250,000 ) Issuance of 2018 Agent Warrants 400,000 Warrants issued for services 420,000 Expiry of dividend warrants (812,502 ) Expiry of 2013 Investor Warrants (105,129 ) Balance – June 30, 2018 14,281,275 The following table summarizes the Company’s outstanding warrants as of June 30, 2018: Description Number Exercise 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 31, 2020 to February 1, 2021 Issued for services 60,000 1.78 January 25, 2023 Issued for services 360,000 1.17 February 27, 2023 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 to June 8, 2021 2015 Agent 21,768 3.00 July 15, 2020 14,281,275 2.08 |