| Note 7. Stockholders' Equity | Series
A Preferred Stock On
February 15, 2016, the Company and Mr. Solomita entered into Amendment No. 1, which amends the Employment Agreement. Amendment
No. 1 provides that the Company shall issue Mr. Solomita one share of the Companys Series A Preferred Stock in exchange
for Mr. Solomita agreeing not to terminate his employment with the Company for a period of five years from the date of Amendment
No. 1. Amendment No. 1 effectively provides Mr. Solomita with a change of control provision over the Company in
the event that his currently-held 55% of the issued and outstanding shares of common stock of the Company is diluted to less than
a majority. In order to issue Mr. Solomita his one share of Series A Preferred Stock under Amendment No. 1, the Company created
blank check preferred stock. Subsequently, the board of directors of the Company approved a Certificate of Designation
creating the Series A Preferred Stock. Subsequently, the Company issued one share of Series A Preferred Stock to Mr. Solomita.
The
one share of Series A Preferred Stock issued to Mr. Solomita holds a majority of the total voting power so long as Mr. Solomita
holds not less than 7.5% of the issued and outstanding shares of common stock of the Company, assuring Mr. Solomita of control
of the Company in the event that his currently-held 55% of the issued and outstanding shares of common stock of the Company is
diluted to a level below a majority. Additionally,
the one share of Series A Preferred Stock issued to Mr. Solomita contains protective provisions, which precludes the Company from
taking certain actions without Mr. Solomitas (or that of any person to whom the one share of Series A Preferred Stock is
transferred) approval. More specifically, so long as any shares of Series A Preferred Stock are outstanding, the Company shall
not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority
of the then outstanding shares of Series A Preferred Stock, voting as a separate class:
(a) amend the Articles
of Incorporation or, unless approved by the Board of Directors, including by the Series A Director, amend the Companys
Bylaws;
(b) change or modify
the rights, preferences or other terms of the Series A Preferred Stock, or increase or decrease the number of authorized shares
of Series A Preferred Stock;
(c) reclassify or recapitalize
any outstanding equity securities, or, unless approved by the Board of Directors, including by the Series A Director, authorize
or issue, or undertake an obligation to authorize or issue, any equity securities or any debt securities convertible into
or exercisable for any equity securities (other than the issuance of stock-options or securities under any employee option
or benefit plan);
(d) authorize or effect
any transaction constituting a Deemed Liquidation (as defined in this subparagraph) under the Articles, or any other merger
or consolidation of the Company;
(e) increase or decrease
the size of the Board of Directors as provided in the Bylaws of the Company or remove the Series A Director (unless approved
by the Board of Directors, including the Series A Director);
(f) declare or pay any
dividends or make any other distribution with respect to any class or series of capital stock (unless approved by the Board
of Directors, including the Series A Director);
(g) redeem, repurchase
or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any outstanding shares of capital stock
(other than the repurchase of shares of common stock from employees, consultants or other service providers pursuant to agreements
approved by the Board of Directors under which the Company has the option to repurchase such shares at no greater than original
cost upon the occurrence of certain events, such as the termination of employment) (unless approved by the Board of Directors,
including the Series A Director);
(h) create or amend
any stock option plan of the Company, if any (other than amendments that do not require approval of the stockholders under
the terms of the plan or applicable law) or approve any new equity incentive plan;
(i) replace the President
and/or Chief Executive Officer of the Company (unless approved by the Board of Directors, including the Series A Director);
(j) transfer assets
to any subsidiary or other affiliated entity (unless approved by the Board of Directors, including the Series A Director);
(k) issue, or cause
any subsidiary of the Company to issue, any indebtedness or debt security, other than trade accounts payable and/or letters
of credit, performance bonds or other similar credit support incurred in the ordinary course of business, or amend, renew,
increase or otherwise alter in any material respect the terms of any indebtedness previously approved or required to be approved
by the holders of the Series A Preferred Stock (unless approved by the Board of Directors, including the Series A Director);
(l) modify or change
the nature of the Companys business;
(m) acquire, or cause
a Subsidiary of the Company to acquire, in any transaction or series of related transactions, the stock or any material assets
of another person, or enter into any joint venture with any other person (unless approved by the Board of Directors, including
the Series A Director); or
(n) sell, transfer,
license, lease or otherwise dispose of, in any transaction or series of related transactions, any material assets of the Company
or any Subsidiary outside the ordinary course of business (unless approved by the Board of Directors, including the Series
A Director). Common
Stock During
the year ended February 28, 2018:
(i) the Company sold
1,123,266 shares of its common stock at an offering price of $5.25 per share, for gross proceeds of $5,897,188;
(ii) the Company sold units consisting of
705,795 shares of its common stock and 171,917 warrants to acquire common stock at an offering price of $12.00 per share,
for gross proceeds of $8,469,536;
(iii) the Company issued
355,020 shares of common stock ranging from $0.80 to $12.00 per share upon the exercise of warrants, resulting in proceeds
to the Company of $1,642,016; and
(iv) the Company issued
115,034 shares upon cashless exercises of 122,919 warrants. Share
issuance costs for the private placements amounted to $314,243, in aggregate, and were recorded as a reduction of the gross proceeds
received. During
the year ended February 28, 2017:
(i) the Company sold
1,275,340 shares of its common stock, and 637,670 warrants to acquire shares of common stock at $3.00 per share resulting
in proceeds to the Company of $3,826,016;
(ii) 204,667 shares of
common stock sold in the previous year were issued and reclassified to shares outstanding upon their issuance;
(iii) warrants to acquire
200,000 shares of common stock at $0.80 per share were exercised, resulting in proceeds to the Company of $160,000;
(iv) the Company issued
38,000 shares upon cashless exercise of 47,500 warrants;
(v) the Company issued
23,166 shares for consulting services at a fair value of $3.00 per share resulting in a total expense of $69,498; and
(vi) the Company cancelled
200,000 shares issued the prior year. The
shares issued to investors were not registered under the Securities Act of 1933, as amended (the Act), in reliance
upon the private offering safe harbor provision of Rule 506 Regulation D. January
2018 Private Placement (the Private Placement) On
January 9, 2018, the Company commenced a Private Placement Offering with the issuance of one unit for $12.00 per unit, with each
unit consisting of one share of common stock and one warrant to purchase 0.25 shares of common stock at $12.00 per share exercisable
sixty days from the date of closing of the private placement round in the event that the Company does not file the Resale Registration
Statement or prior to that date if the holder elects to forego its registration rights. The warrant expires one year from the
date of issuance.
The
Purchase Agreement provides the unit holder with certain registration rights, including resale registration rights, with respect
to the common stock issued in connection with the Private Placement, as well as shares issuable upon the exercise of the warrant
and standard an anti-dilution protection clause for a period of ninety days, following the date of closing of the private placement
round, which in the event the Company issues common stock for consideration of less than $12.00 per share allows for an adjustment
to the conversion ratio. At
closing of round one of the Private Placement on January 11, 2018, the Company issued for an aggregate 617,667 common shares and
warrants to purchase up to 154,416 shares of common stock, resulting in gross proceeds of $7,412,000. On January 22, 2018, a warrant
was exercised for 31,250 common shares for total proceeds of $375,000. At
closing of round two of the Private Placement on January 30, 2018, the Company issued for an aggregate 70,000 common shares and
warrants to purchase up to 17,500 shares of common stock, resulting in gross proceeds of $840,000. No warrants have been exercised. In
April 2018, as the Company did not file the Resale Registration Statements, the aforementioned warrants to purchase 140,666 common
shares with an exercise price of $12.00 per share and an expiration date of no later than March 31, 2019 became exercisable. Equity
Incentive Plan On
July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the Plan). The Plan permits the granting of warrants,
stock options, stock appreciation rights and restricted stock units to employees, directors and consultants of the Company. A
total of 3,000,000 shares of common stock are reserved for issuance under the Plan with an automatic share reserve increase, as
defined in the Plan, effective March 1, 2018. The Plan is administered by the Board of Directors who designates eligible participants
to be included under the Plan, the number of awards granted, the share price pursuant to the awards and the vesting conditions
and period. The awards, when granted, will have an exercise price of no less than the estimated fair value of shares at the date
of grant and a life not exceeding 10 years from the grant date. However, where a participant, at the time of the grant, owns stock
representing more than 10% of the voting power of the Company, the life of the options shall not exceed 5 years. Stock
Options On
October 19, 2017, the Companys former Chief Financial Officer resigned, resulting in the forfeiture of all vested and unvested
warrants, being 100,000 vested and 450,000 unvested warrants, respectively. All requisite services were rendered for stock-based
compensation expense amounting to $505,986, until the date of termination. The warrants were granted on April 3, 2017 with an
exercise price of $5.25 and had an aggregate fair value of $2,524,995, as determined by a Black-Scholes model. On
November 8, 2017, the Company issued to its Chief Financial Officer, under the Equity Incentive Plan, a warrant to purchase up
to 200,000 shares of common stock at an exercise price $13.89 per share, which vests in one third increments over a period of
three years, commencing on November 8, 2018, and having a contractual life of 10 years. This warrant had a grant date fair value
of $1,928,840 as determined by a Black-Scholes model and is being recognized over the vesting period. In addition, the Company
issued to its Chief Financial Officer a warrant to purchase up to 80,000 additional shares of common stock at an exercise price
of $13.89 that will vest when certain milestones are achieved. This warrant has a grant date fair value of $771,536 as determined
by a Black-Scholes model and will be recognized in earnings when it is probable that the milestones will be achieved. The
grant date fair value of the warrants was determined by a Black-Scholes model with the following assumptions:
Risk-free
interest rate 2.10%
Expected dividend
yield 0%
Expected volatility 80%
Expected life 6 years
During
the year ended February 28, 2018, the Company issued three warrants to two employees, not covered under the Plan, to purchase
up to 530,000 shares of common stock, in aggregate, at an exercise price of $5.25 per share. The warrants to purchase up to an
aggregate of 100,000 and 380,000 shares of common stock, respectively, each vest quarterly in equal amounts over 24 and 48 months,
respectively, beginning on July 24, 2017 and June 13, 2017, respectively, and each have a contractual life of 10 years. These
warrants collectively have a grant date fair value of $4,786,142 as determined by a Black-Scholes model and are being recognized
over the vesting period. In addition, a warrant to purchase up to 50,000 additional shares of our common stock will vest when
certain milestones are achieved. This warrant had a grant date fair value of $479,885 as determined by a Black-Scholes model and
amortization will commence when it is probable that the milestones will be achieved. The
grant date fair value of the warrants was determined by a Black-Scholes model with the following assumptions:
Risk-free
interest rate 1.46 to 1.74%
Expected dividend
yield 0%
Expected volatility 82 to 94%
Expected life 3 to 5 years During
the year ended February 28, 2018, the Company issued three warrants to three employees, under the Plan, to purchase up to 950,000
shares of common stock, in aggregate, at exercise prices ranging from $12.00 to $13.49 per share. The warrants to purchase up
to an aggregate of 950,000 shares of common stock vest 200,000 and 100,000 warrants immediately, respectively, and, the balance,
monthly in equal amounts over 60 and 24 months, respectively, beginning September 14, 2017 and October 16, 2017, respectively,
and each have a contractual life of 10 years. These warrants collectively have a grant date fair value of $10,412,575, in aggregate,
as determined by a Black-Scholes model and will be amortized over the vesting period. The
grant date fair value of the warrants was determined by a Black-Scholes model with the following assumptions:
Risk-free
interest rate 1.50 to 2.15%
Expected dividend
yield 0%
Expected volatility 80 to 94%
Expected life 3 to 6 years During
the year ended February 28, 2018, the Company amended the terms of warrants to purchase up to 702,452 shares of our common stock
which were originally issued on December 1, 2015 to three employees. The amendment extended the expiry date of the warrants to
November 30, 2025 from November 30, 2017. As a result of the modification, the Company recognized additional stock-based compensation
expense of $63,677. During
the year ended February 28, 2018, the Company issued, as part of the Private Placement warrants to purchase 171,917 shares of
the Companys common stock at an exercise price of $12.00 per share to certain investors upon the sale of 687,667 common
shares. During
the year ended February 28, 2017, the Company issued warrants to purchase 75,000 shares of the Companys common stock at
an exercise price of $3.00 per share for services. The total fair value of the warrants granted was determined to be $1,398,288.
In addition, the Company issued warrants to purchase 637,670 shares of the Companys common stock at an exercise price of
$6.00 per share to certain investors upon the sale of 1,275,340 common shares. The
expense recognized in the financial statements amounted to $6,281,319 and $135,670 for the years ended February 28, 2018 and 2017,
respectively, and are included in operating expenses. As at February 28, 2018 and 2017, the unamortized balance of these costs
was $14,753,072 and $394,523, respectively. The aggregate intrinsic value of the warrants outstanding as at February 28, 2018
and 2017 was $10,949,472 and $5,921,500, respectively, calculated as the difference between the closing market price of $12.26
and $5.50 and the exercise price of the Companys warrants as at February 28, 2018 and 2017.
The
table below summarizes the Companys warrant activities:
Number
of Warrant Shares Weighted
Average Exercise Price
Balance,
February 29, 2016 2,322,334 $ 1.03
Granted 712,670 $ 5.68
Forfeited (1,037,500 ) $ 0.80
Exercised (247,500 ) $ 0.80
Expired (102,334 ) $ 6.00
Balance,
February 28, 2017 1,647,670 $ 2.91
Granted 2,481,917 $ 9.43
Forfeited (620,385 ) $ 4.97
Exercised (470,054 ) $ 3.69
Expired (523,900 ) $ 5.21
Balance,
February 28, 2018 2,515,248 $ 8.21
Earned
and exercisable, February 28, 2018 981,916 $ 7.13
Unvested,
February 28, 2018 1,533,332 $ 8.90 During
the year ended February 28, 2018, 115,034 shares of the Companys common stock were issued as a result of a cashless exercise
of 122,919 warrants with an exercise price of $0.80 and a fair value of $0.55. In addition, the Company issued 355,020 shares
of its common stock upon the exercise of warrants at exercise prices ranging from $0.80 to $12.00 per share, resulting in proceeds
of $1,642,016. The
following table summarizes information concerning outstanding and exercisable warrants as at February 28, 2018:
Warrants
Outstanding Warrants
Exercisable
Exercise
Price Number
Outstanding Average
Remaining Contractual Life (in years) Number
Exercisable Average
Remaining Contractual Life (in years)
$ 0.80 602,081 7.75 389,581 7.75
$ 3.00 12,500 0.25 12,500 0.25
$ 5.25 530,000 9.49 72,500 9.49
$ 12.00 840,667 8.09 382,335 6.35
$ 13.49 250,000 9.63 125,000 9.63
$ 13.89 280,000 9.69 - -
2,515,248 981,916 Restricted
Stock Units During
the year ended February 28, 2018, the Company issued, under the Equity Incentive Plan, four restricted stock unit awards to directors
of the Company to earn up to 34,102 shares of common stock, in aggregate. The restricted stock units vest upon completion of services,
on May 31, 2018. These restricted stock units have a grant date fair value of $443,326, based on the closing market price of the
Companys common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting
period in which the restricted stock rights holder will not participate. The weighted average grant date fair value of the restricted
stock units was $13.00 and no dividends are expected during the vesting period. Recognition
of these costs amounted to $265,994 for the year ended February 28, 2018 and are included in operating expenses. As at February
28, 2018, the unamortized balance of these costs was $177,332. |
