Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.20.2
Stockholders' Equity
3 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Stockholders' Equity

6

Stockholders’ equity

Preferred stock

Series C Preferred stock

 

 

 

Series C Preferred Stock

 

 

 

Number

of shares

 

 

$

(in thousands)

 

Balance – June 30, 2020

 

 

 

 

 

 

Issuance

 

 

25,028

 

 

 

18,355

 

Balance – September 30, 2020

 

 

25,028

 

 

 

18,355

 

 

In connection with the Merger (note 3), the Company issued 25,028 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) in three separate closings of a private placement (Series C-1, C-2, and C-3) in August, 2020.  Each share of Series C Preferred Stock was issued at a purchase price of $1,000 per share and is convertible into shares of common stock based on the respective conversion prices which were determined at the closing of each round of the private placement. Subject to ownership limitations, the owners of the Series C Preferred Stock are entitled to receive dividends, payable in shares of common stock at a rate of 10%, 15%, 20% and 25% of the number of shares of common stock issuable upon conversion of the Series C Preferred Stock, on the 12th, 24th, 36th and 48th month, anniversary of the initial closing of the private placement which occurred on August 19, 2020.   The Series C Preferred Stock dividends do not require declaration by the Board of Directors and are accrued annually as of the date the dividend is earned in an amount equal to the applicable rate of the stated value. Any outstanding shares of Series C Preferred Stock will automatically convert to shares of common stock on August 19, 2024.

The conversion prices for the Series C-1 Preferred Stock, Series C-2 Preferred Stock and Series C-3 Preferred Stock are $1.16, $1.214 and $1.15, respectively. Based on the conversion prices of the three respective classes of the Series C Preferred Stock, the 25,028 shares of Series C Preferred Stock will be convertible into an aggregate of 21,516,484 shares of common stock. The cumulative dividends to be issued on the 12th, 24th, 36th and 48th month anniversary of the initial closing of the private placement are 15,061,952.

 

The conversion feature of the Series C Convertible Preferred Stock at the time of issuance was determined to be beneficial on the commitment date. Because the Series C Convertible Preferred Stock was perpetual with no stated maturity date, and the conversions could occur any time from inception, the Company immediately recorded a non-cash deemed dividend of $3.18 million related to the beneficial conversion feature arising from the issuance of Series C Convertible Preferred Stock. This non-cash deemed dividend increased the Company’s net loss attributable to common stockholders and net loss per share.

The Series C 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 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 C Preferred Stock. The Series C Preferred Stock shall be pari passu in liquidation to the Company’s Series A and Series B Preferred Stock. The liquidation value of the Series C Preferred Stock at September 30, 2020 is the stated value of $25,028,000.

Total gross proceeds from the private placement were $25 million, or $21.6 million in net proceeds after deducting financing costs of $3.4 million with respect to agent commissions and expenses, as well as legal and accounting fees.  Of the total financing costs, $84,944 was deferred as of June 30, 2020. In addition, the Company issued warrants to purchase 2,504 shares of Series C Stock to the placement agent (“2020 Agent Warrants”) that are convertible into an aggregate 2,152,701 shares of common stock.

A total of 25,028 (June 30, 2020 – Nil) shares of Series C Preferred Stock are outstanding as of September 30, 2020, such that a total of 21,516,484 (June 30, 2020 – Nil) shares of common stock are issuable upon conversion of the Series C Preferred Stock as at September 30, 2020. Converted shares are rounded up to the nearest whole share.

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 $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 September 30, December 31, March 31, and June 30 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 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 and Series C Preferred Stock. The liquidation value of the Series B Preferred Stock at September 30, 2020 is the stated value of $5.2 million (June 30, 2020 - $5.2 million).

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, 2020, the Company issued 3,700 (2019 – 3,700) shares of common stock and recognized $5,180 (2019 – $2,046) as a direct increase in accumulated deficit.  During the three months ended September 30, 2020 there were no conversions (2019 - 25,000) of Series B Preferred Stock for nil (2019 – 6,250) shares of common stock.

A total of 648,613 (June 30, 2020 – 648,613) shares of Series B Preferred Stock are outstanding as of September 30, 2020, such that a total of 162,177 (June 30, 2020 – 162,177) shares of common stock are issuable upon conversion of the Series B Preferred Stock as at September 30, 2020. 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 4).

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 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 and Series C Preferred Stock. The liquidation value of the Series A Preferred stock at September 30, 2020 and June 30, 2020 was $278,530.

There was no change to the Series A Preferred stock for the three months ended September 30, 2020 or 2019.

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

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.

Shares issued for services

During the three months ended September 30, 2020, the Company issued Nil (2019 – 6,925) shares of common stock for services resulting in the recognition of $Nil (2019 – $4,843) in expense. All of the shares issued for services for the three months ended September 30, 2019 have been recognized as research and development expense.

2017 Omnibus Incentive Plan

The Company’s board of directors has approved adoption of the Company’s 2017 Omnibus Equity Incentive Plan (the “2017 Plan”) that has also been approved by the Company’s stockholders. 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, 6,700,000 shares of Company common stock are currently 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. As of September 30, 2020, a total of 164,235 shares of common stock are currently outstanding under the Legacy Plan and/or are subject to outstanding stock options granted under the Legacy Plan, and a total of 6,379,334 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 156,431 shares of common stock available at September 30, 2020 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, 2020, a total of 222,584 stock options issued to directors of the Company were amended such that the period to exercise vested stock options from the date of termination of continuous service with the Company was extended from 90 days to one year.  Of the total of 222,584, 66,850 had their expiry increased from September 26, 2020 to June 26, 2021 and 155,734 had their expiry increased from November 19, 2020 to August 19, 2021. As a result of the amendments, a total of $8,569 stock-based compensation expense has been recognized.  In addition, 250,000 stock options previously granted to an officer of the Company were amended such that the vesting of the stock options was changed from a completely contingent vesting to a time-based vesting such that 1/6th of the stock options vest on the six-month anniversary of the amendment date with the remaining portion vesting in equal monthly installments over a period of 30 months commencing on the seven-month anniversary of the amendment date.  A total compensation expense of $319,376 will be recognized over the amended vesting period for the 250,000 stock options.

During the three months ended September 30, 2020, a total of 4,758,687 stock options were granted to executive officers and directors of the Company. Of these, 4,698,687 have an exercise price of $1.70 per share and 60,000 have an exercise price of $1.355 per share. Of the total granted, 4,278,687 stock options vest as to 1/6 on the six month anniversary of the grant date with the remaining portion vesting in equal monthly installments over a period of 30 months commencing on the seven month anniversary of the grant date. Of the total stock options granted to executive officers and directors, 480,000 vest in 12 equal monthly installments beginning on October 15, 2020.  All of the stock options granted have a 10-year term and are subject to cancellation upon the grantees’ termination of service for the Company, with certain exceptions.

Stock Options

The following table sets forth changes in stock options outstanding under all plans:

 

 

 

Number of

stock options

outstanding

(in thousands)

 

 

Weighted

average

exercise

price

 

Balance – June 30, 2020

 

 

1,559

 

 

 

4.61

 

Granted

 

 

4,999

 

 

 

1.68

 

Forfeited

 

 

(14

)

 

 

1.42

 

Balance – September 30, 2020

 

 

6,544

 

 

 

2.38

 

 

The following table summarizes stock options outstanding and exercisable under all plans at September 30, 2020:

 

Exercise price

$

 

 

Number

Outstanding at

September 30, 2020

(in thousands)

 

 

Weighted

average remaining

contractual life

(years)

 

 

Number

exercisable at

September 30, 2020

(in thousands)

 

 

0.61

 

 

 

1,010

 

 

 

8.93

 

 

 

566

 

 

0.74

 

 

 

250

 

 

 

9.12

 

 

 

 

 

1.36

 

 

 

300

 

 

 

9.98

 

 

 

 

 

1.70

 

 

 

4,699

 

 

 

9.96

 

 

 

 

 

6.10

 

 

 

30

 

 

 

8.11

 

 

 

26

 

 

7.00

 

 

 

3

 

 

 

7.73

 

 

 

3

 

 

8.70

 

 

 

12

 

 

 

7.09

 

 

 

12

 

 

9.83

 

 

 

83

 

 

 

7.64

 

 

 

65

 

 

10.60

 

 

 

4

 

 

 

7.54

 

 

 

3

 

 

11.70

 

 

 

30

 

 

 

2.41

 

 

 

30

 

 

14.94

 

 

 

3

 

 

 

1.67

 

 

 

3

 

 

20.00

 

 

 

13

 

 

 

1.02

 

 

 

13

 

 

21.10

 

 

 

14

 

 

 

6.77

 

 

 

14

 

 

29.60

 

 

 

5

 

 

 

4.35

 

 

 

5

 

 

37.60

 

 

 

5

 

 

 

5.36

 

 

 

5

 

 

41.00

 

 

 

4

 

 

 

6.11

 

 

 

4

 

 

42.00

 

 

 

41

 

 

 

2.31

 

 

 

41

 

 

44.80

 

 

 

3

 

 

 

5.36

 

 

 

3

 

 

49.50

 

 

 

22

 

 

 

3.82

 

 

 

22

 

 

53.20

 

 

 

8

 

 

 

5.60

 

 

 

8

 

 

61.60

 

 

 

2

 

 

 

2.50

 

 

 

2

 

 

92.00

 

 

 

3

 

 

 

2.67

 

 

 

3

 

 

 

 

 

 

6,544

 

 

 

 

 

 

 

828

 

 

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$14.94 using the period ending closing exchange rate. Stock options granted during the three months ended September 30, 2020 have been valued using a Black-Scholes pricing model with the following assumptions:

 

 

 

September 30,

2020

 

 

Dividend rate

 

 

 

%

Volatility

 

121% to 153

 

%

Risk-free rate

 

0.19% to 0.42

 

%

Term – years

 

0.4 to 5.8

 

 

 

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 (in thousands):

 

 

 

Three months ended

September 30,

 

 

 

2020

$

 

 

2019

$

 

Research and development

 

 

91

 

 

8

 

General and administrative

 

 

314

 

 

 

43

 

 

 

 

405

 

 

 

51

 

 

All of the stock option expense for the periods ended September 30, 2020 and 2019 has been recognized as additional paid in capital.  The aggregate intrinsic value of stock options outstanding at September 30, 2020 was $977,465 (2019 - $0) and the aggregate intrinsic value of stock options exercisable at September 30, 2020 was $446,950 (2019 - $0). As of September 30, 2020, there was $7,802,208 in unrecognized compensation expense that will be recognized over the next 3.0 years. No stock options granted under the Company’s equity plans have been exercised during the three months ended September 30, 2020. Upon the exercise of stock options new shares will be issued.

The following table sets forth changes in unvested stock options under all plans:

 

 

 

Number of

Options

(in thousands)

 

 

Weighted

average

exercise

price

$

 

Unvested at June 30, 2020

 

 

858

 

 

 

0.98

 

Granted

 

 

4,999

 

 

 

1.68

 

Vested

 

 

(127

)

 

 

1.18

 

Forfeited

 

 

(14

)

 

 

1.42

 

Unvested at September 30, 2020

 

 

5,716

 

 

 

1.59

 

 

The aggregate intrinsic value of unvested stock options at September 30, 2020 was $530,516 (2019 - $0). The unvested stock options have a remaining weighted average contractual term of 9.83 (2019 – 9.76) years.

Common Stock Warrants

The following table sets forth changes in outstanding common stock warrants:

 

 

 

Number of

Warrants

(in thousands)

 

 

Weighted

average

exercise

price

$

 

Balance – June 30, 2020

 

 

10,309

 

 

 

2.71

 

Issuance of Adgero Warrants

 

 

2,314

 

 

 

3.18

 

Exercise of warrants (i)

 

 

(994

)

 

 

1.00

 

Warrants issued for services (ii)

 

 

330

 

 

 

1.49

 

Expiry of warrants (iii)

 

 

(101

)

 

 

30.00

 

Balance – September 30, 2020

 

 

11,858

 

 

 

2.67

 

 

i)

A total of 994,000 2020 Investor Warrants were exercised at $1.00 per share.

ii)

Warrants issued for services are exercisable at various prices and expire at the various dates noted in the table below.

iii)

The warrant expiries include the 2015 Investor Warrants, the 2015 Agent Warrants, and certain warrants issued for services.  All of the expired warrants were exercisable at $30 per share.

The following table summarizes the Company’s outstanding common stock warrants as of September 30, 2020:

 

Description of warrants

 

Number

(in thousands)

 

 

Exercise

price $

 

 

Expiry date

2020 Investor warrants

 

 

6,744

 

 

 

1.00

 

 

August 16, 2024

2019 Investor warrants

 

 

760

 

 

 

3.10

 

 

June 5, 2024

2019 Investor warrants

 

 

280

 

 

 

12.50

 

 

September 22, 2022

2017 Investor warrants

 

 

208

 

 

 

35.00

 

 

April 19, 2022

NBTS Warrants

 

 

125

 

 

 

1.09

 

 

June 19, 2025 (i)

Warrants issued for services

 

 

25

 

 

 

30.00

 

 

December 1, 2020 to

February 1, 2021

Warrants issued for services

 

 

6

 

 

 

17.80

 

 

January 25, 2023

Warrants issued for services

 

 

34

 

 

 

11.70

 

 

February 27, 2023

Warrants issued for services

 

 

14

 

 

 

9.00

 

 

September 15, 2023 and October 11, 2023

Warrants issued for services

 

 

280

 

 

 

0.75

 

 

November 18, 2023

Warrants issued for services

 

 

250

 

 

 

0.64

 

 

January 20, 2024

Warrants issued for services

 

 

330

 

 

 

1.49

 

 

September 22, 2023

2020 Underwriter Warrants

 

 

377

 

 

 

1.15

 

 

August 14, 2022

2019 Agent warrants

 

 

47

 

 

 

3.88

 

 

June 3, 2024

2018 Agent warrants

 

 

40

 

 

 

12.50

 

 

September 20, 2022

2017 Agent warrants

 

 

14

 

 

 

40.60

 

 

April 12, 2022

2016 Agent warrants

 

 

10

 

 

 

40.00

 

 

May 12, 2021

Adgero Warrants

 

 

1,206

 

 

 

3.18

 

 

April 8, 2021

Adgero Warrants

 

 

353

 

 

 

3.18

 

 

August 31, 2021

Adgero Warrants

 

 

755

 

 

 

3.18

 

 

January 17, 2022

 

 

 

11,858

 

 

 

 

 

 

 

 

(i)

NBTS Warrants were issued in connection with respect to the NBTS Loan (note 5).

Series C Preferred Stock Warrants

In connection with the Series C Preferred Stock private placement, the Company issued 2,504 Series C Stock purchase warrants (the “Series C Warrants”).  The Series C Warrants have an exercise price of $1,000 per share, provide for a cashless exercise feature, and are exercisable for a period of four years from August 19, 2020. The Series C Preferred Stock issuable upon exercise of the Series C Warrants is convertible into shares of common stock in the same manner as each respective series of outstanding Series C Stock, and will be entitled to the same dividend rights as each respective series.

The 2020 Agent Warrants were valued at a total of approximately $3.3 million using a binomial pricing model with a risk-free interest rate of 0.27%, a term of 4.0 years, and a volatility of 95.2% to 95.8%.  The estimated volatility of the Company’s common stock at the date of measurement is based on the historical volatility of the Company’s common stock. 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 instrument at the valuation date. The expected term has been estimated using the contractual term of the warrant.

The following table sets forth changes in outstanding Series C Warrants:

 

 

 

Number of

Warrants

 

 

Conversion

price

$

 

Balance – June 30, 2020

 

 

 

 

 

 

 

Issuance of Preferred Series C-1 Warrants

 

 

1,959

 

 

 

1.16

 

Issuance of Preferred Series C-2 Warrants

 

 

219

 

 

 

1.21

 

Issuance of Preferred Series C-3 Warrants

 

 

326

 

 

 

1.15

 

Balance – September 30, 2020

 

 

2,504

 

 

 

 

 

 

 

The following table summarizes the Company’s outstanding Series C Warrants as of September 30, 2020:

 

Description of warrants

 

Number

 

 

Conversion

price

$

 

 

Number of

conversion

shares

(in

thousands)

 

 

Cumulative

common

stock

dividends

(in

thousands)

 

 

Series 1

 

 

1,959

 

 

 

1.16

 

 

 

1,689

 

 

 

1,182

 

 

Series 2

 

 

219

 

 

 

1.21

 

 

 

180

 

 

 

126

 

 

Series 3

 

 

326

 

 

 

1.15

 

 

 

283

 

 

 

198

 

 

 

 

 

2,504

 

 

 

 

 

 

 

2,152

 

 

 

1,506