MetaStat, Inc.
Unaudited Condensed
Consolidated
Statements of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
23,300
|
$
-
|
|
Total
Revenue
|
-
|
-
|
23,300
|
-
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
General
& administrative
|
459,628
|
615,849
|
1,030,233
|
1,171,530
|
|
Research
& development
|
322,907
|
356,168
|
512,351
|
627,291
|
|
Total
Operating Expenses
|
782,535
|
972,017
|
1,542,584
|
1,798,821
|
|
|
|
|
|
|
|
Other
Expenses (income)
|
|
|
|
|
|
Interest
expense
|
30,039
|
401,990
|
59,843
|
706,636
|
|
Other
income, net
|
(267
)
|
(102
)
|
(333
)
|
(50
)
|
|
Change
in fair value of warrant liability
|
(49,292
)
|
(96,241
)
|
(539,672
)
|
(61,749
)
|
|
Change
in fair value of put embedded in note payable
|
-
|
(510,867
)
|
-
|
(456,868
)
|
|
Loss
on sale of notes receivable
|
-
|
112,500
|
-
|
112,500
|
|
Total
Other Expenses (Income)
|
(19,520
)
|
(92,516
)
|
(480,162
)
|
300,469
|
|
|
|
|
|
|
|
Net Loss
|
$
(763,015
)
|
$
(879,501
)
|
$
(1,039,122
)
|
$
(2,099,290
)
|
|
|
|
|
|
|
Loss attributable to common shareholders and loss per common
share:
|
|
|
|
|
|
|
|
|
Net
loss
|
$
(763,015
)
|
$
(879,501
)
|
$
(1,039,122
)
|
$
(2,099,290
)
|
|
Deemed
Dividend on Series B Preferred Stock issuance
|
-
|
-
|
-
|
(708,303
)
|
|
Accrued
dividends - Series B Preferred Stock
|
(24,557
)
|
(73,452
)
|
(48,014
)
|
(146,894
)
|
|
Deemed
Dividend to Series B Preferred Stockholders for exchange of
warrants
|
-
|
(29,311
)
|
-
|
(29,311
)
|
|
Deemed
dividend related to warrants exercise price
modification
|
(31,139
)
|
-
|
(31,139
)
|
-
|
|
Loss attributable to common shareholders
|
$
(818,711
)
|
$
(981,982
)
|
$
(1,118,275
)
|
$
(2,983,517
)
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
$
(0.16
)
|
$
(0.46
)
|
$
(0.22
)
|
$
(1.50
)
|
|
|
|
|
|
|
|
Weighted
average of shares outstanding
|
5,245,819
|
2,127,833
|
5,002,635
|
1,987,487
|
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
MetaStat, Inc.
Unaudited Condensed
Cons
olidated Statements of Cash
Flows
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
Net
loss
|
$
(1,039,122
)
|
$
(2,099,290
)
|
|
Adjustments
to reconcile net loss to net
|
|
|
|
cash
used in operating activities:
|
|
|
|
Depreciation
|
44,303
|
47,532
|
|
Share-based
compensation
|
133,896
|
362,326
|
|
Amortization
of debt discount
|
9,338
|
652,879
|
|
Loss
on sale of notes receivable and assets
|
-
|
112,500
|
|
Change
in fair value of warrant liability
|
(539,672
)
|
(61,749
)
|
|
Change
in fair value of put embedded in notes payable
|
-
|
(456,868
)
|
|
Net
changes in assets and liabilities:
|
|
|
|
Prepaid
expenses
|
(19,648
)
|
87,538
|
|
Deferred
research and development reimbursement
|
27,457
|
-
|
|
Accounts
payable and accrued expenses
|
4,896
|
507,022
|
|
Accrued
interest
|
50,410
|
52,000
|
|
Net cash used in operating activities
|
(1,328,142
)
|
(796,110
)
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
Purchase
of equipment
|
(28,450
)
|
-
|
|
Proceeds
received from sale of notes receivable
|
-
|
12,500
|
|
Net cash (used in) provided by investing activities
|
(28,450
)
|
12,500
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
Proceeds
from issuance of debt, net of debt issuance costs
|
-
|
122,790
|
|
Proceeds
from issuance of common stock, preferred stock and warrants, net of
offering costs
|
2,308,182
|
462,565
|
|
Payment
of short-term debt
|
-
|
(79,295
)
|
|
Net cash provided by financing activities
|
2,308,182
|
506,060
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
951,590
|
(277,550
)
|
|
|
|
|
|
Cash
at the beginning of the period
|
782,707
|
363,783
|
|
Cash and cash equivalents at the end of the period
|
$
1,734,297
|
$
86,233
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Financing Activities:
|
|
|
|
Warrant
liability associated with note payable
|
$
-
|
$
15,225
|
|
Series
B Preferred stock paid in kind dividend
|
$
47,382
|
$
146,399
|
|
Series
B Preferred stock accrued dividends
|
$
48,014
|
$
146,894
|
|
Issuance
of common stock to convert Series A preferred stock
|
$
87
|
$
-
|
|
Issuance
of common stock to convert accrued expenses
|
$
23,657
|
$
-
|
|
Reclassification
between warrant liability and additional
paid-in-capital
|
$
1,471,262
|
$
-
|
|
Issuance
ofcommon stock and warrants as payment on accounts
payable
|
$
-
|
$
32,000
|
|
Warrants
issued to placement agents
|
$
185,063
|
$
35,859
|
|
Deemed
dividend related to Series B Preferred Stock BCF adjustment for
conversion price adjustment
|
$
-
|
$
708,303
|
|
Deemed
dividend to Series B Preferred stock holders upon exercising Most
Favored Nation option
|
$
-
|
$
29,311
|
|
Deemed
dividend related to warrants exercise price
modification
|
$
31,139
|
$
-
|
|
Issuance
of warrants in connection with OID Notes amendment
|
$
-
|
$
44,095
|
|
Financing
of insurance premium through notes payable
|
$
-
|
$
158,400
|
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
NOTE 1 – DESC
RIPTION OF BUSINESS AND GOING
CONCERN
MetaStat, Inc. (“we,” “us,”
“our,” the “Company,” or
“MetaStat”) is a pre-commercial biotechnology company
focused on discovering and developing personalized therapeutic (Rx)
and diagnostic (Dx) treatment solutions for cancer patients. Our
Mena isoform “driver-based” diagnostic biomarkers also
serve as novel therapeutic targets for anti-metastatic drugs.
MetaStat is developing therapeutic product candidates and paired
companion diagnostics based on a novel approach that makes the Mena
isoform protein a druggable target. Our core expertise includes an
understanding of the mechanisms and pathways that drive tumor cell
invasion and metastasis, as well as drug resistance to certain
targeted therapies and cytotoxic chemotherapies. MetaStat’s
head office, research laboratories, and state-of-the-art
CLIA-certified diagnostic laboratory are located in Boston,
MA. The Company was incorporated on March 28, 2007 under the laws
of the State of Nevada.
Basis of Presentation
The accompanying condensed consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiary, MetaStat Biomedical, Inc., a Delaware corporation and
all significant intercompany balances have been eliminated in
consolidation.
These interim unaudited financial statements have been
prepared in conformity with generally accepted accounting
principles (“GAAP”) in the United States and should be
read in conjunction with the Company’s audited consolidated
financial statements and related footnotes for the year ended
February 28, 2017, included in the Company’s Annual Report on
Form 10-K as filed with the United States Securities and Exchange
Commission (“SEC”) on May 30, 2017. These unaudited
financial statements reflect all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the
Company’s financial position as of August 31, 2017 and its
results of operations and cash flows for the interim periods
presented and are not necessarily indicative of results for
subsequent interim periods or for the full year. These interim
financial statements do not include all of the information and
footnotes required by GAAP for complete financial statements and
allowed by the relevant SEC rules and regulations; however, the
Company believes that its disclosures are adequate to ensure that
the information presented is not misleading.
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. The Company has experienced net losses and negative
cash flows from operations since its inception. The
Company has sustained cumulative losses of approximately $27.4
million as of August 31, 2017, has negative working capital and has
not generated positive cash flows from operations. The
Company
has raised approximately $2.3 million from a common stock financing
during the three months ended August 31, 2017, however the
continuation of the Company as a going concern is dependent upon
continued financial support from its shareholders, the ability of
the Company to obtain necessary equity and/or debt financing to
continue operations, and the attainment of profitable operations.
These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern. The Company cannot make any
assurances that additional financings will be available to it and,
if available, completed on a timely basis, on acceptable terms or
at all. If the Company is unable to complete a debt or equity
offering, or otherwise obtain sufficient financing when and if
needed, it would negatively impact its business and operations and
could also lead to the reduction or suspension of the
Company’s operations and ultimately force the Company to
cease operations. These financial statements do not include any
adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
NOTE 2 – CAPITAL STOCK
The Company has authorized 160,000,000 shares of capital stock, par
value $0.0001 per share, of which 150,000,000 are shares of common
stock and 10,000,000 are shares of “blank-check”
preferred stock.
Our board of directors (the “Board”) is empowered,
without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights, which
could adversely affect the voting power or other rights of the
holders of common stock. The preferred stock could be utilized as a
method of discouraging, delaying or preventing a change in control
of the Company.
Common Stock
The holders of our common stock are entitled to one vote per share.
In addition, the holders of our common stock will be entitled to
receive ratably such dividends, if any, as may be declared by our
Board out of legally available funds; however, the current policy
of our Board is to retain earnings, if any, for operations and
growth. Upon liquidation, dissolution or winding-up, the holders of
our common stock will be entitled to share ratably in all assets
that are legally available for distribution.
Series A Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and
Preferences of the Series A Preferred Stock (the “Series A
Preferred Stock” or “Series A Preferred”), the
terms of the Series A Preferred Stock are as follows:
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
Ranking
The Series A Preferred Stock will rank (i) senior to our common
stock, (ii)
pari passu
with our Series A-2 Preferred Stock (as defined
below), and (iii) junior to our Series B Preferred Stock (as
defined below) with respect to distributions of assets upon the
liquidation, dissolution or winding up of the
Company.
Dividends
The Series A Preferred Stock is not entitled to any
dividends.
Liquidation Rights
In the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus,
for each share of Series A Preferred Stock an amount equal to the
fair market value as determined in good faith by the
Board.
Voluntary Conversion; Anti-Dilution Adjustments
Each fifteen (15) shares of Series A Preferred Stock shall be
convertible into one share of common stock (the “Series A
Conversion Ratio”). The Series A Conversion Ratio is subject
to customary adjustments for issuances of shares of common stock as
a dividend or distribution on shares of the common stock, or
mergers or reorganizations.
Voting Rights
The Series A Preferred Stock has no voting rights. The common stock
into which the Series A Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and
outstanding common stock, and none of the rights of the Series A
Preferred Stock.
Series A-2 Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and
Preferences of the Series A-2 Convertible Preferred Stock (the
“Series A-2 Preferred Stock” or “Series A-2
Preferred”), the terms of the Series A-2 Preferred Stock are
as follows:
Ranking
The Series A-2 Preferred will rank (i) senior to our common stock,
(ii)
pari
passu
with our Series A
Preferred Stock, and (iii) junior to our Series B Preferred Stock
(as defined below) with respect to distributions of assets upon the
liquidation, dissolution or winding up of the
Company.
Dividends
The Series A-2 Preferred is not entitled to any
dividends.
Liquidation Rights
In the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the
Series A-2 Preferred shall be entitled to receive out of the assets
of the Company, whether such assets are capital or surplus, for
each share of Series A-2 Preferred an amount of cash, securities or
other property to which such holder would be entitled to receive
with respect to each such share of Preferred Stock if such shares
had been converted to common stock immediately prior to such
liquidation, dissolution or winding-up of the Company.
Voluntary Conversion; Anti-Dilution Adjustments
Each share of Series A-2 Preferred shall, at any time, and from
time to time, at the option of the holder, be convertible into ten
(10) shares of common stock (the “Series A-2 Conversion
Ratio”). The Series A-2 Conversion Ratio is subject to
customary adjustments for issuances of shares of common stock as a
dividend or distribution on shares of common stock, or mergers or
reorganizations.
Conversion Restrictions
The holders of the Series A-2 Preferred may not convert their
shares of Series A-2 Preferred into shares of common stock if the
resulting conversion would cause such holder and its affiliates to
beneficially own (as determined in accordance with Section 13(d) of
the Exchange Act, and the rules thereunder) in excess of 4.99% or
9.99% of the common stock outstanding, when aggregated with all
other shares of common stock owned by such holder and its
affiliates at such time; provided, however, that such holder may
elect to waive these conversion restrictions.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
Voting Rights
The Series A-2 Preferred has no voting rights. The common stock
into which the Series A-2 Preferred is convertible shall, upon
issuance, have all of the same voting rights as other issued and
outstanding common stock, and none of the rights of the Series A-2
Preferred.
Series B Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and
Preferences of the Series B Preferred Stock (the “Series B
Preferred Stock” or “Series B Preferred”), the
terms of the Series B Preferred Stock are as follows:
Ranking
The Series B Preferred Stock will rank senior to our Series A
Preferred Stock, Series A-2 Preferred Stock and common stock with
respect to distributions of assets upon the liquidation,
dissolution or winding up of the Company.
Stated Value
Each share of Series B Preferred Stock will have a stated value of
$5,500, subject to adjustment for stock splits, combinations and
similar events (the “Stated Value”).
Dividends
Cumulative dividends on the Series B Preferred Stock accrue at the
rate of 8% of the Stated Value per annum, payable quarterly on
March 31, June 30, September 30, and December 31 of each year, from
and after the date of the initial issuance. Dividends
are payable in kind in additional shares of Series B Preferred
Stock valued at the Stated Value or in cash at the sole option of
the Company. At August 31, 2017 and February 28, 2017, the
dividends payable to the holders of the Series B Preferred Stock
amounted to approximately $16,000 and $16,000, respectively. During
the three and six months ended August 31, 2017, the Company issued
4.3501 and 8.6149 shares of Series B Preferred Stock, respectively,
for payment of dividends amounting to approximately $23,000 and
$47,000, respectively. During the three and six months ended August
31, 2016, the Company issued 13.4407 and 26.6178 shares of Series B
Preferred Stock, respectively, for payment of dividends amounting
to approximately $74,000 and $146,000, respectively.
Liquidation Rights
If the Company voluntarily or involuntarily liquidates, dissolves
or winds up its affairs, each holder of the Series B Preferred
Stock will be entitled to receive out of the Company’s assets
available for distribution to stockholders, after satisfaction of
liabilities to creditors, if any, but before any distribution of
assets is made on the Series A Preferred Stock or common stock or
any of the Company’s shares of stock ranking junior as to
such a distribution to the Series B Preferred Stock, a liquidating
distribution in the amount of the Stated Value of all such
holder’s Series B Preferred Stock plus all accrued and unpaid
dividends thereon. At August 31, 2017 and February 28, 2017, the
value of the liquidation preference of the Series B Preferred Stock
aggregated to approximately $1.2 million and $1.19 million,
respectively.
Conversion; Anti-Dilution Adjustments
Each share of Series B Preferred Stock will be convertible at the
holder’s option into common stock in an amount equal to the
Stated Value plus accrued and unpaid dividends thereon through the
conversion date divided by the then applicable conversion price.
The initial conversion price was $8.25 per share (the “Series
B Conversion Price”) and is subject to customary adjustments
for issuances of shares of common stock as a dividend or
distribution on shares of common stock, or mergers or
reorganizations, as well as “full ratchet”
anti-dilution adjustments for future issuances of other Company
securities (subject to certain standard carve-outs) at prices less
than the applicable Series B Conversion Price.
The issuance of shares of common stock pursuant to the 2016 Unit
Private Placement (as defined in Note 3) triggered the full ratchet
anti-dilution price protection provision of the Series B Preferred
Stock. Accordingly, the Series B Conversion Price was adjusted from
$8.25 to $2.00 per share. The issuance of shares of common stock
pursuant to the 2017 Common Stock Private Placement (as defined in
Note 3) triggered the full ratchet anti-dilution price protection
provision of the Series B Preferred Stock. Accordingly, the Series
B Conversion Price was adjusted from $2.00 to $0.83 per
share.
The Series B Preferred Stock is subject to automatic conversion
(the “Mandatory Conversion”) at such time when the
Company’s common stock has been listed on a national stock
exchange such as the NASDAQ, New York Stock Exchange or NYSE MKT;
provided, that, on the Mandatory Conversion date, a registration
statement providing for the resale of the shares of common stock
underlying the Series B Preferred Stock is effective. In the event
of a Mandatory Conversion, each share of Series B Preferred Stock
will convert into the number of shares of common stock equal to the
Stated Value plus accrued and unpaid dividends divided by the
applicable Series B Conversion Price.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
Voting Rights
The holders of the Series B Preferred Stock shall be entitled to
the number of votes equal to the number of shares of common stock
into which such Series B Preferred Stock could be converted for
purposes of determining the shares entitled to vote at any regular,
annual or special meeting of stockholders of the Company, and shall
have voting rights and powers equal to the voting rights and powers
of the common stock (voting together with the common stock as a
single class).
Most Favored Nation
For a period of up to 30 months after March 31, 2015, if the
Company issues any New Securities (as defined below) in a private
placement or public offering (a “Subsequent
Financing”), the holders of Series B Preferred Stock may
exchange all of the Series B Preferred Stock at their Stated Value
plus all Series A Warrants (as defined below) issued to the
Series B Preferred Stock holders for the securities issued in the
Subsequent Financing on the same terms of such Subsequent
Financing. “New Securities” means shares of
the common stock, any other securities, options, warrants or other
rights where upon exercise or conversion the purchaser or recipient
receives shares of the common stock, or other securities with
similar rights to the common stock, subject to certain standard
carve-outs. This right expired on September 30, 2017 pursuant to
the Certificate of Designation of Rights and Preferences of the
Series B Preferred Stock.
NOTE 3 – EQUITY ISSUANCES
Common stock financing – the 2016 Unit Private
Placement
During the six months ended August 31, 2016, the Company entered
into a subscription agreement pursuant to a private placement (the
“2016 Unit Private Placement”) with a number of
accredited investors pursuant to which the Company issued an
aggregate of 49.5 units consisting of an aggregate of 247,500
shares of common stock and five-year warrants to purchase 123,750
shares of common stock at a purchase price of $3.00 per share (the
“2016 Unit Warrants”) for an aggregate purchase price
of $495,000. After deducting placement agent fees and other
offering expenses, including legal expenses, net proceeds amounted
to approximately $390,000. Additionally, the Company issued an
aggregate of 24,750 placement agent warrants in substantially the
same form as the 2016 Unit Warrants.
Registration Rights Agreement
Pursuant to a registration rights agreement entered into by the
parties, the Company agreed to file a registration statement with
the SEC providing for the resale of the shares of common stock and
the shares of common stock underlying the Warrants issued pursuant
to the 2016 Unit Private Placement on or before the date which is
forty-five (45) days after the date of the final closing of the
2016 Unit Private Placement. The Company will use its
commercially reasonable efforts to cause the registration statement
to become effective within one hundred fifty (150) days from the
filing date. The Company has received a waiver from a majority of
the 2016 Unit Private Placement investors extending the filing date
of the registration statement to no later than December 15, 2016.
The Company filed the Registration Statement on Form S-1 with the
SEC on December 14, 2016, which was declared effective by the SEC
on January 5, 2017.
Deemed Dividend due to Conversion Price Adjustment
During the six months ended August 31, 2016, as a result of the
adjustment of the Series B Conversion Price from $8.25 to $2.00 per
share due to the 2016 Unit Private Placement, the Company recorded
a non-cash deemed dividend, amounting to approximately
$708,000. The expense was measured at the intrinsic value of
the beneficial conversion feature for each issuance of Series B
Preferred Stock in the Series B Preferred private placement and was
limited to the amount of Series B Preferred Stock allocated
proceeds less previously recognized beneficial conversion
features.
Most Favored Nation Exchange – the MFN Exchange
On July 12, 2016, the Company and one Series B Preferred Stock
shareholder (the “Exchange Purchaser”) entered into an
exchange agreement effective July 1, 2016 (the “Exchange
Agreement”) whereby the Exchange Purchaser elected to
exercise their Most Favored Nation exchange right into the
securities offered pursuant to the 2016 Unit Private Placement (the
“MFN Exchange”). Accordingly, the Exchange
Purchaser tendered all of their 19.4837 shares of Series B
Preferred Stock and approximately $2,000 of accrued and unpaid
dividends for an aggregate exchange amount of approximately
$109,000, plus 9,000 Series A Warrants with an exercise price of
$10.50 per share originally issued in connection with the Series B
Private Placement for an aggregate of 54,652 shares of common stock
and warrants to purchase 27,326 shares of common stock at an
exercise price of $3.00 per share. Additionally, the parties
entered into a joinder agreement, and the Exchange Purchaser was
granted all rights and benefits under the 2016 Unit Private
Placement financing agreements.
The Company analyzed and determined that the MFN Exchange is a
contingent beneficial conversion feature that should be recognized
upon the occurrence of the contingent event based on its intrinsic
value at the commitment date. Since the Company had fully
recognized all allocated proceeds of the Series B Preferred Stock
in previously recognized beneficial conversion features, no
beneficial conversion was recognized upon the exchange of the
Series B Preferred Stock in the MFN Exchange.
For the three and six months ended August 31, 2016, the Company
recorded a non-cash deemed dividend to Additional Paid-in Capital
of approximately $29,000 in connection with the MFN Exchange equal
to the excess fair value of the warrants received over the fair
value of the Series A Warrants.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
Common stock financing – Additional 2016 Unit Private
Placement
First Closing of the Additional 2016 Unit Private
Placement
On August 31, 2016, the Company entered into a subscription
agreement pursuant to a private placement (the “Additional
2016 Unit Private Placement”) with an accredited investor
pursuant to which the Company issued an aggregate of 8.75 units
consisting of an aggregate of 43,750 shares of common stock at an
effective price of $2.00 per share (the “Effective
Price”) and five-year warrants to purchase 21,875 shares of
common stock at a purchase price of $3.00 per share (the
“Additional 2016 Unit Warrants”) for an aggregate
purchase price of $87,500. After deducting placement agent fees and
other offering expenses, including legal expenses, net proceeds
amounted to approximately $73,000. Additionally, the Company issued
an aggregate of 438 placement agent warrants in substantially the
same form as the Additional 2016 Unit Warrants.
Pursuant to the subscription agreement, for a period of one hundred
eighty (180) days following the final closing of the Additional
2016 Unit Private Placement, the investors shall have
“full-ratchet” anti-dilution price protection (the
“Price Protection”) based on certain issuances by the
Company of common stock or securities convertible into shares of
common stock at an effective price per share less than the
Effective Price (a "Down-round Issuance"), whereby the Company
would be required to issue the investors additional shares of
common stock and Warrants.
Accounting for the Price Protection Provision
The Company analyzed the Price Protection provision for embedded
derivatives that require bifurcation. The Company evaluated the
Price Protection provision for both the issuance of additional
shares of common stock and additional Warrants in connection with a
Down-round Issuance in accordance with ASC 480 and ASC 815. In
connection with the potential issuance of additional shares of
common stock, the Company concluded that since the embedded
down-round feature is within the equity host contract, the embedded
Price Protection provision would be considered clearly and closely
related to the equity host under ASC 815-15-25-1(a) and that the
Price Protection provision should not be bifurcated. In connection
with the potential issuance of additional Warrants, the Company
concluded that the freestanding Warrants are not indexed to the
Company’s common stock within the scope of ASC 815-40 and
therefore was initially bifurcated and measured at fair value and
recorded as a derivative liability in the Condensed Consolidated
Balance Sheet. The derivative liability was measured at
fair value on an ongoing basis, with changes in fair value
recognized in the statement of operations. The Price Protection
provision expired on April 30, 2017, resulting in the
reclassification of these warrants to equity (see Note
5).
Common stock financing – the 2017 Common Stock Private
Placement
Between June 23, 2017 and August 3, 2017, the Company completed
closings of a private placement (the “2017 Common Stock
Private Placement”) with existing and new institutional and
accredited investors pursuant to which the Company issued (i) an
aggregate of 811,158 shares of common stock, (ii) 229,363.2 shares
of
Series A-2 Preferred Stock
convertible into 2,293,632 shares of common stock
and (iii) reduced the exercise price of
outstanding warrants
to purchase 536,434
shares of common
stock
from $3.00 to $2.00 per share (see Note 5), for
an aggregate purchase price of
approximately $2.57 million, including the conversion of
approximately $22,000 of compensation payable to our Chief
Executive Officer. After deducting placement agent fees and other
offering expenses, the Company received net proceeds of
approximately $2.31 million. Additionally, the Company issued the
placement agent five-year warrants to purchase an aggregate of
162,486 shares of common stock with an exercise price equal to
$1.27 per share, and a cashless exercise provision. The effective
purchase price of the 2017 Common Stock Private Placement was $0.83
per share.
Conversion Price Adjustment
During the six months ended August 31, 2017, as a result of the
2017 Common Stock Private Placement, the Series B Conversion Price
was adjusted from $2.00 to $0.83 per share. No non-cash deemed
dividend was recorded to recognize any contingent beneficial
conversion feature related to this conversion price change as all
proceeds of the Series B Preferred have already been offset by
previously recognized beneficial conversion
features.
Issuances of common stock for services
During the six months ended August 31, 2016, the Company issued an
aggregate of 25,000 shares of common stock to a consultant for
services that vested over a two-month term and to settle $32,000 of
accounts payable. The fair value of the shares amounted to
approximately $46,000 on the grant date, of which approximately
$14,000 was recognized into general and administrative expense
during the six months ended August 31, 2016.
During the six months ended August 31, 2017, the Company issued an
aggregate of 100,000 shares of common stock to members of its Board
that vested immediately. The fair value of the shares amounted to
approximately $130,000 on the grant date, which was recognized into
general and administrative expense during the six months ended
August 31, 2017.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
NOTE 4 – STOCK OPTIONS
During the six months ended August 31, 2016, the Company issued
options to purchase 50,000 shares of common stock at $2.19 per
share to a non-executive member of its Board. These 50,000 options
vest in three equal installments on each of May 26, 2017, May 26,
2018, and May 26, 2019 and expire on May 26, 2026. These options
had a total fair value of $86,500 as calculated using the
Black-Scholes model.
During the six months ended August 31, 2016, the Company issued
options to purchase 50,000 shares of common stock at $2.19 per
share to a non-executive member of its Board for performing other
services. These 50,000 options vest upon achieving a certain
milestone and expire on May 26, 2026. These options will be
measured and recognized when vesting becomes probable.
During the three and six months ended August 31, 2016, the Company
issued options to purchase an aggregate of 440,000 shares of common
stock at $2.00 per share to members of its management team. These
options expire on July 7, 2026. 73,333 of these options vested
immediately and 146,667 of these options vest in equal monthly
installments over a twenty-four-month period. 220,000 options are
subject to certain milestone-based vesting. These options had a
total fair value of approximately $622,000 as calculated using the
Black-Scholes model. The Company has not recognized any stock based
compensation for the options with performance-vesting conditions,
and expects to recognize the compensation expense when vesting
become probable, which has not yet occurred.
During the three and six months ended August 31, 2016, the Company
issued options to purchase an aggregate of 100,000 shares of common
stock at $2.00 per share to a non-executive member of its Board.
These options expire on July 7, 2026. These options had a total
fair value of approximately $143,000 as calculated using the
Black-Scholes model. 33,333 of these options vested immediately and
66,667 of these options vest in equal monthly installments over a
twenty-four-month period.
During the three and six months ended August 31, 2016, the Company
issued options to purchase an aggregate of 240,000 shares of common
stock at $2.00 per share to consultants. These options expire on
July 7, 2026. 33,333 of these options vest on the first anniversary
date and then 66,667 of these options vest in equal monthly
installments over a twenty-four-month period. 140,000 of these
options are subject to certain milestone-based vesting and the
Company will measure the fair value of these options with vesting
contingent on achieving certain performance-based milestones and
recognize the compensation expense when vesting becomes
probable.
During the six months ended August 31, 2017, the Company issued
options to purchase an aggregate 55,000 shares of common stock at
3.00 per share to its President and Chief Executive Officer and a
member of its management team. These options expire on April 4,
2027. 18,334 of these options vest on the first anniversary date of
April 4, 2018, and then 36,666 of these options vest in equal
monthly installments over a twenty-four-month period. These options
had a total fair value of approximately $60,000 as calculated using
the Black-Scholes model.
During the six months ended August 31, 2017, an aggregate of 39,999
unvested options to purchase shares of common stock at 8.25 per
share to certain members of the Company’s Board were
terminated upon resignation from the board. The Company recognized
a credit of approximately $146,000 for the true-up of forfeitures
related to these unvested options during the six months ended
August 31, 2017.
The weighted average inputs to the Black-Scholes model used to
value the stock options granted during the six months ended August
31, 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
Expected
volatility
|
129
%
|
98.98 – 102.74
%
|
|
Expected
dividend yield
|
0.00
%
|
0.00
%
|
|
Risk-free
interest rate
|
1.95
%
|
0.97% – 1.65
%
|
|
Expected
Term
|
|
|
For the six months ended August 31, 2016, the Company recognized
approximately $348,000 of compensation expense related to stock
options, of which approximately $288,000 was recognized in general
and administrative expenses and approximately $60,000 in research
and development expenses.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
For the three months ended August 31, 2016, the Company recognized
approximately $243,000 of compensation expense related to stock
options, of which approximately $200,000 was recognized in general
and administrative expenses and approximately $43,000 in research
and development expenses.
For the six months ended August 31, 2017, the Company recognized a
credit of approximately $59,000 of compensation expense related to
stock options, of which a credit of approximately $89,000 was
recognized in general and administrative expenses and an expense of
approximately $30,000 in research and development
expenses.
For the three months ended August 31, 2017, the Company recognized
approximately $38,000 of compensation expense related to stock
options, of which approximately $24,000 was recognized in general
and administrative expenses and approximately $14,000 in research
and development expenses.
The following table summarizes common stock options issued and
outstanding:
|
|
|
Weighted
average
exercise
price
|
Aggregate
intrinsic
value
|
Weighted
average
remaining
contractual life
(years)
|
|
Outstanding
at February 28, 2017
|
966,474
|
$
5.71
|
$
-
|
8.87
|
|
Granted:
|
55,000
|
$
3.00
|
$
-
|
-
|
|
Expired
and forfeited:
|
(60,000
)
|
$
8.25
|
$
-
|
-
|
|
Outstanding
and expected to vest at August 31, 2017
|
961,474
|
$
5.40
|
$
-
|
8.49
|
|
Exercisable
at August 31, 2017
|
349,892
|
$
9.62
|
$
-
|
7.76
|
The following table breaks down exercisable and unexercisable
common stock options by exercise price as of August 31,
2017:
|
|
Unexercisable
|
|
|
|
Weighted Average Remaining Life (years)
|
|
|
Weighted Average Remaining Life (years)
|
|
178,888
|
$
2.00
|
8.85
|
301,112
|
$
2.00
|
8.85
|
|
16668
|
$
2.19
|
8.74
|
83,332
|
$
2.19
|
8.74
|
|
1,083
|
$
3.00
|
9.23
|
174,917
|
$
3.00
|
9.43
|
|
30,000
|
$
3.55
|
8.43
|
-
|
$
3.55
|
-
|
|
1,068
|
$
8.10
|
7.42
|
-
|
8.10
|
-
|
|
20,000
|
$
8.25
|
7.80
|
40,000
|
$
8.25
|
7.80
|
|
41,434
|
$
10.20
|
4.35
|
-
|
$
10.20
|
-
|
|
3,334
|
$
11.25
|
7.72
|
3,333
|
$
11.25
|
7.72
|
|
11,112
|
$
16.50
|
7.13
|
8,888
|
$
16.50
|
7.13
|
|
8,068
|
$
22.50
|
7.42
|
-
|
$
22.50
|
-
|
|
|
$
48.75
|
5.60
|
-
|
$
48.75
|
-
|
|
|
$
9.62
|
7.76
|
611,582
|
$
2.98
|
8.90
|
As of August 31, 2017, we had approximately $133,000 of
unrecognized compensation related to employee and consultant stock
options that are expected to vest over a weighted average period of
1.25 years and, approximately $500,000 of unrecognized compensation
related to employee stock options whose recognition is dependent on
certain milestones to be achieved. Additionally, there
were 173,333 stock options with a performance vesting
condition that were granted to consultants which will be measured
and recognized when vesting becomes probable.
NOTE 5 – WARRANTS
For the six months ended August 31, 2016, the Company issued
warrants to purchase an aggregate of 9,092 shares of common
stock in connection with the issuance of the original issue
discount promissory notes dated between March 3 and 15, 2016. These
warrants were initially exercisable at $8.25 per share and expire
between March 3 and 15, 2021. These warrants vested immediately.
These warrants contained an anti-dilution price protection
provision, which required the warrants to be recorded as derivative
warrant liability. Such clause will lapse upon completion of a
Qualified Offering, as defined in the warrant agreement. These
warrants were recorded as a debt discount based on their fair
value. Following the 2017 Common Stock Private Placement, these
warrants are now exercisable at $0.83 per share.
For the six months ended August 31, 2016, the Company issued
warrants to purchase an aggregate of 60,000 shares of common
stock to investors and placement agents in connection with the
issuance of common stock pursuant to the 2016 Unit Private
Placement referenced in Note 3. These warrants are exercisable at
$3.00 per share and expire on May 26, 2021. These warrants vested
immediately. These warrants do not contain any provision that would
require liability treatment, therefore they were classified as
equity in the Condensed Consolidated Balance Sheet.
For the three and six months ended August 31, 2016, the Company
issued warrants to purchase an aggregate of 88,500 shares of
common stock in connection with the issuance of common stock
pursuant to the 2016 Unit Private Placement referenced in Note 3.
These warrants are exercisable at $3.00 per share and expire on
June 7, 2021. These warrants vested immediately. These warrants do
not contain any provision that would require liability treatment,
therefore they were classified as equity in the Condensed
Consolidated Balance Sheet.
For the three and six months ended August 31, 2016, the Company
issued warrants to purchase an aggregate of 27,326 shares of
common stock in connection with the MFN Exchange referenced in Note
3. These warrants are exercisable at $3.00 per share and expire on
June 7, 2021. These warrants vested immediately. Additionally, in
connection with the MFN Exchange, the Company cancelled warrants to
purchase an aggregate of 9,000 shares of common stock. These
warrants were originally issued in connection with the issuance of
Series B Preferred Stock and were exercisable at $10.50 per
share.
For the three and six months ended August 31, 2016, the Company
issued warrants to purchase an aggregate of 45,459 shares of
common stock in connection with the amendments to the OID Notes
referenced in Note 6. These warrants are exercisable at $2.00 per
share and expire between August 11, 2021 and August 18, 2021. These
warrants vested immediately. The fair value of these warrants was
determined to be approximately $44,000, as calculated using the
Black-Scholes model and were recorded as a debt discount based on
their fair value.
For the three and six months ended August 31, 2016, the Company
issued warrants to purchase an aggregate of 21,875 shares of
common stock in connection with the Additional 2016 Unit Private
Placement referenced in Note 3. These warrants are exercisable at
$3.00 per share and expire on August 30, 2021. These warrants
vested immediately. As discussed in Note 3, due to the Price
Protection provision, these warrants were initially classified as a
derivative liability and measured at fair value.
For
the three and six months ended August 31, 2016, in connection with
the Additional 2016 Unit Private Placement, the Company issued
placement agent warrants to purchase an aggregate of 438 shares of
common stock. These placement agent warrants were issued on
August 31, 2016, are exercisable at $3.00 per share and expire on
August 30, 2021. These placement agent warrants vest immediately.
The fair value of these warrants was determined to be approximately
$400, as calculated using the Black-Scholes model. Weighted-average
assumptions used in the Black-Scholes model included: (1) a
discount rate of 1.18 %; (2) an expected term of 5.0 years; (3) an
expected volatility of 102%; and (4) zero expected
dividends.
For the six months ended August 31, 2017, the Company issued
warrants to purchase an aggregate of 37,500 shares of common
stock to a consultant for advisory services. These warrants are
exercisable at $3.00 per share and expire between March 31, 2021
and May 31, 2021. These warrants vested immediately. The fair value
of these warrants was determined to be approximately $37,000, as
calculated using the Black-Scholes model. Average assumptions used
in the Black-Scholes model included: (1) a discount rate of 1.83%;
(2) an expected term of 5.0 years; (3) an expected volatility of
131%; and (4) zero expected dividends. For the six months ended
August 31, 2017, the Company recognized approximately $37,000 of
stock-based compensation for these warrants.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
For the six months ended August 31, 2017, the Company reclassified
approximately $1.5 million of derivative warrant liability to
equity in connection with the lapse of a Price Protection provision
referenced in Note 3, that had resulted in these instruments being
classified as a derivative warrant liability at issuance. The fair
value of these warrants was determined to be approximately $1.5
million, as calculated using the Black-Scholes model. Average
assumptions used in the Black-Scholes model included: (1) a
discount rate of 1.81%; (2) an expected term of 4.46 years; (3) an
expected volatility of 124%; and (4) zero expected
dividends.
For the three and six months ended August 31, 2017, the Company
issued warrants to purchase an aggregate of 37,500 shares of
common stock to a consultant for advisory services. These warrants
are exercisable at $3.00 per share and expire between June 30, 2021
and August 31, 2021. These warrants vested immediately. The fair
value of these warrants was determined to be approximately $25,000,
as calculated using the Black-Scholes model. Average assumptions
used in the Black-Scholes model included: (1) a discount rate of
1.81%; (2) an expected term of 5.0 years; (3) an expected
volatility of 131%; and (4) zero expected dividends. For the three
and six months ended August 31, 2017, the Company recognized
approximately $25,000 of stock-based compensation for these
warrants.
For the three and six months ended August 31, 2017, in connection
with the 2017 Unit Private Placement, the Company reduced the
exercise price of
outstanding warrants to purchase 536,434
shares of common stock
from
$3.00 to $2.00 per share. The Company recorded a non-cash deemed
dividend of approximately $31,000 equal to difference in the
aggregated fair value of these
warrants on the measurement dates as calculated using the
Black-Scholes model.
For
the three and six months ended August 31, 2017, in connection with
the 2017 Unit Private Placement, the Company issued placement agent
warrants to purchase an aggregate of 162,486 shares of common
stock. These placement agent warrants were issued between June
23, 2017 and August 3, 2017, are exercisable at $1.27 per share and
expire between June 22, 2022 and August 2, 2022. These placement
agent warrants vest immediately. The fair value of these warrants
was determined to be approximately $185,000, as calculated using
the Black-Scholes model. Weighted-average assumptions used in the
Black-Scholes model included: (1) a discount rate of 1.78 %; (2) an
expected term of 5.0 years; (3) an expected volatility of 130%; and
(4) zero expected dividends.
The following table summarizes common stock purchase warrants
issued and outstanding:
|
|
|
Weighted average exercise
price
|
Aggregate
intrinsic
value
|
Weighted average
remaining
contractual life (years)
|
|
Outstanding at February 28, 2017
|
2,698,694
|
$
5.11
|
$
-
|
4.21
|
|
Granted:
|
237,486
|
1.82
|
-
|
|
Cancelled/Expired/Exercised:
|
(4,671
)
|
31.50
|
-
|
|
Outstanding at August 31, 2017
|
2,931,509
|
$
4.56
|
$
-
|
3.81
|
Warrants exercisable at August 31, 2017 are:
|
|
|
|
|
|
|
|
|
|
|
$
0.83
|
119,429
|
3.04
|
119,429
|
|
$
0.91
|
43,636
|
3.45
|
43,636
|
|
$
1.27
|
162,486
|
4.83
|
162,486
|
|
$
2.00
|
581,893
|
4.06
|
581,893
|
|
$
3.00
|
1,653,974
|
4.19
|
1,653,974
|
|
$
8.25
|
9,134
|
2.99
|
9,134
|
|
$
10.50
|
126,978
|
2.6
|
126,978
|
|
$
15.00
|
556
|
2.75
|
556
|
|
$
18.75
|
695
|
2.75
|
695
|
|
$
22.50
|
209,754
|
0.88
|
209,754
|
|
$
31.50
|
21,241
|
1.07
|
21,241
|
|
|
1,733
|
0.37
|
1,733
|
|
|
2,931,509
|
3.81
|
2,931,509
|
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
NOTE 6 – NOTES PAYABLE
Promissory Note
On July 31, 2015, the Company entered into a note purchase
agreement, which was subsequently amended, whereby it issued and
sold a non-convertible promissory note in the principal amount of
$1.2 million (the “Promissory Note”) and a warrant to
purchase 43,636 shares of the Company’s common stock.
Effective October 21, 2016, $600,000 principal amount of the
Promissory Note plus $48,000 of accrued and unpaid interest was
exchanged into the securities issued in a private placement. In
January 2017, the remaining unpaid principal balance and accrued
interest were exchanged into a convertible note (see Convertible
Note below).
During the three months ended August 31, 2016, the Company
recognized approximately $153,000 of interest expense related to
the Promissory Note, as amended, including amortization of debt
discount of approximately $125,000 and accrued interest expense of
approximately $28,000. Additionally, the Company recognized a gain
of approximately $294,000 in the three months ended August 31, 2016
due to the change in estimated fair value of the Voluntary Exchange
provision.
During the six months ended August 31, 2016, the Company recognized
approximately $291,000 of interest expense related to the
Promissory Note, as amended, including amortization of debt
discount of approximately $239,000 and accrued interest expense of
approximately $52,000. Additionally, the Company recognized a gain
of approximately $265,000 in the six months ended August 31, 2016
due to the change in estimated fair value of the Voluntary Exchange
provision.
OID Notes
In February 2016, the Company entered into an OID note purchase
agreement dated February 12, 2016 (the “February 2016 OID
Note Purchase Agreement”). Pursuant to the February 2016 OID
Note Purchase Agreement, the Company received an aggregate purchase
price of $500,000 and issued OID promissory Notes (the “OID
Notes”) in the aggregate principal amount of $600,000 and
warrants (the “OID Warrants”) to purchase an aggregate
of 36,367 shares of the Company’s common stock.
The Company entered into OID note purchase agreements between March
4 and 15, 2016 (the “March 2016 OID Note Purchase
Agreements”) with various accredited investors. Pursuant to
the March 2016 OID Note Purchase Agreements, the Company issued OID
Notes with an aggregate purchase price of $125,000 and OID Warrants
to purchase 9,902 shares of the Company’s common stock. The
OID Notes issued in March 2016 have a principal amount equal to
$150,000 or 120% of the purchase price.
Pursuant to the March 2016 closings of the OID Note private
placement, the principal amount was first allocated to the fair
value of the OID Warrants in the amount of approximately $15,000,
next to the value of the original issuance discount in the amount
of $25,000, then to the fair value of a bifurcated derivative
liability related to an exchange provision in the OID Notes in the
amount of approximately $33,000, and lastly to the debt discount
related to offering costs of approximately $2,000 with the
difference of approximately $75,000 representing the initial
carrying value of the OID Notes issued in March 2016.
The OID Notes were subsequently amended in August 2016, extending
the maturity date of the OID Notes in exchange for among other, (i)
an increased principal amount of the OID Notes by 10% to $825,000
in the aggregate from $750,000 in the aggregate, and (ii) the
issuance of an aggregate of 45,459 common stock purchase warrants
with an exercise price of $2.00 per share and a term of five
years.
In October 2016,
$553,000 principal amount of OID Notes
were exchanged
into
the securities issued in the
Additional 2016 Unit Private Placement
.
Accordingly, the Company recorded a loss on
extinguishment of approximately $555,000. Additionally, the Company
repaid $8,000 of OID Notes.
In November 2016, the Company exercised its sole option to further
extend the maturity date to its outstanding OID Note in the
aggregate of $264,000 principal amount of OID Note. In
consideration for the extension, the Company increased the
principal amount of the OID Note by 10% or to $26,400 to $290,400
in the aggregate. In January 2017, the remaining outstanding OID
Note was exchanged into a convertible note (see Convertible Note
below).
During the three months ended August 31, 2016, the Company
recognized approximately $
248,000
of interest expense related to the OID Notes, as
amended, including amortization of debt discount. Additionally, the
Company recognized a gain of approximately $217,000 in the three
months ended August 31, 2016 due to the change in estimated fair
value of the OID Note Voluntary Exchange
provision.
During the six months ended August 31, 2016, the Company recognized
approximately $
414,000
of
interest expense related to the OID Notes, as amended, including
amortization of debt discount. Additionally, the Company recognized
a gain of approximately $191,000 in the six months ended August 31,
2016 due to the change in estimated fair value of the OID Note
Voluntary Exchange provision.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
Convertible Note
On January 17, 2017, the Company entered into an exchange
agreement, pursuant to which the Company issued a new convertible
promissory note in the principal amount of $1,000,000 (the
“Convertible Note”) in exchange (the “Debt
Exchange”) for the cancellation of (i) $600,000 principal
amount of the Promissory Note plus $96,000 of accrued and unpaid
interest thereon, and (ii) $290,400 principal amount of the OID
Note. The Convertible Note is convertible into shares of common
stock at $2.00 per share and accrues interest at a rate of 10% per
annum. The Convertible Note matured on September 30, 2017 and
provides for a 10 business day cure period that expires on October
16, 2017.
The Company is currently in the process of negotiating an extension
of the maturity date of the Convertible Note with the holder
thereof, which we expect will be finalized shortly. In the event we
do not reach an agreement with the noteholder to extend the
maturity date of the Convertible Note, the noteholder may exercise
its default rights. There can be no assurance that we will be able
to raise additional debt or equity financing in an amount
sufficient to enable us to retire these obligations and meet our
other obligations. Following the expiration of the cure period, the
noteholder may bring suit against us and foreclose on all of our
assets and business by reason of our default.
During the three months ended August 31, 2017, the Company
recognized approximately $30,000 of interest expense related to the
Convertible Note, including amortization of debt discount of
approximately $5,000 and accrued interest expense of approximately
$25,000.
During the six months ended August 31, 2017, the Company recognized
approximately $60,000 of interest expense related to the
Convertible Note, including amortization of debt discount of
approximately $10,000 and accrued interest expense of approximately
$50,000.
The following table summarizes the notes payable:
|
|
|
|
|
|
|
|
|
|
|
February
28, 2017 balance
|
$
1,000,000
|
$
(10,914
)
|
$
989,086
|
|
Amortization
of debt discount
|
-
|
9,338
|
9,338
|
|
August
31, 2017 balance
|
$
1,000,000
|
$
(1,576
)
|
$
998,424
|
NOTE 7 – FAIR VALUE MEASUREMENTS
In accordance with ASC 820, Fair Value Measurements, financial
instruments were measured at fair value using a three-level
hierarchy which maximizes use of observable inputs and minimizes
use of unobservable inputs:
|
●
|
Level 1: Observable inputs such as quoted prices in active markets
for identical instruments
|
|
●
|
Level 2: Quoted prices for similar instruments that are directly or
indirectly observable in the market
|
|
●
|
Level 3: Significant unobservable inputs supported by little or no
market activity. Financial instruments whose values are
determined using pricing models, discounted cash flow
methodologies, or similar techniques, for which determination of
fair value requires significant judgment or
estimation.
|
Financial instruments measured at fair value are classified in
their entirety based on the lowest level of input that is
significant to the fair value measurement. At August 31, 2017 and
February 28, 2017, the warrant liability balance was classified as
Level 3 instruments.
Derivative Warrant Liability
The following table sets forth the changes in the estimated fair
value for our Level 3 classified derivative warrant
liability:
|
|
|
|
|
|
|
Fair
value at February 28, 2017
|
$
157,204
|
$
35,690
|
$
1,914,078
|
$
2,106,972
|
|
Change
in fair value
|
(78,024
)
|
(18,832
)
|
(442,816
)
|
(539,672
)
|
|
Reclassification
of warrant liability to equity
|
-
|
-
|
(1,471,262
)
|
(1,471,262
)
|
|
Fair
value at August 31, 2017
|
$
79,180
|
$
16,858
|
$
-
|
$
96,038
|
In connection with the initial closing of the Series B Preferred
private placement on December 31, 2014, the Company issued a
warrant to purchase an aggregate of 30,334 shares of common stock
(the “Series B Warrant”), originally exercisable at
$8.25 per share and expiring on March 31, 2020. The Series B
Warrant contains a full-ratchet anti-dilution price protection
provision that requires liability treatment. The exercise price of
the Series B Warrant was adjusted to $2.00 per share during the
year ended February 28, 2017 and subsequently adjusted to $0.83 per
share in August 2017 as a result of the 2017 Common Stock Private
Placement. The fair value of the Series B Warrant at August 31,
2017 and February 28, 2017 was determined to be approximately
$17,000 and $36,000, respectively, as calculated using the Monte
Carlo simulation. The Monte Carlo simulation as of August 31, 2017
and February 28, 2017 used the following assumptions: (1) a stock
price of $0.76 and $1.50, respectively; (2) a risk-free rate of
1.39% and 1.50%, respectively; (3) an expected volatility of 131%
and 131%, respectively; and (4) a fundraising event to occur
on January 31, 2018 and May 31, 2017, respectively, that would
result in the issuance of additional common stock.
In connection with the issuance of the Promissory Note on July 31,
2015, the Company issued a warrant to purchase an aggregate of
43,636 shares of common stock, originally exercisable at $8.25 per
share and expiring on July 31, 2020. This warrant contains a
full-ratchet anti-dilution price protection provision that requires
liability treatment. The exercise price of this warrant was
adjusted to $2.00 per share during the year ended February 28, 2017
and subsequently adjusted to $0.83 per share in August 2017 as a
result of the 2017 Common Stock Private Placement. The fair value
of the warrant at August 31, 2017 and February 28, 2017 was
determined to be approximately $25,000 and $51,000, respectively,
as calculated using the Monte Carlo simulation. The Monte Carlo
simulation as of August 31, 2017 and February 28, 2017 used the
following assumptions: (1) stock price of $0.76 and $1.50,
respectively; (2) a risk-free rate of 1.43% and 1.57%,
respectively; (3) an expected volatility of 131% and 131%,
respectively; and (4) a fundraising event to occur on January 31,
2018 and May 31, 2017, respectively, that would result in the
issuance of additional common stock.
In connection with the amendment of the Promissory Note on February
12, 2016, the Company issued a warrant to purchase an aggregate of
43,636 shares of common stock, initially exercisable at $8.25 per
share and expiring on February 11, 2021. This warrant contains a
ratchet anti-dilution price protection provision that requires
liability treatment. The exercise price of this warrant was
adjusted to $2.20 per share during the year ended February 28, 2017
and subsequently adjusted to $0.91 per share in August 2017 as a
result of the 2017 Common Stock Private Placement. The fair value
of the warrant at August 31, 2017 and February 28, 2017 was
determined to be approximately $26,000 and $51,000, respectively,
as calculated using the Monte Carlo simulation. The Monte Carlo
simulation as of August 31, 2017 and February 28, 2017 used the
following assumptions: (1) stock price of $0.76 and $1.50,
respectively; (2) a risk-free rate of 1.50% and 1.68%,
respectively; (3) an expected volatility of 131% and 131%,
respectively; and (4) a fundraising event to occur on January 31,
2018 and May 31, 2017, respectively, that would result in the
issuance of additional common stock.
In connection with the issuance of OID Notes in February 2016, the
Company issued warrants to purchase an aggregate of 36,367 shares
of common stock. These warrants were issued between
February 12 and 22, 2016, were initially exercisable at $8.25 per
share and expire between February 11 and 21, 2021. These warrants
contain a full-ratchet anti-dilution price protection provision
that requires liability treatment. The exercise price of these
warrants were adjusted to $2.00 per share during the year ended
February 28, 2017 and subsequently adjusted to $0.83 per share in
August 2017 as a result of the 2017 Common Stock Private Placement.
The fair value of these warrants at May 31, 2017 and February 28,
2017 was determined to be approximately $22,000 and $44,000,
respectively, as calculated using the Monte Carlo simulation. The
Monte Carlo simulation as of August 31, 2017 and February 28, 2017
used the following weighted-average assumptions: (1) stock price of
$0.76 and $1.50, respectively; (2) a risk-free rate of 1.50% and
1.68%, respectively; (3) an expected volatility of 131% and 131%,
respectively; and (4) a fundraising event to occur on January 31,
2018 and May 31, 2017, respectively, that would result in the
issuance of additional common stock.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
In connection with the issuance of OID Notes in March 2016, the
Company issued warrants to purchase an aggregate of 9,092 shares of
common stock. These warrants were issued between March 4 and
15, 2016, were initially exercisable at $8.25 per share and expire
between March 4 and 15, 2021. These warrants contain a full-ratchet
anti-dilution price protection provision that requires liability
treatment. The exercise price of these warrants were adjusted to
$2.00 per share during the year ended February 28, 2017 and
subsequently adjusted to $0.83 per share in August 2017 as a result
of the 2017 Common Stock Private Placement. The fair value of these
warrants at August 31, 2017 and February 28, 2017 was determined to
be approximately $6,000 and approximately $11,000, respectively, as
calculated using the Monte Carlo simulation. The Monte Carlo
simulation as of August 31, 2017, and February 28, 2017 used the
following weighted-average assumptions: (1) stock price of $0.76
and $1.50, respectively; (2) a risk-free rate of 1.51% and 1.69%,
respectively; (3) an expected volatility of 131% and 131%,
respectively; and (4) a fundraising event to occur on January 31,
2018 and May 31, 2017, respectively, that would result in the
issuance of additional common stock.
In connection with the private placement of common stock and
warrants that closed in October 2016, the Company issued warrants
to purchase an aggregate of 1,617,506 shares of common stock (the
“PPM Warrants”). These PPM Warrants were issued
between August 31, 2016 and October 30, 2016, are exercisable at
$3.00 per share and expire between August 30, 2021 and October 29,
2021. These warrants contain a full-ratchet anti-dilution price
protection provision that requires liability treatment. The fair
value of these warrants at February 28, 2017 was determined to be
approximately $1.9 million, as calculated using the Monte Carlo
simulation. The Monte Carlo simulation as of February 28, 2017 used
the following weighted-average assumptions: (1) stock price of
$1.50; (2) a risk-free rate of 1.66%; (3) an expected volatility of
131%; and (4) a fundraising event to occur on May 31, 2017, that
would result in the issuance of additional common stock. The price
protection provision expired on April 30, 2017, and the Company
reclassified approximately $1.5 million of derivative warrant
liability to equity, as referenced in Note 5.
NOTE 8 – EQUIPMENT
Equipment consists of the following:
|
|
Estimated
|
|
|
|
|
Useful Lives
|
August
31,
2017
|
February 28,
2017
|
|
Research
equipment
|
7 years
|
$
630,170
|
$
601,720
|
|
Computer
equipment
|
5 years
|
78,149
|
78,149
|
|
|
708,319
|
679,869
|
|
Accumulated
depreciation and amortization
|
|
(309,537
)
|
(265,234
)
|
|
Equipment, net
|
|
$
398,782
|
$
414,635
|
Depreciation and amortization expense was approximately $22,000 and
approximately $24,000 for the three months ended August 31, 2017
and August 31, 2016, respectively. Depreciation of equipment
utilized in research and development activities is included in
research and development expenses and amounted to approximately
$21,000 and approximately $20,000 for the three months ended August
31, 2017 and August 31, 2016, respectively. All other depreciation
is included in general and administrative expense and amounted to
approximately $1,000 and approximately $4,000 for the three months
ended August 31, 2017 and August 31, 2016,
respectively.
Depreciation and amortization expense was approximately $44,000 and
approximately $48,000 for the six months ended August 31, 2017 and
August 31, 2016, respectively. Depreciation of equipment utilized
in research and development activities is included in research and
development expenses and amounted to approximately $41,000 and
approximately $40,000 for the six months ended August 31, 2017 and
August 31, 2016, respectively. All other depreciation is included
in general and administrative expense and amounted to approximately
$3,000 and approximately $7,000 for the six months ended August 31,
2017 and August 31, 2016, respectively.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
NOTE 9 - LICENSE AGREEMENTS AND COMMITMENTS
License Agreements
Pursuant to the License Agreement, we are required to make annual
license maintenance fee payments beginning August 26,
2011. We have satisfied all license maintenance payments
due through August 31, 2017. We are required to make payments of
$100,000 in 2018 and every year the license is in effect
thereafter. These annual license maintenance fee payments will be
credited to running royalties due on net sales earned in the same
calendar year, if any. We are in compliance with the License
Agreement.
Pursuant to the Second License Agreement, as amended, we are
required to make annual license maintenance fee payments beginning
on January 3, 2013. We have satisfied all license maintenance
payments due through August 31, 2017. We are required to make
maintenance payments of $5,000 in 2018, $60,000, in 2019 and 2020,
and $100,000 in 2021 and every year the license is in effect
thereafter. These annual license maintenance fee payments will be
credited to running royalties due on net sales earned in the same
calendar year, if any. We are in compliance with the Second License
Agreement.
Pursuant to the Alternative Splicing Diagnostic License Agreement
and the Alternative Splicing Therapeutic License Agreement, we are
required to make annual license maintenance fee payments for each
license beginning on January 1, 2015. We have satisfied all
license maintenance payments due through August 31, 2017. We are
required to make additional payments of $37,500 in 2018, and
$50,000 in 2019 and every year each license is in effect
thereafter. We are in compliance with the Alternative
Splicing License Agreements.
Pursuant to the Antibody License Agreement, we are required to make
license maintenance fee payments beginning on January 1,
2015. We have satisfied all license maintenance payments due
through August 31, 2017. We are required to make additional
payments of $15,000 in 2018 and $20,000 in 2019 and every year the
license is in effect thereafter. These annual license maintenance
fee payments will be credited to running royalties due on net sales
earned in the same calendar year, if any. We are in compliance with
the Antibody License Agreement.
Lease Agreements
On August 28, 2014, we entered into a lease agreement, subsequently
amended (the “Boston Lease”) for our diagnostic
laboratory and office space located at 27, Drydock Ave, 2nd
Floor, Boston, MA 02210 (the
“Boston Property”). We paid a $40,000 security
deposit in connection with entering into the Boston Lease.
Effective April 6, 2016, we entered into an amendment to the Boston
Lease (the “Boston Lease Amendment”), whereby we
extended the term by one year from September 1, 2016 to August 31,
2017. The basic rent payable under the Boston Lease Amendment is
$17,164 per month plus additional monthly payments including tax
payments and operational and service costs.
On July 26, 2017, we entered into an amendment to the second lease
amendment for the Boston Property (the “Second Boston Lease
Amendment”). The Second Boston Lease Amendment extended the
term (the “Second Extension Period”) for five years
from September 1, 2017 through August 31, 2022. Monthly basic rent
payments are approximately $23,000 for the first year of the Second
Extension Period, approximately $24,000 for the second year of the
Second Extension Period, approximately $25,000 for the third year
of the Second Extension Period, approximately $25,000 for the
fourth year of the Second Extension Period, and approximately
$26,000 for the fifth year of the Second Extension
Period.
Effective March 1, 2015, we entered into a lease agreement for
short-term office space in New York, NY. The term of the
lease is month-to-month and may be terminated upon twenty-one (21)
days’ notice. The basic rent payment is $1,400 per month and
we paid a $2,100 security deposit in connection with entering into
the lease. Effective December 1, 2015, we amended our lease
agreement for the short-term office space in New York, NY. The
term of the lease remains month-to-month and may still be
terminated with twenty-one (21) days’ notice. The basic rent
payment increased to $2,400 per month and we paid an additional
$1,500 security deposit in connection with the amended
lease.
NOTE 10 – LICENSE AGREEMENT WITH ASET THERAPEUTICS,
LLC
Effective August 31, 2016, the Company and ASET Therapeutics, LLC
(“ASET”) entered into a mutual release of claims with
respect to the termination of the Memorandum of Understanding dated
July 14, 2014, as amended, the License and Development and
Commercialization Agreement dated November 25, 2014 and all other
related documents and agreements.
The Company assessed the collectability of its notes receivable in
connection with two past due promissory notes of ASET in the
aggregate principal amount of $125,000 held by the Company (the
“ASET Notes”). The Company determined that the
probability of repayment of the ASET Notes had decreased
significantly and were to be written off. On August 30, 2016, the
Company entered into a sale and assignment agreement with a
non-affiliated shareholder, whereby the Company sold the ASET Notes
for gross proceeds of $12,500. The Company recorded a loss on sale
of notes receivable of approximately $113,000 for the three and six
months ended August 31, 2016.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
NOTE 11 – COLLABORATIVE AND OTHER RELATIONSHIPS
Research and Development Reimbursements
In connection with our business strategy, we may enter into
research and development and other collaboration agreements.
Depending on the arrangement, we may record payments as advances,
funding receivables, payable balances or non-product income with
our partners, based on the nature of the cost-sharing mechanism and
activity within the collaboration.
On September 29, 2016, the Company entered into an amendment (the
“MTA Amendment”) to a previously executed pilot
materials transfer agreement (the “MTA” and together
with the Amendment, the “Research Agreement”) with
Celgene Corporation (“Celgene”), to conduct a mutually
agreed upon pilot research project (the “Pilot
Project”). The MTA Amendment provides for milestone payments
to the Company of up to approximately $973,000. Under the terms of
the Research Agreement, Celgene will provide certain proprietary
materials to the Company and the Company will evaluate
Celgene’s proprietary materials in the Company’s
metastatic cell line and animal nonclinical models. The milestone
schedule calls for Celgene to pay the Company approximately
$487,000 upon execution of the MTA Amendment, which the Company has
received, and the balance in accordance with the completion of
three (3) milestones to Celgene’s reasonable satisfaction.
The term of the Research Agreement was extended by the parties
through December 22, 2017. Either party may terminate the Research
Agreement with thirty (30) days prior written
notice.
The Company recognizes the upfront
payment as a deferred research and development reimbursement in the
Consolidated Balance Sheet and will amortize the deferred research
and development reimbursement as incurred over the term of the
Research Agreement. For the three and six months ended August 31,
2017, the Company recorded
approximately
$249,000 and
$362,000 in deferred research and development
reimbursement, and, at August 31, 2017, the Company had a deferred
research and development reimbursement amount of approximately
$205,000.
The Company will recognize deferred research and development
reimbursement for each subsequent milestone in the period in which
the milestone is achieved. As of August 31, 2017, three of four
milestones have been successfully achieved, and the Company has
received aggregate milestone payments of approximately $876,000 or
90% of the total, of which approximately $389,000 was received
during the three and six months ended August 31, 2017.
Research Collaboration Revenue
We currently do not sell any products and do not have any
product-related revenue.
From time to time, we may enter
into
research and development
collaboration arrangements, in which we are reimbursed for either
all or a portion of the research and development costs incurred. We
record these payments as revenue in the statement of operations. We
recognize revenue upon delivery and acceptance of the test results
or other deliverables.
NOTE 12 – NET LOSS PER SHARE
Basic net loss per common share is computed based on the weighted
average number of common shares outstanding during the
period. Restricted shares issued with vesting condition
that have not been met at the end of the period are excluded from
the computation of the weighted average shares. As of August 31,
2017, and 2016, 11,536 and 10,417 restricted shares of common
stock, respectively, were excluded from the computation of the
weighted average shares.
Diluted net loss per common share is calculated giving effect to
all dilutive potential common shares that were outstanding during
the period. Diluted potential common shares generally consist of
incremental shares issuable upon exercise of stock options and
warrants, shares issuable from convertible securities, and unvested
restricted shares. When dilutive, warrants classified as
liabilities are included in the potential common shares and any
change in fair value of the warrant for the period presented is
excluded from the net loss. For the periods ended August 31, 2017
and 2016, the liability warrants were not dilutive.
In computing diluted loss per share for the periods ended August
31, 2017 and 2016, no effect has been given to the common shares
issuable at the end of the period upon the conversion or exercise
of the following securities as their inclusion would have been
anti-dilutive:
|
|
|
|
|
|
|
|
|
Stock
options
|
961,474
|
1,263,309
|
|
Warrants
|
2,931,509
|
1,142,532
|
|
Preferred
stock
|
4,469,177
|
1,888,552
|
|
Convertible
debt
|
533,150
|
-
|
|
Total
|
8,895,310
|
4,294,393
|
NOTE 13 – SUBSEQUENT EVENTS
Issuance of Stock Options
On October 11, 2017, we issued options to purchase an aggregate of
21,000 shares of common stock at $0.89 per share to employees.
These options expire on October 11, 2027 and are subject to
time-based vesting.
On October 11, 2017, we issued options to purchase an aggregate of
360,000 shares of common stock at $0.89 per share to consultants.
These options expire on October 11, 2027 and are subject to
time-based and milestone-based vesting.
Issuance of Restricted Stock Units
On October 11, 2017, we issued 100,000 restricted stock units
(“RSU’s”) to non-executive board members. These
RSU’s vest quarterly for active service and settle on the
5th
anniversary of issuance,
unless accelerated due to departure from our board of directors or
a change of control.
Employment Agreement with Douglas A. Hamilton
Effective as of October 11, 2017, we have agreed to enter into an
employment agreement with Douglas A. Hamilton to serve as our
president and chief executive officer for a term of two years. The
employment agreement to be entered into with Mr. Hamilton will
provide for a base salary of $260,000 and an annual milestone
bonus, at the sole discretion of the board of directors and the
compensation committee, equal to 150% of Mr.
Hamilton’s compensation thereunder, based on his
attainment of certain financial, clinical development, and/or
business milestones to be established annually by the
Company’s board of directors or compensation
committee. The employment agreement will be terminable by
either party at any time. In the event of termination by the
Company without cause or by Mr. Hamilton for good reason not in
connection with a change of control, as those terms will be defined
in the agreement, he will be entitled to six months’
severance. In the event of termination by the Company without cause
or by Mr. Hamilton for good reason in connection with a change of
control, as those terms are defined in the agreement, he will be
entitled to twelve months’ severance. The employment
agreement will contain standard confidential and proprietary
information, and one-year non-competition and non-solicitation
provisions.
Additionally, our board of directors awarded Mr. Hamilton a bonus
of $153,500 and issued Mr. Hamilton 200,000 RSU’s. These
RSU’s are fully vested and settle on the 5th
anniversary of issuance, unless
accelerated due to termination or departure from the Company or a
change of control.
