Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

v3.21.2
Stockholders' Equity
12 Months Ended
Aug. 31, 2021
Stockholders' Equity.  
Stockholders' Equity

Note 11: Stockholders’ Equity

Preferred Stock

As previously disclosed, in September 2016, the founding shareholders of the Company were granted options to acquire preferred stock of the Company (the “Preferred Options”). The number of Preferred Options granted was based upon the number of shares held at the time of the grant. These Preferred Options are nontransferable and forfeited upon the sale of the related founding shares of common stock held by the option holder. Upon the occurrence of certain specified events, such founding shareholders can exercise each Preferred Option to purchase one share of preferred stock of the Company at an exercise price of $0.0001 per share. The preferred stock underlying the Preferred Options does not include any rights to dividends or preference upon liquidation of the Company and is convertible into shares of the Company’s common stock on a one-for-one basis. The Preferred Options became exercisable upon the consummation of the Vensure Asset Sale in January 2020, as discussed above. During Fiscal 2020, the Company recorded an expense of $62.1 million, related to the triggering of the Preferred Options as other expense, which was calculated pursuant to the Black-Scholes-Merton methodology applicable to valuing the 24,634,560 Preferred Options that became exercisable and exchangeable into an equal number of shares of common stock.

The Company initially evaluated the Preferred Options using the Level 1 market price on the date of valuation -- March 25, 2020 -- and concluded that this represented an illiquid market price and therefore was not a reliable valuation metric. The Company then evaluated the Preferred Options on the same date using Level 2 inputs based on the offering price of the Company’s common stock and warrants issued in connection with its May 2020 Public Offering, as adjusted for the fair value of the warrants issued in conjunction with said public offering. The resulting allocated common share price was then discounted for a lack of marketability of shares subject to “lock-up” agreements entered into in connection with the May 2020 Public Offering, which yielded a fair value of $2.52 per Preferred Option. The Company used the following assumptions to value the expense related to the Preferred Options: (i) option life of 3.77 years; (ii) risk free rate of 0.47%; (iii) volatility of 134%; (iv) exercise price of $0.0001 per share; and (v) a fair value of $3.62 per share of the Company’s common stock.

On June 4, 2020, Scott W. Absher, the Company’s Chief Executive Officer, exercised 12,500,000 Preferred Options to purchase 12,500,000 shares of our preferred stock for an aggregate purchase price of $1,250. Immediately following the exercise of the Preferred Options described above, Mr. Absher elected to convert the 12,500,000 shares of preferred stock into 12,500,000 shares of common stock, which are subject to a 24-month lock-up period during which such shares may not be traded. Between July 20, 2020 and November 30, 2020, an additional 294,490 Preferred Options were exercised and converted into 294,490 shares of common stock, which were subject to a six-month lock up period at the time they were issued, during which such shares could not be traded on the open market. As of the date of this Form 10-K, the restrictions on 294,490 of these shares have been lifted, rendering them freely tradeable, while 11,827,570 Preferred Options issued pursuant to the September 2016 grant and triggered by the Vensure Asset Sale remain unexercised. On October 22, 2021, the Company’s board of directors canceled 11,790,000 of these Preferred Options previously issued to its co-founder, J. Stephen Holmes, pursuant to the September 2016 grant. Accordingly, these Preferred Options are no longer exercisable.

The amount of Preferred Options, and the number of shares of preferred stock issuable upon exercise of such options, is based upon the number of shares of common stock held by the option holders at the time the Preferred Options were issued in September 2016. Accordingly, in order to confirm the original intent of the granting of up to 25,000,000 Preferred Options to Mr. Absher, it has always been the Company’s intent to adopt a second grant of Preferred Options granting an additional 12,500,000 Preferred Options to Mr. Absher, whereby each option permits the holder to acquire one share of the Company’s preferred stock for $0.0001 per share. On August 13, 2021, consistent with this intent, the Company granted 12,500,000 Preferred Options to Mr. Absher to purchase shares of Preferred Stock, par value $0.0001 per share, for consideration of $0.0001 per share. Each Preferred Option is exercisable for a period of twenty-four months upon (i) the acquisition of a Controlling Interest (as defined below) in the Company by any single shareholder or group of shareholders acting in concert, (other than Mr. Absher), or (ii) the announcement of (x) any proposed merger, consolidation, or business combination in which the Company’s Common Stock is changed or exchanged, or (y) any sale or distribution of at least 50% of the Company’s assets or earning power, other than through a reincorporation. Each share of Preferred Stock is convertible into Common Stock on a one-for-one basis. “Controlling Interest” means the ownership or control of outstanding voting shares of the Company sufficient to enable the acquiring person, directly or indirectly and individually or in concert with others, to exercise one-fifth or more of all the voting power of the Company in the election of directors or any other business matter on which shareholders have the right to vote under the Wyoming Business Corporation Act.

May 2020 Public Offering

On May 20, 2020, the Company entered into an underwriting agreement (the “May Underwriting Agreement”) with A.G.P./Alliance Global Partners (“AGP”), in connection with a public offering (the “May 2020 Offering”) of an aggregate of (i) 1,898,850 shares of the Company’s common stock, (ii) pre-funded warrants to purchase 323,310 shares of common stock (the “Pre-Funded Warrants”) and (iii) warrants to purchase 1,277,580 shares of common stock (the “May 2020 Common Warrants”), which included the partial exercise of AGP’s over-allotment option to purchase 166,500 additional May 2020 Common Warrants.

Each share of common stock and Pre-Funded Warrant sold in the May 2020 Offering was sold together with a May 2020 Common Warrant as a fixed combination, with each share of common stock and Pre-Funded Warrant sold being accompanied by a May 2020 Common Warrant to purchase 0.5 shares of common stock. Each share of common stock and accompanying May 2020 Common Warrant was sold at a price to the public of $5.40, and each Pre-Funded Warrant and accompanying May 2020 Common Warrant was sold at a price to the public of $5.399. The May 2020 Common Warrants were immediately exercisable and will expire on May 26, 2025 and have an exercise price of $5.40 per share, subject to anti-dilution and other adjustments for certain stock splits, stock dividends, or recapitalization.

The May 2020 Offering closed on May 26, 2020 for gross proceeds of approximately $12.0 million, prior to deducting $1.7 million of costs consisting of underwriting discounts and commissions and offering expenses payable by the Company, which includes a partial exercise of the underwriter’s over-allotment option to purchase additional May 2020 Common Warrants. All Pre-Funded Warrants issued or issuable were exercised on or prior to the closing date of May 26, 2020. Pursuant to the May Underwriting Agreement, the Company, upon closing of the May 2020 Offering, issued to AGP warrants to purchase up to 111,108 shares of common stock (the “May Underwriter Warrants”), representing 5.0% of the aggregate number of shares of common stock issuable upon exercise of the Pre-Funded Warrants sold in the May 2020 Offering. The May Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, commencing from six months after the closing date and ending five years from the closing date, at a price per share equal to $5.94, which is 110% of the public offering price per share.

On June 11, 2020 the Company closed an over-allotment option from the May 2020 Offering for additional gross proceeds of approximately $0.9 million, prior to deducting underwriting discounts and commissions and offering expenses payable by the Company, representing the partial exercise of AGP’s over-allotment option to purchase 166,500 shares of common stock at $5.40 per share.

On July 7, 2020, the Company closed an over-allotment option from the May 2020 Offering for additional gross proceeds of approximately $0.45 million, prior to deducting underwriting discounts and commissions and offering expenses payable by the Company, representing the partial exercise of AGP’s over-allotment option to purchase 83,840 shares of common stock at $5.40 per share.

October 2020 Public Offering

On October 8, 2020, the Company entered into an underwriting agreement (the “October Underwriting Agreement”) with AGP in connection with a public offering (the “October 2020 Offering”) of an aggregate of (i) 4,000,000 shares of our common stock and (ii) warrants to purchase 2,300,000 shares of common stock (the “October 2020 Common Warrants”), which included the partial exercise of AGP’s over-allotment option to purchase 300,000 additional October 2020 Common Warrants.

Each share of common stock was sold together with an October 2020 Common Warrant as a fixed combination, with each share of common stock sold being accompanied by an October 2020 Common Warrant to purchase 0.5 shares of common stock. Each share of common stock and accompanying October 2020 Common Warrant was sold at a price to the public of $3.00. The October 2020 Common Warrants were immediately exercisable, will expire on October 13, 2025, and have an exercise price of $3.30 per share, subject to anti-dilution and other adjustments for certain stock splits, stock dividends, or recapitalizations.

The October 2020 Offering closed on October 14, 2020, for gross proceeds of approximately $12.0 million, prior to deducting $1.3 million of costs consisting of underwriting discounts and commissions and offering expenses payable by the Company, which includes a partial exercise of the underwriter’s over-allotment option to purchase additional October 2020 Common Warrants. Pursuant to the October Underwriting Agreement, the Company, upon closing of the October 2020 Offering, issued to AGP warrants to purchase up to 200,000 shares of common stock (the “October Underwriter Warrants”), which is equivalent to 5.0% of the aggregate number of shares of common stock sold in the October 2020 Offering. The October Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, commencing six months after the closing date and ending 5 years from the closing date, at a price per share equal to $3.30, which is equivalent to 110% of the public offering price per share.

May 2021 Private Placement

On May 17, 2021, the Company closed a private placement with a large institutional investor pursuant to which it sold to the investor an aggregate of  (i) 2,320,000 shares of the Company’s common stock, par value  $0.0001  per share (the “Common Stock”), together with warrants (the “May 2021 Common Warrants”) to purchase up to 2,320,000 shares of Common Stock, with each May 2021 Common Warrant exercisable for one share of Common Stock at a price per share of $2.425, and (ii) 2,628,453 prefunded warrants (the “May 2021 Prefunded Warrants”), together with the May 2021 Common Warrants to purchase up to 2,628,453 shares of Common Stock, with each May 2021 Prefunded Warrant exercisable for one share of Common Stock at a price per share of $0.0001. Each share of Common Stock and accompanying May 2021 Common Warrant were sold together at a combined offering price of $2.425 and each May 2021 Prefunded Warrant and accompanying May 2021 Common Warrant were sold together at a combined offering price of $2.4249.

The May 2021 Prefunded Warrants are immediately exercisable, at a nominal exercise price of $0.0001, and may be exercised at any time until all of the May 2021 Prefunded Warrants are exercised in full. The May 2021 Common Warrants have an exercise price of $2.425 per share, are immediately exercisable, and will expire five years from June 15, 2021, which is the date that the registration statement covering the resale of the shares underlying the Common Warrants was declared effective. The private placement generated gross proceeds of approximately $12.0 million, prior to deducting $0.94 million of costs consisting of Placement Agent commissions and offering expenses payable by the Company. In addition to the seven percent (7.0)% of the aggregate gross proceeds cash fee, the Company issued to the Placement Agent warrants to purchase an aggregate of up to five percent (5)% of the aggregate number of shares of Common Stock issuable upon exercise of the May 2021 Prefunded Warrants sold in the private placement (the “May Placement Agent Warrants”). The May Placement Agent Warrants are exercisable commencing on November 17, 2021 (six months after issuance), expire June 15, 2025, and have an initial exercise price of $2.6675 per share.

Common Stock and Warrants

During Fiscal 2021, the Company issued the following securities pursuant to the transactions described above:

·

4,000,000 shares of common stock pursuant to the October 2020 Public Offering at $3.00 per share and warrants to purchase 2,300,000 shares of common stock.

·

2,320,000 shares of common stock, 2,628,453 May 2021 Prefunded Warrants and May 2021 Common Warrants to purchase up to 4,948,453 shares of common stock pursuant to the May 2021 Private Placement. Each share of Common Stock and accompanying May 2021 Common Warrant were sold together at a combined offering price of $2.425, and each May 2021 Prefunded Warrant and accompanying May 2021 Common Warrant were sold together at a combined offering price of $2.4249.

During Fiscal 2020, the Company issued the following securities pursuant to the transactions described above:

·

12,794,220 shares of common stock pursuant to the exercise of Preferred Options.

·

2,472,500 shares of common stock pursuant to the May 2020 Public Offering at $5.40 per share, pre-funded warrants to purchase 323,310 shares of common stock and warrants to purchase 1,277,580 shares of common stock.

·

628,353 shares of common stock in connection with the settlement of the Company's senior convertible notes as described in Note 10, Senior Convertible Notes Payable, above, and further described in the Company's Form 10-K for Fiscal 2020.

·

856 shares of common stock to two directors for services rendered valued at $75,000.

The following table summarizes the changes in the Company’s issued and outstanding common stock and prefunded warrants from August 31, 2020 to August 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

average

 

Weighted

 

 

Number

 

remaining

 

average

 

 

of

 

life

 

exercise

 

    

shares

    

(years)

    

price

Warrants outstanding, August 31, 2020

 

1,896,209

 

4.7

 

$

7.91

Issued

 

10,324,329

 

4.6

 

 

2.03

(Cancelled)

 

 —

 

 —

 

 

 —

(Exercised)

 

(2,628,453)

 

4.8

 

 

 —

Warrants outstanding, August 31, 2021

 

9,592,085

 

5.7

 

$

3.02

Warrants exercisable, August 31, 2021

 

9,344,662

 

4.4

 

$

3.84

 

The following tables summarize the Company’s issued and outstanding warrants outstanding as of August 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

average

 

 

 

 

 

 

 

Life of

 

 

 

 

 

 

 

Outstanding

 

 

 

 

 

Warrants

 

Warrants

 

Exercise

 

    

Outstanding

    

in years

    

price

May 2021 Common Warrants

 

4,948,453

 

4.8

 

$

2.43

May 2021Underwriter Warrants (1)

 

247,423

 

4.2

 

 

2.67

October 2020 Common Warrants

 

2,300,000

 

4.1

 

 

3.30

October 2020 Underwriter Warrants

 

200,000

 

4.1

 

 

3.30

May 2020 Common Warrants

 

1,277,580

 

3.8

 

 

5.40

May 2020 Underwriter Warrants

 

111,108

 

3.8

 

 

5.40

March 2020 Exchange Warrants

 

423,669

 

4.1

 

 

10.17

Amended March 2019 Warrants

 

66,288

 

2.5

 

 

40.00

March 2019 Services Warrants

 

3,366

 

2.5

 

 

70.00

June 2018 Warrants

 

6,276

 

2.3

 

 

40.00

June 2018 Services Warrants

 

5,422

 

2.3

 

 

99.60

2017 PIPE Warrants

 

2,500

 

1.0

 

 

276.00

 

 

9,592,085

 

4.4

 

$

3.84


(1)

The May 2021 Underwriter Warrants are not exercisable until November 17, 2021.