Quarterly report pursuant to Section 13 or 15(d)

Share Capital

v3.22.2.2
Share Capital
 9 Months Ended
Sep. 30, 2022
Equity [Abstract]  
Share Capital
Note 6—Share Capital
(a) Share Capital
Authorized: Unlimited common shares. The shares have no par value.
The Company’s common shares are voting and dividend-paying. The following is a summary of the common share issuances for the three and nine months ended September 30, 2022:
 
  •  
On June 24, 2022, an aggregate of 6,072,580 common shares were issued to the Secured Lenders and Unsecured Lenders in connection with the closing of the Recapitalization Transaction.
 
  •  
On August 18, 2022, 408 common shares were issued to settle shares to be issued with regards to purchase options assumed by the Company on February 5, 2019 as part of MPX Acquisition.
There were no common share issuances for the three and nine months ended September 30, 2021.
(b) Warrants
The following table summarizes certain information in respect of the Company’s warrants:
 
 
  
September 30, 2022
 
 
  
Units
 
  
Weighted Average Exercise Price
(C$)
 
Warrants outstanding, beginning
      22,640      $ 3.56  
Granted
      —        —  
Forfeited
      (17,955 )       2.52  
Expired
      (4,685 )       7.53  
    
 
 
     
 
 
  
Warrants outstanding, ending
      —      $ —  
    
 
 
     
 
 
  
As of September 30, 2022 and December 31, 2021, warrants classified as derivative liabilities on the unaudited interim condensed consolidated balance sheets were revalued with the following inputs:
 
 
  
September 30, 2022
 
  
December 31, 2021
 
Risk-free interest rate
   
 
 —        0.9 % 
Expected dividend yield
   
 
 —        0.0 % 
Expected volatility
   
 
 —       
93.7 - 297.1
 % 
Expected life
   
 
 —        0.9 years  
The Company uses an expected volatility based on its historical trading data.
As per the terms of the Restructuring Support Agreement, all outstanding warrants were forfeited as of the Closing Date of the Recapitalization Transaction, and warrants classified as derivative liabilities were revalued to $Nil as of September 30, 2022 (December 31, 2021 – less than $0.1 million). As a result of the revaluation, the Company recognized a gain of $Nil and less than $0.1 million for the three and nine months ended September 30, 2022, respectively (September 30, 2021 – loss of $0.2 million and $0.1 million, respectively), on the unaudited interim condensed consolidated statements of operations.
Full share equivalent warrants outstanding and exercisable are as follows:

    
September 30, 2022
     
December 31, 2021
  
Year of expiration
   
Number
Outstanding
     
Weighted Average
Exercise Price (C$)
     
Number
Outstanding
     
Weighted Average
Exercise Price (C$)
  
2022
      —        —        20,855        3.47  
2023
      —        —        1,785        4.57  
    
 
 
     
 
 
     
 
 
     
 
 
  
Warrants outstanding
      —      $ —        22,640      $  3.56  
    
 
 
     
 
 
     
 
 
     
 
 
  
(c) Potentially Dilutive Securities
The following table summarizes potentially dilutive securities, and the resulting common share equivalents outstanding as of September 30, 2022 and December 31, 2021:
 
    
September 30, 2022
     
December 31, 2021
  
Common share options
      7,877        10,504  
Restricted stock units
      341,984        —    
Warrants
      —        22,640  
Secured notes
      —        46,458  
Debentures
      —        10,135  
MPX dilutive instruments
(1)
      —        408  
    
 
 
     
 
 
  
Total
      349,861        90,145  
    
 
 
     
 
 
  
 
(1)
 
Prior to the acquisition of MPX Bioceutical Corporation (“MPX”) on February 5, 2019 (the “MPX Acquisition”), MPX had instruments outstanding that were potentially dilutive and as a result of the MPX Acquisition, the Company assumed certain of these instruments which were settled on August 18, 2022 by issuing 408 common shares.
All outstanding warrants and other potentially dilutive securities related to debt were forfeited/cancelled as part of the closing of the Recapitalization Transaction pursuant to the terms of the Restructuring Support Agreement.
(d) Stock Options
All existing options (the “Original Awards”) to purchase common shares of the Company issued to officers were cancelled. On September 19, 2022, the Board awarded stock options to two officers of the Company as replacement awards for cancelled stock options, under the Company’s Amended and Restated Omnibus Incentive Plan dated October 15, 2018 (the “Replacement Stock Options”). As the fair value of the Original Award
s was $
Nil
on the modification date, the incremental compensation cost recognized is equal to the fair value of the Replacement Stock Options on the modification date, which shall be recognized over the remaining requisite service period. As of September 30, 2022, unrecognized compensation costs related to the Original Awards was $
Nil
(September 30, 2021—$
3.5
million). The Replacement Stock Options granted vest over
three-years
, commencing on July 10, 2020. Share-based compensation expense of $
0.2
 million was recognized immediately on the unaudited interim condensed consolidated statements of operations for Replacement Stock Options that were vested as of the grant date, and the remaining unrecognized compensation cost of $
0.1
 million will be amortized on a straight-line basis over the remaining weighted average requisite service period of
0.78
years.
The related share-based compensation expense for the three and nine months ended September 30, 2022, was $0.2 million and $2.0 million, respectively (September 30, 2021—$1.6 million and $4.9 million, respectively), and is presented in selling, general and administrative expenses on the unaudited interim condensed consolidated statements of operations.
The following table summarizes certain information in respect of option activity during the period:

 
    
September 30, 2022
     
December 31, 2021
  
    
Units
    
Weighted
Average
Exercise Price
(1)
     
Weighted
Average
Contractual
Life
     
Units
    
Weighted
Average
Exercise Price
(1)
     
Weighted
Average
Contractual
Life
  
Options outstanding, beginning
      10,504     $  3.61        —        11,510     $  3.55        —    
Granted
      7,877       0.05        —        —         —          —    
Exercised
      —       —        —        —         —          —    
Cancellations
      (7,111 )      3.43        —        —         —          —    
Forfeitures
      (3,152 )      4.27        —        —         —          —    
Expirations
      (241 )      0.88        —        (1,006 )      2.89        —    
    
 
 
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
Options outstanding, ending
(2)
      7,877     $ 0.05        7.78        10,504     $ 3.61        6.24  
    
 
 
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
 
(1)
 
The Original Awards are denominated in Canadian dollars. Exercise prices have been converted to U.S. dollar equivalents using an exchange rate of CAD$1.3707 to $1.00 as of September 30, 2022.
(2)
 
As of September 30, 2022, 5,252 of the stock options outstanding were exercisable (December 31, 2021 - 9,922).
The Company used the Black-Scholes option pricing model to estimate the fair value of the options at the grant date using the following assumptions:
 
    
September 30, 2022
    
December 31, 2021
  
Risk-free interest rate      3.8 %      —    
Expected dividend yield      0.0 %      —    
Expected volatility      128.6 %      —    
Expected life
      4.3 years       —    
The expected volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that options granted are expected to be outstanding. In accordance with SAB Topic 14, the Company uses the simplified method for estimating the expected term. The Company believes the use of the simplified method is appropriate due to the employee stock options qualifying as “plain-vanilla” options under the criteria established by SAB Topic 14. The risk-free rate was based on the United States bond yield rate at the time of grant of the award. Expected annual rate of dividends is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
(e) Restricted Stock Units
On December 31, 2021, the Board approved a long-term incentive program, pursuant to which, on July 26, 2022, the Company issued certain employees of the Company and its subsidiaries, restricted stock units (“RSUs”), under the Company’s Amended and Restated Omnibus Incentive Plan dated October 15, 2018. RSUs represent a right to receive a single common share that is both
non-transferable
and forfeitable until certain conditions are satisfied. The allocation of RSUs was contingent on the closing of the Recapitalization Transaction and was subject to approval of the Canadian Securities Exchange and the Board.
On December 31, 2021 and June 23, 2022, the Board approved the allocation of 363,921 and 26,881 RSUs, respectively, to Board members, directors, officers, and key employees of the Company. The RSUs granted by the Company vest upon the satisfaction of both a service-based condition of three years and a liquidity condition, the latter of which was not satisfied until the closing of the Recapitalization Transaction. As the liquidity condition was not satisfied until the closing of the Recapitalization Transaction, in prior periods, the Company had not recorded any expense related to the grant of RSUs. Share-based compensation expense in relation to the RSUs is recognized using the graded vesting method, in which compensation costs for each vesting tranche is recognized ratably from the service inception date to the vesting date for that tranche. The fair value of the RSUs is determined using the Company’s closing stock price on the grant date.
Certain RSU recipients were also holders of the Original Awards, which were cancelled upon closing the Recapitalization Transaction. The RSUs granted to these employees have been treated as replacement awards (the “Replacement RSUs”) and are accounted for as a modification to the Original Awards. As the fair value of the Original Awards was $Nil on the modification dates, the incremental compensation cost recognized is equal to the fair value of the Replacement RSUs on the modification date, which shall be recognized over the remaining requisite service period.
On September 19, 2022, the Board awarded 27,108 RSUs to four Board members. Of the RSUs awarded, 7,843 were fully vested on issuance and 19,265 shall vest over a
one-year
period. The fair value of RSUs is determined on the grant date and is amortized over the vesting period on a straight-line basis.
During the three and nine months ended September 30, 2022, the Company recognized $4.4 million and $25.5 million of share-based compensation expense associated with the RSUs, respectively (September 30, 2021—$Nil and $Nil). Share-based compensation expense is presented in selling, general and administrative expenses on the unaudited interim condensed consolidated statements of operations.
As of September 30, 2022, there was approximately $6.0 million of total unrecognized compensation cost related to unvested
RSU
s
 which is expected to be recognized over a weighted-average service period of 1.03 years.
The following table summarizes certain information in respect of RSU activity during the period:
 
 
  
September 30, 2022
 
 
  
Units
 
  
Weighted Average Grant
Price
(1)
 
Unvested balance, beginning
      —      $ —  
Granted
      417,911        0.10  
Vested
      (220,018 )       0.10  
Forfeited
      (75,927 )       0.10  
    
 
 
     
 
 
  
Unvested balance, ending
   
 
121,966
 
   
$
 0.10
 
    
 
 
     
 
 
  
 
(1)
 
Weighted average grant price is presented in U.S. dollars for the three and nine months ended September 30, 2022, as compared to previously issued financial statements, which present this figure in Canadian dollars.