14.Shareholders’ Equity and Capital Stock

 

Common share issuances

 

On August 19, 2014, we filed a universal shelf registration statement on Form S-3 in order that we may offer and sell, from time to time, in one or more offerings, at prices and terms to be determined, up to $100 million of our common shares, warrants to purchase our common shares, our senior and subordinated debt securities, and rights to purchase our common shares and/or our senior and subordinated debt securities.  The registration statement became effective September 12, 2014. The 12,921,000 common shares offered in the February 2016 financing were sold for $0.50 per share raising $5.7 million (net of issue costs of $0.8 million) under the shelf registration statement. The registration statement expired in 2017 and was replaced by another shelf registration statement that will be available until August 3, 2020.

 

We entered into an At Market Issuance Sales Agreement (“At Market Agreement”) with MLV & Co. LLC and B Riley FBR, Inc. (May 27, 2016, as amended August 2017), under which we may, from time to time, issue and sell common shares at market prices on the NYSE American or other U.S. market through the distribution agents for aggregate sales proceeds of up to $10,000,000. During 2016, we sold 164,979 Common Shares under the At Market Agreement at an average price of $0.65 per share for gross proceeds of $108 thousand. After deducting transaction fees and commissions we received net proceeds of $105 thousand.  After deducting all other costs associated with the completion of the agreement and filing the related prospectus supplement, we received $13 thousand. During 2017, we sold 1,536,169 Common Shares under the At Market Agreement at an average price of $0.76 per share for gross proceeds of $1.2 million. After deducting transaction fees, commissions and all other costs associated with the completion of the agreement and filing the related prospectus supplement, we received net proceeds of $1.1 million. The Company did not sell any Common Shares under the At Market Agreement in 2018.

 

In September 2018, we completed a US$10 million public offering of Common Shares, which included the offering of 12,195,122 Common Shares and accompanying warrants to purchase up to 6,097,561 Common Shares, at a combined public offering price of US$0.82 per Common Share and accompanying warrant. We also granted the underwriters a 30-day option to purchase up to 1,829,268 additional Common Shares and warrants to purchase up to an aggregate of 914,634 Common Shares on the same terms. The underwriters exercised a portion of their option to purchase additional securities at closing, acquiring 867,756 additional warrants to purchase an aggregate of 433,878 Common Shares. Including the partial exercise of the option, the Company issued a total of 12,195,122 Common Shares and 13,062,878 warrants to purchase up to 6,531,439 Common Shares. This offering was completed under the shelf registration statement.

 

During the year ended December 31, 2018, the Company exchanged 505,510 Common Shares for vested RSUs. In addition, 496,838 stock options were exercised for proceeds of $0.3 million.

During the year ended December 31, 2017, the Company exchanged 447,663 Common Shares for vested RSUs. In addition, 871,717 stock options were exercised for proceeds of $0.5 million.

 

During the year ended December 31, 2016, the Company exchanged 385,010 Common Shares for vested RSUs. In addition, 16,620 stock options were exercised for proceeds of less than $0.1 million.

 

Stock options

 

In 2005, the Company’s Board of Directors approved the adoption of the Company's stock option plan (the “Option Plan”). Eligible participants under the Option Plan include directors, officers, employees and consultants of the Company. Following the May 2017 amendment of the Option Plan, grants of options will vest over a three-year period: 33.3% on the first anniversary, 33.3% on the second anniversary, and 33.4% on the third anniversary of the grant. The term of options remains unchanged.

 

Activity with respect to stock options is summarized as follows:

 

 

The exercise price of a new grant is set at the closing price for the stock on the Toronto Stock Exchange (TSX) on the trading day immediately preceding the grant date so there is no intrinsic value as of the date of grant. The fair value of options vested during the year ended December 31, 2018 was $0.8 million.

 

As of December 31, 2018, outstanding stock options are as follows:

 

 

The aggregate intrinsic value of the options in the preceding table represents the total pre-tax intrinsic value for stock options with an exercise price less than the Company’s TSX closing stock price of CAD $0.89 as of the last trading day in the year ended December 31, 2018, that would have been received by the option holders had they exercised their options as of that date. There were 4,365,410 in-the-money stock options outstanding and 4,031,410 exercisable as of December 31, 2018.

 

Restricted share units

 

On June 24, 2010, the Company’s shareholders approved the adoption of the Company’s restricted share unit plan (the “RSU Plan”). The RSU Plan was approved most recently by our shareholders on May 5, 2016.

 

Eligible participants under the RSU Plan include directors and employees, including officers, of the Company. Under the terms of the RSU Plan, RSUs vest 100% on the second anniversary of the date of the grant. The RSU Plan also provides for redemption, instead of cancellation, of outstanding RSUs at the date of redemption for retiring directors and executive officers, which is defined as a threshold of combined service and age of 65 years, and a minimum of five years of service to the Company.  Upon RSU vesting, the holder of an RSU will receive one common share, for no additional consideration, for each RSU held.

 

Activity with respect to RSUs is summarized as follows:

 

 

As of December 31, 2018, outstanding RSUs are as follows:

 

 

As of March 30, 2018, one of our directors retired.  Under the terms of our RSU Plan, his 62,000 outstanding RSUs automatically vested. In December 2018, 32,000 of the RSUs were redeemed for Common Shares commensurate with the redemption of the balance of that grant.  The compensation committee will determine if he will receive stock or cash for the remaining RSUs to be redeemed in accordance with the related redemption date as set forth in the Plan. 

As of December 31, 2016, 8,374 RSUs had been vested and redeemed but not issued due to the timing of transferring them to the brokers designated by the related employees.  They were subsequently issued in January and February 2017.

 

As of December 31, 2015, 212,803 RSUs had been vested but not redeemed.  In January 2016, 197,374 were redeemed for common shares while the balance of 15,429 were retained and not redeemed to pay the related taxes due on redemption.

 

Warrants

 

The warrants outstanding at December 31, 2017 were issued in Canadian dollars and have been converted to their US$ equivalent for presentation purposes. The warrants were issued in conjunction with a now repaid loan facility with RMB Australia Holdings.

 

On September 25, 2018, the Company issued 13,062,878 warrants to purchase 6,531,439 of our Common Shares at $1.00 per full share (see note 13). The following represents warrant activity during the year ended December 31, 2018:

 

 

As of December 31, 2018, outstanding warrants are as follows:

 

 

Share-based compensation expense

 

Stock-based compensation expense was $0.9 million, $0.9 million and $0.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

As of December 31, 2018, there was approximately $1.2 million of total unrecognized compensation expense (net of estimated pre-vesting forfeitures) related to unvested share-based compensation arrangements granted under the Option Plan and $0.5 million under the RSU Plan. The expenses are expected to be recognized over a weighted-average period of 2.4 years and 1.5 years, respectively.

 

Cash received from stock options exercised during the years ended December 31, 2018, 2017 and 2016 was $0.4 million, $0.5 million, and less than $0.1 million, respectively.

 

Fair Value Calculations

 

The initial fair value of RSUs, options and warrants granted during the years ended December 31, 2018, 2017 and 2016 was determined using the Black-Scholes option pricing model with the following assumptions:

 

 

The Company estimates expected volatility using daily historical trading data of the Company’s common shares, because this is recognized as a valid method used to predict future volatility. The risk-free interest rates are determined by reference to Canadian Treasury Note constant maturities that approximate the expected option term. The Company has never paid dividends and currently has no plans to do so.

 

Share-based compensation expense is recognized net of estimated pre-vesting forfeitures, which results in recognition of expense on options that are ultimately expected to vest over the expected option term. Forfeitures were estimated using actual historical forfeiture experience.

 

The fair value used for each RSU issued in 2018 ranged from CAD$0.91 to $0.93. The fair value used for each RSU issued in 2017 and 2016 was CAD$0.90 and CAD $0.73, respectively. Each of the issuance prices was the closing price of our Common Shares on the TSX as of the trading day immediately preceding the grant date.