11. Issuance of Common Stock and Warrants

9 Months Ended

Mar. 31, 2017

Notes

11. Issuance of Common Stock and Warrants

11           Issuance of Common Stock

On September 10, 2015, the Company issued 60,000 shares of common stock to independent directors at $2.01 per share for services rendered by them.

On September 30, 2015 the Company issued 2,352,941 shares of common stock and 1,764,706 common stock purchases warrants pursuant to a securities purchase agreement dated as of September 24, 2015. The purchaser was an institutional investor. Each warrant will permit the holder to purchase one share of common stock from the Company for a price of $1.74 per share. The warrants will be exercisable from March 31, 2016 until March 31, 2021. Cashless exercise of the warrants is permitted only if there is no effective registration statement permitting resale of the common shares underlying the warrants.

The proceeds from the offerings were $2,739,000, net of issuance costs of $261,000 paid to the placement agent. The warrants were classified as equity at the date of issuance. They contained no provision that would require liability classification, and can be exercised on a cashless basis. Accordingly, they were classified as equity at the date of issuance. The proceeds were allocated between common stock and warrant, based on relative fair value. The issuance cost was recorded as a reduction of additional paid in capital.

In connection with the aforesaid sale, the Company issued to the placement agent and its affiliates warrants to purchase 141,176 shares of common stock. The warrants issued to the placement agent and its affiliates are substantially identical to the warrants sold to the institutional investor. The fair value of these warrants, which amounted to $175,150, was classified as equity at the date of issuance and recorded as an offset to the proceeds from the issuance of the shares and warrants.

The fair value of the warrants issued was estimated by using the Black-Scholes-Merton Option Pricing Model with the following assumptions:

	As of March 31, 2017
	Investor
Stock price	$                                0.43
Exercise price	$                                1.74
Expected life in years	3.50
Annualized Volatility		125.24%
Annual Rate of Quarterly Dividends		0
Discount Rate - Bond Equivalent Yield		1.93

The Company applied its best judgment to estimate key assumptions in determining the fair value of the warrants on the date of issuance. The Company used historical data to estimate stock volatilities. The risk-free rates are consistent with the terms of the warrants and are based on the United States Treasury yield curve in effect at the time of issuance.

On November 4, 2015, the Company reached agreement with three of its creditors to convert $2.66 million high interest bearing debt into 2,046,995 shares of common stock. The shares were valued at $1.30 per share and are restricted under Rule 144.

On January 5, 2016 the Board of Directors approved three technology acquisition agreements made by the Company during December 2015. Pursuant to the agreements, the Company (a) issued 800,000 shares of common stock (valued at $0.66 per share) and paid $123,000 to acquire technology relating to the formulation of Lorcaserin Hydrochloride, (b) issued 500,000 shares of common stock (valued at $0.66 per share) and paid $77,000 to acquire certain technology relating to the formulation of caffeine tablets, and (c) issued 500,000 shares of common stock (valued at $0.71 per share) and paid $77,000 to acquire certain technology relating to the formulation of Buprenorphine/Naloxone. The share price was determined by the Company’s stock price at the issuance date.

On January 5, 2016, the Board of Directors granted options for a total of 590,000 shares of common stock to 25 employees of the Company. The options are exercisable at a price of $.64 per share, which was the closing price for the common stock on January 4, 2016. Each option has a term of five years. The options vested on June 23, 2016, when they were approved by the shareholders of the Company.

On January 5, 2016 the Board of Directors approved two consulting agreements pursuant to which a total of 110,000 shares of common stock were issued in exchange for media and investor relations consulting services. The shares were valued at $0.66 per share, based on the Company’s stock price at the issuance date.