Warrant Liabilities and Mezzanine Equity

9 Months Ended

Mar. 31, 2025

Warrant Liabilities and Mezzanine Equity [Abstract]

Warrant liabilities and mezzanine equity

11. Warrant liabilities and mezzanine equity

The Company accounts for common share purchase warrants as either equity instruments or liabilities depending on the specific terms of the warrant agreement. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares. The Company classifies warrant liabilities on the balance sheet at fair value, and changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent to the initial issuance of the common share purchase warrant.

Durin the three months ended March 31, 2025, the Company completed public offering of 126,900,000 units at a price of $0.13 per unit. Each unit consisted of one common share and one Series A warrant to purchase one common shares. The Company also issued 6,345,000 Series A warrants to the underwriters. In addition, the Company granted the underwriters a 45-day option to purchase either up to an additional 19,035,000 common shares at a price per share equal to the public offering price per unit (net of discounts and commissions) minus $0.001, or up to 19,035,000 Series A warrants at a price of $0.001 per warrant, or a combination of the two. As of March 31, 2025, the underwriters partially exercised its overallotment option with respect to 19,035,000 Series A warrants.

Each Series A warrant will be immediately exercisable upon issuance at an initial exercise price of $0.195 per common share, subject to adjustment on the First Reset Date and the Second Reset Date and subject to a floor price therein. The floor price has been set at $0.0251. Additionally, under the alternate cashless exercise option of the Series A warrants, during the period of 90 calendar days following the issue date of the Series A warrants, a holder of the Series A warrant has the right to receive, without payment of any additional cash to the Company, an aggregate number of shares equal to the product of (x) the aggregate number of common shares that would be issuable upon a cash exercise of the Series A warrant and (y) two and a half (2.5).

At the closing of the public offering, the Company issued 126,900,000 Series A warrants, 6,345,000 underwriters’ warrants, and 19,035,000 overallotment Series A warrants. The Series A warrants will be exercisable from issuance and will expire two and half years after issuance. As of March 31, 2025, 35,716,270 warrants have been exercised on an alternative cashless basis, for which 346,701,995 common shares were issued.

The 126,900,000 warrants issued within the units and the 19,035,000 overallotment warrants were accounted for as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the unaudited condensed consolidated statements of operations. The Company recognized warrant liabilities of $18,023,553 at inception. As of March 31, 2025, the changes in warrant liabilities’ fair value were not material.

The fair value of the warrants were measured using its quoted market price, assuming all the warrants will be exercised at the second reset price of $0.0251, under the alternate cashless exercise option.

The 6,345,000 underwriters’ warrants classified as a contingently redeemable warrant in accordance with ASC 718, since these warrants did qualify for equity classification, but could be settled in cash or other assets in the event that another person or entity becomes the beneficial owner of 50% of the outstanding shares of the Company’s common stock. Because this contingently redeemable feature could result in the warrant holders receiving additional compensation not on par with the holders of Common Stock, the underwriters’ warrants were classified as temporary equity and therefore reported in “Mezzanine Equity” on the Company’s condensed consolidated balance sheets as of March 31, 2025. 

Warrants classified as liability	Number of warrants			Amount
					$
Balance, July 1, 2024		-		$	-
Issuance of warrants in the units		126,900,000			15,689,207
Issuance of overallotment warrants		19,035,000			2,334,346
Converted to common shares		(35,716,270	)		(4,411,187	)
Balance, March 31, 2025		110,218,730		$	13,612,366

Warrants classified as mezzanine equity	Number of warrants		Amount
			$
Balance, July 1, 2024		-	$	-
Issuance of underwriters’ warrants		6,345,000		784,000
Converted to common shares		-		-
Balance, March 31, 2025		6,345,000	$	784,000

The Company recognized transaction costs for issuance of warrants of $2,424,033, which was included in the finance expense in the statements of operations for the three and nine months ended March 31, 2025. The Company received proceeds of $19,035 from the issuance of overallotment warrants. As the fair value of the overallotment warrants exceeded the proceeds, the Company recognized $2,315,311 loss from issuance, which was included in the finance expense in the statements of operations for the three and nine months ended March 31, 2025.

Also see Note 12.