13. STOCKHOLDERS’ DEFICIENCY

12 Months Ended

Jun. 30, 2017

Equity [Abstract]

13. STOCKHOLDERS’ DEFICIENCY

Series A Convertible Preferred Stock – As of June 30, 2017, 4,030 shares of Series A Convertible Preferred Stock were outstanding. Each share of Series A Convertible Preferred Stock is convertible at any time, at the option of the holder, into the number of shares of common stock equal to $100 divided by the Series A Conversion Price. As of June 30, 2017, the Series A Conversion Price was $6.65, so each share of Series A Convertible Preferred Stock is currently convertible into approximately 15.0 shares of common stock. The Series A Conversion Price is subject to adjustment, under certain circumstances, upon the sale or issuance of common stock for consideration per share less than either (i) the Series A Conversion Price in effect on the date of such sale or issuance, or (ii) the market price of the common stock as of the date of such sale or issuance. The Series A Conversion Price is also subject to adjustment upon the occurrence of a merger, reorganization, consolidation, reclassification, stock dividend or stock split which will result in an increase or decrease in the number of shares of common stock outstanding. Shares of Series A Convertible Preferred Stock have a preference in liquidation, including certain merger transactions, of $100 per share, or $403,000 in the aggregate as of June 30, 2017. Additionally, the Company may not pay a dividend or make any distribution to holders of any class of stock unless the Company first pays a special dividend or distribution of $100 per share to holders of the Series A Convertible Preferred Stock.

Financing Transactions – On December 6, 2016, the Company closed on an underwritten public offering of units, with each unit consisting of a share of common stock and a Series J warrant to purchase 0.50 of a share of common stock. Gross proceeds of the offering were $16,500,000, with net proceeds to the Company, after deducting underwriting discounts and commissions and offering expenses, of $15,386,076. The Company issued 25,384,616 shares of common stock and Series J warrants to purchase 12,692,310 shares of common stock at an initial exercise price of $0.80 per share, which warrants are exercisable immediately upon issuance and expire on the fifth anniversary of the date of issuance. The Series J warrants are subject to a limitation on their exercise if the holder and its affiliates would beneficially own more than 9.99%, or 4.99% for certain holders, of the total number of the Company’s shares of common stock following such exercise.

On August 4, 2016, the Company closed on an underwritten offering of units, with each unit consisting of a share of common stock and a Series H warrant to purchase 0.75 of a share of common stock. Investors whose purchase of units in the offering would result in them beneficially owning more than 9.99% of the Company’s outstanding common stock following the completion of the offering had the opportunity to acquire units with Series I prefunded warrants substituted for any common stock they would have otherwise acquired. Gross proceeds of the offering were $9,225,000, with net proceeds to the Company, after deducting offering expenses, of $8,470,897. The Company issued 11,481,481 shares of common stock and ten-year prefunded Series I warrants to purchase 2,218,045 shares of common stock at an exercise price of $0.01, together with Series H warrants to purchase 10,274,646 shares of common stock at an exercise price of $0.70 per share.

The Series I warrants were exercisable immediately upon issuance and were exercised during the year ended June 30, 2017. The Series H warrants are exercisable at an initial exercise price of $0.70 per share, are exercisable commencing six months following the date of issuance and expire on the fifth anniversary of the date of issuance. The Series H warrants are subject to a limitation on their exercise if the holder and its affiliates would beneficially own more than 9.99% of the total number of the Company's shares of common stock following such exercise.

On July 2, 2015, the Company closed on a private placement of Series E warrants to purchase 21,917,808 shares of common stock and Series F warrants to purchase 2,191,781 shares of common stock. Certain funds managed by QVT Financial LP (“QVT”) invested $5,000,000 and another accredited investment fund invested $15,000,000. The funds paid $0.90 for each Series E warrant and $0.125 for each Series F warrant, resulting in gross proceeds to the Company of $20,000,000, with net proceeds, after deducting estimated offering expenses, of approximately $19,834,278.

The Series E warrants, which may be exercised on a cashless basis, are exercisable immediately upon issuance at an initial exercise price of $0.01 per share and expire on the tenth anniversary of the date of issuance. The Series E warrants are subject to a limitation on their exercise if QVT and its affiliates would beneficially own more than 9.99% (4.99% for the other accredited investment fund holder) of the total number of Palatin's shares of common stock following such exercise. The Series F warrants are exercisable at an initial exercise price of $0.91 per share, exercisable immediately upon issuance and expire on the fifth anniversary of the date of issuance. The Series F warrants are subject to the same beneficial ownership limitation as the Series E warrants.

The purchase agreement for the private placement provides that the purchasers have certain rights until the earlier of approval of bremelanotide for FSD by the U.S. Food and Drug Administration and July 3, 2018, including rights of first refusal and participation in any subsequent equity or debt financing. The purchase agreement also contains certain restrictive covenants so long as the funds continue to hold specified amounts of warrants or beneficially own specified amounts of the outstanding shares of common stock.

Outstanding Stock Purchase Warrants – As of June 30, 2017, the Company had outstanding warrants exercisable for shares of common stock as follows:

Shares of Common	Exercise Price per	Latest Termination
Stock	Share	Date
6,732,307	0.01	September 27, 2022
666,666	0.75	December 23, 2019
11,513,514	0.01	December 23, 2024
2,191,781	0.91	July 2, 2020
549,450	0.91	July 2, 2020
16,917,808	0.01	July 2, 2025
10,274,646	0.70	August 4, 2021
25,000	0.70	August 4, 2021
12,692,310	0.80	December 6, 2021
61,563,482

During the year ended June 30, 2017, the Company issued 38,141,991 shares of common stock pursuant to the cashless exercise provisions of warrants at an exercise price of $0.01 per share, and during the year ended June 30, 2017, the Company received $164,358 and issued 16,435,811 shares of common stock pursuant to the exercise of warrants at an exercise price of $0.01 per share. As of June 30, 2017, there were 35,163,629 warrants outstanding at an exercise price of $0.01 per share.

During the year ended June 30, 2016, the Company issued 10,890,889 shares of common stock pursuant to the cashless exercise provisions of warrants at an exercise price of $0.01. During the year ended June 30, 2015, the Company received $254,148 and issued 15,130,573 shares of common stock pursuant to the exercise of warrants at exercise prices of $0.01 and $1.00, including warrants exercised pursuant to cashless exercise provisions.

On October 31, 2016, in connection with a contract for financial advisory services, we issued to each of PSL Business Development Consulting and SARL Avisius, or their permitted designees, as partial consideration for services, a warrant to purchase up to 12,500 shares of the Company’s common stock at an exercise price of $0.70 per share. The warrants are exercisable at any time, and expire on August 4, 2021. The Company recorded stock-based compensation related to these stock warrants of $6,885 for the year ended June 30, 2017.

Stock Plan – The Company’s 2011 Stock Incentive Plan was approved by the Company’s stockholders at the annual meeting of stockholders held in May 2011 and amended at the annual meeting of stockholders held on June 8, 2017. The 2011 Stock Incentive Plan provides for incentive and nonqualified stock option grants and other stock-based awards to employees, non-employee directors and consultants for up to 22,500,000 shares of common stock. The 2011 Stock Incentive Plan is administered under the direction of the Board of Directors, which may specify grant terms and recipients. Options granted by the Company generally expire ten years from the date of grant and generally vest over three to four years. The 2005 Stock Plan was terminated and replaced by the 2011 Stock Incentive Plan, and shares of common stock that were available for grant under the 2005 Stock Plan became available for grant under the 2011 Stock Incentive Plan. No new awards can be granted under the 2005 Stock Plan, but awards granted under the 2005 Stock Plan remain outstanding in accordance with their terms. As of June 30, 2017, 6,525,778 shares were available for grant under the 2011 Stock Incentive Plan.

The Company also has outstanding options that were granted under the 2005 Stock Plan. The Company expects to settle option exercises under any of its plans with authorized but currently unissued shares.

The following table summarizes option activity and related information for the years ended June 30, 2017, 2016 and 2015:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Term in Years		Aggregate Intrinsic Value
Outstanding - July 1, 2014		4,241,973		$	1.63		7.7
Granted		975,800			1.06
Forfeited		(78,810	)		1.92
Expired		(8,733	)		36.47
Outstanding - June 30, 2015		5,130,230			1.46		7.3
Granted		355,000			0.54
Forfeited		(170,550	)		0.80
Expired		(52,940	)		22.53
Outstanding - June 30, 2016		5,261,740			1.21		6.2
Granted		4,119,000			0.46
Forfeited		(410,388	)		1.12
Expired		(43,220	)		22.59
Outstanding - June 30, 2017		8,927,132		$	0.76		7.5	$	-
Exercisable at June 30, 2017		4,297,394		$	1.02		5.3	$	-
Expected to vest at June 30, 2017		3,446,101		$	0.54		9.5	$	-

For the years ended June 30, 2017, 2016 and 2015, the fair value of option grants is estimated at the grant date using the Black-Scholes model. The Company’s weighted average assumptions for the years ended June 30, 2017, 2016 and 2015 were as follows:

	2017			2016			2015
Risk-free interest rate		1.7	%		1.4	%		1.9	%
Volatility factor		75.0	%		73.5	%		83.4	%
Dividend yield		0	%		0	%		0	%
Expected option life (years)		6.2			5.7			6.1
Weighted average grant date fair value per shares	$	0.27		$	0.35		$	0.76

Expected volatilities are based on the Company’s historical volatility. The expected term of options is based upon the simplified method, which represents the average of the vesting term and the contractual term. The risk-free interest rate is based on U.S. Treasury yields for securities with terms approximating the expected term of the option.

For the years ended June 30, 2017, 2016 and 2015 the Company recorded stock-based compensation related to stock options of $547,953, $529,454 and $572,609, respectively. As of June 30, 2017, there was $1,017,672 of unrecognized compensation cost related to unvested options, which is expected to be recognized over a weighted-average period of 2.86 years.

In June 2017, the Company granted 1,797,000 options to its executive officers, 780,000 options to its employees and 378,000 options to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these options of $445,533, $194,689 and $89,220, respectively, over the vesting period.

In September 2016, the Company granted 828,000 options to its executive officers and 336,000 options to its employees under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of the options vesting over a 48 month period, consisting of 595,000 options granted to its executive officers and all options granted to its employees, of $188,245 and $106,303, respectively, over the vesting period. The remaining 233,000 options granted to its executive officers vest 12 months from the date of grant, and the Company is amortizing the fair value of these options of $67,160 over this vesting period.

In June 2016, the Company granted 262,500 options to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company amortized the fair value of these options of $81,435, over the vesting period.

During the year ended June 30, 2016, the Company granted an aggregate 92,500 options to certain employees under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these options of $41,470, over the vesting period.

In June 2015, the Company granted 570,000 options to its executive officers, 185,800 options to its employees and 160,000 options to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these options of $446,748, $145,439 and $111,876, respectively, over the vesting period.

Unless otherwise stated, stock options granted to the Company’s executive officers and employees vest over a 48 month period, while stock options granted to its non-employee directors vest over a 12 month period.

Restricted Stock Units – The following table summarizes restricted stock award activity for the years ended June 30, 2017, 2016 and 2015:

	2017			2016			2015
Outstanding at beginning of year		2,665,768			1,028,017			957,150
Granted		3,192,000			2,302,500			785,800
Forfeited		(68,751	)		(2,563	)		(9,100	)
Vested		(579,400	)		(662,186	)		(705,833	)
Outstanding at end of year		5,209,617			2,665,768			1,028,017

For the years ended June 30, 2017, 2016 and 2015 the Company recorded stock-based compensation related to restricted stock units of $1,202,421, $1,297,724 and $594,670, respectively.

In June 2017, the Company granted 1,140,000 restricted stock units to its executive officers, 780,000 restricted stock units to its employees and 378,000 restricted stock units to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these restricted stock units of $421,800, $288,600, and $139,860, respectively, over the vesting period.

In September 2016, the Company granted 558,000 restricted stock units to its executive officers, 415,000 of which vest over 24 months and 143,000 of which vest at 12 months, and 336,000 restricted stock units to its employees under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of the restricted stock units of $284,580, and $171,360, respectively, over the vesting periods.

In June 2016, the Company granted 262,500 restricted stock units to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company amortized the fair value of these options of $131,250, over the vesting period.

In December 2015, the Company granted 625,000 performance-based restricted stock units to its executive officers and 200,000 performance-based restricted stock units to its employees under the Company’s 2011 Stock Incentive Plan, which vest during the performance period, ending December 31, 2017, if and upon the earlier of: i) achievement of a closing price for the Company’s common stock equal to or greater than $1.20 per share for 20 consecutive trading days, which is considered a market condition, or ii) entering into a collaboration agreement (U.S. or global) of bremelanotide for FSD, which is considered a performance condition. This performance condition was deemed met as of February 2, 2017, the effective date of the License Agreement on bremelanotide with AMAG. Prior to meeting the performance condition, the Company determined that it was not probable of achievement on the date of grant since meeting the condition was outside the control of the Company. The fair value of these awards, as calculated under a multifactor Monte Carlo simulation, was $338,250 and was recognized over the derived service period which was through December 2016. Upon the achievement of the performance condition, which occurred in the three month period ended March 31, 2017 the grant date fair value was utilized and an incremental $222,075 was recognized as stock-based compensation expense during the three months ended March 31, 2017. Also, in December 2015, the Company granted 625,000 restricted stock units to its executive officers, 340,000 restricted stock units to its non-employee directors and 200,000 restricted stock units to its employees under the Company’s 2011 Stock Incentive Plan. For executive officers and employees, the restricted stock units vest 25% on the date of grant and 25% on the first, second and third anniversary dates from the date of grant. For non-employee directors, the restricted stock units vest 50% on the first and second anniversary dates from the date of grant. The Company is amortizing the fair value of these restricted stock units of $425,000, $231,200 and $136,000, respectively, over the vesting period.

In June 2015, the Company granted 400,000 restricted stock units to its executive officers, 185,800 restricted stock units to its employees and 160,000 restricted stock units to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these restricted stock units of $432,000, $200,664, and $172,800, respectively, over the vesting period. In addition, in June 2015, the Company granted 20,000 restricted stock units to former non-employee directors in recognition of their prior services. These restricted stock units vested upon issuance and the Company recognized the fair value of these restricted stock units of $21,600 as stock-based compensation expense which was included in general and administrative expense at June 30, 2015.

In January 2015, the Company granted 20,000 restricted stock units to an employee and is amortizing the fair value of these restricted stock units of $16,000 over a 24 month vesting period.

Unless otherwise stated, restricted stock units granted to the Company’s executive officers, employees and non-employee directors in 2015 and 2014 vest over 24 months, 48 months and 12 months, respectively.

In connection with the vesting of restricted share units during the years ended June 30, 2017, 2016 and 2015, the Company withheld 75,993, 123,483 and 174,568 shares with aggregate values of $27,088, $58,401 and $164,136, respectively, in satisfaction of minimum tax withholding obligations