Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.20.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2020
Stockholders' Equity Note [Abstract]  
Stockholders' Equity

Common Stock

 

On March 26, 2019, the Company entered into a Securities Purchase Agreement with certain existing investors, pursuant to which the Company sold, in a registered public offering by the Company directly to the investors an aggregate of 478,469 shares of common stock, par value $0.0001 per share, at an offering price of $4.18 per share for proceeds of $1,985,001 net of offering expenses of $15,000.

 

During the period ended March 31, 2019, the Company issued 1,412,420 shares of common stock from the conversion of 21,591 shares of Series H-4 Convertible Preferred stock.

 

During the period ended March 31, 2019, the Company issued 116,666 shares of common stock to a service provider and recorded $222,200 stock based compensation as a part of general and administrative expense in the Company’s consolidated statements of operations.

 

During the period ended March 31, 2019, the Company issued 277,778 shares of common stock from the exercise of Series K warrants and received cash proceeds of $16,667.

 

During the period ended March 31, 2020, the Company issued 490,000 shares of common stock from the conversion of 4,900 shares of Series H-6 Convertible Preferred Stock.

 

Preferred Stock

 

In accordance with the Certificate of Incorporation, there are 5,000,000 authorized preferred shares at a par value of $ 0.0001. 

 

Series H Convertible Preferred Stock

 

Under the terms of the Series H Certificate of Designation, each share of the Company’s Series H Convertible Preferred Stock (the “Series H Preferred Stock”) has a stated value of $154 and is convertible into shares of the Company’s common stock, equal to the stated value divided by the conversion price of $36.96 per share (subject to adjustment in the event of stock splits or dividends). The Company is prohibited from effecting the conversion of the Series H Preferred Stock to the extent that, as a result of such conversion, the holder would beneficially own more than 9.99%, in the aggregate, of the issued and outstanding shares of the Company’s common stock calculated immediately after giving effect to the issuance of shares of common stock upon such conversion.

  

In the event of liquidation, the holders of the Series H Preferred Stock are entitled, pari passu with the holders of common stock, to receive a payment in the amount the holder would receive if such holder converted the Series H Preferred Stock into common stock immediately prior to the date of such payment. As of March 31, 2020, such payment would be calculated as follows:

 

Number of Series H Preferred Stock outstanding     8  
Multiplied by the stated value   $ 154  
Equals the gross stated value   $ 1,232  
Divided by the conversion price   $ 36.96  
Equals the convertible shares of common stock     33  
Multiplied by the fair market value of common stock at March 31, 2020   $ 0.45  
Equals the payment   $ 15  

 

Series H-1 and H-2 Convertible Preferred Stock

 

The Company has designated 9,488 Series H-1 Convertible Preferred Stock and designated 3,500 Series H-2 Convertible Preferred Stock, none of which are outstanding.

 

Series H-3 Convertible Preferred Stock

 

Pursuant to the Series H-3 Certificate of Designation (as defined below), the holders of the Company’s Series H-3 Convertible Preferred Stock (the “Series H-3 Preferred Stock”) are entitled to elect up to two members of a seven member Board, subject to certain step downs; pursuant to the Series H-3 securities purchase agreement, the Company agreed to effectuate the appointment of the designees specified by the Series H-3 investors as directors of the Company.

 

On March 30, 2017, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designations, Preferences and Rights with respect to the Series H-3 Preferred Stock (the “Series H-3 Certificate of Designation”).

 

Under the terms of the Series H-3 Certificate of Designation, each share of the Series H-3 Preferred Stock has a stated value of $138 and is convertible into shares of common stock, equal to the stated value divided by the conversion price of $33.12 per share (subject to adjustment in the event of stock splits and dividends). The Company is prohibited from effecting the conversion of the Series H-3 Preferred Stock to the extent that, as a result of such conversion, the holder or any of its affiliates would beneficially own more than 9.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series H-3 Preferred Stock.

 

In the event of liquidation, the holders of the Series H-3 Preferred Stock are entitled, pari passu with the holders of common stock, to receive a payment in the amount the holder would receive if such holder converted the Series H-3 Preferred Stock into common stock immediately prior to the date of such payment. As of March 31, 2020, such payment would be calculated as follows:

 

Number of Series H-3 Preferred Stock outstanding     2,189  
Multiplied by the stated value   $ 138  
Equals the gross stated value   $ 302,082  
Divided by the conversion price   $ 33.12  
Equals the convertible shares of common stock     9,121  
Multiplied by the fair market value of common stock at March 31, 2020   $ 0.45  
Equals the payment   $ 4,104  

  

Series H-4 Convertible Preferred Stock

 

On March 8, 2018, the Company entered into a Securities Purchase Agreement with investors pursuant to which the Company issued to the investors an aggregate of 25,472 shares of the Company’s Series H-4 Convertible Preferred Stock, par value $0.0001 per share (the “Series H-4 Shares”) convertible into 424,533 shares of common stock of the Company, and warrants to purchase 424,533 shares of common stock of the Company, with an original exercise price of $15.60 per share (the “H-4 Exercise Price”), subject to adjustments (the “Series H-4 Warrants”). The purchase price per Series H-4 Preferred Stock and Series H-4 Warrant was $235.50, equal to (i) the closing price of the common stock on the Nasdaq Capital Market on March 7, 2018, plus $0.125 multiplied by (ii) 100. The aggregate purchase price for the Series H-4 Shares and Series H-4 Warrants was approximately $6.0 million. Subject to certain ownership limitations, the Series H-4 Warrants are immediately exercisable from the issuance date and are exercisable for a period of five years from the issuance date.

 

On March 8, 2018, the Company filed the Certificate of Designations, Preferences and Rights of the Series H-4 Convertible Preferred Stock (the “Series H-4 Certificate of Designation”) with the Secretary of State of the State of Delaware, establishing and designating the rights, powers and preferences of the Series H-4 Convertible Preferred Stock (the “Series H-4 Preferred Stock”). The Company designated up to 30,000 shares of Series H-4 Preferred Stock and each share has a stated value of $235.50 (the “H-4 Stated Value”). Each share of Series H-4 Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock determined by dividing the H-4 Stated Value by the original conversion price of $14.13 per share (the “Conversion Price”), subject to a 9.99% blocker provision. The Series H-4 Preferred Stock has the same dividend rights as the common stock, and no voting rights except as provided for in the Series H-4 Certificate of Designation or as otherwise required by law. In the event of any liquidation or dissolution of the Company, the Series H-4 Preferred Stock ranks senior to the common stock in the distribution of assets, to the extent legally available for distribution.

 

The holders of Series H-4 Preferred Stock are entitled to certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable conversion price of the Series H-4 Preferred Stock. If any such dilutive issuance occurs prior to the conversion of the Series H-4 Preferred Stock, the conversion price will be adjusted downward to a price equal to the issuance (subject to a floor of $2.826 per share). On August 31, 2018, the Company entered into an agreement with certain investors to exercise Series H-4 Warrants and issue Series J warrants which resulted in a reduced conversion price of $3.60 per share for the Series H-4 Preferred Stock. See “Exercise of Series H-4 Warrants and Issuance of Series J Warrants” below. On December 6, 2019, the Company entered into Series H-5 securities purchase agreement, causing the Conversion Price to decrease from $3.60 per share to $2.826 per share.

 

If at any time (i) the volume weighted average price (“VWAP”) of the common stock exceeds $35.10 for not less than ten (10) consecutive Trading Days (the “Mandatory Exercise Measuring Period”); (ii) the daily average number of shares of common stock traded during the Mandatory Exercise Measuring Period equals or exceeds 25,000; and (iii) no equity conditions failure has occurred as of such date, then the Company shall have the right to require the holder to exercise all or any portion of the Series H-4 Warrants still unexercised for a cash exercise.

 

In the event of liquidation, the holders of the Series H-4 Preferred Stock are entitled, pari passu with the holders of common stock, to receive a payment in the amount the holder would receive if such holder converted the Series H-4 Preferred Stock into common stock immediately prior to the date of such payment. As of March 31, 2020, such payment would be calculated as follows:

 

Number of Series H-4 Preferred Stock outstanding     5,028  
Multiplied by the stated value   $ 235.50  
Equals the gross stated value   $ 1,184,094  
Divided by the conversion price   $ 2.826  
Equals the convertible shares of common stock     419,000  
Multiplied by the fair market value of common stock at March 31, 2020   $ 0.45  
Equals the payment   $ 188,550  

 

Series H-5 Convertible Preferred Stock

 

On December 6, 2019, the Company entered into a Securities Purchase Agreement with investors pursuant to which the Company issued to the investors an aggregate of 34,722 shares of the Company’s newly designated Series H-5 Convertible Preferred Stock, par value $0.0001 per share (the “Series H-5 Preferred Stock”) convertible into 3,472,200 shares of common stock of the Company. The purchase price per Series H-5 Preferred Stock was $72.00, equal to (i) the closing price of the common stock on the Nasdaq Capital Market on December 5, 2019, plus $0.125 multiplied by (ii) 100. The aggregate purchase price for the Series H-5 Preferred Stock was approximately $2.5 million.

 

December 6, 2019, the Company filed the Certificate of Designations, Preferences and Rights of the Series H-5 Preferred Stock (the “H-5 Certificate of Designation”) with the Secretary of State of the State of Delaware, establishing and designating the rights, powers and preferences of the Series H-5 Preferred Stock. The Company designated up to 50,000 shares of Series H-5 Preferred Stock and each share has a stated value of $72.00 (the “H-5 Stated Value”). Each share of Series H-5 Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock determined by dividing the H-5 Stated Value by the conversion price of $0.72 per share, subject to a 9.99% blocker provision. The Series H-5 Preferred Stock has the same dividend rights as the common stock, and no voting rights except as provided for in the H-5 Certificate of Designation or as otherwise required by law. In the event of any liquidation or dissolution of the Company, the Series H-5 Preferred Stock ranks senior to the common stock in the distribution of assets, to the extent legally available for distribution.

 

Exchange of Series H-5 Preferred Stock for Series H-6 Convertible Preferred Stock

 

On February 5, 2020 the Company entered into separate Exchange Agreements (the “Exchange Agreements”) with the holders of existing Series H-5 Preferred Stock, to exchange an equivalent number of shares of the Company’s Series H-6 Convertible Preferred Stock (the “Series H-6 Preferred Stock”), par value $0.0001 per share (the “Exchange”). The purpose of the exchange was to include voting rights. The Company accounted for the Exchange as a modification which resulted in no impact to the condensed consolidated statement of operations.

 

On February 5, 2020, the Company filed the Certificate of Designations, Preferences and Rights of the Series H-6 Preferred Stock (the “Series H-6 Certificate of Designation”) with the Secretary of State of the State of Delaware, establishing and designating the rights, powers and preferences of the Series H-6 Preferred Stock. The Company designated up to 50,000 shares of Series H-6 Preferred Stock and each share has a stated value of $72.00 (the “H-6 Stated Value”). Each share of Series H-6 Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock of the Company determined by dividing the H-6 Stated Value by the initial conversion price of $0.72 per share, subject to a 9.99% blocker provision. The Series H-6 Preferred Stock has the same dividend rights as the common stock, except as provided for in the Series H-6 Certificate of Designation or as otherwise required by law. The Series H-6 Preferred Stock also has the same voting rights as the common stock, except that in no event shall a holder of Series H-6 Preferred Stock be permitted to exercise a greater number of votes than such holder would have been entitled to cast if the Series H-6 Preferred Stock had immediately been converted into shares of common stock at a conversion price equal to $0.78 (subject to adjustment). In addition, a holder (together with its affiliates) may not be permitted to vote Series H-6 Preferred Stock held by such holder to the extent that such holder would beneficially own more than 9.99% of our common stock. In the event of any liquidation or dissolution, the Series H-6 Preferred Stock ranks senior to the common stock in the distribution of assets, to the extent legally available for distribution.

 

The holders of Series H-6 Preferred Stock are entitled to certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable conversion price of the Series H-6 Preferred Stock. If any such dilutive issuance occurs prior to the conversion of the Series H-6 Preferred Stock, the conversion price will be adjusted downward to a price that cannot be less than 20% of the exercise price or $0.1584.

  

In the event of liquidation, the holders of the Series H-6 Preferred Stock are entitled, pari passu with the holders of common stock, to receive a payment in the amount the holder would receive if such holder converted the Series H-6 Preferred Stock into common stock immediately prior to the date of such payment. As of March 31, 2020, such payment would be calculated as follows:

 

Number of Series H-6 Preferred Stock outstanding     29,822  
Multiplied by the stated value   $ 72.00  
Equals the gross stated value   $ 2,147,184  
Divided by the conversion price   $ 0.72  
Equals the convertible shares of common stock     2,982,200  
Multiplied by the fair market value of common stock at March 31, 2020   $ 0.45  
Equals the payment   $ 1,341,990  

 

Stock Based Compensation

 

Amended and Restated 2014 Equity Incentive Plan

 

The Company has one equity incentive plan which was amended in 2018 to increase the number of shares of common stock available for issuance, the 2014 Equity Incentive Plan (the “Plan”), with 706,629 shares of common stock reserved for issuance. As of March 31, 2020, there were 123,137 shares available for grant under the Plan.

 

Service Based Restricted Stock Units and Common Stock

 

On February 28, 2018, the Company issued 244,643 restricted stock units (“RSUs”) to two members of management. On March 26, 2019, the Board of Directors, with the consent of the grantees, agreed to amend the vesting period for the RSUs issued on February 28, 2018 to vest in full on May 17, 2019. The RSUs were valued using the fair market value of the Company’s closing stock price on the date of grant totaling $3,243,966, which was amortized over the original vesting period. During the three months ended March 31, 2019, the Company recorded $289,842 as loss from operations of discontinued component as stock based compensation in relation to the RSUs.

 

Consulting Agreement

 

The Company entered into a two-month consulting agreement with a vendor to receive public relations services beginning on December 24, 2018. The compensation terms are $20,000 cash payment and 33,333 shares of common stock. In accordance with ASC 505, the shares were valued as of December 31, 2018, the reporting date. The Company recorded $0 and 61,318 in the consolidated statement of operations for the three months ended March 31, 2020 and 2019 in relation to the consulting agreement. The Company paid the cash upon entering the agreement and issued the shares of common stock upon completion of the contract in February 2019.   

 

Employee and Non-employee Stock Options

 

On January 30, 2019, the Company issued options to purchase 99,072 shares of common stock to two members of management. The options vest quarterly over two years and have an exercise price of $2.32 per share. The options were valued at $213,444, in the aggregate, on the date of grant using the Black-Scholes options pricing model and amortized over the vesting period.

 

During the period ended March 31, 2020, pursuant to employment agreements with Spencer Richardson, the Company’s Co-Founder and Chief Executive Officer, and David Newman, the Company’s Co-Founder and Chief Business Development Officer, the Company agreed to issue options equivalent to 1% of the outstanding shares of the Company on a fully diluted basis pursuant to the equity incentive plan. There are not enough shares in the Company’s equity incentive plan to issue the 251,400 options to be granted, in the aggregate. As of and for the three months ended March 31, 2020, the Company recorded $18,608 as current liabilities held for sale and loss from operations of discontinued component in relation to this option issuance. The Company valued the options to be issued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 5 years, (ii) volatility of 153%, (iii) risk-free rate of 1.57%, and (iv) dividend rate of zero.  

  

The following table summarizes stock option activity during the three months ended March 31, 2020:

 

    Shares Underlying Options     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (years)     Aggregate Intrinsic Value  
Outstanding at December 31, 2019     380,396     $ 14.43       6.84       -  
Expired     (73,194 )     35.53       -          
Outstanding at March 31, 2020     307,202     $ 9.39       8.20       -  

 

At March 31, 2020, unamortized stock compensation for stock options was approximately $100,957, with a weighted-average recognition period of 0.82 years.

 

At March 31, 2020, outstanding options to purchase 256,415 shares of common stock were exercisable with a weighted-average exercise price per share of $10.74.

 

The following table sets forth total non-cash stock-based compensation for common stock, RSUs, options and warrants issued to employees and non-employees by operating statement classification for the three months ended March 31, 2020 and 2019:

 

    Three Months ended March 31,  
    2020     2019  
Research and development     3,758       3,717  
Selling, general and administrative     45,586       484,240  
Total $     49,344     $ 487,957  

 

Warrants

 

Series I Warrants

  

On April 19, 2018, the Company entered into separate Warrant Exchange Agreements (the “Exchange Agreements”) with the holders of existing warrants previously issued (collectively, the “Series I Warrants”). The Series I Warrants have an exercise price of $13.80 per share. If at any time (i) the volume weighted average price (“VWAP”) of the Common Stock exceeds $27.60 for not less than the mandatory exercise measuring period; (ii) the daily average number of shares of Common Stock traded during the mandatory exercise measuring period equals or exceeds 25,000; and (iii) no equity conditions failure has occurred as of such date, then the Company shall have the right to require the holder to exercise all or any portion of the Series I Warrants still unexercised for a cash exercise.

 

Exercise of Series H-4 Warrants and Issuance of Series J Warrants

 

On March 8, 2018, the Company issued warrants to purchase an aggregate of 447,383 shares of common stock (the “Series H-4 Warrants”). The Series H-4 Warrants were initially exercisable at an exercise price equal to $15.60 per share. On August 31, 2018, the Company offered (the “Repricing Offer Letter”) to the holders (the “Holders”) of Series H-4 Warrants the opportunity to exercise such Series H-4 Warrants for cash at a reduced exercise price of $3.60 per share (the “Reduced Exercise Price”) provided such Series H-4 Warrants were exercised for cash on or before September 4, 2018 (the “End Date”). In addition, the Company issued a “reload” warrant (the “Series J Warrants”) to each Holder who exercised their Series H-4 Warrants prior to the End Date, covering one share for each Series H-4 Warrant exercised during that period. The terms of the Series J Warrants are substantially identical to the terms of the Series H-4 Warrants except that (i) the exercise price is equal to $6.00, (ii) the Series J Warrants may be exercised at all times beginning on the 6-month anniversary of the issuance date on a cash basis and also on a cashless basis, (iii) the Series J Warrants do not contain any provisions for anti-dilution adjustment and (iv) the Company has the right to require the Holders to exercise all or any portion of the Series J Warrants still unexercised for a cash exercise if the volume-weighted average price (as defined in the Series J Warrant) for the Company’s common stock equals or exceeds $9.00 for not less than ten consecutive trading days.

  

If at any time (i) the VWAP of the Common Stock exceeds $9.00 for not less than the Mandatory Exercise Measuring Period; (ii) the daily average number of shares of Common Stock traded during the Mandatory Exercise Measuring Period equals or exceeds 25,000; and (iii) no equity conditions failure has occurred as of such date, then the Company shall have the right to require the holder to exercise all or any portion of the Series J Warrants still unexercised for a cash exercise.

 

On September 4, 2018, the Company received executed Repricing Offer Letters from a majority of the Holders, which resulted in the issuance of 260,116 shares of the Company’s common stock and Series J Warrants to purchase up to 260,116 shares of the Company’s common stock.

  

On November 15, 2018, the Company obtained shareholder approval to reduce the exercise price from $15.60 per share to $3.60 per share for 187,267 Series H-4 Warrants.

 

The Series H-4 Warrants contain anti-dilution price protection that was triggered on December 6, 2019 upon the issuance of the series H-5 Warrants (as defined below), causing the exercise price to decrease from $3.60 per share to $3.12 per share.

 

Issuance of Series H-5 Warrants

 

On December 6, 2019, the Company issued warrants to purchase 3,715,254 shares of common stock of the Company, with an exercise price of $0.792 per share, subject to adjustments (the “H-5 Warrants”). Subject to certain ownership limitations, the H-5 Warrants will be exercisable beginning six months from the issuance date and will be exercisable for a period of five years from the initial exercise date. Of the 3,715,254 granted, 243,054 were granted to Palladium, see Note 8.

 

Upon the receipt of approval of the Company’s stockholders, which approval has not yet been obtained, the holders of the H-5 Warrants will be entitled to certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable exercise price (subject to a floor of $0.1584 per share). The H-5 Warrants contain a blocker that prohibits the holder from exercising the warrants if such exercise will result in the beneficial ownership by the holder of more than 9.99% of the Company’s outstanding shares.

 

A summary of the Company’s warrants to purchase common stock activity is as follows:

 

    Shares Underlying Warrants     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (years)     Aggregate Intrinsic Value  
Outstanding at December 31, 2019     4,300,560     $ 1.77       5.06       -  
Granted     -       -       -       -  
Exercised/Forfeited     -       -       -       -  
Outstanding at March 31, 2020     4,300,560     $ 1.77       4.81       -  

 

The Series H-5 warrants are exercisable beginning June 6, 2020.

 

The warrants expire through the years 2020-2024, except for the Series K Warrant which has no expiration date.