Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.19.2
Stockholders' Equity
6 Months Ended
Jun. 30, 2018
STOCKHOLDERS' EQUITY (DEFICIT):  
Stockholders' Equity

Common Stock

 

On January 18, 2018, the Company sold 10,057 shares of common stock for proceeds of $300,000.

 

On January 30, 2018, the Company converted $3,682,502, the net carrying value of the principal balance of $4,840,000 convertible notes payable, into 136,785 shares of common stock just prior to the Reverse Merger.

 

During the period ended June 30, 2018, the Company converted $159,584 of accrued interest related to the convertible notes into 4,518 shares of common stock.

 

During the period ended June 30, 2018, the Company granted 3,333 shares of common stock to a service provider and recorded $31,800 as general and administrative expense in the Company’s consolidated statements of operations.

 

Preferred Stock

 

Series Seed

 

On January 30, 2018, the Company converted 275,691 shares of Series Seed Preferred Stock into common stock in connection with the Reverse Merger.

 

Series A

 

On January 30, 2018, the Company converted 611,944 shares of Series A Preferred Stock into common stock in connection with the Reverse Merger.

 

Series H Convertible

 

On January 30, 2018, in accordance with the Merger the Company issued 8 shares of Series H Convertible Preferred Stock.

 

Series H-1 and H-2 Convertible

 

The Company has designated 9,458 Series H-1 Preferred Stock and designated 3,500 Series H-2 Preferred Stock, none of which are outstanding.

 

Series H-3 Convertible

 

On January 30, 2018, in accordance with the Merger the Company issued 2,189 shares of Series H-3 Convertible Preferred Stock.

 

Series H-4 Convertible

 

On March 8, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with investors pursuant to which the Company issued to the Investors an aggregate of 25,472 shares of the Company’s newly designated 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 exercise price of $15.60 per share, subject to adjustments (the “Warrants”). The purchase price per Series H-4 Share and 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 Warrants was approximately $6.0 million. Subject to certain ownership limitations, the 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 “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 Stock”). The Company designated up to 30,000 shares of Series H-4 Stock and each share has a stated value of $235.50 (the “Stated Value”). Each share of Series H-4 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 Stated Value by the initial conversion price of $14.15 per share, subject to a 9.99% blocker provision. The Series H-4 Stock has the same dividend rights as the Common Stock, and no voting rights except as provided for in the Certificate of Designation or as otherwise required by law. In the event of any liquidation or dissolution of the Company, the Series H-4 Stock ranks senior to the Common Stock in the distribution of assets, to the extent legally available for distribution

 

Stock Based Compensation

 

Service Based Restricted Stock Units

 

On February 28, 2018, the Company issued 244,643 restricted stock units (“RSUs”) to two members of management. The RSUs vest on the one-year anniversary from the grant date. 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 is being amortized over the vesting period.

 

At June 30, 2018, unamortized stock compensation for the RSUs was $2,159,630, which will be recognized over the next 8 months.

 

Service Based Warrants

 

On March 8, 2018, in connection with the financing discussed above, the Company issued 1,371 Series H-4 Shares and 22,850 common stock Warrants to a service provider. The Company valued these Warrants using the Black-Scholes option pricing model with the following inputs: exercise price of $15.60; fair market value of underlying stock of $13.20; expected term of 5 years; risk free rate of 2.63%; volatility of 120.63%; and dividend yield of 0%. For the six months ended June 30, 2018, the Company recorded the fair market value of the Series H-4 Shares and warrants as an increase and decrease to additional paid in capital in the amount of $568,648 as these services were provided in connection with the sale of the Series H-4 shares.

 

Employee and Non-employee Stock Options

 

The following table summarizes stock option activity during the six months ended June 30, 2018:

 

   

Shares

Underlying

Options

   

Weighted

Average

Exercise Price

   

Weighted

average

Remaining

Contractual Life

(years)

   

Aggregate

Intrinsic

Value

 
Outstanding at December 31, 2017     -     $ -       -       -  
Acquired in Reverse Merger     133,711       36.42       4.40       -  
Granted     68,347       12.24       9.76       -  
Outstanding at June 30, 2018     202,058     $ 25.74       8.49       -  

  

At June 30, 2018, unamortized stock compensation for stock options was $618,137, with a weighted-average recognition period of 2 years.

 

Share Based Compensation

 

Stock based compensation for RSUs and options issued to employees and non-employees was recorded as part of selling, general, and administrative expense for the three months ended June 30, 2018 and 2017 in the amount of $876,114 and $0, respectively. Stock based compensation for RSUs and options issued to employees and non-employees was recorded as part of selling, general, and administrative expense for the six months ended June 30, 2018 and 2017 in the amount of $1,200,652 and $418,692, respectively.

 

On May 14, 2018, the Company approved of annual option grants to the Chairman of the Board and to each non-executive member of the Board. The Chairman shall receive an annual option grant to purchase shares of common stock equal to the intrinsic value of $30,000 and each non-executive member of the Board (other than the Chairman) shall receive an annual option grant to purchase shares of common stock equal to an intrinsic value of $20,000, each such grant to vest in equal quarterly installments over a one-year period. The option grants are subject to stockholder approval of an amendment to the Plan increasing the number of shares available for grant thereunder and will not be granted if the Company’s stockholders do not approve such an increase. The Company will fair value and record these board grants upon stockholder approval of an amendment to the Plan.

 

Service Based Common Stock

 

On January 30, 2018 the Company issued 213,707 and 35,558 shares of common stock to Alpha Capital Anstalt and Palladium Capital Advisors, respectively, in connection with the Reverse Merger. For the Alpha Capital Anstalt issuance, the Company recorded 90% of the issuance, or 192,336 common shares, as cost of capital raise and 10% of the issuance, or 21,371 common shares, as advisory services. The Reverse Merger costs in the amount of $1,510,722 was recorded as a reduction to additional paid in capital and the advisory service costs in the amount of $167,858 were recorded as general and administrative expense in the consolidated statement of operations. For the Palladium Capital Advisors issuance, the Company recorded $279,292 as general and administrative expense in the consolidated statement of operations.

 

Stock option pricing model

 

The fair value of the stock options granted during the three months ended June 30, 2018, was estimated at the date of grant using the Black-Scholes options pricing model with the following assumptions:

 

Fair value of common stock   $10.92-$13.26
Expected volatility   118.10% - 118.83%
Dividend yield   $0
Risk-free interest   2.87% - 3.00%
Expected life (years)   5.33

 

Warrants

 

On April 19, 2018, the Company entered into separate Warrant Exchange Agreements (the “Exchange Agreements”) with the holders (the “Merger Warrant Holders”) of existing warrants issued in the Reverse Merger (the “Merger Warrants”) to purchase shares of Common Stock, pursuant to which, on the closing date, the Merger Warrant Holders exchanged each Merger Warrant for 1/18 of a share of Common Stock and 1/12 of a warrant to purchase a share of Common Stock (collectively, the “Series I Warrants”). The Series I Warrants have an exercise price of $13.80 per share. In connection with the Exchange Agreements, the Company issued an aggregate of (i) 48,786 new shares of common stock and (ii) Series I Warrants to purchase an aggregate of 73,178 shares of common stock. The Company valued the (a) stock and warrants issued in the amount of $972,368, (b) the warrants retired in the amount of $655,507, and (c) recorded the difference as deemed dividend in the amount of $316,861. The warrants were valued using the Black-Scholes option-pricing model on the date of the exchange using the following assumptions: (a) fair value of common stock $10.32, (b) expected volatility of 103% and 110%, (c) dividend yield of $0, (d) risk-free interest rate of 2.76% and 2.94%, (e) expected life of 3 years and 4.13 years.

 

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

 

    Number of Warrants    

Weighted Average

Exercise Price

 
Outstanding, December 31, 2017     146,358     $ 59.04  
Acquired, H-1 warrants     50,744       29.04  
Acquired, H-3 warrants     14,001       33.12  
Granted, H-4 warrants(1)     447,383       3.60  
Granted, I warrants     73,178       13.80  
Retired, Merger Warrants     (146,357 )     59.04  
Outstanding, June 30, 2018     585,307     $ 16.98  

 

(1) Excludes 1,342,150 H-4 warrants representing 150% coverage of H-4 warrants granted.

 

The warrants expire through the years 2020-2024.