Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

v3.20.1
Stockholders' Equity
12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Stockholders' Equity

NOTE 7 - STOCKHOLDERS’ EQUITY

 

Common Stock

 

The common stock confers upon the holders the right to receive notice to participate and vote in general meetings of the Company, and the right to receive dividends, if declared, and to participate in the distribution of the surplus assets and funds of the Company in the event of liquidation, dissolution or winding up of the Company.

 

In February 2019, the Company issued 275,000 shares of common stock to a consultant for services valued at the stock price on the date of issuance which was $3.79 per share, or $1,042. In December 2019, these shares of common stock were converted into Series C Preferred Stock and Series E Preferred Stock, of which 260,000 shares and 15,000 shares were issued, respectively.

 

During 2019, the Company sold 290,000 shares of common stock to private investors and 25,000 shares to a board member at $2 per share, or $630. The shares also included one warrant for each share of common stock issued.

 

No common stock or preferred stock was sold or issued for services in 2018.

 

Options

 

During the years ended December 31, 2019 and 2018, 87,212 and 48,017 employee options were exercised, and 200,000 and 338,750 options were granted, respectively. No directors or consultants exercised options in 2019 and 2018. The options granted during 2019, were recorded at a fair value of $299 and vested immediately. The options granted during 2018 were recorded at fair market value and vest at different schedules ranging from date granted to 2.63 years. During the year ended December 31, 2019 and 2018, stock-based compensation expense of $713 and $889 was recorded for options that vested, respectively.

 

    Options     Weighted
Average
Exercise Price per Share
    Weighted
Average
Remaining
Life (Years)
 
Outstanding – December 31, 2017   $ 1,227,774     $ 3.01     $ 7.18  
Granted     338,750       4.75       9.65  
Forfeited     (71,920 )     4.41       7.16  
Exercised     (48,017 )     0.07       (4.24 )
Outstanding – December 31, 2018   $ 1,446,587     $ 3.16     $ 7.87  
Granted     200,000       3.17       9.41  
Forfeited     (3,043 )     9.06       (0.89 )
Exercised     (87,212 )     0.75       3.79  
Outstanding – December 31, 2019   $ 1,556,332     $ 3.62     $ 6.16  

 

The fair value for options granted in 2019 and 2018 is estimated at the date of grant using a Black-Scholes-Merton options pricing model with the following underlying assumptions:

 

Price at valuation   $ 2.83 - 3.40  
Exercise price   $ 2.83 - 3.40  
Risk free interest     1.77 – 2.79 %
Expected term (in years)     5  
Volatility     48% - 58.6 %

 

The total stock-based expense recognized in the financial statements for services received from employees and non-employees is shown in the following table.

 

    Year Ended  
    December 31,  
    2019     2018  
             
Research and development   $ -     $ -  
Selling and marketing     44       16  
General and administrative     669       873  
                 
Total   $ 713     $ 889  

 

As of December 31, 2019, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $185, which is expected to be recognized over a weighted average period of approximately 0.94 years.

 

Series C Preferred Stock

 

Each share of Series C Preferred Stock is convertible into one share of common stock (subject to adjustment) at any time at the option of the holders, provided that each holder would be prohibited from converting Series C Preferred Stock into shares of common stock if, as a result of such conversion, any such holder, together with its affiliates, would own more than 9.99% of the total number of shares of common stock then issued and outstanding. This limitation may be waived with respect to a holder upon such holder’s provision of not less than 61 days’ prior written notice to the Company.

 

In the event of liquidation, dissolution, or winding up, each holder of Series C Preferred Stock could elect to receive either (i) in preference to any payments made to the holders of Common stock and any other junior securities, a payment for each share of Series C Preferred stock then held equal $ 0.001, plus an additional amount equal to any dividends declared but unpaid on such shares, and any other fees or liquidated damages then due and owing thereon or (ii) the amount of cash, securities or other property to which such holder would be entitled to receive with respect to each share of Series C Preferred Stock if such share of Series C Preferred Stock had been converted to common stock immediately prior to such liquidation, dissolution, or winding up (without giving effect to any conversion limitations).

 

Shares of Series C Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by the board of directors. However, holders of Series C Preferred Stock are entitled to receive dividends on shares of Series C Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock when such dividends are specifically declared by the board of directors. The Company is not obligated to redeem or repurchase any shares of Series C Preferred Stock. Shares of Series C Preferred Stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous fund provisions.

 

Each holder of Series C Preferred Stock is entitled to the number of votes equal to the number of whole shares of common stock into which the shares of Series C Preferred Stock held by such holder are then convertible (subject to the beneficial ownership limitations) with respect to any and all matters presented to the stockholders for their action or consideration. Holders of Series C Preferred Stock vote together with the holders of common stock as a single class, except as provided by law and except that the consent of holders of a majority of the outstanding Series C Preferred Stock is required to amend the terms of the Series C Preferred Stock.

 

Series D Preferred Stock

 

Each share of Series D Preferred Stock is convertible into 1,000 shares of common stock (subject to the beneficial ownership limitations and adjustment as provided in the certificate of designation) at any time at the option of the holders, provided that each holder would be prohibited from converting Series D Preferred Stock into shares of common stock if, as a result of such conversion, any such holder, together with its affiliates, would own more than 4.99% of the total number of shares of common stock then issued and outstanding. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until the 61st day after such notice to the Company.

 

In the event of our liquidation, dissolution, or winding up, each holder of Series D Preferred Stock will be entitled to receive the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of Series D Preferred Stock if such shares had been converted to common stock immediately prior to such event (without giving effect for such purposes to the 4.99% or 9.99% beneficial ownership limitation, as applicable) subject to the preferential rights of holders of any class or series of the Company’s capital stock specifically ranking by its terms senior to the Series D Preferred Stock as to distributions of assets upon such event, whether voluntarily or involuntarily.

 

Shares of Series D Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by the board of directors. However, holders of Series D Preferred Stock are entitled to receive dividends on shares of Series D Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock when such dividends are specifically declared by the board of directors, except for stock dividends or distributions payable in shares of common stock on shares of common stock or any other common stock equivalents for which the conversion price will be adjusted. The Company is not obligated to redeem or repurchase any shares of Series D Preferred Stock. Shares of Series D Preferred Stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous fund provision.

 

The holders of the Series D Preferred Stock have no voting rights, except as required by law. The Company may not alter or change adversely the powers, preferences and rights of the Series D Preferred Stock or amend the certificate of designation or amend its certificate of incorporation or bylaws in any manner that adversely affects any right of the holders of the Series D Preferred Stock without the affirmative vote of the holders of a majority of the shares of Series D Preferred Stock then outstanding.

 

The Company is obligated to deliver shares of common stock upon conversion of the Series D Preferred Stock (the “Conversion Shares”), within the time period specified in the certificate of designation. Failure to comply with the timely delivery requirement triggers certain liquidated damages payable by the Company to each of the Series D Preferred Stock holders.

 

If, at any time while the Series D Preferred Stock is outstanding, the Company completed a Fundamental Transaction (as defined in the certificate of designation), then upon any subsequent conversion of the Series D Preferred Stock, the holder will receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional cash, securities and/or other property or consideration (the “Alternate Consideration”) receivable by holders of common stock as a result of such Fundamental Transaction for each share of common stock for which this Series D Preferred Stock is convertible immediately prior to such Fundamental Transaction. For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of common stock in such Fundamental Transaction. If holders of common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Series D Preferred Stock following such Fundamental Transaction. If such Fundamental Transaction is also a Change of Control Transaction in which the Company is not the surviving entity, then all shares of Series D Preferred Stock shall, upon consummation of such Change of Control Transaction, automatically be converted into Conversion Shares.

 

Since the Company has sufficient authorized and unissued shares available to settle its commitments and since all holders of equally (both preferred stock and common stock) would receive the same form of consideration upon the consummation of a Fundamental Transaction, and the shares are not otherwise redeemable, the shares of Series D Preferred Stock are classified within permanent equity, consistent with the guidance of ASC 480.

 

Series E Preferred Stock

 

On June 21, 2019, the Company filed a Certificate of Designation of the Series E Preferred Stock (the “Original Certificate of Designation”) with the Secretary of State of the State of Delaware (the “Secretary of State”). The Original Certificate of Designation was effective upon filing with the Secretary of State and designated the Series E Preferred Stock. On July 31, 2019 and November 15, 2019, the Company filed with the Secretary of State an Amended and Restated Certificates of Designation (the “Amended and Restated Certificates of Designation”) which were effective upon filing with the Secretary of State of Delaware. The Amended Certificates of Designation provide that, among other things, the Series E Preferred Stock is not convertible into the Company’s common stock, and the holders of Series E Preferred Stock had no voting rights, until, in each case, the Company received stockholder approval of the June Offering (as defined below) and the July Preferred Offering (as defined below), which it received on November 18, 2019.

 

On June 21, 2019, the Company entered into and closed a private placement Securities Purchase Agreement with certain existing stockholders relating to the sale to such existing stockholders of 1,600,000 shares of the Company’s Series E Preferred Stock, and seven year warrants to purchase 1,600,000 shares of our Series E Preferred Stock at an exercise price of $2.50 per share, at a purchase price per unit of $2.00 (the “June Offering”), for aggregate proceeds of $3,200 (excluding the exercise of the warrants issued in the June Offering).

 

On July 31, 2019, the Company entered into and closed a private placement Securities Purchase Agreement with certain existing stockholders relating to the sale to such existing investors of 210,000 shares of the Company’s Series E Preferred Stock and seven year warrants to purchase 210,000 shares of our Series E Preferred Stock at an exercise price of $2.50 per share, at a purchase price per unit of $2.00 (the “July Preferred Offering”), for proceeds of $420 (excluding the exercise of the warrants issued in the July Preferred Offering).

 

Each share of Series E Preferred Stock is convertible at any time and from time to time at the option of a holder of Series E Preferred Stock into one share of the Company’s common stock, provided that each holder would be prohibited from converting Series E Preferred Stock into shares of the Company’s common stock if, as a result of such conversion, any such holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. This limitation may be waived with respect to a holder upon such holder’s provision of not less than 61 days’ prior written notice to the Company.

 

Upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, each holder of the Series E Preferred Stock shall be entitled to receive the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of Series E Preferred Stock if such shares had been converted to the Company’s common stock immediately prior to such liquidation.

 

Shares of Series E Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by the Board. However, holders of Series E Preferred Stock are entitled to receive dividends on shares of Series E Preferred stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock when such dividends are specifically declared by the Board of Directors of the Company. The Company is not obligated to redeem or repurchase any shares of Series E Preferred Stock. Shares of Series E Preferred Stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous fund provisions.

 

Subject to the beneficial ownership limitations, each holder of Series E Preferred Stock shall be entitled to the number of votes equal to the number of shares of the Company’s common stock equal to the Voting Ratio. The Voting Ratio, for each share of Series E Preferred Stock is equal to $2.00 divided by $3.53.

 

These Series E Preferred Shares are classified within permanent equity on the Company’s consolidated balance sheet as they do not meet the criteria that would require presentation outside of permanent equity under ASC 480 “Distinguishing Liabilities from Equity”.

 

Warrants

 

During the year ended December 31, 2019, the Company issued warrants to purchase 190,000 shares of the Company’s common stock or Series C Preferred Stock, at an exercise price of the lesser of: (a) 80% (i.e., a 20% discount) of the exercise price per share of the warrants to purchase shares of the Company’s capital stock issued in the first equity financing of the Company following the date of issuance, or (b) $4.80, with a stipulation that in no event will the exercise price be less than $3.00 per warrant share. The warrants were issued in conjunction with the issuance of convertible debt which has since been repaid and the warrants remain outstanding – See Note 8. The warrants were initially accounted for as a derivative liability until the completion of the June Offering.

 

The Company issued warrants to purchase 1,600,000 shares of Series E Preferred Stock in the June Offering and warrants to purchase 210,000 shares of Series E Preferred Stock in the July Preferred Offering.

 

In July and August 2019, the Company issued 315,000 warrants to private investors that were issued in conjunction with the sale of common stock.

 

    Warrants  
Outstanding – December 31, 2017     2,641,165  
Granted     -  
Exercised     -  
Expired     (245,893 )
Outstanding – December 31, 2018     2,395,272  
Granted     2,315,000  
Exercised     -  
Expired     -  
Outstanding – December 31, 2019     4,710,272  

 

Warrant modification

 

On February 5, 2019, the Company entered into amendments to its two-year warrants (the “Warrant Amendment”) to purchase an aggregate of 266,667 shares of common stock at an exercise price of $3.00 per share (the “$3.00 Warrants”) and warrants to purchase an aggregate of 420,000 shares of common stock at an exercise price of $6.00 per share (the “$6.00 Warrants”), issued in January and February 2015, to extend the expiration date of the warrants for two additional years. The warrants were previously extended for two years in January 2017. In addition, the Warrant Amendment amended the exercise price with respect to the $3.00 Warrants from $3.00 per share to $3.35 per share. The exercise price of the $6.00 Warrants was unchanged. Pursuant to the Warrant Amendment, warrants to purchase 266,667 shares of common stock at $3.35 per share and warrants to purchase 266,667 shares of common stock at $6.00 per share will expire on January 29, 2021, and warrants to purchase 140,000 shares of common stock at $6.00 per share will expire on February 10, 2021, and warrants to purchase 13,333 shares of common stock at $6.00 per share will expire on February 23, 2021. The Warrant Amendment is effective as of January 29, 2019. All other terms of the original warrants remain the same.

 

The Warrant Amendment was accounted for in warrant modification expense, which was measured at the amount equal to the incremental value reflecting the change in the fair value of the warrants before and after the Warrant Amendment. Accordingly, warrant modification expense in the amount of $412 was recorded with a corresponding increase in the additional paid-in capital.

 

In estimating the warrants’ fair value, the Company used the following assumptions:

 

Risk free interest     2.56 %
Dividend yield     0 %
Volatility     55.6% - 56.5 %
Contractual term (in years)     2