| Equity | NOTE 4 - EQUITY:
a. On February 7, 2018, the Company filed with the Secretary of State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a one-for-thirty-five reverse stock split of its common stock, par value $0.0001 per share, effective as of February 7, 2018. All related share and per share data have been retroactively applied to the financial statements and their related notes for all periods presented.
b. On December 1, 2017, as part of a planned recapitalization, the Company sold 750 shares of Series D Convertible Preferred Stock (the “Series D Preferred Stock”) to an institutional accredited investor (the “Series D Investor”) in a private placement (the “Series D Private Placement”) pursuant to a securities purchase agreement (the “Series D Purchase Agreement”), dated November 28, 2017, for aggregate gross proceeds of $750,000. The stated value of each share of Series D Preferred Stock was $1,000, and the Series D Preferred Stock was convertible, at the option of the holder, into shares of the Company’s common stock (subject to the beneficial ownership limitation set forth in the certificate of designation for the Series D Preferred Stock (“Series D Certificate of Designation”)), at the initial conversion price of $7.00 per share, subject to adjustment as provided in the Series D Certificate of Designation. Pursuant to the Series D Purchase Agreement and the Series D Certificate of Designation, the purchasers of Series D Preferred Stock had the option, subject to certain limitations, to exchange their Series D Preferred Stock into the securities issued in a subsequent offering (the “Series D Exchange Right”) or into the securities the Company would sell in an offering of the Company’s common stock or common stock equivalents for gross proceeds of at least $8 million (a “Qualified Offering”) upon consummation of a Qualified Offering on a $1.00 per stated value for $1.00 new subscription amount basis. In addition, in accordance with the Series D Purchase Agreement, the certificate of designation for the Series B Preferred Stock was amended to provide that each share of outstanding Series B Convertible Preferred Stock (the “Series B Preferred Stock”) would be automatically exchanged into the securities the Company would sell in a Qualified Offering on a $1.00 per stated value for $1.00 new subscription amount basis. As a result of the issuance and sale of the Series D Preferred Stock, the conversion price of the outstanding shares of Series B Preferred Stock was reduced to $7.00 pursuant to the anti-dilution adjustment provisions of the Series B Preferred Stock. There was no change to the conversion price of the outstanding Series C Convertible Preferred Stock (“Series C Preferred Stock “) as a result of an amendment made to the terms of the Series C Preferred Stock exempting the issuance of the Series D Preferred Stock from the anti-dilution adjustment provisions of the Series C Preferred Stock.
c. On February 21, 2018, the Series D Purchase Agreement was amended (“ February 2018 SPA amendment”) For accounting purposes,
the Company analyzed the classification of the Series C Preferred Stock in light of the Redemption Obligations of the Company regarding
such preferred stock held by the Series D Investor, as agreed upon in the February 2018 SPA
amendment In addition, the Company
analyzed whether the conversion feature embedded in the shares of the Series C Preferred Stock subject to the Redemption Obligation
should be bifurcated. As certain shares of the Series C Preferred Stock are contingently redeemable, the host contract was determined
to be akin to debt, and the conversion feature not clearly and closely to the debt host given the anti-dilution protection included
in the terms of these Series C Preferred Stock. Consequently, an embedded derivative was separated from the host contract and accounted
for as a derivative instrument pursuant to Subtopic 815-10. As of the date of the February
2018 SPA amendment The Company values Level
3 derivative liability using an internally developed valuation model, whose inputs include potential equity transactions probability
of completing successful fund raising during the relevant period and stock prices.
d. On February 26, 2018, the Company and the Series D Investor entered into a waiver agreement (the “Waiver Agreement”) which provided that (i) the Series D Exchange Right would not be applicable to an offering of up to $7,000,000 which occurred no later than March 9, 2018, (ii) the Company shall reduce the conversion price of the Series D Preferred Stock to the public offering price of our common stock in such offering, and (iii) instead of using 15% of the proceeds from such offering to redeem shares of Series C Preferred Stock held by the Series D Investor, the Company shall use 15% of the proceeds from such offering to redeem a portion of the outstanding shares of Series D Preferred Stock held by the Series D Investor at a per share purchase price equal to the stated value of the Series D Preferred Stock.
e. On March 1, 2018, the Company closed an underwritten public offering of 1,000,000 shares (the “March 1, 2018 Shares”) of the Company’s common stock. The offering price to the public of the March 1, 2018 Shares was $3.00 per share. The Company received gross proceeds of $3.0 million from the offering, before deducting underwriter commissions and discounts and other fees and expenses payable by the Company. Pursuant to the Series D Purchase Agreement, as
amended by February 2018 SPA amendment and the Waiver Agreement, following the closing of the offering on March 1, 2018, the Company
used $450,000 (representing 15% of the gross proceeds from the offering) to purchase from the Series D Investor 450 shares of the
Series D Preferred Stock at a per share purchase price equal to the stated value of the Series D Preferred Stock. In connection with the offering, the Company issued
to the underwriter warrants to purchase up to 60,000 shares of common stock, or 6% of the number of shares of common stock sold
in the offering (the “March Underwriter Warrants”). The March Underwriter Warrants are exercisable at any time and
from time to time, in whole or in part, following the date of issuance and ending February 27, 2023, at a price per share equal
to $3.75 (125% of the offering price to the public per share). As a result of the offering, the respective conversion
price for each of the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock was reduced to $3.00
per share, and the number of shares of common stock issuable upon conversion of the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock had increased as follows:
● an aggregate of 190,333 additional shares of common stock upon conversion of the Series B Preferred Stock and as payment of the dividends thereunder in common stock, based on 17,303 shares of Series B Preferred Stock outstanding as of March 1, 2018.
● an aggregate of 1,497,427 additional shares of common stock upon conversion of the Series C Preferred Stock, based on 741,651 shares of Series C Preferred Stock outstanding as of March 1, 2018.
● an aggregate of 142,857 additional shares of common stock upon conversion of the Series D Preferred Stock, based on 750 shares of Series D Preferred Stock outstanding as of March 1, 2018. For accounting purposes, the Company analyzed
whether the change in the conversion price of the Series D Preferred Stock constitutes an extinguishment for accounting purposes,
by comparing the fair value of the Series D Preferred Stock immediately before and after such change in terms. Since the fair value
increased substantially, i.e. by more than 10%, the change in terms was accounted for as an extinguishment. As a result, the difference
between the fair value of the Series D Preferred Stock immediately after the change in term (the reduction of the conversion price
from $7.00 per share to $3.00 per share, pursuant to the Series D Purchase Agreement, as amended by February 2018 SPA amendment
and the Waiver Agreement) and the carrying amount immediately before such change, in the amount of $49,000, was added to the basic
loss per share attributable to the Company’s common stockholders.
f. On March 28, 2018, the Company and the Series D Investor entered into the second waiver agreement (the “Second Waiver Agreement”) which provided that (i) the Series D Exchange Right would not be applicable to a subsequent financing consisting solely of shares of common stock, which shall be publicly registered on Form S-3 for gross proceeds to us of up to $5,000,000, to be consummated by not later than April 3, 2018 (the “Planned April 2018 Offering”), (ii) the Company’s obligation to use 15% of the proceeds from any subsequent offering of our securities that is not a Qualified Offering to redeem the outstanding shares of the Series C Preferred Stock held by the Series D Investor would not be applicable to the Planned April 2018 Offering, (iii) the Company shall reduce the conversion price of the Series D Preferred Stock to the public offering price of our common stock sold in the Planned April 2018 Offering, and (iv) the Company shall use $300,000 of the proceeds from the Planned April 2018 Offering to redeem outstanding shares of Series C Preferred Stock held by the Series D Investor at a per share purchase price equal to the stated value of the Series C Preferred Stock.
g. On March 28, 2018, the Company entered into an underwriting agreement relating to an underwritten public offering of 2,857,143 shares of common stock. On April 2, 2018, the Company closed a public
offering of 2,857,143 shares (the “April 2, 2018 Shares”) of the Company’s common stock at the offering price
to the public of $1.75 per share. The Company received gross proceeds of $5.0 million from the offering, before deducting underwriter
discounts and commissions and other fees and expenses payable by the Company. In connection with the offering, the Company agreed
to issue to the underwriter warrants to purchase up to 171,429 shares of common stock, or 6% of the April 2, 2018 Shares sold in
the offering (the “April Underwriter Warrants”). The April Underwriter Warrants will be exercisable at any time and
from time to time, in whole or in part, following the date of issuance and ending March 28, 2023, at a price per share equal to
$2.1875 (125% of the offering price to the public per April 2, 2018 Share). As a result of the issuance and sale of the April
2, 2018 Shares, the conversion price of the outstanding shares of Series D Preferred Stock was reduced to $1.75 pursuant to the
Second Waiver Agreement, and the number of shares of common stock issuable upon conversion of the Series D Preferred Stock increased
by an aggregate of 71,429 additional shares of common stock, based on 300 shares of Series D Preferred Stock outstanding as of
April 2, 2018. For accounting purposes, the Company analyzed
whether the change in the conversion price of the Series D Preferred Stock constitutes an extinguishment for accounting purposes,
by comparing the fair value of the Series D Preferred Stock immediately before and after such change in terms. Since the fair value
increased substantially, i.e. by more than 10%, the change in terms was accounted for as an extinguishment. As a result, the difference
between the fair value of the Series D Preferred Stock immediately after the change in term (the further reduction of the conversion
price from $3.00 per share to $1.75 per share, pursuant to the Series D Purchase Agreement, as amended by February 2018 SPA amendment,
the Waiver Agreement and the Second Waiver Agreement) and the carrying amount immediately before such change, in the amount of
$32,000, was subtracted from the basic loss per share attributable to the Company’s common stockholders. Pursuant to the Series D Purchase Agreement, as
amended by the February 2018 SPA amendment, the Waiver Agreement and the Second Waiver Agreement, following the closing of the
offering on April 2, 2018, the Company used $300,000 of the net proceeds of the offering to purchase from the Series D Investor
46,875 shares of the Series C Preferred Stock at a per share purchase price equal to the stated value of the Series C Preferred
Stock. Upon execution of the underwriting agreement,
the respective conversion price of the outstanding shares of Series B Preferred Stock and Series C Preferred Stock was reduced
to $1.75 pursuant to the anti-dilution adjustment provisions of the Series B Preferred Stock and of the Series C Preferred Stock,
and the number of shares of common stock issuable upon conversion of the Series B Preferred Stock and the Series C Preferred Stock
had increased as follows:
● an aggregate of 237,916 additional shares of common stock upon conversion of the Series B Preferred Stock and as payment of the dividends thereunder in common stock, based on 17,303 shares of Series B Preferred Stock outstanding as of March 28, 2018.
● an aggregate of 688,297 additional shares of common stock upon conversion of the Series C Preferred Stock, based on 451,695 shares of Series C Preferred Stock outstanding as of March 28, 2018.
h. On June 28, 2018, the Company and the Series D Investor entered into a letter agreement (the “Letter Agreement”) which further amended the Series D Purchase Agreement to provide that, notwithstanding anything to the contrary in the prior agreements, in the event the Company consummates a Qualified Offering in which the Series D Investor and its affiliates invest at least $3 million, (i) instead of an automatic exchange of all outstanding shares of Series C Preferred Stock held by the Series D Investor into securities issued in a Qualified Offering on a $1.00 per stated value for $1.00 new subscription amount basis, all outstanding shares of Series C Preferred Stock held by the Series D Investor will be redeemed at a per share purchase price equal to the stated value of the Series C Preferred Stock, and (ii) all outstanding shares of Series D Preferred Stock will be redeemed at a per share purchase price equal to the stated value of the Series D Preferred Stock. On June 29, 2018, the Company entered into an
underwriting agreement relating to an underwritten public offering (the “July 2018 Offering”) of (i) 10,851,417 common
units (“Common Units”), with each Common Unit being comprised of one share of the Company’s common stock, par
value $0.0001 per share, and one Series D warrant (collectively, the “Series D Warrants”) to purchase one share of
common stock and (ii) 22,481,916 pre-funded units (“Pre-Funded Units”), with each Pre-Funded Unit being comprised of
one pre-funded warrant (collectively, the “Pre-Funded Warrants”) to purchase one share of common stock and one Series
D Warrant, which closed on July 3, 2018. The offering price to the public was $0.30 per Common Unit and $0.29 per Pre-Funded Unit.
The Company also granted the Underwriter a 30-day option to purchase up to an additional 4,999,999 shares of common stock at a
purchase price of $0.29 per share and/or up to 4,999,999 additional Series D Warrants to purchase 4,999,999 shares of common stock
at a purchase price of $0.01 per Series D Warrant, less the underwriting discounts and commissions of $0.0203 per share and $0.0007
per Series D Warrant. The Underwriter exercised its option to purchase an additional 4,999,999 Series D Warrants to purchase 4,999,999
shares of common stock. Pursuant to the Letter Agreement, the Company
had revised its estimate as of June 30, 2018, of the expected timing of redemption of Series C Preferred stock to the estimated
closing date of the July 2018 Offering (July 3, 2018 ). As a result, the total of $438,000 (accretion of the redeemable preferred
shares) was recorded against Additional paid-in capital, and added to basic loss per share attributable to the Company’s
common stockholders, for the six months ended June 30, 2018, and the nine months ended September 30, 2018. The Series D Warrants included in the Common Units
and the Pre-Funded Units are immediately exercisable at a price of $0.30 per share of common stock, subject to adjustment in certain
circumstances, and expire five years from the date of issuance. The shares of common stock, or Pre-Funded Warrants in the case
of the Pre-Funded Units, and the Series D Warrants were offered together, but the securities contained in the Common Units and
the Pre-Funded Units were issued separately. Each Pre-Funded Warrant contained in a Pre-Funded
Unit is exercisable for one share of our common stock at an exercise price of $0.01 per share. The Pre-Funded Warrants are immediately
exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. Pursuant to the full ratchet anti-dilution adjustment
provisions in the respective certificate of designation for the Company’s Series B Convertible Preferred Stock and Series
C Preferred Stock, the conversion price of the outstanding shares of the Series B Convertible Preferred Stock and the Series C
Preferred Stock was reduced to $0.30 per share, effective as of the date of the underwriting agreement entered for the July 2018
Offering, and the number of shares of common stock issuable upon conversion of the Series B Preferred Stock and the Series C Preferred
Stock had increased as follows:
● an aggregate of 2,759,829 additional shares of common stock upon conversion of the Series B Preferred Stock and as payment of the dividends thereunder in common stock, based on 17,303 shares of Series B Preferred Stock outstanding as of June 29, 2018.
● an aggregate of 6,696,448 additional shares of common stock upon conversion of the Series C Preferred Stock, based on 378,840 shares of Series C Preferred Stock outstanding as of June 29, 2018. On July 2, 2018, the Company filed with the office
of the Secretary of State of the State of Delaware a Certificate of Amendment to Certificate of Designation of Preferences, Rights
and Limitations of Series B Convertible Preferred Stock which removes the provision providing for an automatic exchange of all
outstanding shares of Series B Convertible Preferred Stock into securities issued in a Qualified Offering on a $1.00 per stated
value for $1.00 new subscription amount basis upon a Qualified Offering. On July 3, 2018, the Company closed the July 2018
Offering. The Company received gross proceeds of $9.8 million from the offering, before deducting underwriter discounts and commissions
and other fees and expenses payable by the Company. For the purpose of calculating basic net loss
per share, the additional shares of common stock that are issuable upon exercise of the Pre-funded Warrants have been included
since the shares are issuable for a negligible consideration, as determined by the Company according to ASC 260-10-45-13, and have
no vesting or other contingencies associated with them.
i. During the three months ended September 30, 2018, the Company issued a total of 19,165,250 shares of its common stock in connection with the exercise of 19,165,250 Pre-Funded Warrants. The Company received aggregate cash proceeds equal to approximately $192,000 in connection with such exercises. As of September 30, 2018, the outstanding Pre-Funded Warrants are exercisable into 3,316,666 shares of common stock. Pursuant to the underwriting agreement relating
to the July 2018 Offering, the Company, upon closing of the July 2018 Offering, issued to the underwriter warrants to purchase
up to 2,000,000 shares of common stock, or 6% of the aggregate number of shares of common stock sold in the July 2018 Offering
(including the number of shares of common stock issuable upon exercise of the Pre-Funded Warrants sold in the July 2018 Offering).
The underwriter warrants are exercisable at any time and from time to time, in whole or in part, following the date of issuance
and ending July 3, 2023, at a price per share equal to $0.375 (125% of the offering price to the public per Common Unit). Pursuant to the Letter Agreement, on July 3, 2018,
upon closing of the July 2018 Offering, which was a Qualified Offering, the Company used $2,264,269 of the net proceeds of the
July 2018 Offering to redeem 306,917 shares of Series C Preferred Stock (convertible into 6,547,563 shares of common stock at the
time of the redemption) and 300 shares of Series D Preferred Stock (convertible into 171,429 shares of common stock
at the time of the redemption) held by the Series D Investor.
j. During the nine-month period ended September 30, 2018, 9,772 shares of Series B Preferred Stock were converted into 80,620 shares of common stock.
k. During the nine-month period ended September 30, 2018, 326,436 shares of Series C Preferred Stock were converted into 1,144,726 shares of common stock.
l. During January and February 2018, the placement agent from the offering closed in July 2016 exercised its unit purchase option to purchase 13,508 units and received 13,508 shares of Series B Preferred Stock and 1,545 Series A warrants to purchase common stock. The placement agent subsequently converted its Series B Preferred Stock and received an aggregate of 111,443 shares of common stock. The Company received an aggregate of $557,205 from the placement agent for the exercise of the unit purchase option.
m. As of September 30, 2018, the outstanding Series B Preferred Stock are convertible into 3,330,828 shares of common stock, including the shares of common stock the holders of Series B Convertible Preferred Stock are entitled to receive as cumulative dividends at the rate per share of 15% per annum of the stated value for five years, payable in cash or common stock, at the Company’s discretion, but excluding effect of future conversion price adjustment, if any.
n. As of September 30, 2018, the outstanding Series C Preferred Stock are convertible into 1,310,357 shares of common stock.
o. As of September 30, 2018, the outstanding Series A Warrants are convertible into 52,165 shares of common stock.
p. As of September 30, 2018, the outstanding Series B Warrants are convertible into 122,269 shares of common stock.
q. As of September 30, 2018, the outstanding Series D Warrants are convertible into 40,333,332 shares of common stock.
r. As of September 30, 2018, the Company has authorized 155,000,000 shares of capital stock, par value $0.0001 per share, of which 150,000,000 are shares of common stock and 3,328,000 are shares of “blank check” preferred stock. |
