| STOCKHOLDERS' EQUITY | NOTE
8: STOCKHOLDERS’ EQUITY The
Company is authorized to issue a total of 85,000,000 shares of stock consisting of 75,000,000 shares of common stock, par value
$0.015 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. The Company has designated 750,000 shares
of Series A Junior Participating Preferred Stock, par value $0.001 per share, and 4,000 shares of Series A Convertible Preferred
Stock, par value $0.001 per share through the filings of certificates of designation with the Delaware Secretary of State. On
May 19, 2014, the Company adopted a stockholder rights agreement which provides that all stockholders of record on May 26, 2014
received a non-taxable distribution of one preferred stock purchase right for each share of the Company’s common stock held
by such stockholder. Each right is attached to and trades with the associated share of common stock. The rights will become exercisable
only if one of the following occurs: (1) a person becomes an “Acquiring Person” by acquiring beneficial ownership
of 15% or more of the Company’s common stock (or, in the case of a person who beneficially owned 15% or more of the Company’s
common stock on the date the stockholder rights agreement was executed, by acquiring beneficial ownership of additional shares
representing 2.0% of the Company’s common stock then outstanding (excluding compensatory arrangements)), or (2) a person
commences a tender offer that, if consummated, would result in such person becoming an Acquiring Person. If a person becomes an
Acquiring Person, each right will entitle the holder, other than the Acquiring Person and certain related parties, to purchase
a number of shares of the Company’s common stock with a market value that equals twice the exercise price of the right.
The initial exercise price of each right is $15.00, so each holder (other than the Acquiring Person and certain related parties)
exercising a right would be entitled to receive $30.00 worth of the Company’s common stock. If the Company is acquired in
a merger or similar business combination transaction at any time after a person has become an Acquiring Person, each holder of
a right (other than the Acquiring Person and certain related parties) will be entitled to purchase a similar amount of stock of
the acquiring entity. 2016
Issuances of Additional Shares to Aspire Capital On
November 11, 2015, we terminated our prior agreement with Aspire Capital Fund, LLC (“Aspire Capital”) and entered
into a new common stock purchase agreement. Concurrently with entering into the new purchase agreement, we also entered into a
registration rights agreement with Aspire Capital in which we agreed to register 405,747 shares of our common stock. During
the first quarter of 2016, we sold a total of 405,747 shares of common stock to Aspire Capital under the stock purchase agreement
dated November 11, 2015 with aggregate gross proceeds to the Company of $2,177,083, or net proceeds of $2,133,973 after deducting
costs of the offering. On
May 25, 2016, the Company terminated the November 11, 2015 stock purchase agreement with Aspire Capital and entered into a new
common stock purchase agreement with Aspire Capital which provided that, upon the terms and subject to the conditions and limitations
set forth therein, Aspire Capital is committed to purchase up to an aggregate of $10.0 million of shares of our common stock over
the 30-month term of the purchase agreement, subject to the terms and conditions set forth therein. Concurrently with entering
into the purchase agreement, the Company also entered into a registration rights agreement with Aspire Capital, in which the Company
agreed to file one or more registration statements, as permissible and necessary to register under the Securities Act of 1933,
registering the sale of the shares of our common stock that have been and may be issued to Aspire Capital under the purchase agreement.
As part of the stock purchase agreement we issued 49,736 common shares as a commitment fee. The value of the common shares issued
as a commitment fee of $198,523 has been reflected as an addition to common stock of $746 and $197,777 in additional paid in capital
which will be amortized over the life of the stock purchase agreement. As of the date of filing this Quarterly Report with the
SEC no shares of stock have been sold to Aspire Capital under the May 25, 2016 purchase agreement. In connection with our public
offering that closed on April 3, 2017, we agreed not to utilize the financing arrangement with Aspire Capital until June 30, 2017
and on June 30, 2017 in connection with the temporary modification of our common stock warrants to allow for the net exercise
of those warrants we agreed to extend this stand still for an additional 45 days. 2016
Public Offering of Common Stock In
August 2016, the Company completed an underwritten public offering of 1,150,000 shares of common stock at a price per share of
$2.50, with gross proceeds of $2,875,000 to the Company, or net proceeds of $2,561,896 after deducting underwriter discounts,
commissions, non-accountable expense allowance and expense reimbursement. 2017
Public Offering of Class A and Class B Units Consisting of Common Stock, Series A Convertible Preferred Stock and Warrants On
March 28, 2017, the Company entered into an underwriting agreement with Aegis Capital Corp. relating to a public offering which
closed on April 3, 2017. The offering generated gross proceeds to the Company of approximately $4.4 million and net proceeds of
approximately $3.9 million after deducting underwriting discounts and commissions and other offering expenses paid by the Company. The
offering included 664,000 Class A Units at a public offering price of $0.75 per Class A Unit, which consisted of 664,000 shares
of common stock and warrants to purchase 664,000 shares of common stock. The offering also included 3,502 Class B Units at a public
offering price of $1,000 per Class B Unit, which consisted of 3,502 shares of Series A Convertible Preferred Stock convertible
into a total of 4,669,333 shares of common stock and warrants to purchase 4,669,333 shares of common stock. In addition, the underwriter
exercised the over-allotment to purchase an additional 530,000 shares of common stock and warrants to purchase 530,000 shares
of common stock, which are included in the gross proceeds of $4.4 million. The warrants had a per share exercise price of $0.9375,
are exercisable immediately and will expire five years from the date of issuance. Series
A Convertible Preferred Stock The
terms and provisions of our Series A Convertible Preferred Stock (the “Series A Preferred”) are as follows: Rank. Conversion. Liquidation
Preference. Voting
Rights. Dividends. Redemption. 2017
Warrants The
terms and conditions of the warrants included in the 2017 public offering are as follows: Exercisability Exercise
Limitation Exercise
Price Transferability Fundamental
Transactions Rights
as a Stockholder Accounting
Treatment The
Company allocated the proceeds from the sale of the Class A and Class B units to the separate securities issued. The Company determined
that, on the date of issuance, the warrants were not considered indexed to its own stock because the underlying instruments were
not “fixed-for-fixed” due to the price protection and fundamental transaction provisions and, therefore, the warrants
should be accounted for as liabilities. At the end of each reporting period, the changes in fair value of the warrants during
the period are recorded in non-operating income (expense) in the consolidated statement of operations. The
Company allocated the amount representing the fair value of the warrants at the date of issuance separately to the warrant liability
and recorded the remaining proceeds as common stock, in the case of the Class A units, or as Series A convertible preferred stock,
in the case of the Class B units. Due to the allocation of a portion of the proceeds to the warrants, the Series A convertible
preferred stock contained a beneficial conversion feature upon issuance, which was recorded in the amount of $1,284,066 based
on the intrinsic value of the beneficial conversion feature. The discount on the Series A convertible preferred stock of $1,284,066
caused by allocation of the proceeds to the warrant was recorded as a deemed dividend upon issuance of the Series A convertible
preferred stock. As a result, total deemed dividends of $2,568,132 was recorded upon issuance of the Series A convertible preferred
stock, which is reflected as an addition to net loss in the consolidated statement of operations to arrive at net loss applicable
to common shareholders. Net
Exercise of 2017 Warrants On
June 29, 2017, the Company offered to modify the rights of the holders of the warrants issued in the public offering the Company
completed on April 3, 2017. The temporary modification included (a) lowering the exercise price of the warrants to $0.26 per share,
(b) setting the applicable volume-weighted average price (VWAP) at $0.52 per share, and (c) allowing for temporary cashless exercise
of the warrants for all holders that accepted the temporary modification before 8:00 a.m. Eastern daylight time on June 30, 2017.
Holders of warrants to purchase a total of approximately 3.0 million shares of Common Stock accepted the offer resulting in the
cancellation of those warrants and the issuance by the Company of a total of approximately1.5 million shares of Common Stock (including
shares held in abeyance). The shares of Common Stock are registered under the Securities Act of 1933, as amended. If delivery
of the shares of Common Stock pursuant to the foregoing would result in the holder exceeding the 4.99% “Beneficial Ownership
Limitation” (as defined in the warrant) then the shares in excess of such 4.99% will be held in abeyance by the Company
pending further instruction from the holder. In connection with the temporary modification, the Company agreed to extend the “Lock-up
Period” of the underwriting agreement between the Company and Aegis Capital Corp., dated March 28, 2017, by 45 days and
the Company agreed not to enter into any further amendments to the warrants during such extended Lock-up Period without the prior
written consent of each holder. Upon exercise of these warrants, the amount of the warrant liability at the date of exercise was
reclassified from warrant liability to additional paid-in capital. The
following table summarizes the 2017 liability warrant activity:
Shares Weighted
Average Exercise Price
Outstanding as of December 31, 2016
Warrants granted 5,863,332 $ 0.9375
Warrants exercised (2,991,666 ) 0.26
Warrants cancelled
Outstanding as of
June 30, 2017 2,871,666 $ 0.26 The
Company estimated the fair value of the warrants using the Monte Carlo simulation (MCS) model, which is a type of income approach,
where the current value of an asset is expressed as the sum of probable future cash flows across various scenarios and time frames
discounted for risk and time. The significant assumptions include timing of future rounds of financing, timing and success rates
of oncology clinical trials, and the probability of a merger and acquisition adjusted for a lack of marketability discount. The
MCS model also includes a full term and an early conversion scenario that are each weighted at 50% in the final concluded fair
value. Inputs
used in the valuation of the warrants at the issuance date of April 3, 2017 and June 30, 2017 were as follows:
Initial valuation
Common stock price $ 0.75
Exercise price $ 0.9375
Expected Volatility 50 %
Dividend Yield 0 %
Risk-Free Interest
Rate 0.79% - 1.88 %
Expected Term (years) 0.24 - 5
June 30, 2017 valuation
Common stock price $ 0.50
Exercise price $ 0.26
Expected Volatility 50 %
Dividend Yield 0 %
Risk-Free Interest
Rate 0.79% - 1.88 %
Expected Term (years) 0.08-4.76 Outstanding
Warrants As
of June 30, 2017, warrants to purchase 3,273,894 shares of common stock were outstanding including:
Outstanding
Warrants to Purchase Shares Exercise
Price Expiration
Date
2011 private placement 283,470 $ 18.75
- 24.00 May 8,
2018
Acueity warrants 21,667 75.00 September 30, 2017
2014 public offering 77,790 45.00 January 29, 2019
Placement agent fees for Company’s offerings 16,135 31.80 - 186.45 March - November,
2018
Outside consulting 3,166 63.60 January 14, 2018
2017 public offering 2,871,666 0.26 April
3, 2022
3,273,894 Conversion
of Series A Convertible Preferred Stock During
the three months ended June 30, 2017, certain holders of the Series A Convertible Preferred Stock exercised their conversion option
and converted an aggregate of 2,663 shares of Series A Convertible Preferred Stock into 3,550,664 shares of the Company’s
common stock based on the conversion ratio of 1,333.33 shares of Series A Convertible Preferred Stock to common stock. |
