Stockholders' Deficit | NOTE 10 - Stockholders' Deficit 2018 Private Placement From July 9, 2018 through November 30, 2018 (the final closing), the Company entered into subscription agreements (each, a "Purchase Agreement") with certain accredited investors (the "Purchasers"), pursuant to which the Company, in a private placement (the "2018 Private Placement"), agreed to issue and sell to the Purchasers units (each, a "Unit"), each consisting of (i) 1 share (each, a "Share") of common stock and (ii) a warrant to purchase 1 share of common stock at an initial exercise price of $3.00 per share (the "2018 Warrants"). The initial closing of the 2018 Private Placement was consummated on July 9, 2018. As of the termination of the 2018 Private Placement on December 12, 2018, the Company had issued and sold an aggregate of 615,200 Units at a price of $2.50 per Unit to the Purchasers, for total gross proceeds to the Company of $1,538,000 before deducting offering expenses (170,000 and 445,200 Units were sold during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively). Under the Purchase Agreement, the Company agreed to use the net proceeds from the 2018 Private Placement to pay the outstanding principal and accrued interest on its 2017 Convertible Notes if such notes did not convert prior to maturity, to pay the principal on its unsecured term loans, for research and development, clinical studies, legal fees and sales and marketing expenses, as well as working capital and general corporate purposes. The Company granted the Purchasers indemnification rights with respect to its representations, warranties and agreements under the Purchase Agreement. The 2018 Warrants are exercisable beginning on the date of issuance and will expire on July 9, 2023, five years from the date of the first closing. The 2018 Warrants were accounted for as free standing equity instruments and classified as additional paid-in capital in the accompanying consolidated balance sheets based on their relative fair value to the underlying common shares issued. The relative fair value of the 2018 Warrants issued during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018 was $115,674 and $288,106, respectively, and was based on the Black-Scholes pricing model. Input assumptions used were as follows on a weighted average basis: a risk-free interest rate of 2.9% and 2.8% during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively; expected volatility of 49.8% during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018; expected life of 4.6 years and 4.9 years during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively; and expected dividend yield of 0% during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018. The underlying stock price used in the analysis was on a non-marketable basis and was according to the market approach, considering both the traded price and forward multiples from guideline public companies, using allocation and marketability-discount methodologies. In February 2019, the Company amended its engagement letter with one of its placement agents in the 2018 Private Placement, HRA Capital ("HRA"), acting through its affiliate, Corinthian Partners, LLC, each of which are affiliates of one of the Company's greater than 5% stockholders. Pursuant to the original agreement (prior to the amendment), the Company agreed to pay HRA 10% of the gross proceeds (the "HRA Fee") received by the Company in subsequent private placement transactions from investors with whom HRA or Corinthian Partners, LLC had material contact with for purposes of the engagement letter (the "Prospects"), provided such compensation would only be paid in connection with private placement transactions that closed within 12 months of the expiration of the engagement letter (the "Tail Period"). The Company agreed to issue to HRA warrants to purchase shares of Common Stock (or common stock equivalents) in an amount equal to 10% of the shares purchased by Prospects during the Tail Period ("HRA Warrants"). In February 2019, the Company and HRA agreed (i) to extend the Tail Period until June 30, 2019, (ii) to modify the HRA Fee so that HRA is entitled to receive a cash fee equal to 8% of the gross proceeds received by the Company from Prospects in all subsequent private placement transactions and (iii) to modify the HRA Warrants so that they are exercisable to purchase shares of Common Stock (or common stock equivalents) in an amount equal to 8% of the shares of Common Stock purchased by Prospects in subsequent private placements (collectively, the "HRA Amendments"). Upon issuance, the HRA Warrants will be immediately exercisable and expire five years from the closing of the related transaction. In connection with the 2018 Private Placement, the Company recorded issuance costs in the amount of $18,320 and $173,067 during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively. The issuance costs included commissions to the brokers equal to 8% of the gross proceeds from the sale of the Units that qualify for the commission which amounted to $6,440 and $83,800 during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively. In addition to the brokers' commission, the issuance costs included the estimated value of the 5-year warrants to be issued to the brokers to purchase an amount of common stock equal to 8% of the total amount of qualifying Shares sold in the 2018 Private Placement at an exercise price of $3.00 per share upon the close of the 2018 Private Placement which resulted in 36,096 broker warrants being issued with a fair value of $31,418 on July 1, 2019. Lastly, third party legal costs in the amount $7,340 and $62,389 comprised the balance of the issuance costs incurred during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively. In connection with the 2018 Private Placement, the Company entered into registration rights agreements with each of the Purchasers pursuant to which the Company agreed to file a registration statement with the SEC covering the resale of the shares of common stock sold in the 2018 Private Placement and the shares of common stock issuable upon exercise of the 2018 Warrants. The Company agreed to file such registration statement within 75 days of the final closing of the 2018 Private Placement. Each registration rights agreement included customary indemnification rights in connection with the registration statement. The registration statement was filed with the SEC on February 11, 2019, and declared effective by the SEC on February 28, 2019. 2019 Private Placement On December 12, 2018, the Board of Directors of the Company terminated the 2018 Private Placement. From December 28, 2018 through July 1, 2019, the Company entered into Subscription Agreements (each, a "2019 Purchase Agreement") with certain accredited investors (the "New Purchasers"), pursuant to which the Company, in a new private placement (the "2019 Private Placement"), agreed to issue and sell Units (the "2019 Units"), each consisting of (i) 1 share of common stock and (ii) a warrant to purchase 1 share of common stock at an initial exercise price of $3.00 per share (the "2019 Warrants"), to the New Purchasers. The initial closing of the 2019 Private Placement was consummated on December 28, 2018. The Company issued and sold an aggregate of 2,338,179 Units at $2.50 per Unit to the New Purchasers, for total gross proceeds to the Company of approximately $5,845,448 before deducting offering expenses. The 2019 Private Placement was terminated on July 1, 2019. In connection with the 2019 Private Placement, the Company agreed to issue and sell to accredited investors up to a maximum of 4,000,000 2019 Units (the "Maximum Offering") at a price of $2.50 per 2019 Unit for total gross proceeds to the Company of up to $10,000,000. The Maximum Offering could have been increased by the Company in its sole discretion, without notice. If the Company had issued the Maximum Offering amount, 4,000,000 shares of common stock would have been issuable upon exercise of the 2019 Warrants. Under the 2019 Purchase Agreement, the Company had agreed to use the net proceeds from the 2019 Private Placement to pay the outstanding principal and accrued interest on its convertible promissory notes if such notes do not convert prior to maturity, to pay the principal on its unsecured term loans, for research and development, clinical studies, legal fees and sales and marketing expenses, as well as working capital and general corporate purposes. The Company has granted the New Purchasers indemnification rights with respect to its representations, warranties and agreements under the 2019 Purchase Agreement. The 2019 Warrants are exercisable beginning on the date of issuance and will expire on December 28, 2023, five years from the date of the first closing of the 2019 Private Placement. Prior to expiration, subject to the terms and conditions set forth in the 2019 Warrants, the holders may exercise the 2019 Warrants for shares of common stock by providing notice to the Company and paying the $3.00 per share exercise price for each share so exercised. The relative fair value of the 2019 Warrants issued was $1,593,559 during the year ended September 30, 2019, and was based on the Black-Scholes pricing model. Input assumptions used were on a weighted average basis as follows: a risk-free interest rate of 2.4%; expected volatility of 50.6%; expected life of 4.8 years; and expected dividend yield of 0%. The underlying stock price used in the analysis was on a non-marketable basis and was according to the market approach, considering traded price, forward multiples from guideline public companies and recent private placement transactions, using allocation and marketability-discount methodologies. In connection with the 2019 Private Placement, Paulson Investment Company, LLC ("Paulson") received a cash commission equal to 12% of the gross proceeds from the sale of the 2019 Units sold by Paulson. In addition to the brokers' commission, the Company issued 193,417 warrant shares to Paulson to purchase an amount of common stock equal to 10% of the total amount of common stock sold in the 2019 Private Placement at an exercise price of $2.75 per share with a term of 5 years upon the termination of the 2019 Private Placement. HRA received a cash commission equal to 8% of the gross proceeds from the sale of the 2019 Units sold by HRA. In addition to the brokers' commission, the Company issued 17,760 warrant shares to HRA to purchase an amount of common stock equal to 8% of the total amount of common stock sold by HRA in the 2019 Private Placement at an exercise price of $3.00 per share with a term of 5 years upon the termination of the 2019 Private Placement. Lastly, in July 2019, the Company agreed to compensate HRA with additional 5-year warrants to purchase an amount of common stock equal to 135,512 shares at an exercise price of $2.00 per share for HRA's ultimate participation in the 2019 Private Placement. The issuance costs incurred during the year ended September 30, 2019 under the 2019 Private Placement were $1,150,359. Issuance costs incurred through September 30, 2019 included cash commissions equal to $649,654 and third party legal costs in the amount of $153,286. In addition, issuance costs included the value of the 5-year warrants in the amount of $347,419 that were issued on July 1, 2019 to the brokers to purchase an amount of common stock equal to 346,689 shares. Warrant Activity and Summary The following table summarizes warrant activity during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018: Exercise Price Weighted Average Weighted Average Warrants Per Warrant Exercise Price Term (years) Outstanding and exercisable at December 31, 2017 189,750 $ 1.80 $ 1.80 5.5 Issued 2,737,822 $ 1.80 - 3.00 $ 2.00 Exercised — $ — $ — Forfeited — $ — $ — Outstanding and exercisable at September 30, 2018 2,927,572 $ 1.80 - 3.00 $ 1.98 3.39 Issued 4,569,322 $ 2.00 - 3.00 $ 2.87 — Exercised (231,296 ) $ 1.80 $ 1.80 — Forfeited — $ — $ — — Outstanding and exercisable at September 30, 2019 7,265,598 $ 1.80 - 3.00 $ 2.55 3.60 The following table summarizes information about warrants outstanding at September 30, 2019: Exercise Price Number Outstanding Weighted Average Remaining Contractual Number Exercisable at September 30, 2019 $ 1.80 2,251,076 2.15 2,251,076 $ 2.00 135,512 4.76 135,512 $ 2.50 839,179 4.42 839,179 $ 2.75 193,417 4.76 193,417 $ 3.00 3,846,414 4.18 3,846,414 Total 7,265,598 7,265,598 |