Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Stockholders' Equity

7. STOCKHOLDERS’ EQUITY

 

PUBLIC OFFERING

 

On February 16, 2018, the Company closed its underwritten public offering (the “Public Offering”) of an aggregate 4,353,000 shares of the Company’s common stock and warrants to purchase an aggregate of 8,706,000 shares of common stock at a combined public offering price of $4.25 per unit comprised of one share and two warrants. Each warrant is exercisable for five years from the date of issuance and has an exercise price equal to $4.25 per share. The Public Offering resulted in $18,504,320 and $14,880,815 of gross and net proceeds, respectively, including underwriting discounts, commissions and other offering expenses of $3,623,505, which was recorded as a reduction of additional paid-in capital.

 

The Company granted the underwriters a 45-day option to purchase up to an additional 652,950 shares of common stock and/or warrants to purchase 1,305,900 shares of common stock to cover over-allotments, if any. In connection with the closing of the Public Offering, the underwriters partially exercised their over-allotment option and purchased additional warrants to purchase 406,956 shares of common stock at an exercise price of $4.25 per share for aggregate gross proceeds of $4,070, or $0.01 per warrant.

 

PREFERRED STOCK

 

SERIES A CONVERTIBLE PREFERRED STOCK

 

On March 22, 2018, pursuant to letter agreements dated December 6, 2017 and December 7, 2017, the Company issued 550,000 shares of common stock in automatic conversion of 11,000,000 shares of Series A Convertible Preferred Stock.

 

SERIES B CONVERTIBLE PREFERRED STOCK

 

On March 16, 2018, pursuant to a conversion agreement dated May 19, 2017, the Company issued 223,235 shares of common stock in automatic conversion of 8,250 shares of Series B Convertible Preferred Stock with a value of $825,000. The Company determined that the Series B Convertible Preferred Stock included a beneficial conversion feature since the commitment date market price of the Company’s common stock exceeded the effective conversion price and, as a result, the Company recorded a deemed dividend in the amount of $825,000 during the three months ended March 31, 2018.

 

SERIES C CONVERTIBLE PREFERRED STOCK

 

Effective January 8, 2018, the Company’s Board of Directors and shareholders amended the Certificate of Designation of its Series C Convertible Preferred Stock to add the following provisions: (a) upon closing of a public offering of the Company’s securities and the listing of the Company’s shares of common stock on an exchange, all outstanding shares of Series C Convertible Preferred Stock will be converted into that number of shares of Common Stock determined by the number of shares of Series C Preferred multiplied by a factor of 115 divided by 80% of the per share price of common stock in the offering; and (b) until 270 days after the effective date specified within the automatic preferred conversion notice, no holder of Series C Convertible Preferred Stock may offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of any Series C Preferred Shares without the prior written consent of the underwriter of the offering.

 

During the three months ended March 31, 2018, 25,006 shares of Series C Convertible Preferred Stock were issued as payment of dividends in kind.

 

On March 28, 2018, pursuant to the terms of the amended Certificate of Designation, the Company issued an aggregate of 9,111,644 shares of common stock in automatic conversion of 254,557 shares of Series C Convertible Preferred Stock. The Company determined that the Series C Convertible Preferred Stock included a beneficial conversion feature since the commitment date market price of the Company’s common stock exceeded the effective conversion price and, as a result, the Company recorded a deemed dividend in the amount of $22,633,931 during the three months ended March 31, 2018.

 

SERIES D CONVERTIBLE PREFERRED STOCK

 

On February 13, 2018, the Company’s Board of Directors approved the designation of 13,000 shares of the 40,000,000 authorized shares of preferred stock as Series D Convertible Preferred Stock, par value $0.001 per share (the “Series D Convertible Preferred Stock”). On February 15, 2018, the Company filed the Certificate of Designation with the State of Nevada related to the Series D Convertible Preferred Stock. Each share of Series D Convertible Preferred Stock will have a stated value of $1,000 per share.

 

Conversion. Each share of Series D Convertible Preferred Stock is convertible into shares of common stock (subject to adjustment as provided in the related certificate of designation of preferences, rights and limitations) at any time at the option of the holder at a conversion price equal to the price of the units in the public offering. Holders of Series D Convertible Preferred Stock are prohibited from converting Series D Convertible Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of common stock then issued and outstanding.

 

Liquidation Preference. In the event of the liquidation, dissolution or winding-up of the Company, holders of Series D Convertible Preferred Stock will be entitled to receive the same amount that a holder of common stock would receive if the Series D Convertible Preferred Stock were fully converted into shares of common stock at the conversion price (disregarding for such purposes any conversion limitations) which amounts shall be paid pari passu with all holders of Common Stock.

 

Voting Rights. Shares of Series D Convertible Preferred Stock will generally have no voting rights, except as required by law and except that the affirmative vote of the holders of a majority of the then outstanding shares of Series D Convertible Preferred Stock is required to, (a) alter or change adversely the powers, preferences or rights given to the Series D Convertible Preferred Stock, (b) amend the Company’s articles of incorporation or other charter documents in any manner that materially adversely affects any rights of the holders, (c) increase the number of authorized shares of Series D Convertible Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

 

Dividends. Shares of Series D Convertible Preferred Stock will not be entitled to receive any dividends, unless and until specifically declared by the Company’s board of directors. The holders of the Series D Convertible Preferred Stock will participate, on an as-if-converted-to-common stock basis, in any dividends to the holders of common stock.

  

Redemption. The Company is not obligated to redeem or repurchase any shares of Series D Convertible Preferred Stock. Series D Convertible Preferred Stock are not otherwise entitled to any redemption rights or mandatory sinking fund or analogous fund provisions.

 

Exchange Listing. The Company does not plan on making an application to list the Series D Convertible Preferred Stock on any national securities exchange or other nationally recognized trading system.

 

See Note 5 – Notes Payable – JMJ Agreement for additional details.

 

COMMON STOCK

 

During the three months ended March 31, 2018, the Company issued an aggregate of 1,488,021 shares of common stock with an aggregate issuance date fair value of $4,283,988 in satisfaction of debt and other liabilities. In connection with the issuances, the Company recorded a loss on settlement of $2,192,045 during the three months ended March 31, 2018.

 

See Note 8 – Related Parties – Letter Agreements and Note 9 – Commitments and Contingencies for additional details.

 

STOCK-BASED COMPENSATION

 

The Company recognized stock-based compensation expense related to common stock, stock options and warrants for the three months ended March 31, 2018 and 2017 of $2,817,314 and $167,248, respectively, which is included within compensation expense on the condensed consolidated statement of operations. As of March 31, 2018, there was no unrecognized stock-based compensation expense.