Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
6 Months Ended
Jun. 30, 2017
Stockholders Equity Note [Abstract]  
Stockholders' Equity
4. Stockholders’ Equity
 
Common stock
 
The Company is authorized to issue up to 110,000,000 shares, of which 100,000,000 shares have been designated as common stock and 10,000,000 shares as preferred stock. Holders of the Company's common stock are entitled to dividends if and when declared by the Board of Directors. The holders of each share of common stock shall have the right to one vote for each share and are entitled, as a share class, to elect two directors of the Company.
 
On October 12, 2016, the Company completed a registered public offering (the “Offering”) of shares of common stock and warrants with gross proceeds of $6.0 million. Investors received 6,000,000 shares of the Company’s common stock at a price of $1.00 per share and warrants to purchase up to 6,000,000 shares of common stock, exercisable for a period of five years, with an exercise price of $1.00 per share. The warrants are exercisable immediately. Net proceeds of the Offering paid to the Company, after fees and expenses, were approximately $5.1 million. The Company used approximately $1.3 million of the net proceeds to redeem substantially all of the remaining outstanding Series C Convertible Preferred Stock (“Series C Preferred Stock”), and the remaining $3.8 million is being used to fund its operations. The holders of the Company's Series C Preferred Stock and Series E Convertible Preferred Stock (“Series E Preferred Stock”) consented to having the first $3.8 million of net proceeds from the Offering go to the Company’s working capital before applying any proceeds of the Offering to the redemption of such preferred stock in consideration for a reduction in the exercise price of the July 2016 warrants to $1.43 and the May 2016 warrants to $1.86 and a 15% increase in the redemption premium of the Series E Preferred Stock if not redeemed on or before January 25, 2017. A registration statement for the securities sold in the Offering was previously filed on Form S-1 (File No. 333-211211), which was declared effective on September 16, 2016 by the Securities and Exchange Commission.
 
On May 16, 2016, the Company entered into a securities purchase agreement (the “2016 Purchase Agreement”) with certain investors (the “2016 Purchasers”) pursuant to which the Company sold 648,000 shares of its common stock (the “2016 Shares”) at a purchase price of $2.005 per share resulting in gross proceeds to the Company of $1.3 million (the “2016 Registered Direct Offering”). In connection with the purchase of the 2016 Shares, each 2016 Purchaser received a warrant to purchase up to the number of shares of the Company’s common stock equal to 100% of the 2016 Shares purchased by each of the 2016 Purchasers pursuant to the 2016 Purchase Agreement. The Warrants have an exercise price of $2.005 per share, became exercisable on the date of issuance and expire five years from the date of issuance. The 2016 Registered Direct Offering was effected as a takedown off the Company’s shelf registration statement on Form S-3 (File No. 333-199647), which was declared effective on November 10, 2014, and a related prospectus supplement filed on May 16, 2016 in connection with the 2016 Registered Direct Offering. The 2016 Registered Direct Offering closed on May 18, 2016. In connection with the 2016 Registered Direct Offering, the Company entered into an engagement agreement with Chardan Capital Markets (“Chardan”) to act as its exclusive placement agent. Pursuant to the agreement with Chardan, the Company paid to Chardan $116,932 in cash.
 
Shares of common stock reserved for future issuance were as follows as of June 30, 2017:
 
Series C Convertible Preferred Stock
 
 
3,335
 
Series D Convertible Preferred Stock
 
 
186,367
 
Series E Convertible Preferred Stock
 
 
9,033,000
 
Options to purchase common stock
 
 
487,528
 
Shares reserved for issuances pursuant to 2014 Plan (as defined below)
 
 
202,290
 
Warrants
 
 
11,615,849
 
Total
 
 
21,528,369
 
 
Convertible preferred stock
 
Convertible preferred stock as of June 30, 2017 consisted of the following:
 
Convertible
 
Original
 
Shares
 
Shares
 
Shares
 
Liquidation
 
Preferred Stock
 
Issue Price
 
Designated
 
Originally Issued
 
Outstanding
 
Preference
 
 
 
 
 
 
 
 
 
 
 
 
 
Series C
 
$
1,000.00
 
 
2,500
 
 
2,500
 
 
5
 
$
5,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series D
 
$
1,000.00
 
 
750
 
 
369
 
 
369
 
$
369,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series E
 
$
1,000.00
 
 
3,000
 
 
3,000
 
 
2,258
 
$
2,258,000
 
 
On January 21, 2016, the Company entered into a securities purchase agreement (the “Series C Purchase Agreement”) with certain institutional accredited investors (the “Series C Investors”). Pursuant to the Series C Purchase Agreement, the Company sold to the Series C Investors in a private placement 2,500 shares of Series C Preferred Stock, each having a stated value of $1,000, for aggregate gross proceeds of $2.5 million. The Series C Preferred Stock was immediately convertible into 1,666,668 shares of the Company’s common stock, subject to certain beneficial ownership limitations, at an initial conversion price equal to $1.50 per share, subject to adjustment. Because this conversion price was below the market price of the Company’s common stock on the date of issue, and the Series C Preferred Stock was immediately convertible, a deemed dividend on Series C Preferred Stock was recorded as the difference between the market price on the date of issue and the conversion price. This dividend amount of $466,667 is presented separately on the Consolidated Statement of Operations and is included in Net Loss Attributable to Common Shareholders. In July and October, 2016, the Company redeemed an aggregate of 2,474 shares of the Series C Preferred Stock for $3,837,400, which included a redemption premium of $1,363,400. In addition, a total of 21 shares of Series C Preferred Stock were converted to common stock in September and October, 2016, leaving five shares of Series C Preferred Stock outstanding as of June 30, 2017.
 
Each Series C Investor also received a common stock purchase warrant (the “Series C Warrants”) to purchase up to a number of shares of common stock equal to 85% of such Investor’s subscription amount divided by $1.50, for a total of 1,416,668 shares. The Series C Warrants are exercisable for a term of five years commencing six months after the closing of the transaction at a cash exercise price of $1.79 per share. In the event that the shares underlying the Series C Warrants are not subject to a registration statement at the time of exercise, the Series C Warrants may be exercised on a cashless basis after six months from the issuance date. The Series C Warrants also contain provisions providing for an adjustment in the exercise price upon the occurrence of certain events, including stock splits, stock dividends, dilutive equity issuances (so long as the Series C Preferred Stock is outstanding) and fundamental transactions.
 
The Series C Purchase Agreement required the Company to hold a special meeting of stockholders to seek the approval of the holders of its common stock for the issuance of the number of shares of common stock issuable upon the conversion of the Series C Preferred Stock in excess of 19.99% of the outstanding common stock and the removal of the adjustment floor within 120 days of the execution of the Series C Purchase Agreement.  The Company obtained the requisite shareholder approval on June 28, 2016. Additionally, until the Series C Preferred Stock is no longer outstanding, the Series C Investors may participate in future offerings for up to 50% of the amount of such offerings.
  
The Company utilized a placement agent who received a commission equal to 10% of the gross proceeds of the offering for an aggregate commission of $250,000. The placement agent will also be entitled to receive a cash fee from the exercise of the Series C Warrants. The Company paid for the Series C Investors’ legal expenses of $25,000, and paid legal fees of $50,000 to the Company’s outside counsel.
 
On May 13, 2016, the Company entered into, and consummated the transactions contemplated by, a securities purchase agreement (the “Series D Purchase Agreement”) with certain accredited investors (the “Series D Investors”). Pursuant to the Series D Purchase Agreement, the Company sold to the Series D Investors in a private placement 369 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”), each having a stated value of $1,000, for aggregate gross proceeds of $369,000 (the “Financing”). The Company’s Chief Executive Officer and each of the members of the Company’s Board of Directors participated in the Financing in which they invested an aggregate of $144,000.
 
The Series D Preferred Stock is immediately convertible into shares of the Company’s common stock, subject to certain beneficial ownership limitations, at an initial conversion price equal to $1.98 per share, subject to adjustment. The shares of common stock issuable upon conversion of the Series D Preferred Stock are subject to trading restrictions until the six-month anniversary of the issuance date of the Series D Preferred Stock, unless they are included in a registration statement filed by the Company prior to such date. The Series D Preferred Stock contains provisions providing for an adjustment in the conversion price upon the occurrence of certain events, including stock splits, stock dividends and fundamental transactions. The Company may redeem some or all of the Series D Preferred Stock for cash in an amount equal to 135% of the aggregate stated value then outstanding.
 
Each Series D Investor also received a common stock purchase warrant (the “Series D Warrants”) to purchase up to a number of shares of common stock equal to 85% of such Series D Investor’s subscription amount. The Series D Warrants are exercisable for a term of five years commencing six months and one day after the closing of the Financing (the “Initial Exercise Date”) at a cash exercise price of $1.87 per share. Fifty percent of the Series D Warrants vested immediately and the remainder of the Series D Warrants will vest only if a Series D Investor’s shares of Series D Preferred Stock remain outstanding at the Initial Exercise Date. In the event the shares underlying the Series D Warrants are not subject to a registration statement at the time of exercise, the Series D Warrants may be exercised on a cashless basis after six months from the issuance date. The Series D Warrants also contain provisions providing for an adjustment in the exercise price upon the occurrence of certain events, including stock splits, stock dividends and fundamental transactions. The Series D Purchase Agreement contains customary representations, warranties, and covenants, including covenants relating to public reporting and the use of proceeds.
 
On July 21, 2016, the Company entered into an agreement (the “Series E Purchase Agreement”) to sell $3.0 million of Series E Preferred Stock and warrants to certain institutional accredited investors (the “Series E Investors”). Pursuant to the Series E Purchase Agreement, the Company sold to the Series E Investors in a private placement 3,000 shares of Series E Preferred Stock, each having a stated value of $1,000, for aggregate gross proceeds of $3.0 million. The Series E Preferred Stock was immediately convertible into 1,496,262 shares of the Company’s common stock, subject to certain beneficial ownership limitations, at an initial conversion price equal to $2.005 per share, subject to adjustment. The Company used part of the proceeds from the sale of Series E Preferred Stock to redeem 70% of the outstanding Series C Preferred Stock. In addition, pursuant to the terms of the Series E Purchase Agreement, each of the Series C Investors was entitled to receive an additional premium such that the aggregate redemption amount is 162% of the stated value of the Series C Preferred Stock for the first 60 days after the date of the Series E Purchase Agreement and 180% thereafter.  Following subsequent amendments to the Series E Purchase Agreement, the Series E Preferred Stock is redeemable at the option of the Company at 170% of the then outstanding conversion amount, and is convertible into common stock at a conversion price equal to the lesser of (a) $2.005 per share, or (b) 65% of the volume weighted average price of our common stock for ten consecutive days prior to the applicable conversion date). The Series E Purchase Agreement required the Company to hold a special meeting of stockholders to seek the approval of the holders of its common stock for the issuance of the number of shares of common stock issuable upon the conversion of the Series E Preferred Stock in excess of 19.99% of the outstanding common stock within 120 days of the execution of the Series E Purchase Agreement.  The Company obtained the requisite shareholder approval on March 8, 2017. 
 
On January 25, 2017, the Company entered into an amendment (the “Series E Amendment”) to the Series E Purchase Agreement, with each of the holders of the Series E Preferred Stock. Pursuant to the Series E Amendment, the Company (i) extended the date for redemption by the Company of the Series E Preferred Stock from January 25, 2017 until March 8, 2017; (ii) increased the optional redemption amount payable to the holders of the Series E Preferred Stock after January 25, 2017 from 165% to 170% of the aggregate conversion amount then outstanding, and (iii) issued to the holders of the Series E Preferred Stock 5.5-year warrants (the “Series E Warrants”) to purchase an aggregate of 1,000,000 shares of common stock of the Company at an exercise price of $0.60 per share. The Series E Warrants are not exercisable for six months following the date of issuance.
 
On March 8, 2017, the Company entered into a lock-up agreement with each of the holders of the Series E Preferred Stock of the Company (the “Series E Stockholders”) pursuant to which the Series E Stockholders agreed not to sell any common stock obtained upon conversion of the Series E Preferred Stock, until after March 31, 2017, for less than $0.50 per share.
 
During the three months ended June 30, 2017, a total of 742 shares of Series E Preferred Stock were converted into an aggregate of 2,967,000 shares of common stock. In addition, accrued dividends payable on Series E Preferred Stock in the amount of $25,018 were converted into an aggregate of 100,671 shares of common stock.
  
Warrants
 
Common stock warrants outstanding as of June 30, 2017 are listed as follows:
 
Warrants
 
Remaining Contractual
 
Weighted Average
 
Outstanding
 
Life (years)
 
Exercise
 
 
1,000,000
 
6.14
 
$
0.600
 
 
6,000,000
 
4.28
 
$
1.000
 
 
1,000,000
 
6.14
 
$
2.005
 
 
1,271,826
 
4.06
 
$
2.005
 
 
648,000
 
3.88
 
$
2.01
 
 
158,416
 
3.87
 
$
1.87
 
 
1,416,668
 
3.56
 
$
1.79
 
 
50,000
 
4.67
 
$
2.54
 
 
10,870
 
2.77
 
$
4.60
 
 
5,762
 
2.77
 
$
5.75
 
 
27,449
 
2.62
 
$
20.00
 
 
23,858
 
1.58
 
$
22.70
 
 
3,000
 
0.34
 
$
26.60
 
 
11,615,849
 
4.45
 
$
1.43