NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(UNAUDITED)
|
1)
|
Business
Overview, Liquidity and Management Plans
|
Pressure
BioSciences, Inc. (“we”, “our”, “the Company”) is focused on solving the challenging problems
inherent in biological sample preparation, a crucial laboratory step performed by scientists worldwide working in biological life
sciences research. Sample preparation is a term that refers to a wide range of activities that precede most forms of scientific
analysis. Sample preparation is often complex, time-consuming, and in our belief, one of the most error-prone steps of scientific
research. It is a widely-used laboratory undertaking, the requirements of which drive what we believe is a large and growing worldwide
market. We have developed and patented a novel, enabling technology platform that can control the sample preparation process.
It is based on harnessing the unique properties of high hydrostatic pressure. This process, called pressure cycling technology,
or PCT, uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels (45,000 psi or greater) to safely,
conveniently and reproducibly control the actions of molecules in biological samples, such as cells and tissues from human, animal,
plant, and microbial sources.
Our
pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and
ultra-high levels - at controlled temperatures and specific time intervals - to rapidly and repeatedly control the interactions
of bio-molecules, such as DNA, RNA, proteins, lipids, and small molecules. Our laboratory instrument, the Barocycler®, and
our internally developed consumables product line, including PULSE® (Pressure Used to Lyse Samples for Extraction) Tubes,
other processing tubes, and application specific kits (which include consumable products and reagents) together make up our PCT
Sample Preparation System, or PCT SPS.
In
2015, together with an investment bank, we formed a subsidiary called Pressure BioSciences Europe (“PBI Europe”) in
Poland. We have 49% ownership interest with the investment bank retaining 51%. As of now, PBI Europe does not have any operating
activities and we cannot reasonably predict when operations will commence. Therefore, we do not have control of the subsidiary
and did not consolidate in our financial statements. PBI Europe did not have any operations in the nine months ended September
30, 2018 or in fiscal year 2017.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the liquidation of liabilities in the normal course of business. However, we have experienced negative
cash flows from operations with respect to our pressure cycling technology business since our inception. As of September 30, 2018,
we do not have adequate working capital resources to satisfy our current liabilities and as a result, there is substantial doubt
regarding our ability to continue as a going concern. We have been successful in raising cash through debt and equity offerings
in the past and as described in Notes 6 and 7. In addition we raised cash through equity and debt financing after September 30,
2018 as described in Note 8. We have financing efforts in place to continue to raise cash through debt and equity offerings. Although
we have successfully completed financings and reduced expenses in the past, we cannot assure you that our plans to address these
matters in the future will be successful. These financial statements do not include any adjustments that might result from this
uncertainty.
In
August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-15,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern.
(“ASU 2015-14”). Under the new standard, management must evaluate whether
there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to
continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially
does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented
as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates
whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue
as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable
that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2)
it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt
about the entity’s ability to continue as a going concern within one year after the date that the financial statements are
issued. This standard was adopted by the Company at January 1, 2017.
|
3)
|
Interim
Financial Reporting
|
The
accompanying unaudited consolidated balance sheet as of December 31, 2017, which was derived from audited financial statements,
and the unaudited interim consolidated financial statements of Pressure BioSciences, Inc. have been prepared in accordance with
accounting principles generally accepted in the United States of America (“generally accepted accounting principles”
or “GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material
adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months and nine months ended September 30, 2018 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2018. For further information, refer to the audited consolidated financial
statements and footnotes thereto included in the Company’s Annual Report on Form 10-K (the “Form 10-K”) for
the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on April 2, 2018.
|
4)
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The
consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq,
Inc. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain
prior year amounts have been reclassified to conform to our current year presentation.
Recent
Accounting Standards
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires the recognition of assets and liabilities
arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly,
a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease
obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments
over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification
of the lease as either finance or an operating lease. Initial costs directly attributable to negotiating and arranging the lease
will be included in the asset. Lessees will also be required to provide additional qualitative and quantitative disclosures regarding
the amount, timing and uncertainty of cash flows arising from leases. The new standard is effective for fiscal years beginning
after December 15, 2018, and interim periods therein. We will adopt ASC 842 effective January 1, 2019. This new guidance is not
expected to have a material impact on the Company’s consolidated financial statements.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash
to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows
reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. The
guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The Company
early adopted the ASU 2016-18 on January 1, 2017.
In
January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which
clarifies the definition of a business to provide additional guidance with evaluating whether transactions should be accounted
for as acquisitions (or disposals) of assets or businesses. This ASU is effective for annual periods beginning after December
15, 2017, including interim periods within those periods. The Company early adopted the ASU 2016-18 on January 1, 2017 starting
with its purchase of BaroFold assets.
In
May 2017, the FASB issued ASU 2017-09,
Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting
,
which
clarifies that an entity should account for the effects of a modification unless the fair value, vesting terms
and classification as liability or equity of the modified and original awards do not change on the modification date. This ASU
is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted
this ASU effective on January 1, 2018, on a prospective basis which did not have a material impact on the Company’s condensed
consolidated financial statements and related disclosures.
Effective
January 1, 2018, the Company adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The
standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The most
significant impact to our consolidated financial statements relates to the recognition and measurement of equity investments at
fair value with changes recognized in Net income. The amendment also updates certain presentation and disclosure requirements.
The adoption of ASU 2016-01 did not have a material impact on the consolidated financial statements. The adoption of ASU 2016-01
will result in increased volatility in net income as changes in the fair value of available-for-sale equity investments
and changes in observable prices of equity investments without readily determinable fair values will be recorded in net income.
Effective
January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method.
This guidance supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of the guidance is
that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in exchange for those goods or services. The Company updated its accounting
policy for the new standard based on a detailed review of its business and contracts. Based on the new guidance, the Company continues
to recognize revenue at a point in time for the majority of its contracts with customers, which is generally when products are
either shipped or delivered. Therefore, the adoption of ASC 606 did not have a material impact on the consolidated financial statements.
In
July 2018, the FASB issued ASU 2018-07, Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting as an amendment and update expanding the scope of Topic 718. The amendment specifies that Topic 718 now applies
to all share-based payment transactions, even non-employee awards, in which a grantor acquires goods or services to be used or
consumed in a grantor’s own operations by issuing share-based payment awards. Under the new guidance, awards to nonemployees
are measured on the grant date, rather than on the earlier of the performance commitment date or the date at which the nonemployee’s
performance is complete. Also, the awards would be measured by estimating the fair value of the equity instruments to be issued,
rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can
be measured more reliably. In addition, entities may use the expected term to measure nonemployee awards or elect to use the contractual
term as the expected term, on an award-by-award basis. The new guidance is effective for the Company in annual periods beginning
after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. Based on the new guidance,
the Company will measure its nonemployee stock awards at grant date not when the stock awards are vested. This new guidance is
not expected to have a material impact on the Company’s consolidated financial statements.
Revenue
Recognition
We
recognize revenue in accordance with FASB ASC 606,
ASC 606, Revenue from Contracts with Customers,
and
ASC 340-40, Other
Assets and Deferred Costs—Contracts with Customers
. Revenue is measured based on a consideration specified in a contract
with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We enter into sales contracts
that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are
not delivered in one reporting period. We measure and allocate revenue according to ASC 606-10.
We
identify a performance obligation as distinct if both the following criteria are true: the customer can benefit from the good
or service either on its own or together with other resources that are readily available to the customer and the entity’s
promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining
the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance
obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments.
Management considers a variety of factors such as historical sales, usage rates, costs, and expected margin, which may vary over
time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. While
changes in the allocation of the SSP between performance obligations will not affect the amount of total revenue recognized for
a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect
on our financial position and result of operations. This is because the contract consideration is allocated to each performance
obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
Taxes
assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that
are collected by the Company from a customer, are excluded from revenue.
Shipping
and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for
as a fulfillment cost and are in included in cost of revenues as consistent with treatment in prior periods.
Our
current Barocycler® instruments require a basic level of instrumentation expertise to set-up for initial operation. To support
a favorable first experience for our customers, upon customer request, and for an additional fee, will send a highly trained technical
representative to the customer site to install Barocyclers® that we sell, lease, or rent through our domestic sales force.
The installation process includes uncrating and setting up the instrument, followed by introductory user training. Our sales arrangements
do not provide our customers with a right of return. Any shipping costs billed to customers are recognized as revenue.
The
majority of our instrument and consumable contracts contain pricing that is based on the market price for the product at the time
of delivery. Our obligations to deliver product volumes are typically satisfied and revenue is recognized when control of the
product transfers to our customers. Concurrent with the transfer of control, we typically receive the right to payment for the
shipped product and the customer has significant risks and rewards of ownership of the product. Payment terms require customers
to pay shortly after delivery and do not contain significant financing components.
We
apply ASC 845, “Accounting for Non-Monetary Transactions”, to account for products and services sold through non-cash
transactions based on the fair values of the products and services involved, where such values can be determined. Non-cash exchanges
would require revenue to be recognized at recorded cost or carrying value of the assets or services sold if any of the following
conditions apply:
|
a)
|
The
fair value of the asset or service involved is not determinable.
|
|
|
|
|
b)
|
The
transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property
to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange.
|
|
|
|
|
c)
|
The
transaction lacks commercial substance.
|
We
currently record revenue for its non-cash transactions at recorded cost or carrying value of the assets or services sold.
In
accordance with FASB ASC 840,
Leases
, we account for our lease agreements under the operating method. We record revenue
over the life of the lease term and we record depreciation expense on a straight-line basis over the thirty-six-month estimated
useful life of the Barocycler® instrument. The depreciation expense associated with assets under lease agreement is included
in the “Cost of PCT products and services” line item in our accompanying consolidated statements of operations. Many
of our lease and rental agreements allow the lessee to purchase the instrument at any point during the term of the agreement with
partial or full credit for payments previously made. We pay all maintenance costs associated with the instrument during the term
of the leases.
Revenue
from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant award.
Deferred
revenue represents amounts received from grants and service contracts for which the related revenues have not been recognized
because one or more of the revenue recognition criteria have not been met. Revenue from service contracts is recorded ratably
over the length of the contract.
Disaggregation
of revenue
In
the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.
In
thousands of US dollars ($)
|
|
Three
Months Ended
September 30,
|
|
|
Nine
Months Ended
September 30,
|
|
Primary
geographical markets
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
North
America
|
|
|
408
|
|
|
|
401
|
|
|
|
1,123
|
|
|
|
1,124
|
|
Europe
|
|
|
59
|
|
|
|
3
|
|
|
|
278
|
|
|
|
161
|
|
Asia
|
|
|
55
|
|
|
|
242
|
|
|
|
370
|
|
|
|
453
|
|
|
|
|
522
|
|
|
|
646
|
|
|
|
1,771
|
|
|
|
1,738
|
|
|
|
Three
Months Ended
September 30,
|
|
|
Nine
Months Ended
September 30,
|
|
Major
products/services lines
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Hardware
|
|
|
278
|
|
|
|
411
|
|
|
|
1,094
|
|
|
|
1,154
|
|
Grants
|
|
|
61
|
|
|
|
42
|
|
|
|
106
|
|
|
|
127
|
|
Consumables
|
|
|
43
|
|
|
|
85
|
|
|
|
182
|
|
|
|
200
|
|
Contract
research services
|
|
|
80
|
|
|
|
-
|
|
|
|
147
|
|
|
|
-
|
|
Sample
preparation accessories
|
|
|
22
|
|
|
|
47
|
|
|
|
118
|
|
|
|
121
|
|
Technical
support/extended service contracts
|
|
|
20
|
|
|
|
35
|
|
|
|
70
|
|
|
|
78
|
|
Shipping
and handling
|
|
|
10
|
|
|
|
17
|
|
|
|
38
|
|
|
|
38
|
|
Other
|
|
|
8
|
|
|
|
9
|
|
|
|
16
|
|
|
|
20
|
|
|
|
|
522
|
|
|
|
646
|
|
|
|
1,771
|
|
|
|
1,738
|
|
|
|
Three
Months Ended
September 30,
|
|
|
Nine
Months Ended
September 30,
|
|
Timing
of revenue recognition
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Products
transferred at a point in time
|
|
|
362
|
|
|
|
560
|
|
|
|
1,546
|
|
|
|
1,546
|
|
Products
and services transferred over time
|
|
|
160
|
|
|
|
86
|
|
|
|
225
|
|
|
|
192
|
|
|
|
|
522
|
|
|
|
646
|
|
|
|
1,771
|
|
|
|
1,738
|
|
Contract
balances
In
thousands of US dollars ($)
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Receivables,
which are included in ‘Accounts Receivable’
|
|
|
374
|
|
|
|
207
|
|
Contract
liabilities (deferred revenue)
|
|
|
206
|
|
|
|
320
|
|
Transaction
price allocated to the remaining performance obligations
The
following table includes estimated revenue expected to be recognized in the future related to performance obligations that are
unsatisfied (or partially unsatisfied) at the end of the reporting period.
In
thousands of US dollars ($)
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Total
|
|
Extended
warranty service
|
|
|
7
|
|
|
|
199
|
|
|
|
-
|
|
|
|
206
|
|
All
consideration from contracts with customers is included in the amounts presented above.
Contract
Costs
The
Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the
assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and
administrative expenses. The costs to obtain a contract are recorded immediately in the period when the revenue is recognized
either upon shipment or installation. The costs to obtain a service contract are considered immaterial when spread over the life
of the contract so the Company records the costs immediately upon billing.
Use
of Estimates
To
prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. In addition, significant estimates were made in projecting future cash flows to quantify
deferred tax assets, the costs associated with fulfilling our warranty obligations for the instruments that we sell, and the estimates
employed in our calculation of fair value of stock options awarded and warrant derivative liability. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from the estimates and assumptions used.
Concentrations
Credit
Risk
Our
financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents,
and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities.
We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by
the fact that many of our customers are government institutions, large pharmaceutical and biotechnology companies, and academic
laboratories.
The
following table illustrates the level of concentration as a percentage of total revenues during the three months and nine months
ended September 30, 2018 and 2017.
|
|
For
the Three Months Ended
|
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Top
Five Customers
|
|
|
59
|
%
|
|
|
73
|
%
|
Federal
Agencies
|
|
|
12
|
%
|
|
|
30
|
%
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Top
Five Customers
|
|
|
36
|
%
|
|
|
38
|
%
|
Federal
Agencies
|
|
|
10
|
%
|
|
|
19
|
%
|
The
following table illustrates the level of concentration as a percentage of net accounts receivable balance as of September 30,
2018 and December 31, 2017. The Top Five Customers category may include federal agency receivable balances if applicable.
|
|
September
30, 2018
|
|
|
December,
31, 2017
|
|
Top
Five Customers
|
|
|
76
|
%
|
|
|
85
|
%
|
Federal
Agencies
|
|
|
1
|
%
|
|
|
1
|
%
|
Product
Supply
CBM
Industries (Taunton, MA) has recently become the manufacturer of the Barocycler® 2320EXT. CBM is ISO 13485:2003 and 9001:2008
Certified. CBM provides us with precision manufacturing services that include management support services to meet our specific
application and operational requirements. Among the services provided by CBM to us are:
|
●
|
CNC
Machining
|
|
|
|
|
●
|
Contract
Assembly & Kitting
|
|
|
|
|
●
|
Component
and Subassembly Design
|
|
|
|
|
●
|
Inventory
Management
|
|
|
|
|
●
|
ISO
certification
|
At
this time, we believe that outsourcing the manufacturing of our new Barocycler® 2320EXT to CBM is the most cost-effective
method for us to obtain and maintain ISO Certified, CE and CSA Marked instruments. CBM’s close proximity to our South Easton,
MA facility is a significant asset enabling interactions between our Engineering, R&D, and Manufacturing groups and their
counterparts at CBM. CBM was instrumental in helping PBI achieve CE Marking on our Barocycler® 2320EXT, as announced on February
2, 2017.
Although
we currently manufacture and assemble the Barozyme HT48, Barocycler® HUB440, the SHREDDER SG3, and most of our consumables
at our South Easton, MA facility, we plan to take advantage of the established relationship with CBM and transfer manufacturing
of the entire Barocycler® product line, future instruments, and other products to CBM.
The
Barocycler® NEP3229, launched in 2008, and manufactured by the BIT Group, will be phased out over the next several years and
replaced by the new state-of-the-art Barocycler® HUB and Barozyme HT48 product lines.
Investment
in Available-For-Sale Equity Securities
As
of September 30, 2018, we held 100,250 shares of common stock of Everest Investments Holdings S.A. (“Everest”), a
Polish publicly traded company listed on the Warsaw Stock Exchange. We account for this investment in accordance with ASC 320
“Investments — Debt and Equity Securities”
as securities available for sale. On September 30, 2018, our
consolidated balance sheet reflected the fair value of our investment in Everest to be approximately $17,000, based on the closing
price of Everest shares of $0.17 USD per share on that day. The carrying value of our investment in Everest common stock held
will change from period to period based on the closing price of the common stock of Everest as of the balance sheet date.
Computation
of Loss per Share
Basic
loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding.
Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of common
shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been
issued. For purposes of this calculation, convertible preferred stock, common stock dividends, and warrants and options to acquire
common stock, are all considered common stock equivalents in periods in which they have a dilutive effect and are excluded from
this calculation in periods in which these are anti-dilutive to our net loss.
The
following table illustrates our computation of loss per share for the three months and nine months ended September 30, 2018 and
2017:
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,808,656
|
)
|
|
$
|
(2,343,576
|
)
|
|
$
|
(6,321,542
|
)
|
|
$
|
(7,889,676
|
)
|
Deemed
dividend on down round feature
|
|
|
-
|
|
|
|
-
|
|
|
|
(213,012
|
)
|
|
|
-
|
|
Deemed
dividend on beneficial conversion feature
|
|
|
(1,146,280
|
)
|
|
|
-
|
|
|
|
(11,678,571
|
)
|
|
|
-
|
|
Preferred
stock dividends
|
|
|
(277,439
|
)
|
|
|
-
|
|
|
|
(373,318
|
)
|
|
|
-
|
|
Net
loss applicable to common shareholders
|
|
$
|
(3,232,375
|
)
|
|
$
|
(2,343,576
|
)
|
|
$
|
(18,586,443
|
)
|
|
$
|
(7,889,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common stock shares outstanding
|
|
|
1,606,575
|
|
|
|
1,133,791
|
|
|
|
1,466,424
|
|
|
|
1,084,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share – basic and diluted
|
|
$
|
(2.01
|
)
|
|
$
|
(2.07
|
)
|
|
$
|
(12.67
|
)
|
|
$
|
(7.28
|
)
|
The
following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented,
the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would
have been anti-dilutive to our net loss. The Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series
H Convertible Preferred Stock, Series H2 Convertible Preferred Stock, Series J Convertible Preferred Stock and Series K Convertible
Preferred Stock are presented below as if they were converted into common shares according to the conversion terms.
|
|
As
of September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Stock
options
|
|
|
341,790
|
|
|
|
249,636
|
|
Convertible
debt
|
|
|
361,391
|
|
|
|
828,870
|
|
Common
stock warrants
|
|
|
6,769,607
|
|
|
|
902,033
|
|
Convertible
preferred stock:
|
|
|
|
|
|
|
|
|
Series
D Convertible Preferred Stock
|
|
|
25,000
|
|
|
|
25,000
|
|
Series
G Convertible Preferred Stock
|
|
|
26,857
|
|
|
|
26,857
|
|
Series
H Convertible Preferred Stock
|
|
|
33,334
|
|
|
|
33,334
|
|
Series
H2 Convertible Preferred Stock
|
|
|
70,000
|
|
|
|
70,000
|
|
Series
J Convertible Preferred Stock
|
|
|
115,267
|
|
|
|
115,267
|
|
Series
K Convertible Preferred Stock
|
|
|
229,334
|
|
|
|
227,200
|
|
Series
AA Convertible Preferred Stock
|
|
|
5,655,454
|
|
|
|
-
|
|
|
|
|
13,628,034
|
|
|
|
2,478,197
|
|
Accounting
for Stock-Based Compensation Expense
We
maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees,
independent members of our Board of Directors and outside consultants. We recognize stock-based compensation expense over the
requisite service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant.
Determining
Fair Value of Stock Option Grants
Valuation
and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes pricing
model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line
method over the vesting period.
Expected
Term - The Company uses the simplified calculation of expected life, as the Company does not currently have sufficient historical
exercise data on which to base an estimate of expected term. Using this method, the expected term is determined using the average
of the vesting period and the contractual life of the stock options granted.
Expected
Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the
award.
Risk-Free
Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield
currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
Forfeitures
- The Company records stock-based compensation expense only for those awards that are expected to vest. The Company estimated
a forfeiture rate of 5% for awards granted based on historical experience and future expectations of options vesting. The Company
used this historical rate as our assumption in calculating future stock-based compensation expense.
The
Company recognized stock-based compensation expense of $151,314 and $139,399 for the three months ended September 30, 2018
and 2017, respectively. The Company recognized stock-based compensation expense of $299,584 and $318,910 for the nine months
ended September 30, 2018 and 2017, respectively. The following table summarizes the effect of this stock-based compensation expense
within each of the line items of our costs and expenses within our Consolidated Statements of Operations:
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Cost
of products and services
|
|
$
|
4,698
|
|
|
$
|
-
|
|
|
$
|
4,698
|
|
|
$
|
-
|
|
Research
and development
|
|
|
28,444
|
|
|
|
37,345
|
|
|
|
59,592
|
|
|
|
76,263
|
|
Selling
and marketing
|
|
|
11,822
|
|
|
|
21,778
|
|
|
|
26,298
|
|
|
|
46,112
|
|
General
and administrative
|
|
|
106,350
|
|
|
|
80,276
|
|
|
|
208,996
|
|
|
|
196,535
|
|
Total
stock-based compensation expense
|
|
$
|
151,314
|
|
|
$
|
139,399
|
|
|
$
|
299,584
|
|
|
$
|
318,910
|
|
Fair
Value of Financial Instruments
Due
to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate their fair value. Long-term liabilities are primarily related to convertible debentures and deferred revenue
with carrying values that approximate fair value.
The
issuances of our convertible promissory notes and common stock purchase warrant are accounted for under the fair value and relative
fair value method.
The
warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a
derivative, then it is measured at fair value using the Black Scholes Option Model and recorded as a liability on the balance
sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).
If
the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes
option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including
the fair value of the convertible note.
The
convertible note is recorded at its fair value, limited to a relative fair value based upon the percentage of its fair value to
the total fair value including the fair value of the warrant. Further, the convertible promissory note is examined for any intrinsic
beneficial conversion feature (“BCF”) of which the convertible price of the note is less than the closing stock price
on date of issuance. If the relative fair value method is used to value the convertible promissory note and there is an intrinsic
BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the
relative fair value divided by the number of shares the convertible debt is converted into by its terms. The adjusted BCF value
is accounted for as equity.
The
warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. At present, these equity
features of the convertible promissory notes have been recorded at a discount to the convertible notes that is substantially equal
to the proceeds received.
Fair
Value Measurements
The
Company follows the guidance of FASB ASC Topic 820, “
Fair Value Measurements and Disclosures
” (“ASC 820”)
as it related to all financial assets and financial liabilities that are recognized or disclosed at fair value in the financial
statements on a recurring basis.
In
determining the fair value of its assets and liabilities, the Company uses various valuation approaches. The Company employs a
hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would
use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs
are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset
or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken
down into three levels based on the source of inputs as follows:
Level
1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company
has the ability to access.
Level
2–Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either
directly or indirectly.
Level
3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The Company has determined that its financial assets are classified within Level 1 and its financial liabilities
are currently classified within Level 3 in the fair value hierarchy. The development of the unobservable inputs for Level 3 fair
value measurements and fair value calculations are the responsibility of the Company’s management.
Adoption
of ASU 2017-11
The
Company changed its method of accounting for the Debentures, Debenture Warrants and Series D Warrants through the early adoption
of ASU 2017-11 during the year ended December 31, 2017 on a modified retrospective basis. Accordingly, the Company reclassified
the warrant derivative and conversion option derivative liabilities to additional paid in capital on its January 1, 2017 consolidated
balance sheets totaling approximately $2.6 million, reduced debt discount by approximately $0.9 million and recorded the cumulative
effect of the adoption to the beginning balance of accumulated deficit of approximately $2.4 million. This resulted to an increase
in stock warrants by $2.6 million and additional paid-in capital by $1.4 million. The following table provides a reconciliation
of the warrant derivative liability, convertible debt, conversion option derivative liability, stock warrant, additional paid-in
capital and accumulated deficit on the consolidated balance sheet as of December 31, 2016:
|
|
Convertible
debt, current portion
|
|
|
Convertible
debt, long term portion
|
|
|
Warrant
Derivative Liability
|
|
|
Conversion
Option Liability
|
|
|
Warrants
to acquire common stock
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
deficit
|
|
Balance,
January 1, 2017 (Prior to adoption of ASU 2017-11)
|
|
$
|
4,005,702
|
|
|
$
|
529,742
|
|
|
$
|
1,685,108
|
|
|
$
|
951,059
|
|
|
$
|
6,325,102
|
|
|
$
|
27,544,265
|
|
|
$
|
(42,264,190
|
)
|
Reclassified
derivative liabilities and cumulative effect of adoption
|
|
|
769,316
|
|
|
|
154,152
|
|
|
|
(1,685,108
|
)
|
|
|
(951,059
|
)
|
|
|
2,636,236
|
|
|
|
1,446,011
|
|
|
|
(2,369,548
|
)
|
Balance,
January 1, 2017 (After adoption of ASU 2017-11)
|
|
$
|
4,775,018
|
|
|
$
|
683,894
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,961,338
|
|
|
$
|
28,990,276
|
|
|
$
|
(44,633,738
|
)
|
The
following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring
basis as of September 30, 2018:
|
|
|
|
|
Fair
value measurements at
September 30, 2018 using:
|
|
|
|
September
30, 2018
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level
2)
|
|
|
Significant
unobservable
inputs
(Level
3)
|
|
Available-For-Sale
Equity Securities
|
|
|
16,643
|
|
|
|
16,643
|
|
|
|
-
|
|
|
|
-
|
|
Total
Financial Assets
|
|
$
|
16,643
|
|
|
$
|
16,643
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring
basis as of December 31, 2017:
|
|
|
|
|
Fair
value measurements at
December 31, 2017 using:
|
|
|
|
December
31, 2017
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Available-For-Sale
Equity Securities
|
|
|
19,825
|
|
|
|
19,825
|
|
|
|
-
|
|
|
|
-
|
|
Total
Financial Assets
|
|
$
|
19,825
|
|
|
$
|
19,825
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
5)
|
Commitments
and Contingencies
|
Operating
Leases
Our
corporate office is currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying $6,950
per month, on a lease extension, signed on December 29, 2017, that expires December 31, 2018, for our corporate office. We expanded
our space to include offices, warehouse and a loading dock on the first floor starting May 1, 2017 with a monthly rent increase
already reflected in the current payments.
We
extended our lease for our space in Medford, MA to December 30, 2020. The lease requires monthly payments of $6,912.75 subject
to annual cost of living increases. The lease shall be automatically extended for additional three years unless either party terminates
at least six months prior to the expiration of the current lease term.
Rental
costs are expensed as incurred. During the nine months ended September 30, 2018 and 2017 we incurred $137,074 and $112,438 in
rent expense, respectively for the use of our corporate office and research and development facilities.
Following
is a schedule by years of future minimum rental payments required under operating leases with initial or remaining non-cancelable
lease terms in excess of one year as of September 30, 2018:
2018
|
|
$
|
41,588
|
|
2019
|
|
|
82,953
|
|
2020
|
|
|
82,953
|
|
2021
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
207,494
|
|
Government
Grants
We
received a $1.02 million NIH SBIR Phase II Grant in November 2014. Under the grant, the NIH has committed to pay the Company to
develop a high-throughput, high pressure-based DNA Shearing System for Next Generation Sequencing and other genomic applications.
In March 2018, we received an extension on the SBIR Phase II grant to utilize unused funds until November 30, 2018.
|
6)
|
Convertible
Debt and Other Debt
|
Conversion
of Notes
We
issued 5,075.40 shares of our Series AA Convertible Preferred Stock in satisfaction of $12,688,634 of convertible promissory notes,
Revolving Note and short-term loans issued:
|
|
Debt
converted
to stock
|
|
Current
liabilities
|
|
|
|
|
Convertible
Debentures, face value
|
|
$
|
6,962,634
|
|
Revolving
Note with interest
|
|
|
4,750,000
|
|
May
19, 2017 Promissory Note with interest
|
|
|
750,000
|
|
Other
Notes with interest
|
|
|
226,000
|
|
Total
debt converted in the second quarter of 2018
|
|
$
|
12,688,634
|
|
Senior
Secured Convertible Debentures and Warrants
We
entered into Subscription Agreements (the “
Subscription Agreement
”) with various individuals (each, a “
Purchaser
”)
between July 23, 2015 and March 31, 2016, pursuant to which the Company sold Senior Secured Convertible Debentures (the “
Debentures
”)
and warrants to purchase shares of common stock equal to 50% of the number of shares issuable pursuant to the subscription amount
(the “
Warrants
”) for an aggregate purchase price of $6,329,549 (the “
Purchase Price
”).
The
Company issued a principal aggregate amount of $6,962,634 in Debentures which includes a 10% original issue discount on the Purchase
Price. The Debenture does not accrue any additional interest during the first year it is outstanding but accrues interest at a
rate equal to 10% per annum for the second year it is outstanding. The Debenture has a maturity date of two years from issuance.
The Debenture is convertible any time after its issuance date. The Purchaser has the right to convert the Debenture into shares
of the Company’s common stock at a fixed conversion price equal to $8.40 per share, subject to applicable adjustments. In
the second year that the Debenture is outstanding, any interest accrued shall be payable quarterly in either cash or common stock,
at the Company’s discretion.
In
connection with the Debentures issued, the Company issued warrants exercisable into a total of 376,759 shares of our common stock.
The Warrants issued in this transaction are immediately exercisable at an exercise price of $12.00 per share, subject to applicable
adjustments including full ratchet anti-dilution if we issue any securities at a price lower than the exercise price then in effect.
The Warrants have an expiration period of five years from the original issue date. The Warrants are subject to adjustment for
stock splits, stock dividends or recapitalizations and also include anti-dilution price protection for subsequent equity sales
below the exercise price.
On
May 2, 2018, the Company entered into a Securities Purchase Agreement with an existing shareholder pursuant to which the Company
sold an aggregate of 100 shares of Series AA Convertible Preferred Stock for an aggregate Purchase Price of $250,000. We issued
to the shareholder a new warrant to purchase 100,000 shares of common stock with an exercise price of $3.50 per share.
The
Company, pursuant to a price protection provision triggered on May 2, 2018 with the sale of Series AA units, amended the Debentures
and Warrants to purchase Common Stock held by the Debenture Holders entered into between July 22, 2015 and March 31, 2016 as first
disclosed in the Company’s Current Report on Form 8-K filed on July 28, 2015. The fair value of $207,899 relating to the
reduction in exercise price was treated as a deemed dividend and recorded as a charge against additional paid-in capital within
equity. The amended Debenture conversion price was exempt from revaluation because a beneficial conversion feature had already
been recorded on the Debenture at issuance.
Subject
to the terms and conditions of the Warrants, at any time commencing six months from the Final Closing, the Company has the right
to call the Warrants for cancellation if the volume weighted average price of its Common Stock on the OTCQB (or other primary
trading market or exchange on which the Common Stock is then traded) equals or exceeds three times the per share exercise price
of the Warrants for 15 out of 20 consecutive trading days.
In
connection with the Subscription Agreement and Debenture, the Company entered into Security Agreements with the Purchasers whereby
the Company agreed to grant to Purchasers an unconditional and continuing, first priority security interest in all of the assets
and property of the Company to secure the prompt payment, performance and discharge in full of all of Company’s obligations
under the Debentures, Warrants and the other Transaction Documents. On May 14 and June 11, 2018, the Company signed letter agreements
with the Debenture holders as explained below that discharged all of the Company’s obligations within the Debenture Agreement.
Conversion
of Debentures
On
May 14, 2018, we entered into letter agreements (the “Letter Agreements”) with 22 investors (each a “Debenture
Holder” and together the “Debenture Holders”) holding convertible debentures (collectively the “Debentures”)
and warrants to purchase common stock (the “Debenture Warrants”) whereby the Debenture Holders agreed to convert a
total of $6,220,500 in principal and original issue discount due them under the Debentures into 2,448.20 shares of Series AA Convertible
Preferred Stock with a conversion price of $2.50 per share. The Debenture Holders were also: (a) issued amended Debenture Warrants
such that the exercise price will be $3.50 per share; and (b) issued a new warrant with an exercise price of $3.50 per share to
purchase 2,448,200 shares of common stock (the number of shares of common stock issuable upon conversion of the Series AA Convertible
Preferred Stock shares received as a result of the Debenture conversions). The Debenture Holders also agreed to waive any and
all defaults or events of default by the Company with respect to any failure by the Company to comply with any covenants contained
in the Debentures. The fair value of $29,865 relating to the adjustment in exercise price was treated as a loan modification and
recorded as a gain toward the extinguishment of debt.
On
June 11, 2018, the Company entered into additional Letter Agreements with 15 Debenture Holders whereby the Debenture Holders agreed
to convert a total of $742,134 in principal and original issue discount due them under the Debentures into 296.80 shares of Series
AA Convertible Preferred Stock with a conversion price of $2.50 per share. The Debenture Holders were also: (a) issued amended
Debenture Warrants such that the exercise price will be $3.50 per share; and (b) issued a new warrant with an exercise price of
$3.50 per share to purchase 296,800 shares of common stock (the number of shares of common stock issuable upon conversion of the
Series AA Convertible Preferred Stock shares received as a result of the Debenture conversions). The Debenture Holders also agreed
to waive any and all defaults or events of default by the Company with respect to any failure by the Company to comply with any
covenants contained in the Debentures. The fair value of $3,155 relating to the adjustment in exercise price was treated as a
loan modification and recorded as a gain toward the extinguishment of debt.
In
connection with the above Debenture conversions and cancellation of the debt term, the Company recorded the full amount of the
remaining unamortized Debenture discounts of $157,908 as interest expense by June 11, 2018. The Company recorded $287,676 of the
Debenture discounts during 2018 through the cancellation date of June 11, 2018.
On
various dates for the nine months ended September 30, 2018, the Company issued 56,007 shares of common stock based on the 10-day
VWAP prior to quarter end to holders of the Debentures in payment of the quarterly interest accrued from the Debentures first
anniversary date through June 11, 2018 for an aggregate amount of $211,047. We recognized a $9,615 gain on extinguishment of debt
for the nine months ended September 30, 2018 by calculating the difference of the shares valued on the issuance date and the amount
of accrued interest through June 11, 2018.
Other
convertible notes
The
Company, pursuant to a price protection provision triggered on May 2, 2018 with the sale of Series AA units, amended the conversion
price of a March 12, 2018 loan to $2.50 per share. The fair value of $253,000, limited to the face value of the loan, relating
to the reset in the conversion price was recorded as a debt discount and amortized as interest expense over the remaining loan
term.
On
various dates during the nine months ended September 30, 2018, the Company issued convertible notes for net proceeds of $3,848,484
which contained varied terms and conditions as follows: a) maturity dates ranging from 3 to 12 months; b) interest rates that
accrue per annum ranging from 4% to 15%; c) convertible to the Company’s common stock at issuance at a fixed rate of $7.50
or convertible at variable conversion rates either after 6 months after issuance or in the event of a default. Certain of these
notes were issued with shares of common stock or warrants to purchase common stock that were fair valued at issuance dates. The
aggregate relative fair value of $384,295 of the shares of common stock or warrants to purchase common stock issued with
the notes was recorded as a debt discount and amortized over the term of the notes. We then computed the effective conversion
price of the notes, noting that no beneficial conversion feature exists. We also evaluated the convertible notes for derivative
liability treatment and determined that the notes did not qualify for derivative accounting treatment as of September 30, 2018.
The
specific terms of the convertible notes and outstanding balances as of September 30, 2018 are listed in the tables below.
Convertible
Notes
Inception
Date
|
|
Term
|
|
|
Loan
Amount
|
|
|
Outstanding
Balance
with
OID
|
|
|
Original
Issue Discount
|
|
|
Interest
Rate
|
|
|
Conversion
Price (Convertible at Inception Date)
|
|
|
Deferred
Finance Fees
|
|
|
Discount
related to fair value of conversion feature and warrants/shares
|
|
July
22, 2015
|
|
|
30
months
|
1
|
|
$
|
2,398,000
|
|
|
$
|
-
|
4
|
|
$
|
218,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
$
|
388,532
|
|
|
$
|
2,163,074
|
|
September
25, 2015
|
|
|
30
months
|
1
|
|
|
1,210,000
|
|
|
|
-
|
4
|
|
|
110,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
185,956
|
|
|
|
1,022,052
|
|
October
2, 2015
|
|
|
30
months
|
1
|
|
|
165,000
|
|
|
|
-
|
4
|
|
|
15,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
26,345
|
|
|
|
140,832
|
|
October
6, 2015
|
|
|
30
months
|
1
|
|
|
33,000
|
|
|
|
-
|
4
|
|
|
3,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
5,168
|
|
|
|
26,721
|
|
October
14, 2015
|
|
|
30
months
|
1
|
|
|
55,000
|
|
|
|
-
|
4
|
|
|
5,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
8,954
|
|
|
|
49,377
|
|
November
2, 2015
|
|
|
30
months
|
1
|
|
|
275,000
|
|
|
|
-
|
4
|
|
|
25,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
43,079
|
|
|
|
222,723
|
|
November
10, 2015
|
|
|
30
months
|
1
|
|
|
55,000
|
|
|
|
-
|
4
|
|
|
5,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
8,790
|
|
|
|
46,984
|
|
November
12, 2015
|
|
|
30
months
|
1
|
|
|
236,500
|
|
|
|
-
|
4
|
|
|
21,500
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
38,518
|
|
|
|
212,399
|
|
November
20, 2015
|
|
|
30
months
|
1
|
|
|
220,000
|
|
|
|
-
|
4
|
|
|
20,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
37,185
|
|
|
|
200,000
|
|
December
4, 2015
|
|
|
30
months
|
1
|
|
|
187,000
|
|
|
|
-
|
4
|
|
|
17,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
37,352
|
|
|
|
170,000
|
|
December
11, 2015
|
|
|
30
months
|
1
|
|
|
396,000
|
|
|
|
-
|
4
|
|
|
36,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
75,449
|
|
|
|
360,000
|
|
December
18, 2015
|
|
|
30
months
|
1
|
|
|
60,500
|
|
|
|
-
|
4
|
|
|
5,500
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
11,714
|
|
|
|
55,000
|
|
December
31, 2015
|
|
|
30
months
|
1
|
|
|
110,000
|
|
|
|
-
|
4
|
|
|
10,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
20,634
|
|
|
|
100,000
|
|
January
11, 2016
|
|
|
30
months
|
1
|
|
|
110,000
|
|
|
|
-
|
4
|
|
|
10,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
24,966
|
|
|
|
80,034
|
|
January
20, 2016
|
|
|
30
months
|
1
|
|
|
55,000
|
|
|
|
-
|
4
|
|
|
5,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
9,812
|
|
|
|
40,188
|
|
January
29, 2016
|
|
|
30
months
|
1
|
|
|
330,000
|
|
|
|
-
|
4
|
|
|
30,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
60,887
|
|
|
|
239,113
|
|
February
26, 2016
|
|
|
30
months
|
1
|
|
|
220,000
|
|
|
|
-
|
4
|
|
|
20,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
43,952
|
|
|
|
156,048
|
|
March
10, 2016
|
|
|
30
months
|
1
|
|
|
137,500
|
|
|
|
-
|
4
|
|
|
12,500
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
18,260
|
|
|
|
106,740
|
|
March
18, 2016
|
|
|
30
months
|
1
|
|
|
396,000
|
|
|
|
-
|
4
|
|
|
36,000
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
94,992
|
|
|
|
265,008
|
|
March
24, 2016
|
|
|
30
months
|
1
|
|
|
117,334
|
|
|
|
-
|
4
|
|
|
10,667
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
15,427
|
|
|
|
91,240
|
|
March
31, 2016
|
|
|
30
months
|
1
|
|
|
195,670
|
|
|
|
-
|
4
|
|
|
17,788
|
2
|
|
|
10
|
%
3
|
|
$
|
8.40
|
|
|
|
2,436
|
|
|
|
175,446
|
|
October
20, 2017
|
|
|
12
months
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
%
|
|
$
|
7.50
|
|
|
|
7,500
|
|
|
|
-
|
|
October
25, 2017
|
|
|
6
months
|
|
|
|
103,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
October
27, 2017
|
|
|
12
months
|
|
|
|
170,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
4,250
|
|
|
|
10,000
|
|
November
13, 2017
|
|
|
9
months
|
|
|
|
380,000
|
|
|
|
-
|
|
|
|
15,200
|
|
|
|
8
|
%
|
|
$
|
7.50
|
|
|
|
15,200
|
|
|
|
46,274
|
|
November
22, 2017
|
|
|
12
months
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
November
28, 2017
|
|
|
10
months
|
|
|
|
103,000
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
November
29, 2017
|
|
|
6
months
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
15,200
|
|
November
30, 2017
|
|
|
3
months
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
-
|
|
December
5, 2017
|
|
|
3
months
|
|
|
|
52,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
%
|
|
$
|
7.50
|
|
|
|
2,500
|
|
|
|
-
|
|
December
6, 2017
|
|
|
4
months
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
-
|
|
December
11, 2017
|
|
|
6
months
|
|
|
|
130,000
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
6,500
|
|
|
|
6,460
|
|
December
19, 2017
|
|
|
6
months
|
|
|
|
110,000
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
5,500
|
|
|
|
5,775
|
|
December
28, 2017
|
|
|
6
months
|
|
|
|
55,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
5,000
|
|
|
|
-
|
|
December
29, 2017
|
|
|
12
months
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
5,000
|
|
|
|
-
|
|
January
3, 2018
|
|
|
12
months
|
|
|
|
95,000
|
|
|
|
-
|
|
|
|
4,750
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
January
16, 2018
|
|
|
12
months
|
|
|
|
131,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
6,250
|
|
|
|
-
|
|
January
19, 2018
|
|
|
6
months
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
%
|
|
$
|
7.50
|
|
|
|
6,000
|
|
|
|
12,267
|
|
February
9, 2018
|
|
|
6
months
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
23,500
|
|
|
|
-
|
|
February
15, 2018
|
|
|
6
months
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
9,000
|
|
|
|
10,474
|
|
March
12, 2018
|
|
|
6
months
|
|
|
|
85,000
|
|
|
|
-
|
|
|
|
1,150
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
4,250
|
|
|
|
5,183
|
|
March
12, 2018
|
|
|
6
months
|
|
|
|
253,000
|
|
|
|
-
|
|
|
|
53,000
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
|
|
|
|
28,722
|
|
April
11, 2018
|
|
|
6
months
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
4,000
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
20,000
|
|
|
|
7,218
|
|
April
23, 2018
|
|
|
6
months
|
|
|
|
103,000
|
|
|
|
103,000
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
April
24, 2018
|
|
|
9
months
|
|
|
|
77,000
|
|
|
|
77,000
|
|
|
|
-
|
|
|
|
12
|
%
|
|
$
|
7.50
|
|
|
|
2,000
|
|
|
|
-
|
|
April
25, 2018
|
|
|
12
months
|
|
|
|
105,000
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
4
|
%
|
|
$
|
7.50
|
|
|
|
5,000
|
|
|
|
4,590
|
|
April
25, 2018
|
|
|
12
months
|
|
|
|
105,000
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
4
|
%
|
|
$
|
7.50
|
|
|
|
5,000
|
|
|
|
4,590
|
|
April
25, 2018
|
|
|
12
months
|
|
|
|
130,000
|
|
|
|
130,000
|
|
|
|
-
|
|
|
|
6
|
%
|
|
$
|
7.50
|
|
|
|
6,500
|
|
|
|
-
|
|
April
26, 2018
|
|
|
12
months
|
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
6,500
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
May
9, 2018
|
|
|
12
months
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
10
|
%
|
|
$
|
7.50
|
|
|
|
12,500
|
|
|
|
26,466
|
|
May
11, 2018
|
|
|
6
months
|
|
|
|
161,250
|
|
|
|
161,250
|
|
|
|
11,250
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
10,000
|
|
|
|
-
|
|
May
14, 2018
|
|
|
9
months
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
2,500
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
2,500
|
|
|
|
3,704
|
|
May
17, 2018
|
|
|
12
months
|
|
|
|
380,000
|
|
|
|
380,000
|
|
|
|
15,200
|
|
|
|
8
|
%
|
|
$
|
7.50
|
|
|
|
15,200
|
|
|
|
43,607
|
|
May
23, 2018
|
|
|
9
months
|
|
|
|
103,000
|
|
|
|
103,000
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
May
24, 2018
|
|
|
9
months
|
|
|
|
52,500
|
|
|
|
52,500
|
|
|
|
2,500
|
|
|
|
4
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
2,075
|
|
May
25, 2018
|
|
|
12
months
|
|
|
|
78,750
|
|
|
|
78,750
|
|
|
|
-
|
|
|
|
4
|
%
|
|
$
|
7.50
|
|
|
|
3,750
|
|
|
|
3,112
|
|
May
30, 2018
|
|
|
2
months
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
6,870
|
|
June
4, 2018
|
|
|
12
months
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
7,500
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
2,000
|
|
|
|
3,869
|
|
June
8, 2018
|
|
|
6
months
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
2,500
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
2,500
|
|
|
|
3,271
|
|
June
12, 2018
|
|
|
6
months
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
%
|
|
$
|
7.50
|
|
|
|
5,000
|
|
|
|
-
|
|
June
14, 2018
|
|
|
9
months
|
|
|
|
280,000
|
|
|
|
280,000
|
|
|
|
25,000
|
|
|
|
10
|
%
|
|
|
-
|
|
|
|
5,000
|
|
|
|
17,573
|
|
June
16, 2018
|
|
|
9
months
|
|
|
|
130,000
|
|
|
|
130,000
|
|
|
|
-
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
June
16, 2018
|
|
|
6
months
|
|
|
|
110,000
|
|
|
|
110,000
|
|
|
|
-
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
June
26, 2018
|
|
|
3
months
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
20,242
|
|
June
28, 2018
|
|
|
6
months
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
10,518
|
|
July
2, 2018
|
|
|
12
months
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
-
|
|
|
|
4
|
%
|
|
|
-
|
|
|
|
6,250
|
|
|
|
5,588
|
|
July
10, 2018
|
|
|
12
months
|
|
|
|
95,000
|
|
|
|
95,000
|
|
|
|
6,750
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
July
13, 2018
|
|
|
9
months
|
|
|
|
103,000
|
|
|
|
103,000
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
July
17, 2018
|
|
|
3
months
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
15,000
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
16,944
|
|
July
19, 2018
|
|
|
12
months
|
|
|
|
184,685
|
|
|
|
184,685
|
|
|
|
34,685
|
|
|
|
10
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
-
|
|
July
30, 2018
|
|
|
12
months
|
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
-
|
|
|
|
6
|
%
|
|
$
|
7.50
|
|
|
|
4,000
|
|
|
|
-
|
|
July
31, 2018
|
|
|
3
months
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
12
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
6,578
|
|
August
8, 2018
|
|
|
6
months
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
-
|
|
August
15, 2018
|
|
|
4
months
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
-
|
|
August
28, 2018
|
|
|
12
months
|
|
|
|
131,250
|
|
|
|
131,250
|
|
|
|
-
|
|
|
|
4
|
%
|
|
|
-
|
|
|
|
6,250
|
|
|
|
4,443
|
|
September
7, 2018
|
|
|
6
months
|
|
|
|
85,000
|
|
|
|
85,000
|
|
|
|
-
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
4,364
|
|
|
|
|
|
|
|
$
|
13,744,689
|
|
|
$
|
3,859,435
|
|
|
$
|
856,440
|
|
|
|
|
|
|
|
|
|
|
$
|
1,390,308
|
|
|
$
|
6,258,956
|
|
1.
The loan term was extended by 180 days and further extended on January 15, 2018 by 60 days to repay in common stock. The Debenture
holders signed letter agreements on May 14, 2018 and June 11, 2018 to waive default penalties relating to the maturity date.
2.
The original issue discount is reflected in the first year.
3.
The annual interest started accruing in the second year.
4.
The Debentures were converted into Series AA Convertible Preferred Stock.
For
the nine months ended September 30, 2018, the Company recognized amortization expense related to the convertible debt discounts
indicated above of $1,327,983. The unamortized debt discounts as of September 30, 2018 related to the convertible debentures
and other convertible notes amounted to $239,872.
Revolving
Note Payable and May 19, 2017 Promissory Note
On
October 28, 2016, an accredited investor (the “
Investor
”) purchased from us a promissory note in the aggregate
principal amount of up to $2,000,000 (the “
Revolving Note
”) due and payable on the earlier of October 28, 2017
(the “
Maturity Date
”) or on the seventh business day after the closing of a Qualified Offering (as defined
in the Revolving Note). Although the Revolving Note is dated October 26, 2016, the transaction did not close until October 28,
2016, when we received its initial $250,000 advance pursuant to the Revolving Note. As a result, on the same day and pursuant
to the Revolving Note, we issued to the Investor a Common Stock Purchase Warrant (the “
Line of Credit Warrants
”)
to purchase 20,834 shares of our common stock at an exercise price per share equal to $12.00 per share. The Investor is obligated
to provide us with advances of $250,000 under the Revolving Note, but the Investor shall not be required to advance more than
$250,000 in any individual fifteen (15) day period and no more than $500,000 in the thirty (30) day period immediately following
the date of the initial advance. We received $3,500,000 pursuant to the Revolving Note as amended of which $2,070,000 net proceeds
was received in 2017 and we issued to the Investor Line of Credit Warrants to purchase 291,667 shares of our Common Stock at an
exercise price per share equal to $12.00 per share. The terms of the Line of Credit Warrants are identical except for the exercise
date, issue date, and termination date which are based on the advance date.
The
Revolving Note was amended on May 2, 2017 to increase the aggregate principal amount to $3,000,000, to issue 16,667 shares of
our Common Stock to the Investor, to decrease the exercise price per share of the warrants to the lower of (i) $12.00 or (ii)
the per share purchase price of the shares of our Common Stock sold in the Qualified Offering, and to change the references in
the Revolving Note from “the six (6) month anniversary of October 28, 2016” to “July 25, 2017.” The fair
value of the 16,667 shares issued of $149,018 was accounted for as a note discount and are amortized to interest expense over
the life of the loan. We evaluated the accounting impact of the Revolving Note amendment and deemed that the amendment did not
have a material impact on our consolidated financial statements.
The
Revolving Note was amended on August 18, 2017 to increase the aggregate principal amount to $3,500,000 with all other terms unchanged.
The Revolving Note, previously amended, was further amended on January 30, 2018 to increase the aggregate principal amount to
$4,000,000 with all other terms unchanged.
In
the event that a Qualified Offering had occurred after July 25, 2017, but prior to the Maturity Date, within seven (7) Business
Days of the closing of the Qualified Offering, the Company was to pay a cash fee equal to five percent (5%) of the total outstanding
amount owed by the Company to the Holder as of the closing date of the Qualified Offering or, at the option of the Company, issue
to the Holder a number of restricted shares of the Company’s common stock equal to (x) five percent (5%) of the total outstanding
amount owed by the Company to the Holder as of the closing date of the Qualified Offering divided by (y) the purchase price provided
by the documents governing the Qualified Offering. A
Qualified Offering
means the completion of a public offering of the
Company’s securities pursuant to which the Company receives aggregate gross proceeds of at least Seven Million United States
Dollars (US$7,000,000) in consideration of the purchase of its securities and resulting in, pursuant to the effectiveness of the
registration statement for such offering, the Company’s common stock being traded on the NASDAQ Capital Market, NASDAQ Global
Select Market or the New York Stock Exchange. A Qualified Offering did not occur on or prior to the Maturity Date.
Interest
on the principal balance of the Revolving Note shall be paid in full on the Maturity Date, unless otherwise paid prior to the
Maturity Date. Interest shall be assessed as follows: (i) a one-time interest of 10% on all principal amounts advanced prior to
April 28, 2017; (ii) the foregoing and 4% on any amount remaining outstanding if the principal amount is repaid between April
28, 2017 and July 28, 2017; or (iii) both of the foregoing and 4% on any amount remaining outstanding if the principal amount
is repaid between July 28, 2017 and October 28, 2017.
Broker
fees amounting to $336,500, the one-time interest of $400,000 and the relative fair value of the 333,334 warrants issued to the
Investor amounting to $1,266,691 were recorded as debt discounts and amortized over the term of the revolving note. The unamortized
debt discounts related to the Revolving Note were fully amortized as of December 31, 2017. The finance costs from advances after
December 31, 2017 were charged to interest expense directly because the maturity date had passed.
On
May 19, 2017, we received a 45-day non-convertible loan of $630,000 from the Investor. The loan provided guaranteed interest of
$63,000 and had an origination fee of $32,000. We paid a broker $31,500 in connection with this loan. The unamortized debt discount
as of September 30, 2018 was zero.
Conversion
of October 26, 2016 Revolving Note and May 19, 2017 Promissory Note
On
June 11, 2018, the Company entered into a Letter Agreement with the Investor to convert a total of $5,500,000 in principal and
interest due to the Investor pursuant to the Revolving Note and the May 19, 2017 promissory note into 2,200 shares of Series AA
Convertible Preferred Stock with a conversion price of $2.50 per share. The Company also amended the Line of Credit Warrants held
by the Investor. The Company lowered the Line of Credit Warrants’ exercise price from $12.00 per share to $3.50 per share.
The fair value of $82,904 relating to the reduction in exercise price was treated as a loan modification and recorded as a charge
against the extinguishment of debt.
The
Company also issued a new warrant to the Investor with an exercise price of $3.50 per share to purchase 2,200,000 shares of common
stock (the number of shares of common stock issuable upon conversion of the Series AA Convertible Preferred Stock shares received
as a result of the conversion of a total of $5,500,000). In connection with the Letter Agreement, the Investor also waived $520,680
of interest and fees owed as of September 30, 2018. We recognized $520,680 as a gain on extinguishment of debt.
Convertible
Loan modifications and extinguishments
We
refinanced certain convertible loans during the three months ended September 30, 2018 at substantially the same terms for
extensions of six months. We amortized any remaining unamortized debt discount as of the modification date over the remaining,
extended term of the new loans. We applied ASC 470 of modification accounting to the debt instruments which were modified during
the quarter or those settled with new notes issued concurrently for the same amounts but different maturity dates. The terms such
as the interest rate, prepayment penalties, and default rates will be the same over the new extensions. According to ASC 470,
an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a nontroubled debt
situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the
cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining
cash flows under the terms of the original instrument. If the terms of a debt instrument are changed or modified and the cash
flow effect on a present value basis is less than 10 percent, the debt instruments are not considered to be substantially different
and will be accounted for as modifications.
The
cash flows of new debt exceeded 10% of the remaining cash flows of the original debt on five loans. We recorded losses
on debt extinguishment of $124,879 on these five loans by calculating the difference of the fair value of the new
debt and the carrying value of the old debt. The loss was primarily from the fair value of common stock issued in connection with
these refinancings.
The fees paid to the lenders which formed part of the $124,879 loss on debt
extinguishment included the aggregate fair value of $68,334 for the shares issued with the new debt, the writedown of $5,883 for
unamortized discounts remaining on the original debt and cash fees of $50,662.
Origination
Date
|
|
Amended
Start Date
|
|
|
New
Maturity Date
|
|
|
Loan
Amount
|
|
|
New
Loan Amount
|
|
|
Total
Unamortized Discount as of June 30, 2018
|
|
|
Amortization
from July 1, 2018 to Modification Date
|
|
|
Unamortized
discount
|
|
12/11/2017
|
|
|
6/15/2018
|
|
|
|
12/11/2018
|
*
|
|
$
|
130,000
|
|
|
$
|
130,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
12/19/2017
|
|
|
6/15/2018
|
|
|
|
12/19/2018
|
*
|
|
|
110,000
|
|
|
|
110,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
1/3/2018
|
|
|
7/11/2018
|
|
|
|
7/10/2019
|
|
|
|
95,000
|
|
|
|
95,000
|
|
|
|
3,458
|
|
|
|
(69
|
)
|
|
|
3,389
|
|
1/17/2018
|
|
|
8/29/2018
|
|
|
|
8/27/2019
|
|
|
|
131,250
|
|
|
|
131,250
|
|
|
|
3,442
|
|
|
|
(352
|
)
|
|
|
3,090
|
|
1/19/2018
|
|
|
7/19/2018
|
|
|
|
8/22/2019
|
*
|
|
|
150,000
|
|
|
|
184,685
|
|
|
|
1,288
|
|
|
|
(42
|
)
|
|
|
1,246
|
|
2/9/2018
|
|
|
8/8/2018
|
|
|
|
2/8/2019
|
*
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
5,193
|
|
|
|
(556
|
)
|
|
|
4,637
|
|
2/15/2018
|
|
|
8/15/2018
|
|
|
|
12/15/2018
|
*
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
2,662
|
|
|
|
(2,662
|
)
|
|
|
-
|
|
3/12/2018
|
|
|
9/7/2018
|
|
|
|
3/12/2019
|
|
|
|
85,000
|
|
|
|
85,000
|
|
|
|
2,172
|
|
|
|
(411
|
)
|
|
|
1,761
|
|
5/30/2018
|
|
|
7/31/2018
|
|
|
|
10/31/2018
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
9,280
|
|
|
|
(1,868
|
)
|
|
|
7,412
|
|
3/30/2018
|
|
|
4/30/2018
|
|
|
|
9/30/2018
|
|
|
|
170,000
|
|
|
|
170,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,221,250
|
|
|
$
|
1,255,935
|
|
|
$
|
27,495
|
|
|
$
|
(5,960
|
)
|
|
$
|
21,535
|
|
*
The original loans were recorded as extinguished, the unamortized debt discounts on the old debt were written off on extinguishment
date, and a loss was recorded for each extinguishment. The July 19, 2018 Note includes an original issue discount of $34,685
added to the new loan.
The
following table provides a summary of the changes in convertible debt and revolving note payable, net of unamortized discounts,
during 2018:
|
|
2018
|
|
Balance
at January 1,
|
|
$
|
11,787,776
|
|
Issuance
of convertible debt, face value
|
|
|
4,664,000
|
|
Deferred
financing cost
|
|
|
(315,516
|
)
|
Debt
discount related to one-time interest charge
|
|
|
(147,000
|
)
|
Contingent
beneficial conversion feature on convertible note
|
|
|
(253,000
|
)
|
Debt
discount from warrants issued with debt
|
|
|
(162,023
|
)
|
Debt
discount from shares issued with the notes
|
|
|
(222,272
|
)
|
Conversion
of debt into equity
|
|
|
(10,962,634
|
)
|
Payments
|
|
|
(2,097,750
|
)
|
Accretion
of interest and amortization of debt discount to interest expense through September 30,
|
|
|
1,327,984
|
|
Balance
at September 30,
|
|
|
3,619,565
|
|
Less:
current portion
|
|
|
3,619,565
|
|
Convertible
debt, long-term portion
|
|
$
|
-
|
|
Other
Notes
On
March 21, 2017, we received an eight-month, non-convertible loan of $170,000 from an accredited investor. The loan earns an annual
interest rate of 10% and includes a 10% original issue discount. We also agreed to issue the investor 5,667 shares of restricted
common stock. We recorded the fair value of the shares amounting to $35,079 as a debt discount that will be amortized to interest
expense during the term of the loan. The loan still remains outstanding as of September 30, 2018 with a balance of $170,000. The
lender extended the term to December 31, 2017 and further to March 31, 2018 in exchange for a total of 9,500 shares of common
stock with a fair value of $28,490 recorded as interest expense. The lender further extended the term to April 30, 2018
then to September 30, 2018 in exchange for an aggregate of 7,200 shares of company stock. We fully amortized $52,079
of the original debt discount in the year ended December 31, 2017. We recorded a loss of $20,400 relating to the fair value
of common stock issued for the September 30 extension.
On
August 1, 2017, we signed a non-convertible installment loan with a lender. Under the agreement we received a loan of $75,000
with a weekly repayment of $3,500 until payment in full. The loan includes $18,750 representing an original issue discount, interest
and fees resulting in a total payable of $93,750. The loan was paid off entirely as of September 30, 2018.
On
September 12, 2017, we received a 9-month non-convertible loan of $225,000 from a privately-held investment firm. The loan earns
an annual interest rate of 10%. The Company paid total fees of $25,000 including original issue discount and other costs related
to this loan. We agreed to issue 3,333 shares at closing. We recorded the fair value of the shares as a debt discount that will
be amortized to interest expense during the term of the loan. We amortized the entire debt discount of $38,000 as of September
30, 2018. In the event of default and at the option of the holder, the loan is convertible into common stock at a 35% discount
to the average of the two lowest daily volume weighted average closing stock price for the 20 trading days prior to conversion.
The loan was paid off entirely as of September 30, 2018.
In
March 2018, we received non-convertible loans totaling $150,000 from private investors. The loans include one-year term and 10%
guaranteed interest. We converted these loans into Series AA Units. See below.
In
April 2018, we received a non-convertible loan for $10,000 from a private investor. The loan includes a one-year term and 10%
guaranteed interest. We converted this loan into Series AA Units. See below.
On
July 16, 2018 we signed a Merchant Agreement with a lender. Under the agreement we received $180,000, of which $103,450
was used to pay off the outstanding balance on a previous loan dated April 11, 2018 from this lender, in exchange for rights to
all customer receipts until the lender is paid $246,600, which is collected at the rate of $1,790.00 per business day. The $66,600
imputed interest will be recorded as interest expense when paid each day. Fees of $3,600 were deducted from the initial advance.
The payments were secured by second position rights to all customer receipts until the loan has been paid in full. We accounted
for the Merchant Agreement as a secured loan under ASC 860 because while we provided rights to current and future receipts, we
still had control over the receipts.
On
August 8, 2018, we received a non-convertible loan of $50,000 from a private investor. The loan does not charge interest
and was repaid entirely on October 3, 2018.
In
September 2018, we received a non-convertible loan of $67,000 from a private investor. The loan does not charge interest
and was repaid entirely in October 2018.
On
September 14, 2018, we received a short-term non-convertible loan of $350,000 from an accredited investor. The loan was repaid
entirely on September 18, 2018. We paid $20,000 in interest on this loan which includes a $15,000 original issue discount.
Conversion
of Non-Convertible Notes
On
June 11, 2018, the Company entered into Letter Agreements with certain private investors to convert a total of $176,000 in principal
and interest due to the private investors pursuant to certain loan documents into 70.4 Series AA Units representing 70.4 shares
of Series AA Convertible Preferred Stock with a conversion price of $2.50 per share and warrants to purchase 70,400 shares of
common stock.
Merchant
Agreements
We
have signed various Merchant Agreements which entitle the lenders to our customer receipts. We accounted for the Merchant Agreements
as loans under ASC 860 because while we provided rights to current and future receipts, we still had control over the receipts.
The following table shows our Merchant Agreements as of September 30, 2018.
Inception
Date
|
|
Purchase
Price
|
|
|
Purchased
Amount
|
|
|
Outstanding
Balance
|
|
|
Daily
Payment
|
|
|
Interest
Rate
|
|
|
Deferred
Finance Fees
|
|
September
29, 2017
|
|
|
75,000
|
|
|
|
102,000
|
|
|
$
|
-
|
|
|
|
1,200.00
|
|
|
|
15
|
%
|
|
|
1,500
|
|
October
25, 2017
|
|
|
110,000
|
|
|
|
153,890
|
|
|
|
-
|
|
|
|
1,539.00
|
|
|
|
15
|
%
|
|
|
8,800
|
|
December
7, 2017
|
|
|
160,000
|
|
|
|
212,800
|
|
|
|
-
|
|
|
|
1,251.76
|
|
|
|
25
|
%
|
|
|
5,799
|
|
December
12, 2017
|
|
|
160,000
|
|
|
|
212,800
|
|
|
|
-
|
|
|
|
1,251.76
|
|
|
|
15
|
%
|
|
|
5,258
|
|
February
27, 2018
|
|
|
110,000
|
|
|
|
147,400
|
|
|
|
-
|
|
|
|
921.25
|
|
|
|
25
|
%
|
|
|
1,650
|
|
April
11, 2018
|
|
|
140,000
|
|
|
|
187,600
|
|
|
|
-
|
|
|
|
1,275.00
|
|
|
|
13
|
%
|
|
|
2,800
|
|
May
11, 2018
|
|
|
180,000
|
|
|
|
243,000
|
|
|
|
82,468
|
|
|
|
1,518.75
|
|
|
|
25
|
%
|
|
|
2,599
|
|
May
15, 2018
|
|
|
180,000
|
|
|
|
244,800
|
|
|
|
86,858
|
|
|
|
1,530.00
|
|
|
|
15
|
%
|
|
|
3,600
|
|
June
29, 2018
|
|
|
140,000
|
|
|
|
190,400
|
|
|
|
88,657
|
|
|
|
1,269.33
|
|
|
|
25
|
%
|
|
|
2,100
|
|
July
16, 2018
|
|
|
180,000
|
|
|
|
246,600
|
|
|
|
124,544
|
|
|
|
1,790.00
|
|
|
|
13
|
%
|
|
|
3,600
|
|
|
|
$
|
1,435,000
|
|
|
$
|
1,941,290
|
|
|
$
|
382,527
|
|
|
|
|
|
|
|
|
|
|
$
|
37,706
|
|
We
amortized $94,050 and $225,508 of debt discounts during the nine months ended September 30, 2018 and 2017, respectively for all
non-convertible notes. The total unamortized discount for all non-convertible notes as of September 30, 2018 was $6,343.
Related
Party Notes
On
March 14, 2018, we received a one-year, non-convertible loan of $50,000 from a related party (a member of the Company’s
Board of Directors). This loan is included in net proceeds from non-convertible debt in the Statement of Cash Flows. The amount
of $50,000 was converted on June 11, 2018 into 20 shares of Series AA Convertible Preferred Stock and 20,000 warrants to purchase
common stock. The $7,500 guaranteed interest on the loan was recorded as a debt discount and amortized over the term of the debt.
The interest is outstanding as of September 30, 2018.
On
May 31, 2018, we received two short-term loans of $46,500 and $5,600 from two members of the Company’s Board of Directors,
respectively. We repaid both loans in full during June 2018 and paid interest of $6,975.
On
June 11, 2018, the Company entered into a Letter Agreement with one non-employee member of the Board, to convert $50,000 in principal
due to the board member pursuant to a certain loan document into 20 Series AA Units representing 20 shares of Series AA Convertible
Preferred Stock with a conversion price of $2.50 per share and warrants to purchase 20,000 shares of common stock.
In
June 2018, we received a non-convertible loan of $15,000 from a private investor. The loan includes a one-year term and 10% guaranteed
interest.
On
August 6, 2018 and on September 28, 2018, we received two short-term loans of $6,500 and $7,500 from an employee and an officer
of the Company, respectively. We repaid both loans in full in August and October 2018, respectively. There was no interest
charged on these loans.
Preferred
Stock
We
are authorized to issue 1,000,000 shares of preferred stock with a par value of $0.01. Of the 1,000,000 shares of preferred stock:
|
1)
|
20,000
shares have been designated as Series A Junior Participating Preferred Stock (“
Junior A
”)
|
|
|
|
|
2)
|
313,960
shares have been designated as Series A Convertible Preferred Stock (“
Series A
”)
|
|
|
|
|
3)
|
279,256
shares have been designated as Series B Convertible Preferred Stock (“
Series B
”)
|
|
|
|
|
4)
|
88,098
shares have been designated as Series C Convertible Preferred Stock (“
Series C
”)
|
|
|
|
|
5)
|
850
shares have been designated as Series D Convertible Preferred Stock (“
Series D
”)
|
|
|
|
|
6)
|
500
shares have been designated as Series E Convertible Preferred Stock
(“Series E”)
|
|
|
|
|
7)
|
240,000
shares have been designated as Series G Convertible Preferred Stock (“
Series G
”)
|
|
|
|
|
8)
|
10,000
shares have been designated as Series H Convertible Preferred Stock (“
Series H
”)
|
|
|
|
|
9)
|
21
shares have been designated as Series H2 Convertible Preferred Stock (“
Series H2
”)
|
|
|
|
|
10)
|
6,250
shares have been designated as Series J Convertible Preferred Stock (“
Series J
”)
|
|
|
|
|
11)
|
15,000
shares have been designated as Series K Convertible Preferred Stock (“
Series K
”)
|
|
|
|
|
12)
|
10,000
shares have been designated as Series AA Convertible Preferred Stock (“
Series AA
”)
|
As
of September 30, 2018, there were no shares of Junior A, and Series A, B, C, and E issued and outstanding. See our Annual Report
on Form 10-K for the year ended December 31, 2017 for the pertinent disclosures of preferred stock.
Series
AA Convertible Preferred Stock and Warrants
On
May 2, 2018, the Company entered into a Securities Purchase Agreement with an existing shareholder pursuant to which the Company
sold an aggregate of 100 shares of Series AA Convertible Preferred Stock, each preferred share convertible into 1,000 shares of
the Company’s common stock, par value $0.01 per share, for an aggregate Purchase Price of $250,000. Each share of Series
AA Convertible Preferred Stock will receive a cumulative dividend at the annual rate of eight percent (8%) payable quarterly commencing
on September 30, 2018 on those shares of Series AA Convertible Preferred Stock purchased from the Company.
We
issued to the shareholder a new warrant to purchase 100,000 shares of common stock with an exercise price of $3.50 per share.
The Warrant will expire on the fifth-year anniversary after issuance. The exercise price is also subject to adjustment in the
event that we issue any shares of common stock or common stock equivalents at a per share price that is lower than the exercise
price for the Series AA Warrants then in effect. Upon any such issuance, subject to certain exceptions, the exercise price will
be reduced to the per share price at which such shares of common stock or common stock equivalents are issued.
On
May 14, 2018, we entered into Letter Agreements with 22 Debenture Holders holding Debentures and Debenture Warrants whereby the
Debenture Holders agreed to convert a total of $6,220,500 in principal and original issue discount due them under the Debentures
into 2,448.20 shares of Series AA Convertible Preferred Stock with a conversion price of $2.50 per share. The Debenture Holders
were also: (a) issued amended Debenture Warrants such that the exercise price will be $3.50 per share; and (b) issued a new warrant
with an exercise price of $3.50 per share to purchase 2,448,200 shares of common stock (the number of shares of common stock issuable
upon conversion of the Series AA Convertible Preferred Stock shares received as a result of the Debenture conversions).
On
June 1, 2018, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which the Company
sold an aggregate of 20 shares of Series AA Convertible Preferred Stock, each preferred share convertible into 1,000 shares of
the Company’s common stock, par value $0.01 per share, for an aggregate Purchase Price of $50,000. We issued to the shareholders
a new warrant to purchase 20,000 shares of common stock with an exercise price of $3.50 per share.
On
June 11, 2018, the Company entered into additional Letter Agreements with 15 Debenture Holders whereby the Debenture Holders agreed
to convert a total of $742,134 in principal and original issue discount due them under the Debentures into 296.80 shares of Series
AA Convertible Preferred Stock with a conversion price of $2.50 per share. The Debenture Holders were also: (a) issued amended
Debenture Warrants such that the exercise price will be $3.50 per share; and (b) issued a new warrant with an exercise price of
$3.50 per share to purchase 296,800 shares of common stock (the number of shares of common stock issuable upon conversion of the
Series AA Convertible Preferred Stock shares received as a result of the Debenture conversions).
During
the quarter ended September 30, 2018,
the Company entered into
Securities Purchase Agreements with accredited investors pursuant to which the Company sold an aggregate of 460
shares of Series AA Convertible Preferred Stock, each preferred share convertible into 1,000 shares of the Company’s common
stock, par value $0.01 per share, for an aggregate Purchase price of $1,150,000. We issued to the investors warrants to
purchase an aggregate 460,000 shares of common stock with an exercise price of $3.50 per share.
The
issuances of our convertible preferred stock and common stock purchase warrants are accounted for under the fair value and relative
fair value method.
The
warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a
derivative, then it is measured at fair value using the Black Scholes Option Model and recorded as a liability on the balance
sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).
If
the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes
option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including
the fair value of the convertible preferred stock.
We
analyzed these warrants and determined that they were not considered derivatives and therefore recorded the aggregate relative
fair value of $7,877,396 into equity relating to the 5,655,454 warrants and 57,000 broker warrants issued.
The
convertible preferred stock is recorded at its fair value, limited to a relative fair value based upon the percentage of its fair
value to the total fair value including the fair value of the warrant. Further, the convertible preferred stock is examined for
any intrinsic beneficial conversion feature (“BCF”) of which the convertible price of the preferred stock is less
than the closing stock price on date of issuance. If the relative fair value method is used to value the convertible preferred
stock and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes
the conversion price is the relative fair value divided by the number of shares of common stock the convertible preferred stock
is converted into by its terms. The adjusted BCF value of $11,678,571 was accounted for as a deemed dividend within equity
and was included in the earnings per share calculation.
Stock
Options and Warrants
Our
stockholders approved our amended 2005 Equity Incentive Plan (the “Plan”) pursuant to which an aggregate of 1,800,000
shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards made under the Plan.
Under the Plan, we may award stock options, shares of common stock, and other equity interests in the Company to employees, officers,
directors, consultants, and advisors, and to any other persons the Board of Directors deems appropriate. The Plan has expired
and on July 18, 2018, the outstanding options to acquire 32,605 shares were transferred as discussed below to one of the other
plans.
At
the Company’s December 12, 2013 Special Meeting, the shareholders approved the 2013 Equity Incentive Plan (the “2013
Plan”) pursuant to which 3,000,000 shares of our common stock were reserved for issuance upon exercise of stock options
or other equity awards. Under the 2013 Plan, we may award stock options, shares of common stock, and other equity interests in
the Company to employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors deems
appropriate. As of September 30, 2018, options to acquire 138,056 shares were outstanding under the Plan with 2,861,944 shares
available for future grant under the 2013 Plan.
On
November 29, 2015 the Company’s Board of Directors adopted the 2015 Nonqualified Stock Option Plan (the “2015 Plan”)
pursuant to which 5,000,000 shares of our common stock were reserved for issuance upon exercise of non-qualified stock options.
Under the 2015 Plan, we may award non-qualified stock options in the Company to employees, officers, directors, consultants, and
advisors, and to any other persons the Board of Directors deems appropriate. As of September 30, 2018, non-qualified options to
acquire 203,734 shares were outstanding under the Plan.
All
of the outstanding non-qualified options had an exercise price that was at or above the Company’s common stock share price
at time of issuance.
On
July 18, 2018, the Board of Directors approved the immediate termination of 244,467 outstanding stock options held by current
officers, employees and board members (32,605 stock options under the Plan, 81,925 stock options under the 2013 Plan, and 129,937
stock options under the 2015 Plan) and the issuance of new stock options to the same holders with an exercise price of $3.40
per share equal to the closing market price on July 18, 2018 and an expiration date of July 18, 2028. The new stock options for
board members will vest 1/12th per month for 12 months. The new stock options for officers and employees will vest 1/36th per
month for 36 months. The Plan expired in 2015 so of the 32,605 terminated stock options, 16,641 stock options under the 2013 Plan
and 15,964 stock options under the 2015 Plan were issued (in addition to the reissuance of 81,925 stock options under the 2013
Plan, and 129,937 stock options under the 2015 Plan).
The Board of Directors also awarded 101,267
stock options to officers, employees and board members separately based on the annual compensation committee recommendation. Of
the 101,267 stock options issued, 51,934 stock options were issued under the 2013 Plan and 49,333 stock options were issued under
the 2015 Plan.
We
evaluated this exchange and concluded that it was a modification under ASU 2017-09. Under ASU 2017-09, a cancelled equity award
accompanied by the concurrent grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted
for as a modification of the terms of the cancelled award. Therefore, incremental compensation cost shall be measured as the excess
of the fair value of the replacement award or other valuable consideration over the fair value of the cancelled award at the cancellation
date in accordance with paragraph ASC 718-20-35-3. The total compensation cost measured at the date of a cancellation and replacement
shall be the portion of the grant-date fair value of the original award for which the requisite service is expected to be rendered
(or has already been rendered) at that date plus the incremental cost resulting from the cancellation and replacement. The compensation
value created by the termination and issuance of new stock options, as determined under the Black Scholes method, was approximately
$267,000 and under ASU 2017-09 results in a non-cash expense in current and future periods not to exceed the vesting periods of
the stock options. The Board of Directors also awarded 101,267 to officers, employees and board members separately based on the
annual compensation committee recommendation.
The
following tables summarize information concerning options and warrants outstanding and exercisable:
|
|
Stock
Options
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Total
|
|
|
|
Shares
|
|
|
Price per
share
|
|
|
Shares
|
|
|
Price per
share
|
|
|
Shares
|
|
|
Exercisable
|
|
Balance
outstanding, 12/31/17
|
|
|
247,692
|
|
|
$
|
10.95
|
|
|
|
899,542
|
|
|
$
|
12.03
|
|
|
|
1,147,234
|
|
|
|
1,073,850
|
|
Granted
|
|
|
345,734
|
|
|
|
3.40
|
|
|
|
5,882,734
|
|
|
|
3.50
|
|
|
|
6,228,468
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(334
|
)
|
|
|
30.00
|
|
|
|
(12,669
|
)
|
|
|
12.00
|
|
|
|
(13,003
|
)
|
|
|
|
|
Forfeited
|
|
|
(251,302
|
)
|
|
|
10.80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(251,302
|
)
|
|
|
|
|
Balance
outstanding, 9/30/2018
|
|
|
341,790
|
|
|
$
|
3.40
|
|
|
|
6,769,607
|
|
|
$
|
3.57
|
|
|
|
7,111,397
|
|
|
|
6,797,356
|
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
Range
of
Exercise Prices
|
|
|
Number
of
Options
|
|
|
Remaining
Contractual
Life
(Years)
|
|
|
Exercise
Price
|
|
|
Number
of
Options
|
|
|
Remaining
Contractual
Life
(Years)
|
|
|
Exercise
Price
|
|
$
|
3.40
|
|
|
|
341,790
|
|
|
|
9.8
|
|
|
$
|
3.40
|
|
|
|
27,749
|
|
|
|
9.8
|
|
|
$
|
3.40
|
|
As
of September 30, 2018, total unrecognized compensation cost related to the unvested stock-based awards was $937,216, which is
expected to be recognized over weighted average period of 1.85 years. The aggregate intrinsic value associated with the options
outstanding and exercisable as of September 30, 2018 was $8,325. The aggregate intrinsic value associated with the warrants outstanding
and exercisable as of September 30, 2018 was approximately $1.3 million.
The
loans from November 13, 2017 and May 17, 2018 included Warrants that contains a price protection provision such that if we issue
a warrant with any term more favorable to the holder of such warrant that was not similarly provided in these loans, then we shall
notify the lender of such additional or more favorable term and such term, shall become a part of the loan agreements. The fair
value of the reduction in exercise price was recorded as a deemed dividend of $5,113 in additional paid in capital.
The
Company, pursuant to a price protection provision triggered on May 2, 2018 with the sale of Series AA units, amended the Debentures
and Warrants to purchase Common Stock held by the Debenture Holders entered into between July 22, 2015 and March 31, 2016 as first
disclosed in the Company’s Current Report on Form 8-K filed on July 28, 2015. The fair value of $207,899 relating to the
reduction in exercise price was treated as a deemed dividend and recorded as a charge against additional paid-in capital within
equity. The amended Debenture conversion price was exempt from revaluation because a beneficial conversion feature had already
been recorded on the Debenture at issuance.
Common
Stock Issuances
During
the nine months ended September 30, 2018, we issued to Debenture holders 56,007 shares of common stock for quarterly interest
of $211,047 issued in stock in lieu of cash. Of the 56,007 shares issued, 4,681 shares were issued to members of the Company’s
Board of Directors, who are also Debenture holders.
On
January 19, 2018, we received a six-month, convertible loan of $150,000 from an accredited investor. The loan earns a one-time
interest of 10% and includes a 10% original issue discount. We also issued the investor 4,000 shares of restricted common stock
with a relative fair value of $12,267 recorded as a debt discount to be amortized over the six-month term. The loan can be converted
at any time into common stock at a conversion price of $7.50.
On
February 12, 2018, we received a six-month, convertible loan of $100,000 from an accredited investor. The loan earns a one-time
interest of 10%. $50,000 of the proceeds were used to pay off the outstanding balance of a previous loan from this lender. The
loan can be converted at any time into common stock at a conversion price of $7.50. We issued the investor 5,000 shares of restricted
common stock with a relative fair value of $18,274 of which $10,474 was recorded as a debt discount to be amortized over the six-month
term while $7,800 was recorded to interest expense immediately because it related to the previous loan paid off.
On
February 12, 2018, we issued 3,500 shares of restricted common stock to an accredited investor to extend the maturity date of
our eight-month, non-convertible loan of $170,000 originated on March 21, 2017 to February 15, 2018. The accredited investor agreed
to a further extension to March 31, 2018 in exchange for 3,500 shares of restricted common stock issued on March 27, 2018. The
lender further extended the term to April 30, 2018 then to September 30, 2018 in exchange for an aggregate of 7,200 shares of
company stock. We fully amortized $52,079 of the original debt discount in the year ended December 31, 2017. We recorded a loss
of $20,400 relating to the fair value of common stock issued for the September 30 extension.
On
March 12, 2018, we received a six-month, convertible loan of $253,000 from an accredited investor. The loan has an original issue
discount of $53,000. The loan can be converted at any time into common stock at a conversion price of $7.50. We agreed to issue
the investor 6,750 shares of restricted common stock with a relative fair value of $28,722 recorded as a debt discount to be amortized
over the six-month term.
On
April 2, 2018, we issued 1,150 shares of restricted common stock with a fair value of $5,183 to the lender in connection with
the March 12, 2018 5% one-year, convertible loan of $85,000. The fair value of the stock was recorded as a debt discount to be
amortized over the one-year term.
On
April 12, 2018, we received a 15% six-month, convertible loan of $100,000 from an accredited investor. The loan includes total
costs of $24,000 representing guaranteed interest, an original issue discount and legal fees. The loan can be converted at any
time into common stock at a conversion price of $7.50. We agreed to issue the investor 2,000 shares of restricted common stock
with a fair value of $7,218 recorded as a debt discount to be amortized over the six-month term.
On
April 25, 2018, we received a 4% one-year, convertible loan of $105,000 from an accredited investor. The note is convertible on
issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 20-trading
day period prior to conversion. The loan includes $5,000 in fees. We agreed to issue the investor 1,200 shares of restricted common
stock with a fair value of $4,590 recorded as a debt discount to be amortized over the one-year term.
On
April 25, 2018, we received another 4% one-year, convertible loan of $105,000 from an accredited investor. The note is convertible
on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 20-trading
day period prior to conversion. The loan includes $5,000 in fees. We agreed to issue the investor 1,200 shares of restricted common
stock with a fair value of $4,590 recorded as a debt discount to be amortized over the one-year term.
On
May 9, 2018, we received a 10% six-month, convertible loan of $250,000 from an accredited investor. The loan includes total costs
of $62,500 representing guaranteed interest, an original issue discount and legal fees. The loan can be converted at any time
into common stock at a conversion price of $7.50. We agreed to issue the investor 8,000 shares of restricted common stock with
a fair value of $26,466 recorded as a debt discount to be amortized over the six-month term.
On
May 14, 2018, we received a 15% nine-month, convertible loan of $50,000 from an accredited investor. The loan includes total costs
of $12,500 representing guaranteed interest, an original issue discount and legal fees. The loan can be converted at any time
into common stock at a conversion price of $7.50. We agreed to issue the investor 1,000 shares of restricted common stock with
a fair value of $3,704 recorded as a debt discount to be amortized over the nine-month term.
On
May 24, 2018, we received a 4% one-year, convertible loan of $50,000 from an accredited investor. The loan includes an original
issue discount of $2,500. The note is convertible on issuance date at $7.50 per share and after 180 days to be 60% of the lowest
trading price for the common stock during the 20-trading day period prior to conversion. We agreed to issue the investor 600 shares
of restricted common stock with a fair value of $2,075 recorded as a debt discount to be amortized over the one-year term.
On
May 25, 2018, we received a 4% one-year, convertible loan of $75,000 from an accredited investor. The loan includes legal fees
of $3,750. The note is convertible on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price
for the common stock during the 20-trading day period prior to conversion. We agreed to issue the investor 900 shares of restricted
common stock with a fair value of $3,112 recorded as a debt discount to be amortized over the one-year term.
On
May 30, 2018, we received an 8% two-month, convertible loan of $150,000 from an accredited investor. The loan includes guaranteed
interest of $12,000. The loan can be converted at any time into common stock at a conversion price of $7.50. We agreed to issue
the investor 2,000 shares of restricted common stock with a fair value of $6,870 recorded as a debt discount to be amortized over
the two-month term.
On
June 4, 2018, we received a 5% one-year, convertible loan of $75,000 from an accredited investor. The loan includes total costs
of $9,500 representing an original issue discount and legal fees. The note is convertible after 180 days to be 60% of the lowest
trading price for the common stock during the 20-trading day period prior to conversion. We agreed to issue the investor 1,360
shares of restricted common stock with a fair value of $3,869 recorded as a debt discount to be amortized over the one-year term.
On
June 8, 2018, we received a 15% 6-month, convertible loan of $50,000 from an accredited investor. The loan includes total costs
of $12,500 representing guaranteed interest, an original issue discount and legal fees. The loan can be converted at any time
into common stock at a conversion price of $7.50. We agreed to issue the investor 1,000 shares of restricted common stock with
a fair value of $3,271 recorded as a debt discount to be amortized over the 6-month term.
On
June 11, 2018, the Company entered into a Letter Agreement with an accredited investor in which we agreed to issue 110,833 additional
shares of common stock at $2.50 per share to the investor. The fair value was recorded as other charge of $340,257. We also issued
110,833 additional warrants with an exercise price of $3.50 and an expiration period of five years from the original issue date.
The fair value was recorded as other charges of $312,637. The Company also amended 29,167 Warrants held by the Investor. The Company
lowered the Warrants’ exercise price from $15.00 per share to $3.50 per share. The fair value of $10,236 relating to the
reduction in exercise price was treated as an equity modification and recorded as a charge to other expenses.
On
June 14, 2018, we received a 10% nine-month, convertible loan of $250,000 from an accredited investor. The loan includes total
costs of $30,000 representing an original issue discount and legal fees. The note is convertible after 180 days to be 65% of the
average of the two lowest trading prices for the common stock during the 25-trading day period prior to conversion. We agreed
to issue the investor 5,000 shares of restricted common stock with a fair value of $17,573 recorded as a debt discount to be amortized
over the nine-month term.
On June 16, 2018,
we refinanced the December 12, 2017 and December 17, 2017 5% one-year, convertible loans for a total of $240,000 with an accredited
investor. The refinanced loans will now be due on December 17, 2018. We issued the investor 3,700 shares of restricted common
stock with a fair value of $13,611 for both new loans. We recorded a loss of $50,662 for the interest and fees paid on the refinancing.
On
June 26, 2018, we received a 5% 3-month, convertible loan of $150,000 from an accredited investor. The loan includes total costs
of $7,500 representing guaranteed interest. The loan can be converted at any time into common stock at a conversion price of $7.50.
We agreed to issue the investor 6,000 shares of restricted common stock with a fair value of $20,242 recorded as a debt discount
to be amortized over the 3-month term.
On
June 28, 2018, we received a 5% 6-month, convertible loan of $50,000 from an accredited investor. The loan includes $2,500 monthly
guaranteed interest. The loan can be converted at any time into common stock at a conversion price of $7.50. We agreed to issue
the investor 4,000 shares of restricted common stock with a fair value of $10,518 recorded as a debt discount to be amortized
over the 6-month term.
On
July 1, 2018, we signed a six-month agreement with a firm to provide consulting services. We issued 24,000 shares of restricted
common stock at inception of contract. The stock’s fair value of $93,600 based on the trading stock price on contract date
is amortized to expense over the service period of 6 months.
On
July 2, 2018, we received a 4% one-year, convertible loan of $125,000 from an accredited investor. The note is convertible on
issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 15-trading
day period prior to conversion. The loan includes $6,250 in fees. We issued the investor 1,500 shares of restricted common stock
with a fair value of $5,588 recorded as a debt discount to be amortized over the one-year term.
On
July 5, 2018, we signed a six-month agreement with a firm to provide consulting services. We issued 24,000 shares of restricted
common stock at inception of contract. The stock’s fair value of $79,920 based on the trading stock price on contract date
is amortized to expense over the service period of 6 months.
On
July 17, 2018, we received a 15% three-month, convertible loan for $100,000 from an accredited investor. The loan can be converted
at any time into common stock at a conversion price of $7.50. We agreed to issue the investor 2,000 shares monthly over three
months for a total of 6,000 shares of restricted common stock with a fair value of $16,944 that was recorded as a debt discount
to be amortized over the three-month term.
On July 18, 2018,
our lender extended the term of our March 21, 2017 non-convertible loan of $170,000 to September 30, 2018 in exchange for
6,000 shares of company stock. The loan continues to earn an annual interest rate of 10%. We recorded a loss of $20,400 relating
to the fair value of common stock issued for the September 30 extension.
On July 19, 2018, we
refinanced the January 19, 2018 10% one-year, convertible loan of $150,000 with an accredited investor. The refinanced loan will
now be due on January 19, 2019. We paid $36,000 in interest and fees on the January 19, 2018 loan in connection with the refinancing.
We agreed to issue the investor 4,500 shares of restricted common stock. We recorded a loss of $18,346 relating to this refinancing.
The loss was from the fair value of common stock of $17,100 issued and the write-down of $1,246 for the unamortized discount remaining
on the original debt.
On
July 31, 2018, we refinanced the May 30, 2018 8% two-month, convertible loan of $150,000 from an accredited investor. The loan
will now be due on October 31, 2018 and includes guaranteed interest of $18,000. The loan can be converted at any time into common
stock at a conversion price of $7.50. We agreed to issue the investor 2,000 shares of restricted common stock with a relative
fair value of $6,578 recorded as a debt discount to be amortized over the three-month term. We expect to refinance the July 31,
2018 loan.
On August 8, 2018,
we refinanced the February 9, 2018 six-month, convertible loan of $100,000 with an accredited investor. The refinanced loan will
now be due on February 8, 2019 and earns 5% monthly. We agreed to issue the investor 7,800 shares of restricted common stock.
We recorded a loss of $32,171 relating to this refinancing. The loss was from the fair value of common stock of $27,534 issued
and the write-down of $4,637 for the unamortized discount remaining on the original debt.
On
August 15, 2018, we received a four-month, convertible loan for $100,000 from an accredited investor. The loan accrues interest
at 5% monthly and can be converted at any time into common stock at a conversion price of $7.50. We agreed to issue the investor
1,500 shares monthly over four months for a total of 6,000 shares of restricted common stock. We recorded a loss of $23,700
relating to this refinancing for the fair value of common stock issued.
On
August 27, 2018, we received a 4% one-year, convertible loan of $125,000 from an accredited investor. The loan includes legal
fees of $6,250. The note is convertible on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading
price for the common stock during the 20-trading day period prior to conversion. We issued the investor 1,428 shares of restricted
common stock with a fair value of $4,443 recorded as a debt discount to be amortized over the one-year term.
On
September 7, 2018, we refinanced the March 12, 2018 5% one-year, convertible loan of $85,000 with an accredited investor. The
refinanced loan will now be due on March 12, 2019. We paid $17,361 in interest and fees on the March 12, 2018 loan in connection
with the refinancing. We agreed to issue the investor 1,150 shares of restricted common stock with a fair value of $4,364 recorded
as a debt discount to be amortized over the one-year term.
On
October 1, 2018, we received a 4% one-year, convertible loan of $118,800 from an accredited investor. The note is convertible
on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 20-trading
day period prior to conversion. The loan includes an original issue discount of $8,800 and $3,000 in fees.
On October 3, 2018, we
paid $75,000 towards principal with $22,500 interest on our June 26, 2018 5% three-month, convertible loan of $150,000. Our
lender agreed to extend the maturity date for the outstanding loan of $75,000 to December 26, 2018. In connection with the extension,
we agreed to issue 1,000 shares monthly for a total fair value of $10,800 while the note is outstanding and will continue to pay
5% monthly. All other terms remain the same.
On October 12, 2018,
we paid $24,000 in interest and fees on our April 11, 2018 15% six-month, convertible loan of $100,000. Our lender agreed to
extend the maturity date for the outstanding loan of $100,000 to April 11, 2019. In connection with the extension, we agreed to
issue 1,500 shares monthly for a total fair value of $29,250 while the note is outstanding and will continue to pay 4% monthly.
All other terms remain the same.
On October 17, 2018,
we paid $15,000 interest on our July 17, 2018 5% three-month, convertible loan of $100,000. We extended the maturity date for
the outstanding loan of $100,000 to April 17, 2019. In connection with the extension, we agreed to issue 1,500 shares monthly
for a total fair value of $28,800 while the note is outstanding and will continue to pay 5% monthly. All other terms remain the
same.
On October 18, 2018, a shareholder converted 44 shares of Series AA Convertible Preferred Stock into 44,000
shares of common stock.
On
October 18, 2018 we signed a Merchant Agreement with a lender. Under the agreement we received $550,000, of which approximately
$175,000 was used to pay off the outstanding balances on previous loans dated May 10, 2018 and June 27, 2018 from this lender,
in exchange for rights to all customer receipts until the lender is paid $726,000, which is collected at the rate of $3,630.00
per business day. The $176,000 imputed interest will be recorded as interest expense when paid each day. Fees of $5,500 were deducted
from the initial advance. The payments were secured by first position rights to all customer receipts until the loan has been
paid in full. We accounted for the Merchant Agreement as a secured loan under ASC 860 because while we provided rights to current
and future receipts, we still had control over the receipts.
On
October 19, 2018, we received a six-month, convertible loan of $100,000 with an accredited investor. The loan includes an interest
rate of 5% per month earned on the first day of each month. The loan can be extended a month up to three times for a $5,000 fee
for each one-month extension.
On
October 22, 2018 we paid off the outstanding balances of approximately $195,000 on merchant loans dated May 15, 2018 and July
16, 2018.
On
October 22, 2018, we paid off the April 23, 2018 12% one-year, convertible loan of $103,000 with an accredited investor. We paid
$47,194 in interest and fees on the April 23, 2018 loan.
On
October 23, 2018, we refinanced the April 23, 2018 12% one-year, convertible loan of $77,000 with an accredited investor. The
refinanced loan will now be due on October 23, 2019. We paid $35,407 in interest and fees on the April 23, 2018 loan in connection
with the refinancing.
On
October 23, 2018, we received a 8% nine-month, convertible loan of $103,000 from an accredited investor. The loan can be converted
into common stock after 180 calendar days at a discount of 42% of the average of the lowest two trading prices for the common
stock during the 15-trading day period prior to conversion. The loan includes $3,000 in fees.
On
October 23, 2018, we received a 4% one-year, convertible loan of $105,000 from an accredited investor. The note is convertible
on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 20-trading
day period prior to conversion. The loan includes $5,000 in fees. We issued the investor 1,150 shares of restricted common stock
with a relative fair value of $3,930 recorded as a debt discount to be amortized over the one-year term.
On
October 25, 2018, we paid off the April 25, 2018 4% one-year, convertible loan of $105,000 with an accredited investor. We paid
$38,856 in interest and fees on the April 25, 2018 loan.
On
October 25, 2018, we paid off the April 25, 2018 6% one-year, convertible loan of $130,000 with an accredited investor. We paid
$49,411 in interest and fees on the April 25, 2018 loan.
On
October 26, 2018, we paid $45,859 which includes a $7,000 extension fee to extend the conversion period at a conversion
price of $7.50 on the April 25, 2018 convertible loan of $105,000 to November 21, 2018. The loan will become convertible on November
22, 2018 at a conversion price of 60% of the lowest trading price for the common stock during the 20-trading day period prior
to conversion.
On
October 26, 2018, we paid off the April 23, 2018 5% one-year, convertible loan of $65,000 with an accredited investor. We paid
$21,129 in interest and fees on the April 23, 2018 loan.
On
October 29, 2018, we received a 6% one-year, convertible loan of $77,000 from an accredited investor. The note is convertible
on issuance date at $7.50 per share and after 180 calendar days at a discount of 40% of the average of the lowest two trading
prices for the common stock during the 10-trading day period prior to conversion. The loan includes $2,000 in fees.
On
October 29, 2018, we signed a six-month agreement with a firm to provide consulting services. We issued 20,000 shares of restricted
common stock at inception of contract. The stock’s fair value of $64,600 based on the trading stock price on contract date
will be amortized to expense over 6 months.
In
October 2018, the Company entered into a Securities Purchase Agreement to which the Company sold an aggregate of 220 shares of
Series AA Convertible Preferred Stock for an aggregate Purchase Price of $550,000. We issued to the shareholder a new warrant
to purchase 220,000 shares of common stock with an exercise price of $3.50 per share. We analyzed these warrants and determined
that they were not considered derivatives and therefore recorded the aggregate relative fair value of $385,128 into equity relating
to the 220,000 warrants and 22,000 broker warrants issued. The adjusted BCF value of $546,059 was accounted for as a deemed dividend
within equity.
On
November 1, 2018, the Company entered into a Securities Purchase Agreement to which the Company sold an aggregate of 75.2 shares
of Series AA Convertible Preferred Stock for an aggregate Purchase Price of $188,000. We issued to the shareholder a new warrant
to purchase 75,200 shares of common stock with an exercise price of $3.50 per share. We analyzed these warrants and determined
that they were not considered derivatives and therefore recorded the aggregate relative fair value of $130,051 into equity relating
to the 75,200 warrants and 7,520 broker warrants issued. The adjusted BCF value of $181,035 was accounted for as a deemed dividend
within equity.
On
November 2, 2018, we paid $18,000 in interest on the July 31, 2018 loan.
On
November 2, 2018, we received a 4% one-year, convertible loan of $105,000 from an accredited investor. The note is convertible
on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 20-trading
day period prior to conversion. The loan includes $5,000 in fees. We issued the investor 1,200 shares of restricted common stock
with a relative fair value of $3,872 recorded as a debt discount to be amortized over the one-year term.
On
November 2, 2018, we received a 6% one-year, convertible loan of $130,000 from an accredited investor. The note is convertible
on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 15-trading
day period prior to conversion. The loan includes $6,500 in fees.
On
November 5, 2018, we received a 4% one-year, convertible loan of $205,000 from an accredited investor. The note is convertible
on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 20-trading
day period prior to conversion. The loan includes $5,000 in fees. We issued the investor 6,000 shares of restricted common stock
with a relative fair value of $17,906 recorded as a debt discount to be amortized over the one-year term.
On
November 8, 2018, our lender agreed to extend the prepayment period of our May 9, 2018 5% nine-month, convertible loan of $161,250
to December 21, 2018. In connection with the extension, we agreed to pay $12,900 (8% of the outstanding balance) on November 13,
2018. All other terms remain the same.
On
November 9, 2018, we paid off the May 9, 2018 six-month, convertible loan of $250,000 with an accredited investor. We paid $62,500
in interest and fees on the May 9, 2018 loan.
On
November 9, 2018, we received a 5% one-year, convertible loan of $75,000 from an accredited investor. The note is convertible
on issuance date at $7.50 per share and after 180 days to be 60% of the lowest trading price for the common stock during the 20-trading
day period prior to conversion. The loan includes $9,500 in fees which include a $7,500 original issue discount and $2,000 legal
fees. We issued the investor 1,360 shares of restricted common stock with a relative fair value of $4,656 recorded as a debt discount
to be amortized over the one-year term.