NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Business Overview
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 (35,000 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 2018 or in 2017.
Reverse
Stock Split
On
June 5, 2017, the Company effected a 1-for-30 reverse stock split of its issued and outstanding shares of common stock All common
shares, stock options, and per share information presented in the financial statements have been adjusted to reflect the reverse
stock split on a retroactive basis for all periods presented. The ratio by which shares of preferred stock are convertible into
shares of common stock were adjusted to reflect the effects of the reverse stock split.
(2)
Going Concern
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 December 31, 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 8 and 9, completed debt financing subsequent to December 31, 2018. We have financing efforts
in place to continue to raise cash through debt and equity offerings.
Management
has developed a plan to continue operations. This plan includes obtaining equity or debt financing. During the year ended December
31, 2018 we received approximately $8.7 million net proceeds, in additional convertible and non-convertible debt. We also
received $2.8 million net proceeds from the sale of Series AA Preferred Stock during the year. 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.
Management’s
plans to alleviate these conditions that raise substantial doubt regarding the Company’s ability to continue as a going
concern include pursuing one or more of the following options to raise additional funding, none of which can be guaranteed or
are entirely within the Company’s control:
|
●
|
Raise
funding through the possible additional sales of the Company’s common stock, including public or private equity financings.
|
|
|
|
|
●
|
Raise
additional loan funding.
|
|
|
|
|
●
|
Continue
to seek a partner to advance PCT technology.
|
|
|
|
|
●
|
Earn
payments pursuant to potential collaboration and license agreements for BaroFold patents.
|
There
can be no assurance, however, that the Company will receive cash proceeds from any of these potential resources or, to the extent
cash proceeds are received, those proceeds would be sufficient to support the Company’s operations for at least the next
twelve months from the date of filing this Annual Report on Form 10-K.
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.
Generally,
under the new accounting standard, management’s plans must be approved before the date the financial statements are issued
to be considered probable of being effectively implemented. Under the new accounting standard, the future receipt of potential
funding from the Company’s collaborators and other resources is not considered probable at this time because none of the
Company’s current plans have been finalized at the time of filing this Annual Report on Form 10-K. Accordingly, substantial
doubt is deemed to exist about the Company’s ability to continue as a going concern within one year after the date these
financial statements are issued.
The
Company believes that its $103,118 in cash and cash equivalents at December 31, 2018 would allow it to fund its planned operations
into the first quarter of 2019. This estimate assumes no additional funding from new partnership agreements, no additional equity
financings, no debt financings, and no accelerated repayment of its term loans. Accordingly, the timing and nature of activities
contemplated for the remainder of 2019 and thereafter will be conducted subject to the availability of sufficient financial resources.
If
the Company is unable to raise capital when needed or on attractive terms, or if it is unable to procure partnership arrangements
to advance its programs, the Company would be forced to delay, reduce or eliminate its research and development programs and any
future commercialization efforts.
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might
result from the outcome of the uncertainties described above.
(3)
Summary of Significant Accounting Policies
i.
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.
ii.
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
impairment of assets, 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, beneficial conversion features
and derivative liabilities. 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.
iii.
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, we 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 ($)
|
|
Twelve Months Ended
December
31,
|
|
Primary geographical markets
|
|
2018
|
|
|
2017
|
|
North America
|
|
|
1,751
|
|
|
|
1,461
|
|
Europe
|
|
|
287
|
|
|
|
287
|
|
Asia
|
|
|
420
|
|
|
|
493
|
|
|
|
|
2,458
|
|
|
|
2,241
|
|
|
|
Twelve Months Ended
December
31,
|
|
Major products/services lines
|
|
2018
|
|
|
2017
|
|
Hardware
|
|
|
1,454
|
|
|
|
1,471
|
|
Grants
|
|
|
257
|
|
|
|
174
|
|
Consumables
|
|
|
235
|
|
|
|
260
|
|
Contract research services
|
|
|
202
|
|
|
|
-
|
|
Sample preparation accessories
|
|
|
147
|
|
|
|
153
|
|
Technical support/extended service contracts
|
|
|
84
|
|
|
|
104
|
|
Shipping and handling
|
|
|
47
|
|
|
|
48
|
|
Other
|
|
|
32
|
|
|
|
31
|
|
|
|
|
2,458
|
|
|
|
2,241
|
|
|
|
Twelve Months Ended
December
31,
|
|
Timing of revenue recognition
|
|
2018
|
|
|
2017
|
|
Products transferred at a point in time
|
|
|
1,999
|
|
|
|
1,980
|
|
Products and services transferred over time
|
|
|
459
|
|
|
|
261
|
|
|
|
|
2,458
|
|
|
|
2,241
|
|
Contract
balances
In thousands of US dollars ($)
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Receivables, which are included in ‘Accounts Receivable’
|
|
|
475
|
|
|
|
374
|
|
Contract liabilities (deferred revenue)
|
|
|
58
|
|
|
|
206
|
|
Transaction
price allocated to the remaining performance obligations
The
following table includes estimated revenue expected to be recognized in the future related to performance obligations that are
unsatisfied (or partially unsatisfied) at the end of the reporting period.
In thousands of US dollars ($)
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Total
|
|
Extended warranty service
|
|
|
20
|
|
|
|
20
|
|
|
|
18
|
|
|
|
58
|
|
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.
iv.
Cash and Cash Equivalents
Our
policy is to invest available cash in short-term, investment grade interest-bearing obligations, including money market funds,
and bank and corporate debt instruments. Securities purchased with initial maturities of three months or less are valued at cost
plus accrued interest, which approximates fair value, and are classified as cash equivalents. Restricted cash is included in cash
equivalents.
v.
Research and Development
Research
and development costs, which are comprised of costs incurred in performing research and development activities including wages
and associated employee benefits, facilities, consumable products and overhead costs that are expensed as incurred. In support
of our research and development activities we utilize our Barocycler instruments that are capitalized as fixed assets and depreciated
over their expected useful life.
vi.
Inventories
Inventories
are valued at the lower of cost (average cost) or net realizable value. The cost of Barocyclers consists of the cost charged by
the contract manufacturer. The current year allowance was increased by a $93,947 inventory allowance for the older generation
of LCM instruments held in stock, the NEP3229. The cost of manufactured goods includes material, freight-in, direct labor, and
applicable overhead. The composition of inventory as of December 31, is as follows:
|
|
2018
|
|
|
2017
|
|
Raw materials
|
|
$
|
311,158
|
|
|
$
|
288,295
|
|
Finished goods
|
|
|
727,867
|
|
|
|
748,967
|
|
Inventory reserve
|
|
|
(273,547
|
)
|
|
|
(179,600
|
)
|
Total
|
|
$
|
765,478
|
|
|
$
|
857,662
|
|
vii.
Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, depreciation is recognized
using the straight-line method, allocating the cost of the assets over their estimated useful lives of three years for certain
laboratory equipment, from three to five years for management information systems and office equipment, and three years for all
PCT finished units classified as fixed assets.
viii.
Intangible Assets
We
have classified as intangible assets, costs associated with the fair value of acquired intellectual property. Intangible assets,
including patents, are being amortized on a straight-line basis over nine years. We perform an annual review of our intangible
assets for impairment. We capitalize any costs to renew or extend the term of our intangible assets. When impairment is indicated,
any excess of carrying value over fair value is recorded as a loss. As of December 31, 2018, and 2017, the outstanding balance
for intangible assets was $663,462 and $750,000, respectively.
ix.
Long-Lived Assets
The
Company’s long-lived assets are reviewed for impairment in accordance with the guidance of the FASB ASC 360-10-05,
Property,
Plant, and Equipment
, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to
the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Through December
31, 2018, the Company had not experienced impairment losses on its long-lived assets.
x.
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 and university labs. Allowances are provided for estimated amounts
of accounts receivable which may not be collected. At December 31, 2018, we determined that no allowance against accounts receivable
was necessary and wrote off the prior year allowance of $28,169 as unrecoverable.
The
following table illustrates the level of concentration of the below two groups within revenue as a percentage of total revenues
during the years ended December 31:
|
|
2018
|
|
|
2017
|
|
Top Five Customers
|
|
|
34
|
%
|
|
|
37
|
%
|
Federal Agencies
|
|
|
14
|
%
|
|
|
14
|
%
|
The
following table illustrates the level of concentration of the below two groups within accounts receivable as a percentage of total
accounts receivable balance as of December 31:
|
|
2018
|
|
|
2017
|
|
Top Five Customers
|
|
|
54
|
%
|
|
|
85
|
%
|
Federal Agencies
|
|
|
5
|
%
|
|
|
1
|
%
|
Investment
in Equity Securities
As
of December 31, 2018, we held 100,250 shares of common stock of Everest, a Polish publicly traded company listed on the Warsaw
Stock Exchange. We exchanged 33,334 shares of our common stock for the 100,250 shares from Everest. We account for this investment
in accordance with ASC 320
“Investments — Debt and Equity Securities”
. On December 31, 2018, our consolidated
balance sheet reflected the fair value of our investment in Everest to be $16,643, based on the closing price of Everest shares
of $0.1660 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. The change in market value since
the receipt of stock amounting to $382,933 was determined to be other than temporary and was recorded by us as an impairment loss
starting in 2016. We recorded $3,182 as realized losses in 2018 for the changes in market value.
xi.
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, warrants to acquire preferred stock
convertible into common stock, 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.
The following table illustrates our computation of loss per share for the years ended December 31:
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(23,473,152
|
)
|
|
$
|
(10,715,561
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,530,989
|
|
|
|
1,114,225
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted
|
|
$
|
(15.33
|
)
|
|
$
|
(9.62
|
)
|
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 for the years ended December 31:
|
|
2018
|
|
|
2017
|
|
Stock options
|
|
|
366,734
|
|
|
|
247,692
|
|
Convertible debt
|
|
|
413,998
|
|
|
|
947,203
|
|
Common stock warrants
|
|
|
7,764,821
|
|
|
|
899,542
|
|
Convertible preferred stock:
|
|
|
|
|
|
|
|
|
Series D Convertible Preferred
|
|
|
25,000
|
|
|
|
25,000
|
|
Series G Convertible Preferred
|
|
|
26,857
|
|
|
|
26,857
|
|
Series H Convertible Preferred
|
|
|
33,334
|
|
|
|
33,334
|
|
Series H2 Convertible Preferred
|
|
|
70,000
|
|
|
|
70,000
|
|
Series J Convertible Preferred
|
|
|
115,267
|
|
|
|
115,267
|
|
Series K Convertible Preferred
|
|
|
229,334
|
|
|
|
229,334
|
|
Series AA Convertible Preferred
|
|
|
6,499,000
|
|
|
|
-
|
|
|
|
|
15,544,345
|
|
|
|
2,594,229
|
|
xii.
Accounting for Income Taxes
We
account for income taxes under the asset and liability method, which requires recognition of deferred tax assets, subject to valuation
allowances, and liabilities for the expected future tax consequences of events that have been included in the consolidated financial
statements or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting and income tax purposes. The Company considers many factors when assessing the
likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction,
expectations of future taxable income or loss, the carry-forward periods available to us for tax reporting purposes, and other
relevant factors. A valuation allowance is established if it is more likely than not that all or a portion of the net deferred
tax assets will not be realized. If substantial changes in the Company’s ownership should occur, as defined in Section 382
of the Internal Revenue Code, there could be significant limitations on the amount of net loss carry forwards that could be used
to offset future taxable income.
Tax
positions must meet a “more likely than not” recognition threshold at the effective date to be recognized. At December
31, 2018 and 2017, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions
were accrued at December 31, 2018 and 2017.
xiii.
Accounting for Stock-Based Compensation
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 equity 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. Employee
awards are accounted for under ASC 718 where the awards are valued at grant date. Awards given to nonemployees are accounted for
under ASC 505 where the awards are valued at earlier of commitment date or completion of services.
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, which generally is over three years.
Expected
Term
- The Company uses the simplified calculation of expected life, described in the FASB ASC 718,
Compensation-Stock
Compensation
, 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
- As required by FASB ASC 718,
Compensation-Stock Compensation
, 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. We used this historical rate as our assumption in calculating future stock-based
compensation expense.
The
following table summarizes the assumptions we utilized for grants of stock options to the three sub-groups of our stock option
recipients during the year ended December 31, 2018:
Assumptions
|
|
Non-Employee
Board Members
|
|
|
CEO, other
Officers and
Employees
|
|
Expected life
|
|
|
6.0(yrs)
|
|
|
|
6.0(yrs)
|
|
Expected volatility
|
|
|
150.06%-155.38
|
%
|
|
|
151.53
%-155.21
|
%
|
Risk-free interest rate
|
|
|
2.62%-3.03
|
%
|
|
|
2.62%-2.77
|
%
|
Forfeiture rate
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
We
recognized stock-based compensation expense of $592,477 and $406,427 for the years ended December 31, 2018 and 2017, respectively.
The following table summarizes the effect of this stock-based compensation expense within each of the line items within our accompanying
consolidated statements of operations for the years ended December 31:
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
120,417
|
|
|
$
|
92,055
|
|
Selling and marketing
|
|
|
49,023
|
|
|
|
54,404
|
|
General and administrative
|
|
|
423,037
|
|
|
|
259,968
|
|
Total stock-based compensation expense
|
|
$
|
592,477
|
|
|
$
|
406,427
|
|
During
the years ended December 31, 2018 and 2017, the total fair value of stock options awarded was $403,053 and $487,964, respectively.
As
of December 31, 2018, total unrecognized compensation cost related to the unvested stock-based awards was $801,885, which is expected
to be recognized over weighted average period of 1.15 years.
xiv.
Advertising
Advertising
costs are expensed as incurred. We incurred $23,227 in 2018 and $5,899 in 2017 for advertising.
xv.
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. Short-term and long-term liabilities are primarily related to liabilities transferred under
contractual arrangements with carrying values that approximate fair value.
xvi.
Fair Value Measurements
The
Company follows the guidance of FASB ASC Topic 820, “
Fair Value Measurements and Disclosures
” (“
ASC
820
”) as it related to financial assets and financial liabilities that are recognized or disclosed at fair value in
the consolidated financial statements on a recurring basis.
The
Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value
hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs
such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market
data exists, therefore requiring an entity to develop its own assumptions.
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 currently classified within Level 1 and that its financial
liabilities are currently all classified within Level 3 in the fair value hierarchy.
The
Company changed its method of accounting for the Debentures and 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 $2.5 million.
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 financial liabilities that were accounted for at fair value
on a recurring basis as of December 31, 2018 and December 31, 2017. The development of the unobservable inputs for Level 3 fair
value measurements and fair value calculations are the responsibility of the Company’s management.
|
|
|
|
|
Fair value measurements at
December 31, 2018 using:
|
|
|
|
December 31, 2018
|
|
|
Quoted prices in
active
markets
(Level 1)
|
|
|
Significant other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Equity Securities
|
|
|
16,643
|
|
|
|
16,643
|
|
|
|
-
|
|
|
|
-
|
|
Total Financial Assets
|
|
$
|
16,643
|
|
|
$
|
16,643
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
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)
|
|
Equity Securities
|
|
|
19,825
|
|
|
|
19,825
|
|
|
|
-
|
|
|
|
-
|
|
Total Financial Assets
|
|
$
|
19,825
|
|
|
$
|
19,825
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Adoption
of ASU No. 2016-02
The
Company has early adopted ASU No. 2016-02, Leases (Topic 842). The amendment requires companies to recognize leased assets and
liabilities on the balance sheet and to disclose key information regarding lease arrangements. This guidance is effective for
annual periods, and interim periods within those annual periods, after December 15, 2018. Early application of this amendment
is permitted for all entities. While we do not anticipate that going forward, leases will be material to our balance sheet, we
chose to early-adopt as of December 31, 2017. We have one lease that is required to be included on our balance sheet under the
new standard. This lease is an operating lease and, therefore, will have no income statement impact resulting from the adoption
of this standard.
xvi
i
.
Reclassifications
Certain
prior year amounts have been reclassified to conform to our current year presentation.
xviii.
Recently Issued Accounting Standards
In
November 2016, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2016-18 (ASU 2016-18).
ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for fiscal years beginning
after December 15, 2017. As early adoption of this amendment is permitted, the Company has adopted the update retrospectively
to each period presented. The adoption of this guidance did not have a material impact on the company’s consolidated Financial
Statements.
In
March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement
of cash flows. ASU 2016-09 became effective for the Company on January 1, 2017. The adoption of this guidance did not have a material
impact on the Company’s consolidated Financial Statements.
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. The Company chose to early adopt ASC 842 effective January 1, 2018. This
new guidance did not have a material impact on the Company’s consolidated financial statements.
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 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.
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. See Note 2.
(4)
Property and Equipment, net
Property
and equipment as of December 31, 2018 and 2017 consisted of the following components:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Laboratory and manufacturing equipment
|
|
$
|
240,670
|
|
|
$
|
240,670
|
|
Office equipment
|
|
|
173,312
|
|
|
|
173,312
|
|
Leasehold improvements
|
|
|
8,117
|
|
|
|
8,117
|
|
PCT collaboration, demonstration and leased systems
|
|
|
529,956
|
|
|
|
461,858
|
|
Total property and equipment
|
|
|
952,055
|
|
|
|
883,957
|
|
Less accumulated depreciation
|
|
|
(882,783
|
)
|
|
|
(861,295
|
)
|
Net book value
|
|
$
|
69,272
|
|
|
$
|
22,662
|
|
Depreciation
expense for the years ended December 31, 2018 and 2017 was $7,733 and $8,576, respectively.
(5)
Intangible Assets
Intangible
assets as of December 31, 2018 reflect the purchase price attributable to patents received in connection with the acquisition
of assets of BaroFold Corp. Acquired BaroFold patents are being amortized to expense on a straight line basis at the rate of $80,000
per year over their estimated remaining useful lives of approximately 9 years. The estimated aggregate amortization expense for
each of the five succeeding fiscal years is $80,000 annually. We performed a review of our intangible assets for impairment. When
impairment is indicated, any excess of carrying value over fair value is recorded as a loss. An impairment analysis of intangible
assets was performed as of December 31, 2018. We have concluded that there is no impairment of intangible assets. Intangible assets
at December 31, 2018 and 2017 consisted of the following:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
BaroFold Patents
|
|
$
|
750,000
|
|
|
$
|
750,000
|
|
Less accumulated amortization
|
|
|
(86,538
|
)
|
|
|
-
|
|
Net book value
|
|
$
|
663,462
|
|
|
$
|
750,000
|
|
Amortization
expense for each of the years ended December 31, 2018 and 2017 was $86,538 and $0 respectively.
(6)
Retirement Plan
We
provide all of our employees with the opportunity to participate in our retirement savings plan. Our retirement savings plan has
been qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to the plan through
payroll deductions within statutory limitations and subject to any limitations included in the plan. During 2018 and 2017 we contributed
$15,543and $13,587, respectively, in the form of discretionary Company-matching contributions.
(7)
Income Taxes
Tax
positions must meet a “more likely than not” recognition threshold at the effective date to be recognized. At December
31, 2018 and 2017, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions
were accrued at December 31, 2018 and 2017. Our tax returns for fiscal years 2015, 2016 and 2017 are open to examination.
We
did not record an income tax benefit or provision for the years ended December 31, 2018 and 2017.
Significant
items making up the deferred tax assets and deferred tax liabilities as of December 31, 2018 and 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
Long term deferred taxes:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
74,733
|
|
|
$
|
49,067
|
|
Accounts receivable allowance
|
|
|
-
|
|
|
|
-
|
|
Other accruals
|
|
|
75,992
|
|
|
|
75,992
|
|
Accelerated tax depreciation
|
|
|
6,252
|
|
|
|
6,945
|
|
Non-cash, stock-based compensation, nonqualified
|
|
|
767,885
|
|
|
|
606,020
|
|
Impairment loss on investment
|
|
|
104,609
|
|
|
|
103,748
|
|
Goodwill and intangibles
|
|
|
-
|
|
|
|
|
|
Operating loss carry forwards and tax credits
|
|
|
16,112,934
|
|
|
|
12,196,765
|
|
Less: valuation allowance
|
|
|
(17,142,405
|
)
|
|
|
(13,038,537
|
)
|
Total net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
A
valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.
Accordingly, a valuation allowance was established in 2018 and 2017 for the full amount of our deferred tax assets due to the
uncertainty of realization. We believe based on our projection of future taxable operating income for the foreseeable future,
it is more likely than not that we will not be able to realize the benefit of the deferred tax asset at December 31, 2018.
On
December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Trump. The
Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate
tax rate from 35% to 21% effective January 1, 2018. Under ASC 740, the tax effects of changes in tax laws must be recognized in
the period in which the law was enacted. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted
tax rate expected to apply when temporary differences are to be realized or settled. The Company re-measured its deferred tax
assets and liabilities at the 21% federal corporate tax rate. The remeasurement resulted in no change in the Company’s recorded
tax provision, as the remeasurement of the company’s deferred tax assets and liabilities resulted in a reduction of approximately
$5,843,000 which was fully offset by a change in the Company’s valuation allowance.
We
have net operating loss carry-forwards for federal income tax purposes of approximately $50,997,000 as of December 31,
2018. Included in these numbers are loss carry-forwards that were obtained through the acquisition of BioSeq, Inc. and are subject
to Section 382 NOL limitations. These net operating loss carry-forwards expire at various dates from 2018 through 2038. Under
the Tax Reform Act, NOL’s generated after December 31, 2017 can offset only 80% of a corporation’s taxable income
in any year. With limited exceptions, NOL’s generated after 2017 cannot be carried back, but they can be carried forward
indefinitely.
We
have net operating loss carry-forwards for state income tax purposes of approximately $44,406,000 at December 31, 2018. These
net operating loss carry-forwards expire at various dates from 2030 through 2037.
We
have research and development tax credit carry-forwards for federal income tax purposes of approximately $1,138,000 as of December
31, 2018 and research and development tax credit carry-forwards for state income tax purposes of approximately $487,000 as of
December 31, 2018. The federal credit carry-forwards expire at various dates from 2019 through 2039. The state credit carry-forwards
expire at various dates from 2023 through 2034.
In
addition, we have federal alternative minimum tax credit carry-forwards for federal income tax purposes of approximately $217,000
as of December 31, 2018. These credits do not expire.
Our
effective income tax (benefit) provision rate was different than the statutory federal income tax (benefit) provision rate as
follows for the years ended December 31:
|
|
2018
|
|
|
2017
|
|
Federal tax provision rate
|
|
|
21
|
%
|
|
|
35
|
%
|
Permanent differences
|
|
|
(0
|
)%
|
|
|
0
|
%
|
State tax expense
|
|
|
0
|
%
|
|
|
0
|
%
|
Refundable AMT and R&D tax credit
|
|
|
0
|
%
|
|
|
0
|
%
|
Net operating loss carry back
|
|
|
0
|
%
|
|
|
0
|
%
|
Valuation allowance
|
|
|
(21
|
)%
|
|
|
(35
|
)%
|
Effective income tax provision
|
|
|
0
|
%
|
|
|
0
|
%
|
(8)
Commitments and Contingencies
Operating
Leases
As
disclosed in Note 2, the Company early adopted ASC 842 to our existing leases. The Company has elected to apply the short-term
lease exception to leases of one year or less. Consequently, as a result of adoption of ASC 842, we recognized an operating liability
of $136,385 with a corresponding Right-Of-Use (“ROU”) asset of the same amount based on present value of the minimum
rental payments of the lease which is included in non-current assets and long-term liabilities in the consolidated balance sheet.
The discount rate used for leases accounted for under ASC 842 is the Company’s estimated borrowing rate of 25%.
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 28, 2018, that expires December 31, 2019, 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 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.
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 December 31, 2018:
2019
|
|
|
82,953
|
|
2020
|
|
|
82,953
|
|
Thereafter
|
|
|
-
|
|
Total minimum payments required
|
|
$
|
165,906
|
|
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.
Royalty
Commitments
BioMolecular
Assays, Inc.
In
1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling
technology. BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. under a technology transfer and
patent assignment agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to require us to pay BioMolecular Assays, Inc., a 5%
royalty on our sales of products or services that incorporate or utilize the original pressure cycling technology that BioSeq,
Inc. acquired from BioMolecular Assays, Inc. We are also required to pay BioMolecular Assays, Inc. 5% of the proceeds from any
sale, transfer or license of all or any portion of the original pressure cycling technology. These payment obligations terminated
on March 7, 2016.
In
connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology
back to BioMolecular Assays, Inc. This license is non-exclusive and limits the use of the original pressure cycling technology
by BioMolecular Assays, Inc. solely for molecular applications in scientific research and development and in scientific plant
research and development. BioMolecular Assays, Inc. is required to pay us a royalty equal to 20% of any license or other fees
and royalties, but not including research support and similar payments, it receives in connection with any sale, assignment, license
or other transfer of any rights granted to BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. was required
to pay us these royalties until the expiration in March 2016 of the patents held by BioSeq, Inc. since 1998. We have not received
any royalty payments from BioMolecular Assays, Inc. under this license.
Battelle
Memorial Institute
In
December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute (“
Battelle
”).
The licensed technology is the subject of a patent application filed by Battelle in 2008 and relates to a method and a system
for improving the analysis of protein samples, including through an automated system utilizing pressure and a pre-selected agent
to obtain a digested sample in a significantly shorter period of time than current methods, while maintaining the integrity of
the sample throughout the preparatory process. In addition to royalty payments on net sales on “licensed products,”
we are obligated to make minimum royalty payments for each year that we retain the rights outlined in the patent license agreement
and we are required to have our first commercial sale of the licensed products within one year following the issuance of the patent
covered by the licensed technology. After re-negotiating the terms of the contract in 2013, the minimum annual royalty was $1,200
in 2014 and $2,000 in 2015; the minimum royalties are $3,000 in 2016, $4,000 in 2017 and $5,000 in 2018 and each calendar year
thereafter during the term of the agreement.
Target
Discovery Inc
.
In
March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development agreement
with Target Discovery Inc. (“
TDI
”), a related party. Under the terms of the agreement, we have been licensed
by TDI to manufacture and sell a highly innovative line of chemicals used in the preparation of tissues for scientific analysis
(“
TDI reagents
”). The TDI reagents were designed for use in combination with our pressure cycling technology.
The companies believe that the combination of PCT and the TDI reagents can fill an existing need in life science research for
an automated method for rapid extraction and recovery of intact, functional proteins associated with cell membranes in tissue
samples. We did not incur any royalty obligation under this agreement in 2018 or 2017.
In
April 2012, we signed a non-exclusive license agreement with TDI to grant the non-exclusive use of our pressure cycling technology.
We executed an amendment to this agreement on October 1, 2016 wherein we agreed to pay a monthly fee of $1,400 for the use of
a lab bench, shared space and other utilities, and $2,000 per day for technical support services as needed. The agreement requires
TDI to pay the Company a minimum royalty fee of $40,000 in 2018 and $50,000 in 2019.
Severance
and Change of Control Agreements
Each
of Mr. Schumacher, and Drs. Ting, Lazarev, and Young, executive officers of the Company, are entitled to receive a severance payment
if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of such executive
officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to
receive medical and dental insurance coverage for one year following the date of termination.
Each
of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal
to one year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental
coverage, in the event of a change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two
years of annualized base salary compensation, accrued paid time off, and two years of medical and dental coverage. The severance
payment is meant to induce the aforementioned executives to remain in the employ of the Company, in general; and particularly
in the occurrence of a change in control, as a disincentive to the control change.
(9)
Convertible Debt and Other Debt
Conversion
of Notes
We
issued 5,075.40 shares of our Series AA Convertible Preferred Stock in satisfaction of $12,688,635 of convertible promissory
notes, Revolving Note and short-term loans issued:
|
|
Debt converted
to stock
|
|
Current liabilities
|
|
|
|
|
Convertible Debentures, face value
|
|
$
|
6,962,635
|
|
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 during the year 2018
|
|
$
|
12,688,635
|
|
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 $6,962,504 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. On September 11, 2017, we notified Debenture holders that their Debentures will be extended
180 days beyond the original maturity date as permitted in the Debenture agreement. We will continue to pay interest on the Debentures
until the extended maturity date. We accounted for the Debenture extensions as debt modifications and not extinguishment of debt
since the changes in fair value are not substantial in accordance with ASC 470-50. We started amortizing the remaining unamortized
discount as of September 11, 2017 over the new term, which extends 180 days beyond the original maturity date.
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 $742,135 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 year ended December 31, 2017, the Company issued 61,307 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
30, 2017 for an aggregate amount of $483,054. We recognized a $218,452 gain on extinguishment of debt by calculating the difference
of the shares valued on the issuance date and the amount of accrued interest through June 30, 2017.
On
various dates for the year ended December 31, 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
year ended December 31, 2018 by calculating the difference of the shares valued on the issuance date and the amount of accrued
interest through June 11, 2018.
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 year ended December 31, 2018, the Company issued convertible notes for net proceeds of approximately
$5.7 million which contained varied terms and conditions as follows: a) maturity dates ranging from 2 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 $450,671 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 December
31, 2018.
The
specific terms of the convertible notes and outstanding balances as of December 31, 2018 are listed in the tables below.
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
|
|
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
|
|
|
|
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
1
|
|
6 months
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
4,000
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
20,000
|
|
|
|
7,218
|
|
April 23, 2018
|
|
6 months
|
|
|
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
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
%
|
|
$
|
7.50
|
|
|
|
6,500
|
|
|
|
-
|
|
April 26, 2018
|
|
12 months
|
|
|
65,000
|
|
|
|
-
|
|
|
|
6,500
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
May 9, 2018
|
|
12 months
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
%
|
|
$
|
7.50
|
|
|
|
12,500
|
|
|
|
26,466
|
|
May
11, 2018
1
|
|
6 months
|
|
|
161,250
|
|
|
|
161,250
|
|
|
|
11,250
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
10,000
|
|
|
|
-
|
|
May 14, 2018
|
|
9 months
|
|
|
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
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
May 24, 2018
|
|
9 months
|
|
|
52,500
|
|
|
|
-
|
|
|
|
2,500
|
|
|
|
4
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
2,075
|
|
May 25, 2018
|
|
12 months
|
|
|
78,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
%
|
|
$
|
7.50
|
|
|
|
3,750
|
|
|
|
3,112
|
|
May 30, 2018
|
|
2 months
|
|
|
150,000
|
|
|
|
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
1
|
|
6 months
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
2,500
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
2,500
|
|
|
|
3,271
|
|
June 12, 2018
|
|
6 months
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
5
|
%
|
|
$
|
7.50
|
|
|
|
5,000
|
|
|
|
-
|
|
June 14, 2018
|
|
9 months
|
|
|
280,000
|
|
|
|
210,000
|
|
|
|
25,000
|
|
|
|
10
|
%
|
|
|
-
|
|
|
|
5,000
|
|
|
|
17,573
|
|
June 16, 2018
|
|
9 months
|
|
|
130,000
|
|
|
|
101,500
|
|
|
|
-
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
June
16, 2018
1
|
|
6 months
|
|
|
110,000
|
|
|
|
101,500
|
|
|
|
-
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
June
26, 2018
1
|
|
3 months
|
|
|
150,000
|
|
|
|
75,000
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
20,242
|
|
June
28, 2018
1
|
|
6 months
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
10,518
|
|
July 2, 2018
|
|
12 months
|
|
|
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
1
|
|
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
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
6,578
|
|
August 8, 2018
|
|
6 months
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
-
|
|
|
|
-
|
|
August 15, 2018
|
|
4 months
|
|
|
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
|
|
October 1, 2018
|
|
6 months
|
|
|
118,800
|
|
|
|
118,800
|
|
|
|
8,800
|
|
|
|
25
|
%
|
|
$
|
7.50
|
|
|
|
3,000
|
|
|
|
|
|
October 19, 2018
|
|
6 months
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
5
|
%
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
October 23, 2018
|
|
6 months
|
|
|
103,000
|
|
|
|
103,000
|
|
|
|
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,000
|
|
|
|
|
|
October 29, 2018
|
|
6 months
|
|
|
77,000
|
|
|
|
77,000
|
|
|
|
|
|
|
|
12
|
%
|
|
$
|
7.50
|
|
|
|
2,000
|
|
|
|
|
|
November 5, 2018
|
|
6 months
|
|
|
105,000
|
|
|
|
105,000
|
|
|
|
|
|
|
|
4
|
%
|
|
|
-
|
|
|
|
5,000
|
|
|
|
3,872
|
|
November 5, 2018
|
|
6 months
|
|
|
130,000
|
|
|
|
130,000
|
|
|
|
|
|
|
|
6
|
%
|
|
$
|
7.50
|
|
|
|
6,500
|
|
|
|
|
|
November 7, 2018
|
|
6 months
|
|
|
205,000
|
|
|
|
205,000
|
|
|
|
|
|
|
|
4
|
%
|
|
$
|
7.50
|
|
|
|
5,000
|
|
|
|
17,906
|
|
November 13, 2018
|
|
6 months
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
7,500
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
2,000
|
|
|
|
4,656
|
|
November 13, 2018
|
|
6 months
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
15
|
%
|
|
$
|
7.50
|
|
|
|
|
|
|
|
30,026
|
|
November 21, 2018
|
|
9 months
|
|
|
103,000
|
|
|
|
103,000
|
|
|
|
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,000
|
|
|
|
|
|
November 27, 2018
|
|
12 months
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
|
|
|
|
4
|
%
|
|
|
-
|
|
|
|
2,500
|
|
|
|
1,922
|
|
December 26, 2018
|
|
2 months
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
3,750
|
|
|
|
5
|
%
|
|
$
|
7.50
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,460
,485
|
|
|
$
|
4,156,985
|
|
|
$
|
212,335
|
|
|
|
|
|
|
|
|
|
|
$
|
211,200
|
|
|
$
|
310,650
|
|
1.)
The notes were extended for an additional term.
For
the year ended December 31, 2018, the Company recognized amortization expense related to the debt discounts indicated above of
$1,517,394. The unamortized debt discounts as of December 31, 2018 related to the convertible debentures and other convertible
notes amounted to $156,180.
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 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
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 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.
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 year ended December 31, 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 eleven loans. We recorded losses
on debt extinguishment of $237,888 on these eleven 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 $217,488 loss on debt extinguishment included
the aggregate fair value of $150,438 for the shares issued with the new debt, the write-down of $5,883 for unamortized
discounts remaining on the original debt and cash fees of $61,167.
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
|
|
|
6,625,800
|
|
Deferred financing cost
|
|
|
(448,002
|
)
|
Debt discount related to one-time interest charge
|
|
|
(187,311
|
)
|
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
|
|
|
(288,648
|
)
|
Conversion of debt into equity
|
|
|
(10,962,634
|
)
|
Payments
|
|
|
(3,522,000
|
)
|
Accretion of interest and amortization of debt discount to interest expense through September 30,
|
|
|
1,410,847
|
|
Balance at December 31,
|
|
|
4,000,805
|
|
Less: current portion
|
|
|
4,000,805
|
|
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 December 31, 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 on
extinguishment of debt relating to the fair value of common stock issued for the September 30 extension. The note was
extended from September 30, 2018 to December 31, 2018 and the lender will receive 3,600 shares of Company common stock. The
note was subsequently extended to June 30, 2019 and the lender will receive an additional 3,500 shares of Company common
stock for each quarter the loan is outstanding.
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 December 31, 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 December
31, 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 December 31, 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.
Certain of these loans are guaranteed by an officer of the Company. The following table shows our Merchant Agreements as
of December 31, 2018.
Inception Date
|
|
Purchase Price
|
|
|
Purchased Amount
|
|
|
Outstanding Balance
|
|
|
Daily Payment
|
|
|
Deferred Finance Fees
|
|
February 27, 2018
|
|
|
110,000
|
|
|
|
147,400
|
|
|
|
-
|
|
|
|
921.25
|
|
|
|
1,650
|
|
April 11, 2018
|
|
|
140,000
|
|
|
|
187,600
|
|
|
|
-
|
|
|
|
1,275.00
|
|
|
|
2,800
|
|
May 11, 2018
|
|
|
180,000
|
|
|
|
243,000
|
|
|
|
-
|
|
|
|
1,518.75
|
|
|
|
2,599
|
|
May 15, 2018
|
|
|
180,000
|
|
|
|
244,800
|
|
|
|
-
|
|
|
|
1,530.00
|
|
|
|
3,600
|
|
June 29, 2018
|
|
|
140,000
|
|
|
|
190,400
|
|
|
|
-
|
|
|
|
1,269.33
|
|
|
|
2,100
|
|
July 16, 2018
|
|
|
180,000
|
|
|
|
246,600
|
|
|
|
-
|
|
|
|
1,790.00
|
|
|
|
3,600
|
|
October 18, 2018
|
|
|
550,000
|
|
|
|
725,800
|
|
|
|
447,839
|
|
|
|
3,630.00
|
|
|
|
5,500
|
|
December 18, 2018
|
|
|
250,000
|
|
|
|
335,000
|
|
|
|
243,593
|
|
|
|
1,675.00
|
|
|
|
3,912
|
|
|
|
$
|
1,730,000
|
|
|
$
|
2,320,600
|
|
|
$
|
691,432
|
|
|
|
|
|
|
$
|
25,761
|
|
We
amortized $112,429 and $312,870 of debt discounts during the year ended December 31, 2018 and 2017, respectively
for all non-convertible notes. The total unamortized discount for all non-convertible notes as of December 31, 2018 was $9,118.
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 a Warrant to purchase 20,000
shares of 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 December 31, 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.
On
October 26,2018 we received a short-term loan of $30,000 from an officer of the Company. The loan was repaid on October 29, 2018.
There was no interest charged on this loan.
(10)
Stockholders’ (Deficit)
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 December 31, 2018, there were no shares of Junior A, and Series A, B, C, and E issued and outstanding.
Series
D Convertible Preferred Stock
On
November 11, 2011, we completed a registered direct offering, pursuant to which we sold an aggregate of 843 units for a purchase
price of $1,000 per unit, resulting in gross proceeds to us of $843,000 (the “
Series D Placement
”). Each unit
(“
Series D Unit
”) consisted of (i) one share of Series D Convertible Preferred Stock, $0.01 par value per share
(the “
Series D Convertible Preferred Stock
”) convertible into 84 shares of our common stock, (subject to adjustment
for stock splits, stock dividends, recapitalization, etc.) and (ii) one five-year warrant to purchase approximately 21 shares
of our common stock at a per share exercise price of $24.30, subject to adjustment as provided in the Warrants (“
Series
D Warrant
”). The Series D Warrants will be exercisable beginning on May 11, 2012 and until the close of business on
the fifth anniversary of the initial exercise date.
The
Series D Convertible Preferred Stock will rank senior to the Company’s common stock with respect to payments made upon liquidation,
winding up or dissolution. Upon any liquidation, dissolution or winding up of the Company, after payment of the Company’s
debts and liabilities, and before any payment is made to the holders of any junior securities, the holders of Series D Convertible
Preferred Stock will first be entitled to be paid $1,000 per share subject to adjustment for accrued but unpaid dividends.
We
may not pay any dividends on shares of common stock unless we also pay dividends on the Series D Convertible Preferred Stock in
the same form and amount, on an as-if-converted basis, as dividends actually paid on shares of our common stock. Except for such
dividends, no other dividends may be paid on the Series D Convertible Preferred Stock.
Each
share of Series D Convertible Preferred Stock is convertible into 84 shares of common stock (based upon an initial conversion
price of $19.50 per share) at any time at the option of the holder, subject to adjustment for stock splits, stock dividends, combinations,
and similar recapitalization transactions (the “
Series D Conversion Ratio
”). Subject to certain exceptions,
if the Company issues any shares of common stock or common stock equivalents at a per share price that is lower than the conversion
price of the Series D Convertible Preferred Stock, the conversion price will be reduced to the per share price at which such shares
of common stock or common stock equivalents are issued. Each share of Series D Convertible Preferred Stock will automatically
be converted into shares of common stock at the Series D Conversion Ratio then in effect if, after six months from the closing
of the Series D Placement, the common stock trades on the OTCQB (or other primary trading market or exchange on which the common
stock is then traded) at a price equal to at least 300% of the then effective Series D Convertible Preferred Stock conversion
price for 20 out of 30 consecutive trading days with each trading day having a volume of at least $50,000. Unless waived under
certain circumstances by the holder of the Series D Convertible Preferred Stock, such holder’s Series D Convertible Preferred
Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.
In
addition, in the event we consummate a merger or consolidation with or into another person or other reorganization event in which
our shares of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise
dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common
stock, then following such event, the holders of the Series D Convertible Preferred Stock will be entitled to receive upon conversion
of the Series D Convertible Preferred Stock the same kind and amount of securities, cash or property which the holders of the
Series D Convertible Preferred Stock would have received had they converted the Series D Convertible Preferred Stock immediately
prior to such fundamental transaction.
The
holders of Series D Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu
of meeting), except that the holders of Series D Convertible Preferred Stock may vote separately as a class on any matters that
would (i) amend, our Restated Articles of Organization, as amended, in a manner that adversely affects the rights of the Series
D Convertible Preferred Stock, (ii) alter or change adversely the powers, preferences or rights of the Series D Convertible Preferred
Stock or alter or amend the certificate of designation, (iii) authorize or create any class of shares ranking as to dividends,
redemption or distribution of assets upon liquidation senior to, or otherwise pari passu with, the Series D Convertible Preferred
Stock, or (iv) increase the number of authorized shares of Series D Convertible Preferred Stock.
If,
within 12 months of the initial issuance of the Series D Convertible Preferred Stock, we issue any common stock, common stock
equivalents, indebtedness or any combination thereof (a “
Subsequent Financing
”), the holders of Series D Convertible
Preferred Stock will have the right to participate on a pro-rata basis in up to 50% of such Subsequent Financing.
Series
D Warrants
The
Series D Warrants originally had an exercise price equal to $24.30 per share of common stock. In April 2012, the number of Series
D Warrants increased by 17,681 to a total of 34,930 and each Series D Warrant had an exercise price reset to $12.00 per share
of common stock. In December of 2013 the number of Series D Warrants increased by 20,958 to a total of 55,887 and each Series
D Warrant had an exercise price reset to $7.50 per share of common stock. The Series D Warrants will be exercisable beginning
on the six-month anniversary of the date of issuance and expire five years from the initial exercise date. The Series D Warrants
permit the holder to conduct a “cashless exercise” at any time a registration statement registering, or the prospectus
contained therein, is not available for the issuance of the shares of common stock issuable upon exercise of the Series D Warrant,
and under certain circumstances at the expiration of the Series D Warrants. The exercise price and/or number of shares of common
stock issuable upon exercise of the Series D Warrants are subject to adjustment for certain stock dividends, stock splits or similar
capital reorganizations, as set forth in the Warrants. 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
D 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 and number of Series D Warrant shares
issuable thereunder shall be increased such that the aggregate exercise price payable thereunder, after taking into account the
decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. Unless waived under certain
circumstance by the holder of a Series D Warrant, such holder may not exercise the Series D Warrant if upon such exercise the
holder’s beneficial ownership of the Company’s common stock would exceed certain thresholds.
In
the event we consummate a merger or consolidation with or into another person or other reorganization event in which our shares
of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose
of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common stock,
then following such event, the holders of the Series D Warrants will be entitled to receive upon exercise of the Series D Warrants
the same kind and amount of securities, cash or property which the holders would have received had they exercised the Series D
Warrants immediately prior to such fundamental transaction.
On
May 10, 2017, we received net proceeds of $140,214 from the exercise of 19,889 stock purchase warrants from the Series D registered
direct offering on November 10, 2011. In consideration for the warrant exercises, we issued to the investors warrants to purchase
39,778 shares of our Common Stock at an exercise price per share equal to $8.40 per share. The warrants expire on the third year
anniversary date. We determined the fair value of $186,802 for these warrants and recorded the value as other expenses.
Series
G Convertible Preferred Stock
On
July 6 and November 15, 2012, we completed a private placement, pursuant to which we sold an aggregate of 4,844 units for a purchase
price of $150.00 per unit (the “Series G Purchase Price”), resulting in gross proceeds to us of $726,600 (the “
Series
G Private Placement
”). Each unit (“
Series G Unit
”) consists of (i) one share of Series G Convertible
Preferred Stock, $0.01 par value per share (the “Series G Preferred Stock”) convertible into 1 share of our common
stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) a three-year warrant to purchase
1 share of our common stock at a per share exercise price of $15.00 (the “
Series G Warrant
”). The Series G
Warrants will be exercisable until the close of business on the third anniversary of the applicable closing date of the Series
G Private Placement.
Each
share of Series G Preferred Stock will receive a cumulative dividend at the annual rate of (i) four percent (4%) on those shares
of Series G Preferred Stock purchased from the Company by an individual purchaser with an aggregate investment of less than $100,000,
(ii) six percent (6%) on those shares of Series G Preferred Stock purchased from the Company by an individual purchaser with an
aggregate investment of at least $100,000 but less than $250,000, and (iii) twelve percent (12%) on those shares of Series G Preferred
Stock purchased from the Company by an individual purchaser with an aggregate investment of at least $250,000. Dividends accruing
on the Series G Preferred Stock shall accrue from day to day until, and shall be paid within fifteen (15) days of, the first anniversary
of, the original issue date of the Series G Preferred Stock; provided, however, if any shares of the Company’s Series E
Preferred Stock are outstanding at such time, payment of the accrued dividends on the Series G Preferred Stock shall be deferred
until no such shares of Series E Convertible Preferred Stock remain outstanding. The Company may pay accrued dividends on the
Series G Preferred Stock in cash or in shares of its common stock equal to the volume weighted average price of the common stock
as reported by the OTCQB for the ten (10) trading days immediately preceding the Series G’s first anniversary.
At
the election of the Company and upon required advanced notice, each share of Series G Preferred Stock will automatically be converted
into shares of common stock at the Conversion Ratio then in effect: (i) if, after 6 months from the original issuance date of
the Series G Preferred Stock, the common stock trades on the OTCQB (or other primary trading market or exchange on which the common
stock is then traded) at a price equal to at least $22.50, for 7 out of 10 consecutive trading days with average daily trading
volume of at least 334 shares, (ii) on or after the first anniversary of the original issuance date of the Series G Preferred
Stock or (iii) upon completion of a firm-commitment underwritten registered public offering by the Company at a per share price
equal to at least $22.50, with aggregate gross proceeds to the Company of not less than $2.5 million. Unless waived under certain
circumstances by the holder of the Series G Preferred Stock, such holder’s Series G Preferred Stock may not be converted
if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.
The
holders of Series G Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company for their
action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting),
except as required by law.
Series
H Convertible Preferred Stock
On
December 28, 2012 the Company amended the Articles of Incorporation to authorize 10,000 shares of Series H Convertible Preferred
Stock. On January 4, 2013, the Company reported that it had entered into a securities purchase and exchange agreement with an
investor, pursuant to which the Company agreed to exchange 33,334 shares of the Company’s common stock, par value $0.01
per share of common stock held by the investor for an aggregate of 10,000 shares of a newly created series of preferred stock,
designated Series H Convertible Preferred Stock, par value $0.01 per share (the “
Series H Preferred Stock
”)
in a non-cash transaction. The investor originally purchased the common stock from the Company for $24.08 per share. The exchange
ratio was 4 shares of common stock per share of Series H Preferred Stock at a stated conversion price of $24.08 per share.
Series
H2 Convertible Preferred Stock
On
December 23, 2014 the Company amended the Articles of Incorporation to authorize 21 shares of Series H2 Convertible Preferred
Stock. On December 23, 2014, the Company reported that it had entered into a securities purchase and exchange agreement with an
investor, pursuant to which the Company agreed to exchange 70,000 shares of the Company’s common stock, par value $0.01
per share of common stock held by the investor for an aggregate of 21 shares of a newly created series of preferred stock, designated
Series H2 Convertible Preferred Stock, par value $0.01 per share (the “
Series H2 Preferred Stock
”) in a non-cash
transaction. The investor originally acquired the common stock from the Company for $7.50 per share in the warrant reset transaction
on December 23, 2014. The exchange ratio was 3,334 shares of common stock per share of Series H2 Preferred Stock at a stated conversion
price of $7.50 per share.
Series
J Convertible Preferred Stock
On
February 6, March 28 and May 20, 2013, the Company entered into a Securities Purchase with various individuals pursuant to which
the Company sold an aggregate of 5,087.5 units for a purchase price of $400.00 per unit (the “Purchase Price”), or
an aggregate Purchase Price of $2,034,700. Each unit purchased in the initial tranche consists of (i) one share of a newly created
series of preferred stock, designated Series J Convertible Preferred Stock, par value $0.01 per share (the “Series J Convertible
Preferred Stock”), convertible into 34 shares of the Company’s common stock, par value $0.01 per share and (ii) a
warrant to purchase 34 shares of common stock at an exercise price equal to $12.00 per share. The warrants expire three years
from the issuance date.
From
the date of issuance of any shares of Series J Convertible Preferred Stock and until the earlier of the first anniversary of such
date, the voluntary conversion of any shares of Series J Convertible Preferred Stock, or the date of any mandatory conversion
(solely under the Company’s control based upon certain triggering events) of the Series J Convertible Preferred Stock, dividends
will accrue on each share of Series J Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price
on those shares of Series J Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement
by an individual purchaser who purchased from the Company shares of Series J Convertible Preferred Stock with an aggregate Purchase
Price of less than $250,000, and (ii) six percent (6%) of the Purchase Price on those shares of Series J Convertible Preferred
Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased shares
of Series J Convertible Preferred Stock with an aggregate purchase price of at least $250,000. Dividends accruing on the Series
J Convertible Preferred Stock shall accrue from day to day until the earlier of the first anniversary of the date of issuance
of such shares of Series J Convertible Stock, the voluntary conversion of any shares of Series J Convertible Preferred Stock,
or the date of any mandatory conversion of the Series J Convertible Preferred Stock, and shall be paid, as applicable, within
fifteen (15) days of the first anniversary of the original issue date of the Series J Convertible Preferred Stock, within five
(5) days of the voluntary conversion of shares of the Series J Convertible Preferred Stock, or within five (5) days of the mandatory
conversion of shares of the Series J Convertible Preferred Stock. The Company may pay accrued dividends on the Series J Convertible
Preferred Stock in cash or, in the sole discretion of the Board of Directors of the Company, in shares of its common stock in
accordance with a specified formula.
Each
share of Series J Convertible Preferred Stock is convertible into 34 shares of common stock at the option of the holder on or
after the six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations
and similar transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series
J Convertible Preferred Stock, such holder’s shares of Series J Convertible Preferred Stock may not be converted if upon
such conversion the holder’s beneficial ownership would exceed certain thresholds.
At
the election of the Company and upon required advance notice, each share of Series J Convertible Preferred Stock will automatically
be converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of
the original issuance date of the Series J Convertible Preferred Stock, the common stock trades on the OTCQB (or other primary
trading market or exchange on which the common stock is then traded) at a price per share equal to at least $24.00 for 7 out of
10 consecutive trading days with average daily trading volume of at least 1,667 shares, (ii) on the first anniversary of the original
issuance date of the Series J Convertible Preferred Stock or (iii) within three days of the completion of a firm-commitment underwritten
registered public offering by the Company at a per share price equal to at least $24.00, with aggregate gross proceeds to the
Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of the Series J Convertible Preferred
Stock, such holder’s Series J Convertible Preferred Stock may not be converted if upon such conversion the holder’s
beneficial ownership would exceed certain thresholds.
The
holders of Series J Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu
of meeting), except as required by law.
Series
K Convertible Preferred Stock
From
the date of issuance of any shares of Series K Convertible Preferred Stock and until the earlier of the first anniversary of such
date, the voluntary conversion of any shares of Series K Convertible Preferred Stock, or the date of any mandatory conversion
(solely under the Company’s control based upon certain triggering events) of the Series K Convertible Preferred Stock, dividends
will accrue on each share of Series K Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price
on those shares of Series K Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement
by an individual purchaser who purchased from the Company shares of Series K Convertible Preferred Stock with an aggregate Purchase
Price of less than $100,000, and (ii) six percent (6%) of the Purchase Price on those shares of Series K Convertible Preferred
Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased shares
of Series K Convertible Preferred Stock with an aggregate purchase price of at least $100,000. Dividends accruing on the Series
K Convertible Preferred Stock shall accrue from day to day until the earlier of the first anniversary of the date of issuance
of such shares of Series K Convertible Stock, the voluntary conversion of any shares of Series K Convertible Preferred Stock,
or the date of any mandatory conversion of the Series K Convertible Preferred Stock, and shall be paid, as applicable, within
fifteen (15) days of the first anniversary of the original issue date of the Series K Convertible Preferred Stock, within five
(5) days of the voluntary conversion of shares of the Series K Convertible Preferred Stock, or within five (5) days of the mandatory
conversion of shares of the Series K Convertible Preferred Stock. The Company may pay accrued dividends on the Series K Convertible
Preferred Stock in cash or, in the sole discretion of the Board of Directors of the Company, in shares of its common stock in
accordance with a specified formula.
Each
share of Series K Convertible Preferred Stock is convertible into 34 shares of common stock at the option of the holder on or
after the six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations
and similar transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series
K Convertible Preferred Stock, such holder’s shares of Series K Convertible Preferred Stock may not be converted if upon
such conversion the holder’s beneficial ownership would exceed certain thresholds.
At
the election of the Company and upon required advance notice, each share of Series K Convertible Preferred Stock will automatically
be converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of
the original issuance date of the Series K Convertible Preferred Stock, the common stock trades on the OTCQB (or other primary
trading market or exchange on which the common stock is then traded) at a price per share equal to at least $24.00 for 7 out of
10 consecutive trading days with average daily trading volume of at least 1,667 shares, (ii) on the first anniversary of the original
issuance date of the Series K Convertible Preferred Stock or (iii) within three days of the completion of a firm-commitment underwritten
registered public offering by the Company at a per share price equal to at least $24.00, with aggregate gross proceeds to the
Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of the Series K Convertible Preferred
Stock, such holder’s Series K Convertible Preferred Stock may not be converted if upon such conversion the holder’s
beneficial ownership would exceed certain thresholds.
The
holders of Series K Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu
of meeting), except as required by law.
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).
On June 11, 2018,
the Company entered into a Letter Agreement with an accredited investor in which we agreed to issue 110.8 additional shares of
Series AA Convertible Preferred Stock at $2,500 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.
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.
During
the quarter ended December 31, 2018, the Company entered into Securities Purchase Agreements with accredited investors
pursuant to which the Company sold an aggregate of 695 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 $1,738,000. We issued to the investors warrants to purchase an aggregate 695,000 shares of common
stock with an exercise price of $3.50 per share. In addition, in accordance with Letter Agreements with two investors, the
Company issued an additional 83 shares of Series AA Convertible Preferred Stock and 82,333 warrants with a value of $358,932.
The placement agent for this transaction received 148,160 warrants with a value of $277,277.
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 $9,928,734 into equity relating to the 6,877,728 warrants and 274,660 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 $12,881,899 was accounted for as a deemed dividend within equity
and was included in the earnings per share calculation.
Common
Stock
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 December 31, 2018, options to acquire 366,734 shares were outstanding under the Plan with 2,633,266 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. Under the 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.
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 2005 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 2005 Plan expired in 2015 so of the 32,605 terminated stock options, 16,641 stock options were issued
under the 2013 Plan and 15,964 stock options were issued under the 2015 Plan (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.
On
November 5, 2018 the Board of Directors approved the closing of the 2015 Plan and moved the 203,734 options outstanding
in the 2015 Plan into the 2013 Plan which was then the only option plan still active. The unamortized expense related to this
transfer is $108,400 which will be amortized over the remaining life of the options.
On
November 5
The Board of Directors also awarded 25,000
options to an officer separately based on the annual compensation committee recommendation. These options have an exercise
price of $3.40 and value of $3.07 as determined under a Black Scholes method.
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
$759,469 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.
As
of December 31, 2018, total unrecognized compensation cost related to the unvested stock-based awards was $801,885, which is expected
to be recognized over weighted average period of 1.15 years. The aggregate intrinsic value associated with the options outstanding
and exercisable and the aggregate intrinsic value associated with the warrants outstanding and exercisable as of December 31,
2018, based on the December 31, 2018 closing stock price of $2.25, was $0.
The
following tables summarize information concerning options and warrants outstanding and exercisable:
|
|
Stock Options
|
|
|
Warrants
|
|
|
Total
|
|
|
|
Shares
|
|
|
Weighted
Average
price per
share
|
|
|
Shares
|
|
|
Weighted
Average
price per
share
|
|
|
Shares
|
|
|
Exercisable
|
|
Balance outstanding, January 1, 2017
|
|
|
175,642
|
|
|
$
|
12.60
|
|
|
|
881,989
|
|
|
$
|
12.00
|
|
|
|
1,057,631
|
|
|
|
991,032
|
|
Granted
|
|
|
87,198
|
|
|
|
8.40
|
|
|
|
245,661
|
|
|
|
11.14
|
|
|
|
332,859
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,889
|
)
|
|
|
7.50
|
|
|
|
(19,889
|
)
|
|
|
|
|
Expired
|
|
|
(3,202
|
)
|
|
|
30.00
|
|
|
|
(208,219
|
)
|
|
|
11.46
|
|
|
|
(211,421
|
)
|
|
|
|
|
Forfeited
|
|
|
(11,946
|
)
|
|
|
9.82
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,946
|
)
|
|
|
|
|
Balance outstanding, December 31, 2017
|
|
|
247,692
|
|
|
$
|
10.95
|
|
|
|
899,542
|
|
|
$
|
12.03
|
|
|
|
1,147,23431
|
|
|
|
1,073,850
|
|
Granted
|
|
|
574,468
|
|
|
|
3.39
|
|
|
|
6,877,948
|
|
|
|
3.50
|
|
|
|
7,452,416
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(334
|
)
|
|
|
30.00
|
|
|
|
(12,669
|
)
|
|
|
12.00
|
|
|
|
(13,003
|
)
|
|
|
|
|
Forfeited
|
|
|
(455,092
|
)
|
|
|
7.49
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(455,092
|
)
|
|
|
|
|
Balance outstanding, December 31, 2018
|
|
|
366,734
|
|
|
$
|
3.39
|
|
|
|
7,764,821
|
|
|
$
|
3.50
|
|
|
|
8,131,555
|
|
|
|
7,792,570
|
|
|
|
|
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
|
|
$
|
2.00 -
$3.40
|
|
|
|
366,734
|
|
|
|
9.8
|
|
|
$
|
3.40
|
|
|
|
69,292
|
|
|
|
9.8
|
|
|
$
|
3.40
|
|
$
|
2.00
- $3.40
|
|
|
|
366,734
|
|
|
|
9.8
|
|
|
$
|
3.40
|
|
|
|
69,292
|
|
|
|
9.8
|
|
|
$
|
3.40
|
|
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
On
various dates in the year ended December 31, 2018 the Company issued a total of 341,324 shares of restricted
common stock at a fair value of $1,005,941 to accredited investors. 64,652 of the shares with a fair value of $220,952 were
issued to existing holders of convertible loans who agreed to extend the terms of the loans for another six months; 88,311 shares
with a fair value of $288,648 were issued in conjunction with the signing of new convertible loans; 68,000 shares
with a fair value of $238,120 were issued for services rendered; 44,000 shares were issued upon the conversion of 44
shares of Series AA Convertible Preferred Stock; and 76,361 shares with a fair value of $258,221 were issued in
lieu of cash for the 8% dividend on Series AA Convertible Preferred Stock.
(11)
Subsequent Events
From
December 31, 2018 through March 1, 2019 the Company has issued fourteen Convertible notes for a total of $1,677,063. The notes
carry interest at rates ranging from 4% to 18% and are for terms of six to twelve months. The Company also extended the maturity
dates of loans due January 19, 2019 to July 19, 2019, loans due February 1, 2019 to May 1, 2019, loans due February 8,
2019 to August 8, 2019, loans due February 26, 2019 to May 26, 2019 and loans due March 15, 2019 to September 15, 2019.
On March 1, 2019 the Company entered into a merchant loan agreement for $600,000.
From
December 31, 2018 through March 28, 2019 the Company issued 560 shares of Series AA Convertible Preferred Stock at $2,500
per share and received $1,260,000 net of $140,000 of broker fees. Each share of Series AA Convertible Preferred Stock carries
1,000 warrants to purchase Common Stock at $3.50 per share and is convertible into 1,000 shares of Common Stock.