STOCKHOLDERS' EQUITY |
7. STOCKHOLDERS’ EQUITY Common Stock. Pursuant to our Third Amended and Restated Certificate of Incorporation, as amended, we currently have 150,000,000 shares of common stock authorized for issuance. On December 20, 2018, the Company’s shareholders approved the proposal to authorize the Company’s Board of Directors to, in its discretion, amend the Company’s Third Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of common stock from 150,000,000 shares to 250,000,000 shares. The Company has not yet implemented this increase. During the three and six months ended June 30, 2023 and 2022, the Company issued zero and 266 shares of its common stock, respectively, in connection with the exercise of zero and 266 warrants, respectively. The warrant exercises during the three and six months ended June 30, 2022 resulted in net cash proceeds to the Company of zero and less than $1 thousand, respectively. At The Market Offering Agreement AGP Sales Agreement On April 2, 2021, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which the Company was permitted to offer and sell its common stock, par value $0.01 per share (the “Common Stock”) (the “Shares”), having aggregate sales proceeds of up to $22.0 million. Shares can be sold either directly to or through AGP as a sales agent (the “AGP Sales Agreement”), from time to time, in an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the Shares (the “2021 ATM Offering”). The Company is limited in the number of shares it can sell in the 2021 ATM Offering due to the offering limitations currently applicable to the Company under General Instruction I.B.6. of Form S-3 and the Company’s public float as of the applicable date of such sales, as well as the number of authorized and unissued shares available for issuance, in accordance with the terms of the AGP Sales Agreement. The sale of our shares of Common Stock to or through AGP, will be made pursuant to the registration statement (the “Registration Statement”) on Form S-3 (File No. 333-237445), which was declared effective by the Securities and Exchange Commission (the “SEC”) on April 13, 2020, for an aggregate offering price of up to $50.0 million. Under the AGP Sales Agreement, Shares were permitted to be sold by any method permitted by law deemed to be an “at the market offering.” AGP will also be able to sell shares of Common Stock by any other method permitted by law, including in negotiated transactions with the Company’s prior written consent. Upon delivery of a placement notice and subject to the terms and conditions of the AGP Sales Agreement, AGP was required to use its commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations, and the rules of The Nasdaq Capital Market to sell the Shares from time to time based upon the Company’s instructions, including any price, time or size limits specified by the Company. AGP is not under any obligation to purchase any of the Shares on a principal basis pursuant to the AGP Sales Agreement, except as otherwise agreed by AGP and the Company in writing and expressly set forth in a placement notice. AGP’s obligations to sell the Shares under the AGP Sales Agreement are subject to satisfaction of certain conditions, including customary closing conditions. The Company is not obligated to make any sales of Shares under the AGP Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs. The Company agreed to pay AGP a cash fee of 3.0% of the aggregate gross proceeds from the sale of the Shares on the Company’s behalf pursuant to the AGP Sales Agreement. The AGP Sales Agreement contains representations, warranties and covenants that are customary for transactions of this type. In addition, the Company has provided AGP with customary indemnification and contribution rights. The Company also agreed to reimburse AGP for certain specified expenses, including the expenses of counsel to AGP. The offering of the Shares pursuant to the AGP Sales Agreement terminated upon the expiration of the Company’s Registration Statement on Form S-3 (File No. 333-237445). During the three and six months ended June 30, 2023, we received net proceeds of $0.1 million and $0.5 million from the sale of 72,712 and 616,538 shares of common stock through the AGP Sales Agreement. There were no sales of common stock through AGP during the three and six months ended June 30, 2022. As of the date of issuance of this Quarterly Report on Form 10-Q, we have received an aggregate of $15.6 million in net proceeds, after issuance costs of approximately $0.5 million, from the sale of 5,202,561 shares of common stock pursuant to the AGP Sales Agreement. AGP 2023 Sales Agreement On April 14, 2023, the Company entered into a Sales Agreement with AGP, pursuant to which the Company may offer and sell from time to time shares (the “Shares”) of its common stock, par value $0.01 per share (the “Common Stock”) to or through AGP, as sales agent (the “AGP 2023 Sales Agreement”), in an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended) of the Shares. AGP will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of Shares pursuant to the AGP 2023 Sales Agreement. The sale of our shares of Common Stock to or through AGP, pursuant to the AGP 2023 Sales Agreement, will be made pursuant to the registration statement (the “2023 Registration Statement”) on Form S-3 (File No. 333-271277), filed by the Company with the SEC on April 14, 2023, as amended by Amendment No. 1 filed by the Company with the SEC on April 25, 2023, and declared effective on April 27, 2023, for an aggregate offering price of up to $5.8 million. During the three and six months ended June 30, 2023, we received net proceeds of less than $1 thousand, respectively, from the sales of 500 shares of common stock pursuant to the AGP 2023 Sales Agreement. As a result of sales already made through the AGP 2023 Sales Agreement and the Registered Direct Offering, mentioned below, the Company has approximately $3.8 million available for future sales pursuant to the AGP 2023 Sales Agreement. Registered Direct Offering On June 8, 2023, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of: (i) 4,125,000 shares (the “Shares”) of its common stock, $0.01 par value (the “Common Stock”), at a price of $0.45 per share, and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 319,445 shares of Common Stock, at a price of $0.449 per Pre-Funded Warrant. The Company reviewed the provisions of the Pre-Funded Warrants to determine the balance sheet classification and concluded that these warrants are to be classified as equity and are not subject to remeasurement on each balance sheet date. The Pre-Funded Warrants are immediately exercisable, have an exercise price of $0.001 per share, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. As of June 30, 2023, no Pre-Funded Warrants have been exercised. In a concurrent private placement (the “Private Placement” and together with the Registered Direct Offering, the “Offering”), pursuant to the Purchase Agreement, the Company agreed to issue and sell to the Purchasers, for no additional consideration, warrants (the “RDO Common Warrants” and, together with the Shares and the Pre-Funded Warrants, the “Securities”) to purchase up to 8,888,890 shares of Common Stock. The Company reviewed the provisions of the RDO Common Warrants to determine the balance sheet classification and concluded that these warrants are to be classified as equity and are not subject to remeasurement on each balance sheet date. The RDO Common Warrants are exercisable beginning six months after the date of issuance, have an exercise price of $0.63 per share, and will expire December 12, 2028. The fair value of the RDO Common Warrants of approximately $3.5 million at the date of issuance was estimated using the Black-Scholes model which used the following inputs: term of 5 years; risk free rate of 3.89%; volatility of 143%; and share price of $0.45 per share based on the trading price of the Company’s common stock. The Company allocated $1.3 million of the issuance proceeds to the RDO Common Warrants based on the relative fair value of the RDO Common Warrants, Common Stock and Pre-Funded Warrants issued in the Offering. A holder of Pre-Funded Warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the purchaser, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to such exercise. A holder of Pre-Funded Warrants may increase or decrease this percentage not in excess of 19.99% by providing at least 61 days’ prior notice to the Company. The Registered Direct Offering resulted in gross proceeds to the Company of approximately $2.0 million. The net proceeds to the Company from the Registered Direct Offering are approximately $1.8 million, excluding any proceeds that may be received upon the cash exercise of the RDO Common Warrants, after deducting the financial advisor’s fees and estimated offering expenses payable by the Company. The Company intends to use the net proceeds from the Registered Direct Offering for working capital and general corporate purposes, which may include capital expenditures, research and development expenditures, regulatory affairs expenditures, clinical trial expenditures, acquisitions of new technologies and investments and others. The Purchase Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties, and termination provisions. Additionally, each of the directors and executive officers of the Company, pursuant to lock-up agreements (the “Lock-Up Agreements”), agreed not to sell or transfer any of the Company securities which they hold, subject to certain exceptions, during the 90-day period following the closing of the Registered Direct Offering. The Purchase Agreement also requires the Company to use commercially reasonable efforts to file a registration statement with the SEC to register the resale by the Purchasers of the shares of Common Stock issuable upon exercise of the RDO Common Warrants within thirty (30) days of the date of the Purchase Agreement. The Company filed this registration statement on Form S-1 (File No. 333-273172), which was declared effective by the SEC on July 19, 2023. On June 7, 2023, the Company also entered into a financial advisory agreement (the “Financial Advisor Agreement”) with A.G.P./Alliance Global Partners (the “Financial Advisor”). Pursuant to the terms of the Financial Advisor Agreement, the Financial Advisor agreed to use its reasonable best efforts to arrange for the sale of the Securities. The Company paid the Financial Advisor a cash fee of $140,000 generated from the sale of the Shares and Pre-Funded Warrants. The Financial Advisor Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Financial Advisor, including for liabilities under the Securities Act of 1933, as amended (the “Securities Act”), other obligations of the parties, and termination provisions. Pursuant to the Purchase Agreement, the Company has agreed that, subject to certain exceptions, (i) it will not issue any shares of common stock or securities exercisable or convertible into shares of common stock or to file any registration statement or amendment or supplement thereto for a period of ninety (90) days following the closing of the Offering and that (ii) it will not enter into a variable rate transaction for a period of one hundred eighty (180) days following the closing of the Offering. The Registered Direct Offering was made pursuant to the 2023 Registration Statement, as supplemented by a prospectus supplement dated June 9, 2023. There is $3.8 million of remaining availability under the 2023 Registration Statement. Preferred Stock. The Company’s Board of Directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series, from time to time, with such designations, powers, preferences and rights and such qualifications, limitations and restrictions as may be provided in a resolution or resolutions adopted by the Board of Directors. Series B Preferred Stock. The Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with the State of Delaware, which designates 6,900 shares of our preferred stock as Series B Preferred Stock. The Series B Preferred Stock has a stated value of $1 thousand per share and a par value of $0.01 per share. The Series B Preferred Stock includes a beneficial ownership blocker but has no dividend rights (except to the extent dividends are also paid on the common stock). On August 28, 2017, the Company completed an underwritten public offering consisting of the Company’s Series B Preferred Stock and warrants. The conversion price of the Series B Preferred Stock contains a down round feature. The Company will recognize the effect of the down round feature when it is triggered. At that time, the effect would be treated as a deemed dividend and as a reduction of income available to common shareholders in our basic earnings per share calculation. There were no conversions of Series B Preferred Stock during the three and six months ended June 30, 2023 and 2022, respectively. At June 30, 2023 and December 31, 2022, the Company had 6,900 shares of Series B Preferred Stock designated and issued and 47 shares of Series B Preferred Stock outstanding. Based on the stated value of $1 thousand per share and a conversion price of $0.40 per share, the outstanding shares of Series B Preferred Stock at June 30, 2023 were convertible into 117,500 shares of common stock. Common Stock Warrants. The following represents a summary of the warrants outstanding as of June 30, 2023: | | | | | | | | | | | | | | | | Underlying | | Exercise | | | Issue Year | | Expiration | | Shares | | Price | Warrants | | | | | | | | | | (1) | | 2018 | | July 2023 | | 29,343 | | $ | 5.40 | (2) | | 2018 | | August 2023 | | 41,806 | | $ | 5.40 | (3) | | 2018 | | September 2023 | | 40,719 | | $ | 5.40 | (4) | | 2018 | | November 2023 | | 75,788 | | $ | 5.40 | (5) | | 2018 | | December 2023 | | 51,282 | | $ | 5.40 | (6) | | 2019 | | April 2024 | | 147,472 | | $ | 5.40 | (7) | | 2019 | | May 2024 | | 154,343 | | $ | 9.56 | (8) | | 2023 | | None | | 319,445 | | $ | 0.001 | (9) | | 2023 | | December 2028 | | 8,888,890 | | $ | 0.63 | | | | | | | 9,749,088 | | | |
(1) - (6)These warrants were issued in connection with a 2018 securities purchase agreement, as amended. (7) These warrants were issued in connection with convertible notes issued in May 2019. (8) – (9) These warrants were issued in connection with the 2023 registered direct offering and concurrent private placement and are the pre-funded warrants and RDO common warrants discussed below. There were 266 warrants exercised during the six months ended June 30, 2022 for proceeds to the Company of less than $1 thousand. During the six months ended June 30, 2022, the intrinsic value of the warrants exercised was less than $1 thousand. During the three and six months ended June 30, 2023, 148,378 warrants expired, respectively. The warrants had been issued in connection with transactions that were completed in 2018. Pre-Funded Warrants. In connection with the Purchase Agreement in June 2023, the Company issued 319,445 Pre-Funded Warrants to purchase up to 319,445 shares of Common Stock, at a price of $0.449 per Pre-Funded Warrant. The Pre-Funded Warrants are immediately exercisable, have an exercise price of $0.001 per share, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. Shares of the Company’s common stock underlying Pre-Funded warrants are included in the calculation of basic loss per share due to the negligible exercise price of the Pre-Funded warrants. RDO Common Warrants. In connection with the Purchase Agreement in June 2023, the Company issued 8,888,890 RDO Common Warrants to purchase up to 8,888,890 shares of Common Stock. The RDO Common Warrants are exercisable beginning six months after the date of issuance, have an exercise price of $0.63 per share, and will expire December 12, 2028. Deemed Dividends Certain of our preferred stock and warrant issuances contain down round provisions which require us to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic earnings per share. There were no deemed dividends recorded during the three and six months ended June 30, 2023 and 2022.
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