Quarterly report pursuant to Section 13 or 15(d)

Stockholders Equity (Deficit)

v3.21.2
Stockholders Equity (Deficit)
9 Months Ended
Sep. 30, 2021
Stockholders' Equity (Deficit):  
Note 8. Stockholders' Equity (Deficit)

Note 8 – Stockholders’ Equity (Deficit)

 

Common Stock Issuable

 

As a result of the mandatory conversion of the notes payable and accrued interest in the aggregate of $38,799,000 on February 16, 2021, the Company is obligated to issue a total of 11,413,322 shares of common stock to the respective noteholders.

 

As of September 30, 2021, the Company was only able to issue 10,408,827 shares of common stock or approximately 91% or $35,383,000 of the converted notes payable and accrued interest to the respective noteholders. With regards to the remaining 1,004,495 unissued shares of common stock or $3,416,000 of the converted notes payable and accrued interest, the Company is in the process of obtaining the necessary supporting documentation from the respective noteholders which will then be provided to the Company’s stock transfer agent as a requirement for the issuance of the common stock certificate.

For financial reporting purposes, the Company reported $3,416,000 as common stock issuable in the accompanying statements of stockholders' equity to account for the estimated balance of the converted notes payable and accrued interest that the Company has not yet issued the corresponding common stock.

 

Subsequent to September 30, 2021, the Company issued a total of 74,094 shares of common stock to these noteholders upon submission of the required documentation to the Company’s stock transfer agent.

 

The following were transactions during the nine months ended September 30, 2021:

 

Issuance of Common Stock in public offering

 

On February 16, 2021, the Company completed a public offering of 4,945,000 shares of common stock for net proceeds of $24,679,000, after deducting underwriting discounts, commissions and other direct offering expenses. As part of the offering, the Company also granted these investors, warrants to purchase 5,192,250 shares of common stock. The warrants are fully vested, exercisable at $5.50 per share and will expire in five years.

 

As a result of the completion of the public offering and the successful listing of its shares of common stock on the Nasdaq Capital Markets, convertible notes with an aggregate principal amount of $33,272,000 and accrued interest of $5,527,000 mandatorily converted at its stated conversion rate of $3.40 per share into 11,413,322 shares of the Company’s common stock (see Note 4).

 

Issuance of Common Stock for services - consultants

 

As part of consulting agreements with certain consultants, the Company agreed to grant these consultants common stock equal to 1% and 3% of the fully diluted shares of common stock of the Company upon conversion of options, warrants and Convertible Notes in association with a national markets qualified financing as consideration for entering into the Agreement (with such stock to vest and be delivered within 30 days after the national markets qualified financing).

   

On February 16, 2021, the Company completed its equity offering and listed its shares of common stock on the Nasdaq Capital Markets (see Note 7). As a result of this offering, the Company agreed to issue to these consultants 2,502,518 shares of common stock with a fair value of $9,679,000, of which 1,829,620 shares of common stock are fully vested while the remaining 672,898, shares of common stock will vest over two years. Pursuant to current accounting guidelines, as the grant of the common stock is subject to milestone or performance conditions, the Company measured the fair value of the common stock on the respective date of the agreement, and then such award is being recorded as compensation expense based upon the vesting term of the grant.

 

During the period ended September 30, 2021, pursuant to the vesting terms of the agreements, the Company issued 1,992,746 shares of common stock that vested to these consultants and recorded the corresponding stock compensation expense of $7,890,000. In addition, the Company also issued 150,000 shares of common stock with a fair value of $1,213,000 to other consultants for service rendered. As a result, the Company recognized an aggregate of $9,103,000 in stock compensation expense based upon the vesting of common stock granted to consultants.

 

As of September 30, 2021, there are 509,772 unvested shares of common stock with a fair value of $1,789,000 which will be recognized as stock compensation in future periods.

 

Issuance of Common Stock for research and development agreement

 

During the nine months ended September 30, 2021, the Company issued 189,753 shares of common stock for a research and development agreement valued at $1,355,000. The common shares were valued on the market price at the date of grant.

 

Issuance of Common Stock upon exercise of warrants

 

During the nine months ended September 30, 2021, the Company issued 3,073,818 shares of common stock upon the exercise of warrants resulting in cash proceeds of $16,433,000.

Preferred Stock

 

A. Series J Preferred Stock

 

On September 1, 2017, the Board designated 2,000,000 shares of Series J preferred stock (the “Series J Preferred Stock”). On the same day, the Board issued 1,513,548 shares of Series J Preferred Stock in exchange for the cancellation of certain indebtedness.

 

In the first quarter of 2019, it was discovered that a certificate of designation with respect to the Series J Preferred Stock had never been filed with the Office of the Secretary of State for the State of Delaware. Despite the fact the Company had issued shares of Series J Preferred Stock, the issuance of those shares was not valid and was of no legal effect.

 

To remedy the situation, on April 4, 2019, the Company filed a certificate of designation with the Office of the Secretary State for the State of Delaware designating a series of preferred stock as the Series J-1 preferred stock, par value $0.01 per share (the “Series J-1 Preferred Stock”). On April 19, 2019, the Company issued 840,000 shares of Series J-1 Preferred Stock. The issuance was in lieu of the Series J Preferred Stock that should have been issued on September 1, 2017, and in settlement for not receiving preferred stock until 20 months after the debt for which the stock was issued was cancelled.

 

Shares of the Series J-1 Preferred Stock are convertible at any time, at the option of the holders, into shares of the Company’s common stock at an effective conversion price of $3.40 per share, subject to adjustment for, among other things, stock dividends, stock splits, combinations, reclassifications of our capital stock and mergers or consolidations, and subject to a beneficial ownership limitation which prohibits conversion if such conversion would result in the holder (together with its affiliates) being the beneficial owner of in excess of 9.99% of the Company’s common stock or 692,220 shares of common stock. Shares of the Series J-1 Preferred Stock have the same voting rights a shares of the Company’s common stock, with the holders of the Series J-1 Preferred Stock entitled to vote on an as-converted-to-common stock basis, subject to the beneficial ownership limitation described above, together with the holders of the Company’s common stock on all matters presented to the Company’s stockholders. The Series J-1 Preferred Stock are not entitled to any dividends (unless specifically declared by the Board), but will participate on an as-converted-to-common-stock basis in any dividends to the holders of the Company’s common stock. In the event of the Company’s dissolution, liquidation or winding up, the holders of the Series J-1 Preferred Stock will be on parity with the holders of the Company’s common stock and will participate, on a on an as-converted-to-common stock basis, in any distribution to holders of the Company’s common stock.

 

On February 16, 2021, as a result of the completion of the public offering and the successful listing of its shares of common stock on the Nasdaq Capital Markets, 2,353,548 shares of Series J-1 Preferred stock mandatorily converted at a conversion rate of $3.40 per share into 692,220 shares of the Company’s common stock.

 

B. Series C Preferred Stock

 

During Fiscal 2017, the Company issued 96,230 shares of Series C Preferred Stock. The 96,230 shares of Series C preferred stock, par value $0.01 per share (the “Series C Preferred Stock”), are convertible into 7 shares of the Company’s common stock at the option of the holders at any time. The conversion ratio is based on the average closing bid price of the common stock for the fifteen consecutive trading days ending on the date immediately preceding the date notice of conversion is given, but cannot be less than $3.40 or more than $4.9113 for each share of Series C Preferred Stock. The conversion ratio may be adjusted under certain circumstances such as stock splits or stock dividends. The Company has the right to automatically convert the Series C Preferred Stock into common stock if the Company lists its shares of common stock on the Nasdaq National Market and the average closing bid price of the Company’s common stock on the Nasdaq National Market for 15 consecutive trading days exceeds $3,000.00. Each share of Series C Preferred Stock is entitled to the number of votes equal to 0.26 divided by the average closing bid price of the Company’s common stock during the fifteen consecutive trading days immediately prior to the date such shares of Series C Preferred Stock were purchased. In the event of liquidation, the holders of the Series C Preferred Stock shall participate on an equal basis with the holders of the common stock (as if the Series C Preferred Stock had converted into common stock) in any distribution of any of the assets or surplus funds of the Company. The holders of Series C Preferred Stock are entitled to noncumulative dividends if and when declared by the Company’s board of directors (the “Board”). No dividends to holders of the Series C Preferred Stock were issued or unpaid through September 30, 2021.

 

C. Series K Preferred Stock

 

On February 16, 2021, the Board designated 115,000 shares of Series K preferred stock, par value $.01. (the “Series K Preferred Stock”).

 

Shares of the Series K Preferred Stock are convertible at any time, at the option of the holders, into shares of the Company’s common stock at an effective conversion rate of 100 shares of common stock for each share of Series K Preferred. Shares of the Series K Preferred Stock have the same voting rights a shares of the Company’s common stock, with the holders of the Series K Preferred Stock entitled to vote on an as-converted-to-common stock basis, subject to the beneficial ownership limitation, together with the holders of the Company’s common stock on all matters presented to the Company’s stockholders. The Series K Preferred Stock are not entitled to any dividends (unless specifically declared by the Board), but will participate on an as-converted-to-common-stock basis in any dividends to the holders of the Company’s common stock. In the event of the Company’s dissolution, liquidation or winding up, the holders of the Series K Preferred Stock will be on parity with the holders of the Company’s common stock and will participate, on a on an as-converted-to-common stock basis, in any distribution to holders of the Company’s common stock.

As of September 30, 2021, there were no Series K Preferred stock issued and outstanding.

 

Stock Warrants

 

Stock warrant transactions for the nine months ended September 30, 2021:

 

 

 

Number of Warrants

 

 

Weighted

Average Exercise Price

 

Outstanding at December 31, 2020:

 

 

221,041

 

 

$ 3.40

 

Granted

 

 

5,192,250

 

 

 

5.50

 

Forfeited/canceled

 

 

-

 

 

 

-

 

Exercised

 

 

(3,076,017 )

 

 

5.50

 

Outstanding at September 30, 2021

 

 

2,337,274

 

 

$ 5.38

 

Exercisable at September 30, 2021

 

 

2,337,274

 

 

$ 5.38

 

 

As of September 30, 2021, all issued and outstanding warrants are fully vested and the intrinsic value of these warrants amounted to $3,180,000.

 

The following were transactions during the nine months ended September 30, 2021:

 

On February 16, 2021, as part of the Company’s public offering, the Company issued warrants to investors to purchase up to an aggregate of 5,192,250 shares of common stock. The warrants have an exercise price of $5.50 per share, subject to adjustment in certain circumstances and will expire in five years.

 

During the nine months ended September 30, 2021, the Company issued 3,076,017 shares of common stock upon exercise of warrants which also resulted cash proceeds of $16,433,000.