Quarterly report pursuant to Section 13 or 15(d)

Subsequent Events

v3.7.0.1
Subsequent Events
6 Months Ended
Jun. 30, 2017
Subsequent Events [Abstract]  
Subsequent Events

Voluntary Deferrals of Management Salaries

 

Effective with the Company’s pay period ending August 10, 2017, and without changing their employment agreements dated July 1, 2017, five members of management volunteered to defer receiving portions of their salaries that in the aggregate represent a deferral of cash payments by the Company of approximately $236,000 for the remainder of 2017. The voluntary deferral of cash payments is intended to help with the Company’s cash flow for the remainder of the year, with voluntary reductions by the management team committed to remain in effect until we complete a successful financing of at least $8.0 million, or a business transaction that represents, or business transactions in the aggregate that represent, an amount of $10.0 million or greater, whichever occurs first. The employment agreements with the Company remain unchanged, except that the executives have volunteered to reduce the terms of their employment agreements to two years from three in connection with the August 11, 2017 registered direct offering and Letter Agreement with the Lead Investor discussed later in this Note 12, Subsequent Events.

 

Series D Conversions

 

Between July 1, 2017, and August 14, 2017, holders of Series D Preferred Stock converted 44,001 shares of Series D Preferred Stock into 594,603 shares of common stock.

 

Series I Conversions

 

Between July 1, 2017, and August 14, 2017, holders of Series I Preferred Stock converted 597,384 shares of Series I Preferred Stock into 597,384 shares of common stock.

 

July 2017 Private Placement

 

On July 27, 2017, we entered into a subscription agreement with an accredited investor pursuant to which we agreed to sell an aggregate of $125,000 in common stock under terms similar to the May 2017 Public Offering, in which investors purchased common stock at $1.75 per share. According to the subscription agreement, investors, if meeting the Minimum Required Investment of 25% of their original investment in a private placement in April 2015, and still hold their shares of common stock or Series E Preferred Stock purchased in April 2015, would be entitled to receive Inducement Shares of common stock, or Series I Preferred Stock, at the election of the investor who would hold in excess of 4.99% of the outstanding shares of common stock, at the rate of 1.13 shares of common stock or Series I Preferred Stock for every share of common stock or Series G Preferred Stock purchased in the May 2017 Public Offering, as well as agree to amend the terms of their outstanding warrants that currently have an exercise price of $11.10 per share, such that the amended warrants shall have an exercise price of $2.00 per share and no cashless exercise feature. The transaction closed on August 2, 2017. As a result of the investor meeting the Minimum Required Investment, the investor received an aggregate of 152,143 shares of common stock for its investment, including 80,714 Inducement Shares, and had warrants to purchase 225,225 shares of common stock repriced from $11.10 to $2.00 per warrant share.

 

The securities referenced above were issued in reliance on the exemption from registration afford by Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.

 

August 2017 Registered Direct Offering

 

On August 11, 2017, we entered into securities purchase agreements to sell 2,386.36 shares of a new 0% Series J Convertible Preferred Stock, or Series J Preferred Stock, to be created with a stated value of $550 per share (the “August 2017 Offering”).  The Series J Preferred Stock is initially convertible into approximately 3,400,000 shares of common stock at $0.55 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events and was purchased by certain existing investors of the Company (the “Prior Investors”). The total amount of the securities purchase agreements amounted to approximately $1,312,500, before estimated expenses of $130,000. The Certificate of Designation for the Series J Preferred Stock shall include a 4.9% beneficial ownership conversion blocker, a 19.99% blocker provision to comply with Nasdaq Rules (the “19.99% Conversion Blocker”) until stockholders have approved any or all shares of common stock issuable upon conversion of the Series J Preferred Stock, and a 125% liquidation preference. All shares of the Company’s capital stock will be junior in rank to the Series J Preferred Stock at the time of creation, with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, except for the Company’s Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, and Series I Preferred Stock.

 

In connection with the August 2017 Offering, we agreed with the Lead Investor pursuant to a Letter Agreement, dated August 9, 2017, to issue incentive shares (the “Incentive Shares”) to Prior Investors as an incentive to invest in the August 2017 Offering. Such Prior Investors shall be entitled to receive their pro rata share of 65,000 shares in the form of a new Series K Preferred Stock, to be created that is substantially similar to common stock. and convertible into 6,500,000 shares of common stock, subject to stockholder approval. The stated value of each share of Series K Preferred Stock will be $0.01 and the conversion rate shall be the stated value of $0.01 divided by .0001, or one hundred (100) shares of common stock upon conversion of one (1) share of Series K Preferred Stock, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar event, and have a 4.9% beneficial ownership conversion blocker. In the event of a liquidation, dissolution or winding up of the Company, each share of Series K Preferred Stock will be entitled to a per share preferential payment equal to the par value, or $0.01 per share. All shares of the Company’s capital stock will be junior in rank to the Series K Preferred Stock at the time of creation, with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, except for the Company’s Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock.

 

In order to meet Nasdaq Capital Market rules in the August 2017 Offering, we are not obligated to issue any shares of common stock upon conversion of the Series J Preferred Stock which would cause the Company to breach our obligations under the rules and regulations of the Nasdaq Capital Market, which limit the aggregate number of shares issued at a discount to market at 19.99% of the number of shares outstanding on the closing date of the August 2017 Offering, except that such limitation shall not apply in the event that we obtain the approval of our stockholders as required by the applicable rules of the Nasdaq Capital Market for issuances of common stock in excess of such amount. Similarly, none of the Series K Preferred Stock may be converted into common stock until we obtain the approval of our stockholders.