Capital Stock

9 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Capital Stock

Common Stock and Warrants Issued in Summer 2018 Private Placement

Between June 2018 and October 2018, we completed a self-placed private placement with accredited investors, pursuant to which we sold units, at a purchase price of $1.25 per unit, consisting of 4,605,000 unregistered shares of our common stock and warrants, exercisable through February 28, 2022, to purchase 4,605,000 unregistered shares of our common stock at an exercise price of $1.50 per share (the Summer 2018 Private Placement). The purchasers of the units have no registration rights with respect to the shares of common stock, warrants or the shares of common stock issuable upon exercise of the warrants comprising the units sold. The warrants are not exercisable until at least six months and one day following the date of issuance. We received aggregate cash proceeds of $5,756,200 in connection with the Summer 2018 Private Placement and the entire amount of the proceeds was credited to stockholders’ equity.

Common Stock and Warrants Issued in Fall 2018 Private Placement

The Summer 2018 Private Placement was oversubscribed. To accommodate additional investor interest, during October 2018, we accepted subscription agreements from accredited investors, pursuant to which we sold to such investors units, at a unit purchase price equal to $0.15 above the closing quoted market price of our common stock on the Nasdaq Capital Market on the effective date of the investor’s subscription agreement, consisting of an aggregate of 420,939 unregistered shares of our common stock and four-year, immediately exercisable warrants to purchase 420,939 unregistered shares of our Common Stock at a per share exercise price equal to the closing quoted market price of our common stock on the Nasdaq Capital Market on the effective date of the investor’s subscription agreement (the Fall 2018 Private Placement). The purchasers of the units have no registration rights with respect to the shares of common stock, warrants or the shares of common stock issuable upon exercise of the warrants comprising the units sold. We received aggregate cash proceeds of $812,500 in connection with the Fall 2018 Private Placement and settled an outstanding professional service payable by accepting a subscription agreement in the amount of $40,000 and issuing the corresponding number of shares of common stock and warrants. The entire amount of the proceeds of the Fall 2018 Private Placement was credited to stockholders’ equity. The fair value of the common stock and warrant issued in the Fall 2018 Private Placement in settlement of the professional services payable was determined to be $62,700 on the effective date of the agreement. Accordingly, we recognized a loss on extinguishment of accounts payable in the amount of $22,700 in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss for the quarter and nine months ended December 31, 2018.

Modification of Warrants issued in Summer 2018 Private Placement

Subsequent to the completion of the Summer 2018 Private Placement, we amended warrants to purchase an aggregate of 304,000 shares of our common stock issued to investors who submitted Summer 2018 Private Placement subscription agreements between October 3, 2018 and October 5, 2018 to increase the exercise price of their warrants from $1.50 per share to $1.59 per share or $1.69 per share, depending on the effective date of the related subscription agreement, to comply with certain provisions of The Nasdaq Stock Market Rules applicable to the private placement. As additional consideration for agreeing to the increase in the warrant exercise price, we granted the investors additional warrants to purchase an aggregate of 23,800 unregistered shares of our common stock at an exercise price of $1.75 per share through February 28, 2022. We calculated the fair value of the modified warrants immediately before and after the modification using the Black Scholes Option Pricing Model and determined that the increase in the exercise price resulted in a decrease in the fair value of the warrants, which decrease is not recognized. We calculated the fair value of the new warrants using the Black Scholes Option Pricing Model and the weighted average assumptions indicated in the table below, recognizing $25,800 as the fair value of the new warrants and as warrant modification expense, included as a component of general and administrative expenses, in our Condensed Consolidated Statement of Operations and Comprehensive Loss for the quarter and nine months ended December 31, 2018.

Assumption:	New Warrants
Market price per share	$	1.80
Exercise price per share	$	1.75
Risk-free interest rate		2.83	%
Remaining contractual term in years		3.25
Volatility		88.80	%
Dividend rate		0.0	%
Number of warrant shares		23,800
Weighted average fair value per share	$	1.08

Issuance of Common Stock for Product Licenses and Option

As indicated in Note 1, Description of Business, and Note 3, Summary of Significant Accounting Policies, in September 2018 we issued an aggregate of 1,630,435 shares of our unregistered common stock having a fair market value of $2,250,000, based on the $1.38 per share quoted closing market price of our common stock on the Nasdaq Capital Market, to Pherin to acquire an exclusive worldwide license to develop and commercialize PH94B and an option to acquire a similar license for PH10. In October 2018, we exercised our option to acquire an exclusive worldwide license to develop and commercialize PH10 by issuing 925,926 shares of our unregistered Common Stock having a fair market value of $2,000,000, based on the $2.16 per share closing quoted market price of our Common Stock on the Nasdaq Capital Market, to Pherin under the terms of the PH10 license agreement. Under the terms of the PH94B and PH10 license agreements, we are obligated to make additional cash payments and pay royalties to Pherin in the event that certain regulatory and performance-based milestones and commercial sales are achieved. Additionally, in connection with the license agreements, we are obligated to pay to Pherin monthly support payments of $10,000 for a term of the earlier of 18 months or the termination of the license agreement, however no monthly support payment is required under the 18-month period identified in the PH10 license agreement if support payments are being made under the terms of the PH94B license agreement.

Issuance of Common Stock and Warrants to Professional Services Providers

During the quarter ended June 30, 2018, we issued an aggregate of 100,000 shares of our unregistered common stock having a fair value on the date of issuance of $123,000 as full or partial compensation to an investor relations service provider and under a financial advisory agreement. During the quarter ended September 30, 2018, we issued 50,000 shares of our unregistered common stock having a fair value on the date of issuance of $68,000 as partial compensation to a corporate awareness service provider. We also issued four-year warrants to three service providers to purchase an aggregate of 288,000 unregistered shares of our common stock at an exercise price of $1.50 per share as full or partial compensation for investor relations and corporate awareness services. We valued the warrants at an aggregate fair value of $266,900 using the Black-Scholes Option Pricing Model and the following grant date weighted average assumptions: exercise price per share: $1.50; market price per share: $1.40; risk-free interest rate: 2.71%; contractual term: 4 years; volatility: 94.17%; dividend rate: 0%; deriving a value per warrant share of $0.93. The fair value of the common stock and warrants is being recognized in expense ratably over the term of the underlying contracts.

Warrants Outstanding

Through December 31, 2018, the holders of warrants exercisable at $1.50 per share issued in our December 2017 public offering fully or partially exercised such warrants to purchase an aggregate of 403,800 registered shares of our common stock and we received cash proceeds of $605,700. Following the warrant issuances and exercises described above, at December 31, 2018, we had warrants outstanding to purchase shares of our common stock at a weighted average exercise price of $2.54 per share as follows:

	Weighted		Warrants
	Average		Outstanding at
Exercise Price	Exercise Price	Expiration	December 31,
per Share	per Share	Date	2018
$1.50	$1.50	11/30/2021 to 12/13/2022	14,335,200
$1.59 to $1.80	$1.67	2/28/2022 to 10/10/2022	625,619
$1.82	$1.82	3/7/2023	1,388,931
$2.00 to $4.50	$2.23	9/216/2019 to 10/16/2022	721,693
$5.30	$5.30	5/16/2021	2,705,883
$6.00	$6.00	9/26/2019 to 11/30/2019	97,750
$7.00	$7.00	3/19/2019 to 3/3/2023	1,309,431
$8.00 to $20.00	$12.33	9/15/2019 to 3/25/2021	315,448
	$2.54		21,499,955

Of the warrants outstanding at December 31, 2018, 2,705,883 shares of common stock underlying the warrants exercisable at $5.30 per share issued in our May 2016 public offering, 1,388,931 shares of common stock underlying the warrants exercisable at $1.82 per share issued in our September 2017 public offering and 9,596,200 shares of common stock underlying the warrants exercisable at $1.50 per share issued in our December 2017 public offering are registered for resale by the warrant holders. The common shares issuable upon exercise of our remaining outstanding warrants are unregistered. At December 31, 2018, none of our outstanding warrants are subject to down round anti-dilution protection features and all of the outstanding warrants are exercisable by the holders only by payment in cash of the stated exercise price per share.