Note 9 - Stockholders' Equity

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE

9

: STOCKHOLDERS’ EQUITY

The Company is authorized to issue a total of

185,000,000

shares of stock consisting of

175,000,000

shares of common stock, par value

$0.18

per share, and

10,000,000

shares of preferred stock, par value

$0.001

per share. The Company has designated

750,000

shares of Series A junior participating preferred stock, par value

$0.001

per share,

4,000

shares of Series A convertible preferred stock, par value

$0.001

per share, and

25,000

shares of Series B convertible preferred stock, par value

$0.001

per share, through the filings of certificates of designation with the Delaware Secretary of State.

No

shares of Series A junior participating preferred stock and

no

shares of Series A convertible preferred stock are issued and outstanding as of

December 

31,

2019

and

December 31, 2018.

On

May 19, 2014,

the Company adopted a stockholder rights agreement which provides that all stockholders of record on

May 26, 2014,

received a non-taxable distribution of

one

preferred stock purchase right for each share of the Company’s common stock held by such stockholder. Each right is attached to and trades with the associated share of common stock. The rights will become exercisable only if

one

of the following occurs: (

1

) a person becomes an “Acquiring Person” by acquiring beneficial ownership of

15%

or more of the Company’s common stock (or, in the case of a person who beneficially owned

15%

or more of the Company’s common stock on the date the stockholder rights agreement was executed, by acquiring beneficial ownership of additional shares representing

2.0%

of the Company’s common stock then outstanding (excluding compensatory arrangements)), or (

2

) a person commences a tender offer that, if consummated, would result in such person becoming an Acquiring Person. If a person becomes an Acquiring Person, each right will entitle the holder, other than the Acquiring Person and certain related parties, to purchase a number of shares of the Company’s common stock with a market value that equals twice the exercise price of the right. The initial exercise price of each right is

$15.00,

so each holder (other than the Acquiring Person and certain related parties) exercising a right would be entitled to receive

$30.00

worth of the Company’s common stock. If the Company is acquired in a merger or similar business combination transaction at any time after a person has become an Acquiring Person, each holder of a right (other than the Acquiring Person and certain related parties) will be entitled to purchase a similar amount of stock of the acquiring entity. 

2018

Subscription Rights Offering of Units Consisting of Series B Convertible Preferred Stock and Warrants

On

May 9, 2018,

the Company’s Registration Statement on Form S-

1

with the Securities and Exchange Commission was declared effective to offer subscription rights to purchase up to

25,000

units at

$1,000

per unit with each unit consisting of

one

share of Series B convertible preferred stock and warrants to purchase

284

shares of common stock.

On

May 29, 2018,

the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B convertible preferred stock with the Delaware Secretary of State creating a new series of its authorized preferred stock, par value

$0.001

per share, designated as the Series B convertible preferred stock. The number of shares initially constituting the Series B preferred stock was set at

25,000

shares.

On

May 30, 2018,

the Company completed its previously announced rights offering pursuant to which the Company sold an aggregate of

13,624

units consisting of an aggregate of

13,624

shares of Series B convertible preferred stock and

3,869,216

warrants, with each warrant exercisable for

one

share of common stock at an exercise price of

$4.048

 per share (the

“2018

Warrants”), resulting in net proceeds to the Company of approximately

$12.3

million, after deducting expenses relating to the rights offering, including dealer-manager fees and expenses, and excluding any proceeds received upon exercise of any warrants.

Series B Convertible Preferred Stock

.

The terms and provisions of our Series B convertible preferred stock are:

Conversion.

Each share of Series B convertible preferred stock is convertible at our option at any time on or after the

first

anniversary of the closing of the rights offering or at the option of the holder at any time, into the number of shares of our common stock determined by dividing the

$1,000

stated value per share of the Series B convertible preferred stock by a conversion price of

$3.52

per share. In addition, the conversion price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations or reclassifications. Subject to limited exceptions, a holder of the Series B convertible preferred stock will

not

have the right to convert any portion of the Series B convertible preferred stock to the extent that, after giving effect to the conversion, the holder, together with its affiliates, would beneficially own in excess of

9.99%

of the number of shares of our common stock outstanding immediately after giving effect to its conversion.

Fundamental Transactions.

In the event we effect certain mergers, consolidations, sales of substantially all of our assets, tender or exchange offers, reclassifications or share exchanges in which our common stock is effectively converted into or exchanged for other securities, cash or property, we consummate a business combination in which another person acquires

50%

of the outstanding shares of our common stock, or any person or group becomes the beneficial owner of

50%

of the aggregate ordinary voting power represented by our issued and outstanding common stock, then, upon any subsequent conversion of the Series B convertible preferred stock, the holders of the Series B convertible preferred stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series B convertible preferred stock.

Dividends.

Holders of Series B convertible preferred stock shall be entitled to receive dividends (on an as-if-converted-to-common-stock basis) in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of common stock.

Voting Rights.

Except as otherwise provided in the certificate of designation or as otherwise required by law, the Series B convertible preferred stock has

no

voting rights.

Liquidation Preference

.

Upon our liquidation, dissolution or winding-up, whether voluntary or involuntary, holders of Series B convertible preferred stock will be entitled to receive out of our assets, whether capital or surplus, the same amount that a holder of common stock would receive if the Series B convertible preferred stock were fully converted (disregarding for such purpose any conversion limitations under the certificate of designation) to common stock, which amounts shall be paid pari passu with all holders of common stock.

Redemption Rights.

We are

not

obligated to redeem or repurchase any shares of Series B convertible preferred stock. Shares of Series B convertible preferred stock are

not

otherwise entitled to any redemption rights, or mandatory sinking fund or analogous provisions.

2018

Warrants

The terms and conditions of the warrants included in the

2018

rights offering are as follows:

Exercisability

. Each warrant is exercisable at any time and will expire

four

years from the date of issuance. The warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and payment in full for the number of shares of our common stock purchased upon such exercise, except in the case of a cashless exercise as discussed below.

The number of shares of common stock issuable upon exercise of the warrants is subject to adjustment in certain circumstances, including a stock split of, stock dividend on, or a subdivision, combination or recapitalization of the common stock. Upon the merger, consolidation, sale of substantially all of our assets, or other similar transaction, the holders of warrants shall, at the option of the Company, be required to exercise the warrants immediately prior to the closing of the transaction, or such warrants shall automatically expire. Upon such exercise, the holders of warrants shall participate on the same basis as the holders of common stock in connection with the transaction.

Cashless Exercise

. If at any time there is

no

effective registration statement registering, or the prospectus contained therein is

not

available for issuance of, the shares issuable upon exercise of the warrant, the holder

may

exercise the warrant on a cashless basis. When exercised on a cashless basis, a portion of the warrant is cancelled in payment of the purchase price payable in respect of the number of shares of our common stock purchasable upon such exercise.

Exercise Price

. Each warrant represents the right to purchase

one

share of common stock at an exercise price of

$4.05

 per share. In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications, and for certain dilutive issuances. Subject to limited exceptions, a holder of warrants will

not

have the right to exercise any portion of the warrant to the extent that, after giving effect to the exercise, the holder, together with its affiliates, and any other person acting as a group together with the holder or any of its affiliates, would beneficially own in excess of

4.99%

of the number of shares of our common stock outstanding immediately after giving effect to its exercise. The holder, upon notice to the Company,

may

increase or decrease the beneficial ownership limitation provisions of the warrant, provided that in

no

event shall the limitation exceed

9.99%

of the number of shares of our common stock outstanding immediately after giving effect to the exercise of the warrant.

Transferability

. Subject to applicable laws and restrictions, a holder

may

transfer a warrant upon surrender of the warrant to us with a completed and signed assignment in the form attached to the warrant. The transferring holder will be responsible for any tax that liability that

may

arise as a result of the transfer.

Exchange Listing

. We do

not

intend to apply to list the warrants on any securities exchange or recognized trading system.

Rights as Stockholder

. Except as set forth in the warrant, the holder of a warrant, solely in such holder’s capacity as a holder of a warrant, will

not

be entitled to vote, to receive dividends, or to any of the other rights of our stockholders.

Redemption Rights

. We

may

redeem the warrants for

$0.18

per warrant if the volume-weighted-average-price of our common stock equals or exceeds

$10.56

per share for

ten

consecutive trading days, provided that we

may

not

do so prior to the

first

anniversary of closing of the rights offering.

Accounting Treatment

The Company allocated the proceeds from the sale of the Series B convertible preferred stock and the warrants to purchase common stock to the separate securities issued. The Company allocated the amount representing the fair value of the warrants at the date of issuance to common stock based on the relative warrant fair value in the amount of

$5,363,759,

which is net of issuance costs allocated to the warrants. Due to the allocation of a portion of the proceeds to the warrants, the convertible preferred stock contained a beneficial conversion feature upon issuance, which was recorded in the amount of

$4,782,100

based on the relative fair value of the beneficial conversion feature. The discount on the convertible preferred stock was

$11,479,308,

which consists of the beneficial conversion feature of

$4,782,100,

the allocation of a portion of the proceeds to the warrants in the amount of

$5,363,759,

and the total issuance costs related to the financing of

$1,333,449.

The discount on the convertible preferred stock of

$11,479,308

was recorded as a deemed dividend upon issuance of the convertible preferred stock. The deemed dividend is reflected as an addition to net loss in the consolidated statements of operations to arrive at net loss applicable to common shareholders. The Company has made an accounting policy election to record the deemed dividend related to discounts on convertible instruments at the time of issuance of the convertible instruments.

Outstanding Warrants

In

March 2019,

the Company received approximately

$11.3

 million from exercises of the

2018

Warrants. As a result of the warrant exercises, the Company cancelled approximately

2.8

million warrants and issued approximately

2.8

million shares of common stock.

As of

December 

31,

2019,

warrants to purchase a total of

1,070,028

shares of common stock were outstanding. The warrants have an exercise price of

$4.05

and expire on

May 30, 2022.

Conversion of Series B Convertible Preferred Stock

During the years ended

December 31, 2019

and

December 31, 2018,

certain holders of the Series B convertible preferred stock exercised their conversion option and converted an aggregate of 

1,708

and

11,245,

shares, respectively into

485,244

 and

3,194,600

shares respectively, of the Company's common stock based on the conversion ratio of approximately

284

shares of common stock for each share of Series B convertible preferred stock.