6. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Common Stock

Pursuant to a subscription agreement dated October 24, 2014, Korea Investment Partners Overseas Expansion Platform Fund (“KIP”), an existing stockholder, agreed to purchase 1,081,081 shares of common stock from the Company at a price of $1.85 per share in a private placement (the “KIP private placement”) upon the earlier to occur of (i) the Company receiving revenues from VI₂OLET of $2,000,000 or (ii) receipt by the Company of approval to list on any tier of the NYSE or Nasdaq stock market at a market price of at least $3.70 per share. In addition, KIP has previously informed the Company of its intention to complete the KIP private placement even if the Company’s stock price was not at least $3.70 per share. As of the date of this report, this private placement has not closed, and the Company does not expect the private placement to close. As consideration for Ping Wang’s service as a director of the Company (Mr. Wang is no longer a director of the Company), 290,000 shares of the Company’s common stock were issued, of which 96,667 shares vested immediately and 193,333 shares will vest immediately upon completion of the $2.0 million investment. The Company does not expect these shares to vest.

In December 2015, the Company sold 4,100,000 shares of common stock at a price per share of $1.43 resulting in net proceeds of $5.5 million in a private placement to investment funds managed by Franklin Advisers. For a period of five years, Franklin Advisers has the right to purchase up to an aggregate of 20% of the securities offered by the Company in any subsequent private placement.

In April 2016, the Company issued 3,600,000 shares of common stock at a price per share of $1.195 resulting in net proceeds of $3.6 million and warrants to purchase 1,952,000 shares of common stock in a public offering. These warrants have an exercise price of $1.20 per share and expire on April 1, 2021. As of July 31, 2017, all of these warrants were outstanding.

In August 2016, the Company issued 2,423,077 shares of common stock at a price per share of $0.65 resulting in net proceeds of $1.3 million in a private offering.

On August 17, 2016, the Company issued a secured convertible promissory note (“Secured Note”) in the principal amount of $1.0 million. The Secured Note included a term to maturity of 36 months and an interest rate of 10% per annum. On August 17, 2016, the Company issued an unsecured convertible promissory note (“Unsecured Note”) in the principal amount of $0.5 million. The Unsecured Note included a term to maturity of 6 months and an interest rate of 10% per annum. Both the Secured Note and Unsecured Note (together, “Notes”) were convertible into the Company’s common stock at a conversion price of $0.80 per share. Upon issuance of the Notes, debt discounts of approximately $88,000 resulting from a beneficial conversion feature and debt issuance costs of approximately $16,000 were recorded and expensed to interest expense when converted to common stock. Pursuant to the conversion features included in the Notes, the Notes’ principal amount and unpaid accrued interest automatically converted into 1,926,711 shares of common stock immediately prior to the completion of the Company’s public offering on November 28, 2016.

In September 2016, the Company issued 1,550,000 shares of common stock at a price per share of $0.60 resulting in net proceeds of $0.8 million and warrants to purchase 1,286,501 shares of common stock in a registered direct offering. These warrants have an exercise price of $0.80 per share and expire in five years. As of July 31, 2017, all of these warrants were outstanding. For a period of eighteen months, investors in this offering have the right to purchase up to 50% of the securities offered by the Company in any subsequent financing.

In November 2016, the Company issued 31,489,429 shares of common stock at a price per share of $0.35, 1,515 shares of Series A convertible preferred stock at a price per share of $1,000 and warrants to purchase 31,499,725 shares of common stock in a public offering resulting in net proceeds of $10.6 million. In December 2016, the underwriters exercised their option to purchase an additional 1,390,676 shares of common stock to cover over-allotments resulting in net proceeds of $0.4 million. As of July 31, 2017, all of these warrants were outstanding.

In April 2017, the Company issued 6,410,258 shares of common stock at a price per share of $0.78 resulting in net proceeds of $4.4 million and warrants to purchase 3,365,385 shares of common stock in a registered direct offering. These warrants have an exercise price of $0.90 per share and expire in five years. As of July 31, 2017, all of these warrants were outstanding.

In July 2017, the Company issued 5,500,000 shares of common stock at a price per share of $0.36 resulting in net proceeds of $1.9 million in a registered direct offering. For a period of two months, certain investors in this offering have the right to purchase up to 5% of the securities offered by the Company in any public offering of common stock.

Series A Convertible Redeemable Preferred Stock

In March and April 2015, the Company amended certain of the warrants issued in connection with the Series A preferred stock financing to reduce the exercise price of such warrants from $3.70 to $2.50 per share with a corresponding increase in the number of shares of common stock exercisable under the warrants so that the aggregate exercise value of such warrants remained the same. As of January 31, 2017, certain holders had exercised such warrants for an aggregate of 564,662 shares of common stock for an aggregate cash exercise price of $1,411,655. The Company recorded a charge for the incremental fair value of $436,000 in other expense related to the amended warrants in the first quarter of fiscal year 2016. The fair value of the warrants exercised was computed as of the date of modification using the following assumptions: dividend rate of 0%, risk-free rate of 1.6%, contractual term of four to five years and expected volatility of 85.9%. As of July 31, 2017, of the warrants issued in connection with the Series A preferred stock financing, warrants to purchase 1,661,055 shares of common stock remain outstanding.

Pursuant to the Certificate of Elimination filed with the Secretary of State of the State of Delaware on March 17, 2016, all shares of Series A preferred stock previously designated were returned to the status of authorized but unissued shares of preferred stock, without designation as to series or rights, preferences, privileges or limitations. As of July 31, 2017 and January 31, 2017, there were 10,000,000 shares of Series A convertible redeemable preferred stock authorized and none were outstanding.

Series A Convertible Preferred Stock

In November 2016, the Company issued 1,515 shares of Series A convertible preferred stock (“Preferred Stock”), which included warrants to purchase 3,246,429 shares of common stock. The Preferred Stock had a purchase price of $1,000 per share and are convertible into common stock at a conversion rate of $0.35 per share. For the first 18 months after issuance, the Preferred Stock are immediately convertible at the option of the holder up to the holder’s pro rata share of 19.99% of the Company’s common stock outstanding at the time of conversion. After the first 18 months after issuance, the ownership limitation expires and, at the option of the holder, the Preferred Stock can be converted into common stock. The Preferred Stock contained a beneficial conversion feature valued at $0.1 million, which was recorded as a deemed dividend at the time of issuance, which was considered to be the earliest time of conversion. As of July 31, 2017, all the Preferred Stock and related warrants remain outstanding.

Warrants

In addition to the warrants issued in conjunction with the Series A preferred stock subscription agreements, the Company issued warrants on May 15, 2014, to a service provider for 316,395 shares of common stock at an exercise price of $2.035 per share, which were valued at $99,000 and expensed. As of July 31, 2017, all of these warrants were still outstanding. On May 14, 2014, the Company also issued warrants valued at $105,000 for 343,559 shares of common stock at an exercise price of $1.85 per share to a qualified investor as a part of his convertible loan package. These warrants expire five years after the date of issuance. These warrants were immediately exercisable, and in June 2015, a portion of the warrants were exercised for 54,054 shares of common stock. As of July 31, 2017, warrants exercisable for 289,505 shares of common stock remain outstanding.

In connection with the offering completed in June 2015, warrants to purchase 109,091 shares of common stock were issued to the underwriters at the public offering price of $2.75 per share. These warrants expire five years after the date of issuance. As of July 31, 2017, all of these warrants were outstanding.

In connection with the sale of common stock in April 2016, warrants to purchase 1,952,000 shares of common stock were issued at an exercise price of $1.20 per share. As of July 31, 2017, all of these warrants were outstanding.

In connection with the sale of common stock in September 2016, warrants to purchase 1,286,501 shares of common stock were issued at an exercise price of $0.80 per share. As of July 31, 2017, all of these warrants were outstanding. These warrants included a cash settlement option requiring the Company to record a liability for the fair value of the warrants at the time of issuance and at each reporting period with any change in the fair value reported as other income or expense. At the time of issuance, approximately $566,000 was recorded as a warrant liability. To value the warrant liability, the Company used the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.1%, contractual term of 5 years, expected volatility of 95.8% and a dividend rate of 0%. As of July 31, 2017, the fair value of the warrant liability was approximately $242,000 and was included as a long-term liability.

In connection with the sale of common stock in November 2016, warrants to purchase 31,499,725 shares of common stock were issued at exercise prices ranging from $0.33 to $0.44 and expire five to seven years from the date of exercisability. As of July 31, 2017, all of these warrants were outstanding.

Equity Incentive Plan

On July 5, 2016, the Company adopted the 2016 Equity Incentive Plan (“2016 Plan”), which permits the Company to grant equity awards to directors, officers, employees and consultants. In connection with the adoption of the 2016 Plan, the Company ceased to grant equity awards under its 2014 Equity Incentive Plan (“2014 Plan”), which was adopted on January 23, 2014. All grants and awards under the 2014 Plan, including stock options previously issued under BioPharmX, Inc.’s 2011 Equity Incentive Plan that were substituted with stock options issued under the 2014 Plan, remain in effect in accordance with their terms. Stock options generally vest in one to four years and expire ten years from the date of grant. In March 2017, the 2016 Plan was amended and the shares reserved for issuance was increased by 20,000,000 shares to a total of 24,000,000 shares. The 2014 Plan and 2016 Plan are referred to collectively as the “Plans.”

The following table summarizes the Company’s stock option activities under the Plans:


			Weighted
			Average		Remaining	Aggregate
	Available for		Exercise		Contractual	Intrinsic
	Grant	Shares	Prices		Life	Value
						(in thousands)
Balance at February 1, 2017	252,379	6,465,829	$	0.77	8.77	$	238
Shares authorized for issuance	20,000,000	—
Granted	(5,095,000)	5,095,000	$	0.73
Balance at April 30, 2017	15,157,379	11,560,829	$	0.75	9.16	$	2,062
Granted	(50,000)	50,000	$	0.46
Exercised	—	(40,000)	$	0.25
Cancelled and expired under the 2014 Plan	—	(62,000)	$	1.62
Cancelled under the 2016 Plan	28,000	(28,000)	$	0.62
Balance at July 31, 2017	15,135,379	11,480,829	$	0.75	8.93	$	22
Vested and exercisable		3,273,177	$	0.90	7.63	$	15
Vested and expected to vest		10,316,469	$	0.76	8.87	$	22

Inducement Grants

The Company has also awarded inducement option grants to purchase common stock to new employees outside of the 2016 Plan as permitted under Section 711(a) of the NYSE MKT Company Guide. Such options vest at the rate of 25% of the shares on the first anniversary of the commencement of such employee’s employment with the Company, and then one forty-eighth (1/48) of the shares monthly thereafter subject to such employee’s continued service. The following table summarizes the Company’s inducement grant stock options:


		Weighted
		Average		Remaining
		Exercise		Contractual	Aggregate
	Shares	Prices		Life	Intrinsic Value
					(in thousands)
Balance at July 31, 2017	660,000	$	1.44	8.22	$	—
Vested and exercisable	286,041	$	1.44	8.20	$	—
Vested and expected to vest	619,577	$	1.44	8.22	$	—

There was no activity related to these inducement grant stock options during the quarters ended April 30, 2017 and July 31, 2017.

The following table summarizes significant ranges of outstanding and exercisable options as of July 31, 2017:


	Options Outstanding				Options Vested and Exercisable
		Weighted
		Average	Weighted			Weighted
		Remaining	Average		Number	Average
	Number	Contractual	Exercise		Vested and	Exercise
Range of Exercise Prices	Outstanding	Life (in Years)	Prices		Exercisable	Prices
$0.20 - $0.35	618,108	6.20	$	0.31	555,606	$	0.32
$0.36 - $0.65	4,283,667	9.13	$	0.53	1,313,834	$	0.59
$0.66 - $1.09	5,649,054	9.37	$	0.76	680,094	$	0.86
$1.10 - $1.85	1,490,000	7.61	$	1.67	909,684	$	1.69
$1.86 - $3.00	100,000	7.75	$	3.00	100,000	$	3.00
	12,140,829	8.89	$	0.79	3,559,218	$	0.95

The total intrinsic value of stock options exercised during each of the three and six months ended July 31, 2017 was approximately $4,000. The total intrinsic value of stock options exercised during the three and six months ended July 31, 2016 was approximately $5,000 and $39,000, respectively.