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 in a public offering 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 at an exercise price of $1.20 per share.

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 in a registered direct offering 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 at an exercise price of $0.75 per share. 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.

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 at an exercise price of $0.90 in a registered direct offering.

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.

Series A Convertible Redeemable Preferred Stock

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.

Series A Convertible Preferred Stock

Pursuant to the Certificate of Designation filed with the Secretary of State of the State of Delaware on November 22, 2016, 10,000 shares of Series A convertible preferred stock were designated. 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 October 31, 2017, all the Preferred Stock and related warrants remain outstanding.

Warrants

The following is a summary of outstanding warrants as of October 31, 2017:


	Total	Price per Share	Expiration Date
Warrants related to January 2014 agreement	289,505	$ 1.85	May 2019
Warrants related to May 2014 agreement	316,395	$2.035	May 2019
Warrants related to April to November 2014 financing	1,661,055	$ 3.70	April 2019 - November 2019
Warrants related to June 2015 financing	109,091	$ 2.75	June 2020
Warrants related to April 2016 financing	1,952,000	$ 1.20	April 2021
Warrants related to September 2016 financing (1)	1,286,501	$ 0.75	September 2021 to March 2022
Warrants related to November 2016 financing	30,406,061	$ 0.35	November 2022 to November 2024
Warrants related to November 2016 financing	895,450	$ 0.44	November 2021
Warrants related to November 2016 financing	198,214	$ 0.33	November 2022
Warrants related to April 2017 financing	801,282	$ 0.90	October 2022
Warrants related to October 2017 financing (2)	3,846,152	$ 0.30	October 2022

(1)

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 $0.75 per share. 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 October 31, 2017, the fair value of the warrant liability was approximately $73,000 and was included as a long-term liability.

(2)

On October 23, 2017, the Company entered into agreements with certain of these warrant holders to permit their immediate exercise of 2,564,103 shares of common stock underlying the warrants at an exercise price per share of $0.24. The Company recorded a charge for the incremental fair value of approximately $151,000 in the other expense line item in the condensed consolidated statement of operations and comprehensive loss. The fair value of the warrants exercised was computed as of the date of exercise using the following assumptions: risk-free interest rate of 2.03%, contractual term of 5 years, expected volatility of 83.9% and a dividend rate of 0%. In addition, these warrant holders were issued new warrants to purchase up to an aggregate of 3,846,152 shares of common stock at an exercise price per share of $0.30.

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 as of 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 as of 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 as of July 31, 2017	15,135,379	11,480,829	$	0.75	8.93	$	22
Cancelled and expired under the 2014 Plan	—	(6,667)	$	0.25
Cancelled under the 2016 Plan	36,250	(36,250)	$	0.65
Balance as of October 31, 2017	15,171,629	11,437,912	$	0.75	8.68	$	—
Vested and exercisable		3,686,313	$	0.88	7.55	$	—
Vested and expected to vest		10,449,205	$	0.76	8.63	$	—

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 American 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 as of October 31, 2017	660,000	$	1.44	7.97	$	—
Vested and exercisable	327,291	$	1.44	7.95	$	—
Vested and expected to vest	627,620	$	1.44	7.97	$	—

There was no activity related to these inducement grant stock options during the nine months ended October 31, 2017.

The following table summarizes significant ranges of outstanding and exercisable options as of October 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	611,441	5.95	$	0.31	573,941	$	0.32
$0.36 - $0.65	4,273,667	8.87	$	0.53	1,498,948	$	0.58
$0.66 - $1.09	5,622,804	9.12	$	0.76	855,095	$	0.84
$1.10 - $1.85	1,490,000	7.36	$	1.67	985,620	$	1.69
$1.86 - $3.00	100,000	7.50	$	3.00	100,000	$	3.00
	12,097,912	8.64	$	0.79	4,013,604	$	0.93

The total intrinsic value of stock options exercised during the nine months ended October 31, 2017 was approximately $4,000. There were no stock options exercised during the three months ended October 31, 2017. The total intrinsic value of stock options exercised during the three and nine months ended October 31, 2016 was approximately $26,000 and $65,000, respectively.