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Stockholders' Equity (Deficit)
12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
STOCKHOLDERS' EQUITY (DEFICIT)

NOTE 7 – STOCKHOLDERS' EQUITY (DEFICIT)

 

Common Stock

 

In October 2019, the Company completed an IPO, selling 4,400,000 shares of common stock at an offering price of $5.00 per share. The Company received gross proceeds of approximately $22,000,000. In addition, the Company granted the underwriter a 45-day option to purchase an additional 660,000 shares of common stock at the initial public offering price. The option was exercised and the underwriter purchased an additional 479,300 shares of common stock and the Company received additional gross proceeds of approximately $2,397,000. The Company received net proceeds from the IPO and the underwriter's purchase of additional shares of approximately $21,754,000, after deducting underwriting discounts and commissions and offering-related expenses. Warrants for 317,155 shares of the Company's common stock were issued to the IPO underwriter at an exercise price of $6.25 per share as part of the underwriter's compensation for the IPO. The estimated fair value of the warrants of approximately $977,000 was considered an offering cost and netted against additional paid-in capital.

 

In conjunction with the IPO, the Company's outstanding shares of Series A Preferred Stock automatically converted into 9,571,692 shares of its common stock (see below). Also in conjunction with the issuance of shares in the IPO, the Company granted options to officers and directors to purchase 627,984 shares of common stock at an exercise price of $5.00.

 

Series A Convertible Preferred Stock

 

The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.001 par value, all of which has been designated as Series A Preferred Stock and has a stated value of $2.50 per share. As of December 31, 2019 and 2018, there are 0 and 5,662,000 shares, respectively, issued and outstanding. The Series A Preferred Stock ranks senior to common stock with respect to dividends rights and liquidation preferences and has full voting rights. The Series A Preferred Stock accrues a dividend at a rate of 6% per annum, and such amount aggregated $0 and $728,350 as of December 31, 2019 and 2018, respectively. Dividends accrued during the periods ended December 31, 2019 and 2018 were $875,359 and $728,350, respectively.

 

Pursuant to the Company's amended and restated certificate of incorporation, holders of the Series A Preferred Stock have the following methods of conversion: (i) automatic conversion into common stock upon the consummation of an IPO at a conversion price of 50% of the IPO price, (ii) automatic conversion into common stock upon the consummation of a subsequent private placement of securities at a conversion price of 50% of the purchase price of the securities being sold by the Company approved by the holders of the Series A preferred stock, and (iii) at any time after the issuance date and until ten calendar days prior to the consummation of an IPO, each holder shall be entitled to convert into common stock at a conversion price of $2.50 per share.

 

The Series A Preferred Stock automatically converted into 9,571,692 common shares upon completion of the IPO in October 2019, based on the number of shares of Series A Preferred Stock outstanding as of the date of the IPO. The conversion share calculation was based on the $2.50 initial issue price for the Series A Preferred Stock plus $1,603,709 of accrued and unpaid dividends and automatically converted into shares of the Company's common stock using a stated divisor conversion price equal to 50% of the IPO price to the public which was $5.00 per share. In accordance with relevant accounting literature, since the terms of the conversion option did not permit the Company to compute the additional number of shares that it would need to issue upon conversion of the Series A Preferred when the contingent event occurred, the Company recorded the beneficial conversion amount of approximately $23,930,000 as a deemed dividend at the date of the IPO.

 

2018 Private Placement

 

In March 13, 2018, the Company entered into a securities purchase agreement with various accredited investors to raise gross proceeds of $14.2 million in a private placement (the "2018 Private Placement"). On March 22, 2018, the Company completed the 2018 Private Placement, issuing 5,662,000 shares of its Series A Preferred Stock. The shares of the Series A Preferred Stock were sold for $2.50 per share. The Company received net proceeds of approximately $12.5 million from the 2018 Private Placement, after paying placement agent fees and offering expenses.

 

The Series A Preferred Stock was accounted for under Section 480-10-S99 — Distinguishing Liabilities from Equity (FASB Accounting Standards Codification 480) as amended by ASU 2009-04 — for Redeemable Equity Instruments ("ASU 2009-04"). Under ASU 2009-04, a redeemable equity security is to be classified as temporary equity if it is conditionally redeemable upon the occurrence of an event that is not solely within the control of the issuer. While the Series A Preferred stock are mandatorily redeemable 21 months from the final closing date, it also contains a substantive conversion option. Therefore, the Company classified the Series A Preferred Stock as temporary equity in the consolidated balance sheet as of December 31, 2018.

 

In connection with, and upon closing of, the 2018 Private Placement, the Company issued 4,000,000 shares of common stock to LTI in consideration of LTI's assignment of the acquired assets consisting of certain patent license rights and other valuable consideration. LTI's basis in such assets was minimal.

 

2019 Private Placement

 

In May 2019, the Company entered into a securities purchase agreement with various accredited investors to raise gross proceeds of $8.2 million in a private placement (the "2019 Private Placement"), issuing 3,268,000 shares of its Series A Preferred Stock. The shares of the Series A Preferred Stock were sold for $2.50 per share. The Company received net proceeds of approximately $7.2 million from the 2019 Private Placement, after paying placement agent fees and offering expenses.