Note 9: STOCKHOLDERS’ EQUITY

Reverse Stock Split

On September 16, 2016, the Company effected a one for twelve reverse stock-split of our issued and outstanding common stock and has retroactively adjusted our common shares outstanding, options and warrants amounts outstanding. The Company has presented its share data for and as of all periods presented on this basis. The par value was not adjusted as a result of the one for twelve reverse stock split. All prior period share transactions included in the Company’s stock transactions and balances have been retroactively restated.

2017 Common Stock Transactions

June 2017 Private Placement Transaction

On June 26, 2017, the Company completed private placement of units with certain accredited investors. In the private placement transaction, the Company sold 1,503,567 shares of common stock for $3.97 per share and five-year warrants to purchase an equal number of shares of common stock, at an exercise price of $3.97 per share, for $0.125 per warrant, with one common share and one warrant being sold together as a unit for a total of $4.095 per unit. The Company issued and sold an aggregate of 1,503,567 million units for aggregate gross proceeds of $6.2 million. The Company incurred $0.8 million in agency fees and legal costs. In connection with the offering, the Company reduced the exercise price for the warrants to purchase an aggregate of 653,187 shares of common stock issued to investors in the private placement that closed in August 2016 from $6.00 per share to $3.97 per share.

In addition, the Company issued five-year warrants to the placement agent in the offering providing for the purchase of up to 150,357 shares of Company common stock for $3.97 per share.

Pursuant to a Registration Rights Agreement to be entered into at the closing of the private placement offering, promptly, but no later than 90 calendar days after the closing of the offering, the Company is required to file a registration statement with the Securities and Exchange Commission registering for resale (a) the common stock issued in the offering; (b) the shares of common stock issuable upon the exercise of the private placement warrants; and (c) the shares of common stock issuable upon the exercise of the warrants issued to Katalyst Securities LLC, which acted as placement agent for the offering. The Company is required to use its commercially reasonable efforts to ensure that the Registration Statement is declared effective within 90 calendar days after filing with the Securities and Exchange Commission, on or before December 23, 2017.

In accordance with the registration rights agreements, should the Company fail to meet the above criteria, the Company is subject to pay the investors liquidated damages. The liquidated damages shall be a cash sum payment calculated at a rate of ten percent (10%) per annum of the aggregate purchase price for the registrable securities or aggregate amount upon exercise of the placement agent warrants.

In accordance with U.S. GAAP, a contingent obligation to make future payments must be recorded if the transfer of consideration under a registration payment arrangement is probable and can be reasonably estimated. The Company has determined that should it be required to pay liquidated damages to the investors of the private placements, the aggregate contingent liability it would be required to record would be approximately $57,000 per month for each month it fails or is estimated to fail to meet the above criteria.

At the June 26, 2017 private placement closing, and on June 30, 2017, the Company concluded that it is not probable that it will be required to remit any payments to the investors for failing to obtain an effective registration statement or failing to maintain its effectiveness.

June 2017 Exercise and Repricing of Warrants Held by Existing Institutional Investors

On June 23, 2017, certain existing institutional shareholders of the Company who hold various outstanding warrants (i.e. C, D, E and F) to purchase Company common stock, entered into warrant repricing and exercise agreements.

Series E repriced and exercised warrants

Approximately 168,000 of Series E warrants were repriced from $15.00 per share to $3.97 per share and exercised immediately for gross proceeds of approximately $0.7 million. Series E warrants to purchase approximately 187,000 shares of Company common stock being reduced from $15.00 per share to $4.50 per share.

Series C, D & F repriced warrants

Additionally, the exercise prices for certain investors of Series C, Series D and Series F warrants were reduced as follows:

Series	Number of Warrant Shares Repriced		Pre-reduced Price		Post-reduced Price
Series C		313,750	$	6.00	$	4.00
Series D		312,500	$	9.00	$	4.00
Series F		292,500	$	7.20	$	4.00

The fair value relating to the modification of exercise prices on all of the repriced warrants was treated as deemed dividend on the statement of stockholders’ equity of $622,000.

A weighted average summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s common stock purchase warrants that are included in the modification is as follows:

	Weighted Average Inputs
	Before Modification			After Modification
Exercise price	$	8.32		$	4.04
Contractual term (years)		3.34			3.34
Volatility (annual)		200	%		200	%
Risk-free rate		1.50	%		1.50	%
Dividend yield (per share)		0.00	%		0.00	%

2017 Management Compensation

On March 9, 2017, the Company issued 12,761 shares of stock in relation to the discretionary 2016 bonus awarded to Dr. Glynn Wilson. The fair value of the common stock of $55,000 was recognized as stock-based compensation in general and administrative expenses. The issuance was based on the closing price or our common stock of $4.31 per share, on the day immediately preceding the date the 2016 bonus award was approved by the Board of Directors.

On March 9, 2017, the Company issued 5,220 shares of stock in relation to the discretionary 2016 bonus awarded to our former Chief Operating Officer. The fair value of the common stock of $22,500 was recognized as stock-based compensation in general and administrative expenses. The issuance was based on the closing price or our common stock of $4.31 per share, on the day immediately preceding the date the 2016 bonus award was approved by the Board of Directors.

Consulting Arrangements

During the six months ended June 30, 2017, the Company issued 48,334 shares of common stock as part of consulting agreements. The fair value of the common stock of $205,000 was recognized as stock-based compensation in general and administrative expenses.