Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
Stockholders' Equity

4. Stockholders’ Equity

 

Preferred Stock

 

The Company has authorized a total of 10,000,000 shares of preferred stock, par value $0.0001 per share. On March 17, 2015, the Company filed a Certificate of Designations, Preferences, Rights and Limitations (the “Certificate of Designations”) of its Series A Convertible Preferred Stock with the Delaware Secretary of State to amend the Company’s certificate of incorporation. The Company designated 175,000 shares as Series A Convertible Preferred Stock, which are non-voting and are not subject to increase without the written consent of a majority of the holders of the Series A Convertible Preferred Stock or as otherwise set forth in the Certificate of Designations. The holders of each 175,000 share tranche of the Series A Convertible Preferred Stock are entitled to receive a per share dividend equal to 1% of the annual net revenue of the Company divided by 175,000, until converted or redeemed.

 

Effective January 28, 2016, the Series A Convertible Preferred Stock Certificate of Designations was amended to increase the authorized shares of Series A Convertible Preferred Stock from 175,000 shares to 350,000 shares. Accordingly, as of December 31, 2017, 9,650,000 shares of preferred stock were undesignated and may be issued with such rights and powers as the Board of Directors may designate.

 

Effective March 17, 2015, the Company entered into a Securities Purchase Agreement with a stockholder of the Company who owned 10.6% of the Company’s issued and outstanding shares of common stock immediately prior to this transaction, pursuant to which such stockholder purchased 175,000 shares of the Company’s Series A Convertible Preferred Stock at $10.00 per share for an aggregate purchase price of $1,750,000. As the closing price of the Company’s common stock was $0.25 per share on March 17, 2015, which was less than the $0.80 effective price per share of the shares of common stock underlying the Series A Convertible Preferred Stock, there was no beneficial conversion feature associated with this transaction.

 

Effective January 21, 2016, the Company entered into a Securities Purchase Agreement with the holder of the Series A Convertible Preferred Stock previously sold on March 17, 2015, pursuant to which the Company sold an additional 175,000 shares of Series A Convertible Preferred Stock at $10.00 per share for an aggregate purchase price of $1,750,000. As the closing price of the Company’s common stock was $0.22 per share on January 21, 2016, which was less than the $0.80 effective price per share of the shares of common stock underlying the Series A Convertible Preferred Stock, there was no beneficial conversion feature associated with this transaction.

 

Each share of Series A Convertible Preferred Stock may be converted, at the option of the holder, into 12.5 shares of common stock (subject to customary anti-dilution provisions) and the Series A Convertible Preferred Stock is subject to mandatory conversion at the conversion rate in the event of a merger or sale transaction resulting in gross proceeds to the Company of at least $21,875,000. The Series A Convertible Preferred Stock has a liquidation preference based on its assumed conversion into shares of common stock. The Series A Convertible Preferred Stock does not have a cash liquidation preference.

 

If fully converted, the 350,000 outstanding shares of Series A Convertible Preferred Stock would convert into 4,375,000 shares of common stock at September 30, 2018. The Company has the right to redeem the Series A Convertible Preferred Stock up to the fifth anniversary of the respective closing dates at a price per share equal to $50.00. The Series A Convertible Preferred Stock has no right to cash, except for the payment of the aforementioned dividend based on the generation of revenues by the Company and does not have any registration rights.

 

Based on the attributes of the Series A Convertible Preferred Stock described above, the Company determined to account for the Series A Convertible Preferred Stock as a permanent component of stockholders’ equity.

 

Common Stock

 

The Company is authorized to issue up to 100,000,000 shares of common stock (par value $0.0001). As of September 30, 2018 and December 31, 2017, the Company had 58,045,814 shares and 58,025,814 shares of common stock issued and outstanding, respectively.

 

Effective February 24, 2017, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the purchaser purchased 4,000,000 shares of the Company’s common stock at a price of $0.25 per share for an aggregate purchase price of $1,000,000.

 

Effective April 3, 2017, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the purchaser purchased 6,000,000 shares of the Company’s common stock at a price of $0.25 per share for an aggregate purchase price of $1,500,000.

 

Information with respect to the issuance of common stock in connection with various stock-based compensation arrangements is provided at Note 6.