[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[ ]
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TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF
1934
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Nevada
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20-8753132
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated filer
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[ ] (Do not check if a smaller reporting
company)
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Smaller reporting company
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[X]
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34
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Item 1. Financial
Statements
|
|
November 30,
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February 29,
|
|
2016
|
2016
|
ASSETS
|
(Unaudited)
|
(Audited)
|
Current
Assets:
|
|
|
Cash
and cash equivalents
|
$1,849,590
|
$363,783
|
Notes
receivable
|
-
|
125,000
|
Prepaid
expenses
|
51,959
|
33,121
|
Total
Current Assets
|
1,901,549
|
521,904
|
|
|
|
Equipment
|
|
|
(net
of accumulated depreciation of $240,797
|
|
|
and
$169,396, respectively)
|
427,725
|
497,052
|
Refundable
deposits
|
43,600
|
43,600
|
|
|
|
TOTAL
ASSETS
|
$2,372,874
|
$1,062,556
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
LIABILITIES
|
|
|
Current
Liabilities:
|
|
|
Accounts
payable
|
$813,598
|
746,144
|
Accrued
expenses
|
219,128
|
214,311
|
Deferred
research and development reimbursement
|
411,855
|
-
|
Note
payable (net of discount $63,523 and $743,282,
respectively)
|
826,877
|
1,533,120
|
Accrued
interest payable
|
88,000
|
56,000
|
Accrued
dividends on Series B Preferred Stock
|
7,665
|
48,317
|
Total
Current Liabilities
|
2,367,123
|
2,597,892
|
|
|
|
Derivative
warrant liability
|
3,696,182
|
234,461
|
TOTAL
LIABILITIES
|
6,063,305
|
2,832,353
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
Series
A convertible preferred stock ($0.0001 par value; 1,000,000 shares
authorized; 874,257 shares issued and outstanding as of November
30, 2016 and February 29, 2016, respectively)
|
87
|
87
|
Series
A-2 convertible preferred stock ($0.0001 par value; 1,000,000
shares authorized; 70,541 and 0 shares issued and outstanding as of
November 30, 2016 and February 29, 2016, respectively)
|
7
|
-
|
Series
B convertible preferred stock ($0.0001 par value; 1,000 shares
authorized; 209 and 659 shares issued and outstanding as of
November 30, 2016 and February 29, 2016, respectively)
|
-
|
-
|
Common
stock, ($0.0001 par value; 150,000,000 shares authorized; 4,707,942
and 1,851,201 shares issued and outstanding as of November 30, 2016
and February 29, 2016, respectively)
|
471
|
185
|
Additional
paid-in-capital
|
23,172,362
|
21,607,259
|
Accumulated
deficit
|
(26,863,358)
|
(23,377,328)
|
Total
stockholders' deficit
|
(3,690,431)
|
(1,769,797)
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$2,372,874
|
$1,062,556
|
|
Three Months Ended
|
Nine Months Ended
|
||
|
November 30, 2016
|
November 30, 2015
|
November 30, 2016
|
November 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
$-
|
$-
|
Total
Revenue
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
General
& administrative
|
535,860
|
656,929
|
1,707,390
|
2,681,857
|
Research
& development
|
182,549
|
405,911
|
809,840
|
943,205
|
Total
Operating Expenses
|
718,409
|
1,062,840
|
2,517,230
|
3,625,062
|
|
|
|
|
|
Other
Expenses (income)
|
|
|
|
|
Interest
expense
|
274,910
|
123,918
|
981,546
|
169,279
|
Other
income, net
|
(4,621)
|
7
|
(4,672)
|
(140,129)
|
Change
in fair value of warrant liability
|
(755,026)
|
49,507
|
(816,775)
|
(123,393)
|
Change
in fair value of embedded put option in notes payable
|
(157,617)
|
-
|
(614,484)
|
3,134
|
Loss
on sale of notes receivable
|
-
|
-
|
112,500
|
-
|
Loss
on extinguishment of debt
|
1,248,745
|
-
|
1,248,745
|
-
|
Loss
on settlement of accounts payable
|
61,940
|
-
|
61,940
|
-
|
Settlement
expense
|
-
|
-
|
-
|
39,097
|
Total
Other Expenses (Income)
|
668,331
|
173,432
|
968,800
|
(52,012)
|
|
|
|
|
|
Net Loss
|
$(1,386,740)
|
$(1,236,272)
|
$(3,486,030)
|
$(3,573,050)
|
|
|
|
|
|
Loss attributable to common shareholders and loss per common
share:
|
|
|
||
|
|
|
|
|
Net
loss
|
$(1,386,740)
|
$(1,236,272)
|
$(3,486,030)
|
$(3,573,050)
|
Deemed
Dividend on Series B Preferred Stock issuance
|
-
|
-
|
(708,303)
|
(1,067,491)
|
Accrued
dividends on Series B Preferred Stock
|
(49,300)
|
(70,590)
|
(196,194)
|
(195,057)
|
Deemed
Dividend on exchange of Series B Preferred
|
(2,311,241)
|
-
|
(2,340,552)
|
-
|
Loss attributable to common shareholders
|
$(3,747,281)
|
$(1,306,862)
|
$(6,731,079)
|
$(4,835,598)
|
|
|
|
|
|
Net
loss per share attributable to common shareholders, basic and
diluted
|
$(1.16)
|
$(0.72)
|
$(2.81)
|
$(2.67)
|
|
|
|
|
|
Weighted
average of shares outstanding
|
3,225,111
|
1,821,182
|
2,397,028
|
1,812,825
|
|
Nine Months Ended
|
|
|
November 30, 2016
|
November 30, 2015
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
Net
loss
|
$(3,486,030)
|
$(3,573,050)
|
Adjustments
to reconcile net loss to net
|
|
|
cash
used in operating activities:
|
|
|
Depreciation
|
71,401
|
72,422
|
Share-based
compensation
|
495,024
|
724,526
|
Loss
on sale of note receivable and sale of assets
|
112,500
|
10,196
|
Loss
on settlement of capital lease
|
-
|
8,820
|
Loss
on settlement of accounts payable
|
61,940
|
-
|
Amortization
of debt discount
|
899,296
|
129,354
|
Loss
on extinguishment of debt
|
1,248,745
|
-
|
Change
in fair value of warrant liability
|
(816,775)
|
(123,393)
|
Change
in fair value of embedded put option in notes payable
|
(614,484)
|
3,134
|
Net
changes in assets and liabilities:
|
|
|
Prepaid
expenses and other current assets
|
139,561
|
24,844
|
Refundable
deposits
|
|
(3,600)
|
Accounts
payable and accrued expenses
|
137,860
|
259,262
|
Deferred
research and development reimbursement
|
411,855
|
-
|
Interest
payable
|
80,000
|
29,649
|
Net
cash (used in) operating activities
|
(1,259,107)
|
(2,437,836)
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
Note
receivable
|
-
|
(50,000)
|
Proceeds
received from settlement of capital lease
|
-
|
2,897
|
Proceeds
from sale of notes receivable
|
12,500
|
-
|
Purchase
of equipment
|
(2,074)
|
(151,830)
|
Net
cash provided by (used in) investing activities
|
10,426
|
(198,933)
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
Proceeds
from issuance of notes, net of issuance costs
|
122,790
|
1,111,408
|
Proceeds
from issuance of common stock and warrants, net of offering
costs
|
2,746,688
|
-
|
Re-purchase
of common stock and warrants
|
-
|
(111,563)
|
Proceeds
from issuance of Series B preferred stock and warrants, net of
offering costs
|
-
|
1,945,244
|
Payment
of non-convertible debt
|
(8,000)
|
-
|
Payment
of short-term debt
|
(126,990)
|
(107,250)
|
Payment
of capital lease obligation
|
-
|
(42,407)
|
Defferred
Offering Costs
|
-
|
(151,566)
|
Net
cash provided by financing activities
|
2,734,488
|
2,643,866
|
|
|
|
Net
increase in cash and cash equivalents
|
1,485,807
|
7,097
|
|
|
|
Cash
and cash equivalents at the beginning of the period
|
363,783
|
257,820
|
Cash
and cash equivalents at the end of the period
|
$1,849,590
|
$264,917
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
|
|
Warrant
liability associated with note payable
|
$15,225
|
$150,544
|
Series
B preferred PIK dividend
|
$168,945
|
$164,454
|
Series
B preferred stock accrued dividends
|
$196,194
|
$195,057
|
Issuance
of common stock and warrants as payment of accounts
payable
|
$158,937
|
$-
|
Issuance
of common stock and warrants in exchange of notes
payable
|
$2,326,321
|
$-
|
Financing
of insurance premium through notes payable
|
$158,400
|
$107,250
|
Note
receivable received for sale of assets
|
$-
|
$75,000
|
Capital
lease settled against deposit
|
$-
|
$227,235
|
Warrants
issued to placement agents
|
$278,223
|
$175,241
|
Placement
agent warrants issued with note payable
|
$-
|
$16,800
|
Deemed
dividend related to Series B preferred stock BCF adjustment for
conversion price adjustment
|
$708,303
|
$-
|
Issuance
of common stock, preferred stock and warrants in exchange for
accrued Series B preferred stock dividends
|
$67,900
|
$-
|
Deemed
dividend to Series B preferred stock holders upon exercising Most
Favored Nation option
|
$2,340,552
|
$-
|
Issuance
of warrants in connection with OID Notes amendment
|
$44,095
|
$-
|
|
Series A Preferred Stock
|
Series
A-2 Preferred Stock
|
Series
B Preferred Stock
|
Common
Stock
|
Paid-in
|
Accumulated
|
Total
|
||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 1, 2016
|
874,257
|
$87
|
-
|
$-
|
659
|
$-
|
1,851,201
|
$185
|
$21,607,259
|
$(23,377,328)
|
$(1,769,797)
|
Issuance
of common stock, preferred stock and warrants for cash, net of
offering costs
|
-
|
-
|
48,300
|
5
|
-
|
-
|
1,065,750
|
107
|
962,550
|
-
|
962,662
|
Issuance
of common stock and warrants to convert accounts
payable
|
-
|
-
|
-
|
-
|
-
|
-
|
32,500
|
3
|
116,997
|
-
|
117,000
|
Issuance
of common stock, preferred stock and warrants to convert notes
payable
|
-
|
-
|
16,000
|
2
|
|
|
440,500
|
44
|
1,566,755
|
|
1,566,801
|
Beneficial
conversion feature of Series B preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
708,303
|
|
708,303
|
Deemed
dividend to Series B preferred stock holders
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(708,303)
|
|
(708,303)
|
Accrued
dividends on Series B preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(196,194)
|
|
(196,194)
|
Series
B preferred dividends paid-in-kind
|
-
|
-
|
-
|
-
|
31
|
-
|
-
|
|
168,945
|
|
168,945
|
Issuance
of common stock, preferred stock and warrants in exchange for
cancellation of Series B preferred stock and Series A
Warrants
|
-
|
-
|
6,241
|
-
|
(481)
|
-
|
1,292,991
|
129
|
747,486
|
|
747,615
|
Deemed
dividend related to Series B preferred
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,340,552)
|
-
|
(2,340,552)
|
Issuance
of warrants in connection with OID Notes amendment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
44,095
|
-
|
44,095
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
25,000
|
3
|
495,021
|
-
|
495,024
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,486,030)
|
(3,486,030)
|
Balance at November 30, 2016
|
874,257
|
$87
|
70,541
|
$7
|
209
|
$-
|
4,707,942
|
$471
|
$23,172,362
|
$(26,863,358)
|
$(3,690,431)
|
|
November 30,
2016
|
November 30,
2015
|
Expected
volatility
|
98.98 - 102.74%
|
113.47 - 123.55%
|
Expected
dividend yield
|
0.00%
|
0.00%
|
Risk-free
interest rate
|
0.97 - 1.65%
|
0.67 - 2.32%
|
Expected
Term
|
5.47
years
|
6.30
years
|
|
Options
|
Weighted
average exercise
price
|
Aggregate
intrinsic value
|
Weighted
average remaining
contractual life (years)
|
Outstanding
at February 29, 2016
|
426,976
|
$14.45
|
$-
|
7.98
|
Granted
|
880,000
|
$2.02
|
-
|
-
|
Expired
and forfeited
|
(200,334)
|
$8.05
|
-
|
-
|
|
|
|
|
|
Outstanding
and expected to vest at November 30, 2016
|
1,106,642
|
$5.77
|
$-
|
8.81
|
Exercisable
at November 30, 2016
|
275,964
|
$13.72
|
$-
|
7.03
|
Exercisable
|
Unexercisable
|
||||
Number of Options
|
Exercise Price
|
Weighted Average Remaining Life (years)
|
Number of Options
|
Exercise Price
|
Weighted Average Remaining Life (years)
|
85,556
|
$2.00
|
9.61
|
594,444
|
$2.00
|
9.61
|
-
|
$2.19
|
-
|
100,000
|
$2.19
|
9.49
|
8,375
|
$3.55
|
9.18
|
25,125
|
$3.55
|
9.18
|
1,068
|
$8.10
|
8.17
|
-
|
$8.10
|
-
|
67,780
|
$8.25
|
5.18
|
92,221
|
$8.25
|
8.52
|
52,434
|
$10.20
|
5.10
|
-
|
$10.20
|
-
|
3,334
|
$11.25
|
8.47
|
3,333
|
$11.25
|
8.47
|
4,445
|
$16.50
|
7.88
|
15,555
|
$16.50
|
7.88
|
8,068
|
$22.50
|
8.17
|
-
|
$22.50
|
-
|
44,904
|
$48.75
|
6.35
|
-
|
$48.75
|
-
|
275,964
|
$13.72
|
7.03
|
830,678
|
$3.07
|
9.42
|
|
Warrants
|
Weighted
average exercise
price
|
Aggregate
intrinsic
value
|
Weighted
average remaining contractual life (years)
|
|
|
|
|
|
Outstanding
at February 29, 2016
|
913,514
|
$13.62
|
$
|
3.13
|
Granted
|
1,956,841
|
2.97
|
-
|
|
Cancelled
|
(256,367)
|
11.55
|
-
|
|
Outstanding
at November 30, 2016
|
2,613,988
|
$5.81
|
$-
|
4.19
|
Exercise
Prices
|
Number
of shares
|
Weighted average
remaining life (years)
|
Exercisable
number of shares
|
$2.00
|
164,888
|
2.75
|
134,554
|
$2.20
|
43,636
|
4.20
|
43,636
|
$3.00
|
1,902,290
|
4.86
|
1,902,290
|
$8.25
|
9,134
|
3.74
|
39,468
|
$10.20
|
-
|
-
|
-
|
$10.50
|
126,978
|
3.35
|
126,978
|
$13.65
|
99,826
|
0.17
|
99,826
|
$15.00
|
556
|
3.50
|
556
|
$18.75
|
695
|
3.50
|
695
|
$21.00
|
23,334
|
0.24
|
23,334
|
$22.50
|
209,754
|
1.63
|
219,754
|
$31.50
|
29,830
|
1.37
|
29,830
|
$37.50
|
1,733
|
1.12
|
1,733
|
$45.00
|
1,334
|
0.17
|
1,334
|
|
2,613,988
|
4.19
|
2,613,988
|
|
Note
Payable
|
Discount
|
Voluntary
Exchange Feature
|
Note
Payable,
Net
|
February 29, 2016 balance
|
$1,800,000
|
$(743,282)
|
$476,402
|
$1,533,120
|
Issuance
of Notes
|
150,000
|
(74,931)
|
32,496
|
107,565
|
Repayment
of Notes
|
(8,000)
|
-
|
-
|
(8,000)
|
Additional
debt discount upon Note amendments
|
101,400
|
(251,081)
|
105,586
|
(44,095)
|
Note
conversions
|
(1,153,000)
|
106,475
|
-
|
(1,046,525)
|
Amortization
of debt discount
|
-
|
899,296
|
-
|
899,296
|
Change
in fair value of voluntary exchange feature
|
-
|
-
|
(614,484)
|
(614,484)
|
November 30, 2016 balance
|
$890,400
|
$(63,523)
|
$-
|
$826,877
|
●
|
Level 1: Observable inputs such as quoted prices in active markets
for identical instruments
|
●
|
Level 2: Quoted prices for similar instruments that are directly or
indirectly observable in the market
|
●
|
Level 3: Significant unobservable inputs supported by little or no
market activity. Financial instruments whose values are
determined using pricing models, discounted cash flow
methodologies, or similar techniques, for which determination of
fair value requires significant judgment or
estimation.
|
|
Series B Warrant
|
Note Payable Warrants
|
Additional 2016 Unit Private Placement Warrants
|
Total
|
Fair value at February 29, 2016
|
$46,110
|
$188,351
|
$-
|
$234,461
|
Additions
|
-
|
15,225
|
4,263,271
|
4,278,496
|
Change
in fair value:
|
2,177
|
21,079
|
(840,031)
|
(816,775)
|
Fair value at November 30, 2016
|
$48,287
|
$224,655
|
$3,423,240
|
$3,696,182
|
|
Promissory Note, as amended
|
OID Notes
|
Total
|
Fair
value, February 29, 2016:
|
$339,979
|
$136,423
|
$476,402
|
Additions
|
-
|
138,082
|
138,082
|
Change
in fair value:
|
(339,979)
|
(274,506)
|
(614,485)
|
Fair
value, November 30, 2016:
|
$-
|
$-
|
$-
|
|
Estimated
Useful Lives
|
November 30,
2016
|
February 29,
2016
|
Research
equipment
|
7 years
|
$590,373
|
$590,373
|
Computer
equipment
|
5 years
|
78,149
|
76,075
|
|
668,522
|
666,448
|
|
Accumulated
depreciation and amortization
|
|
(240,797)
|
(169,396)
|
Equipment, net
|
|
$427,725
|
$497,052
|
|
November 30,
2016
|
November 30,
2015
|
Stock
options
|
1,106,642
|
371,476
|
Warrants
|
2,613,988
|
847,932
|
Preferred
stock
|
1,338,610
|
488,914
|
Total
|
5,059,240
|
1,708,322
|
|
Payments Due by Period
|
||||
Contractual Obligations
|
Total
|
Less than 1 Year
|
1-3Years
|
4-5 Years
|
More than 5 years
|
|
(In thousands)
|
||||
License
Agreement
|
$600
|
$100
|
$300
|
$200
|
$(1)
|
|
|
|
|
|
|
Second
License Agreement
|
$555
|
$80
|
$275
|
$200
|
$(2)
|
|
|
|
|
|
|
Alternative
Splicing Diagnostic License Agreements (3)
|
$263
|
$25
|
$138
|
$100
|
$(4)
|
|
|
|
|
|
|
Antibody
License Agreement
|
$110
|
$15
|
$55
|
$40
|
$(5)
|
|
|
|
|
|
|
Lease
Agreement (6)
|
$155
|
$155
|
$-
|
$-
|
$-
|
(1)
|
Amount of additional payments depends on several factors, including
the duration of the License Agreement, which depends on expiration
of the last patent to be issued pursuant to the License Agreement.
That duration is uncertain because the last patent has not yet been
issued.
|
(2)
|
Amount of additional payments depends on several factors, including
the duration of the Second License Agreement, which depends on
expiration of the last patent to be issued pursuant to the Second
License Agreement. That duration is uncertain because the last
patent has not yet been issued.
|
(3)
|
No annual license maintenance fee payments are due on the
Alternative Splicing Therapeutic License Agreement so as long as
the Alternative Splicing Diagnostic License Agreement is in
effect.
|
(4)
|
Amount of additional payments depends on several factors, including
the duration of the Alternative Splicing Diagnostic License
Agreement, which depends on expiration of the last patent to be
issued pursuant to the Alternative Splicing Diagnostic License
Agreement. That duration is uncertain because the last patent has
not yet been issued.
|
(5)
|
Amount of additional payments depends on several factors, including
the duration of the Antibody License Agreement, which depends on
expiration of the last patent to be issued pursuant to the Antibody
License Agreement. That duration is uncertain because the last
patent has not yet been issued.
|
(6)
|
Only includes basic rent payments. Additional monthly payments
under the lease agreement shall include tax payments and
operational costs.
|
●
|
the rate of progress in establishing reimbursement arrangements
with third-party payers;
|
●
|
the success of billing, and collecting receivables;
|
●
|
the cost of expanding our commercial and laboratory operations,
including our selling and marketing efforts;
|
●
|
the rate of progress and cost of research and development
activities associated with expansion of products for breast cancer;
and
|
●
|
the rate of progress and cost of research and development
activities associated with products in the research phase focused
on cancer, other than breast cancer.
|
Item 1. Legal Proceedings
|
Item
1A. Risk Factors
|
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
Item 4. Mine Safety Disclosures
|
Item 5. Other Information
|
(b)
|
Exhibits
|
Exhibit
No.
|
Description
|
|
|
31.1
|
Certification of the Principal Executive and Financial
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
32.1
|
Certification of the Principal Executive and Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
101.INS*
|
XBRL Instance Document
|
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema
|
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data
files are deemed note filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933 or Section 18 of the Securities Exchange Act of 1934 and
otherwise are not subject to liability.
|
|
|
|
|
|
|
METASTAT, INC.
|
|
|
|
|
|
Date: January 17, 2016
|
|
By:
|
/s/
Douglas A. Hamilton
|
|
|
|
Douglas A. Hamilton
President and Chief Executive Officer
(Principal Executive and Financial Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of MetaStat,
Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchanged Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over
financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
|
|
b)
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrant’s internal control over financial
reporting.
|
|
/s/
Douglas A. Hamilton
|
|
Douglas A. Hamilton
President and Chief Executive Officer
(Principal Executive and Financial Officer)
|
|
/s/
Douglas A. Hamilton
|
|
|
Douglas A. Hamilton
President and Chief Executive Officer
(Principal Executive and Financial Officer)
|
|
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Nov. 30, 2016 |
Jan. 13, 2017 |
|
Document And Entity Information | ||
Entity Registrant Name | MetaStat, Inc. | |
Entity Central Index Key | 0001404943 | |
Document Type | 10-Q | |
Document Period End Date | Nov. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --02-28 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 4,707,942 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2017 | |
Trading symbol | MTST |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Nov. 30, 2016 |
Nov. 30, 2015 |
Nov. 30, 2016 |
Nov. 30, 2015 |
|
Income Statement [Abstract] | ||||
Revenue | $ 0 | $ 0 | $ 0 | $ 0 |
Total revenue | 0 | 0 | 0 | 0 |
OPERATING EXPENSES | ||||
General & administrative | 535,860 | 656,929 | 1,707,390 | 2,681,857 |
Research & development | 182,549 | 405,911 | 809,840 | 943,205 |
Total Operating Expenses | 718,409 | 1,062,840 | 2,517,230 | 3,625,062 |
OTHER EXPENSES (INCOME) | ||||
Interest expense | 274,910 | 123,918 | 981,546 | 169,279 |
Other income, net | (4,621) | 7 | (4,672) | (140,129) |
Change in fair value of warrant liability | (755,026) | 49,507 | (816,775) | (123,393) |
Change in fair value of put embedded in note payable | (157,617) | 0 | (614,484) | 3,134 |
Loss on sale of notes receivable | 0 | 0 | 112,500 | 0 |
Loss on extinguishment of debt | 1,248,745 | 0 | 1,248,745 | 0 |
Loss on settlement of accounts payable | 61,940 | 0 | 61,940 | 0 |
Settlement expense | 0 | 0 | 0 | 39,097 |
Total Other Expenses (Income) | 668,331 | 173,432 | 968,800 | (52,012) |
NET LOSS | (1,386,740) | (1,236,272) | (3,486,030) | (3,573,050) |
Net loss | (1,386,740) | (1,236,272) | (3,486,030) | (3,573,050) |
Deemed dividend on Series B Preferred Stock issuance | 0 | 0 | (708,303) | 0 |
Accrued dividends on Series B Preferred Stock | (49,300) | (70,590) | (196,194) | (195,057) |
Deemed dividend to Series B Preferred stock holders for exchange of warrants | (2,311,241) | 0 | (2,340,552) | 0 |
Loss attributable to common shareholders | $ (3,747,281) | $ (1,306,862) | $ (6,731,079) | $ (4,835,598) |
Net loss per share, basic and diluted | $ (1.16) | $ (0.72) | $ (2.81) | $ (2.67) |
Weighted average of shares outstanding | 3,225,111 | 1,821,182 | 2,397,028 | 1,812,825 |
DESCRIPTION OF BUSINESS AND GOING CONCERN |
9 Months Ended |
---|---|
Nov. 30, 2016 | |
Description Of Business And Going Concern | |
DESCRIPTION OF BUSINESS AND GOING CONCERN | MetaStat, Inc. (“we,” “us,” “our,” the “Company,” or “MetaStat”) is a pre-commercial biotechnology company focused on the development and commercialization of diagnostic tests that are prognostic for the risk of cancer metastasis, companion diagnostics to predict drug response, and anti-metastatic drugs. Our driver-based platform technology is based on the pivotal role of the Mena protein and its isoforms, a common pathway for the development of metastatic disease and drug resistance in epithelial-based solid tumors. The Company was incorporated on March 28, 2007 under the laws of the State of Nevada.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, MetaStat Biomedical, Inc., a Delaware corporation and all significant intercompany balances have been eliminated by consolidation.
These interim unaudited financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States and should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes for the year ended February 29, 2016 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on May 31, 2016. These unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of November 30, 2016 and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. These interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced net losses and negative cash flows from operations since its inception. The Company has sustained cumulative losses of approximately $26.9 million as of November 30, 2016, has a negative working capital and has not generated revenues or positive cash flows from operations. The continuation of the Company as a going concern is dependent upon continued financial support from its shareholders, the ability of the Company to obtain necessary equity and/or debt financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company cannot make any assurances that additional financings will be available to it and, if available, completed on a timely basis, on acceptable terms or at all. If the Company is unable to complete a debt or equity offering, or otherwise obtain sufficient financing when and if needed, it would negatively impact its business and operations and could also lead to the reduction or suspension of the Company’s operations and ultimately force the Company to cease operations. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. |
CAPITAL STOCK |
9 Months Ended |
---|---|
Nov. 30, 2016 | |
Equity [Abstract] | |
CAPITAL STOCK | The Company has authorized 160,000,000 shares of capital stock, par value $0.0001 per share, of which 150,000,000 are shares of common stock and 10,000,000 are shares of “blank-check” preferred stock.
Our board of directors or Board is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights, which could adversely affect the voting power or other rights of the holders of common stock. The preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of the Company.
Common Stock
The holders of our common stock are entitled to one vote per share. In addition, the holders of our common stock will be entitled to receive ratably such dividends, if any, as may be declared by our Board out of legally available funds; however, the current policy of our Board is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of our common stock will be entitled to share ratably in all assets that are legally available for distribution.
Series A Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and Preferences of the Series A Convertible Preferred Stock (the “Series A Preferred Stock” or “Series A Preferred”), the terms of the Series A Preferred Stock are as follows:
Ranking
The Series A Preferred Stock will rank (i) senior to our common stock, (ii) pari passu with our Series A Convertible Preferred Stock, and (iii) junior to our Series B Convertible Preferred Stock with respect to distributions of assets upon the liquidation, dissolution or winding up of the Company.
Dividends
The Series A Preferred Stock is not entitled to any dividends.
Liquidation Rights
In the event of any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of Series A Preferred Stock an amount equal to the fair market value as determined in good faith by the Board.
Voluntary Conversion; Anti-Dilution Adjustments
Each fifteen (15) shares of Series A Preferred Stock shall be convertible into one share of common stock (the “Series A Conversion Ratio”). The Series A Conversion Ratio is subject to customary adjustments for issuances of shares of common stock as a dividend or distribution on shares of the common stock, or mergers or reorganizations.
Voting Rights
The Series A Preferred Stock has no voting rights. The common stock into which the Series A Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding common stock, and none of the rights of the Series A Preferred Stock.
Series A-2 Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and Preferences of the Series A-2 Convertible Preferred Stock (the “Series A-2 Preferred Stock” or “Series A-2 Preferred”), the terms of the Series A-2 Preferred Stock are as follows:
Ranking
The Series A-2 Preferred will rank (i) senior to our common stock, (ii) pari passu with our Series A Preferred Stock, and (iii) junior to our Series B Preferred Stock with respect to distributions of assets upon the liquidation, dissolution or winding up of the Company.
Dividends
The Series A-2 Preferred is not entitled to any dividends.
Liquidation Rights
In the event of any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Series A-2 Preferred shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of Series A-2 Preferred an amount of cash, securities or other property to which such holder would be entitled to receive with respect to each such share of Preferred Stock if such shares had been converted to common stock immediately prior to such liquidation, dissolution or winding-up of the Company.
Voluntary Conversion; Anti-Dilution Adjustments
Each share of Series A-2 Preferred shall, at any time, and from time to time, at the option of the holder, be convertible into ten (10) shares of common stock (the “Series A-2 Conversion Ratio”). The Series A-2 Conversion Ratio is subject to customary adjustments for issuances of shares of common stock as a dividend or distribution on shares of common stock, or mergers or reorganizations.
Conversion Restrictions
The holders of the Series A-2 Preferred may not convert their shares of Series A-2 Preferred into shares of common stock if the resulting conversion would cause such holder and its affiliates to beneficially own (as determined in accordance with Section 13(d) of the Exchange Act, and the rules thereunder) in excess of 4.99% or 9.99% of the common stock outstanding, when aggregated with all other shares of common stock owned by such holder and its affiliates at such time; provided, however, that such holder may elect to waive these conversion restrictions.
Voting Rights
The Series A-2 Preferred has no voting rights. The common stock into which the Series A-2 Preferred is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding common stock, and none of the rights of the Series A-2 Preferred.
Series B Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and Preferences of the Series B Preferred Stock (the “Series B Preferred Stock” “Series B Preferred”), the terms of the Series B Preferred Stock are as follows:
Ranking
The Series B Preferred Stock will rank senior to the Series A Preferred Stock and common stock with respect to distributions of assets upon the liquidation, dissolution or winding up of the Company.
Stated Value
Each share of Series B Preferred Stock will have a stated value of $5,500, subject to adjustment for stock splits, combinations and similar events (the “Stated Value”).
Dividends
Cumulative dividends on the Series B Preferred Stock accrue at the rate of 8% of the Stated Value per annum, payable quarterly on March 31, June 30, September 30, and December 31 of each year, from and after the date of the initial issuance. Dividends are payable in kind in additional shares of Series B Preferred Stock valued at the Stated Value or in cash at the sole option of the Company. At November 30, 2016 and February 29, 2016, the dividend payable to the holders of the Series B Preferred Stock amounted to approximately $8,000 and approximately $48,000, respectively. During the three and nine months ended November 30, 2016, the Company issued 4.0092 and 30.7170 shares of Series B Preferred Stock, respectively, for payment of dividends amounting to approximately $22,500 and approximately $169,000, respectively. During the three and nine months ended November 30, 2015, the Company issued 12.6658 and 29.9012 shares of Series B Preferred Stock, respectively, for payment of dividends amounting to approximately $70,000 and approximately $164,000, respectively.
Liquidation Rights
If the Company voluntarily or involuntarily liquidates, dissolves or winds up its affairs, each holder of the Series B Preferred Stock will be entitled to receive out of the Company’s assets available for distribution to stockholders, after satisfaction of liabilities to creditors, if any, but before any distribution of assets is made on the Series A Preferred Stock or common stock or any of the Company’s shares of stock ranking junior as to such a distribution to the Series B Preferred Stock, a liquidating distribution in the amount of the Stated Value of all such holder’s Series B Preferred Stock plus all accrued and unpaid dividends thereon. At November 30, 2016 and February 29, 2016, the value of the liquidation preference of the Series B Preferred Stock aggregated to approximately $1.2 million and $3.7 million, respectively.
Conversion; Anti-Dilution Adjustments
Each share of Series B Preferred Stock will be convertible at the holder’s option into common stock in an amount equal to the Stated Value plus accrued and unpaid dividends thereon through the conversion date divided by the then applicable conversion price. The initial conversion price was $8.25 per share (the “Series B Conversion Price”) and is subject to customary adjustments for issuances of shares of common stock as a dividend or distribution on shares of common stock, or mergers or reorganizations, as well as “full ratchet” anti-dilution adjustments for future issuances of other Company securities (subject to certain standard carve-outs) at prices less than the applicable Series B Conversion Price.
The issuance of shares of common stock pursuant to the 2016 Unit Private Placement (as defined in Note 3) triggered the full ratchet anti-dilution price protection provision of the Series B Preferred Stock. Accordingly, the Series B Conversion Price was adjusted from $8.25 to $2.00 per share. See Note 3 for the accounting treatment of the conversion price adjustment.
The Series B Preferred Stock is subject to automatic conversion (the “Mandatory Conversion”) at such time when the Company’s common stock has been listed on a national stock exchange such as the NASDAQ, New York Stock Exchange or NYSE MKT; provided, that, on the Mandatory Conversion date, a registration statement providing for the resale of the shares of common stock underlying the Series B Preferred Stock is effective. In the event of a Mandatory Conversion, each share of Series B Preferred Stock will convert into the number of shares of common stock equal to the Stated Value plus accrued and unpaid dividends divided by the applicable Series B Conversion Price.
Voting Rights
On March 27, 2015, the holders of the Series B Preferred Stock entered into an Amended and Restated Series B Preferred Purchase Agreement, whereby the Company filed an Amended and Restated Series B Preferred Certificate of Designation. The Amended and Restated Series B Preferred Certificate of Designation provides that the holders of the Series B Preferred Stock shall be entitled to the number of votes equal to the number of shares of common stock into which such Series B Preferred Stock could be converted for purposes of determining the shares entitled to vote at any regular, annual or special meeting of stockholders of the Company, and shall have voting rights and powers equal to the voting rights and powers of the common stock (voting together with the common stock as a single class).
Most Favored Nation
For a period of up to 30 months after March 31, 2015, if the Company issues any New Securities (as defined below) in a private placement or public offering (a “Subsequent Financing”), the holders of Series B Preferred Stock may exchange all of the Series B Preferred Stock at their Stated Value plus all Series A Warrants (as defined below) issued to the Series B Preferred Stock investors in the Series B Private Placement for the securities issued in the Subsequent Financing on the same terms of such Subsequent Financing. This right expires upon the earlier of (i) September 30, 2017 and (ii) the consummation of a bona fide underwritten public offering in which the Company receives aggregate gross proceeds of at least $5,000,000. “New Securities” means shares of the common stock, any other securities, options, warrants or other rights where upon exercise or conversion the purchaser or recipient receives shares of the common stock, or other securities with similar rights to the common stock, subject to certain standard carve-outs.
See Note 3 for the accounting treatment of the Series B Preferred Stock. |
EQUITY ISSUANCES |
9 Months Ended |
---|---|
Nov. 30, 2016 | |
Equity [Abstract] | |
EQUITY ISSUANCES | Common stock financing – the 2016 Unit Private Placement
During the nine months ended November 30, 2016, the Company entered into a subscription agreement pursuant to a private placement (the “2016 Unit Private Placement”) with a number of accredited investors pursuant to which the Company issued units for an offering price of $10,000 per unit, with each unit consisting of (i) 5,000 shares of its common stock, and (ii) five-year warrants (the “Unit Warrants”) to purchase 2,500 shares of common stock at an exercise price of $3.00 per share.
During the nine months ended November 30, 2016, the Company issued an aggregate of 49.5 units consisting of an aggregate of 247,500 shares of common stock and 123,750 Unit Warrants for an aggregate purchase price of $495,000. After deducting placement agent fees and other offering expenses, including legal expenses, net proceeds amounted to approximately $390,000. Additionally, the Company issued an aggregate of 24,750 placement agent warrants in substantially the same form as the Unit Warrants.
Registration Rights Agreement
Pursuant to a registration rights agreement entered into by the parties, the Company agreed to file a registration statement with the SEC providing for the resale of the shares of common stock and the shares of common stock underlying the Unit Warrants issued pursuant to the 2016 Unit Private Placement on or before the date which is forty-five (45) days after the date of the final closing of the 2016 Unit Private Placement. The Company will use its commercially reasonable efforts to cause the registration statement to become effective within one hundred fifty (150) days from the filing date. The Company has received a waiver from a majority of the 2016 Unit Private Placement investors extending the filing date of the registration statement to no later than December 15, 2016.
The Company filed the Registration Statement on Form S-1 with the SEC on December 14, 2016.
Most Favored Nation Exchange – the 2016 MFN Exchange
On July 12, 2016, the Company and one Series B Preferred Stock shareholder (the “Exchange Purchaser”) entered into an exchange agreement effective July 1, 2016 (the “Exchange Agreement”) whereby the Exchange Purchaser elected to exercise their Most Favored Nation exchange right into the securities offered pursuant to the 2016 Unit Private Placement (the “MFN Exchange”). Accordingly, the Exchange Purchaser tendered all of their 19.4837 shares of Series B Preferred Stock and approximately $2,000 of accrued and unpaid dividends for an aggregate exchange amount of approximately $109,000, plus 9,000 Series A Warrants with an exercise price of $10.50 per share originally issued in connection with the Series B Private Placement for an aggregate of 54,652 shares of common stock and Unit Warrants to purchase 27,326 shares of common stock at an exercise price of $3.00 per share. Additionally, the parties entered into a joinder agreement, and the Exchange Purchaser was granted all rights and benefits under the 2016 Unit Private Placement financing agreements.
The Company analyzed and determined that the MFN Exchange is a contingent beneficial conversion feature that should be recognized upon the occurrence of the contingent event based on its intrinsic value at the commitment date. Since the Company had fully recognized all allocated proceeds of the Series B Preferred Stock in previously recognized beneficial conversion features, no beneficial conversion was recognized upon the exchange of the Series B Preferred Stock in the MFN Exchange.
For nine months ended November 30, 2016, the Company has recorded a non-cash deemed dividend to Additional Paid-in Capital of approximately $29,000, in connection with the MFN Exchange equal to the excess fair value of the shares of common stock and Unit Warrants received over the carrying value of the exchanged shares of Series B Preferred and Series A Warrants.
Common stock financing – Additional 2016 Unit Private Placement
During the nine months ended November 30, 2016, the Company entered into a subscription agreement (the “Additional 2016 Unit Subscription Agreement”) pursuant to a private placement (the “Additional 2016 Unit Private Placement”) whereby the Company may issue units for an offering price of $10,000 per unit, with each unit consisting of (i) 5,000 shares of its common stock at an effective price of $2.00 per share (the “Effective Price”), and (ii) five-year warrants (the “Additional Unit Warrants”) to purchase 2,500 shares of common stock at an exercise price of $3.00 per share. Pursuant to the Additional 2016 Unit Subscription Agreement, for the benefit of certain investors that would be deemed to have beneficial ownership in excess of 4.99% or 9.99%, the Company may issue shares of Series A-2 Preferred Stock in lieu of issuing shares of common stock to such investors.
Pursuant to the Additional 2016 Unit Subscription Agreement, for a period of one hundred eighty (180) days following the final closing of the Additional 2016 Unit Private Placement, the investors shall have “full-ratchet” anti-dilution price protection (the “Price Protection”) based on certain issuances by the Company of common stock or securities convertible into shares of common stock at an effective price per share less than the Effective Price (a "Down-round Issuance"), whereby the Company would be required to issue the investors additional shares of common stock and Additional Unit Warrants.
During the nine months ended November 30, 2016, the Company issued an aggregate of 8.75 units consisting of an aggregate of 43,750 shares of common stock and Additional Unit Warrants to purchase 21,875 shares of common stock for an aggregate purchase price of $87,500. After deducting placement agent fees and other offering expenses, including legal expenses, net proceeds amounted to approximately $73,000. Additionally, the Company issued an aggregate of 438 placement agent warrants in substantially the same form as the Additional Unit Warrants but without the Price Protection provision.
During the three and nine months ended November 30, 2016, the Company issued an aggregate of 251.5 units consisting of an aggregate of 774,500 shares of common stock, 48,300 shares of Series A-2 Preferred Stock convertible into 483,000 shares of common stock, and Additional Unit Warrants to purchase 628,750 shares of common stock, for an aggregate purchase price of approximately $2.5 million. After deducting placement agent fees and other offering expenses, including legal expenses, net proceeds amounted to approximately $2.3 million.
Additionally, in connection with the Additional 2016 Unit Private Placement, the Company issued placement agent warrants to purchase an aggregate of 108,958 shares of common stock in substantially the same form as the Additional Unit Warrants but without the Price Protection provision.
Exchange of Payables – the Company Payable Exchange
Between October 21, 2016 and October 30, 2016, the Company entered into the Additional 2016 Unit Subscription Agreement with certain accredited vendors of the Company in connection with the exchange (the “Company Payable Exchange”) of an aggregate of $65,000 of accounts payable into the Additional 2016 Unit Private Placement. Pursuant to the Company Payable Exchange, the Company issued an aggregate of 6.5 units consisting of an aggregate of 32,500 shares of common stock, and Additional Unit Warrants to purchase 16,250 shares of common stock, in consideration for the cancellation of $65,000 of accounts payable in the aggregate. As a result of the Company Payable Exchange, the Company recognized a loss of approximately $62,000.
Exchange of Promissory Note – the Promissory Note Exchange
Effective October 21, 2016, the Company entered into the Additional 2016 Unit Subscription Agreement with the holder (the “Noteholder”) of the Promissory Note (as defined in Note 6) in connection with the exchange (the “Promissory Note Exchange”) of $600,000 principal amount of Promissory Notes plus $48,000 of accrued and unpaid interest into the Additional 2016 Unit Private Placement. In connection with the Promissory Note Exchange, we issued 64.8 units consisting of 230,000 shares of common stock, 9,400 shares of Series A-2 Preferred, convertible into 94,000 shares of common stock, and Additional Unit Warrants to purchase 162,000 shares of common stock in exchange for the cancellation of $600,000 principal amount plus $48,000 of accrued and unpaid interest of the Promissory Note (See Note 6).
Exchange of OID Notes – the OID Note Exchange
Effective October 28, 2016, the Company entered into the Additional 2016 Unit Subscription Agreement with certain holders of OID Notes (the “OID Noteholders”) in connection with the exchange (the “OID Note Exchange”) of an aggregate of $553,000 principal amount of OID Notes (the “OID Exchange Amount”) into the Additional 2016 Unit Private Placement. In connection with the OID Note Exchange, we issued an aggregate of 55.3 units consisting of 210,500 shares of common stock, 6,600 shares of Series A-2 Preferred, convertible into 66,000 shares of common stock and Additional Unit Warrants to purchase 138,250 shares of common stock in exchange for the cancellation of $553,000 of OID Notes (See Note 6).
Most Favored Nation Exchange – the Additional 2016 MFN Exchange
Effective October 30, 2016, the Company and certain Series B Preferred Stockholders (the “Additional Exchange Purchasers”) entered into exchange agreements (the “Exchange Agreements”) whereby the Additional Exchange Purchasers elected to exercise their Most Favored Nation exchange rights into the securities offered pursuant to the Additional 2016 Unit Private Placement (the “Additional MFN Exchange”). Accordingly, the Additional Exchange Purchasers tendered all of their 460.6480 shares of Series B Preferred Stock and approximately $68,000 of accrued and unpaid dividends for an aggregate exchange amount of approximately $2.6 million, plus 208,027 Series A Warrants with an exercise price of $10.50 per share originally issued in connection with the Series B Private Placement (as defined below) for an aggregate of 1,238,339 shares of common stock, 6,240.8 shares of Series A-2 Preferred Stock convertible into 62,408 shares of common stock, and Additional Unit Warrants to purchase 650,381 shares of common stock. Additionally, the parties entered into a joinder agreement, and the Exchange Purchasers were granted all rights and benefits under the Additional 2016 Unit Private Placement financing agreements.
The Company analyzed and determined that the Additional MFN Exchange is a contingent beneficial conversion feature that should be recognized upon the occurrence of the contingent event based on its intrinsic value at the commitment date. Since the Company had fully recognized all allocated proceeds of the Series B Preferred Stock in previously recognized beneficial conversion features, no beneficial conversion was recognized upon the exchange of the Series B Preferred Stock in the Additional MFN Exchange.
For the three and nine months ended November 30, 2016, the Company has recorded a non-cash deemed dividend to Additional Paid-in Capital of approximately $2.3 million and approximately $2.3 million, respectively, in connection with the Additional MFN Exchange equal to the excess fair value of the shares of common stock, shares of Series A-2 Preferred Stock and Additional Unit Warrants received over the carrying value of the shares of Series B Preferred Stock and exchanged Series A Warrants.
Accounting for the Price Protection Provision
The Company analyzed the Price Protection provision for embedded derivatives that require bifurcation. The Company evaluated the Price Protection provision for both the issuance of additional shares of common stock and additional warrants in connection with a down-round issuance in accordance with ASC 480 and ASC 815. In connection with the potential issuance of additional shares of common stock, the Company concluded that since the embedded down-round feature is within the equity host contract, the embedded Price Protection provision would be considered clearly and closely related to the equity host under ASC 815-15-25-1(a) and that the Price Protection provision should not be bifurcated. In connection with the potential issuance of additional warrants, the Company concluded that the freestanding Additional Unit Warrants are not indexed to the Company’s common stock within the scope of ASC 815-40 and therefore was initially bifurcated and measured at fair value and recorded as a derivative liability in the Condensed Consolidated Balance Sheet. The derivative liability will be measured at fair value on an ongoing basis, with changes in fair value recognized in the statement of operations.
Registration Rights Agreement
Pursuant to a registration rights agreement entered into by the parties, the Company agreed to file a registration statement with the SEC providing for the resale of the shares of common stock and the shares of common stock underlying the Additional Unit Warrants issued pursuant to the Additional 2016 Unit Private Placement on or before the date which is forty-five (45) days after the date of the final closing of the Additional 2016 Unit Private Placement, which occurred on October 30, 2016. The Company will use its commercially reasonable efforts to cause the registration statement to become effective within one hundred fifty (150) days from the filing date. The Company filed the Registration Statement on Form S-1 with the SEC on December 14, 2016.
Issuances of common stock for services
During the nine months ended November 30, 2015, the Company issued an aggregate of 28,001 shares of common stock to consultants for services that vested immediately and 6,667 shares of common stock to a consultant for services that vest over 6 months. The weighted average fair value of these shares of common stock amounted to $4.96. During the nine months ended November 30, 2015, the Company recognized approximately $236,000 into general and administrative expense related to common stock issued for services.
During the nine months ended November 30, 2016, the Company issued an aggregate of 25,000 shares of common stock to a consultant for services that vested over a two-month term and to settle $32,000 of accounts payable. The fair value of the shares amounted to approximately $46,000 on the grant date, of which approximately $14,000 was recognized into general and administrative expense during the nine months ended November 30, 2016.
Settlement
On April 1, 2015, the Company entered into a settlement agreement to settle a dispute with two affiliated security holders in which the Company paid $150,000, in exchange for the cancellation of all Company securities held by such parties, which included an aggregate of 10,728 shares of common stock, 1,667 common stock purchase warrants with an exercise price of $31.50 and 5,001 common stock purchase warrants with an exercise price of $22.50. Additionally, the Company reimbursed $3,000 of legal expenses to the two affiliated security holders. The Company recorded the fair value of the instruments as a reduction of equity as equity instruments were cancelled and recognized a settlement expense of approximately $39,000 for the excess of the amount paid over the fair value of the cancelled equity instruments.
Series B preferred stock financing – the Series B Private Placement
The Company entered into an amended and restated securities purchase agreement (the “A&R Series B Purchase Agreement”) on March 27, 2015 and March 31, 2015 with a number of new and existing accredited investors (collectively, the “Series B Investors”) pursuant to which it sold approximately $2,131,000 of Series B Preferred Stock convertible into common stock at $8.25 per share in a private placement (the “Series B Private Placement”). In addition, pursuant to the A&R Series B Purchase Agreement, the Company issued series A warrants (the “Series A Warrants”) to purchase up to 193,708 shares of common stock at an initial exercise price per share of $20.50 to the Series B Investors. The Series A Warrants expire on March 31, 2020.
Pursuant to the closings of the Series B Private Placement in March 2015, the Company issued 387.4088 shares of Series B Preferred Stock convertible into 1,065,375 shares of common stock and Series A Warrants to purchase 193,708 shares of common stock for an aggregate purchase price of approximately $2,131,000, of which $18,000 represents the exchange of stock-based compensation to a consultant that was to be settled in shares of common stock and was settled in Series B Preferred Stock and Series A Warrants. As a result of the exchange, the Company recorded approximately $13,000 of stock-based compensation expense.
In connection with the March 2015 closings of the Series B Private Placement, the placement agents were paid a total cash fee of approximately $147,000 including expense allowances and reimbursements, and were issued an aggregate of 20,668 Series A Warrants. On the grant dates, the fair value of the placement agent warrants amounted to approximately $158,000 and was recorded as a stock issuance cost. Net proceeds amounted to approximately $1,945,000 after deducting offering expenses to be paid in cash, including the placement agent fees and legal fees and other expenses.
Accounting for the Series B Preferred Stock
The Company determined the Series B Preferred Stock should be classified as equity as it is not mandatorily redeemable, and there are no unconditional obligations in that the Company must or may settle in a variable number of its equity shares.
Because the Series B Preferred Stock contain certain embedded features that could affect the ultimate settlement of the Series B Preferred Stock, the Company analyzed the instrument for embedded derivatives that require bifurcation. The Company’s analysis began with determining whether the Series B Preferred Stock is more akin to equity or debt. The Company evaluated the following criteria/features in this determination: redemption, voting rights, collateral requirements, covenant provisions, creditor and liquidation rights, dividends, conversion rights and exchange rights. The Company determined that the preponderance of evidence suggests the Series B Preferred Stock was more akin to equity than to debt when evaluating the economic characteristics and risks of the entire Series B Preferred Stock, including the embedded features. The Company then evaluated the embedded features to determine whether their economic characteristics and risks were clearly and closely related to the economic characteristics and risks of the Series B Preferred Stock. Since, the Series B Preferred Stock was determined to be more akin to equity than debt, and the underlying that causes the value of the embedded features to fluctuate would be the value of the Company’s common stock, the embedded features were considered clearly and closely related to the Series B Preferred Stock. As a result, the embedded features would not need to be bifurcated from the Series B Preferred Stock.
Any contingent beneficial conversion features will be recognized upon the occurrence of the contingent events based on its intrinsic value at the commitment date.
Accounting for the Series A Warrants
The Company concluded the freestanding Series A Warrants were indexed to the Company’s common stock and should be classified in stockholder’s equity, based on their relative fair value.
Allocation of Proceeds of the Series B Private Placement on March 27 and 31, 2015
The proceeds of approximately $2,131,000 from the Series B Private Placement on March 27 and 31, 2015 were allocated to the Series B Preferred Stock and Series A Warrant instruments based on their relative fair values.
The Series B Preferred Stock was valued on an as-if-converted basis based on the underlying common stock. The Series A Warrants were valued using the Black-Scholes model with the following weighted-average input at the time of issuance: expected term of 5.0 years based on their contractual life, volatility of 125% based on the Company’s historical volatility and risk free rate of 1.4% based on the rate of the 5-years U.S. treasury bill.
After allocation of the proceeds, the effective conversion price of the Series B Preferred Stock was determined to be beneficial and, as a result, the Company recorded a non-cash deemed dividend of approximately $1,067,000 equal to the intrinsic value of the beneficial conversion feature since the Series B Preferred Stock was immediately convertible.
Deemed Dividend due to Conversion Price Adjustment.
During the nine months ended November 30, 2016, as a result of the adjustment of the Series B Conversion Price from $8.25 to $2.00 per share due to the 2016 Unit Private Placement, the Company recorded a non-cash deemed dividend, amounting to approximately $708,000. The expense was measured at the intrinsic value of the beneficial conversion feature for each issuance of Series B Preferred Stock in the Series B Private Placement and was limited to the amount of Series B Preferred Stock allocated proceeds less previously recognized beneficial conversion features.
The Series B Registration Rights Agreement
In connection with the closing of the Series B Private Placement, the Company entered into an amended and restated registration rights agreement (the “A&R Series B Registration Rights Agreement”) with the Series B Investors, in which the Company agreed to file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission ("SEC") to register for resale the shares of common stock underlying the Series B Preferred Stock, the Series A Warrants and the Series B Warrants within 30 calendar days of the final closing date of March 31, 2015 (the “Filing Date”), and to have the registration statement declared effective within 120 calendar days of the Filing Date.
If the Registration Statement has not been filed with the SEC on or before the Filing Date, the Company shall, on the business day immediately following the Filing Date, and each 15th day thereafter, make a payment to the Series B Investors as partial liquidated damages for such delay (together, the “Late Registration Payments”) equal to 2.0% of the purchase price paid for the Series B Preferred Stock then owned by the Series B Investors for the initial 15 day period and 1.0% of the purchase price for each subsequent 15 day period until the Registration Statement is filed with the SEC. Late Registration Payments will be prorated on a daily basis during each 15-day period and will be paid to the Series B Investors by wire transfer or check within five business days after the end of each 15-day period following the Filing Date.
The Company filed the Registration Statement on Form S-1 with the SEC on April 10, 2015, and as a result no penalty was incurred. |
STOCK OPTIONS |
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Stock Options | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK OPTIONS | During the nine months ended November 30, 2015, the Company issued options to purchase 6,667 shares of common stock at $11.25 per share and 10,000 shares of common stock at $8.25 to consultants. These options vest upon achieving certain performance-based milestones and expire ten years after their grant. The Company will measure the fair value of these options with vesting contingent on achieving certain performance-based milestones and recognize the compensation expense when vesting becomes probable. The fair value will be measured using a Black-Scholes model. During the nine months ended November 30, 2015, 3,334 of these options vested based on achieving certain milestones.
During the nine months ended November 30, 2015, the Company issued options to purchase 85,005 shares of common stock at $8.25 per share to non-executive members of its Board and employees. These options vest over time through May 2018 for the non-executive members of the Board and through September 2017 for the employees. These options had a total fair value of approximately $405,000 as calculated using the Black-Scholes model.
During the nine months ended November 30, 2015, the Company issued options to purchase 60,000 shares of common stock at $8.25 per share to our Chief Executive Officer. Certain of these options vest upon achieving certain performance-based or market-based milestones and expire on June 17, 2025. The fair value of these options on the grant date was approximately $221,000. The Company will recognize the compensation expense when vesting becomes probable. During the nine months ended November 30, 2015, 10,000 of these options vested immediately and during the three and nine months ended November 30, 2015, 10,000 of these options vested upon achieving a performance based milestone.
During the nine months ended November 30, 2015, the Company issued options to purchase 26,667 shares of common stock at $8.25 per share to our former Chief Executive Officer and Chief Medical Officer. These options vested immediately. These options had a total fair value of approximately $44,000 as calculated using the Black-Scholes model. The Company also modified the expiration date of certain vested option previously granted to our former Chief Executive Officer and Chief Medical Officer, which resulted in an additional compensation expense of approximately $22,000 being recorded during the nine months ended November 30, 2015.
During the nine months ended November 30, 2016, the Company issued options to purchase 50,000 shares of common stock at $2.19 per share to a non-executive member of its Board. These 50,000 options vest in three equal installments on each of May 26, 2017, May 26, 2018, and May 26, 2019 and expire on May 26, 2026. These options had a total fair value of approximately $87,000 as calculated using the Black-Scholes model.
During the nine months ended November 30, 2016, the Company issued options to purchase 50,000 shares of common stock at $2.19 per share to a non-executive member of its Board for performing other services. These 50,000 options vest upon achieving a certain milestone and expire on May 26, 2026. These options will be measured and recognized when vesting becomes probable.
During the nine months ended November 30, 2016, the Company issued options to purchase an aggregate of 440,000 shares of common stock at an exercise price of $2.00 per share to members of its management team. These options expire on July 7, 2026. These options had a grant date fair value of approximately $622,000 as calculated using the Black-Scholes model. 73,333 of these options vested immediately and 146,667 of these options vest in equal monthly installments over a twenty-four-month period. 220,000 options are subject to certain milestone-based vesting. The Company has not recognized any stock based compensation for the options with performance-vesting conditions, and expects to recognize the compensation expense when vesting become probable, which has not yet occurred.
During the nine months ended November 30, 2016, the Company issued options to purchase an aggregate of 100,000 shares of common stock at an exercise price of $2.00 per share to a non-executive member of its Board. These options expire on July 7, 2026. These options had a total fair value of approximately $143,000 as calculated using the Black-Scholes model. 33,333 of these options vested immediately and 66,667 of these options vest in equal monthly installments over a twenty-four-month period.
During the nine months ended November 30, 2016, the Company issued options to purchase an aggregate of 240,000 shares of common stock at an exercise price of $2.00 per share to consultants. These options expire on July 7, 2026. 33,333 of these options, with an aggregate fair value of approximately $57,000, vest on the first anniversary date and then 66,667 of these options vest in equal monthly installments over a twenty-four-month period. 140,000 of these options are subject to certain milestone-based vesting and the Company will measure the fair value of these options with vesting contingent on achieving certain performance-based milestones and recognize the compensation expense when vesting becomes probable.
During the three and nine months ended November 30, 2016, the Company and a member of its Board voluntarily cancelled options to purchase an aggregate of 100,000 shares of common stock at an exercise price of $2.00 per share without replacement. The Company recognized approximately $69,000 of compensation expense related to the cancellation of these options.
The weighted average inputs to the Black-Scholes model used to value the stock options granted during the nine months ended November 30, 2016 and 2015 are as follows:
For the three months ended November 30, 2016, the Company recognized approximately $133,000 of compensation expense related to stock options, of which approximately $111,000 was recognized in general and administrative expenses and approximately $22,000 in research and development expenses.
For the nine months ended November 30, 2016, the Company recognized approximately $481,000 of compensation expense related to stock options, of which approximately $399,000 was recognized in general and administrative expenses and approximately $82,000 in research and development expenses.
For the three months ended November 30, 2015, the Company recognized approximately $204,000 of compensation expense related to stock options, of which approximately $141,000 was recognized in general and administrative expenses and approximately $63,000 in research and development expenses.
For the nine months ended November 30, 2015, the Company recognized approximately $456,000 of compensation expense related to stock options, of which approximately $369,000 was recognized in general and administrative expenses and approximately $87,000 in research and development expenses.
The following table summarizes common stock options issued and outstanding as of November 30, 2016:
The following table breaks down exercisable and unexercisable common stock options by exercise price as of November 30, 2016:
As of November 30, 2016, we had approximately $267,000 of unrecognized compensation related to employee and consultant stock options that are expected to vest over a weighted average period of 0.9 years and, approximately $500,000 of unrecognized compensation related to employee stock options whose recognition is dependent on certain milestones to be achieved. Additionally, there were 30,000 stock options with a performance vesting condition that were granted to consultants which will be measured and recognized when vesting becomes probable. |
WARRANTS |
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WARRANTS | For the nine months ended November 30, 2015, the Company issued a warrant to purchase an aggregate of 43,636 shares of common stock in connection with the issuances of the Promissory Note on July 31, 2015, referenced in Note 6. This warrant was initially exercisable at $8.25 per share and expires on July 30, 2020. The warrant vested immediately. In connection with the issuances of common stock pursuant to the 2016 Unit Private Placement, the exercise price of these warrants was adjusted to $2.00 per share.
In connection with the issuances of the Promissory Note pursuant to the Note Purchase Agreement on July 31, 2015, the Company issued placement agent warrants to purchase an aggregate of 5,600 shares of common stock. These placement agent warrants were issued on July 31, 2015, are exercisable at $10.50 per share and expire on July 31, 2020. These placement agent warrants vested immediately. The fair value of these warrants was determined to be approximately $17,000, as calculated using the Black-Scholes model. Weighted-average assumptions used in the Black-Scholes model included: (1) a discount rate of 1.54%; (2) an expected term of 5.0 years; (3) an expected volatility of 128%; and (4) zero expected dividends. Approximately $17,000 was recorded as part of the debt discount against the stated value of the Note (See Note 6).
For the nine months ended November 30, 2015, the Company issued an aggregate of 193,708 Series A Warrants in connection with the issuances of Series B Preferred Stock in March 2015, referenced in Note 3. These Series A Warrants were issued on March 27, 2015 and March 31, 2015, are exercisable at $10.50 per share and expire on March 31, 2020. The Series A Warrants vest immediately. The Series A Warrants do not contain any provision that would require liability treatment, therefore they were classified as equity in the Condensed Consolidated Balance Sheet.
In connection with the issuances of the Series B Preferred Stock on March 27, 2015 and March 31, 2015, the Company issued placement agent warrants to purchase an aggregate of 20,668 shares of common stock. These placement agent warrants had the same terms as the Series A Warrants and were issued on March 27, 2015, are exercisable at $10.50 per share and expire on March 31, 2020. These placement agent warrants vest immediately. The fair value of these warrants was determined to be approximately $158,500, as calculated using the Black-Scholes model. Weighted-average assumptions used in the Black-Scholes model included: (1) a discount rate of 1.41%; (2) an expected term of 5.0 years; (3) an expected volatility of 125%; and (4) zero expected dividends.
For the nine months ended November 30, 2015, the Company issued an aggregate of 1,251 warrants to a consultant for services. These warrants were issued on May 31, 2015 and expire on May 31, 2020. A total of 556 of such warrants are exercisable at $15.00 per share and 695 of such warrants are exercisable at $18.75 per share. These warrants vest immediately. The fair value of these warrants was determined to be approximately $4,500, as calculated using the Black-Scholes model. Average assumptions used in the Black-Scholes model included: (1) a discount rate of 1.49%; (2) an expected term of 5.0 years; (3) an expected volatility of 124%; and (4) zero expected dividends. For the nine months ended November 30, 2015, the Company recognized approximately $4,500 of stock-based compensation for these warrants.
For the three and nine months ended November 30, 2015, the Company issued to a consultant for services a five-year warrant to purchase 9,134 shares of common stock at an exercise price of $8.25 per share. This warrant vests immediately. The fair value of this warrant was determined to be approximately $27,000, as calculated using the Black-Scholes model. Average assumptions used in the Black-Scholes model included: (1) a discount rate of 1.54%; (2) an expected term of 5.0 years; (3) an expected volatility of 128%; and (4) zero expected dividends. For the nine months ended November 30, 2015, the Company recognized approximately $27,000 of stock-based compensation for this warrant.
For the nine months ended November 30, 2015, a total of 1,668 common stock purchase warrants with an exercise price of $31.50 and 5,001 common stock purchase warrants with an exercise price of $22.50 were repurchased and cancelled as part of a settlement of a dispute with two affiliated security holders (see Note 3).
For the nine months ended November 30, 2016, the Company issued warrants to purchase an aggregate of 9,092 shares of common stock in connection with the issuance of the OID Notes pursuant to the March 2016 OID Note Purchase Agreements dated between March 3 and 15, 2016, referenced in Note 6. These warrants were initially exercisable at $8.25 per share and expire between March 3 and 15, 2021. These warrants vested immediately. These warrants contained an anti-dilution price protection provision, which required the warrants to be recorded as derivative warrant liability. In connection with the issuances of common stock pursuant to the 2016 Unit Private Placement, the exercise price of these warrants was adjusted to $2.00 per share. Such clause will lapse upon completion of a Qualified Offering, as defined in the warrant agreement. These warrants were recorded as a debt discount based on their fair value.
For the nine months ended November 30, 2016, the Company issued Unit Warrants to purchase an aggregate of 148,500 shares of common stock to investors in connection with the 2016 Unit Private Placement referenced in Note 3. These Unit Warrants are exercisable at $3.00 per share and expire between May 26, 2021 and June 7, 2021. These Unit Warrants vested immediately. These Unit Warrants do not contain any provision that would require liability treatment, therefore they were classified as equity in the Condensed Consolidated Balance Sheet.
For the nine months ended November 30, 2016, the Company issued Unit Warrants to purchase an aggregate of 27,326 shares of common stock in connection with the MFN Exchange referenced in Note 3. These Unit Warrants are exercisable at $3.00 per share and expire on June 7, 2021. These Unit Warrants vested immediately. Additionally, in connection with the MFN Exchange, the Company cancelled Series A Warrants to purchase an aggregate of 9,000 shares of common stock. These Series A Warrants were originally issued in connection with the Series B Private Placement and were exercisable at $10.50 per share.
For the nine months ended November 30, 2016, the Company issued warrants to purchase an aggregate of 45,459 shares of common stock in connection with the OID Note Amendments referenced in Note 6. These warrants are exercisable at $2.00 per share and expire between August 11, 2021 and August 18, 2021. These warrants vested immediately. The fair value of these warrants was determined to be approximately $44,000, as calculated using the Black-Scholes model and were recorded as a debt discount based on their fair value.
For the nine months ended November 30, 2016, the Company issued Additional Unit Warrants to purchase an aggregate of 21,875 shares of common stock in connection with the Additional 2016 Unit Private Placement referenced in Note 3. These Additional Unit Warrants vested immediately, are exercisable at $3.00 per share and expire on August 30, 2021. As discussed in Note 3, due to the Price Protection Provision, these Additional Unit Warrants are being classified as a derivative liability and measured at fair value.
For the nine months ended November 30, 2016, in connection with the Additional 2016 Unit Private Placement, the Company issued placement agent warrants to purchase an aggregate of 438 shares of common stock. These placement agent warrants were issued on August 31, 2016, vested immediately, are exercisable at $3.00 per share and expire on August 30, 2021. The fair value of these warrants was determined to be approximately $400, as calculated using the Black-Scholes model. Weighted-average assumptions used in the Black-Scholes model included: (1) a discount rate of 1.18 %; (2) an expected term of 5.0 years; (3) an expected volatility of 102% and (4) zero expected dividends.
For the three and nine months ended November 30, 2016, the Company issued Additional Unit Warrants to purchase an aggregate of 628,750 shares of common stock in connection with the Additional 2016 Unit Private Placement referenced in Note 3. These Additional Unit Warrants vested immediately, are exercisable at $3.00 per share and expire between September 27, 2021 and October 20, 2021. As discussed in Note 3, due to the Price Protection Provision, these Additional Unit Warrants are being classified as a derivative liability and measured at fair value.
For the three and nine months ended November 30, 2016, the Company issued Additional Unit Warrants to purchase an aggregate of 16,250 shares of common stock in connection with the Company Payable Exchange referenced in Note 3. These Additional Unit Warrants vested immediately, are exercisable at $3.00 per share and expire between October 2021 and October, 29, 2021. As discussed in Note 3, due to the Price Protection Provision, these Additional Unit Warrants are being classified as a derivative liability and measured at fair value.
For the three and nine months ended November 30, 2016, the Company issued Additional Unit Warrants to purchase an aggregate of 162,000 shares of common stock in connection with the Promissory Note Exchange referenced in Note 3. These Additional Unit Warrants vested immediately, are exercisable at $3.00 per share and expire on October, 20, 2021. As discussed in Note 3, due to the Price Protection Provision, these Additional Unit Warrants are being classified as a derivative liability and measured at fair value.
For the three and nine months ended November 30, 2016, the Company issued Additional Unit Warrants to purchase an aggregate of 138,250 shares of common stock in connection with the OID Note Exchange referenced in Note 3. These Additional Unit Warrants vested immediately, are exercisable at $3.00 per share and expire on October, 27, 2021. As discussed in Note 3, due to the Price Protection Provision, these Additional Unit Warrants are being classified as a derivative liability and measured at fair value.
For the three and nine months ended November 30, 2016, the Company issued Additional Unit Warrants to purchase an aggregate of 650,381 shares of common stock in connection with the Additional MFN Exchange referenced in Note 3. These Additional Unit Warrants vested immediately, are exercisable at $3.00 per share and expire on October 29, 2021. As discussed in Note 3, due to the Price Protection Provision, these Additional Unit Warrants are being classified as a derivative liability and measured at fair value. Additionally, in connection with the Additional MFN Exchange, the Company cancelled Series A Warrants to purchase an aggregate of 208,027 shares of common stock. These Series A Warrants were originally issued in connection with the Series B Private Placement and were exercisable at $10.50 per share.
For the three and nine months ended November 30, 2016, in connection with the Additional 2016 Unit Private Placement, the Company issued placement agent warrants to purchase an aggregate of 108,520 shares of common stock. These placement agent warrants were issued between September 28, 2016 and October 28, 2016, vested immediately, are exercisable at $3.00 per share and expire between September 27, 2021 and October 27, 2021. The fair value of these warrants was determined to be approximately $259,000, as calculated using the Black-Scholes model. Weighted-average assumptions used in the Black-Scholes model included: (1) a discount rate of 1.25%; (2) an expected term of 5 years; (3) an expected volatility of 133% and (4) zero expected dividends.
The following table summarizes common stock purchase warrants issued and outstanding:
Warrants exercisable at November 30, 2016 are:
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NOTE PAYABLE | Promissory Note and Promissory Note Amendment
The Company entered into a note purchase agreement effective July 31, 2015 (the “Note Purchase Agreement”) with one its existing institutional investors (the “Note Holder”). Pursuant to the Note Purchase Agreement, the Company issued and sold a non-convertible promissory note in the principal amount of $1.2 million (the “Promissory Note”) and a warrant (the “Note Warrant”) to purchase 43,636 shares of the Company’s common stock in a private placement (the “Note Private Placement”).
The Promissory Note matured on July 31, 2016, accrued interest at a rate of eight percent (8%) per annum and may be prepaid by the Company at any time prior to the maturity date without penalty or premium. The Note Holder has the right at its option to exchange (the “Note Voluntary Exchange”) the outstanding principal balance of the Promissory Note plus the Conversion Interest Amount (as defined below) into such number of securities to be issued in a Public Offering (as defined below). Upon effectuating such Note Voluntary Exchange, the Note Holder shall be deemed to be a purchaser in the Public Offering. ”Public Offering” means a registered offering of equity or equity-linked securities resulting in gross proceeds of at least $5.0 million to the Company; and “Conversion Interest Amount” means interest payable in an amount equal to all accrued but unpaid interest assuming the Promissory Note had been held from the issuance date to the maturity date. In the event the Company completes a Public Offering and the Note Holder elected not to effectuate the Note Voluntary Exchange, then the Company shall promptly repay the outstanding principal amount of the Promissory Note plus all accrued and unpaid interest following completion of the Public Offering.
The Note Warrant contains an adjustment clause affecting its exercise price, which may be reduced if the Company issues shares of common stock or convertible securities at a price below the then-current exercise price of the Note Warrant. As a result, we determined that the Note Warrant was not indexed to the Company’s common stock and therefore should be recorded as a derivative liability. The detachable Note Warrant issued in connection with the Promissory Note was recorded as a debt discount based on its fair value (see Note 7 for fair value measurement). The adjustment clause lapses upon listing of the Company’s common stock on a national stock exchange such as the NASDAQ, New York Stock Exchange or NYSE MKT.
The Company evaluated the Note Voluntary Exchange provision, which provides for settlement of the Promissory Note at an 8% premium to the Promissory Note’s stated principal amount, in accordance with ASC 815-15-25. The Voluntary Exchange provision is a contingent put that is not clearly and closely related to the debt host instrument and therefore was initially bifurcated and measured at fair value and recorded as a derivative liability in the Condensed Consolidated Balance Sheet. The derivative liability will be measured at fair value on an ongoing basis, with changes in fair value recognized in the statement of operations. The proceeds of the Note Private Placement were first allocated to the fair value of the Note Warrant in the amount of approximately $151,000 and to the fair value of the Note Voluntary Exchange provision in the amount of approximately $228,000, with the difference of approximately $822,000 representing the initial carrying value of the Promissory Note. Further, approximately $105,000 of debt issuance cost was recorded as additional debt discount at issuance. On February 12, 2016, the Company entered into an amendment (the “Note Amendment”) with the Note Holder, whereby the Company and the Note Holder agreed to extend the maturity date of the Promissory Note from July 31, 2016 to December 31, 2016 and increase the interest rate commencing August 1, 2016 to 12% per annum. The Company also obtained the Note Holder’s consent to the consummation of the OID Note Private Placement (as defined below), as required under the Promissory Note.
Additionally, pursuant to the Note Amendment, the Note Voluntary Exchange was modified to effect a voluntary exchange of $600,000 principal amount (“Initial Exchange Principal Amount”) of the Promissory Note plus the Initial Conversion Interest Amount into a Qualified Offering (as defined below) or Public Offering. “Initial Conversion Interest Amount” shall mean interest payable in an amount equal to all accrued but unpaid interest assuming the Initial Exchange Principal Amount has been held from the issuance date to the original maturity date of July 31, 2016 (for the avoidance of doubt, such amount that is calculated using the following formula: (a) 8% multiplied by the Initial Exchange Principal Amount ($600,000), multiplied by (b) the actual number of days elapsed in a year of three hundred and sixty-five (365) days, which amount shall equal $48,000 in the aggregate). “Qualified Offering” means one or a series of offerings of equity or equity-linked securities resulting in aggregate gross proceeds of at least $2,000,000 to the Company.
Further, under the modified Note Voluntary Exchange, the Note Holder shall have the right to effect a voluntary exchange with respect to the remaining $600,000 principal amount (the “Remaining Principal Amount”) plus the Remaining Conversion Interest Amount into a Qualified Offering or Public Offering. “Remaining Conversion Interest Amount” shall mean interest payable in an amount equal to the sum of (A) all accrued but unpaid interest on such portion of the Remaining Principal Amount subject to such Voluntary Exchange assuming such portion of the Remaining Principal Amount had been held from the original maturity date of July 31, 2016 to the amended maturity date of December 31, 2016 (for the avoidance of doubt, such amount that is calculated using the following formula: (a) 12% multiplied by such portion of the Remaining Principal Amount subject to such Voluntary Exchange, multiplied by (b) the actual number of days elapsed in a year of three hundred and sixty-five (365) days, which amount shall equal $30,000 in the aggregate assuming the aggregate Remaining Principal Amount of $600,000 is used in such calculation), plus (B) all accrued but unpaid interest assuming such portion of the Remaining Principal Amount had been held from the issuance date to the original maturity date of July 31, 2016 (for the avoidance of doubt, such amount that is calculated using the following formula: (a) 8% multiplied by such portion of the Remaining Principal Amount, multiplied by (b) the actual number of days elapsed in a year of three hundred and sixty-five (365) days, which amount shall equal $48,000 in the aggregate assuming the aggregate Remaining Principal Amount of $600,000 is used in such calculation).In consideration for entering into the Note Amendment, the Company issued the Note Holder a warrant to purchase 43,636 shares of the Company’s common stock (the “Amendment Warrant”) in substantially the same form as the Note Warrant issued in the Note Private Placement, provided, however, that with respect to the “full-ratchet” anti-dilution price protection adjustments for future issuances of other Company equity or equity-linked securities (subject to certain standard carve-outs), such price protection adjustment shall be equal to 110% of the consideration price per share of the issued equity or equity-linked securities.
The Company evaluated the Note Amendment transaction in accordance with ASC 470-50-40-12 and determined the Note Amendment did not constitute a substantive modification of the Promissory Note and that the transaction should be accounted for as a debt modification.
The Amendment Warrant contains an adjustment clause affecting its exercise price, which may be reduced if the Company issues shares of common stock or convertible securities at a price below the then-current exercise price of the Amendment Warrant. As a result, the Company determined that the Amendment Warrant was not indexed to the Company’s common stock and therefore should be recorded as a derivative liability. The fair value of the detachable Amendment Warrant issued in connection with the Note Amendment was recorded as a debt discount. The adjustment clause lapses upon the Company completing a Qualified Offering.
Accordingly, the Company recorded a debt discount related to the warrant liability of approximately $85,000 and a debt discount related to the Voluntary Exchange of approximately $104,000.
Effective October 21, 2016, in connection with the Promissory Note Exchange as described in Note 3, $600,000 principal amount of the Promissory Note plus $48,000 of accrued and unpaid interest was exchanged into the Additional 2016 Unit Private Placement. Accordingly, the Company recorded a loss on extinguishment of approximately $694,000 during the three and nine months ended November 30, 2016.
During the three months ended November 30, 2016, the Company recognized approximately $137,000 of interest expense related to the Promissory Note, as amended, including amortization of debt discount of approximately $109,000 and accrued interest expense of approximately $28,000. Additionally, the Company recognized a gain of approximately $75,000 in the three months ended November 30, 2016 due to the change in estimated fair value of the Voluntary Exchange provision.
During the nine months ended November 30, 2016, the Company recognized approximately $428,000 of interest expense related to the Promissory Note, as amended, including amortization of debt discount of approximately $348,000 and accrued interest expense of approximately $80,000. Additionally, the Company recognized a gain of approximately $340,000 in the nine months ended November 30, 2016 due to the change in estimated fair value of the Voluntary Exchange provision.
OID Notes and OID Note Amendments
In February 2016, the Company entered into an OID note purchase agreement dated February 12, 2016 (the “February 2016 OID Note Purchase Agreement”) in a private placement (the “OID Note Private Placement”) with various accredited investors (the “OID Note Holders”). Pursuant to the OID Note Purchase Agreement, the Company may issue and sell non-convertible OID promissory notes (the “OID Notes”) up to an aggregate purchase price of $1,000,000 (the “Purchase Price”) and warrants (the “OID Warrants”) to purchase 7,273 shares of the Company’s common stock for every $100,000 of Purchase Price. The OID Notes shall have an initial principal balance equal to 120% of the Purchase Price (the “OID Principal Amount”). Pursuant to the February 2016 OID Note Purchase Agreement, the Company received an aggregate Purchase Price of $500,000 and issued OID Notes in the aggregate OID Principal Amount of $600,000 and OID Warrants to purchase an aggregate of 36,367 shares of the Company’s common stock.
During the nine months ended November 30, 2016, the Company entered into OID note purchase agreements between March 4 and 15, 2016 (the “March 2016 OID Note Purchase Agreements”) with various accredited investors. Pursuant to the March 2016 OID Note Purchase Agreements, the Company issued OID Notes with an aggregate Purchase Price of $125,000 and OID Warrants to purchase 9,902 shares of the Company’s common stock. The OID Notes issued in March 2016 have an OID Principal Amount equal to $150,000 or 120% of the Purchase Price.
The OID Notes mature six (6) months following the issuance date of each OID Note and may be prepaid by the Company at any time prior to the maturity date without penalty or premium. In the event the OID Notes are prepaid in full on or before the date that is ninety (90) days following the issuance date of each OID Note, the prepayment amount shall be equal to 110% of the Purchase Price and in the event the OID Notes are prepaid following such initial ninety (90) day period, the prepayment amount shall be equal to the OID Principal Balance (the “Optional Redemption”). The Company determined the Optional Redemption feature represents a contingent call option. The Company evaluated the Optional Redemption provision in accordance with ASC 815-15-25. The Company determined that the Optional Redemption feature is clearly and closely related to the debt host instrument and is not an embedded derivative requiring bifurcation.
Each OID Note Holder has the right at its option to act as a purchaser in a Qualified Offering and, in lieu of investing new cash subscriptions, mechanically effect a voluntary exchange (the “OID Note Voluntary Exchange”) of the OID Principal Amount of the OID Notes into such number of securities to be issued in a Qualified Offering. Upon effectuating such OID Voluntary Exchange, the OID Note Holders shall be deemed to be purchasers in the Qualified Offering. The Company evaluated the OID Note Voluntary Exchange provision, which provides for settlement of the OID Notes at the OID Principal Amount in accordance with ASC 815-15-25. The Company determined the OID Note Voluntary Exchange provision is a contingent put that is not clearly and closely related to the debt host instrument and therefore was initially separately measured at fair value and will be measured at fair value on an ongoing basis, with changes in fair value recognized in the statement of operations.
The OID Warrants contain an adjustment clause affecting their exercise price, which may be reduced if the Company issues shares of common stock or convertible securities at a price below the then-current exercise price of the OID Warrants. As a result, we determined that the OID Warrants were not indexed to the Company’s common stock and therefore should be recorded as a derivative liability. The detachable OID Warrants issued in connection with the OID Notes were recorded as a debt discount based on their fair value (see Note 7 for fair value measurement). The adjustment clause lapses upon the Company completing the Qualified Offering.
Pursuant to the March 2016 closings of the OID Note Private Placement, the OID Principal Amount was first allocated to the fair value of the OID Warrants in the amount of approximately $15,000, next to the value of the original issuance discount in the amount of $25,000, then to the fair value of the OID Note Voluntary Exchange provision in the amount of approximately $33,000, and lastly to the debt discount related to offering costs of approximately $2,000 with the difference of approximately $75,000 representing the initial carrying value of the OID Notes issued in March 2016.
Between August 12, 2016 and August 19, 2016, the Company entered into certain amendments (the “OID Note Amendments”), to its outstanding non-convertible OID Notes originally issued between February 12, 2016 and March 15, 2016 (the “OID Notes”), with the holders of an aggregate of $750,000 principal amount of OID Notes, whereby the holders of the OID Notes extended the maturity date of the OID Notes an additional three (3) months to between November 12, 2016 and December 15, 2016. In consideration for entering into the Note Amendments, the Company (i) increased the principal amount of the OID Notes by 10% to $825,000 in the aggregate from $750,000 in the aggregate, (ii) issued an aggregate of 45,459 common stock purchase warrants with an exercise price of $2.00 per share and a term of five years, and (iii) modified the voluntary exchange provision of the OID Notes by reducing the “Qualified Offering” threshold amount to $500,000 from $2,000,000. Additionally, the Company will have the sole option to extend the maturity date of the OID Notes an additional three (3) months in consideration for a further 10% increase in the principal amount from $825,000 to $907,500.
The Company evaluated the OID Note Amendments transactions in accordance with ASC 470-50-40-12 and determined the OID Note Amendments did not constitute a substantive modification of the OID Notes and that the transaction should be accounted for as a debt modification.
Effective October 28, 2016, in connection with the OID Note Exchange as described in Note 3, $553,000 principal amount of OID Notes was exchanged into the Additional 2016 Unit Private Placement. Accordingly, the Company recorded a loss on extinguishment of approximately $555,000 during the three and nine months ended November 30, 2016. Additionally, the Company repaid $8,000 of OID Notes.
Effective November 12, 2016, the Company provided notice that it effected its sole option to extend the maturity date (the “Second OID Note Amendment”) of its outstanding OID Note in the aggregate of $264,000 principal amount of OID Note, whereby the holder of the OID Note extended the maturity date of the OID Note an additional three (3) months to February 12, 2017. In consideration for entering into the Note Amendment, the Company increased the principal amount of the OID Note by 10% or to $26,400 to $290,400 in the aggregate.
The Company evaluated the Second OID Note Amendment in accordance with ASC 470-50-40-12 and determined the OID Note Amendments did not constitute a substantive modification of the OID Notes and that the transaction should be accounted for as a debt modification.
During the three months ended November 30, 2016, the Company recognized approximately $137,000 of interest expense related to the OID Notes, as amended, including amortization of debt discount. Additionally, the Company recognized a gain of approximately $84,000 in the three months ended November 30, 2016 due to the change in estimated fair value of the Voluntary Exchange provision.
During the nine months ended November 30, 2016, the Company recognized approximately $551,000 of interest expense related to the OID Notes, as amended, including amortization of debt discount. Additionally, the Company recognized a gain of approximately $275,000 in the nine months ended November 30, 2016 due to the change in estimated fair value of the OID Note Voluntary Exchange provision.
The following table summarizes the notes payable:
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | In accordance with ASC 820, Fair Value Measurements, financial instruments were measured at fair value using a three-level hierarchy which maximizes use of observable inputs and minimizes use of unobservable inputs:
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. At November 30, 2016 and February 29, 2016, the warrant liability and put exchange feature liability balances were classified as Level 3 instruments.
Derivative Warrant Liability
The following table sets forth the changes in the estimated fair value for our Level 3 classified derivative warrant liability:
In connection with the initial closing of the Series B Private Placement on December 31, 2014, the Company issued a warrant to purchase an aggregate of 30,334 shares of common stock (the “Series B Warrant”). The Series B Warrant was issued on December 31, 2014, was originally exercisable at $8.25 per share and expires on March 31, 2020. The Series B Warrant contains a full-ratchet anti-dilution price protection provision that requires liability treatment and the exercise price of the Series B Warrant was adjusted to $2.00 during the nine months ended November 30, 2016. The fair value of the Series B Warrant at November 30, 2016 and February 29, 2016 was determined to be approximately $48,000 and approximately $46,000, respectively, as calculated using the Monte Carlo simulation. The Monte Carlo simulation as of November 30, 2016 and February 29, 2016 used the following assumptions: (1) a stock price of $2.00 and $1.80, respectively; (2) a risk-free rate of 1.47% and 1.08%, respectively; (3) an expected volatility of 134% and 134%, respectively; and (4) a fundraising event to occur on March 31, 2017 and May 15, 2016, respectively, that would result in the issuance of additional common stock.
In connection with the issuance of the Promissory Note on July 31, 2015, the Company issued a warrant to purchase an aggregate of 43,636 shares of common stock. This warrant was issued on July 31, 2015, was originally exercisable at $8.25 per share and expires on July 31, 2020. This warrant contains a full-ratchet anti-dilution price protection provision that requires liability treatment and the exercise price of this warrant was adjusted to $2.00 during the nine months ended November 30, 2016. The fair value of the warrant at November 30, 2016 and February 29, 2016 was determined to be approximately $71,000 and approximately $64,000, respectively, as calculated using the Monte Carlo simulation. The Monte Carlo simulation as of November 30, 2016 and February 29, 2016 used the following assumptions: (1) stock price of $2.00 and $1.80, respectively; (2) a risk-free rate of 1.54% and 1.13%, respectively; (3) an expected volatility of 134% and 134%, respectively; and (4) a fundraising event to occur on March 31, 2017 and May 15, 2016, respectively, that would result in the issuance of additional common stock.
In connection with the execution of the Note Amendment on February 12, 2016, the Company issued a warrant to purchase an aggregate of 43,636 shares of common stock. This warrant was issued on February 12, 2016, initially exercisable at $8.25 per share and expires on February 11, 2021. This warrant contains a ratchet anti-dilution price protection provision that requires liability treatment and the exercise price of this warrant was adjusted to $2.20 during the nine months ended November 30, 2016. The fair value of the warrant at November 30, 2016 and February 29, 2016 was determined to be approximately $76,000 and approximately $68,000, respectively, as calculated using the Monte Carlo simulation. The Monte Carlo simulation as of November 30, 2016 and February 29, 2016 used the following assumptions: (1) stock price of $2.00 and $1.80, respectively; (2) a risk-free rate of 1.47% and 1.20%, respectively; (3) an expected volatility of 134% and 134%, respectively; and (4) a fundraising event to occur on March 31, 2017 and May 15, 2016, respectively, that would result in the issuance of additional common stock.
In connection with the issuance of OID Notes in February 2016, the Company issued warrants to purchase an aggregate of 36,367 shares of common stock. These warrants were issued between February 12 and 22, 2016, were initially exercisable at $8.25 per share and expire between February 11 and 21, 2021. These warrants contain a full-ratchet anti-dilution price protection provision that requires liability treatment and the exercise price of these warrants were adjusted to $2.00 during the nine months ended November 30, 2016. The fair value of these warrants at November 30, 2016 and February 29, 2016 was determined to be approximately $62,000 and approximately $56,000, respectively, as calculated using the Monte Carlo simulation. The Monte Carlo simulation as of November 30, 2016 and February 29, 2016 used the following weighted-average assumptions: (1) stock price of $2.00 and $1.80, respectively; (2) a risk-free rate of 1.66% and 1.21%, respectively; (3) an expected volatility of 134% and 134%, respectively; and (4) a fundraising event to occur on March 31, 2017 and May 15, 2016, respectively, that would result in the issuance of additional common stock.
In connection with the issuance of OID Notes in March 2016, the Company issued warrants to purchase an aggregate of 9,092 shares of common stock. These warrants were issued between March 4 and 15, 2016, were initially exercisable at $8.25 per share and expire between March 4 and 15, 2021. These warrants contain a full-ratchet anti-dilution price protection provision that requires liability treatment and the exercise price of these warrants were adjusted to $2.00 during the nine months ended November 30, 2016. The fair value of these warrants at November 30, 2016 and at issuance between March 4 and 15, 2016 was determined to be approximately $16,000 and approximately $15,000, respectively, as calculated using the Monte Carlo simulation. The Monte Carlo simulation as of November 30, 2016, and between March 4 and 15, 2016, used the following weighted-average assumptions: (1) stock price of $2.00 and $1.97, respectively; (2) a risk-free rate of 1.67% and 1.41%, respectively; (3) an expected volatility of 134% and 136%, respectively; and (4) a fundraising event to occur on March 31, 2017 and July 31, 2016, respectively, that would result in the issuance of additional common stock.
In connection with the first closing of the Additional 2016 Unit Private Placement, the Company issued warrants to purchase an aggregate of 21,875 shares of common stock. These warrants were issued on August 31, 2016, are exercisable at $3.00 per share and expire on August 30, 2021. As described in Note 3, the Price Protection provision associated with these warrants requires liability treatment. The fair value of these warrants at November 30, 2016 and issuance on August 31, 2016 was determined to be approximately $45,000 and approximately $39,000, respectively, as calculated using the Monte Carlo simulation. The Monte Carlo simulation as of November 30, 2016 and August 31, 2016 used the following weighted-average assumptions: (1) stock price of $2.00 and $1.40, respectively; (2) a risk-free rate of 1.78% and 1.19%, respectively; (3) an expected volatility of 134% and 134%, respectively; and (4) a fundraising event to occur on March 31, 2017 and January 31, 2017, respectively, that would result in the issuance of additional common stock.
In connection with the Additional 2016 Unit Private Placement including the Company Payable Exchange, the OID Note Exchange, the Promissory Note Exchange and the Additional 2016 MFN Exchange, the Company issued warrants to purchase an aggregate of 1,595,631 shares of common stock. These warrants were issued on between September 28, 2016 and October 30, 2016, are exercisable at $3.00 per share and expire between September 27, 2021 and October 29, 2021. As described in Note 3, the Price Protection provision associated with these warrants requires liability treatment. The fair value of these warrants at November 30, 2016 and issuance between September 28, 2016 and October 30, 2016 was determined to be approximately $3,379,000 and approximately $4,224,000, respectively, as calculated using the Monte Carlo simulation. The Monte Carlo simulation as of November 30, 2016 and issuance between September 28, 2016 and October 30, 2016, used the following weighted-average assumptions: (1) stock price of $2.00 and $2.61, respectively; (2) a risk-free rate of 1.30% and 1.81%, respectively; (3) an expected volatility of 134% and 134%, respectively; and (4) a fundraising event to occur on March 31, 2017 and March 31, 2017, respectively, that would result in the issuance of additional common stock.
Put Exchange Feature Liability
The following table sets forth the changes in the estimated fair value for our Level 3 classified put exchange feature liabilities:
The Promissory Note issued on July 31, 2015, as amended on February 12, 2016, contains a Note Voluntary Exchange provision that is a contingent put that requires liability treatment (see Note 6). The fair value of this put exchange feature at February 29, 2016 and November 30, 2016 was determined to be approximately $340,000 and approximately $0, respectively. At February 29, 2016, the fair value was calculated using a probability weighted present value methodology. The significant inputs to the fair value model were 1) the timing of a Qualified Offering expected to occur in May 2016 at February 29, 2016; 2) the combined probability of both a Qualified Offering and a voluntary exchange to occur, which was determined to be 71% at February, 2016 and 3) a discount rate of 18%, approximating high yield distressed debt rates. At November 30, 2016, the fair value was determined to be de minimis as a Qualified Offering was not likely to occur prior to the maturity of the Promissory Note.
The OID Notes issued contain an OID Note Voluntary Exchange provision that is a contingent put that requires liability treatment (see Note 6). The fair value of this put exchange feature at February 29, 2016 and November 30, 2016 was determined to be approximately $136,000 and approximately $0, respectively. At February 29, 2016, the fair value was calculated using a probability weighted present value methodology. The significant inputs to the fair value model were 1) the timing of a Qualified Offering expected to occur in May 2016; 2) the combined probability of both a Qualified Offering and a voluntary exchange to occur, which was determined to be 81%; and 3) a discount rate of 18%, approximating high yield distressed debt rates. At November 30, 2016, the fair value was determined to be de minimis as a Qualified Offering was not likely to occur prior to the maturity of the OID Note. |
EQUIPMENT |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUIPMENT | Equipment consists of the following:
Depreciation and amortization expense was approximately $24,000 and approximately $24,000 for the three months ended November 30, 2016 and 2015, respectively. Depreciation of equipment utilized in research and development activities is included in research and development expenses and amounted to approximately $20,000 and approximately $20,000 for the three months ended November 30, 2016 and 2015, respectively. All other depreciation is included in general and administrative expense and amounted to approximately $4,000 and approximately $4,000 for the three months ended November 30, 2016 and 2015, respectively.
Depreciation and amortization expense was approximately $71,000 and approximately $72,000 for the nine months ended November 30, 2016 and 2015, respectively. Depreciation of equipment utilized in research and development activities is included in research and development expenses and amounted to approximately $60,000 and approximately $61,000 for the nine months ended November 30, 2016 and 2015, respectively. All other depreciation is included in general and administrative expense and amounted to approximately $11,000 and approximately $11,000 for the nine months ended November 30, 2016 and 2015, respectively. |
COMMITMENTS |
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Research and Development [Abstract] | |
COMMITMENTS | Lease Agreements
On August 28, 2014, we entered into a lease agreement (the “Boston Lease”) for our diagnostic laboratory and office space located in Boston, MA. The term of the Boston Lease is for two years, from September 1, 2014 through August 31, 2016, and the basic rent payable thereunder is $10,280 per month for the first year and $10,588 per month for the second year. Additional monthly payments under the Boston Lease shall include tax payments and operational and service costs. Additionally, we paid a $40,000 security deposit in connection with entering into the Boston Lease. Effective April 6, 2016, we entered into an amendment to the Boston Lease (the “Boston Lease Amendment”) whereby we extended the term by one year from September 1, 2016 to August 31, 2017. The basic rent payable under the Boston Lease Amendment increased to $17,164 per month plus additional monthly payments including tax payments and operational and service costs.
Effective March 1, 2015, we entered into a lease agreement for short-term office space in New York, NY. The term of the lease is month-to-month and may be terminated upon twenty-one (21) days’ notice. The basic rent payment is $1,400 per month and we paid a $2,100 security deposit in connection with entering into the lease. Effective December 1, 2015, we amended our lease agreement for the short-term office space in New York, NY. The term of the lease remains month-to-month and may still be terminated with twenty-one (21) days’ notice. The basic rent payment increased to $2,400 per month and we paid an additional $1,500 security deposit in connection with the amended lease. |
NET LOSS PER SHARE |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
NET LOSS PER SHARE | Basic net loss per common share is computed based on the weighted average number of common shares outstanding during the period. Restricted shares issued with vesting condition that have not been met at the end of the period are excluded from the computation of the weighted average shares. As of November 30, 2016, and 2015, 11,534 and 26,201 restricted shares of common stock, respectively, were excluded from the computation of the weighted average shares.
Diluted net loss per common share is calculated giving effect to all dilutive potential common shares that were outstanding during the period. Diluted potential common shares generally consist of incremental shares issuable upon exercise of stock options and warrants, shares issuable from convertible securities, and unvested restricted shares. When dilutive, warrants classified as liabilities are included in the potential common shares and any change in fair value of the warrant for the period presented is excluded from the net loss. For the periods ended November 30, 2016 and 2015, the liability warrants were not dilutive.
In computing diluted loss per share for the periods ended November 30, 2016, and 2015, no effect has been given to the common shares issuable at the end of the period upon the conversion or exercise of the following securities as their inclusion would have been anti-dilutive:
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COLLABORATIVE AND OTHER RELATIONSHIPS |
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Collaborative And Other Relationships | |
COLLABORATIVE AND OTHER RELATIONSHIPS | In connection with our business strategy, we may enter into research and development and other collaboration agreements. Depending on the arrangement, we may record prepayment as advances, funding receivables or payable balances with our partners, based on the nature of the cost-sharing mechanism and activity within the collaboration.
On September 29, 2016, the Company entered into an amendment (the “Amendment”) to a previously executed pilot materials transfer agreement (the “MTA” and together with the Amendment, the “Research Agreement”) with Celgene Corporation (“Celgene”), to conduct a mutually agreed upon pilot research project (the “Pilot Project”). The Amendment provides for milestone payments to the Company of up to approximately $973,000. Under the terms of the Research Agreement, Celgene will provide certain proprietary materials to the Company and the Company will evaluate Celgene’s proprietary materials in the Company’s metastatic cell line and animal nonclinical models. The milestone schedule calls for Celgene to pay the Company approximately $487,000 upon execution of the Amendment, which the Company has received, and the balance in accordance with the completion of three (3) milestones to Celgene’s reasonable satisfaction. The term of the Research Agreement is one (1) year, unless extended by the parties. Either party may terminate the Research Agreement with thirty (30) days prior written notice.
The Company recognizes the upfront payment as a deferred research and development reimbursement in the Condensed Consolidated Balance Sheet and will amortize the deferred research and development reimbursement as incurred over the term of the Research Agreement. For the three and nine months ended November 30, 2016, the Company recorded approximately $75,000 in research and development reimbursement, and, at November 30, 2016, the Company had deferred research and development reimbursement amount of approximately $412,000.
The Company will recognize deferred research and development reimbursement for each subsequent milestone in the period in which the milestone is achieved. |
LICENSE AGREEMENT WITH ASET THERAPEUTICS, LLC |
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License Agreement With Aset Therapeutics Llc | |
LICENSE AGREEMENT WITH ASET THERAPEUTICS, LLC | On August 31, 2016, the Company and ASET Therapeutics, LLC (“ASET”) entered into a mutual release of claims with respect to the termination of the Memorandum of Understanding dated July 14, 2014, as amended, the License and Development and Commercialization Agreement dated November 25, 2014 and all other related documents and agreements.
The Company assessed the collectability of its notes receivable in connection with two past due promissory notes of ASET in the aggregate principal amount of $125,000 held by the Company (the “ASET Notes”). The Company determined that the probability of repayment of the ASET Notes had decreased significantly and were to be written off. On August 30, 2016, the Company entered into a sale and assignment agreement with a non-affiliated shareholder, whereby the Company sold the ASET Notes for gross proceeds of $12,500. The Company recorded a loss on sale of notes receivable of $112,500 for the nine months ended November 30, 2016. |
SUBSEQUENT EVENTS |
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Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | Exchange of Promissory Note and OID Note
Effective January 17, 2017, the Company entered into an exchange agreement (the Exchange Agreement”) with the holder of the Promissory Note and the OID Note, pursuant to which the Company issued a new convertible promissory note in the principal amount of $1,000,000 (the “Convertible Note”) in exchange (the “Debt Exchange”) for the cancellation of (i) $600,000 principal amount of Promissory Note plus accrued and unpaid interest thereon, and (ii) $290,400 principal amount of OID Note.
The Convertible Note matures on September 30, 2017, accrues interest at a rate of ten percent (10%) per annum commencing effective as of January 1, 2017 and may be prepaid upon 10 days advanced written notice by the Company at any time prior to the maturity date without penalty or premium. The holder has the right to convert the outstanding principal balance of the Convertible Note plus all accrued and unpaid interest thereon into shares of common stock at a conversion price per share of $2.00.
In consideration for the Debt Exchange, the Company issued five-year common stock purchase warrants to purchase 100,000 shares of common stock at an exercise price of $3.00 per share.
Stock Option Issuance
Effective January 13, 2017, the Company issued options to purchase 100,000 shares of common stock at $3.00 per share to a consultant. These 100,000 options are subject to performance-based milestone vesting and expire on January 13, 2027. |
DESCRIPTION OF BUSINESS AND GOING CONCERN (Policies) |
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Description Of Business And Going Concern Policies | |
Basis of Presentation | The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, MetaStat Biomedical, Inc., a Delaware corporation and all significant intercompany balances have been eliminated by consolidation.
These interim unaudited financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States and should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes for the year ended February 29, 2016 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on May 31, 2016. These unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of November 30, 2016 and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. These interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading. |
Going Concern | The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced net losses and negative cash flows from operations since its inception. The Company has sustained cumulative losses of approximately $26.9 million as of November 30, 2016, has a negative working capital and has not generated revenues or positive cash flows from operations. The continuation of the Company as a going concern is dependent upon continued financial support from its shareholders, the ability of the Company to obtain necessary equity and/or debt financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company cannot make any assurances that additional financings will be available to it and, if available, completed on a timely basis, on acceptable terms or at all. If the Company is unable to complete a debt or equity offering, or otherwise obtain sufficient financing when and if needed, it would negatively impact its business and operations and could also lead to the reduction or suspension of the Company’s operations and ultimately force the Company to cease operations. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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STOCK OPTIONS (Tables) |
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WARRANTS (Tables) |
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NOTE PAYABLE (Tables) |
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Note Payable Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of notes payable |
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Fair value measurements |
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FAIR VALUE MEASUREMENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in the estimated fair value for our Level 3 classified derivative warrant liability and put exchange feature liability |
|
EQUIPMENT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment |
|
NET LOSS PER SHARE (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Anti-dilutive securities |
|
DESCRIPTION OF BUSINESS AND GOING CONCERN (Details Narrative) - USD ($) |
9 Months Ended | |
---|---|---|
Nov. 30, 2016 |
Feb. 29, 2016 |
|
Description Of Business And Going Concern Policies | ||
Date of incorporation | Mar. 28, 2007 | |
State of incorporation | Nevada | |
Going Concern | ||
Accumulated deficit | $ (26,863,358) | $ (23,377,328) |
CAPITAL STOCK (Details Narrative) - USD ($) |
Nov. 30, 2016 |
Feb. 29, 2016 |
---|---|---|
Par value of shares | $ .0001 | $ 0.0001 |
Authorized shares of common stock | 150,000,000 | 150,000,000 |
Dividend payable | $ 8,000 | $ 48,000 |
Liquidation preference | $ 1,200,000 | $ 3,700,000 |
Series B Preferred Stock [Member] | ||
Authorized shares of preferred stock | 1,000 | 1,000 |
Stated value per share | $ 0.0001 | $ 0.0001 |
Series A Preferred Stock [Member] | ||
Authorized shares of preferred stock | 1,000,000 | 1,000,000 |
Stated value per share | $ .0001 | $ 0.0001 |
EQUITY ISSUANCES (Details Narrative) - shares |
9 Months Ended | |
---|---|---|
Nov. 30, 2016 |
Nov. 30, 2015 |
|
Equity [Abstract] | ||
Common stock issued for services | 25,000 | 28,001 |
STOCK OPTIONS (Details) - Option [Member] |
9 Months Ended | |
---|---|---|
Nov. 30, 2016 |
Nov. 30, 2015 |
|
Expected volatility, minimum | 98.98% | 111.347% |
Expected volatility, maximum | 102.74% | 123.55% |
Expected dividend yield | 0.00% | 0.00% |
Risk-free interest rate, minimum | 0.97% | 0.67% |
Risk-free interest rate, maximum | 1.65% | 2.32% |
Expected Term | 5 years 5 months 19 days | 6 years 3 months 18 days |
STOCK OPTIONS (Details 1) - Option [Member] |
9 Months Ended |
---|---|
Nov. 30, 2016
$ / shares
shares
| |
Options Outstanding | |
Outstanding at Beginning of Period | shares | 426,976 |
Granted | shares | 880,000 |
Expired | shares | (200,334) |
Outstanding and expected to vest at End of Period | shares | 1,106,642 |
Options exercisable | shares | 275,964 |
Weighted Average Exercise Price | |
Outstanding at Beginning of Period | $ / shares | $ 14.45 |
Granted | $ / shares | 2.02 |
Expired | $ / shares | 8.05 |
Outstanding and expected to vest at End of Period | $ / shares | 5.77 |
Exercisable at End of period | $ / shares | $ 13.72 |
Weighted Average Remaining Contractual Term | |
Outstanding and expected to vest at Beginning of Period | 7 years 11 months 23 days |
Outstanding and expected to vest at End of Period | 8 years 9 months 22 days |
Exercisable at End of period | 7 years 11 days |
STOCK OPTIONS (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Nov. 30, 2016 |
Nov. 30, 2015 |
Nov. 30, 2016 |
Nov. 30, 2015 |
|
Stock based compensation expense | $ 495,024 | $ 724,526 | ||
Option [Member] | ||||
Stock based compensation expense | $ 133,000 | $ 204,000 | $ 481,000 | 456,000 |
Period for compensation expense recognition | 10 months 24 days | |||
General and Administrative Expense [Member] | ||||
Stock based compensation expense | 111,000 | 141,000 | $ 399,000 | 369,000 |
Research and Development Expense [Member] | ||||
Stock based compensation expense | $ 22,000 | $ 63,000 | $ 82,000 | $ 87,000 |
WARRANTS (Details) - Stock Warrants [Member] |
9 Months Ended |
---|---|
Nov. 30, 2016
$ / shares
shares
| |
Warrants Outstanding | |
Outstanding at Beginning of Period | shares | 913,514 |
Granted | shares | 1,956,841 |
Cancelled | shares | (256,367) |
Outstanding at End of Period | shares | 2,613,988 |
Weighted Average Exercise Price | |
Outstanding at Beginning of Period | $ / shares | $ 13.62 |
Granted | $ / shares | 2.97 |
Cancelled | $ / shares | 11.55 |
Outstanding at End of Period | $ / shares | $ 5.81 |
Weighted Average Remaining Contractual Term | |
Outstanding at End of Period | 4 years 2 months 8 days |
NOTE PAYABLE (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended |
---|---|---|
Nov. 30, 2016 |
Nov. 30, 2016 |
|
OID Note | ||
Note interest expense | $ 137,000 | |
Promissory Note | ||
Note interest expense | $ 551,000 |
EQUIPMENT (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Nov. 30, 2016 |
Feb. 29, 2016 |
|
Equipment, gross | $ 668,522 | $ 666,448 |
Accumulated depreciation and amortization | (240,797) | (169,396) |
Equipment, net | $ 427,725 | 497,052 |
Computer Equipment [Member] | ||
Estimated useful life | 5 years | |
Equipment, gross | $ 78,149 | 76,075 |
Research Equipment [Member] | ||
Estimated useful life | 7 years | |
Equipment, gross | $ 590,373 | $ 590,373 |
EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Nov. 30, 2016 |
Nov. 30, 2015 |
Nov. 30, 2016 |
Nov. 30, 2015 |
|
Depreciation | $ 24,000 | $ 24,000 | $ 71,401 | $ 72,422 |
Research and Development Expense [Member] | ||||
Depreciation | 20,000 | 20,000 | 60,000 | 60,000 |
General and Administrative Expense [Member] | ||||
Depreciation | $ 4,000 | $ 4,000 | $ 11,000 | $ 11,000 |
NET LOSS PER SHARE (Details) - shares |
9 Months Ended | |
---|---|---|
Nov. 30, 2016 |
Nov. 30, 2015 |
|
Anti-dilutive securities | 5,059,240 | 1,708,322 |
Stock Options [Member] | ||
Anti-dilutive securities | 1,106,642 | 371,476 |
Warrants [Member] | ||
Anti-dilutive securities | 2,613,988 | 847,932 |
Preferred Stock [Member] | ||
Anti-dilutive securities | 1,338,610 | 488,914 |
NET LOSS PER SHARE (Details Narrative) - shares |
9 Months Ended | |
---|---|---|
Nov. 30, 2016 |
Nov. 30, 2015 |
|
Anti-dilutive securities | 5,059,240 | 1,708,322 |
Warrants [Member] | ||
Anti-dilutive securities | 2,613,988 | 847,932 |
Stock Options [Member] | ||
Anti-dilutive securities | 1,106,642 | 371,476 |
Preferred Stock [Member] | ||
Anti-dilutive securities | 1,338,610 | 488,914 |
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