Transition report pursuant to Rule 13a-10 or 15d-10

Stockholders' Equity (Deficit)

v3.21.1
Stockholders' Equity (Deficit)
9 Months Ended
Dec. 31, 2020
Equity [Abstract]  
Stockholders' Equity (Deficit)

NOTE 11 — STOCKHOLDERS’ EQUITY (DEFICIT)

 

As of December 31, 2020, the Company had two classes of capital stock: common stock and Series Alpha convertible preferred stock. As of March 31, 2020, the Company had two classes of capital stock with one being divided into five series: common stock and preferred stock (Series A convertible preferred stock, Series B convertible preferred stock, Series C convertible preferred stock, Series D convertible preferred stock and Series D-1 convertible preferred stock).

 

Common Stock

 

Holders of common stock generally vote as a class with the holders of the preferred stock and are entitled to one vote for each share held. Subject to the rights of the holders of the preferred stock to receive preferential dividends, the holders of common stock are entitled to receive dividends when and if declared by the Board of Directors. Following payment of the liquidation preference of the preferred stock, as of March 31, 2020 any remaining assets would be distributed ratably among the holders of the common stock and, on an as-if-converted basis, the holders of Series C convertible preferred stock, Series D convertible preferred stock and Series D-1 convertible preferred stock) upon liquidation, dissolution or winding up of the affairs of the Company. Following payment of the liquidation preference of the preferred stock, as of December 31, 2020 any remaining assets would be distributed ratably among the holders of the common stock and, on an as-if-converted basis, the holders of Series Alpha convertible preferred stock upon liquidation, dissolution or winding up of the affairs of the Company. The holders of common stock have no preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions.

 

At December 31, 2020, the Company has reserved 15,477,364 shares of authorized but unissued common stock for possible future issuance. At December 31, 2020, shares were reserved in connection with the following:

 

Exercise of issued and future grants of stock options     4,011,356  
Exercise of stock warrants     11,222,590  
Conversion of Series Alpha preferred stock     243,418  
Total     15,477,364  

 

Series A, B, C, D, D-1, Alpha Convertible Preferred Stock

 

At March 31, 2020, there were 2,412,887, 7,707,736, 3,300,715, 1,508,305 and 643,511 shares of Series A, B, C, D, D-1 convertible preferred stock outstanding respectively. All shares of Series A, B, C, D, D-1 convertible preferred stock were converted into common stock at the time of the May 2020 reverse recapitalization transaction.

 

In the nine months ended December 31, 2020, the holder of Series Alpha preferred stock converted 5,180 of its shares of Series Alpha preferred stock into an aggregate of 7,004,983 shares of the Company’s common stock, and there were 180 shares of Series Alpha preferred stock outstanding at December 31, 2020.

 

Alpha Securities Purchase Agreements

 

On July 10, 2020, the Company closed a Securities Purchase Agreement (dated July 8, 2020) with a single institutional investor for the purchase and sale for $8.0 million for (i) 1,140,570 shares of Company common stock, (ii) 780,198 pre-funded warrants (i.e., warrants to purchase shares of Company common stock, for which the exercise price is almost entirely prepaid) and (iii) 1,920,768 two-year warrants to purchase shares of Company common stock for an exercise price of $5.25 per share. Both sets of warrants included a 9.99% beneficial-ownership blocker provision. The 780,198 pre-funded warrants were then exercised on July 21 and 22, 2020.

 

On August 4, 2020, the Company closed a Securities Purchase Agreement (dated August 2, 2020) with a single institutional investor for the purchase and sale for $10.0 million for (i) 1,717,106 shares of Company common stock, and (ii) 1,287,829 two-year warrants to purchase shares of Company common stock for an exercise price of $6.00 per share. The warrants included a 9.99% beneficial-ownership blocker provision.

 

On December 18, 2020, the Company closed a Securities Purchase Agreement (dated December 16, 2020) with a single institutional investor for the purchase and sale for $12,000,000 of (i) 2,370,786 shares of Company common stock, (ii) 1,000,000 pre-funded warrants (i.e., warrants to purchase shares of Company common stock, for which the exercise price is almost entirely prepaid) (iii) 1,348,314 two-year warrants to purchase shares of Company common stock for an exercise price of $4.07 per share, and (iv) 842,696 warrants (first exercisable 6 months after issuance, and with an expiration date 30 months after issuance) to purchase shares of Company common stock for an exercise price of $4.07 per share. The warrants included a 9.99% beneficial-ownership blocker provision.

 

Stock Options and Equity Classified Warrants

 

Stock Options

 

The Company recognizes all compensatory stock-based payments as compensation expense over the service period, which is generally the vesting period.

 

In April 2020, the Company adopted the 2020 Stock Incentive Plan (the “2020 Plan”) which provides for the granting of incentive or nonstatutory common stock options to qualified employees, officers, directors, consultants and other service providers. At December 31, 2020 and March 31, 2020 there were 3,917,500 and 0 outstanding options respectively under the 2020 Plan and there were 139,657 and 0 options available respectively for future grant.

 

The following represents a summary of the options granted to employees and non-employee service providers that are outstanding at December 31, 2020, and changes during the nine months then ended:

 

    Shares    

Weighted–

Average

Exercise

Price

   

Range of

Exercise

Price

   

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – March 31, 2020         $                  
Legacy Ritter options     95,124       92.80     $ 5.75—$1,465.75       1.39  
Granted     3,917,500       4.97     $ 3.52—$5.13       9.46  
Expired     (1,268 )     34.54     $ 15.00 — 562.50          
Forfeited                            
Total outstanding – December 31, 2020     4,011,356     $ 7.05     $ 3.52—$1,465.75       9.29  
Exercisable (vested)     108,856     $ 81.38     $ 3.52—$1,465.75       2.50  
Non-Exercisable (non-vested)     3,902,500     $ 4.97     $ 3.52—$5.13       9.47  

 

There was approximately $2.8 million and $0 of compensation costs related to outstanding options for the nine months ended December 31, 2020 and year ended March 31, 2020, respectively. As of December 31, 2020, there was approximately $12.6 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 2.46 years.

 

No stock options were exercised during the nine months ended December 31, 2020.

 

The exercise price for an option issued under the 2020 Plan is determined by the Board of Directors, but will be (i) in the case of an incentive stock option (A) granted to an employee who, at the time of grant of such option, is a 10% stockholder, no less than 110% of the fair market value per share on the date of grant; or (B) granted to any other employee, no less than 100% of the fair market value per share on the date of grant; and (ii) in the case of a non-statutory stock option, no less than 100% of the fair market value per share on the date of grant. The options awarded under the 2020 Plan will vest as determined by the Board of Directors but will not exceed a ten-year period. The weighted average grant date fair value per share of the shares underlying options granted during the nine months ended December 31, 2020 was $4.97.

 

Fair Value of Equity Awards

 

The Company utilizes the Black-Scholes option pricing model to value awards under the 2020 Plan. Key valuation assumptions include:

 

Expected dividend yield. The expected dividend is assumed to be zero, as the Company has never paid dividends and has no current plans to pay any dividends on the Company’s common stock.
   
Expected stock-price volatility. The Company’s expected volatility is derived from the average historical volatilities of publicly traded companies within the Company’s industry that the Company considers to be comparable to the Company’s business over a period approximately equal to the expected term.
   
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.
   
Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

 

The material factors incorporated in the Black-Scholes model in estimating the fair value of the options granted for the periods presented were as follows:

 

   

For the nine

months

ended

December 31, 2020

 
Expected dividend yield     0.00 %
Expected stock-price volatility     102 %
Risk-free interest rate     0.33% — 0.65 %
Expected average term of options (in years)     6.0  
Stock price   $ 3.52 — 5.13  

 

The Company recorded stock-based compensation expense and classified it in the consolidated statements of operations as follows:

 

   

For the nine months

ended

December 31, 2020

   

For the year

ended

March 31, 2020

 
General and administrative   $ 2,388,380     $ 4,830  
Research and development     412,471       3,036  
Total   $ 2,800,851     $ 7,866  

 

Equity Classified Compensatory Warrants

 

In the nine months ended December 31, 2020, in connection with the $4.0 million equity capital raise as part of the May 2020 reverse recapitalization transaction, the Company issued common stock warrants to an advisor and its designees for the purchase of 811,431 shares of the Company’s common stock at an exercise price of $1.11 per share. The issuance cost of these warrants was charged to additional paid-in capital, and did not result in expense on the Company’s statements of operations.

 

In addition, various service providers hold equity classified compensatory warrants issued in 2017 and earlier (originally exercisable to purchase Series C convertible preferred stock, and now instead exercisable to purchase common stock) for the purchase of 668,024 shares of Company common stock at a weighted average exercise price of $2.34 per share. These are to be differentiated from the Series C Warrants described in Note 8.

 

No compensatory warrants were issued in the year ended March 31, 2020.

 

The following table summarizes the equity classified compensatory warrant activity for the nine months ended December 31, 2020:

 

    Common Stock  
    Shares    

Weighted– Average

Exercise

Price

    Range of
Exercise Price
   

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – March 31, 2020         $                  
Series C preferred stock compensatory warrants exchanged for common stock warrants upon reverse recapitalization     668,024       2.25                  
Granted to advisor and its designees     811,431       1.11                  
Exercised     (159,978 )     1.26                  
Expired                            
Forfeited     (25,260 )     2.07                  
Total outstanding – December 31, 2020     1,294,217     $ 1.6670                  
Exercisable     1,290,621     $ 1.66     $ 1.11 —$2.54       4.17  
Non-Exercisable     3,596     $ 2.54     $ 2.54       5.72  

 

The following table summarizes the compensatory warrant activity for the year ended March 31, 2020:

 

    Series C Preferred Stock Warrants  
    Shares    

Weighted– Average

Exercise Price

    Range of
Exercise Price
   

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – March 31, 2019     756,262     $ 1.99                  
Forfeited     (2,000 )     2.25                  
Expired                            
Granted                            
Total outstanding – March 31, 2020     754,262     $ 1.99                  
Exercisable     746,142     $ 1.99     $ 1.83 – $2.25       4.59  
Non-Exercisable     8,120     $ 2.25     $ 2.25       6.48  

 

There were no compensation costs related to outstanding warrants for the nine months ended December 31, 2020 and year ended March 31, 2020. As of December 31, 2020 and March 31, 2020, there was no unrecognized compensation cost related to nonvested warrants.

 

Noncompensatory Equity Classified Warrants

 

In the nine months ended December 31, 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to an investor for the purchase of 270,478 shares of Company common stock at an exercise price of $1.11 per share. In addition, in July 2020 the Company issued noncompensatory equity classified warrants to an investor for the purchase of 2,700,966 shares of Company common stock at an exercise price of $5.25 per share, and in August 2020 the Company issued noncompensatory equity classified warrants to such investor for the purchase of 1,287,829 shares of Company common stock at an exercise price of $6.00 per share. Lastly, in December 2020, the Company issued noncompensatory equity classified warrants to such investor for the purchase of 1,000,000 shares of Company common stock at an exercise price of $0.01 per share and 2,191,000 shares of Company common stock at an exercise price of $4.07 per share. No noncompensatory equity classified warrants were issued in the year ended March 31, 2020.

 

The following table summarizes the noncompensatory equity classified warrant activity for the nine months ended December 31, 2020:

 

    Common Stock  
    Shares    

Weighted–

Average

Exercise

Price

   

Range of

Exercise Price

   

Weighted–

Average

Remaining

Life (Years)

 
Total outstanding – March 31, 2020         $                  
Legacy Ritter warrants     81,455       21.94                  
Granted     7,450,193       4.18                  
Exercised     (980,198 )     1.11                  
Expired     (1,673 )     1,562.50                  
Forfeited                            
Total outstanding – December 31, 2020     6,549,777     $ 4.36                  
Exercisable     5,707,081     $ 4.40     $ 0.01 – $2,325.00       1.43  
Non-Exercisable     842,696     $ 4.07       4.07       3.00