Quarterly report pursuant to Section 13 or 15(d)

Equity

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Equity
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Equity
Equity
 
We are authorized to issue 80,000,000 shares of which 5,000,000 shares of preferred stock are authorized and 75,000,000 shares of common stock are authorized.
  
Preferred Stock
 
We are authorized to issue up to 5,000,000 shares of preferred stock. Our certificate of incorporation authorizes the board to issue these shares in one or more series, to determine the designations and the powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. As of March 31, 2018, there was no issued preferred stock. 

Common Stock

At Market Issuance Sales Agreement (ATM)
 
On September 15, 2017, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Roth Capital Partners, LLC and National Securities Corporation (collectively, the “Agents”). Pursuant to the terms of the ATM Agreement, we may sell from time to time through the Agents shares of the Company’s common stock with an aggregate sales price of up to $13.0 million.
 
Any sales of Shares pursuant to the Agreement will be made under our effective “shelf” registration statement on Form S-3 (File No. 333-219434) which became effective on August 21, 2017 and the related prospectus supplement and the accompanying prospectus, as filed with the SEC on September 15, 2017. Under the ATM Agreement, we may sell shares through an Agent by any method that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”).
 
Sales of the shares may be made at market prices prevailing at the time of sale, subject to such other terms as may be agreed upon at the time of sale, including a minimum sales price that may be stipulated by our Board of Directors or a duly authorized committee thereof. We or the Agents, under certain circumstances and upon notice to the other, may suspend the offering of the Shares under the Agreement.
 
We agreed to pay a commission to the Agents of 3.0% of the gross proceeds of the sale of the Shares sold under the Agreement and to reimburse the Agents for certain expenses. We have also provided the Agents with customary indemnification rights.

During the three months ended March 31, 2018, the Company did not sell any shares under this Agreement.

Adoption of 2015 Stock Plan
 
On December 5, 2015, the Board of Directors of the Company approved the Company’s 2015 Stock Plan, which was amended on April 22, 2016. The expiration date of the plan is December 5, 2025 and the total number of underlying shares of the Company’s common stock available for grant to employees, directors and consultants under the plan is currently 2,500,000 shares. The 2015 Stock Plan was further amended as of April 6, 2018 to increase the number of shares to 4,500,000 shares, subject to approval by the Company’s stockholders at the Company’s annual meeting on June 6, 2018. The awards under the current 2015 Stock Plan can be in the form of stock options, stock awards or stock unit awards.

The following is a summary of option activities for the three months ended March 31, 2018:  
 
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
Outstanding, December 31, 2017
 
1,345,000

 
$
1.93

 
$
3.50

 
9.07
 
$
83,000

 
 
 
 
 
 
 
 
 
 
 
Granted
 
230,000

 
$
1.32

 
$
1.76

 
 
 
 

Outstanding, March 31, 2018
 
1,575,000

 
$
1.81

 
$
3.25

 
9.27
 
$
80,000

Exercisable, March 31, 2018
 
85,000

 
$
1.15

 
$
0.20

 
2.42
 
$
80,000


 
In January 2018, the Company granted to a new member of its science advisory board options in the aggregate to purchase 10,000 shares of the Company’s common stock with an exercise price of $1.89 per share, a term of 10 years, and a vesting period of 4 years

In January 2017, the Company granted members of its science advisory board options in the aggregate to purchase 20,000 shares of the Company’s common stock with an exercise price of $2.31 per share, a term of 10 years, and a vesting period of 4 years. The exercise price was based upon the closing price of the stock on the day of the grant. The options have an aggregated fair value of $35,196 that was calculated using the Black-Scholes option-pricing model. In July and August 2017, the Company granted options to the Board and a management member to purchase 140,000 shares of the Company's common stock with exercise prices of $1.87 and $2.88, respectively, with a term of 10 years and a vesting period of 4 years. The options have an aggregated fair value of $269,592 for the three months ended March 31, 2018, calculated using the Black-Scholes option-pricing model.
 
The fair value of the option grants has been estimated, with the following weighted-average assumptions:
 
Three Months Ended March 31,
 
2018
 
2017
Risk-free interest rate
1.3% - 2.24%
 
1.3% - 2.24%
Volatility
70.18% - 89.11%
 
70.18% - 89.11%
Expected life (years)
5 to 6.25
 
6 to 6.25
Expected dividend yield

 



Stock-based compensation for the three months ended March 31, 2018 and 2017, are as follows (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
General and administrative
$
209

 
$
108

Research and development
33

 
2

Total
$
242

 
$
110



Options granted during 2018 have an aggregated fair value of $0.3 million that was calculated using the Black-Scholes option-pricing model. As of March 31, 2018, total compensation cost not yet recognized was $2.5 million and the weighted average period over which this amount is expected to be recognized is 3.03 years. No options were exercised in 2018. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the above paragraph and table. The expected term of the options was computed using the "plain vanilla" method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin 107 because we do not have sufficient data regarding employee exercise behavior to estimate the expected term. The volatility was determined by referring to the average historical volatility of a peer group of public companies because we do not have sufficient trading history to determine our historical volatility. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Consulting Agreement

In 2017, the Company entered into a consulting agreement for its investor relations operations. The consulting agreement initially covered a period of twelve months from the commencement date of July 29, 2017 and was extended in April 2018 until March 31, 2019. Pursuant to the original consulting agreement, in exchange for the consulting services, the Company issued two warrants (collectively, the “Warrants”) to purchase 100,000 and 50,000 shares of common stock at exercise prices of $2.41 and $3.00 per share.

Each of the Warrants vests over a 12-month period in equal monthly installments starting July 29, 2017, provided that the consultant is providing services to the Company pursuant to the consulting agreement on each vesting date. The Warrants became initially exercisable on August 8, 2017 and expire five years from the initial exercise date. The Company recorded stock compensation expense for the non-employee consulting agreement of $63,000 for the period ended March 31, 2018 based on the fair value of the warrants vested as of March 31, 2018. In connection with the extension of the consulting agreement, the Company issued the consultant a three-year warrant to purchase 100,000 shares of common stock at an exercise price of $3.00 per share vesting in four quarterly installments.

$9 million Registered Direct Offering

On February 16, 2018, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors for the sale by us of 4,290,000 shares of our common stock, at a purchase price of $2.10 per share. Concurrently with the sale of the common shares, pursuant to the Purchase Agreement, we also sold warrants to purchase 2,145,000 shares of common stock. We sold the common shares and warrants for aggregate gross proceeds of approximately $9.0 million.
The net proceeds from the transactions was approximately $8.2 million after deducting certain fees due to the placement agent and transaction expenses. Subject to certain beneficial ownership limitations, the warrants will be initially exercisable on the six-month anniversary of the issuance date at an exercise price equal to $2.80 per share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the initial exercise date. The closing of the sales of these securities under the Purchase Agreement occurred on February 21, 2018.

We also entered into a placement agent agreement (the “Placement Agency Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which Roth agreed to serve as exclusive placement agent for the issuance and sale of the common shares and warrants. We paid Roth an aggregate fee equal to 6.5% of the gross proceeds received by us from the sale of the securities in the transactions. Pursuant to the Placement Agency Agreement, we also granted to Roth warrants to purchase up to 3% of the aggregate number of shares of common stock sold in the transactions (the “Roth Warrants”). We also reimbursed Roth for its expenses of $75,000. We agreed to give Roth a nine-month right of first refusal to act as our lead underwriter or exclusive placement agent for any further capital raising transactions we undertake. With certain exceptions, the we also granted Roth a six-month tail fee equal to the cash and warrant compensation in the offering, if any investor with which Roth had substantive discussions with respect to the offering, provides us with further capital during such six-month period following termination of our engagement of Roth.