Annual report pursuant to Section 13 and 15(d)

Equity

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Equity
12 Months Ended
Dec. 31, 2018
Equity [Abstract]  
Equity Equity
 
We are authorized to issue 5,000,000 shares of preferred stock and 75,000,000 shares of common stock.

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 December 31, 2018, there was no issued preferred stock.
 
Common Stock

Lincoln Park Transaction

On October 4, 2018, the Company entered into a purchase agreement (the "Purchase Agreement") and a registration rights agreement (the "Registration Rights Agreement") with Lincoln Park Capital Fund, LLC ("Lincoln Park"). Pursuant to the terms of the Purchase Agreement, Lincoln Park has agreed to purchase from us up to $20.0 million of our common stock (subject to certain limitations) from time to time during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, we filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement.

Pursuant to the terms of the Purchase Agreement, at the time we signed the Purchase Agreement and the Registration Rights Agreement, we issued 243,013 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement and may issue an additional 121,507 commitment shares pro-rata when and if Lincoln Park purchases (at the Company's discretion) the $20.0 million aggregate commitment. The commitment shares were valued at $337,788, recorded as an addition to equity for the issuance of common stock and treated as a reduction to equity as a cost of capital to be raised under the Purchase Agreement.

During the fourth quarter, the Company issued 1,399,153 shares to Lincoln Park which included 10,918 commitment shares for $1.8 million.

Settlement of a Liability
 
In January 2017, the Company issued 79,167 shares of common stock to a consultant in full settlement for prior services rendered to the Company. Settlement occurred February 21, 2017 with the issuance of the shares, resulting in a gain on settlement of $0.15 million recorded in gain in settlement of liability on the Statements of Operations.

Follow-On Public Offering

In February 2017, the Company completed a public offering and sold 3,710,000 shares of the Company’s common stock. The offering price per unit was $1.35. The Company received net cash proceeds of $4.5 million after deducting underwriting discounts, commissions and direct offering expenses payable by us. See Note 5 above regarding Warrant issuances related to our February 2017 public offering.

At Market Issuance Sales Agreement (ATM)

On September 15, 2017, the Company entered into an At Market Issuance Sales Agreement (the “Agreement” or “ATM”) with Roth Capital Partners, LLC and National Securities Corporation (collectively, the “Agents”). Pursuant to the terms of the Agreement, the Company 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 the Company's 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 Securities and Exchange Commission (the “SEC”) on September 15, 2017. Under
the Agreement, the Company 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 the Company's Board of Directors or a duly authorized committee thereof. The Company or the Agents, under certain circumstances and upon notice to the other, may suspend the offering of the shares under the Agreement. The offering of the shares pursuant to the Agreement will terminate upon the sale of shares in an aggregate offering amount equal to $13.0 million, or sooner if either the Company or the Agents terminate the Agreement pursuant to its terms.

The Company 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. The Company has also provided the Agents with customary indemnification rights. The Company is not obligated to make any sales of Common Stock under the Agreement.

As of December 2017, the Company had sold 776,016 shares of common stock from $2.05 to $2.71 per share with gross proceeds of $1.6 million under this Agreement.

During the year ended December 31, 2018, the Company did not sell any shares under this ATM Agreement.

   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 in August 2017, and expire five years from the initial exercise date. The Company recorded stock compensation expense for the non-employee consulting agreement of $113,273 and $104,000 during the years ended December 31, 2018 and 2017 based on the fair value of the warrants vested at December 31 of each year. In connection with the extension of the consulting agreement, the Company issued the consultant a 3-year warrant to purchase 100,000 shares of common stock at an exercise price of $3.00 per share vesting in four quarterly installments. In addition the Company paid out $20,000 per quarter pursuant to the amendment to the consulting 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 and April 6, 2018. 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 4,500,000 shares. The awards under the 2015 Stock Plan can be in the form of stock options, stock awards or stock unit awards. On June 6, 2018, the stockholders approved an amendment to the 2015 Plan to, among other things, increase the number of shares of common stock authorized for issuance under the 2015 Plan by 2,000,000 shares.

Stock option activity for the years ended December 31, 2018 and 2017 is as follows:

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  1,479,000  $ 1.32  $ 1.79 
Granted - Exercised (25,000) $ 0.13  $ 0.20 
Canceled  (5,000) $ 1.75  $ 2.49 
Outstanding, December 31, 2018  2,794,000  $ 1.78  $ 2.61  9.43 $ 21,200 
Exercisable, December 31, 2018 512,500  $ 2.61  $ 3.51  8.00 $ 21,000 
 
The fair value of the option grants has been estimated, with the following weighted-average assumptions:

Year Ended December 31,
2018 2017
Risk-free interest rate 0.95  % to    2.24%    1.83  % to    1.95%   
Volatility 70.18%    to    89.11%    80%   
Expected life (years) 5.0 to 6.25 5.0 to 6.25
Expected dividend yield —%    —%   

Stock-based compensation expense is as follows (in thousands):

Year Ended December 31,
2018 2017
General and administrative $ 976  $ 684 
Research and development 164  23 
Total $ 1,140  $ 707 


In 2018, the Company granted each of the two members of its science advisory board options in the aggregate to purchase 10,000 shares of the Company’s common stock with a weighted average exercise price of $1.46 per share, a term of 10 years, and a vesting period of 4 years.

Options granted during 2018 have an aggregated fair value of $1.9 million that was calculated using the Black-Scholes option-pricing model. At December 31, 2018, total compensation cost not yet recognized was $3.2 million and the weighted average period over which this amount is expected to be recognized is 2.8 years. The aggregate fair value of options vesting in the years ended December 31, 2018 and 2017 was $1.9 million and $3.1 million, respectively. No options were exercised in 2017. 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.