Note 7 - Equity

 

During the nine months ended September 30, 2017, the Company issued 2,633,712 shares of common stock for gross proceeds of approximately $3.9 million as part of its At-The-Market (“ATM”) sales agreement with an investment bank. The Company paid expenses of approximately $0.1 million resulting in net proceeds of $3.8 million. During the three months ended September 30, 2017, the Company did not issue shares of common stock as part of its ATM sales agreement.

 

On August 2, 2017, the Company completed an underwritten public offering of 21,500,000 shares of its common stock and warrants to purchase an aggregate of 18,275,000 shares of the Company’s common stock at an offering price to the public of $0.75 per share and related warrant. The warrants have an exercise price of $1.05 per share and have a term of five years. The gross proceeds from this offering were approximately $16.1 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company resulting in net proceeds of approximately $15.0 million.

 

During the nine months ended September 30, 2017, the Company issued 4,234 common shares for the cashless exercise of warrants.

 

During the nine months ended September 30, 2017, the Company issued 67,385 common shares for consulting services. The shares have a total value of $99,056 based on the Company’s stock price on the grant date at $1.47 per share.

 

Restricted Stock

 

During the three months ended September 30, 2017 and 2016, the Company recorded approximately $23,000 and $0.1 million, respectively, in stock-based compensation for all of the restricted shares outstanding. During the nine months ended September 30, 2017 and 2016, the Company recorded approximately $0.2 million and $0.3 million, respectively, in stock-based compensation for all of the restricted shares outstanding. 

 

During the nine months ended September 30, 2017, the Company issued 18,500 common shares for restricted shares that became fully vested. As of September 30, 2017, the Company has yet to issue 222,908 common shares for restricted shares that have vested.

 

Stock Options

 

Following is a summary of option activities for the nine months ended September 30, 2017:

 

		Number of Units				Weighted  Average  Exercise  Price				Weighted  Average  Remaining  Contractual  Term  (in years)				Aggregate  Intrinsic  Value
Outstanding, December 31, 2016			5,906,886			$	3.52				7.90				51,704
Granted			2,592,500				1.32				-				-
Cancelled			(2,343,025	)			3.43				-				-
Outstanding, September 30, 2017			6,156,361				2.62				7.50				26
Exercisable, September 30, 2017			2,835,004				3.44				5.42				-

  

On June 6, 2017, Sergio Traversa, a director, resigned from the Company and the Company entered into an agreement with Mr. Traversa. Pursuant to the agreement, all the outstanding vested options (originally expire 90 days from termination date) as well as 68,200 unvested options granted prior to December 31, 2016, shall be exercisable until the end of the term of each option grant agreement. As a result of the modification, the Company recorded an additional expense of approximately $174,000 for the incremental fair value of the options, calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate range from 0.97% to 1.39% (2) expected life of 3 months to 8.9 years, (3) expected volatility range from 45.72% to 79.81%, and (4) zero expected dividends.

 

During the nine months ended September 30, 2017, the Company granted its employees and members of the Board of Directors 2,592,500 options to purchase the Company’s common stock with an exercise price ranging from $0.57 to $1.58 per share, a term of 10 years, and a vesting period from 1 to 4 years. The options have an aggregated fair value of $2,396,383 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate range from 1.84% to 2.28% (2) expected life of 6 years, (3) expected volatility range from 79.99% to 81.74%, and (4) zero expected dividends. The estimated option life was determined based on the “simplified method,” giving consideration to the overall vesting period and the contractual terms of the award. This method was used because the Company does not have sufficient historical option exercise data.

 

During the nine months ended September 30, 2017, options to purchase 2,343,025 common shares were cancelled upon the termination of employees and a board member.

 

The fair values of all options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at September 30, 2017 was approximately $4.3 million. During the three months ended September 30, 2017 and 2016, the Company recorded total option expense of approximately $0.7 million and $1.0 million, respectively. During each of the nine months ended September 30, 2017 and 2016, the Company recorded total option expense of approximately $2.5 million and $2.7 million, respectively.

 

Warrants

 

Following is a summary of warrant activities for the nine months ended September 30, 2017:

 

		Number of Units				Weighted  Average  Exercise  Price				Weighted  Average  Remaining  Contractual  Term  (in years)				Aggregate  Intrinsic  Value
Outstanding, December 31, 2016			8,964,752				3.72				1.95				1,445,786
Granted			18,496,575				1.05				5.00				-
Exercised			(9,364	)			0.78				-				-
Cancelled			(231,575	)			6.07				-				-
Outstanding, September 30, 2017			27,220,388				1.92				3.66				862,426
Exercisable, September 30, 2017			27,000,388				1.88				3.65				862,426

 

Certain warrants were issued to the Company’s Executive Chairman (now Chairman and CEO) as part of investment banking and advisory services either prior to and outside of his role as a Board Member and subsequently Chairman and CEO. The Chairman and CEO has refrained from exercising such warrants that are or have been in the money for most of their existing life in order to align with the long-term interests of the Company. On March 14, 2017, the Company canceled a warrant to purchase 57,212 shares of Common Stock of the Company, dated December 19, 2012, issued to its and issued a new warrant to its Chairman and CEO to purchase 57,212 common shares with the term of the warrant expiring on February 11, 2022. The new warrant has the same exercise price in effect as the exercise price as the old warrant but the expiration date was modified from December 19, 2017 to February 11, 2022. The Company also amended the warrant to purchase Common Stock of the Company, dated January 31, 2012, issued to its Chairman and CEO and an entity affiliated with its Chairman and CEO to purchase 64,746 and 99,617 common shares, respectively. Pursuant to the terms of the warrant amendments, the term of the warrants was extended to February 11, 2022 from January 31, 2019. As a result of the replacement and modification, the Company recorded an additional non-cash expense of $64,091 for the incremental fair value of the new warrants. 

 

During the nine months ended September 30, 2017, 9,364 warrants were exercised by the warrant holders on a cashless basis. The Company issued 4,234 shares of common stock as a result of these cashless exercises.

 

During the three months ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense related to the warrants of approximately $0 and $5,000, respectively. During the nine months ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense related to the warrants of approximately $34,000 (excluding the $64,091 addition expense due to the replacement and modification) and $0.1 million, respectively.