Note 5 - Equity 

In August 2020, the Company entered into the Capital on Demand™ Sales Agreement with JonesTrading Institutional Services LLC (“JonesTrading”), pursuant to which the Company may sell, from time to time, through or to JonesTrading, up to an aggregate of $200 million of its common stock. Shares of common stock are offered pursuant to the Company’s shelf registration statement on Form S-3 filed with the SEC on August 7, 2020. As of December 31, 2020, the Company had sold 2.1 million shares of common stock, resulting in gross proceeds of $22.6 million and net proceeds of $21.7 million. For the nine months ended September 30, 2021, the Company sold 4.5 million shares of common stock, resulting in gross proceeds of $35.6 million and net proceeds of $34.5 million.

On April 24, 2020, the Company issued and sold 4.3 million shares of common stock and 2.8 million pre-funded warrants to purchase shares of common stock. The price to the public in this offering for each share of common stock was $4.50 and for each pre-funded warrant was $4.497. Each pre-funded warrant had an exercise price of $0.003 per share and was exercisable immediately upon issuance. Gross proceeds from this offering were $31.6 million, before deducting underwriting discounts and commissions and other offering expenses payable by the Company. Net proceeds from this offering were $29.1 million.

During the nine months ended September 30, 2020, holders of 1.4 million pre-funded April 2020 warrants exercised their warrants at $0.003 per share and received 1.4 million shares of common stock.

On June 19, 2020, the Company issued and sold 1.9 million shares of common stock and 0.7 million pre-funded warrants to purchase shares of common stock. The price to the public in this offering for each share of common stock was $9.75 and for each pre-funded warrant was $9.747. Each pre-funded warrant had an exercise price of $0.003 per share and was exercisable immediately upon issuance. Gross proceeds from this offering were $25.0 million, before deducting underwriting discounts and commissions and other offering expenses payable by the Company. Net proceeds from this offering were $23.0 million.

During the nine months ended September 30, 2020, holders of 0.2 million pre-funded June 2020 warrants exercised their warrants at $0.003 per share and received 0.2 million shares of common stock.

Stock Options

The following is a summary of stock option activity for the nine months ended September 30, 2021:

During the nine months ended September 30, 2021, the Company granted employees options to purchase 880 thousand shares of the Company’s common stock with an exercise price ranging from $6.02 to $9.25 per share, a term of 10 years, and a vesting period of 4 years. The options have an aggregated fair value of $3.9 million 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 0.65% to 1.07% (2) expected life of 6 years, (3) expected volatility range from 79.8% to 85.1%, and (4) no expected dividends. During the nine months ended September 30, 2021, options to purchase 1 thousand shares were exercised and options to purchase 268 thousand shares were cancelled upon the termination of employment for several employees.

The fair values of all options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at September 30, 2021 was $5.4 million related to unvested options, which is expected to be expensed over a weighted average of 3.5 years. During the nine months ended September 30, 2021 and 2020, the Company recorded compensation expense related to stock options of $1.0 million and $0.8 million, respectively.

Pre-funded Warrants

As part of the April 2020 offering and the June 2020 offering, the Company issued pre-funded warrants. Each pre-funded warrant had an exercise price of $0.003 per share and was exercisable immediately upon issuance. Management determined that the pre-funded warrants were freestanding instruments and that the pre-funded warrants should be classified as permanent equity. As of December 31, 2020, all of the pre-funded warrants were exercised and there were no pre-funded warrants outstanding during the nine months ended September 30, 2021. As of September 30, 2020, there were 1.8 million pre-funded warrants outstanding.

Warrants

Following is a summary of warrant activity for the nine months ended September 30, 2021:

The Company has an outstanding warrant to purchase 1,907 shares of common stock, issued on March 14, 2017 to Sandesh Seth, the Company’s Chairman and Chief Executive Officer. The warrant included down-round protection up until it was amended on August 11, 2020. For warrants with down-round protection, a deemed dividend is recorded for the change in fair value of the warrants when the down-round provision is triggered. As a result of the April 2020 offering and June 2020 offering, the exercise price of the warrant was reset from $26.40 per share to $15.62 per share. The down-round protection provision in the above warrants created a deemed dividend to common stockholders of $1 thousand in the nine months ended September 30, 2020 which is reflected in the accompanying consolidated statement of operations and consolidated statement of changes in stockholders’ equity. On August 11, 2020, the Company and Mr. Seth agreed to amend the warrant to remove the anti-dilution provision that had been in the warrant. Accordingly, pursuant to the amendment, as of August 11, 2020, the exercise price of the warrant will no longer be subject to a proportional adjustment if and when the Company issues any shares of its common stock for a consideration less than the exercise price of the warrant. All other terms of the warrant remained the same.