Note 8 – Equity

On December 9, 2013, the Company entered into an engagement agreement with its placement agent for the 2013 Common Stock Offering, (the “2013 Offering”) The 2013 Offering was completed in two tranches, on December 9, 2013 and January 10, 2014.

On December 27, 2013, the Company completed the first sale of the 2013 Offering pursuant to a Unit Purchase Agreement, with certain accredited investors and pursuant to which: the investors agreed to purchase (i) an aggregate of 554,310 shares (the “Shares”) of common stock at $6.00 per share and (ii) five-year warrants to purchase an aggregate of 138,577 shares of common stock at an exercise price of $9.00 per share. The Company received $3,325,860 in gross proceeds from the sale of securities and $2,883,257 net proceeds after deducting the underwriting discount and the other offering expenses. The transaction date fair value of the warrants of $0.4 million was determined utilizing the Black-Scholes option pricing model utilizing the following assumptions: risk free interest rate – 0.07%, expected volatility – 84.06%, expected dividend yield - 0%, and a contractual life of 5 years.

In January 2014, the Company completed the final tranche of the 2013 Offering and received approximately $3.3 million total gross proceeds from accredited investors (“2014 Closing”). The Company paid its placement agent total cash fees of approximately $395,000 and paid attorney fees of $40,000 for their services resulting in net proceeds of $2,873,557. In the 2014 Closing, the Company sold 551,810 shares of common stock at $6.00 per share and granted 137,952 units of five-year warrants with an exercise price of $9.00 per share. The warrants are exercisable for a period of five years from the date of issuance. The transaction date fair value of the warrants of $0.6 million was determined utilizing the Black-Scholes option pricing model utilizing the following assumptions: risk free interest rate - 1.64%, expected volatility - 88%, expected dividend yield - 0%, and a contractual life of 5 years.

On March 24, 2014, the Company filed a shelf registration statement on Form S-3 (the “Registration Statement”) which was effective on April 17, 2014. This Registration Statement contained two prospectuses: (i) a base prospectus which covers the offering, issuance and sale by the Company of up to $200,000,000 of its common stock, preferred stock, warrants and/or units; and (ii) a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $75,000,000 of its common stock that may be issued and sold under a sales agreement (the “ Sales Agreement ” ) with MLV & Co. LLC ( “ MLV ” ) dated March 24, 2014. The Company will pay MLV in cash, upon the sale of common stock pursuant to the Sales Agreement, an amount equal to 3.0% of the gross proceeds from the sale of common stock. On April 28, 2014, the Company issued 500 shares and received net proceeds of $6,000 under the Sales Agreement with MLV.

During January 2014, in connection with the Offering, the Company issued the Placement Agent warrants to purchase an aggregate of 68,976 shares of common stock with an exercise price of $9.00 per share. The transaction date fair value of the warrants of $0.3 million was determined utilizing the Black-Scholes option pricing model utilizing the following assumptions: risk free interest rate – 1.64%, expected volatility - 88%, expected dividend yield - 0%, and a contractual life of 5 years.

On June 30, 2014, the Company received gross proceeds of $12,525,000 from a public offering of 1,670,000 shares of the Company’s common stock, $0.001 par value per share at a price to the public of $7.50 per share less underwriting discounts. The Company paid an underwriting discount of $876,750, paid the other offering expenses of $125,000, and paid attorney and auditor fees of $72,000 resulting in net proceeds of $11,451,250. Under the terms of the underwriting agreement, the Company also granted the underwriters a 30-day option to purchase up to an additional 250,000 shares of common stock to cover over-allotments, if any, at the offering price.

On July 10, 2014, the underwriter exercised their over-allotment option to purchase an additional 157,123 shares from the Company for $7.50 per share. Including the exercise of the over-allotment option of $1.2 million, in gross proceeds, the Company’s June offering totaled 1,827,123 shares, representing gross proceeds of approximately $13.7 million and approximately $12,555,748 net after deducting the underwriting discount and the other offering expenses.

Approval of the 2013 Stock Plan

In September 2013, the Board approved the Company’s 2013 Stock Plan. The expiration date of the plan is September 9, 2023 and the total number of underlying shares of the Company’s common stock available for grant to employees, directors and consultants of the Company under the plan is 2,750,000 shares. In December 2013, the shareholders of the Company approved the plan and increased the number of shares authorized under the plan to 5,750,000 shares.

Approval of the Equity Incentive Plan

In September 2013, the Board approved the Company’s 2013 Equity Incentive Plan. The expiration date of the plan is September 9, 2023 and the total number of shares of the Company’s common stock available for grant to employees, directors and consultants of the Company under the plan is 450,000 shares. In December 2013, the shareholders of the Company approved the plan and increased the number of shares authorized under the plan to 1,000,000 shares.

Restricted Stock

During 2013, the Company granted employees, consultants and board members 312,500 shares of restricted stock. 80,000 shares of restricted stock vest 1 year from the grant date, 100,000 shares have a vesting period of 24 months. The remaining restricted shares granted are performance based and vest over time. The shares granted during the year ended December 31, 2013 were valued at $678,000 based on the stock price on the grant dates.

During the year ended December 31, 2014, the Company granted 633,041 shares of restricted stock and cancelled 50,000 shares of restricted stock. Of the total shares of restricted stock granted, 20,000 shares vest 3 months from the grant date, 30,374 shares vest 1 year from the grant date, 30,000 shares have a vesting period of 2 years, 202,497 shares have a vesting period of 4 years and 350,000 shares vest at the date of grant. The shares granted during the year ended December 31, 2014 were valued at $4,827,516 based on the stock price on the grant dates. As of December 31, 2014, 202,723 shares related to the restricted stock granted previously have not been issued.

Stock Options

Following is a summary of option activities for the year ended December 31, 2014 and 2013:

During 2013, the Company granted employees and board members 787,450 options to purchase the Company’s common stock with exercise prices ranging from $3.60 to $6.70, a term of 10 years and vesting over a 4-year period. The fair value of $3.7 million was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.36% - 1.55% (2) expected life of 6 years, (3) expected volatility of 83.32% - 98.45%, and (4) zero expected dividends

During the year ended December 31, 2013, the Company received gross proceeds of $13,053 for exercise of options for 16,650 shares of the Company’s common stock.

During the year ended December 31, 2014, the Company granted employees, consultants, and its board members 1,338,100 options to purchase the Company’s common stock with exercise prices ranging from $0.78 to $11.95 and a term of 10 years with vesting over a 4-year period.  The options have an aggregated fair value of $8.7 million that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.77% - 2.07% (2) expected life of 6 years, (3) expected volatility of 82.47% - 87.76%, and (4) zero expected dividends.

During the year ended December 31, 2014, the Company received gross proceeds of $275,153 for exercise of options for 310,400 shares of the Company’s common stock.

All options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at December 31, 2014 and 2013 was $10,213,905 and $3,999,368, respectively. During the years ended December 31, 2014 and 2013, the Company recorded option expense of $2.4 million and $0.3 million, respectively.

Warrants

Following is a summary of warrant activities for the year ended December 31, 2014 and 2013:

During the year ended December 31, 2013, warrants to purchase 122,000 shares of common stock were granted to service providers at exercise prices ranging from $3.60 to $6.70 per share. These warrants have a term of 7 to 10 years and include (1) Warrants to purchase 72,000 shares of common stock vested immediately and were valued at $177,313 on the grant date; and (2) Warrants to purchase 50,000 shares of common stock vest over a year and were valued at $235,737 on the grant date. The fair value on the grant date was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include (1) discount rate of 1.36% - 1.55%, (2) expected term of 5 years, (3) expected volatility of 91.56%, and (4) zero expected dividends. As of December 31, 2013, unrecognized compensation expense related to the warrants was $226,049.

During the year ended December 31, 2013, the Company also issued warrants to purchase 138,577 shares of the Company’s common stock to investors and warrants to purchase 69,289 shares of the Company’s common stock to its placement agent in connection with the 2013 Common Stock Offering.

During the year ended December 31, 2013, 2,403,429 warrants were exercised by the warrant holders. The Company issued 2,336,988 shares of common stock and received gross proceeds of approximately $3.5 million.

During the year ended December 31, 2014, the Company granted warrants to purchase 137,952 shares of the Company’s common stock to investors and warrants to purchase 68,976 shares of the Company’s common stock to its placement agent in connection with the January 2014 Closing.

During the year ended December 31, 2014, the Company also granted three consultants warrants to purchase 285,000 shares of the Company’s common stock with exercise prices ranging from $5.55 to $11.66 per share and a term of 10 years. These warrants vest when certain milestones are met. The fair value of the warrants was $2.1 million on the grant date and was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include (1) discount rate of 1.56% - 1.66%, (2) expected term of 5 years, (3) expected volatility of 82.47-87.76%, and (4) zero expected dividends. As of December 31, 2014, unrecognized compensation expense related to the warrants was $1,495,128. 

During the year ended December 31, 2014, 2,501,993 warrants were exercised by the warrant holders. The Company issued 2,336,658 shares of common stock and received gross proceeds of $159,994.

During the year ended December 31, 2014 and 2013, the Company recorded stock-based compensation related to the warrants of $0.1 million and $0.2 million, respectively.