Preferred Stock, Common Stock and Stockholders' Equity | 6. Preferred Stock, Common Stock and Stockholders’ Equity Preferred Stock Under the Company’s amended and restated certificate of incorporation, the Company is authorized to issue 5,000,000 shares of preferred stock with a $0.0001 par value. No shares of preferred stock were outstanding as of December 31, 2017 or 2016. Common Stock As of December 31, 2017, there were 15,413,610 shares of common stock outstanding. Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors of the Company. To date, no dividends have been declared. Sale of Common Stock and Warrants On July 25, 2016, the Company completed a registered direct offering of 1,804,512 shares of common stock at a purchase price of $2.49375 per share (the “July 2016 Financing”). Concurrently in a private placement, for each share of common stock purchased by an investor, such investor received from the Company an unregistered warrant to purchase three-quarters of a share of common stock, for a total of 1,353,384 shares (the “July Warrants”). The July Warrants have an exercise price of $2.41 per share, are immediately exercisable and will expire on January 25, 2022. The aggregate gross proceeds from the sale of the common stock and warrants were $4.5 million, and the net proceeds after deduction of commissions and fees were $4.0 million. In connection with the July 2016 Financing, the Company issued to its placement agent, Rodman & Renshaw, a unit of H.C. Wainwright & Co. LLC (“Wainwright”), and its designees unregistered warrants to purchase an aggregate of 90,226 shares of the Company’s common stock (the “July Wainwright Warrants”). The July Wainwright Warrants have substantially the same terms as the July Warrants, except that the July Wainwright Warrants will expire on July 21, 2021 and have an exercise price equal to $3.1172 per share of common stock. On August 3, 2016, the Company completed a registered direct offering of 3,244,120 shares of common stock at a purchase price of $3.0825 per share (the “August 2016 Financing”) and together with the July 2016 Financing (the “2016 Financings”). Concurrently in a private placement, for each share of common stock purchased by an investor, such investor received from the Company an unregistered warrant to purchase one half of a share of common stock, for a total of 1,622,060 shares (the “August Warrants”). The August Warrants have an exercise price of $3.03 per share, are immediately exercisable and will expire on February 3, 2022. The aggregate gross proceeds from the sale of the common stock and warrants were $10 million, and the net proceeds after deduction of commissions and fees was approximately $9.2 million. In connection with the August 2016 financing, the Company issued to its placement agent, Wainwright, and its designees unregistered warrants to purchase an aggregate of 162,206 shares of the Company’s common stock (the “August Wainwright Warrants”). The August Wainwright Warrants have substantially the same terms as the August Warrants, except that the August Wainwright Warrants will expire on July 29, 2021 and have an exercise price equal to $3.853125 per share of common stock. The warrants issued in connection with the 2016 Financings had a total initial fair value of $4,899,459 on their respective closing dates as determined using the Black Scholes valuation model and such value was recorded as the initial carrying value of the warrant liability. The fair value of the warrants is remeasured at each financial reporting period with any change in fair value recognized as a change in fair value of the warrant liability in the Statement of Operations. On December 15, 2016, the Company entered into amendments (the “Warrant Amendments”) with certain of the holders (the “Holders”) of the Company’s outstanding warrants to purchase common stock issued on July 25, 2016 and August 3, 2016. Pursuant to the Warrant Amendments, the Holders’ right to require the Company to purchase the outstanding warrants upon the occurrence of certain fundamental transactions will not apply if the fundamental transaction is a result of a transaction that has not been approved by the Company’s board of directors. As a result of this amendment, warrants to purchase 252,432 shares of the Company’s common stock were no longer required to be classified as liabilities. The value of amended warrants were adjusted to their fair value immediately prior to the amendment and approximately $207,000 was reclassified from warrant liability to Additional Paid-in Capital. On February 16, 2017, an institutional investor from the Company’s financing which closed in July 2016 converted its warrant to purchase 526,315 shares of our common stock by a “cashless” exercise and received 211,860 shares of the Company’s common stock. The warrant had an exercise price of $2.41 per share. The shares were issued, and the warrants were sold, in reliance upon the registration exemption set forth in Section 4(a)(2) of the Securities Act of 1933, as amended. The value of the exercised warrants were adjusted to their fair value immediately prior to the exercise and approximately $1.4 million was reclassified from warrant liability to Additional Paid-in Capital. Subsequent to this transaction, warrants to purchase 2,449,129 shares of the Company’s common stock remain classified as a liability. Sale of Common Stock in Public Offering In February and March 2017, the Company completed the sale of 2,775,861 shares of its common stock in an underwritten public offering led by Laidlaw & Company (UK) Ltd. The price to the public in this offering was $2.90 per share resulting in gross proceeds to the Company of approximately $8.0 million. After deducting underwriting discounts and commissions and offering expenses paid by the Company, the net proceeds to the Company from this offering was approximately $7.3 million. At the Market Equity Offering Program On April 15, 2016, the Company terminated its At Market Sales Agreement with MLV & Co. LLC and entered into a new At Market Issuance Sales Agreement with B. Riley FBR, Inc. (as successor by merger to FBR Capital Markets & Co., “FBR”) (“FBR Sales Agreement”), and filed a prospectus supplement, pursuant to which the Company may sell from time to time, at its option, up to an aggregate of 649,074 shares of the Company’s common stock through FBR as the sales agent. The sales of shares made through this equity program are made in “at-the-market” offerings as defined in Rule 415 of the Securities Act. Through December 31, 2016, the Company sold 56,000 shares of common stock at a weighted average price per share of $5.45 and received proceeds of approximately $296,000, net of commissions and fees. In November 2017, the Company filed a new shelf registration with the SEC on Form S-3 to replace a prior Form S-3 shelf registration which was set to expire on November 25, 2017. This new shelf registration was declared effective by the SEC on December 28, 2017. The new shelf registration statement includes a prospectus for the at-the-market offering to sell up to an aggregate of $16.0 million of shares of the Company’s common stock through FBR as a sales agent. The Company did not sell any shares of common stock through the FBR Sales Agreement during 2017. Through February 28, 2018, the Company sold 79,758 shares of common stock at a weighted average price per share of $2.08 pursuant to the FBR Sales Agreement and received net proceeds of approximately $160,000, net of commissions and fees. The Company currently has the capacity to issue up to approximately $11.9 million worth of additional shares of common stock pursuant to the FBR Sales Agreement. Under current SEC regulations, if at the time the Company files its Annual Report on Form 10-K, or Form 10-K, the Company’s public float is less than $75 million, and for so long as its public float remains less than $75 million, the amount the Company can raise through primary public offerings of securities in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of the Company’s public float, which is referred to as the baby shelf rules. As of February 28, 2018, the Company’s public float was approximately $36.1 million, based on 12,938,176 shares of outstanding common stock held by non-affiliates and at a price of $2.79 per share, which was the last reported sale price of the Company’s common stock on The Nasdaq Capital Market on January 29, 2018. As a result of the Company’s public float being below $75 million, the Company will be limited by the baby shelf rules until such time as the Company’s public float exceeds $75 million, which means the Company only has the capacity to sell shares up to one-third of its public float under shelf registration statements in any twelve-month period. If the Company’s public float decreases, the amount of securities we may sell under our Form S-3 shelf registration statement will also decrease. Future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of the Company’s common stock and the Company’s capital needs. There can be no assurance that FBR will be successful in consummating future sales based on prevailing market conditions or in the quantities or at the prices that the Company deems appropriate. In addition, the Company will not be able to make future sales of common stock pursuant to the FBR Sales Agreement unless certain conditions are met, which include the accuracy of representations and warranties made to FBR under the FBR Sales Agreement. Furthermore, FBR is permitted to terminate the FBR Sales Agreement in its sole discretion upon ten days’ notice, or at any time in certain circumstances, including the occurrence of an event that would be reasonably likely to have a material adverse effect on the Company’s assets, business, operations, earnings, properties, condition (financial or otherwise), prospects, stockholders’ equity or results of operations. The Company has no obligation to sell the remaining shares available for sale pursuant to the FBR Sales Agreement. Warrants The Company has issued warrants to purchase common stock to banks that have loaned funds to the Company, as well as to representatives of the underwriters of the Company’s initial public offering and certain of its affiliates. A summary of the Company’s warrant activity is as follows: Weighted Weighted Average Average Remaining Exercise Contractual Shares Price Term (Years) Outstanding at December 31, 2016 3,323,876 $ 3.29 4.96 Issued — — — Exercised (526,315 ) $ 2.41 4.07 Expired/Forfeited — — — Outstanding at December 31, 2017 2,797,561 $ 3.46 3.94 Equity Incentive Award Plans The Company adopted the 2007 Equity Incentive Plan (the “2007 Plan”) in May 2007 under which 450,000 shares of common stock were reserved for issuance to employees, nonemployee directors and consultants of the Company. As of December 31, 2016, no options were available for future grant under this plan. In August 2013, the Company adopted the 2013 Equity Incentive Award Plan (the “2013 Plan”) as a successor to the 2007 Plan. Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company. A total of 510,000 shares of common stock were initially reserved for issuance under the 2013 Plan. In addition, the number of shares of common stock available for issuance under the 2013 Plan will be annually increased on the first day of each fiscal year during the term of the 2013 Plan, beginning with the 2014 fiscal year, by an amount equal to the least of: (i) 300,000 shares; (ii) four percent of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amount as the Company’s board of directors may determine. In February 2016, the Company effected a one-time option exchange, wherein employees were offered the opportunity to exchange certain outstanding stock options for the grant of a lesser number of replacement stock options. The participants received three new stock options for every four stock options tendered for exchange. As a result, 703,500 stock options were exchanged for 527,624 replacement stock options. The replacement stock options have a three-year vesting schedule and an exercise price of $3.04 per share, which was the closing price of the Company’s common stock on the date of the option exchange. All other terms of the replacement stock options remain the same as the original stock options that were exchanged. As a result of this transaction, the Company recognized an incremental stock-based compensation expense of approximately $4,700 at the time of the transaction and will recognize an additional approximately $141,000 of stock-based compensation expense over the three-year vesting term of the exchanged options. On April 27, 2016, the Company’s stockholders approved an amendment and restatement of the Company’s 2013 Equity Incentive Award Plan (the “Restated Plan”) to increase the number of shares of common stock reserved under the Restated Plan by 500,000 shares, to an aggregate of 4,786,425 shares, and to extend the term of the Restated Plan into 2026. As a result of the annual increases since the 2013 Plan originated, and the increase of stock options reserved under the Restated Plan approved by the Company’s stockholders in April 2016, the Company has increased the number shares reserved for issuance under the 2013 Plan by 1,276,425 shares. As of December 31, 2017, 72,801 options remain available for future grant under the 2013 Plan. On January 1, 2018, the Company further increased the number of shares reserved for issuance under the 2013 Plan by 300,000 shares, making 372,801 options available for future grant under the 2013 Plan. Options granted under the 2007 Plan and 2013 Plan have ten year terms from the date of grant and generally vest over a one to four year period. The Company granted options to purchase 856,000 and 414,000 shares of common stock in 2017 and 2016, respectively. The exercise price of all options granted during the years ended December 31, 2017 and 2016 was equal to the market value per share of the Company’s common stock on the date of grant. A summary of the Company’s stock option activity under the 2007 Plan and 2013 Plan is as follows: Weighted Weighted Average Average Remaining Exercise Contractual Aggregate Shares Price Term (Years) Intrinsic Outstanding at December 31, 2016 1,275,624 $ 4.04 8.34 $ 191,160 Granted 856,000 $ 2.45 9.13 — Exercised — — — — Expired/Forfeited/Exchanged — — — — Outstanding at December 31, 2017 2,131,624 $ 3.40 8.06 $ 219,480 Vested and expected to vest at December 31, 2017 2,131,624 $ 3.40 8.06 $ 219,480 Exercisable at December 31, 2017 1,111,270 $ 4.08 7.38 $ 219,480 The intrinsic values above represent the aggregate value of the total pre-tax intrinsic value based upon a common stock price of $2.26 and $2.02 at December 31, 2017 and 2016, respectively, and the contractual exercise price. The weighted average grant date fair value per share of employee stock options granted during the years ended December 31, 2017 and 2016, was $1.87 and $2.04, respectively. The 2007 Plan permits the early exercise of options, but the Company has the option to repurchase any unvested shares at the original purchase price (the exercise price paid by the purchaser) upon any voluntary or involuntary termination. The shares of common stock issued from the exercise of stock options are restricted and vest over time or on the achievement of certain milestones. Any unvested shares immediately vest in the event of termination for reasons other than cause, and vesting accelerates in the event of a merger, sale, or other change in control of the Company. Of the total 332,000 stock options exercised, 287,000 were vested as of December 31, 2017 and 2016. The remaining 45,000 exercised stock options vest upon the submission of the NDA for Gimoti. There were no options exercised in 2017 and 2016. The Company had the following nonvested options under the 2007 Plan and 2013 Plan: Shares Weighted Average Grant Date Fair Value Per Share Nonvested at December 31, 2016 690,961 $ 3.34 Granted 856,000 $ 2.45 Vested (526,607 ) $ 3.22 Expired/Forfeited/Exchanged — — Nonvested at December 31, 2017 1,020,354 $ 2.65 Employee Stock Purchase Plan On June 13, 2013, the Company’s board of directors adopted the ESPP, and the Company’s stockholders approved the ESPP on August 29, 2013. The ESPP became effective on the day prior to the effectiveness of the IPO. The ESPP permits participants to purchase the Company’s common stock at 85% of the fair market value through payroll deductions of up to 20% of their eligible compensation. A total of 30,000 shares of common stock were initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP has been annually increased on the first day of each fiscal year during the term of the ESPP by an amount equal to the lesser of: (i) 30,000 shares; (ii) one percent of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amount as the Company’s board of directors may determine. Payroll withholdings from the Company’s employees of approximately $135,000 and $99,000 resulted in the issuance of 75,529 and 34,067 shares of common stock through its ESPP during the years ended December 31, 2017 and 2016, respectively. The estimated fair value of the shares to be acquired under the ESPP was determined on the initiation date of each six month purchase period using the Black-Scholes option-pricing valuation model with the following weighted-average assumptions for ESPP shares to be purchased during the year ended December 31, 2017 and 2016: Year Ended December 31, 2017 2016 Risk free interest rate 0.79% - 1.10% 0.47% - 0.50% Expected term 6 months 6 months Expected volatility of common stock 37.60% - 99.23% 83.83% - 212.80% Expected dividend yield 0.0% 0.0% Stock-Based Compensation Stock-based compensation expense includes charges related to stock option grants and employee stock purchases under the Company’s ESPP. The Company measures stock-based compensation expense based on the grant-date fair value of any awards granted to its employees. Such expense is recognized over the period of time that employees provide service and earn rights to the awards. The estimated fair value of each option award granted was determined on the date of grant using the Black-Scholes option-pricing valuation model with the following weighted-average assumptions for options grants during the two years ended December 31, 2017: Year Ended December 31, 2017 2016 Risk free interest rate 1.93% - 2.16% 1.25% - 1.58% Expected option term 5.5 - 6.0 years 5.3 - 6.0 years Expected volatility of common stock 94.05% - 98.23% 74.44 - 75.91% Expected dividend yield 0.0% 0.0% The Company recognized non-cash stock-based compensation expense to employees and directors in its research and development and its general and administrative functions as follows: Year Ended December 31, 2017 2016 Research and development $ 819,815 $ 698,032 General and administrative 999,616 1,008,492 Total stock-based compensation expense $ 1,819,431 $ 1,706,524 As of December 31, 2017, there was approximately $1.7 million of unrecognized compensation costs related to outstanding employee and board of director options, which is expected to be recognized over a weighted average period of 1.13 years. Common Stock Reserved for Future Issuance Common stock reserved for future issuance consists of the following at December 31, 2017 and 2016: December 31, 2017 2016 Stock options issued and outstanding 2,131,624 1,275,624 Authorized for future option grants 72,801 628,801 Warrants to purchase common stock 2,797,561 3,323,876 Authorized for employee stock purchase plan 91,934 37,463 Total common stock reserved for future issuance 5,093,920 5,265,764 |