| Stockholders' Equity | Common Stock: On April 8, 2015, the Company entered into an
At-the-Market Issuance Sales Agreement (the Sales Agreement) with MLV & Co. LLC (MLV) under which
the Company may issue and sell up to $40.0 million of shares of its common stock from time to time through MLV acting as agent,
subject to limitations imposed by the Company, such as the number or dollar amount of shares registered under the registration
statement to which the offering relates. When the Company wishes to issue and sell common stock under the Sales Agreement,
it notifies MLV of the number of shares to be issued, the dates on which such sales are anticipated to be made, any minimum price
below which sales may not be made and other sales parameters as the Company deems appropriate. MLV is entitled to a
commission of up to 3% of the gross proceeds from the sale of common stock sold under the Sales Agreement. The shares
of common stock to be sold under the Sales Agreement are registered under an effective registration statement filed with the SEC. During
the year ended December 31, 2015, the Company issued 5,310,037 shares of common stock under the Sales Agreement and realized net
proceeds of approximately $28,451,848. During the year ended December 31, 2015, the
Company also issued shares of its common stock, resulting in gross proceeds of $14,658,161:
● 150,000 shares of common stock upon exercise of warrants with an exercise price of $0.90 per share;
● 125,000 shares of common stock upon exercise of warrants with an exercise price of $0.40 per share;
● 353,500 shares of common stock upon exercise of warrants with an exercise price of $2.50 per share; and
● 3,953,283 shares of common stock upon exercise of warrants with an exercise price of $3.4375 per share. During the year ended December 31, 2015, the
Company also issued the following shares of common stock:
● 2,158,033 shares upon cashless exercise of 2,597,591 warrants;
● 499,955 shares upon exercise of 499,955 stock options at a weighted average exercise price of $0.99 per share, resulting in gross proceeds of $492,960 to the Company;
● 454,546 shares upon conversion of 454,546 shares of the Series B non-voting preferred stock;
● 425,000 shares upon conversion of an aggregate of 42,500 shares of the Series C-3 non-voting preferred stock;
● 61,598 shares upon conversion of 2,817 shares of the Series E non-voting preferred stock; and
● 10,728 shares upon conversion of wages by an officer of the Company in an aggregate amount of $50,000 at prices per share of $3.10 - $8.55. During the year ended December 31, 2015, the
Company also issued 774 warrants upon the exercise of a unit warrant related to the IPO. These warrants were subsequently
exercised resulting in the issuance of 774 shares of common stock and gross proceeds of $2,661 to the Company. In March 2014, the Company sold an aggregate
of 2,960,000 units in a registered direct offering at a purchase price of $2.50 per unit, for net proceeds of $6,723,248. Each
unit consisted of one share of the Companys common stock and 0.35 of a warrant, each to purchase one share of the Companys
common stock. Upon issuance, the warrants had an exercise price of $3.10 per share, are exercisable commencing six
months from the date of issuance, and have a term of five years from the date of exercisability. Under certain circumstances,
the warrants may be settled in cash and were therefore were initially classified as derivative liabilities (See Note 7). The
Company used the Black Scholes option pricing model to value the warrants, of which $1,728,450 was the ascribed value calculated
at the issuance date. These warrants were revalued at each balance sheet date and the resulting changes were recorded in other
income (expense) in the statement of operations. On September 15, 2014, the exercise price of these warrants was decreased
to $2.50 in exchange for the removal of the cash settlement provisions of the warrant. The Company revalued the warrants
on September 15, 2014 immediately prior to the modification which resulted in a change in fair value recorded in other income (expense)
in the statement of operations, and immediately subsequent to the modification which resulted in a loss on modification of equity
instruments and extinguishment of derivative liabilities recorded in other income (expense) in the statement of operations. During
2014, the Company used the following assumptions in calculating the Black Scholes values of these warrants:
At Issuance Date At September 15, 2014
Expected term (years) 5.5 5
Volatility 75 % 75 %
Dividend yield 0.0 % 0.0 %
Risk-free interest rate 1.63 % 1.8 % During the year ended December 31, 2014, the
Company issued the following shares of common stock:
● 455,000 shares upon exercise of 455,000 shares of stock options resulting in gross proceeds of $318,150 to the Company;
● 1,400,000 shares upon conversion of an aggregate of 140,000 shares of the Series C-1 non-voting preferred stock;
● 210,000 shares upon conversion of 21,000 shares of the Series C-3 non-voting preferred stock;
● 772,589 shares upon exercise of warrants to purchase 919,513 shares of the Companys common stock on a cashless basis;
● 57,384 shares upon conversion of wages and board fees by an officer and board member in an aggregate amount of $96,851 at prices of $1.32 - $2.00 per share; and
● 35,886 shares held in escrow was released upon achievement of certain milestones. Preferred Stock and Warrants Under the terms of our Amended and Restated Certificate
of Incorporation, as amended, our board of directors is authorized to issue up to 2,000,000 shares of preferred stock in one or
more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock. Of the 2,000,000 shares of preferred stock authorized, our board of directors has
designated (all with par value of $0.001 per share) the following:
As of December 31, 2015 As of December 31, 2014
Preferred Shares Outstanding Liquidation Preference (Per Share) Total Liquidation Preference Preferred Shares Outstanding Liquidation Preference (Per Share) Total Liquidation Preference
Series B - $ 0.001 $ - 454,546 $ 0.001 $ 455
Series C-2 150,000 10.000 1,500,000 150,000 10.000 1,500,000
Series C-3 136,500 10.000 1,365,000 179,000 10.000 1,790,000
Series D 73,962 21.000 1,553,202 73,962 21.000 1,553,202
Series E 89,623 49.200 4,409,452 92,440 49.200 4,548,048
Total 450,085 $ 8,827,654 949,948 $ 9,391,705 On September 15, 2014 the Company entered into
consent and exchange agreements with investors holding its outstanding Series C-2, Series C-3, Series D, and Series E non-voting
convertible preferred stock. The Company modified certain terms within the preferred stock, as described in Note 7,
which resulted in the reclassification of the remaining derivative liability to equity. The Company used a Monte Carlo simulation model
to separately value the conversion options associated with the preferred stock instruments and the warrants issued in connection
with the preferred stock. A summary of the assumptions used in the Monte Carlo models are as follows:
At September 15, 2014 At Issuance Date
Expected term (months) 49 - 64 56 - 60
Volatility 75 % 75 %
Dividend yield 0.0 % 0.0 %
Risk-free interest rate 1.63 - 1.8 % 1.3 - 1.5 % The following terms and conditions apply to all
of the non-voting convertible preferred stock outstanding at December 31, 2015: Dividends Fundamental Transactions- Redemption Listing- Series B Non-Voting Convertible Preferred Stock and Warrants On July 30, 2013, the Company sold 454,546 shares
of its Series B non-voting convertible preferred stock and a warrant to purchase up to 227,273 shares of the Companys common
stock, for gross proceeds of $500,000. The Series B shares and the warrant were sold together at a price of $1.10 per share for
each share of Series B stock. Each share of Series B stock was convertible into one share of the Companys common
stock at any time at the holders option. All shares of Series B stock were converted into 454,546 shares of common stock
in 2015. The warrant was exercisable immediately upon
issuance and has an exercise price of $1.50 per share and a term of five years. Series C-1, Series C-2 and Series C-3 Non-Voting Convertible Preferred
Stock and Warrants On October 22, 2013, the Company sold to existing
institutional investors 150,000 shares of Series C-1 non-voting convertible preferred stock and 150,000 shares of Series C-2 non-voting
convertible preferred stock, together with warrants to purchase up to an aggregate of 1,500,000 shares of common stock, for aggregate
gross proceeds of $3,000,000. As a condition to the closing, the Company simultaneously exchanged a convertible note
held by one of the investors in the principal amount of $400,000 for 57,400 shares of Series D non-voting convertible preferred
stock and exchanged another convertible note held by the same investor in the principal amount of $750,000 for 53,537 shares of
Series E non-voting convertible preferred stock. The Company also issued 1,677 shares of Series E preferred stock to
the other investor in the offering. The Series C-1 non-voting preferred stock and
Series C-2 non-voting preferred stock have identical rights, privileges and terms and are referred to collectively as the Series
C Stock. Each share of Series C Stock is convertible into 10 shares of common stock at any time at the holders
option at a conversion price of $1.00 per share. In the event of the Companys liquidation, dissolution, or winding
up, holders of the Series C Stock will receive a payment equal to $10.00 per share of Series C Stock, subject to adjustment, before
any proceeds are distributed to the holders of common stock. Shares of the Series C Stock will not be entitled to receive
any dividends, unless and until specifically declared by the Companys board of directors. In January 2014, all 140,000 outstanding shares
of Series C-1 non-voting preferred stock were converted into 1,400,000 shares of the Companys common stock which resulted
in the reclassification of the derivative liability to equity in the amount of $2,447,384 for the year ended December 31, 2014. In January 2014, the Company sold to various
investors 200,000 shares of Series C-3 non-voting convertible preferred stock, together with warrants to purchase up to an aggregate
of 1,000,000 shares of common stock, for aggregate gross proceeds of $2,000,000. The Series C-3 non-voting convertible
preferred stock and the related warrants were sold together at a price of $10.00 per share for each share of Series C-3 preferred
stock. The Series C-3 non-voting convertible preferred stock has rights, privileges and terms that are identical to
the Companys Series C Stock. Each share of Series C-3 preferred stock is convertible into 10 shares of common
stock at any time at the holders option. The warrants are exercisable one year after issuance, had an exercise
price of $1.25 per share (decreased to $0.90 per share in September 2014 See Note 7), subject to adjustment, and a term
of five years from the date they are first exercisable. The Company received net proceeds of $1,318,884. The Series C-2 and Series C-3 non-voting preferred
stock, referred to collectively as the Series C Preferred Stock, have identical rights, privileges and terms. The Series
C Preferred Stock rank senior to the Companys common stock; senior Due to the existence of downround provisions,
the conversion features of the Series C-3 non-voting convertible preferred stock and the associated warrants were initially classified
as derivative liabilities upon issuance and were valued using a Monte Carlo simulation model. On the issuance date,
the estimated value of the conversion features and warrants was $1,398,158 and $655,574, respectively. In February 2014, the downround protection of
Series C-2 and Series C-3 non-voting convertible preferred stock was eliminated as, pursuant to their terms, the closing price
of the Companys common stock was greater than $2.00 for a period of twenty trading days for a consecutive thirty trading
day period subsequent to the closing (See Note 7). The Series C-1 non-voting convertible preferred
stock, Series C-2 non-voting convertible preferred stock, Series D non-voting convertible preferred stock and Series E non-voting
convertible preferred stock all contained a prohibition on its respective conversion (in the case of the Series C-1 and Series
C-2, in the aggregate for both series) if, as a result of such conversion, the Company would have issued in each case shares of
its common stock in an aggregate amount equal to 3,190,221 shares, which is 20% of the shares of common stock outstanding on October
17, 2013, unless the Company received the approval of its stockholders for such overage. On February 28,
2014, the shareholders approved the issuance of such overage. Series D Non-Voting Convertible Preferred Stock Each share of Series D non-voting convertible
preferred stock is convertible into 20 shares of common stock (subject to adjustment) at a per share price of $0.35 at any time
at the option of the holder, except that a holder will be prohibited from converting shares of Series D non-voting convertible
preferred stock into shares of common stock if, as a result of such conversion, such holder, together with its affiliates, would
beneficially own more than 9.99% of the total number of shares of the Companys common stock then issued and outstanding.
In the event of the Companys liquidation, dissolution or winding up, holders of Series D non-voting convertible preferred
stock originally were to receive a payment equal to $7.00 per share (increased to $21.00 per share in September 2014 See
Note 7) of Series D non-voting convertible preferred stock on parity with the payment of the liquidation preference due the Series
E non-voting convertible preferred stock, but before any proceeds are distributed to the holders of common stock, the Series C-1
non-voting convertible preferred stock and the Series C-2 non-voting convertible preferred stock. Shares of Series D non-voting
convertible preferred stock received a dividend of 9% per annum through September 15, 2014 (See Note 7). The Series D non-voting convertible preferred
stock ranks senior to the Companys common stock; senior to any class or series of capital stock created after the issuance
of the Series D non-voting convertible preferred stock; senior to the Series C-2 non-voting convertible preferred stock and the
Series C-3 non-voting convertible preferred stock; and on parity with the Series E non-voting convertible preferred stock. Shares
of Series D non-voting convertible preferred stock will generally have no voting rights, except as required by law and except that
the consent of holders of a majority of the outstanding Series D non-voting convertible preferred stock will be required to amend
the terms of the Series D non-voting convertible preferred stock or the certificate of designation for the Series D non-voting
convertible preferred stock. As long as any of the Series D non-voting convertible preferred stock is outstanding, the
Company cannot incur any indebtedness other than indebtedness existing prior to September 15, 2014, trade payables incurred in
the ordinary course of business consistent with past practice, and letters of credit incurred in an aggregate amount of $3.0 million
at any point in time. In addition to the debt restrictions above, as long as any shares
of the Series D non-voting convertible preferred stock are outstanding, the Company cannot, among others things: create, incur,
assume or suffer to exist any encumbrances on any of its assets or property; or redeem, purchase or otherwise acquire or pay or
declare any dividend or other distribution on any junior securities. Series E Non-Voting Convertible Preferred Stock Each share of Series E non-voting convertible
preferred stock was originally convertible into 20 shares (increased to 21.8667 per share in September 2014 See Note 7)
of the Companys common stock (subject to adjustment) at a per share price of $0.82 (reduced to $0.75 per share in September
2014 See Note 7) at any time at the option of the holder, except that a holder will be prohibited from converting shares
of Series E non-voting convertible preferred stock into shares of common stock if, as a result of such conversion, such holder,
together with its affiliates, would beneficially own more than 9.99% of the total number of shares of the Companys common
stock then issued and outstanding. In the event of the Companys liquidation, dissolution or winding up, holders
of Series E preferred stock originally was to receive a payment equal to $16.40 per share (increased to $49.20 per share in September
2014 See Note 7) of Series E non-voting convertible preferred stock on parity with the payment of the liquidation preference
due the Series D non-voting convertible preferred stock, but before any proceeds are distributed to the holders of common stock,
the Series C-2 non-voting convertible preferred stock. Shares of Series E non-voting convertible preferred stock received a dividend
of 8% per annum through September 15, 2014 (See Note 7). The Series E non-voting convertible preferred
stock ranks senior to the Companys common stock; senior to any class or series of capital stock created after the issuance
of the Series E non-voting preferred stock; senior to the Series C-2 non-voting convertible preferred stock and the Series C-3
non-voting convertible preferred stock; and on parity with the Series D non-voting convertible preferred stock. Shares
of Series E non-voting convertible preferred stock will generally have no voting rights, except as required by law and except that
the consent of holders of a majority of the outstanding Series E non-voting convertible preferred stock will be required to amend
the terms of the Series E non-voting convertible preferred stock or the certificate of designation for the Series E non-voting
convertible preferred stock. As long as any of the Series E non-voting convertible preferred stock is outstanding, the
Company cannot incur any indebtedness other than indebtedness existing prior to September 15, 2014, trade payables incurred in
the ordinary course of business consistent with past practice, and letters of credit incurred in an aggregate amount of $3.0 million
at any point in time. In addition to the debt restrictions above, as
long as any the Series E non-voting convertible preferred stock is outstanding , the Company cannot, among others things: create,
incur, assume or suffer to exist any encumbrances on any of our assets or property; redeem, repurchase or pay any cash dividend
or distribution on any of our capital stock (other than as permitted); redeem, repurchase or prepay any indebtedness; or engage
in any material line of business substantially different from our current lines of business. In the event the Company issues any options,
convertible securities or rights to purchase stock or other securities pro rata to the holders of common stock, then holders of
Series E non-voting convertible preferred stock will be entitled to acquire, upon the same terms a pro rata amount of such stock
or securities as if the Series E non-voting convertible preferred stock had been converted to common stock. The Company used a Monte Carlo model to separately
value the Series C-1, C-2, D and E preferred stock, the conversion options associated with the those preferred stock instruments
and the warrants issued in connection with the Series C-1 and C-2 preferred stock. A summary of the key assumptions
used in the Monte Carlo models are as follows: Stock price Conversion/redemption strike price Volatility Term Risk-free Rate Credit adjusted discount rate Dividend rate Stock Options: In 2013, the Companys board of directors
approved the 2013 Stock Incentive Plan (the 2013 Plan). The 2013 Plan provides for the issuance of equity
grants in the form of options, restricted stock, stock awards and other forms of equity compensation. Awards may be
made to directors, officers, employees and consultants under the 2013 Plan. An aggregate of 5,000,000 shares of the
Companys common stock is reserved for issuance under the 2013 Plan. On January 19, 2016, the shareholders approved
the increase of the shares issuable under the 2013 Plan from 5,000,000 to 8,000,000. During the year ended December 31, 2015, the
Company granted ten-year non-qualified stock options under the 2013 Plan covering an aggregate of 640,000 shares of the Companys
common stock to its officers, directors and consultants. During the year ended December 31, 2014, the
Company granted ten-year non-qualified stock options under the 2013 Plan covering an aggregate of 1,185,000 shares of its common
stock to its officers, directors and employees and an aggregate of 396,000 shares of its common stock to its consultants. During the years ended December 31, 2015 and
2014, total compensation expense for stock options issued to employees, directors, officers and consultants was $3,225,659 and
$2,168,303, respectively. The fair value of the grants at grant dates is
determined using the Black-Scholes option pricing model with the following assumptions:
Year Ended December 31,
2015 2014
Risk-free interest rate 1.47% - 2.26 % 1.5% - 2.9 %
Expected volatility 93% - 94 % 74% - 113 %
Expected term (years) 5 - 10 years 5 - 10 years
Expected dividend yield 0.0 % 0.0 %
Weighted-average fair value of options granted during the period $ 3.46 $ 1.50 The Company estimated the expected term of the
stock options granted based on anticipated exercises in future periods. The expected term of the stock options granted
to consultants is based upon the full term of the respective option agreements. Prior to 2015, the expected volatility
used in the valuation of the Companys stock options was based on the historical volatility of publicly traded peer group
companies due to the limited trading history of the Companys common stock. Beginning in the first quarter of
2015, the expected stock price volatility for the Companys stock options is calculated based on the historical volatility
since the initial public offering of the Companys common stock in March 2010. The expected dividend yield of
0.0% reflects the Companys current and expected future policy for dividends on the Companys common stock. To
determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a
term consistent with the expected term of the Companys awards. A summary of the Companys stock options
activity under the Plan and related information is as follows:
Year Ended December 31, 2015
Year Ended December 31, 2014
Shares
Weighted Average Exercise Price Shares
Weighted Average Exercise Price
Outstanding at beginning of year 3,664,500 $ 1.25 3,453,630 $ 1.06
Granted 640,000 $ 4.60 1,581,000 $ 1.98
Exercised (499,955 ) $ 0.99 (455,000 ) $ 0.70
Expired/Cancelled (25,000 ) $ 2.97 (574,630 ) $ 2.65
Forfeited (179,500 ) $ 2.20 (340,500 ) $ 1.13
Outstanding at end of year 3,600,045 $ 1.82 3,664,500 $ 1.25
Options exercisable 3,172,212 $ 1.46 3,092,250 $ 1.15
Weighted-average fair value of options granted during the year $ 3.46 $ 1.50
December 31,
2015 2014
Weighted average remaining contractual life of stock options outstanding (years) 7.6 8.2
Weighted average remaining contractual life of stock options exercisable (years) 7.4 8.0
Weighted average vesting period over which total compensation expense related to non-vested options not yet recognized (years) 0.5 0.5
Compensation expense related to non-vested options not yet recognized $ 543,089 $ 308,005
Aggregate intrinsic value of stock options exercised $ 3,260,728 $ 636,250
Aggregate intrinsic value of stock options outstanding $ 2,405,321 $ 2,659,665 The aggregate intrinsic value is calculated as
the difference between the exercise prices of the underlying options and the quoted closing price of the common stock of the Company
at the end of the reporting period for those options that have an exercise price below the quoted closing price. In July 2015, the Company entered into a Release
of Claims and Severance Modification Agreement with Randy Milby (See Note 6), the Companys CEO, due to Mr. Milbys
anticipated termination of employment. As a result, the Company recorded a total of $507,341 compensation expense for
the incremental value of an aggregate of 762,500 options during the year ended December 31, 2015 using the Black-Scholes option
pricing model with the following assumptions:
Expected term (years) 0.25 5
Volatility 94% - 97 %
Dividend yield 0.0 %
Risk-free interest rate 0.05% - 1.61 % Warrants: During the year ended December 31, 2015, the
Company extended the expiration date for an aggregate of 38,400 warrants with an exercise price of $3.4375. The Company
accounted for this transaction as a modification of warrants and recorded additional paid in capital and non-cash general and administrative
expense in the amount of $112,982. The warrants were valued using the Black-Scholes option pricing model with the following
assumptions:
Expected term (days) 5
Volatility 88.17 %
Dividend yield 0.0 %
Risk-free interest rate .003 % On March 2, 2015, the Companys board of
directors approved an extension to April 30, 2015 of the expiration date of the Companys publicly traded warrants which
resulted in deemed dividend of $33,121. In March 2015, the Company issued two warrants
exercisable for an aggregate of up to 283,400 common shares with an exercise price of $7.00 per share and a term of five years
as a result of entering into a backstop agreement with Manchester Securities Corp. (Manchester) (See Note 4). Additionally,
the expiration date of March 24, 2015 of warrants to purchase 390,720 shares of common stock issued to Manchester in connection
with the Companys initial public offering (IPO) was extended by one year to March 24, 2016. The
Company recorded non-cash other expense of $1,583,252 for these warrants using the Black-Scholes option pricing model with the
following assumptions:
Expected term (years) 1 - 5
Volatility 75.81% - 104.08%
Dividend yield 0.0 %
Risk-free interest rate 0.01% - 1.61% The following table is the summary of warrant
activity for the year ended December 31:
2015 2014
Shares
Weighted Average Exercise Price Weighted Average Remaining Contractual Life Shares
Weighted Average Exercise Price Weighted Average Remaining Contractual Life
Outstanding at beginning of year 11,520,762 $ 1.99 2.57 10,422,525 $ 2.00 3.12
Granted 284,174 $ 6.99 4.19 2,036,000 $ 2.19 5.11
Expired (203,374 ) $ 3.44 - (18,250 ) - -
Exercised (7,179,374 ) $ 2.28 - (919,513 ) $ 0.41 -
Outstanding at end of year 4,422,188 $ 1.80 3.07 11,520,762 $ 1.99 2.57 Stock-based Deferred Compensation Plan for Non-Employee Directors During the third quarter of 2014, the Company
established an unfunded stock-based deferred compensation plan, providing non-employee directors the opportunity to defer up to
one hundred percent of fees and compensation, including restricted stock units. The amount of fees and compensation deferred
by a non-employee director is converted into stock units, the number of which is determined based on the closing price of the Companys
common stock on the date such compensation would have otherwise been payable. At all times, the plan participants are one
hundred percent vested in their respective deferred compensation accounts. On the tenth business day of January in the year
following a directors termination of service, the director will receive a number of common shares equal to the number of
stock units accumulated in the directors deferred compensation account. The Company accounts for this plan as stock
based compensation under ASC 718. During the year ended December 31, 2015 and 2014, the amount of compensation that was deferred
under this plan was $79,200 and $21,826, respectively. Short Swing Profit Recovery In June 2015, a member of the board of directors
of the Company paid a total of $26,525 to the Company representing the disgorgement of short swing profits under Section 16(b)
under the Exchange Act. The amount was recorded as additional paid in capital. |
