Quarterly report pursuant to Section 13 or 15(d)

EQUITY TRANSACTIONS

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EQUITY TRANSACTIONS
3 Months Ended
Mar. 31, 2017
Notes to Financial Statements  
EQUITY TRANSACTIONS

Common stock issuance

 

In November 2016, the Board authorized the issuance of shares of common stock to all Board members, both current and former, in an amount equivalent to $240,000, representing their accrued but unpaid directors’ fees as of December 31, 2016. In January 2017, the Company issued an aggregate of 173,912 shares at $1.38 per share, which was the average closing price of the Company’s stock during 2016, to fulfill this obligation. The closing price of the Company’s stock on January 17, 2017, the day the shares were issued, was $1.16 per share.

 

Stock-Based Compensation Plan

 

2013 Stock Option Incentive Plan

 

During the three months ended March 31, 2017, the Board of Directors authorized the Company to issue options to purchase an aggregate of 189,159 shares of common stock to certain employees. The stock options vest as follows: 25% on date of grant and 25% on each of the next three years after the grant date. The options granted were at the market value of the common stock on the date of the grant.

 

We utilize the Black-Scholes valuation method to recognize compensation expense over the vesting period. The expected life represents the period that our stock-based compensation awards are expected to be outstanding.

 

We use a simplified method provided in Securities and Exchange Commission release, Staff Accounting Bulletin No. 110, which averages an award's weighted average vesting period and contractual term for "plain vanilla" share options. The expected volatility was estimated by analyzing the historic volatility of similar public biotech companies in an early stage of development. No dividend payouts were assumed as we have not historically paid, and do not anticipate paying, dividends in the foreseeable future. The risk-free rate of return reflects the weighted average interest rate offered for US treasury rates over the expected term of the options.

 

The significant assumptions used to estimate the fair value of the equity awards granted are;

 

Grant date   February 3     March 28  
Fair value of options granted   $ 1.13     $ 1.35  
 Expected term (years)     6       6  
 Risk-free interest rate     2.10 %     2.11 %
 Volatility     82.53 %     76.86 %
 Dividend yield   None     None  

 

For the three months ended March 31, 2017 and 2016, the Company recognized approximately $366,000 and $262,000, respectively, as compensation expense with respect to the stock options.

 

Stock Option Activity

 

As of March 31, 2017, there were 695,755 shares of time-based, non-vested stock options outstanding. As of March 31, 2017, there was approximately $543,687 of total unrecognized stock-based compensation related to these non-vested stock options. That expense is expected to be recognized on a straight-line basis over a weighted average period of 2.27 years.

 

The following is a summary of stock option activity at March 31, 2017:

 

    Shares    

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining Term

(Years)

 
Outstanding at 12/31/2016     1,124,900     $ 2.15       9.0  
                         
  Granted     189,159     $ 1.15       9.9  
Outstanding at 3/31/2017     1,314,059     $ 2.01       8.95  
Exercisable at 3/31/2017     618,305     $ 4.27       8.83  

 

Private Placement

 

On February 9, 2017, the Company entered into a Unit Purchase Agreement with selected accredited investors whereby the Company had the right to sell in a private placement a minimum of $3,000,000 and up to a maximum of $5,000,000 of units. Each Unit had a purchase price of $100,000 and consisted of (i) 96,154 shares of the Company’s common stock, par value $0.001 per share at a purchase price of $1.04 per share, and (ii) a warrant to purchase 48,077 shares of common stock. Each warrant has an initial exercise price of $1.50 per share and is exercisable for a period of five (5) years from the date of issuance. Investors had the option to request shares of Series A Preferred stock in lieu of common stock, on a basis of one share of preferred stock for every 100 shares of common stock.

 

The offering resulted in gross proceeds of $3,022,000 and resulted in the issuance of an aggregate of 1,631,730 shares of common stock, 12,740 shares of Series A convertible preferred stock and warrants to purchase 2,005,761 shares of common stock. The placement agent collected an aggregate of approximately $350,000 in total fees related to the offering and warrants to purchase an aggregate of 405,577 shares of common stock at a price of $1.50 per share.

 

Each share of Series A preferred stock may be converted into shares of fully paid and non-assessable shares of common stock at a rate of one hundred shares of the Company’s common stock for every share of Series A preferred stock.

 

Debt Conversion

 

On February 9, 2017, the Company’s $1,150,000 short-term note payable was converted into an aggregate of 165,865 shares of common stock and 9,399 shares of Series A convertible preferred stock, eliminating the Company’s debt obligation. The debt was converted into shares at $1.04 per share, which was the offering price of the Company’s stock in the February private placement. The Series A convertible preferred stock is convertible into shares of common stock at $1.04 per share. Each share of Series A preferred stock may be converted into shares of fully paid and non-assessable shares of common stock at a rate of one hundred shares of the Company’s common stock for every share of Series A preferred stock.

 

As consideration for converting the debt, the noteholders’ agreed to receive common stock in lieu of the 200,000 warrants to purchase common stock that were issued in conjunction with the short term loan, see Note 7.

 

As a result, the 200,000 warrants were cancelled, and the Company issued to the noteholders’ an aggregate of 200,000 shares of common stock. The closing price of the Company’s stock on February 9, 2017, the day the shares were issued, was $1.04 per share. The fair value of the common stock issued was approximately $208,000.