Note 8 – Shareholders’ Equity

Issuance of Common Stock

On March 5, 2019, the Company issued 10,313 shares of its common stock related to the vested portion of the restricted stock unit award granted on October 1, 2018 to the CEO, as defined below, for 165,000 shares of common stock. 

Issuance of Warrants to Purchase Common Stock 

On June 6, 2018, the Company entered into a consultant agreement with a service provider which shall continue until the agreement is terminated by the Company or service provider by providing at least five business days’ prior written notice. Pursuant to the agreement, the Company (a) issued a warrant on June 6, 2018 to purchase 10,000 shares of the Company’s common stock, with an exercise price of $5.25 per share, at which time a measurement date was reached (b) issued a warrant on October 6, 2018 to purchase 10,000 shares of the Company’s common stock, with an exercise price of $6.25 per share at which time a measurement date was reached, and (c) issued a warrant on February 6, 2019 to purchase 10,000 shares of the Company’s common stock, with an exercise price of $7.25 per share (collectively, such warrants referred to as the “Consultant Warrants”). The Consultant Warrants each have a five-year term, vest immediately, and provide for cashless exercise. Warrants totaling 30,000 in relation to this agreement were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 5 years, (ii) volatility of 67.25%, 67.28%, and 69.23% (iii) risk-free rate of 2.51%, 2.81%, and 3.07%, and (iv) dividend rate of zero. The fair value of the 30,000 warrants was initially estimated to be $95 at the inception of the agreement. On January 1, 2019, upon adoption of ASU 2018-07, the fair value was re-measured which approximated the fair value as of December 31, 2018 of $76 which is expensed using the straight-line method over eight months. The Company recorded $0 and $10 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss in relation to the 30,000 warrants for the three and six months ended June 30, 2019, respectively. The Company recorded $7 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for both the three and six months ended June 30, 2018 in relation to the consulting agreement.

On July 2, 2018, the Company entered into a consultant agreement with a service provider which continued until February 28, 2019. Pursuant to the agreement, the Company (i) issued a fully-vested and nonforfeitable warrant on July 2, 2018 (at which point a measurement date was reached) to purchase 25,000 shares of the Company’s common stock, with an exercise price of $7.39 per share, and expires 12 months from the date of agreement, (ii) issued a fully-vested and nonforfeitable warrant on July 2, 2018 (at which point a measurement date was reached) to purchase 25,000 shares of the Company’s common stock, with an exercise price of $7.39 per share, and expires 18 months from the date of the agreement, (iii) issued a fully-vested and nonforfeitable warrant on October 2, 2018 (at which point a measurement date was reached) to purchase 25,000 shares of the Company’s common stock with an exercise price of $8.75 per share, and expires 18 months from the date of the agreement and (iv) issued a fully-vested and nonforfeitable warrant on January 2, 2019 to purchase 25,000 shares of common stock of the Company with an exercise price of $10.00 per share, and expires 24 months from the date of the agreement. The warrants issued under this agreement are callable by the Company and it will have the right to require the consultant to exercise all or any warrants still unexercised for a cash exercise or the Company may re-purchase the warrant at a price of $0.01 per warrant share if the Company’s stock trades above a closing floor price ranging from $9.00 to $13.00 per share for ten (10) consecutive trading days. In accordance with FASB ASC 480, the call feature is a conditional obligation upon an event not certain to occur that becomes mandatorily redeemable if that event occurs, the condition is resolved, or that event becomes certain to occur. Because the conditional event is within control of the Company, the call feature is not recognized for accounting purposes until the Company exercises its rights under agreement. Warrants totaling 100,000 in relation to this agreement were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 1-2 years, (ii) volatility of 62.04% - 65.84%, (iii) risk-free rate of 2.34% - 2.66%, and (iv) dividend rate of zero. The aggregate fair value of the 100,000 warrants was initially estimated to be $146 and was re-measured on January 1, 2019, upon the adoption of ASU 2018-07, which approximated the fair value as of December 31, 2018 of $126 which was expensed using the straight-line method over eight months. The Company recorded $0 and $31 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three and six months ended June 30, 2019, respectively.

On July 3, 2018, the Company entered into an amendment to a consulting agreement dated May 27, 2017 as a continuation of investor relation and consulting services to extend the termination of the agreement to July 2019 and issued 30,000 shares of common stock which vested immediately and a warrant to purchase 90,000 shares of common stock which vested immediately. The warrants are exercisable at $8.50 per share and expire five years from the date of issuance. The 90,000 warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 5 years, (ii) volatility of 68.31%, (iii) risk-free rate of 2.72%, and (iv) dividend rate of zero. The fair value of the 90,000 warrants and 30,000 shares of common stock was estimated to be $594 which will be expensed using the straight-line method over thirteen months, the expected term of the agreement. The Company recorded $139 and $276 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three and six months ended June 30, 2019, respectively. As of June 30, 2019 and December 31, 2018, the Company has recorded a prepaid expense in the amount of $41 and $317, respectively, related to the fully vested nonforfeitable shares of common stock and warrants issued for which services have not been rendered.

On January 1, 2019, the Company entered into an amended and restated consultant agreement to restate and replace the existing consultant agreement dated October 1, 2018 with a service provider which shall continue until September 30, 2019, unless and until sooner terminated by the Company or service provider by providing at least thirty days prior written notice. Pursuant to the agreement, the Company issued a fully-vested and nonforfeitable warrant on February 13, 2019 to purchase 50,000 shares of the Company’s common stock, with an exercise price of $5.00 per share, and expires March 20, 2022. The warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 3 years, (ii) volatility of 67.43%, (iii) risk-free rate of 2.52%, and (iv) dividend rate of zero. The aggregate fair value of the 50,000 warrants was estimated to be $90 which will be expensed using the straight-line method over nine months. The Company recorded $30 and $60 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three and six months ended June 30, 2019, respectively. As of June 30, 2019, the Company has recorded a prepaid expense in the amount of $30, related to the fully vested, nonforfeitable warrant issued for which services have not been rendered. 

On February 13, 2019, the Company issued to an existing service provider for past services rendered a fully-vested and nonforfeitable warrant to purchase 30,000 shares of the Company’s common stock, with an exercise price of $5.00 per share, and expires March 20, 2022. The warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 3 years, (ii) volatility of 67.43%, (iii) risk-free rate of 2.52%, and (iv) dividend rate of zero. The aggregate fair value of the 30,000 warrants was estimated to be $55. The Company recorded $0 and $55 as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2019.  

Consultant Award 

On July 3, 2018, the Company engaged an executive search firm (the “Firm”) to conduct a confidential search for a Chief Executive Officer (the “CEO”) for the Company. The terms of the engagement were that upon a successful search, the Company would compensate the Firm one-third of the total first-year actual cash compensation for the position. The Company agreed to (a) make payments based on the CEO’s base salary of $475, and (b) make a true-up payment (the “True-up Payment”) at the end of the CEO’s first year of employment based on the actual cash compensation earned within the CEO’s first year of employment, exclusive of any Employment Buy-Out Payments. 

The recruiter was successful in recruiting a new CEO for the Company. An employment agreement was finalized and entered into during the third quarter of 2018 and effective October 1, 2018. The Company deemed the Firm’s services were rendered in the third quarter of 2018 as an employment agreement was finalized in September 2018. The CEO’s annual base salary is $475 and is entitled to bonus and Employment Buy-Out Payments. 

Firm Compensation 

The Firm’s total compensation is to be paid 75% in cash and 25% in equity in the form of a warrant valued per the last round valuation. The Firm’s total compensation is the aggregate of one-third of the base salary of $475 which was paid as of December 31, 2018 and one-third of any additional cash compensation earned within the CEO’s first year of employment. As of June 30, 2019, the Company owes the following payments: (i) a warrant (the “Contingent Warrant”) for 25% of one-third of any additional cash compensation earned by the CEO during his first year of employment, and (ii) a cash payment for 75% of one-third of any additional cash compensation earned by the CEO during his first year of employment. For items (i) and (ii), a True-up Payment will be determined after the first year of employment ends and the additional cash compensation is known. 

Contingent Warrant

The Contingent Warrant will be issued with an exercise price subject to adjustment and with a three-year term, to purchase shares of the Company’s common stock. As of June 30, 2019, the Contingent Warrant has not been issued but will be fully vested upon issuance. 

Consultant Liability

As of June 30, 2019 and December 31, 2018, the Company has recorded $87 and $93, respectively, in accounts payable and accrued expenses in relation to this agreement as an estimate of the True-up Payment. 

Warrants 

A summary of the Company’s warrants to purchase common stock activity is as follows: 

Stock Options

Exercise of Options

On January 31, 2019, the Company issued 416 shares of its common stock upon the exercise of 416 employee options at an exercise price of $3.78 per share. In connection with the exercise, the Company received $2 in proceeds.

A summary of the Company’s stock option activity is as follows: 

The options granted during the six months ended June 30, 2019 and 2018 were valued using the Black-Scholes option pricing model using the following weighted average assumptions: 

At June 30, 2019, unamortized share based compensation for stock options was $4,382, with a weighted-average recognition period of 1.25 years.

At June 30, 2019, outstanding options to purchase 1,623,186 shares of common stock were exercisable with a weighted-average exercise price per share of $4.37.

For the three and six months ended June 30, 2019, the Company recorded $618 and $1,233, respectively, for share based compensation expense related to stock options. 

For the three and six months ended June 30, 2018, the Company recorded $389 and $740, respectively, for share based compensation expense related to stock options.

Restricted Stock Units

On February 13, 2019, the Company granted 76,112 restricted stock unit awards to members of the Board of Directors and management which vest over a four-year period on a quarterly basis. The aggregate fair value of the restricted stock unit awards granted was estimated to be $329 which is expensed using the straight-line method over a four-year period. The Company recorded $72 and $135 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three and six months ended June 30, 2019, respectively, in relation to the 241,112 restricted stock units issued to date. 

A summary of the Company’s restricted stock unit awards activity is as follows:

At June 30, 2019, unamortized stock compensation for restricted stock units was $954, with a weighted-average recognition period of 1.81 years. During the three months ended June 30, 2019, 15,070 restricted stock unit shares vested but have not been issued yet so they and are not considered outstanding at June 30,2019. The Company is expected to issue the 15,070 common shares in the third quarter of 2019.

Stock Based Compensation

The following table sets forth total non-cash stock-based compensation for the issuance of common stock, options to purchase common stock, warrants to purchase common stock, and restricted stock unit award by operating statement classification for the three and six months ended June 30, 2019 and 2018: