Note 7 – Stockholder’s Equity

Initial Public Offering

On February 16, 2018, the Company closed its IPO in which it sold 3,500,000 shares of the Company’s common stock at a public offering price of $5.00 per share. In connection with the closing of the IPO, (1) the Company received net proceeds of approximately $15,000 after deducting underwriting discounts and commissions of $1,400 and other offering expenses of approximately $1,100, (2) the amendment to the registration rights agreement described below became effective, (3) the amendment to the Certificate of Designation described above in Note 5 became effective, (4) all outstanding shares of Series A Convertible Preferred Stock converted, on a one-to-one basis, into shares of the Company’s common stock, (5) the Company issued the Royalty Payment Rights Certificates as described in Note 5, and (6) the Company issued warrants to certain of the former Series A Convertible Preferred Stock and common stock holders, pursuant to the amendment to the Registration Rights Agreement, the amendment to the Certificate of Designation, and the execution of a lock up agreement, to purchase an aggregate of 1,095,682 shares of the Company’s common stock (the “Ten Percent Warrants”). The Ten Percent Warrants are exercisable any time on or after the 180-day anniversary of the completion of the IPO, have a five-year term, and provide for cashless exercise. In addition, the Company granted the representative of the several underwriters in the IPO (the “Representative”) a 30-day option (the “Over-Allotment Option”) to purchase up to an aggregate 525,000 additional shares of the Company’s common stock at an exercise price of $5.00 per share.

The Ten Percent Warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 5 years, (ii) volatility of 67.08%, (iii) risk-free rate of 2.63%, and (iv) dividend rate of zero. The fair value of the Ten Percent Warrants was estimated to be $3,156 which was recorded as warrant expense in the accompanying condensed consolidated statements of comprehensive loss.

On March 12, 2018, the Company closed the sale of an additional 56,000 shares of its common stock at a price of $5.00 per share, pursuant to the Representative’s partial exercise of the Over-Allotment Option. In connection with the closing of the partial exercise of the Over-Allotment Option, the Company received net proceeds of $258 after deducting underwriting discounts and commissions of $22.

Registration Rights

The Company entered into an amended registration rights agreement, which became effective upon the closing of the IPO, to waive investors’ rights to receive penalties. Accordingly, all penalties or other amounts due to the investors under the registration rights agreement have been forever waived and discharged, and the Company may be required to file a registration statement in accordance with the registration rights agreement, as amended, within 225 days after the IPO date.

Issuance of Stock

On March 27, 2018, the Company’s Board of Directors approved the issuance of 15,000 shares of the Company’s common stock to a third party for services to be provided. The stock vests immediately and is subject to a lock-up through February 14, 2019. The Company recorded the fair market value of the stock on the date of issuance as stock-based compensation in the amount of $69.

Issuance of Warrants

During the three months ended June 30, 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, (b) upon the four (4) month anniversary of the execution of the agreement, provided the service provider is still engaged at that time, will issue a warrant to purchase 10,000 shares of the Company’s common stock, with an exercise price of $6.25 per share, and (c) upon the eight (8) month anniversary of the execution of the agreement, provided the service provider is still engaged at that time, will issue a warrant 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 will each have a five year term, vest immediately, and will provide for cashless exercise. 

Warrants totaling 10,000 issued during the six months ended June 30, 2018 were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 5 years, (ii) volatility of 62.24%, (iii) risk-free rate of 2.73%, and (iv) dividend rate of zero. The fair value of the 10,000 warrants was estimated to be $35 which was expensed using the straight-line method over four months, the term the warrant covers and when performance is expected to be completed in October 2018. The Company recorded $28 as prepaid expense in the accompanying condensed consolidated balance sheets as of June 30, 2018 and $7 as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss in relation to the 10,000 warrants for the three months ended June 30, 2018.

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

Exercise of Options

On February 21, 2018, a consultant exercised 896 options on a cashless basis which resulted in the issuance of 394 shares of the Company’s common stock.

Stock Based Compensation

Stock Options

The following table summarizes stock option activity during the six months ended June 30, 2018:

At June 30, 2018, unamortized stock compensation for stock options was $2,242, with a weighted-average recognition period of 1.09 years.

At June 30, 2018, outstanding options to purchase 961,807 shares of common stock were exercisable with a weighted-average exercise price per share of $4.37.

Stock Based Compensation

The following table sets forth total non-cash stock-based compensation by operating statement classification for the three and six months ended June 30, 2018 and 2017:

During the period ended June 30, 2017, the Company performed a valuation assessment and adjusted the fair market value of its common stock from $5.00 per share to $2.39 per share. The fair value adjustment resulted in a negative expense for the three months ended June 30, 2017 for stock based compensation recorded in accordance with ASC 505-50 and ASC 718 due to the re-measurement of the expense at fair value. The options granted during the three and six months ending June 30, 2018 were valued using the Black-Scholes option pricing model using the following weighted average assumptions: (i) expected life of 5.7 years, (ii) volatility of 66.73%, (iii) risk free interest rate of 2.72% and (iv) dividend yield of zero.

2016 Equity Incentive Plan

The Company has 2,641,250 shares of common stock reserved for issuance and as of June 30, 2018, there were 725,208 shares available for grant under the Company’s equity plan. The Company has one equity incentive plan that was adjusted in 2016. The number of shares of common stock available for issuance under the Company’s equity plan shall increase annually by six percent (6%) of the total number of shares of our common stock outstanding on December 31st of the preceding calendar year; provided, however, that the board of directors may act prior to the first day of any calendar year to provide that there shall be no increase such calendar year, or that the increase shall be a lesser number of shares of our common stock than would otherwise occur.