The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
The Company
Zosano Pharma Corporation (the Company) is a clinical stage biopharmaceutical company focused on providing rapid systemic
administration of therapeutics to patients using our proprietary Adhesive Dermally-Applied Microarray (ADAM) technology. The Company recently announced positive results from our ZOTRIP study that evaluated M207, which is our proprietary
formulation of zolmitriptan delivered via our ADAM technology, as an acute treatment for migraine. Zosano is focused on developing products where rapid administration of established molecules with known safety and efficacy profiles provides an
increased benefit to patients, for markets where patients remain underserved by existing therapies. The Company anticipates that many of its current and future development programs may enable the Company to utilize a regulatory pathway that would
streamline clinical development and accelerate the path towards commercialization.
As of June 30, 2017, Zosano Pharma Corporation has one
wholly owned subsidiary, ZP Opco, Inc. (Opco) through which the Company conducts its primary research and development activities.
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S.
GAAP) for interim financial information, the instructions to Form 10-Q and Regulation S-X. They do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2017, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2017, or any other subsequent period. These financial statements should be read in conjunction with the Companys audited financial statements for the year ended December 31, 2016,
included in the Companys annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC).
Use of
Estimates
The preparation of the accompanying condensed consolidated financial statements in accordance with U.S. GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of
revenue and expenses during the periods reported. Actual results could differ from those estimates.
Liquidity and Substantial Doubt in Going
Concern
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which
contemplate continuation of the Company as a going concern. As of June 30, 2017, the Company has an accumulated deficit of $210.5 million, as well as recurring operating losses and negative cash flows from operating activities. Presently, the
Company does not have sufficient cash resources to meet its plans in the next twelve months from issuance of this report.
The Company has financed
its operations primarily through the sale of equity securities, debt financing and payments received under its former licensing and collaboration agreements with pharmaceutical companies. To date, none of the Companys product candidates have
been approved by the Food and Drug Administration for sale. The Company will continue to require additional financing to develop its product candidates and fund operating losses. Management intends to seek capital to support the Companys
initiatives through equity or debt financing, collaboration or other arrangements with corporate partners, and/or other sources of financing. However, if such financing is not available at adequate levels or on acceptable terms, the Company could be
required to significantly reduce its operating expenses and delay, reduce the scope of or eliminate some of its development programs, out-license intellectual property rights, or a combination of the above, which may have a material adverse effect
on the Companys business, results of operations, financial condition and/or its ability to meet its scheduled obligations on a timely basis, if at all. Although management has been successful in raising capital in the past, most recently in
March 2017, there can be no assurance that the Company will be successful, or that any needed financing will be available in the future at terms acceptable to the Company.
6
These factors raise substantial doubt regarding the Companys ability to continue as a going concern
within one year after the issuance of this report. There are no assurances that such additional funding will be achieved and that the Company will succeed in its future operations. The Companys inability to obtain required funding in the near
future or its inability to obtain funding on favorable terms will have a material adverse effect on its operations and strategic development plan for future growth. If the Company cannot successfully raise additional capital and implement its
strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected, and the Company may have to cease operations.
Consolidation
The condensed
consolidated financial statements include the accounts of Zosano Pharma Corporation and Opco. Intercompany balances and transactions have been eliminated in consolidation.
Significant Accounting Policies
There
have been no material changes to the Companys significant accounting policies during the six months ended June 30, 2017, as compared to the significant accounting policies described in Note 2 of the Notes to Consolidated
Financial Statements in the Company s Annual Report on Form 10-K for the year ended December 31, 2016.
Research and
Development Expenses
Research and development costs are charged to expense as incurred and consist of costs related to (i) furthering
the Companys research and development efforts, and (ii) designing and manufacturing products that incorporate the Companys ADAM technology for the Companys clinical and nonclinical studies.
Net Loss Per Common Share
Basic net
income (loss) per common share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive common stock equivalents. Diluted net income
(loss) per common share is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, warrants and options to purchase common stock are considered potentially dilutive
common stock equivalents. For the three and six months ended June 30, 2017 and 2016, diluted net loss per common share was the same as basic net loss per common share since the effect of inclusion of potentially dilutive common stock
equivalents would have an antidilutive effect due to the loss reported.
The following outstanding common stock equivalents were excluded from the
computations of diluted net loss per common share for the periods presented as the effect of including such securities would be antidilutive:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited; in shares)
|
|
Warrants to purchase common stock
|
|
|
6,946,340
|
|
|
|
72,379
|
|
Options to purchase common stock
|
|
|
2,184,068
|
|
|
|
1,173,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,130,408
|
|
|
|
1,246,006
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-09,
Compensation Stock Compensation; Scope of Modification Accounting
. This ASU provides guidance on which changes to the terms and conditions of a share-based payment award constitute a modification. This amendment is effective for all
entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the financial statements.
7
In February 2017, the FASB issued ASU 2017-05,
Other Income Gain and Losses from the
Derecognition of Nonfinancial Assets
. Under ASU 2017-05, all entities are required to derecognize or deconsolidate a business or nonprofit activity in accordance with Topic 810. The amendments in this update also simplify U.S. GAAP by
eliminating several accounting differences between transactions involving assets and transactions involving businesses. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods
within that reporting period. Early adoption is permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. The Company is currently evaluating the impact of this
accounting standard.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows
. This ASU provides guidance on
the presentation of cash, cash equivalents and restricted cash in the statement of cash flows to reduce the current diversity in practice. The amendments in this update are effective for public business entities for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
. Under the new guidance, lessees will be required to recognize
substantially all leases on the balance sheet as a right-of-use asset and recognize a corresponding lease liability. The accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. The new standard is effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of this accounting standard.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments Overall: Recognition and Measurement of Financial Assets
and Financial Liabilities
, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under
the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is
currently evaluating the impact of this accounting standard.
3.
|
Cash, Cash Equivalents and Investments
|
The Company classifies all highly liquid investments with maturities of
three months or less at the date of purchase as cash equivalents. The following is a summary of the Companys cash, cash equivalents, and marketable securities investments for each of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(unaudited)
|
|
Cash in bank
|
|
$
|
13,220
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,220
|
|
Money market funds
|
|
|
2,206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,206
|
|
Certificates of deposit (restricted)
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
Certificates of deposit
|
|
|
4,635
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,635
|
|
Commercial paper
|
|
|
2,447
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,447
|
|
Corporate notes and bonds
|
|
|
2,020
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
2,019
|
|
U.S. treasuries
|
|
|
904
|
|
|
|
-
|
|
|
|
-
|
|
|
|
904
|
|
U.S. government agency bonds
|
|
|
2,795
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
2,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,262
|
|
|
$
|
-
|
|
|
$
|
(2)
|
|
|
$
|
28,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,159
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Short-term investments in marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
Cash in bank
|
|
$
|
3,342
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,342
|
|
Money market funds
|
|
|
11,661
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,661
|
|
Certificates of deposit (restricted)
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,038
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,003
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Fair Value of Financial Instruments
|
The Company records its financial assets and liabilities at
fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a
three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
|
|
|
Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, prepaid expenses and other
current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The carrying value of the Companys short-term notes payable approximates their fair value as the terms of the borrowing
are consistent with current market rates and the duration to maturity is short. The carrying value of the Companys long-term notes payable approximates fair value because the interest rates approximate market rates that the Company could
obtain for debt with similar terms and maturities.
The following tables set forth the fair value of the Companys financial instruments for each of the
periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(unaudited)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
2,206
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,206
|
|
Certificates of deposit
|
|
|
-
|
|
|
|
4,635
|
|
|
|
-
|
|
|
|
4,635
|
|
Commercial paper
|
|
|
-
|
|
|
|
2,447
|
|
|
|
-
|
|
|
|
2,447
|
|
Corporate notes and bonds
|
|
|
-
|
|
|
|
2,019
|
|
|
|
-
|
|
|
|
2,019
|
|
U.S. treasuries
|
|
|
-
|
|
|
|
904
|
|
|
|
-
|
|
|
|
904
|
|
U.S. government agency bonds
|
|
|
-
|
|
|
|
2,794
|
|
|
|
-
|
|
|
|
2,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
2,206
|
|
|
$
|
12,799
|
|
|
$
|
-
|
|
|
$
|
15,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
11,661
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
11,661
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
5.
|
Property and Equipment
|
The following summarizes the Companys property and equipment for
each of the periods presented
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
Laboratory and office equipment
|
|
$
|
|
|
1,301
|
|
|
$
|
|
|
1,127
|
|
Manufacturing equipment
|
|
|
|
|
10,798
|
|
|
|
|
|
10,857
|
|
Computer equipment and software
|
|
|
|
|
329
|
|
|
|
|
|
314
|
|
Leasehold improvements
|
|
|
|
|
15,694
|
|
|
|
|
|
15,694
|
|
Construction in progress
|
|
|
|
|
2,341
|
|
|
|
|
|
1,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,463
|
|
|
|
|
|
29,953
|
|
Less: accumulated depreciation
|
|
|
|
|
(25,665)
|
|
|
|
|
|
(24,498)
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
4,798
|
|
|
$
|
|
|
5,455
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was approximately $0.6 million for both the three months ended June 30, 2017
and 2016. Depreciation and amortization expense was $1.3 million and $1.2 million for the six months ended June 30, 2017 and 2016, respectively.
In June 2014, the Company entered into a loan and security agreement with
Hercules Capital, Inc. (Hercules) which provided the Company $4.0 million in debt financing. In June 2015, the Company entered into a first amendment to the loan and security agreement with Hercules to increase the aggregate principal
amount of the loan to $15.0 million (Hercules Term Loan). Upon the execution of the first amendment to the loan and security agreement, the Company used approximately $11.4 million of the Hercules Term Loan to prepay all amounts owing
under the secured promissory note held by BMV Direct SOTRS LP, an affiliate of BioMed Realty Holdings, Inc. (BMR Holdings). BMV Direct SOTRS LP owns more than 5% of the Companys common stock and therefore is a beneficial owner of
the Company.
The Hercules Term Loan provides that the $15.0 million principal balance will be subject to a 12-month interest-only period beginning
July 1, 2015, followed by equal monthly installment payments of principal and interest, with all outstanding amounts due and payable on December 1, 2018. The outstanding principal balance bears interest at a variable rate of the greater of
(i) 7.95%, or (ii) 7.95% plus the prime rate as quoted in the Wall Street Journal minus 5.25%. The interest rate on the Hercules Term Loan was 7.95% as of June 30, 2017, and December 31, 2016. On June 1, 2017, the Company
paid a $100,000 legacy end of term charge and will pay an additional $351,135 end of term charge on the earlier of loan maturity or at the date the Company prepays the Hercules Term Loan. The Company may prepay all, but not less than all, of the
Hercules Term Loan with no prepayment charge if prepaid after June 23, 2017. The Hercules Term Loan is secured by a first priority security interest and lien in and to all of the Companys tangible and intangible properties and assets,
including intellectual properties.
See Note 8 for a discussion of warrants to purchase common stock issued to Hercules in connection with the
Hercules Term Loan.
10
The following is a summary of the Companys long-term debt, net of unamortized debt discount and
issuance costs for the periods presented
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
Principal amount
|
|
$
|
9,277
|
|
|
$
|
12,122
|
|
Less: unamortized debt issuance costs
|
|
|
(23)
|
|
|
|
(41)
|
|
unamortized fair value of free
standing warrant
|
|
|
(42)
|
|
|
|
(75)
|
|
Plus: unamortized fair value debt premium
|
|
|
80
|
|
|
|
143
|
|
accrued terminal interest
|
|
|
281
|
|
|
|
310
|
|
accrued interest
|
|
|
61
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Secured promissory note (including accrued interest), net of unamortized debt issuance cost and premium
|
|
$
|
9,634
|
|
|
$
|
12,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured promissory note, current portion
|
|
|
6,118
|
|
|
|
5,992
|
|
Secured promissory note, long-term portion
|
|
|
3,516
|
|
|
|
6,550
|
|
|
|
|
|
|
|
|
|
|
Secured promissory note (including accrued interest), net of unamortized debt issuance cost and premium
|
|
$
|
9,634
|
|
|
$
|
12,542
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2017, the Company recorded total interest expense of $0.2 million and
$0.5 million, respectively. For the three and six months ended June 30, 2016, the Company recorded interest expense of $0.3 million and $0.7 million, respectively, related to the Hercules Term Loan.
7.
|
Commitments and Contingencies
|
The Company has an operating lease with BMR-34790 Ardentech Court
LP, an affiliate of BMR Holdings and related party, for its office, research and development, and manufacturing facilities in Fremont, California. On June 6, 2017, the Company entered into the seventh amendment to the existing lease
(Seventh Amendment), effective as of May 30, 2017.
Under the Seventh Amendment, the Company extended the term of the Lease for the
Companys headquarters in Fremont, California through August 31, 2024, with an option to further extend the lease for an additional 65 months, subject to certain terms and conditions. The Company has agreed to pay a monthly base rent
of $136,191 for the period commencing September 1, 2017, and ending on August 31, 2018, with an increase on September 1, 2018, and annual increases on September 1 of each subsequent year until the lease year beginning
September 1, 2023. The Seventh Amendment also provides for rent abatements, subject to certain conditions, totaling $275,552 and certain tenant improvements to be completed at the Landlords expense (not to exceed $975,000 or, under
certain conditions, $1,100,000). The Company may incur additional expenses under the lease in connection with roof repairs that will be treated as additional rent and paid over the term of the lease.
For the three and six months ended June 30, 2017, the Company recorded rental expense under the related party operating lease of $0.2 million and
$0.4 million, respectively. For the three and six months ended June 30, 2016, the Company recorded rental expense of $0.2 million and $0.4 million, respectively.
As of June 30, 2017, future minimum payments under non-cancelable operating leases for each year ending December 31 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
(unaudited)
|
|
2017
|
|
$
|
|
|
523
|
|
2018
|
|
|
|
|
1,502
|
|
2019
|
|
|
|
|
1,699
|
|
2020
|
|
|
|
|
1,752
|
|
2021 and thereafter
|
|
|
|
|
6,882
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
12,358
|
(1)
|
|
|
|
|
|
|
|
(1) Excludes any payments for capital improvements that may be required under the lease.
On March 22, 2017, the Company closed on a registered public
offering of 19,550,000 shares of common stock at a price of $1.50 per share, which included the exercise in full by the underwriters of their over-allotment option to purchase up to 2,550,000 additional shares of common stock. The total proceeds
from the offering were $26.6 million, net of underwriters discounts and commissions and offering expenses.
11
In August 2016, the Company completed a private investment in public equity transaction (PIPE
Financing). The Company entered into a Securities Purchase Agreement with various purchasers, including members of the Companys Board of Directors and executive management, pursuant to which the Company sold and issued shares of common
stock and warrants to purchase shares of common stock for aggregate gross proceeds of $7.5 million. Costs related to the offering were $0.9 million. Pursuant to the Purchase Agreement, the Company sold 4,800,000 common shares at $1.32 per common
share, the closing price per share on August 15, 2016, for gross proceeds of $6.3 million. Additionally, 9,600,000 warrants were sold, at a price of $0.125 per warrant, for gross proceeds of $1.2 million. Each warrant grants the holder the
right to purchase one share of the Companys common stock. The Company granted 4,800,000 Series A Warrants and 4,800,000 Series B Warrants. Series A Warrants and Series B Warrants have a per share exercise price of $1.45 and $1.55,
respectively, and will expire one year and one week and five years, respectively, from the date of issuance, August 19, 2016. Certain of our directors and executive officers purchased an aggregate of 275,454 shares of common stock and an
aggregate of 550,908 warrants in this offering at the same price as the other investors. In connection with the PIPE Financing, the Company filed a registration statement on Form S-3, with the SEC registering for resale the shares of common stock
issued in the PIPE Financing and the shares of common stock issuable upon exercise of the warrants. The registration statement was declared effective by the SEC on September 23, 2016.
The Company issued warrants to purchase common stock to Hercules in connection with the Hercules Term Loan entered into in June 2014 and amended in June
2015. The warrants are exercisable, in whole or in part, any time before their expiration date as set forth below. See Note 6 for a discussion of the Hercules Term Loan.
Below is a table summarizing the warrants issued and outstanding for each of the periods presented (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding as of
As of December 31,
2016
|
|
|
Warrants
Exercised
|
|
|
Warrants
Outstanding
As of June 30,
2017
|
|
|
Exercise
Price
|
|
|
Expiration
Date
|
|
PIPE Financing - Series A
|
|
|
4,800,000
|
|
|
|
1,844,214
|
|
|
|
2,955,786
|
|
|
$
|
1.45
|
|
|
|
8/26/2017
|
|
PIPE Financing - Series B
|
|
|
4,800,000
|
|
|
|
881,825
|
|
|
|
3,918,175
|
|
|
$
|
1.55
|
|
|
|
8/19/2021
|
|
Hercules - June 2014
|
|
|
31,674
|
|
|
|
-
|
|
|
|
31,674
|
|
|
$
|
8.84
|
|
|
|
1/27/2020
|
|
Hercules - June 2015
|
|
|
40,705
|
|
|
|
-
|
|
|
|
40,705
|
|
|
$
|
7.37
|
|
|
|
6/23/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,672,379
|
|
|
|
2,726,039
|
|
|
|
6,946,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, the Company had 6,946,340 warrants outstanding classified as equity warrants. Each warrant
grants the holder the right to purchase one share of our common stock. Equity warrants are recorded at their relative fair market value in the stockholders equity section of the balance sheet. The Companys equity warrants can only be
settled through the issuance of shares and do not have any anti-dilution or price reset provision. During the six months ended June 30, 2017, warrants were exercised to purchase 2,726,039 shares of common stock for proceeds of approximately
$4.0 million.
9.
|
Stock-Based Compensation
|
In connection with the Companys Initial Public Offering
(IPO) of its common stock in January 2015, the Companys board of directors terminated the Companys 2012 Stock Incentive Plan (2012 Plan) effective as of January 27, 2015 and no further awards may be issued
under the 2012 Plan. However, the awards outstanding under the 2012 Plan continue to be governed by the terms of the 2012 Plan. In July 2014, the board of directors and the stockholders of the Company adopted the 2014 Equity and Incentive Plan
(2014 Plan), which became effective upon the closing of the IPO. As of June 30, 2017, options to purchase 1,632,136 shares of common stock were outstanding under the 2014 Plan with exercises prices ranging from $0.57 to $9.29 and
with a weighted average price of $1.40. Pursuant to the evergreen provision in the 2014 Plan, an additional 359,008 shares were automatically allocated for distribution under the 2014 Plan as of January 1, 2017 (the Evergreen
Increase).
On September 7, 2016, the Company awarded an inducement option grant to the Companys Chief Business Officer to purchase
252,000 shares of the Companys common stock at an exercise price of $0.77 per share. On January 19, 2017, the Company awarded an inducement option to a new employee to purchase 35,000 shares of the Companys common stock at an
exercise price of $1.14 per share. These inducement option grants were issued outside of the existing equity compensation plans in accordance with NASDAQ listing rule 5635(c)(4). The inducement grants have a term of 10 years and vest at the rate of
25% of the shares on the first anniversary of the commencement of such employees employment with the Company and monthly, thereafter, so that the option is fully vested on the fourth anniversary of the vesting start date.
12
On November 2, 2016, the Company granted a total of 670,000 conditional stock options at $0.57 per
share to certain executive officers. The conditional stock option grants were subject to approval by the Companys stockholders of an amendment to the 2014 Plan that would increase the number of shares available for issuance by an amount
sufficient to cover the new grants. 90,000 of these conditional stock options were forfeited upon the resignation of a former executive prior to stockholder approval of the plan amendment. On May 31, 2017, the stockholders of the Company
approved an amendment to the 2014 Plan to increase the number of shares of common stock under the plan by 700,000 (the Plan Amendment). On June 5, 2017, the Company filed a Form S-8 Registration Statement which registered:
(i) the 287,000 shares of common stock underlying the September 2016 and January 2017 inducement option grants, (ii) 700,000 shares of common stock added to the 2014 Plan pursuant to the Plan Amendment and (iii) 359,008 added to the
Plan in connection with the Evergreen Increase.
On June 12, 2017, the Company awarded inducement grants to two new employees to purchase an
aggregate of 100,000 shares of common stock at an exercise price of $1.36 per share. Each stock option has a ten-year term and vests over four years with 25% of the shares vesting on the first anniversary of the commencement of such employees
employment with the Company and monthly, thereafter, so that the option is fully vested on the fourth anniversary of the vesting start date. These inducement option grants were issued outside of the existing equity compensation plans in accordance
with NASDAQ listing rule 5635(c)(4).
The following table summarizes option and award activity, excluding inducement grants, for the six months ended
June 30, 2017 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Available
for
Grant
|
|
|
Outstanding
Number
of Shares
|
|
|
Weighted-
Average
Exercise
Price per
Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(In Years)
|
|
Aggregate
Intrinsic
Value
|
|
Balance at December 31, 2016
|
|
|
55,815
|
|
|
|
1,594,058
|
|
|
$
|
1.93
|
|
|
8.45
|
|
$
|
18,900
|
|
Additional shares reserved
|
|
|
1,059,008
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Options granted
(1)
|
|
|
(603,000)
|
|
|
|
603,000
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
(98,583)
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
Options cancelled/forfeited/expired
|
|
|
301,407
|
|
|
|
(301,407)
|
|
|
$
|
2.30
|
|
|
|
|
|
|
|
Restricted stock awards granted
|
|
|
(60,000)
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Shares expired under 2012 Plan
|
|
|
(4,836)
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2017
|
|
|
748,394
|
|
|
|
1,797,068
|
|
|
$
|
1.44
|
|
|
7.96
|
|
$
|
802,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
|
|
|
|
|
|
579,023
|
|
|
$
|
2.29
|
|
|
5.30
|
|
$
|
52,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at June 30, 2017
|
|
|
|
|
|
|
1,687,080
|
|
|
$
|
1.48
|
|
|
7.87
|
|
$
|
733,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes conditionals grants of 580,000 awarded in November 2016 and subsequently approved by stockholders in May 2017.
The aggregate intrinsic values of options outstanding and exercisable, and vested and expected to vest were calculated as the difference between the
exercise price of the options and the closing market value of the Companys common stock as reported on NASDAQ as of June 30, 2017.
13
The following table summarizes the composition of stock options outstanding and exercisable under the 2012
Plan and the 2014 Plan, which excludes inducement grants, as of June 30, 2017 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise
Price
|
|
Number of
Shares
|
|
|
Weighted-
Average
Remaining
Contractual
Life (in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
$0.57 - $0.57
|
|
|
670,000
|
|
|
|
9.34
|
|
|
$
|
0.57
|
|
|
|
52,498
|
|
|
$
|
0.57
|
|
$0.85 - $0.85
|
|
|
400,000
|
|
|
|
9.48
|
|
|
$
|
0.85
|
|
|
|
-
|
|
|
$
|
-
|
|
$1.14 - $2.26
|
|
|
364,742
|
|
|
|
5.36
|
|
|
$
|
1.83
|
|
|
|
260,532
|
|
|
$
|
1.78
|
|
$2.34 - $9.13
|
|
|
334,326
|
|
|
|
6.20
|
|
|
$
|
2.83
|
|
|
|
251,410
|
|
|
$
|
2.78
|
|
$9.29 - $9.29
|
|
|
28,000
|
|
|
|
7.89
|
|
|
$
|
9.29
|
|
|
|
14,583
|
|
|
$
|
9.29
|
|
Stock-Based Compensation Expense
Total stock-based compensation expense recognized for grants under the approved option plans and inducement grants, was as follows (unaudited, in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
76
|
|
|
$
|
136
|
|
|
$
|
137
|
|
|
$
|
275
|
|
General and administrative
|
|
|
107
|
|
|
|
217
|
|
|
|
279
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
183
|
|
|
$
|
353
|
|
|
$
|
416
|
|
|
$
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, the Company had $1.3 million of total unrecognized stock-based compensation expense, net of
estimated forfeitures, related to outstanding stock options that will be recognized over a weighted-average period of 3.21 years.
The Company uses
the Black-Scholes model for valuing its options and awards granted to employees and
non-employees.
The Black-Scholes option pricing model requires various highly judgmental assumptions including expected
volatility and expected term. The expected volatility is based on the historical stock volatilities of several of the Companys publicly listed peers as the Company does not have sufficient trading history to use the volatility of its own
common stock. To estimate the expected term, the Company has opted to use the simplified method which is the use of the midpoint of the vesting term and the contractual term.
The following table illustrates the input assumptions used to value employee stock option grants for the periods presented (unaudited):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
Risk-free interest rate
|
|
1.90%
|
|
1.06% - 1.54%
|
|
1.90% - 2.13%
|
|
1.06% - 1.97%
|
Expected volatility
|
|
89%
|
|
89%
|
|
89%
|
|
89%
|
Expected term (years)
|
|
6.08
|
|
6.08
|
|
6.08
|
|
6.08
|
14