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.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
March 31, 2017
The Company
Zosano Pharma Corporation (the Company) is a clinical stage pharmaceutical company focused on providing rapid symptom relief to
patients using the Companys proprietary intracutaneous delivery system to administer drugs through the skin. The Company is focused on developing products that deliver established molecules with known safety and efficacy profiles primarily for
treatment of central nervous system indications. Our intracutaneous technology offers rapid onset, consistent drug delivery, improved ease of use and room-temperature stability benefits that we believe would provide a potentially favorable
alternative to using oral formulations or injections.
As of March 31, 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 generally accepted accounting principles 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 three-month period ended March 31, 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 Securities and Exchange Commission.
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, 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 reporting periods. 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 March 31, 2017, the Company has an accumulated deficit of $203.8 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 these financial statements.
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 date of this filing. 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 three months ended March 31, 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 the Companys intracutaneous microneedle patch and applicator 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 potential dilutive common stock equivalents. Diluted net income
(loss) per common share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, warrants and options to purchase common stock are considered potential dilutive
common stock equivalents. For the three months ended March 31, 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:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited; in shares)
|
|
Warrants to purchase common stock
|
|
|
6,946,340
|
|
|
|
72,379
|
|
Options to purchase common stock
|
|
|
1,786,000
|
(1)
|
|
|
1,383,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,732,340
|
|
|
|
1,455,698
|
|
|
|
|
|
|
|
|
|
|
(1) Total does not include 670,000 conditional stock options granted to certain executives since
these grants are subject to approval by the Corporations shareholders of an amendment of the 2014 Plan.
Recent Accounting
Pronouncements
In February 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Updated (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 simplifies Generally Accepted Accounting Principles (GAAP) by eliminating several accounting differences between transactions involving assets and transactions involving businesses. The amendments are
effective for annual reporting periods 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.
7
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 year
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 March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. This Update is part of the
FASBs simplification initiative. The areas of simplification involve several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. The new standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company has adopted this
standard for its fiscal year 2017. Adoption of this standard will not 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, including interim periods within those fiscal years, beginning after December 15, 2018. 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.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(ASU2014-09), which was subsequently
modified in August 2015 by ASU No. 2015-14,
Revenue from Contract with Customers: Deferral of the Effective Date
. This guidance will be effective for fiscal years (and interim periods within those years) beginning after December 15,
2017. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional
disclosure to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarified the implementation guidance on principal versus agent considerations
(ASU2016-08), on identifying performance obligations and licensing (ASU2016-10), and on narrow-scope improvements and practical expedients (ASU2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). In
our ongoing evaluation of the impact of these ASUs, the Company believes the adoption of these ASUs will not have a material impact on the financial statements.
3.
|
Cash, Cash Equivalents and Investments
|
The following is a summary of the Companys cash, cash equivalents,
and marketable securities investments for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(unaudited; in thousands)
|
|
Cash in bank
|
|
$
|
31,671
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,671
|
|
Money market funds
|
|
|
5,670
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,670
|
|
Certificates of deposit (restricted)
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,376
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
37,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,341
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(unaudited; in thousands)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
5,670
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
5,670
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(in thousands)
|
|
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)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
Laboratory and office equipment
|
|
$
|
|
|
1,112
|
|
|
$
|
|
|
1,127
|
|
Manufacturing equipment
|
|
|
|
|
10,833
|
|
|
|
|
|
10,857
|
|
Computer equipment and software
|
|
|
|
|
314
|
|
|
|
|
|
314
|
|
Leasehold improvements
|
|
|
|
|
15,694
|
|
|
|
|
|
15,694
|
|
Construction in progress
|
|
|
|
|
2,023
|
|
|
|
|
|
1,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,976
|
|
|
|
|
|
29,953
|
|
Less: accumulated depreciation
|
|
|
|
|
(25,072)
|
|
|
|
|
|
(24,498)
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
4,904
|
|
|
$
|
|
|
5,455
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was approximately $0.6 million for both the three months ended March 31, 2017
and 2016.
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 (the 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. BMV Direct SOTRS LP owns more than 5% of our common stock and therefore is a beneficial owner of the Company.
The first amendment to the loan and security agreement with Hercules 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 secured loan with Hercules was 7.95% as of March 31, 2017 and December 31,
2016. In addition, the Company will be obligated to pay a $100,000 legacy end of term charge on the earlier of June 1, 2017 or the date the Company prepays the Hercules Term Loan and a $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 subject to a 0.5% prepayment charge of the then outstanding principal if prepaid on or after June 23, 2016
but prior to June 23, 2017, with no prepayment charge if prepaid thereafter. 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 persented
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
Principal amount
|
|
$
|
10,712
|
|
|
$
|
12,122
|
|
Less: unamortized debt issuance costs
|
|
|
(32)
|
|
|
|
(41)
|
|
unamortized fair value of free
standing warrant
|
|
|
(57)
|
|
|
|
(75)
|
|
Plus: unamortized fair value debt premium
|
|
|
109
|
|
|
|
143
|
|
accrued terminal interest
|
|
|
350
|
|
|
|
310
|
|
accrued interest
|
|
|
73
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured promissory note, net of unamortized debt issuance cost and premium
|
|
$
|
11,155
|
|
|
$
|
12,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured promissory note, current portion
|
|
|
6,106
|
|
|
|
5,992
|
|
Secured promissory note, long-term portion
|
|
|
5,049
|
|
|
|
6,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured promissory note, net of unamortized debt issuance cost and premium and accrued interest
|
|
$
|
11,155
|
|
|
$
|
12,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on the Companys secured promissory note was $0.3 million for both the three months ended
March 31, 2017 and 2016.
7.
|
Commitments and Contingencies
|
The Company has an operating lease with BMR-34790 Ardentech Court
LP, an affiliate of BMR Holdings, for its office, research and development, and manufacturing facilities in Fremont, California. In April 2012, the Company amended the lease agreement to reduce future rent obligations with a new lease term of seven
years in exchange for a potential reduction of premises from a recapturable premises clause.
Rental expense under the related party operating leases
was $0.2 million for both the three months ended March 31, 2017 and 2016.
As of March 31, 2017, future minimum payments under
non-cancelable operating leases for each year ending December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
(unaudited; in thousands)
|
|
2017
|
|
$
|
|
|
479
|
|
2018
|
|
|
|
|
650
|
|
2019
|
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
1,293
|
|
|
|
|
|
|
|
|
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, Form S-3, with the U.S. Securities and Exchange Commission (SEC)
registering for resale the shares of common stock and 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 loan and security
agreement and the June 2015 first amendment to the Hercules Term Loan. 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 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 March 31,
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 March 31, 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 shareholders equity section of the balance sheet. The Companys equity warrants can only be
settled through the issuance of shares and does not have any anti-dilution or price resent provision. During the three months ended March 31, 2017, warrants were exercised to purchase 2,726,039 shares common stock for proceeds of $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 at January 27, 2015 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 March 31, 2017, options to purchase 1,329,232 shares of common stock were outstanding under the 2014 Plan with exercises prices ranging from
$0.57 to $9.29 with a weighted average price of $1.95. 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.
On September 7, 2016, the Company awarded an inducement option grant to our Chief Business Officer to purchase 252,000 shares of our 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 our 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.
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 grants
are subject to approval by the Corporations 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.
12
The following table summarizes option and award activity, excluding conditional grants and inducement
grants, for the three months ended March 31, 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
|
|
|
359,008
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Options granted
|
|
|
(23,000)
|
|
|
|
23,000
|
|
|
$
|
1.14
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
(98,583)
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
Options cancelled/forfeited
|
|
|
19,475
|
|
|
|
(19,475)
|
|
|
$
|
2.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
|
411,298
|
|
|
|
1,499,000
|
|
|
$
|
1.94
|
|
|
8.84
|
|
$
|
639,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2017
|
|
|
|
|
|
|
503,614
|
|
|
$
|
2.34
|
|
|
8.15
|
|
$
|
109,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at March 31, 2017
|
|
|
|
|
|
|
1,433,268
|
|
|
$
|
1.97
|
|
|
8.81
|
|
$
|
587,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values of options outstanding and exercisable, 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 March 31, 2017.
The following table summarizes the composition of stock options outstanding and exercisable under the 2012 Plan and the 2014 Plan and it excludes
conditional grants and inducement grants, as of March 31, 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
|
|
|
90,000
|
|
|
|
9.59
|
|
|
$
|
0.57
|
|
|
|
29,998
|
|
|
$
|
0.57
|
|
$0.85 - $0.85
|
|
|
400,000
|
|
|
|
9.73
|
|
|
$
|
0.85
|
|
|
|
-
|
|
|
$
|
-
|
|
$1.14 - $2.11
|
|
|
180,780
|
|
|
|
6.95
|
|
|
$
|
1.36
|
|
|
|
133,922
|
|
|
$
|
1.39
|
|
$2.26 - $2.26
|
|
|
328,394
|
|
|
|
8.71
|
|
|
$
|
2.26
|
|
|
|
103,869
|
|
|
$
|
2.26
|
|
$2.34 - $9.29
|
|
|
499,826
|
|
|
|
8.78
|
|
|
$
|
3.06
|
|
|
|
235,825
|
|
|
$
|
3.14
|
|
Stock-Based Compensation Expense
Total stock-based compensation expense recognized for grants under the approved option plans, conditional grants, and inducement grants, was as follows
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Research and development
|
|
$
|
61
|
|
|
$
|
139
|
|
General and administrative
|
|
|
172
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
233
|
|
|
$
|
312
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017, the Company had $2.4 million of total unrecognized stock-based compensation, net of estimated
forfeitures, related to outstanding stock options that will be recognized over a weighted-average period of 3.23 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.
13
The Company did not record stock-based compensation in connection with non-employee grants for the three
months ended March 31, 2017. The following table illustrates the input assumptions used to value employee stock option grants for the three months ended March 31, 2017 and 2016 (unaudited):
|
|
|
|
|
|
|
For the three months ended
March 31,
|
|
|
2017
|
|
2016
|
Dividend yield
|
|
0%
|
|
0%
|
Risk-free interest rate
|
|
2.13%
|
|
1.97%
|
Expected volatility
|
|
89%
|
|
89%
|
Expected term (years)
|
|
6.08
|
|
6.08
|