Note 8 - Stockholders’ equity

As of September 30, 2016, the Company has 200,000,000 shares of authorized common shares and 21,690,555 issued and outstanding, and 10,000,000 of authorized preferred shares, of which none were issued or outstanding.

On September 13, 2016, the Company entered into the Sales Agreement with Cowen pursuant to which the Company may offer and sell from time to time, up to an aggregate of $25 million of Placement Shares through Cowen, as sales agent, with initial sales limited to an aggregate of $11.5 million of Placement Shares. Pursuant to the Sales Agreement, Cowen may sell the Placement Shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 of the Securities Act of 1933, as amended, including, without limitation, sales made by means of ordinary brokers' transactions on The NASDAQ Capital Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by the Company. The Company pays Cowen compensation equal to 3.0% of the gross proceeds from the sales of common stock pursuant to the terms of this Sales Agreement. Remaining availability under the ATM Offering is $11.5 million of Placement Shares. We intend to use the net proceeds from the sale of common stock under the ATM Offering for working capital and other general corporate purposes.

On May 19, 2016 and June 27, 2016, the Company offered and sold units in a private offering to members of management and employees and to accredited investors, including Merck GHI and jVen Capital, each unit consisting of either (i) one share of common stock and a detachable stock purchase warrant to purchase an additional 0.75 shares of common stock, or (ii) one share of non-voting convertible preferred stock and a detachable stock purchase warrant to purchase an additional 0.75 shares of common stock, at a price of $1.14 per unit. The total net proceeds to the Company, after deducting offering commissions and expenses was $9.5 million. Pursuant to the private placement the Company issued 6,744,127 shares of common stock, 2,309,428 of Series A non-voting convertible preferred stock and stock purchase warrants to acquire an additional 6,790,169 shares of common stock. Under the purchase agreement, the Company granted registration rights to the investors in the private financing.

Each share of Series A non-voting convertible preferred stock is convertible at the option of the holder in whole or in part and from time to time into one share of common stock, is entitled to dividends on as “as converted basis” when and if dividends are issued to common stockholders, and participates in liquidation on a pari passu basis with common stockholders. The preferred stock was classified as permanent equity. The stock purchase warrants issued as part of the units are exercisable $1.3125 per share beginning 90 days after closing for five years, expiring on May 18, 2021. The warrants are classified as permanent equity at September 30, 2016. In connection with the issuance of Series A non-voting convertible preferred stock, the Company recognized a beneficial conversion feature of $332,550 as a deemed dividend to the preferred shareholders. Holders of the Series A non-voting convertible preferred stock subsequently converted all 2,309,428 shares of preferred stock into 2,309,428 shares of common stock.

The Company filed a registration statement on Form S-3 on June 13, 2016 to register for resale by the investors, from time to time, of the shares of common stock acquired, or underlying the warrants issued, in the private offering. On July 20, 2016, the registration statement was declared effective by the SEC.

In July 2015, the Company issued 1,136,364 shares of common stock to Merck GHI for cash consideration of $5.0 million (see Note 5).

On May 8, 2015, the Company completed its IPO pursuant to which the Company offered and sold 2,850,000 units, each unit consisting of one share of common stock and a detachable stock purchase warrant to purchase an additional share of common stock, at an initial offering price of $6.00 per unit. Of the total gross proceeds of $17.1 million, approximately $2.1 million was used to satisfy outstanding demand notes by exchanging such notes for 350,000 units in the IPO. After considering the demand notes, and underwriting discounts, commissions and offering expenses of $2.9 million (which were charged to additional paid-in capital), the total net cash proceeds to the Company was $12.1 million. On the IPO closing date, the underwriters exercised a portion of their over-allotment option to acquire an additional 422,500 stock purchase warrants for cash of $4,225. In connection with the IPO, all of the Company’s outstanding Series A redeemable convertible preferred stock, 2014 convertible notes and 2015 convertible notes were converted into 7,374,852 shares of common stock.

The stock purchase warrants issued as part of the units (including over-allotment option) are exercisable for 3,272,500 shares of common stock at $6.60 per share beginning six months after the closing of the IPO for five years, expiring on May 8, 2020. Additionally, the Company issued additional warrants to its investment bankers to purchase 185,250 shares of common stock, on the same terms as the warrants issued with the units. The warrants were valued using the Black-Scholes option pricing model and are classified as equity.

All shares of Series A redeemable convertible preferred stock (including those shares issued in connection with the conversion of the 2014 and 2015 convertible debt), were converted into 7,374,852 shares of common stock in connection with the Company’s IPO (see Note 7). Prior to the IPO, the carrying value of the Series A redeemable convertible preferred stock was increased by the accretion of related discounts, issuance costs and accrued but unpaid dividends so that the carrying amount would equal the redemption amount at the dates the stock becomes redeemable. The Company’s redeemable convertible preferred stock was classified as temporary equity due to redemption provisions outside of the Company’s control.

Stock options

In 2002, the Company adopted the 2002 Stock Option and Restricted Stock Plan (the “2002 Plan”), pursuant to which the Company’s Board of Directors could grant either incentive stock options or non-qualified stock options, shares of restricted stock, shares of unrestricted common stock, and other share-based awards to officers and employees. In 2008, the Company adopted the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), pursuant to which the Company’s Board of Directors may grant either incentive or non-qualified stock options or shares of restricted stock to directors, key employees, consultants and advisors.

In April 2015, the Company adopted, and the Company’s stockholders approved, the 2015 Equity Incentive Plan (the “2015 Plan”); the 2015 Plan became effective upon the execution and delivery of the underwriting agreement for the Company’s IPO. Following the effectiveness of the 2015 Plan, no further grants will be made under the 2002 Plan or 2008 Plan. The 2015 Plan provides for the granting of incentive stock options within the meaning of Section 422 of the Code to employees and the granting of non-qualified stock options to employees, non-employee directors and consultants. The 2015 Plan also provides for the grants of restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and stock payments to employees, non-employee directors and consultants.

Under the 2015 Plan, the aggregate number of shares of the common stock authorized for issuance may not exceed (1) 1,355,000 plus (2) the sum of the number of shares subject to outstanding awards under the 2008 Plan as of the 2015 Plan’s effective date, that are subsequently forfeited or terminated for any reason before being exercised or settled, plus (3) the number of shares subject to vesting restrictions under the 2008 Plan as of the 2015 Plan’s effective date that are subsequently forfeited. In addition, the number of shares that have been authorized for issuance under the 2015 Plan will be automatically increased on the first day of each fiscal year beginning on January 1, 2016 and ending on (and including) January 1, 2025, in an amount equal to the lesser of (1) 4% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (2) another lesser amount determined by the Company’s Board of Directors. Shares subject to awards granted under the 2015 Plan that are forfeited or terminated before being exercised or settled, or are not delivered to the participant because such award is settled in cash, will again become available for issuance under the 2015 Plan. However, shares that have actually been issued shall not again become available unless forfeited. As of September 30, 2016, 655,589 shares remain available for issuance under the 2015 Plan, which includes 501,907 shares automatically added to the 2015 Plan on January 1, 2016.

On April 28, 2016, the Board of Directors of the Company made a stock option award to Evan Jones, the Company’s Chief Executive Officer (“CEO”) and Chairman of the Board. The non-qualified stock option award to acquire 766,500 shares of common stock represented approximately 6% of outstanding shares of common stock as of the date of the award. The stock option grant has an exercise price of $1.35 per share, a ten-year term and a vesting schedule of 25% vesting of the award on the first annual anniversary of the date of grant and then 6.25% vesting each quarter thereafter over three additional years. The plan under which the award was made incorporates by reference the provisions of the Company’s 2015 Plan applicable to stock option awards. The stock option award was contingent on receipt of stockholder approval, as the award was made outside of the Company’s stockholder-approved incentive plans. The stockholders approved the stock option award at the Company’s Annual Meeting of Stockholders held on June 22, 2016.

For the three and nine months ended September 30, 2016 and 2015, the Company recognized stock compensation expense as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of services	$	—	$	—	$	5,008	$	—
Research and development		45,945		59,688		181,367		161,819
General and administrative		98,683		156,236		447,811		443,267
Sales and marketing		34,124		45,616		72,462		567,145
	$	178,752	$	261,540	$	706,648	$	1,172,231

No income tax benefit for stock-based compensation arrangements was recognized in the condensed consolidated statements of operations and comprehensive loss due to the Company’s net loss position.

During the three and nine months ended September 30, 2016, the Company granted stock options to acquire 52,500 and 1,426,650 shares of common stock at a weighted average exercise price of $1.66 and $1.42 per share and a weighted average grant date fair value of $0.71 and $0.68 per share, respectively. 443,986 options were forfeited during the three months ended September 30, 2016 at a weighted average exercise price of $4.49 per share. The Company has total stock options to acquire 2,991,715 shares of common stock outstanding at September 30, 2016.

Restricted stock units

In March 2014, the Company awarded restricted stock units to acquire 130,640 shares of common stock to its Chief Executive Officer (“CEO”). The restricted stock units were compensation for his service as CEO from October 2013 through June 2014 and were subject to forfeiture if he did not continue to perform management services through October 24, 2014. The restricted stock units vested on October 24, 2014 and 130,640 shares of common stock were issued to the CEO.

In the fourth quarter of 2015, the Company granted restricted stock units to acquire 75,000 shares of common stock, with a weighted average grant date fair value of $1.70 per share, 25,000 shares of which remain outstanding as of September 30, 2016. 10,416 restricted stock units vested and 39,584 restricted stock units were forfeited during the three months ended September 30, 2016 at a weighted average grant date fair value of $1.70 per share.

Stock purchase warrants

At September 30, 2016, the following warrants to purchase shares of common stock were outstanding:

Issuance	Exercise Price		Expiration	Shares of Common Stock Subject to Warrants
August 2007	$	7.91	August 2017		8,921
March 2008	$	790.54	March 2018		46
November 2009	$	7.91	November 2019		6,674
January 2010	$	7.91	January 2020		6,674
March 2010	$	7.91	March 2020		1,277
November 2011	$	7.91	November 2021		5,213
December 2011	$	7.91	December 2021		664
March 2012	$	109.90	March 2019		4,125
February 2015	$	6.60	February 2025		225,011
May 2015	$	6.60	May 2020		3,457,750
May 2016	$	1.31	May 2021		4,739,348
June 2016	$	1.31	May 2021		2,050,821
					10,506,524

The warrants listed above were issued in connection with various debt, equity or development contract agreements. The warrants issued in February 2015 were initially classified as a liability since the exercise price was variable. The exercise price became fixed as a result of the Company’s IPO and, as such, the warrant liability was marked to fair value at that time and reclassified to equity (see Note 6).