Annual report pursuant to Section 13 and 15(d)

5. EQUITY TRANSACTIONS

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5. EQUITY TRANSACTIONS
12 Months Ended
Mar. 31, 2019
Equity [Abstract]  
EQUITY TRANSACTIONS

5. EQUITY TRANSACTIONS

 

ISSUANCES OF COMMON STOCK AND WARRANTS

 

Equity Transactions in the Fiscal Year Ended March 31, 2019.

 

Common Stock Sales Agreement with H.C. Wainwright

 

On June 28, 2016, we entered into a Common Stock Sales Agreement (the “Agreement”) with H.C. Wainwright & Co., LLC (“H.C. Wainwright”) which establishes an at-the-market equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the Agreement. The Agreement provides for the sale of shares of our common stock having an aggregate offering price of up to $12,500,000 (the “Shares”).

 

Subject to the terms and conditions set forth in the Agreement, H.C. Wainwright will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon our instructions. We have provided H.C. Wainwright with customary indemnification rights, and H.C. Wainwright will be entitled to a commission at a fixed rate equal to three percent (3.0%) of the gross proceeds per Share sold. In addition, we have agreed to pay certain expenses incurred by H.C. Wainwright in connection with the Agreement, including up to $50,000 of the fees and disbursements of their counsel. The Agreement will terminate upon the sale of all of the Shares under the Agreement unless terminated earlier by either party as permitted under the Agreement.

 

Sales of the Shares, if any, under the Agreement shall be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made by means of ordinary brokers’ transactions, including on the Nasdaq Capital Market, at market prices or as otherwise agreed with H.C. Wainwright. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Agreement or terminate the Agreement.

 

In the fiscal year ended March 31, 2019, we raised aggregate net proceeds of $1,048,371 (net of $32,471 in commissions to H.C. Wainwright and $5,447 in other offering expenses) under this Agreement through the sale of 773,221 shares at an average price of $1.36 per share of net proceeds.

 

Warrant Exercises

 

In the fiscal year ended March 31, 2019, investors that participated in our October 2017 public offering exercised 283,300 warrants for aggregate cash proceeds to us of $311,630 before expenses.

 

Restricted Shares Issued for Services

 

During the fiscal year ended March 31, 2019, we issued 15,000 shares of restricted common stock at a price of $1.29 per share, the market price at time of issuance, in payment for investor relations consulting services. The aggregate value of this share issuance was $19,350.

 

Stock Option Issuances

 

During the fiscal year ended March 31, 2019, we issued an option to our new CEO to purchase 552,625 shares of common stock at a price of $1.25 per share, the closing price on the date of the option grant.

 

Restricted Stock Unit Grants to Directors and Executive Officers

 

On August 9, 2016, our Board of Directors established a restricted stock unit program as a tool to provide stock-based compensation to our officers and directors. The RSUs represent the right to be issued on a future date shares of our common stock for vested RSUs.

 

During the fiscal year ended March 31, 2019, 207,471 vested RSUs held by our executives were exchanged into the same number of shares of our common stock. As our executives elected to net settle a portion of their RSU’s in exchange for the Company paying the related withholding taxes on the share issuance, 112,260 of the RSUs were cancelled and we issued a net 95,211 shares to our executives.

 

During the fiscal year ended March 31, 2019, 145,481 RSUs held by our outside directors were exchanged into the same number of shares of our common stock. As four of our five independent directors elected to return 40% of their RSUs in exchange for cash in order to pay their withholding taxes on the share issuances, 47,471 of the RSUs were cancelled and we paid $54,278 in cash to those independent directors.

 

Equity Transactions in the Fiscal Year Ended March 31, 2018.

 

Common Stock Sales Agreement with H.C. Wainwright

 

On June 28, 2016, we entered into a Common Stock Sales Agreement (the “Agreement”) with H.C. Wainwright which establishes an at-the-market equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the Agreement. The Agreement provides for the sale of shares of our common stock having an aggregate offering price of up to $12,500,000 (the “Shares”).

 

Subject to the terms and conditions set forth in the Agreement, H.C. Wainwright will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon our instructions. We have provided H.C. Wainwright with customary indemnification rights, and H.C. Wainwright will be entitled to a commission at a fixed rate equal to three percent (3.0%) of the gross proceeds per Share sold. In addition, we have agreed to pay certain expenses incurred by H.C. Wainwright in connection with the Agreement, including up to $50,000 of the fees and disbursements of their counsel. The Agreement will terminate upon the sale of all of the Shares under the Agreement unless terminated earlier by either party as permitted under the Agreement.

  

Sales of the Shares, if any, under the Agreement shall be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made by means of ordinary brokers’ transactions, including on the Nasdaq Capital Market, at market prices or as otherwise agreed with H.C. Wainwright. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Agreement or terminate the Agreement.

  

In the fiscal year ended March 31, 2018, we raised aggregate net proceeds of $2,104,968 (net of $65,280 in commissions to H.C. Wainwright and $5,748 in other offering expenses) under this Agreement through the sale of 941,504 shares at an average price of $2.24 per share of net proceeds.

 

October 2017 Public Offering

 

On October 4, 2017, we consummated a public offering of 5,454,546 shares of common stock and warrants to purchase 5,454,546 shares of common stock, for total gross proceeds of $6.0 million. The offering was priced at $1.10 per unit with each unit comprised of one share of common stock and one common stock purchase warrant. Neither the warrants nor the units are listed on an exchange and therefore do not trade. The warrants carry a five-year term with an exercise price of $1.10 per share. The net proceeds of the offering were $5,289,735. H.C. Wainwright & Co. acted as exclusive placement agent for the offering.

 

Warrant Exercises

 

In fiscal year ended March 31, 2018, investors that participated in the October 2017 public offering exercised 2,160,350 warrants for aggregate cash proceeds to us of $2,233,802 before expenses.

 

Restricted Shares Issued for Services

 

During the fiscal year ended March 31, 2018, we issued 15,000 shares of restricted common stock at a price of $2.24 per share, the market price at time of issuance, in payment for investor relations consulting services valued at $33,600 based on the grant date closing market price of our common stock.

 

Share for Warrant Exchanges

 

During the fiscal year ended March 31, 2018, we agreed with two individual investors to exchange 11,497 restricted shares for the cancellation of 22,993 warrants and we entered into an Exchange Agreement with two institutional investors under which we issued 57,844 restricted shares in exchange for the cancellation of 77,125 warrants held by those investors. We also agreed with those institutional investors that they would extend the expiration dates of convertible notes held by those investors from July 1, 2018 to July 1, 2019 in exchange for the reduction of the conversion price of those notes from $4.00 per share to $3.00 per share (see Note 5).

 

Additionally, we entered into an agreement with a former placement agent to issue 5,500 restricted shares in exchange for the cancellation of 11,000 warrants held by that placement agent. We measured the fair value of the shares issued and the fair value of the warrants exchanged for those shares and recorded losses for each of those exchanges based on the changes in fair value between the instruments exchanged. Based upon the fair value of the shares issued and warrants exchanged, we recorded a loss of $130,215 during the fiscal year ended March 31, 2018 for all of the above share for warrant exchanges.

 

Stock Option Issuances

 

During the fiscal year ended March 31, 2018, we issued options to four of our employees to purchase 34,500 shares of common stock at an exercise price of $1.68 per share, the closing price on the date of the approval of the option grants by our compensation committee (see Note 9).

 

Termination of Restricted Share Grant

 

During the fiscal year ended March 31, 2018, we terminated a previously recorded but unissued share issuance of 68,000 shares under a fully vested restricted stock grant to our CEO and issued to him 32,674 shares as a net settlement of shares and the Company paid the withholding taxes associated with that share issuance in return for the cancellation of 35,326 shares. The compensation cost of that restricted stock grant had been fully recorded over prior fiscal years, therefore no expense was recorded regarding this net issuance.

  

Restricted Stock Unit Grants to Directors and Executive Officers

 

On August 9, 2016, our Board of Directors established a restricted stock unit program as a tool to provide stock-based compensation to our officers and directors. The RSUs represent the right to be issued on a future date shares of our common stock for vested RSUs.

 

During the fiscal year ended March 31, 2018, 184,500 vested RSUs held by our executives were exchanged into the same number of shares of our common stock. As our executives elected to net settle a portion of their RSU’s in exchange for the Company paying the related withholding taxes on the share issuance, 97,238 of the RSUs were cancelled and we issued a net 87,262 shares to our executives.

 

During the fiscal year ended March 31, 2018, 168,309 RSUs held by our outside directors were exchanged into the same number of shares of our common stock. As three of our four independent directors elected to return 40% of their RSUs in exchange for cash in order to pay their withholding taxes on the share issuances, 44,983 of the RSUs were cancelled and we paid $52,998 in cash to those independent directors.

  

WARRANTS:

 

During the fiscal year ended March 31, 2019, we did not issue any warrants.

 

During the fiscal year ended March 31, 2018, we issued 5,618,182 warrants, including 163,636 warrants issued to the placement agent, H.C. Wainwright, in connection with our October 2017 public offering (see Note 6). Those warrants have a five year term and have an exercise price of $1.10 per share.

 

Based on the above assumptions, we valued the warrants issued during the fiscal year ended March 31, 2018 as follows:

 

  · The 5,618,182 warrants issued in our October 2017 public offering were valued at $3,988,909 and we classified that fair value as equity.

 

A summary of the aggregate warrant activity for the years ended March 31, 2019 and 2018 is presented below:

 

    Fiscal Year Ended March 31,  
    2019     2018  
    Warrants     Weighted
Average
Exercise Price
    Warrants     Weighted
Average
Exercise Price
 
Outstanding, beginning of year     5,922,571     $ 1.80       2,604,096     $ 3.64  
Granted           N/A       5,618,182     $ 1.10  
Exercised     (283,300 )   $ 1.10       (2,160,350 )   $ 1.10  
Cancelled/Forfeited     (494,396 )   $ 2.84       (139,357 )   $ 6.52  
Outstanding, end of year     5,144,875     $ 1.80       5,922,571     $ 1.80  
Exercisable, end of year     5,144,875     $ 1.80       5,922,571     $ 1.80  
Weighted average estimated fair value of warrants granted             N/A             $ 0.71  

  

The following outlines the significant weighted average assumptions used to estimate the fair value of warrants granted in the fiscal year ended March 31, 2018 utilizing the Binomial Lattice option pricing model:

 

      Fiscal Year Ended  
      March 31, 2018  
Risk free interest rate     1.38% - 1.92%  
Average expected life     5 years  
Expected volatility     100.2% - 111.1%  
Expected dividends     None  

 

The expected volatility was based on the historic volatility. The expected life of options granted was based on the “simplified method” as described in the SEC’s guidance due to changes in the vesting terms and contractual life of current option grants compared to our historical grants.

 

The detail of the warrants outstanding and exercisable as of March 31, 2019 is as follows:

 

      Warrants Outstanding               Warrants Exercisable  
Range of
Exercise Prices
    Number
Outstanding
      Weighted
Average
Remaining
Life (Years)
      Weighted
Average
Exercise Price
      Number
Outstanding
      Weighted
Average
Exercise Price
 
$2.10 or Below     3,174,532       3.58     $ 1.10       3,174,532     $ 1.10  
$3.95 - $4.94     1,377,087       2.59     $ 4.06       1,377,087     $ 4.06  
$5.20 - $12.05     593,256       1.30     $ 6.62       593,256     $ 6.62  
      5,144,875                       5,144,875          

 

STOCK-BASED COMPENSATION:

 

2010 STOCK INCENTIVE PLAN

 

In August 2010, we adopted the 2010 Stock Incentive Plan, to provide incentives to attract, retain and motivate employees, directors and consultants, whose present and potential contributions are important to our success, by offering them an opportunity to participate in our future performance through awards of options, the right to purchase common stock, stock bonuses and stock appreciation rights and other awards. We initially authorized a total of 70,000 common shares for issuance under the 2010 Stock Incentive Plan.

 

On January 26, 2016, our Board of Directors approved an amendment to the 2010 Stock Incentive Plan to increase the total number of shares of common stock authorized for issuance under the plan to 3,170,000 shares, subject to amendment of our Articles of Incorporation to increase our authorized common stock. On March 29, 2016, at which our stockholders approved the Amended 2010 Stock Incentive Plan and an amendment of our Articles of Incorporation to increase our authorized common stock to 30,000,000 shares. On March 31, 2016, we filed a Certificate of Amendment to our Articles of Incorporation to effect the increase in our authorized common stock. As a result of such amendment, the Amended 2010 Stock Incentive Plan became effective on March 31, 2016. At March 31, 2019, we had 1,711,050 shares available for issuance under this plan.

 

RESTRICTED STOCK UNIT GRANTS TO DIRECTORS AND EXECUTIVE OFFICERS

 

On August 9, 2016, our Board of Directors established a restricted stock unit program as a tool to provide stock-based compensation to our officers and directors. The RSUs represent the right to be issued on a future date shares of our common stock for vested RSUs.

 

During the fiscal year ended March 31, 2019, 207,471 vested RSUs held by our executives were exchanged into the same number of shares of our common stock. As our executives elected to net settle a portion of their RSU’s in exchange for the Company paying the related withholding taxes on the share issuance, 112,260 of the RSUs were cancelled and we issued a net 95,211 shares to our executives.

 

During the fiscal year ended March 31, 2019, 145,481 RSUs held by our outside directors were exchanged into the same number of shares of our common stock. As four of our five independent directors elected to return 40% of their RSUs in exchange for cash in order to pay their withholding taxes on the share issuances, 47,471 of the RSUs were cancelled and we paid $54,278 in cash to those independent directors.

 

2012 NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM

 

In July 2012, our Board of Directors approved a board compensation program that modified and superseded the Company’s 2005 Directors Compensation Program (the “Non-Employee Director Plan”), which was previously in effect for our non-employee Directors. Under the Non-Employee Director Plan, an eligible director will receive initial and annual equity grants and cash compensation.

 

In June 2014 and August 2016, our Board of Directors approved further amendments to the Non-Employee Director Plan. Under this modified program, a new eligible director will receive an initial grant of $50,000 worth of RSUs or, at the discretion of our Board of Directors, options to acquire shares of common stock. RSUs granted under this provision will be valued based on the average of the closing prices of the common stock for the five trading days preceding and including the date of grant and will vest at a rate determined by our Board of Directors in its discretion, typically over one year, partially on the date of grant and in equal quarterly installments thereafter. Options granted under this plan will have an exercise price equal to the fair market value on the date of grant. Such options will have a term of ten years and will vest at a rate determined by our Board of Directors in its discretion.

 

In addition, under the Non-Employee Director Plan, at the beginning of each fiscal year, each existing director eligible to participate will receive a grant of $35,000 worth of RSUs or, at the discretion of our Board of Directors, options to acquire shares of common stock. RSUs granted under this provision will be valued based on the average of the closing prices of the common stock for the five trading days preceding and including the first day of the fiscal year (or preceding and including the date of grant, if such grant is not made on the first day of the fiscal year) and will vest at a rate determined by our Board of Directors in its discretion, typically in equal quarterly installments over one year. Options granted under this plan will have an exercise price equal to the Fair Market value on the date of grant. Such options will have a term of ten years and will vest at a rate determined by our Board of Directors in its discretion.

 

In lieu of per meeting fees, eligible directors receive an annual board retainer fee of $30,000. The Non-Employee Director Plan also provides for the following annual retainer fees: Audit Committee Chair - $5,000, Compensation Committee chair - $5,000, Nominating Committee chair - $5,000, Audit Committee member - $4,000, Compensation Committee member - $4,000, Nominating Committee member - $4,000 and lead independent director - $15,000.

 

The RSU grants and the changes to the Non-Employee Director Plan were approved and recommended by our Compensation Committee prior to approval by our Board of Directors.

 

Dr. Fisher additionally is compensated $90,000 per year for his services as Chairman of our Board, which our Board of Directors considers to be fees payable as a member of our Board of Directors or a Committee of our Board for purposes of Section 10A-3 of the rules promulgated under the Securities Exchange Act of 1934, as amended. To the extent payment of such fees are construed to not be fees payable as a member of our Board of Directors or a Committee of our Board, then our Board of Directors considers that Dr. Fisher may act as a member of its Audit Committee under Nasdaq Rule 5605(c)(2)(B) as our Board of Directors has determined that it is in the best interests of our Company and its stockholders for Dr. Fisher to continue to serve on its Audit Committee. The Board has awarded compensation to non-employee directors in the past outside of the Non-Employee Director Plan.

 

RSUs outstanding that have vested and are expected to vest as of March 31, 2019 are as follows:

 

    Number of RSUs  
Vested     46,125  
Expected to vest     138,375  
Total     184,500  

 

Additionally, during the fiscal year ended March 31, 2018, we terminated a previously recorded but unissued share issuance of 68,000 shares under a fully vested restricted stock grant to our CEO and issued to him 32,674 shares as a net settlement of shares and the Company paid the withholding taxes associated with that share issuance in return for the cancellation of 35,326 shares. The compensation cost of that restricted stock grant had been fully recorded over prior fiscal years, therefore no expense was recorded regarding this net issuance.

 

During the fiscal year ended March 31, 2019, 207,471 vested RSUs held by our executives were exchanged into the same number of shares of our common stock. As our executives elected to net settle a portion of their RSU’s in exchange for the Company paying the related withholding taxes on the share issuance, 112,260 of the RSUs were cancelled and we issued a net 95,211 shares to our executives.

 

During the fiscal year ended March 31, 2019, 145,481 RSUs held by our outside directors were exchanged into the same number of shares of our common stock. As four of our five independent directors elected to return 40% of their RSUs in exchange for cash in order to pay their withholding taxes on the share issuances, 47,471 of the RSUs were cancelled and we paid $54,278 in cash to those independent directors.

 

STAND-ALONE GRANTS

 

From time to time our Board of Directors grants common stock or common share purchase options or warrants to selected directors, officers, employees and consultants as equity compensation to such persons on a stand-alone basis outside of any of our formal stock plans. The terms of these grants are individually negotiated.

 

STOCK OPTION ACTIVITY

 

During the fiscal year ended March 31, 2019, we issued an option to our new CEO to purchase 552,625 shares of common stock at a price of $1.25 per share, the closing price on the date of the option grant. During the fiscal year ended March 31, 2018, we issued options to four of our employees to purchase 34,500 shares of common stock at a price of $1.68 per share, the closing price on the date of the approval of the option grants by our compensation committee.

 

The following is a summary of the stock options outstanding at March 31, 2019 and 2018 and the changes during the years then ended:

 

    Fiscal Year Ended March 31,  
    2019     2018  
    Options     Weighted
Average
Exercise Price
    Options     Weighted
Average
Exercise Price
 
Outstanding, beginning of year     415,047     $ 9.67       388,047     $ 10.23  
Granted     552,625     $ 1.25       34,500     $ 1.68  
Exercised           N/A             N/A  
Cancelled/Forfeited     (81,000 )   $ 16.55       (7,500 )   $ 1.68  
Outstanding, end of year     886,672     $ 3.79       415,047     $ 9.67  
Exercisable, end of year     316,047     $ 8.36       388,047     $ 10.23  
Weighted average estimated fair value of options granted           $ 1.10             $ 1.46  

  

The detail of the options outstanding and exercisable as of March 31, 2019 is as follows:

 

          Options Outstanding       Options Exercisable  
  Exercise Prices       Number
Outstanding
      Weighted
Average
Remaining
Life (Years)
      Weighted
Average
Exercise
Price
      Number
Outstanding
      Weighted
Average
Exercise
Price
 
  $1.25 - $1.68       579,625       9.68 years     $ 1.27       9,000     $ 1.68  
  $3.80 - $9.50       184,047       4.82 years     $ 5.93       184,047     $ 5.93  
  $12.50       123,000       1.76 years     $ 12.50       123,000     $ 12.50  
          886,672                       316,047          

 

We recorded stock-based compensation expense related to restricted stock unit issuances and to options granted totaling $1,319,001 and $1,260,769 for the fiscal years ended March 31, 2019 and 2018, respectively. These expenses were recorded as stock compensation included in payroll and related expenses in the accompanying consolidated statement of operations for the years ended March 31, 2019 and 2018.

 

Our total stock-based compensation for fiscal years ended March 31, 2019 and 2018 included the following:

 

    Fiscal Year Ended  
    March 31, 2019     March 31, 2018  
Vesting of restricted stock units   $ 1,262,794     $ 1,212,794  
Vesting of stock options     56,207       47,975  
Total Stock-Based Compensation   $ 1,319,001     $ 1,260,769  

 

We review share-based compensation on a quarterly basis for changes to the estimate of expected award forfeitures based on actual forfeiture experience. The cumulative effect of adjusting the forfeiture rate for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments for the fiscal year ended March 31, 2019 was insignificant.

 

As of March 31, 2019, we had $1,998,802 of remaining unrecognized stock-based compensation expense, which is expected to be recognized over a weighted average remaining vesting period of 1.33 years.

 

On March 31, 2019, our stock options had a negative intrinsic value since the closing price on that date of $0.95 per share was below the weighted average exercise price of our stock options.