Note 6—Common Stock Transactions

May 2016 Registered Direct Offering

On May 26, 2016, the Company closed a registered direct offering (the “May 2016 Offering”) with a single healthcare-dedicated institutional fund for the purchase of: (i) 665,049 shares of common stock; (ii) Series A Warrants to purchase up to an aggregate of 5,509,642 shares of common stock at an exercise price of $1.69 per share with a term of nine (9) years; and (iii) Series B Warrants to purchase 4,844,593 shares of common stock at an exercise price of $0.01. The investor paid a purchase price of $1.815 per unit of one share of common stock and an accompanying Series A Warrant, and $1.805 per unit of one Series B Warrant and accompanying Series A warrant. The Series B warrants have an exercise price of $0.01 per share and were issued to prevent the beneficial ownership of the purchaser (together with its affiliates and certain related parties) of the Company’s common stock from exceeding 4.99%. The Series B warrants expire upon their exercise in full. Both the Series A and Series B warrants are immediately exercisable on the date of issuance. The fair value of the Series A and Series B warrants issued to the purchaser in connection with the May 2016 Offering, based on their fair value relative to the common stock issued, was $4.4 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a nine (9) year life for the Series A, volatility of 100.03%, and a risk-free interest rate of 1.74%), $48,446 of which was ascribed to the Series B warrants. The Company completed an evaluation of the Series A and Series B warrants issued to the purchaser and determined that the Series A and Series B warrants should be classified as equity within the balance sheet.

The Company agreed to pay an aggregate cash fee for placement agent and financial advisory services equal to five percent (5%) of the gross proceeds of the May 2016 Offering, as well as expense reimbursement of thirty-five thousand dollars ($35,000) for legal and clearing firm fees. At the closing of the May 2016 Offering, the placement agents were also issued warrants to purchase an aggregate of up to 5% of the aggregate number of shares of common stock and Series B warrants sold in this offering, or 275,482 shares. The placement agent warrants have an exercise price of $2.26875, are immediately exercisable and expire on May 24, 2021. The fair value of the placement agent warrants was $0.3 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a five-year life, volatility of 94.36%, and a risk-free interest rate of 1.38%). The Company completed an evaluation of these warrants and determined the warrants should be classified as equity within the condensed balance sheet.

The gross proceeds of the offering were $9.9 million. Net proceeds, after deducting the placement agent’s fee, financial advisory fees, and other estimated offering expenses payable by the Company, were approximately $9.2 million. The Company intends to use proceeds from the offering for general corporate purposes, including clinical trial expenses and research and development expenses.

November 2015 Public Offering

On November 9, 2015, the Company closed a public offering of an aggregate of 2,142,860 shares of common stock and warrants to purchase an aggregate of 1,071,430 shares of common stock at a purchase price of $3.50 per unit (the “November 2015 Offering”). Each purchaser was issued a warrant to purchase up to that number of shares of the Company’s common stock equal to 50% of the shares issued to such purchaser. The warrants issued to the purchasers have an exercise price of $4.50 per share, became exercisable six months after issuance, and expire on May 9, 2021. The fair value of the warrants issued to the purchasers, based on their fair value relative to the common stock issued, was approximately $1.6 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a 5.05 year life, volatility of 88.63%, and a risk-free interest rate of 1.75%). The Company completed an evaluation of these warrants and determined the warrants should be classified as equity within the condensed balance sheet.

The Company agreed to pay an aggregate cash fee for placement agent and financial advisory services equal to six percent (6%) of the gross proceeds of the November 2015 public offering, as well as a non-accountable expense allowance equal to one percent (1%) of the gross proceeds of the offering and certain other expense reimbursements. In addition, the placement agents were issued warrants to purchase an aggregate of up to five percent (5%) of the aggregate number of shares of common stock sold in the offering, or 107,143 shares. The placement agent warrants have substantially the same terms as the warrants issued to investors in the offering, except that they have an exercise price of $4.375 and expire on November 9, 2020. The fair value of the placement agent warrants was $0.2 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a five-year life, volatility of 89.08%, and a risk-free interest rate of 1.75%). The Company completed an evaluation of these warrants and determined the warrants should be classified as equity within the balance sheet.

The gross proceeds of the November 2015 Offering were $7.5 million. Net proceeds, after deducting the placement agent’s fee, financial advisory fees, and other offering expenses payable by the Company, were approximately $6.9 million. The Company intends to use proceeds from the offering for general corporate purposes, including clinical trial expenses and research and development expenses.

Outstanding Warrants

At January 31, 2017, the Company had outstanding warrants to purchase 11,328,693 shares of common stock, with exercise prices ranging from $0.01 to $20.00, all of which were classified as equity instruments. These warrants expire at various times between March 2017 and May 2025, with the exception of the aforementioned Series B Warrants, which expire upon their exercise in full. At January 31, 2017, 2,764,000 Series B Warrants were available to exercise.

Dividends

The Company has not adopted any policy regarding payment of dividends. No dividends have been declared or paid during the periods presented.