Note 11. Stockholders’ Equity

On December 15, 2016, in connection with the Company’s reincorporation from the State of Nevada to the State of Delaware, the Company filed a Certificate of Incorporation with the State of Delaware, which, among other things, reduced the number of authorized shares of capital stock of the Company from 310,000,000 total shares consisting of (a) 300,000,000 shares of Common Stock and (b) 10,000,000 of $0.001 par value “blank check” preferred stock to 50,000,000 total shares consisting of (a) 45,000,000 shares of Common Stock and (b) 5,000,000 shares of “blank check” preferred stock.

As of June 30, 2018 and 2017, there were no shares of preferred stock issued and outstanding. 

Equity Issuances

December 2017 Offering

During the quarter ended December 31, 2017, the Company sold a total of 2,640,819 shares of its common stock at $5.50 per share in a private placement for aggregate gross proceeds of $14.5 million before deducting commissions and expenses of approximately $1.3 million. The proceeds of the offering will be used to fund development and commercialization of the Company’s technology, capital expenditures and general corporate expenditures. In addition to the commissions and expenses paid, the Company issued to the placement agents warrants to purchase 154,177 shares of the Company’s common stock. The warrants represent a cost of the offering, have a grant date fair value of $645,757 and are shown as an offset on the consolidated statements of changes in stockholders’ equity. 

The fair values of the warrants were estimated at the dates of grant using a binomial option pricing model with the following weighted average assumptions:

Investors in the December 2017 Offering (other than directors, officers, employees, or other affiliates of the Company) were given price-protected anti-dilution rights such that if, prior to September 30, 2018, the Company issues additional shares of Common Stock or Common Stock equivalents (subject to customary exceptions, including but not limited to issuances of awards under equity compensation plans and certain other issuances of securities in connection with credit arrangements, equipment financings, lease arrangements or similar transactions) for a consideration per share less than the December 2017 Offering price per share (as adjusted for any subsequent stock dividend, stock split, distribution, recapitalization, reclassification, reorganization or similar event) (the “Lower Price”), each such investor will be entitled to receive from the Company additional shares of Common Stock in an amount such that, when added to the number of shares of Common Stock initially purchased by such investor, will equal the number of shares of Common Stock that such investor’s subscription amount would have purchased at the greater of the Lower Price and $5.00 (or $4.40 in the case of one investor). 

During the year ended June 30, 2018, the Company also issued 542,450 shares of its common stock to investors in the Company’s private placement offering that closed in May 2017. These issuances were made pursuant to the price-protection provisions granted to such investors in their subscription agreements.

Equity incentive plans

On May 22, 2015, the Board of Directors adopted, and on the same date the stockholders approved, the 2015 Equity Incentive Plan (the “2015 Plan”), which reserved a total of 1,200,000 shares of Common Stock for issuance under the 2015 Plan. The 2015 Plan authorized the grant to participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants. No additional shares will be issued under the 2015 Plan. Effective December 15, 2016, equity awards are granted under the Company’s 2016 Stock Incentive Plan (the “2016 Plan”), which was approved stockholders on the same date. The Company settles awards issued under all plans with newly issued common shares.

In addition, the number of shares of our Common Stock subject to the 2016 Plan, any number of shares subject to any numerical limit in the 2016 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding Common Stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

Options granted under the 2015 Plan vest as determined by the Company’s board of directors and expire over varying terms, but not more than ten years from the date of grant. In the case of an Incentive Stock Option that is granted to a 10% shareholder on the date of grant, such Option shall not be exercisable after the expiration of five years from the date of grant. Options for 160,000 shares of Common Stock were issued under the 2015 Plan to four non-employee directors in May 2015.  No new options were granted in the year ended June 30, 2017.

The fair values of the Company’s options were estimated at the dates of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Expected term: The Company’s expected term is based on the period the options are expected to remain outstanding. The Company estimated this amount utilizing the “Simplified Method” in that the Company does not have sufficient historical experience to provide a reasonable basis to estimate an expected term.

Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.

Volatility: The Company calculates the expected volatility of the stock price using the historical volatilities of the Company’s common stock traded on the Nasdaq Capital Market.

Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.

The following is a summary of the option activity:

The total intrinsic value of options exercised during the fiscal years ended June 30, 2018 and June 30, 2017 was $0 million and $0 million, respectively.

As of June 30, 2018, the Company has $2,842,778 in unrecognized stock-based compensation expense attributable to the outstanding options, which will be amortized over a period of 2.69 years.

For the years ended June 30, 2018 and 2017, the Company recorded $1,675,093 and $27,932, respectively, in stock-based compensation related to stock options, which is reflected in the consolidated statements of operations.

Restricted Stock Units and Restricted Stock Awards 

The Company recognizes the compensation expense for all share-based compensation granted based on the grant date fair value for directors and employees and the reporting period remeasured fair value for consultants. Share-based compensation expense is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. The fair value of the award is recorded as share-based compensation expense over the respective restricted period. Any portion of the grant awarded to consultants, directors, employees, and other service providers as to which the repurchase option has not lapsed is accrued on the Balance Sheet as a component of accounts payable and accrued expenses. As of June 30, 2018 and 2017, the accrued stock-based compensation was $395,539 and $399,157, respectively. The Company has the right to repurchase some or all of such shares in certain circumstances upon termination of the recipient’s service with the Company, for up to 60 months from the date of termination (“repurchase option”). The shares as to which the repurchase option has not lapsed are subject to forfeiture upon termination of consulting and employment relationships.

In September 2015, the Company amended the original restricted stock agreement for certain award recipients. Pursuant to the amendment, 75% of the shares as to which the repurchase option had not lapsed as of September 30, 2015 will be released from the repurchase option on the third anniversary of the original effective date of the agreement. The remaining 25% of the shares will be released from the repurchase option on the fourth anniversary of the original effective date.   

A summary of unvested restricted stock awards (“RSAs”) and restricted stock unit awards (“RSUs”) outstanding as of June 30, 2018 and changes during the twelve months then ended is as follows:

The weighted average grant date fair value per share for awards granted during the fiscal years ended June 30, 2018 and June 30, 2017 was $6.61 and $4.83, respectively. The total fair value of restricted awards that vested during the fiscal years ended June 30, 2018 and June 30, 2017 was $3.8 million and $3.7 million, respectively.

During the years ended June 30, 2018 and 2017, the Company recorded stock-based compensation expense of $3,784,554 and $3,223,398, respectively related to the RSAs and RSUs that have been issued to date.

As of June 30, 2018, the Company had approximately $5.0 million in unrecognized stock-based compensation expense related to the unvested shares.

Performance Awards

In March 2018 the Company granted 139,500 performance-based restricted stock units (PBRSU) to employees with a grant date fair value per share of $6.26. The PBRSU awards contain performance and service conditions which must be satisfied for an employee to earn the award. The performance condition is based primarily on the achievement of certain performance objectives. Once earned, the PBRSU awards vest 100% on the first anniversary of the grant date. The Company recognizes compensation expense for PBRSU awards using a graded vesting model, based on the probability of the performance condition being met. During the year, 15,000 of the PBRSU awards were earned and 124,500 of the awards were cancelled. For the year ended June 30, 2018, the Company recognized $30,870 of stock compensation expense on PBRSU awards.

As of June 30, 2018, the Company had approximately $0.06 million in unrecognized stock-based compensation expense related to the 15,000 unvested PBRSU awards.