4. STOCKHOLDERS’ EQUITY

2018 Offerings

On April 13, 2018, the Company entered into two underwriting agreements (each, an “Underwriting Agreement”) with Piper Jaffray & Co., as the sole underwriter (the “Underwriter”), in connection with separate but concurrent public offerings of the Company’s securities.

Pursuant to the first Underwriting Agreement, the Company agreed to issue and sell an aggregate of 10,000,000 shares of Vermillion common stock, par value $0.001 per share, offered by the Underwriter in a public offering at a price to the public of $1.00 per share (the “Common Stock Offering”). Under this Underwriting Agreement, the Company granted the Underwriter an option to purchase up to an additional 1,500,000 shares of Vermillion common stock at the public offering price, less underwriting discounts and commissions, to cover over-allotments, if any. The Underwriter did not exercise this option. The Common Stock Offering closed on April 17, 2018 and resulted in proceeds, net of 7% underwriting costs and other offering costs, to the Company of $8,992,000.

Pursuant to the second Underwriting Agreement, the Company agreed to issue and sell an aggregate of 50,000 shares of Vermillion Series B Convertible Preferred Stock, par value $0.001 per share, offered by the Underwriter in a public offering at a price to the public of $100.00 per share (the “Series B Offering”). The Series B Offering closed on April 17, 2018 and resulted in proceeds, net of 7% underwriting costs and other offering costs, to the Company of $4,496,000.

Upon obtaining Company stockholder approval at the annual meeting of Company stockholders on June 21, 2018, each of the 50,000 shares of Vermillion Series B Convertible Preferred Stock was automatically converted into shares of Vermillion common stock, at a conversion rate of 100 shares of Vermillion common stock per one share of Vermillion Series B Convertible Preferred Stock, including shares issuable pursuant to customary anti-dilution provisions.

2017 Warrant Repricing and Exercise

In December 2014, the Company issued warrants to purchase up to an aggregate of 4,166,659 shares of Vermillion common stock at an exercise price of $2.00 per share in conjunction with a December 2014 private placement of Vermillion common stock.

On August 31, 2017, certain holders of these warrants exercised warrants to purchase 3,796,818 shares of Vermillion common stock in consideration for the Company agreeing to reduce the exercise price to $1.00 per share of Vermillion common stock. The remaining 369,841 unexercised warrants expired by their original terms on December 23, 2017.

The Company issued 3,796,818 shares of Vermillion common stock and received $3,796,818 in aggregate gross proceeds (approximately $3,577,000 net of transaction costs). The incremental non-cash fair value of approximately $942,000 from the modification of the warrants was calculated using the Black-Scholes model and recorded as a deemed dividend to the warrant holders within stockholders’ equity.

2017 Private Placement

On February 17, 2017, the Company completed a private placement pursuant to which certain investors purchased 3,747,125 shares of Vermillion common stock at a price of $1.40 per share. Vermillion also issued warrants to purchase shares of Vermillion common stock at a price of $0.125 per warrant share in the private placement. Net proceeds of the private placement were approximately $5,127,000 after deducting offering expenses. The warrants are exercisable for 2,810,338 shares of Vermillion common stock at $1.80 per share. The warrants expire on the fifth anniversary of the date of issuance or, if earlier, five business days after Vermillion delivers notice that the closing price per share of its common stock exceeded the exercise price for 20 consecutive trading days during the exercise period.

The sale of common stock and issuance of warrants qualified for equity treatment under GAAP. The respective values of the warrants and common stock were calculated using their relative fair values and classified under common stock and additional paid-in capital. The value ascribed to the warrants is $804,000 and to the common stock is approximately $4,296,000.

2010 Stock Incentive Plan

The Company’s employees, directors, and consultants are eligible to receive awards under the Vermillion, Inc. Second Amended and Restated 2010 Stock Incentive Plan (the “2010 Plan”). The 2010 Plan permits the granting of a variety of awards, including stock options, share appreciation rights, restricted shares, restricted share units, unrestricted shares, deferred share units, performance and cash-settled awards, and dividend equivalent rights. The 2010 Plan provides for issuance of up to 12,122,983 shares of Vermillion common stock, subject to adjustment as provided in the 2010 Plan.

Stock-Based Compensation

During the three ended June 30, 2018, the Company awarded Vermillion’s non-employee directors an aggregate of 398,400 shares of restricted stock under the 2010 Plan having a fair value of approximately $442,000. The vesting of these shares of restricted stock is as follows: 50% on June 1, 2018, 25% on September 1, 2018, and 25% on December 1, 2018. The Company also awarded certain consultants 6,534 shares of restricted stock under the 2010 Plan having a fair value of approximately $10,000.

During the three months ended June 30, 2018, the Company granted certain officers and employees options to purchase an aggregate of 934,000 shares of Vermillion common stock with an exercise price of $1.11 per share and 125,000 shares of Vermillion common stock with an exercise price of $0.90 per share. These stock options vest 25% on each of the four anniversaries of the vesting commencement date for each such stock option.

During the three months ended June 30, 2018, the Company awarded a certain consultant 3,213 shares of restricted stock under the 2010 Plan having a fair value of approximately $4,500.

The allocation of employee stock-based compensation expense by functional area for the three and six months ended June 30, 2018 and 2017 was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2018		2017		2018		2017
Cost of revenue	$	23	$	20	$	47	$	40
Research and development		1		2		2		5
Sales and marketing		34		38		81		70
General and administrative		355		283		494		414
Total	$	413	$	343	$	624	$	529