EQUITY, SHARE-BASED COMPENSATION, WARRANTS AND FINANCING TRANSACTIONS | NOTE 9. EQUITY, SHARE-BASED COMPENSATION, WARRANTS AND FINANCING TRANSACTIONS In February 2017, shareholders approved and we filed an amendment to our articles of incorporation increasing our authorized shares of common stock from 25,000,000 to 50,000,000. Our board of directors, without further action or vote by holders of our common stock, has the right to establish the terms, preference, rights and restrictions and issue shares of preferred stock. We previously designated and issued six series of preferred stock of which no shares remain outstanding. In addition, we designated and issued a seventh series of preferred stock, 2,000 shares of Series G in 2017, of which 405 shares remain outstanding as of December 31, 2018. The Series G preferred stock is non-voting and may be converted into shares of our common stock at the holders’ election at any time, subject to certain beneficial ownership limitations, at a ratio of 1 preferred share for 948.9915 shares of common stock. The Series G preferred stock is entitled to receive dividends if we pay dividends on our common stock, in which case the holders of Series G preferred stock are entitled to receive the amount and form of dividends that they would have received if they held the common stock that is issuable upon conversion of the Series G preferred stock. If we are liquidated or dissolved, the holders of Series G preferred stock are entitled to receive, before any amounts are paid in respect of our common stock, an amount per share of Series G preferred stock equal to $1,000, plus any accrued but unpaid dividends thereon. Series F preferred stock is no longer outstanding. The Series F preferred stock was non-voting and could be converted into shares of our common stock at the holder’s election at any time, subject to certain beneficial ownership limitations, at a ratio of 1 preferred share for 666.66666 shares of common stock. The Series F preferred stock was only entitled to receive dividends if we declared dividends, in which case the dividend was to be paid (i) first an amount equal to $0.01 per share of preferred stock and (ii) then to and in the same form as dividends paid on shares of our common stock. Otherwise, the Series F preferred stock had no liquidation or other preferences over our common stock. Share-based compensation expenses related to stock options, stock and restricted stock units issued to employees and directors are included in selling, general and administrative expenses. The following table provides a detail of share-based compensation expense (in thousands). Years Ended December 31 2018 2017 Stock options $ 132 $ 176 Common stock, vested at issuance and nonvested at issuance 476 744 Restricted stock units 102 27 Compensation expense related to common stock awards issued under equity incentive plans $ 710 $ 947 Share Sequencing From June 2015 until March 2017, the minority interest holders in Nutra SA could elect , the number of common stock and warrants issuable upon this election, was variable and indeterminate. For accounting purposes, we were not able to conclude that we had sufficient authorized and unissued shares to settle all contracts subject to the GAAP derivative guidance during the period the minority interest holders had this right, which the right terminated March 31, 2017. Our adopted sequencing approach (Share Sequencing) was based on earliest issuance date, therefore, we were required to carry warrants issued between June 2015 and March 2017, at fair value, as a derivative warrant liability, and preferred stock issued between June 2015 and March 2017, Warrants The following table summarizes information related to outstanding warrants: December 31, 2018 December 31, 2017 Range of Exercise Prices Shares Under Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Shares Under Warrants, Exercisable Cashless Shares Under Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) (1 ) $ 0.96 6,945,994 $ 0.96 3.1 3,774,344 12,972,832 $ 0.96 4.1 $ 1.60 - NA NA - 300,000 1.60 2.4 $ 2.00 50,000 2.00 4.1 - 2,660,000 2.00 3.6 $ 3.30 600,000 3.30 0.3 - - NA NA $ 5.25 to $5.87 2,571,670 5.34 0.5 384,536 3,156,670 5.33 1.7 $ 6.55 to $16.80 85,050 6.63 0.5 85,050 2,067,771 6.61 1.0 10,252,714 $ 2.25 2.3 4,243,930 21,157,273 $ 2.30 3.4 (1) Under the terms of certain outstanding warrants, the holders may elect to exercise the warrants under a cashless exercise feature. The shares listed represent the shares holders could exercise cashless as of December 31, 2018. If we register for resale the shares subject to warrants, the holders of some of the warrants may no longer have the right to elect a cashless exercise. Should we fail to maintain a registration statement for the resale of shares under certain other warrants, the shares under those warrants may again become exercisable using a cashless exercise feature. The following table summarizes warrant activity. Equity Warrants Liability Warrants Shares Underlying Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Shares Underlying Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Outstanding, January 1, 2017 6,364,110 $ 5.77 2.44 4,474,868 $ 1.82 3.3 Issued 25,000 0.96 5.01 11,783,163 0.96 5.0 Impact of repricing senior debenture purchaser warrants: Prior to repricing (875,000 ) 5.49 2.1 - NA NA After repricing 875,000 0.96 5.5 - NA NA Impact of repricing subordinated note holder warants: Prior to repricing (289,669 ) 5.25 3.3 - NA NA After repricing 289,669 0.96 3.3 - NA NA Impact of anti-dilution clauses: Prior to impact - NA NA (1,489,868 ) 1.50 0.8 After impact - NA NA 2,327,919 0.96 0.8 Transfer from liability to equity 14,768,163 1.16 4.8 (14,768,163 ) 1.16 4.8 Exercised - NA NA (2,327,919 ) 0.96 - Outstanding, December 31, 2017 21,157,273 2.30 3.4 - NA NA Issued 315,000 4.73 NA - NA NA Impact of warrant modification: Prior to modifcation (850,000 ) 5.27 1.6 - NA NA After modification 600,000 3.30 0.6 - NA NA Exercised cashless (300,000 ) 1.60 1.8 - NA NA Exercised for cash (8,686,838 ) 1.28 3.6 - NA NA Expired (1,982,721 ) 6.61 - - NA NA Outstanding, December 31, 2018 10,252,714 $ 2.25 2.3 - NA NA Exercisable, December 31, 2018 10,252,714 $ 2.25 2.3 - NA NA Transactions with Preferred Stock Holders. In February 2017, we issued and sold 2,000 shares of Series G preferred stock and sold warrants to purchase 1,423,488 shares of common stock (exercise price of $0.96 per share, exercisable beginning in February 2017 and expiring in February 2022). A subordinated note holder exchanged subordinated notes with a principal and carrying value of $0.1 million and cash for 180 shares of the Series G preferred stock and related warrants, which was treated as an extinguishment of debt. The net cash proceeds from the sale was $1.7 million, after deducting allocated cash offering expenses of $0.1 million. On the date of issuance, we allocated $1.0 million of the proceeds to derivative warrant liability, to record the warrants at fair value, recorded a $0.1 million loss on extinguishment and reduced debt $0.1 million related to the subordinated noteholders exchange, and recorded $1.2 million as preferred stock. We recorded a $0.8 million dividend on preferred stock for the preferred stock beneficial conversion feature equal to the proceeds allocated to the preferred stock issued to purchases who did not exchange debt, as the fair value of the common stock underlying the convertible preferred stock at issuance exceeded the amount recorded in preferred stock. In the fourth quarter of 2017, we issued 968,491 shares of common stock upon conversion of 499 shares of Series F preferred stock and 670 shares of Series G preferred stock. In third quarter of 2017, we issued 2,111,188 shares of common stock upon conversion of 2,186 shares of Series F preferred stock and 689 shares of Series G preferred stock. In second quarter of 2017, we issued 220,439 shares of common stock upon conversion of 315 shares of Series F preferred stock and 11 shares of Series G preferred stock. We reclassified the $1.2 million carrying value of the related preferred stock to common stock in 2017. In the fourth quarter of 2018, we issued 213,523 shares of common stock upon conversion of 225 shares of Series G preferred stock. We reclassified the $0.1 million carrying value of the related preferred stock to common stock. Transactions with Senior Debenture Holders In February 2017, we sold and issued in a private placement, for an aggregate subscription amount of $6.0 million: (i) senior debentures in the principal amount of $6.6 million and (ii) warrants to purchase an aggregate of 6,875,000 shares of common stock (exercise price of $0.96 per share, exercisable beginning February 2017 and expiration February 2022). We received aggregate net proceeds of $5.5 million, after deducting placement agent fees and allocated expenses of $0.5 million. Concurrently, we amended existing warrants, held by the debenture purchasers, for the purchase of up to 875,000 shares to (i) reduce the exercise prices from an average $5.49 per share to $0.96 per share, providing the warrants are not exercisable until August 2017, and (ii) change the expiration dates to August 2022, which increased the average remaining term of the warrants from 2.1 years to 5.5 years. We recorded $4.6 million as an increase to derivative warrant liabilities, to record the warrants at their fair value on the date of issuance, the $0.5 million as an increase in common stock to record the change in fair value of existing warrants and the remaining $0.4 million to debt, debt issuance costs and debt discount. We used the net proceeds from the offering to (i) pay off the senior revolving loan and term loan debt totaling $3.8 million and (ii) pay $0.2 million of principal and $0.3 million of interest due on subordinated notes and (iii) for working capital and general corporate purposes. We filed a registration statement on Form S-3, which became effective in May 2017, to register the shares under the warrants issued to the senior debenture purchasers. Transaction with Subordinated Note Holders In connection with the February 2017 senior debenture private placement, we entered into agreements which resulted in (i) a reduction in the annual interest rate on the subordinated notes from 11.75% to 7% (ii) an extension of the maturity date of the subordinated notes to May 2019 from May 2018 (iii) the payment of an aggregate amount equal to $0.5 million on the subordinated notes; (iv) the issuance of warrants to purchase up to 3,484,675 shares of our common stock (exercise price of $0.96 per share, expiration February 2022); and (v) the amendment of existing warrants held by the subordinated note holders for the purchase of 289,669 shares of common stock to reduce the exercise price from $5.25 per share to $0.96 per share. We accounted for the transaction as an extinguishment of debt and issuance of new debt. In February 2017, we (i) recorded a loss on extinguishment of debt of $1.5 million, (ii) adjusted subordinated notes payable debt down by $0.9 million to its fair value as of the transaction date, (iii) increased derivative liability by $2.3 million, representing the fair value of the newly issued warrants, and (iv) increased common stock equity by $0.1 million for the change in the fair value of the existing warrants. Transactions with Holders of Warrants with Full Ratchet Anti-Dilution Clauses As a result of the February 2017 financing transactions described above, the exercise price of certain warrants that contained full ratchet anti-dilution provisions was reduced from $1.50 per share to $0.96 per share and the number of shares of common stock underlying two warrants increased from 1,489,868 shares to 2,327,919 shares. The holder of the warrants subsequently converted the warrants in cashless transactions and recorded a $0.1 million loss on the conversions equal to the difference between the fair value of the liabilities and the fair values of the common stock on the dates of the conversions. In the three months ended September 30, 2017, the holder converted one warrant for the purchase of 781,252 shares of common stock (exercise price of $0.96 per share) and we issued 103,008 shares of common stock based on the fair value at the date of exercise Other Warrant Issuances, Modifications and Exercises In the three months ended March 31, 2018, we issued warrants for the purchase of up to 315,000 shares of common stock, at a weighted average exercise price of $4.73 per share and a weighted average term of 2.4 years. We recognized $0.1 million of expense for these issuances. In the three months ended March 31, 2018, warrant holders exercised for $1.8 million cash, at $0.96 per share, warrants for the purchase of 1,827,999 shares of common stock (remaining term at December 31, 2017, of 4.3 years). In the three months ended June 30 2018, warrant holders exercised for $3.9 million, at $0.96 per share, warrants for the purchase of 4,092,077 shares of common stock. In the three months ended September 30, 2018, warrant holders exercised for $5.3 million cash, at $2.00 per share, warrants for the purchase of 2,660,000 shares of common stock. In the three months ended December 31, 2018, warrant holders exercised for $0.1 million cash, at $0.96 per share, warrants for the purchase of 106,762 shares of common stock. In addition, in the three months ended September 30, 2018, a warrant holder cashless exercised a warrant for the purchase of 300,000 shares of common stock at an exercise price of $1.60 per share and we issued 139,392 shares of common stock based on the fair value at the date of exercise of $2.63 per share. In the three months ended September 30, 2018, we modified certain warrants for the purchase of 850,000 shares, at an exercise price of $5.27 per share which were to expire in April 2020. As modified, the warrants are now for the purchase of 600,000 shares, at an exercise price of $3.30 per share and expire in April 2019. The fair value of the warrants immediately before the modification equaled the fair value of the warrants immediately after the modification and, therefore, no gain or loss was recorded. Other Common Stock Issuances In the three months ended December 31, 2018, we issued: · 1,666,667 shares of common stock in connection with the acquisition of Golden Ridge, discussed further in Note 4. · 11,217 shares of common stock to a director with a fair value at issuance of $2.82 per share. The shares vest the earlier of June 2019 or one day prior to our next annual meeting of shareholders. · 6,945 shares of common stock to a consultant at a grant date fair value of $2.89 per share. In the three months ended September 30, 2018, we issued 7,188 shares of common stock to a consultant at a grant date fair value of $2.83 per share. In the three months ended June 30, 2018, we issued 208,855 shares of common stock to directors with an average fair value at issuance of $1.78. The shares vest the earlier of June 2019 or one day prior to our next annual meeting of shareholders. In the three months ended March 31, 2018, we issued 50,469 shares of common stock to employees with an average fair value at issuance of $1.38 per share and 27,882 shares of common stock to a consultant with an average fair value at issuance of $1.42 per share. In the three months ended December 31, 2017, we issued 15,288 shares of common stock to a consultant at a grant date fair value of $1.31 per share. In the three months ended September 30, 2017, we issued: · 35,336 shares of common stock to a director with a fair value at issuance of $1.09 per share. The shares vested in June 2018. · 25,814 shares of common stock to a consultant at a grant date fair value of $1.12 per share · and sold 2,654,732 shares of common stock for $1.08 per share. The net proceeds from the offering of $2.8 million, after deducting commissions and other cash offering expenses of $0.1 million, are included in common stock. We used the proceeds for general corporate purposes. · we issued 57,230 shares of common stock to employees and a consultant with a fair value at issuance of $1.07 per share. In the three months ended June 30, 2017, we issued: · 96,372 shares of common stock as transitional director compensation to the chairman of our board, who was awarded transitional director compensation in the amount of (i) $10,000 or 7,035 shares per month for July 2016 through December 2016 and (ii) $8,333 or 9,027 shares per month for January 2017 through March 2017. The amount was payable in either cash or stock at the chairman’s election. The chairman elected to receive shares of common stock. · 345,205 shares of common stock to our directors at a grant date fair value of $0.90 per share. The stock awards vested in June 2018 or one day before the date of the next annual shareholder meeting. In the three months ended March 31, 2017, we issued: · 108,696 shares of our common stock to a former employee, in lieu of paying $100,000 cash for a 2016 bonus. · 28,157 shares of common stock to a consultant at a grant date fair value of $0.84 per share. Equity Incentive Plan Our board of directors adopted our 2014 Equity Incentive Plan (2014 Plan) in August 2014, after the plan was approved by shareholders. A total of 1,600,000 shares of common stock were initially reserved for issuance under the plan. In June 2017, shareholders approved a 1,700,000 increase in the authorized shares issuable under the 2014 Plan. Options A summary of stock option activity follows. Shares Under Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Outstanding, January 1, 2017 170,811 $ 8.83 7.2 Granted 481,500 0.79 10.0 Forfeited , expired, or cancelled (12,652 ) 3.62 8.1 Outstanding, December 31, 2017 639,659 2.91 8.5 Granted 653,873 2.25 10.0 Exercised (32,500 ) NA NA Forfeited (310,305 ) 1.28 8.5 Outstanding, December 31, 2018 950,727 $ 3.06 8.5 As of December 31, 2018, outstanding stock options had an intrinsic value of $0.9 million, the weighted average remaining vesting period of options outstanding was 3.6 years and unrecognized option compensation cost was $0.9 million. The intrinsic value of options exercised in 2018 was $0.1 million. The average fair value of stock options granted was $1.5 per share in 2018 and 2.68 in 2017. The following are the assumptions used in valuing the 2018 and 2017 stock option grants: Years ended December 31 2018 2017 Assumed volatility 75% - 81 % 85% - 87 % (78% weighted average) (87% weighted average) Assumed risk free interest rate 2.2% - 2.8 % 1.8% - 2.0 % (2.5% weighted average) (2.0% weighted average) Average expected life of options (in years) 6.2 6.2 (6.2 weighted average) (6.2 weighted average) Expected dividends - - The following table summarizes information related to outstanding and exercisable stock options as of December 31, 2018: Outstanding Exercisable Range of Exercise Prices Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) $ 0.76 to $0.91 247,578 $ 0.83 8.3 123,453 $ 0.81 8.2 $ 1.09 to $1.98 184,165 1.40 9.0 11,500 1.50 7.9 $ 2.86 to $2.97 391,250 2.87 9.6 16,250 2.97 6.6 $ 3.47 34,790 3.47 6.5 34,790 3.47 6.5 $ 4.27 to $4.77 45,243 4.60 5.6 45,209 4.60 5.6 $ 16.00 to $74.00 47,701 20.83 3.0 47,701 20.83 3.0 950,727 $ 3.06 8.5 278,903 $ 5.33 6.6 In the fourth quarter of 2018, we issued options to employees for the purchase of up to 375,000 shares of common stock at an exercise price of $2.86 per share and a grant date fair value of $1.90 per share. The options vest and become exercisable in four equal annual installments beginning in October 2019. In the third quarter of 2018, employees exercised for cash, options for the purchase of up to 32,500 shares of common stock at an exercise price of $0.85 per share. In first quarter of 2018, we issued options to employees for the purchase of up to 278,873 shares of common stock at an exercise price of $1.42 and a grant date fair value of $0.97 per share. The options vest and become exercisable in four equal annual installments beginning in January 2019. Restricted Stock Units RSU Shares Issued to Employees Unrecognized Stock Compensation (in thousands) Weighted Average Expense Period (Years) (a) Nonvested at January 1, 2017 - $ - - Granted 1,175,000 188 3.6 Expensed (27 ) Nonvested at December 31, 2017 1,175,000 161 3.0 Granted 1,045,000 724 2.6 Cancelled (705,000 ) (31 ) Forfeited (300,000 ) (69 ) Expensed (102 ) Nonvested at December 31, 2018 1,215,000 $ 683 2.3 In October 2018, we issued restricted stock units (RSUs), In late June 2017, we issued RSUs, under the 2014 Plan, to our executive officers covering a total of 1,175,000 shares of our common stock. The shares subject to the RSUs vest based upon a vesting price equal to the volume weighted average trading price of our common stock over sixty-five consecutive trading days. The RSU’s shares vested as to (i) 117,500 shares if the vesting price equaled or exceeded $5.00 per share, (ii) 352,500 shares if the vesting price equaled or exceeded $10.00 per share and (iv) 705,000 shares if the vesting price equaled or exceeded $15.00 per share. In January 2018, the portion of the June 2017 RSUS related to the $15.00 per share target vesting price were cancelled. In June 2018 and July 2018, RSUs for a total of 170,000 shares and 130,000 shares were forfeited. After these forfeitures, and as of December 31, 2018, the remaining 170,000 shares under the June 2017 RSU grant vest as to (i) 42,500 shares if the vesting price equals or exceeds $5.00 per share, (ii) 127,500 shares if the vesting price equals or exceeds $10.00 per share. Nonvested Stock Shares Issued to Employees and Directors Weighted Average Grant Date Fair Value (in thousands) Weighted Average Remaining Vesting (Years) Unrecognized Stock Compensation (in thousands) (a) Nonvested at January 1, 2017 256,839 $ 2.44 $ 265 0.7 $ 285 Granted 380,541 0.92 349 Vested (252,636 ) (b) 2.42 220 Nonvested at December 31, 2017 384,744 0.94 569 0.5 176 Granted 220,072 1.83 403 Vested (410,851 ) (c) 1.00 661 Nonvested at December 31, 2018 193,965 (d) $ 1.84 $ 582 0.5 $ 173 (a) Represents pre-tax fair value, based on our closing stock prices, which would have been received by the holders of the stock had all such holders sold their underlying shares on the date indicated, the dates of grant or the dates of vesting, as applicable. (b) Includes 73,608 shares, for which vesting was accelerated in June 2017, based on the terms of a severance agreement. (c) Includes 26,107 shares, for which vesting was accelerated in December 2018. (d) Excludes 850,744 shares, issued to a supplier, nonvested and unearned as of December 31, 2018. In February 2016, we issued 950,000 shares of common stock to the supplier. The shares are being held in escrow until earned (as defined in our agreement) by the supplier at a fixed price of $2.80 per share. Cumulatively, as of December 31, 2017, 99,256 shares have been released from escrow (39,964 in 2018 and 48,509 in 2017). We may recall any shares remaining in escrow as of February 8, 2026. Any recalled shares will be cancelled. Subsequent Issuances In January and February 2019, we issued options to employees and a consultant for the purchase of up to 188,662 shares of common stock at an average exercise price of $3.25 per share and an average grant date fair value of $2.04 per share. The options vest and become exercisable in four equal annual installments beginning in January and February 2020. In January 2019, we issued 30,887 shares of common stock to employees with a fair value at issuance of $3.22 per share. In January 2019, we issued 170,818 shares of common stock upon conversion of 180 shares of Series G preferred stock. We reclassified the $0.1 million carrying value of the related preferred stock to common stock. In March 2019, we issued and sold 3,046,668 shares of common stock for $3.00 per share and issued a prefunded warrant exercisable into 1,003,344 shares of common stock for $2.99 per share with an exercise price of $0.01 per share. The warrant is exercisable upon shareholder approval and expires in March 2029. The net proceeds from the offering total $12.1 million, after deducting commissions and other cash offering expenses of $0.1 million. In March 2019, warrant holders exercised for cash, warrants for the purchase of up to 600,000 shares of common stock at an exercise price of $3.30 per share. The exercised warrants had expiration dates in April 2019. Additionally, in March 2019, warrants for the purchase of up to 950,614 shares of common stock at an exercise price of $5.25 per share expired. In March 2019, a consultant exercised for cash, options for the purchase of 18,750 shares of common stock at an exercise price of $0.85 per share and options for the purchase of 58,328 shares of common stock at an exercise price of $0.76 per share. The options exercised had a remaining life of 8.3 and 8.2 years respectively, as of December 31, 2018. |