| Stockholders' Equity | 9. Stockholders’ Equity Restructuring Transactions As further described in the Company’s
Form 10-K for the year ended December 31, 2018, on February 27, 2018, the Company completed a comprehensive restructuring of its
outstanding indebtedness of approximately $18.4 million under a series of term loans (the “Term Loans”) with two lender
groups, including affiliates of Black Horse Capital, L.P. and raised incremental new capital from Cheval Holdings, Ltd. At the
closing of the restructuring, the Company: (i) in exchange for the satisfaction and extinguishment of the entire balance of the
Company’s Term Loans and related accrued interest totaling $18.4 million, (a) issued an aggregate of 59,786,848 shares of
Common Stock (the “New Lender Shares”), and (b) transferred and assigned to a joint venture controlled by one of the
term loan lenders, all of the assets of the Company related to benznidazole (the “Benz Assets”), the Company’s
former drug candidate; and (ii) issued to Cheval an aggregate of 32,028,669 shares of Common Stock for total consideration of $3.0
million. The conversion of the outstanding debt for
Common Stock at closing of the restructuring was accounted for as a decrease to Long-term debt and an increase to Common stock
and Additional paid-in capital in the amount of the liabilities outstanding at the time of conversion. In connection with the transfer of the Benz
Assets to the joint venture, the joint venture partner paid certain amounts incurred by the Company after December 21, 2017 and
prior to February 27, 2018 in investigating certain causes of action and claims related to or in connection with the Benz Assets.
In addition, upon exercise of its rights under the terms of the joint venture, the joint venture partner assumed certain legal
fees and expenses owed by the Company to its litigation counsel totaling $0.3 million. Since the Benz Assets had no carrying value
on the Company’s Condensed Consolidated Balance Sheet, the Company’s initial investment in the joint venture was recorded
at $0. Equity Financings On March 12, 2018, the Company issued 2,445,557
shares of its common stock for total proceeds of $1.1 million to accredited investors. On June 4, 2018, the Company issued 400,000
shares of its common stock for total proceeds of $0.2 million to an accredited investor. 2012 Equity Incentive Plan Under the Company’s 2012 Equity Incentive
Plan, the Company may grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees,
directors, consultants, and other service providers. For options, the per share exercise price may not be less than the fair market
value of a Company common share on the date of grant. Awards generally vest and become exercisable over three to four years and
expire 10 years from the date of grant. Options generally become exercisable as they vest following the date of grant. On March 9, 2018, the Board of Directors
of the Company approved an amendment to the Company’s 2012 Equity Incentive Plan (the “Equity Plan”) to increase
the number of shares of the Company’s common stock authorized for issuance under the Equity Plan by 16,050,000 shares, and
to increase the annual maximum aggregate number of shares subject to stock option awards that may be granted to any one person
under the Equity Plan during a calendar year to 7,500,000. A summary of stock option activity for the
nine months ended September 30, 2019 under all of the Company’s options plans is as follows:
Options Weighted
Outstanding at January 1, 2019 15,409,357 $ 0.95
Granted 728,610 1.10
Exercised (488,625 ) 0.67
Cancelled (forfeited) (509,923 ) 0.62
Cancelled (expired) (45 ) 9.68
Outstanding at September 30, 2019 15,139,374 $ 0.97 The weighted average fair value of options
granted during the nine months ended September 30, 2019 was $1.10 per share. The
Company valued the options granted using the Black-Scholes options pricing model and the following weighted-average assumption
terms for the nine months ended , 2019:
Nine months ended
Exercise price $0.84 - $1.30
Market value $0.84 - $1.30
Risk-free rate 2.49% - 2.59%
Expected term 6 years
Expected volatility 99.1% - 99.3%
Dividend yield - Stock-Based Compensation The Company recorded stock-based compensation
expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:
Three months ended Nine months ended
2019 2018 2019 2018
General and administrative $ 419 $ 715 $ 1,813 $ 3,969
Research and development 32 - 64 201
Total stock-based compensation $ 451 $ 715 $ 1,877 $ 4,170 At September 30, 2019, the Company had $1.0
million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to outstanding stock options
that will be recognized over a weighted-average period of 1.7 years. | 10. Stockholders’ Equity Restructuring Transactions On December 1, 2017,
the Company’s obligations matured under the Credit and Security Agreement dated December 21, 2016, as amended on March 21,
2017 and on July 8, 2017 (the “Term Loan Credit Agreement”) with BHCMF, as administrative agent and lender, BHC, as
a lender, Cheval, as a lender (collectively with BHCMF and BHC, the Black Horse Entities) and Nomis Bay LTD, as a lender (Nomis
and, together with the Black Horse Entities, the Term Loan Lenders). On December 21, 2017,
the Company entered into a Securities Purchase and Loan Satisfaction Agreement (the Purchase Agreement) and a Forbearance and Loan
Modification Agreement (the “Forbearance Agreement” and, together with the Purchase Agreement, the “Restructuring
Agreements”), each with the Term Loan Lenders, in connection with a series of transactions providing for, among other things,
the satisfaction and extinguishment of the Company’s outstanding obligations under the Term Loan Credit Agreement and the
infusion of $3.0 million of new capital. As of February 27, 2018, the date the Restructuring Transactions were completed, the aggregate
amount of our obligations under the Term Loan Credit Agreement, including the Bridge Loan, the Claims Advances extended by Nomis
Bay (each as discussed below) and all accrued interest and fees, approximated $18.4 million (the “Term Loans”). On February 27, 2018
(the “Restructuring Effective Date”), the Restructuring Transactions were completed in accordance with the Restructuring
Agreements. As a result, on the Restructuring Effective Date, the Company: (i) in exchange for the satisfaction and extinguishment
of the entire $18.4 million balance of the Term Loans, including the Bridge Loan, the Claims Advances extended by Nomis Bay (each
as discussed below) and all accrued interest and fees, (a) issued to the Term Loan Lenders an aggregate of 59,786,848 shares of
its common stock (the “New Lender Shares”), and (b) transferred and assigned to Madison Joint Venture LLC owned 70%
by Nomis Bay and 30% by the Company (Madison), all of the Company’s assets related to benznidazole (the Benz Assets), the
Company’s former drug candidate, capable of being so assigned; and (ii) issued to Cheval an aggregate of 32,028,669 shares
of common stock (the “New Black Horse Shares” and, collectively with the New Lender Shares, the “New Common Shares”)
for total consideration of $3.0 million (collectively, the “Restructuring Transactions”), $1.5 million of which the
Company received on December 22, 2017 in the form of a bridge loan (the “Bridge Loan”). On the Restructuring
Effective Date, the aggregate amount of the Term Loans that were deemed to be satisfied and extinguished (i) previously owed to
the Black Horse Entities, including the Bridge Loan and all accrued interest and fees, approximated $9.9 million, and (ii) previously
owed to Nomis Bay, including certain advances previously extended to the Company by Nomis Bay totaling $0.1 million (the “Claims
Advances”) and all accrued interest and fees, approximated $8.5 million. In addition, on the Restructuring Effective Date,
(i) each of the Term Loan Credit Agreement, all promissory notes issued thereunder and the Intellectual Property Security Agreement,
dated as of December 21, 2016, by and between the Company and the Term Loan Lenders, were terminated and are of no further force
or effect, and (ii) all security interests of the Black Horse Entities and Nomis Bay in the Company’s assets were released.
Although the Term Loans were satisfied and extinguished, if Madison elected to keep the Benz Assets after the Restructuring Effective
Date, Nomis Bay would be obligated to pay or cause Madison to pay $0.3 million in legal fees and expenses owed by the Company to
its litigation counsel, which remain unpaid in Accounts payable at December 31, 2017. On August 23, 2018 Madison elected to keep
the Benz Assets and these amount were paid by Madison to the Company’s litigation counsel. Upon completion of the Restructuring Transactions,
Nomis Bay held 33,573,530 of the Company’s common stock, or approximately 31.4% of its outstanding common stock, and the
Black Horse Entities collectively held 66,870,851 shares of the Company’s common stock, or approximately 62.6% of its outstanding
common stock. Accordingly, the completion of the Restructuring Transactions on the Restructuring Effective Date resulted in a change
in control of the Company, as the Black Horse Entities and their affiliates owning more than a majority of its outstanding common
stock. Dr. Dale Chappell, a member of the Company’s board of directors from June 30, 2016 until November 10, 2017, controls
the Black Horse Entities and accordingly, will be able to exert control over matters of the Company and will be able to determine
all matters of the Company requiring stockholder approval. Other Common Stock Transactions Equity Financings On March 12, 2018, the Company issued 2,445,557
shares of its common stock for total proceeds of $1.1 million to accredited investors. On June 4, 2018, the Company issued 400,000
shares of its common stock for total proceeds of $0.2 million to an accredited investor. In February 2018, the Company amended and
restated its certificate of incorporation to increase the authorized common stock to 225,000,000 shares and authorize 25,000,000
shares of preferred stock. The Company had reserved the following shares
of common stock for issuance as of December 31, 2018:
Warrants to purchase common stock 331,193
Options:
Outstanding under the 2012 Equity Incentive Plan 15,408,997
Outstanding under the 2001 Equity Incentive Plan 360
Available for future grants under the 2012 Equity Incentive Plan 4,189,056
Total common stock reserved for future issuance 19,929,606 2012 Equity Incentive Plan Under the Company’s 2012 Equity Incentive
Plan, the Company may grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees,
directors, consultants, and other service providers. For options, the per share exercise price may not be less than the fair market
value of a Company common share on the date of grant. Awards generally vest and become exercisable over three to four years and
expire 10 years from the date of grant. Options generally become exercisable as they vest following the date of grant. In general, to the extent that awards under
the 2012 Plan are forfeited or lapse without the issuance of shares, those shares will again become available for awards. The 2012 Plan will continue in effect for
10 years from its adoption date, unless the Company’s board of directors decides to terminate the plan earlier. On September 13, 2016, the Board of Directors
of the Company approved an amendment to the Company’s 2012 Equity Incentive Plan to increase the number of shares of the
Company’s common stock available for issuance under the Plan by 3,000,000 shares and to increase the annual maximum aggregate
number of shares subject to stock option awards that may be granted to any one person under the Plan from 125,000 to 1,100,000.
On March 9, 2018, the Board of Directors of the Company approved an amendment to the Company’s 2012 Equity Incentive Plan
(the “Equity Plan”) to increase the number of shares of the Company’s common stock authorized for issuance under
the Equity Plan by 16,050,000 shares, and to increase the annual maximum aggregate number of shares subject to stock option awards
that may be granted to any one person under the Equity Plan during a calendar year to 7,500,000. As of December 31, 2018, there were 4,189,056
shares available for grant under the 2012 Equity Incentive Plan. 2001 Equity Incentive Plan Under the Company’s 2001 Stock Plan
(the “2001 Plan”), the Company was able to grant shares and/or options to purchase up to 426,030 shares of common stock
to employees, directors, consultants, and other service providers. In connection with the 2012 Plan taking effect, the 2001 Plan
was terminated in August 2012. However, the awards under the 2001 Plan outstanding as of the termination of the 2001 Plan continued
to be governed by their existing terms. Stock Option Activity The following table summarizes stock option
activity for the years ended December 31, 2018:
Number of Weighted Weighted- Aggregate
Outstanding at January 1, 2017 1,835,835 $ 19.29
Granted 765,000 3.38
Cancelled (forfeited) (152,365 ) 5.86
Cancelled (expired) (87 ) 18.38
Outstanding at December 31, 2017 2,448,383 $ 4.15
Granted 13,575,038 0.66
Cancelled (forfeited) (572,935 ) 3.20
Cancelled (expired) (41,129 ) 37.82
Outstanding at December 31, 2018 15,409,357 $ 0.95 9.0 $ 576
Options vested and expected to vest 15,356,965 $ 0.95 9.0 $ 574
Exercisable 10,283,026 $ 1.01 9.0 $ 379
(1) The weighted average price per share is determined using exercise price per share for stock options.
(2) The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of
the Company’s common stock for in-the-money options at December 31, 2018. The stock options outstanding and exercisable
by exercise price at December 31, 2018 are as follows:
Stock Options Outstanding Stock Options Exercisable
Range of Exercise Prices Number Weighted- Weighted- Number Weighted-
$0.33 - $0.67 13,725,038 9.19 $ 0.66 8,922,798 $ 0.66
$1.91 - $3.30 370,000 8.10 2.97 361,666 2.97
$3.38 - $3.38 1,263,022 7.71 3.38 947,265 3.38
$3.40 - $4.72 50,625 7.77 3.40 50,625 3.40
$8.24 - $17.36 360 1.78 12.53 360 12.53
$42.88 - $48.00 312 4.76 45.17 312 45.17
15,409,357 9.04 $ 0.95 10,283,026 $ 1.01 The total fair value of options vested for
the years ended December 31, 2018 and 2017 was $4.8 million and $2.1 million, respectively. Stock-Based Compensation The Company’s stock-based compensation
expense for stock options is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes
option pricing model and is recognized as expense over the requisite service period. The Black-Scholes option pricing model requires
various highly judgmental assumptions including expected volatility and expected term. The expected volatility is based on the
historical stock volatilities of several of the Company’s publicly listed peers over a period equal to the expected terms
of the options as the Company does not have a sufficient trading history to use the volatility of its own common stock. To estimate
the expected term, the Company has opted to use the simplified method, which is the use of the midpoint of the vesting term and
the contractual term. If any of the assumptions used in the Black-Scholes option pricing model changes significantly, stock-based
compensation expense may differ materially in the future from that recorded in the current period. In addition, the Company is
required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates
the forfeiture rate based on historical experience and its expectations regarding future pre-vesting termination behavior of employees.
The Company reviews its estimate of the expected forfeiture rate annually, and stock-based compensation expense is adjusted accordingly. The weighted-average fair value-based measurement
of stock options granted under the Company’s stock plans in the years ended December 31, 2018 and 2017 was $0.47 and
$1.54 per share, respectively. The fair value- based measurement of stock options granted under the Company’s stock plans
was estimated at the date of grant using the Black-Scholes model with the following assumptions:
Year Ended December 31,
2018 2017
Expected term 5-6 years 5-6 years
Expected volatility 93% - 97% 83% - 88%
Risk-free interest rate 2.7 - 2.8% 1.8 - 2.1%
Expected dividend yield 0% 0% Total expense for stock option grants recognized
was as follows:
Year Ended December 31,
2018 2017
General and administrative $ 4,611 $ 1,753
Research and development 201 362
$ 4,812 $ 2,115 At December 31, 2018, the Company had
$2.8 million of total unrecognized compensation expense, net of estimated forfeitures, related to outstanding stock options that
will be recognized over a weighted-average period of 1.4 years. |
