| Stockholders' Equity | 9. 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 remained unpaid in Accounts payable at December 31, 2017. On August 23, 2018 Madison elected to keep
the Benz Assets and these amounts 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. Lincoln Park Capital Purchase Agreement On November 8,
2019, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement
(the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the
Company has the right to sell to LPC up to $20,000,000 in shares of the Company’s common stock, $0.001 par value per share
(the “Common Stock”), subject to certain limitations and conditions set forth in the Purchase Agreement. Under the Purchase
Agreement, the Company has the right, from time to time at its sole discretion and subject to certain conditions, to direct LPC
to purchase up to 100,000 shares of Common Stock, with such amounts increasing based on certain threshold prices but not to exceed
$750,000 in total proceeds on any purchase date. The purchase price of shares of Common Stock pursuant to the Purchase Agreement
will be based on the market prices of the Common Stock at the time of such purchases as set forth in the Purchase Agreement. Such
sales of Common Stock by the Company, if any, may occur from time to time, at the Company’s option, over the 36-month period
expiring in December 2022. In connection with
the signing of the Purchase Agreement on November 8, 2019, the Company issued 706,592 shares of its common stock to LPC. The issuance
of the shares were recorded as debt issuance costs in Common stock and Additional paid-in capital with no net effect on Stockholders’
deficit. In addition to
regular purchases, as described above, the Company may also direct LPC to purchase additional amounts as accelerated purchases
if the closing sale price of the Common Stock is not below certain threshold prices, as set forth in the Purchase Agreement. In
all instances, the Company may not sell shares of its Common Stock to LPC under the Purchase Agreement if it would result in LPC
beneficially owning more than 4.99% of the Common Stock then outstanding. LPC represented
to the Company, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation
D under the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities
to LPC pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of, and Regulation
D under, the Securities Act. The Purchase Agreement
and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future
sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement
at any time, at no cost or penalty. During any “event of default” under the Purchase Agreement, all of which are outside
of LPC’s control, LPC does not have the right to terminate the Purchase Agreement; however, the Company may not initiate
any regular or other sale of shares to LPC until such event of default is cured. Actual sales of
shares of Common Stock to LPC under the Purchase Agreement will depend on a variety of factors to be determined by the Company
from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the
Company as to the appropriate sources of funding for the Company and its operations. In consideration for entering in the Purchase
Agreement, the Company has agreed to pay to LPC a commitment fee in shares of Common Stock. The Company will not receive any cash
proceeds from the issuance of these shares. The net proceeds
under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock
to LPC. The Company expects that any proceeds received by the Company from such sales to LPC will be used for working capital and
general corporate purposes. On November 20,
2019, the Company filed a registration statement on Form S-1. The registration statement was declared effective on December 2,
2019 and the Company filed a final prospectus on December 4, 2019. 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 authorized 25,000,000
shares of preferred stock. During the month of December 2019, the Company
issued 500,000 shares of its common stock for aggregate proceeds of $0.2 million under the Purchase Agreement. The Company has reserved the following shares
of common stock for issuance as of December 31, 2019:
Warrants to purchase common stock 331,193
Options:
Outstanding under the 2012 Equity Incentive Plan 15,881,406
Outstanding under the 2001 Equity Incentive Plan 315
Available for future grants under the 2012 Equity Incentive Plan 3,050,799
Shares reserved under the 2019 LPC Purchase Agreement 14,500,000
Total common stock reserved for future issuance 33,763,713 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, 2019, there were 3,050,799
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, 2019 and 2018:
Number of Weighted Weighted- Aggregate
Outstanding at January 1, 2018 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
Granted 1,470,957 0.78
Exercised (488,625 ) 0.67
Cancelled (forfeited) (509,923 ) 0.62
Cancelled (expired) (45 ) 9.68
Outstanding at December 31, 2019 15,881,721 $ 0.95 8.2 $ 49
Options vested and expected to vest 15,827,723 $ 0.95 8.2 $ 49
Exercisable 13,661,670 $ 0.99 8.0 $ 22
(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, 2019. The stock options outstanding and exercisable
by exercise price at December 31, 2019 are as follows:
Stock Options Outstanding Stock Options Exercisable
Range of Exercise Prices Number of Weighted- Weighted- Number of Weighted-
$0.33 - $0.67 13,442,367 8.28 $ 0.65 11,533,358 $ 0.66
$0.84 - $1.30 755,080 9.15 $ 1.09 445,705 $ 0.94
$1.91 - $3.30 370,000 7.10 $ 2.97 368,333 $ 2.97
$3.38 - $3.38 1,263,022 6.71 $ 3.38 1,263,022 $ 3.38
$3.40 - $4.72 50,625 6.77 $ 3.40 50,625 $ 3.40
$8.24 - $17.36 315 1.02 $ 12.94 315 $ 12.94
$42.88 - $48.00 312 3.76 $ 45.17 312 $ 45.17
15,881,721 8.17 $ 0.95 13,661,670 $ 0.99 The total fair value of options vested for
the years ended December 31, 2019 and 2018 was $2.0 million and $4.8 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, 2019 and 2018 was $0.79 and
$0.47 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,
2019 2018
Expected term 5 - 6 years 5 - 6 years
Expected volatility 96% - 99% 93% - 97%
Risk-free interest rate 1.74% - 2.59% 2.7% - 2.8%
Expected dividend yield 0% 0% Total expense for stock option grants recognized
was as follows:
Year ended December 31,
2019 2018
General and administrative $ 1,928 $ 4,611
Research and development 97 201
Total stock-based compensation $ 2,025 $ 4,812 At December 31, 2019, the Company had
$1.0 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. |
