Stock Benefit Plans and Equity Transactions | 10. Stock Benefit Plans and Equity Transactions Stock Benefit Plans On October 25, 2018, the Company’s Board of Directors adopted an amendment to the Company’s 2016 Equity Incentive Award Plan, which increased the maximum aggregate number of shares with respect to one or more stock rights that may be granted to any one person during any fiscal year from 500,000 to 1,250,000. Total stock-based compensation for the three and nine months ended September 30, 2019 and 2018 is as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2019 2018 2019 2018 Cost of revenues $ 57 $ 18 $ 113 $ 51 Research and development 388 179 921 192 Sales, general and administrative 3,158 1,478 6,532 3,199 Total $ 3,603 $ 1,675 $ 7,566 $ 3,442 Shares Reserved for Future Issuance As of September 30, 2019, the Company had reserved shares of its common stock for future issuance as follows (in thousands): September 30, 2019 Stock options outstanding 4,270 Unvested restricted stock award 6,755 Employee stock purchase plan 130 Series A convertible preferred stock 67 Warrants outstanding 26,739 Authorized for future grant under the Distributor and Development Services plans 3,908 Authorized for future grant under the Company equity plans 1,529 Total 43,398 August 2019 Offering On August 2, 2019, the Company closed the Offering in which a total of 12,535,000 shares of its common stock, were issued and sold at a price to the public of $4.60 per share. The closing of the Offering included the issuance and sale of 1,635,000 shares of the Company’s common stock, included within the total number of shares above, pursuant to the full exercise of the underwriters’ option to purchase additional shares pursuant to the Purchase Agreement. The net proceeds to the Company from the Offering were approximately $54.0 million, including the net proceeds from the option shares. Series A Convertible Preferred Stock In March 2017, the Company completed a private placement (the “2017 Private Placement”) with certain institutional and accredited investors, including certain directors, executive officers and employees of the Company (collectively, the “Purchasers”), providing for the sale by the Company of 1,809,628 shares of the Company’s common stock at a purchase price of $2.00 per share and 15,245 shares of newly designated Series A Convertible Preferred Stock at a purchase price of $1,000 per share (which shares were convertible into approximately 7,622,372 shares of common stock). Except as otherwise required by law, the holders of Series A Convertible Preferred Stock have no right to vote on matters submitted to a vote of the Company’s stockholders. During the nine months ended September 30, 2019 and 2018, 3,909 and 1,274 shares of Series A Convertible Preferred Stock were converted into 1,954,335 and 636,997 shares of common stock. As of September 30, 2019, there were 135 shares of Series A Convertible Preferred Stock outstanding, which are convertible into 67,338 shares of common stock. 2017 Warrants In connection with the 2017 Private Placement, the Company issued warrants to purchase up to 9,432,000 shares of the Company’s common stock at an exercise price of $2.00 per share (the “2017 Common Stock Warrants”). The Company also issued warrants to purchase common stock to the exclusive placement agents for the issuance (the “2017 Banker Warrants”). The 2017 Banker Warrants were for the purchase of up to an aggregate of 471,600 shares of the Company’s common stock with substantially the same terms as the 2017 Common Stock Warrants, except that they have an exercise price equal $2.50 per share. The 2017 Common Stock Warrants and the 2017 Banker Warrants (collectively, the “2017 Warrants”) expire on June 15, 2022. The 2017 Warrants may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such exercise more than 4.99% of the shares of the Company’s common stock then outstanding (subject to the right of the holder to increase or decrease such beneficial ownership limitation upon notice to the Company, provided that such limitation cannot exceed 9.99%) and provided that any increase in the beneficial ownership limitation shall not be effective until 61 days after such notice is delivered. In conjunction with the 2018 Private Placement described further below, during the nine months ended September 30, 2018, a holder of 2.4 million 2017 Warrants exercised all their 2017 During the three and nine months ended September 30, 2019, there were 0.3 million and 0.4 million 2017 Warrant exercises for total cash proceeds of $0.6 million and $0.8 million, respectively. During the nine months ended September 30, 2018, excluding the $4.8 million described above, the Company received proceeds of approximately $4.0 million in connection with the exercise of approximately 1.9 million of 2017 Common Stock Warrants. There were 18,864 2017 Banker Warrant exercises for the nine months ended September 30, 2019 for total cash proceeds of less than $0.1 million. During the nine months ended September 30, 2018, 304,182 of the 2017 Banker Warrants were exercised for total cash proceeds upon exercise of $0.7 million during the period. A total of 148,554 2017 Banker Warrants remained outstanding as of September 30, 2019. All the 2017 Warrants were deemed to qualify for equity classification under authoritative accounting guidance. Series B Convertible Preferred Stock On March 8, 2018, the Company completed the 2018 Private Placement to certain institutional and accredited investors, including certain directors and executive officers of the Company, at a purchase price of $1,000 per share, 45,200 of newly designated Series B Convertible Preferred Stock, which shares of preferred stock were automatically converted into 14,349,236 shares of the Company’s common stock upon approval by the Company’s stockholders at the 2018 annual meeting of stockholders held in May 2018, and warrants to purchase up to 12,196,851 shares of common stock at an exercise price of $3.50 per share (the “2018 Common Stock Warrants”). The 2018 Common Stock Warrants became exercisable following stockholder approval at the 2018 annual meeting of stockholders, are subject to certain ownership limitations in certain cases, and expire five years after the date of such stockholder approval. The gross proceeds from the 2018 Private Placement were approximately $45.2 million. Pursuant to the terms of the purchase agreement entered into in connection with the 2018 Private Placement, from the date of the stockholder approval of the 2018 Private Placement, or May 17, 2018, through the first anniversary of the effective date of the resale registration statement related to the 2018 Private Placement, or May 11, 2019, if the Company had issued any shares of common stock or common stock equivalents, subject to certain permitted exceptions, at a price below the conversion price on the date stockholder approval was obtained (a “Dilutive Issuance”), the Company was required to issue an additional number of shares of common stock to the purchasers in the 2018 Private Placement in amount equal the number of shares of common stock such purchasers would have received if the Dilutive Issuance occurred prior to the date the Company’s stockholders approved the 2018 Private Placement. No such Dilutive Issuances occurred prior to the expiration. 2018 Warrants The 2018 Common Stock Warrants (the “2018 Warrants”) have a five year life and are exercisable for cash or by cashless exercise. Some of the 2018 Warrants may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such exercise more than 4.99% of the shares of the Company’s common stock then outstanding (subject to the right of the holder to increase or decrease such beneficial ownership limitation upon notice to the Company, provided that such limitation cannot exceed 9.99%) and provided that any increase in the beneficial ownership limitation shall not be effective until 61 days after such notice is delivered. In addition to the 12,196,851 During the nine months ended September 30, 2019, 0.2 million of the 2018 Warrants were exercised for total proceeds of $0.6 million. No 2018 Warrants were exercised for the nine months ended September 30, 2018. A total of 13,827,473 2018 Warrants remained outstanding as of September 30, 2019. All the 2018 Warrants were deemed to qualify for equity classification under authoritative accounting guidance. Squadron Warrants As further described in Note 5, during the year ended December 31, 2018, in connection with the initial debt financing with Squadron, the Company issued warrants to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. An additional 4,838,710 warrants were issued at an exercise price of $2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility for total warrants outstanding to Squadron of 5,683,710. The warrants have a seven-year term and are immediately exercisable. In accordance with authoritative accounting guidance, the warrants classified for equity treatment upon issuance and the portion allocated to the outstanding debt were recorded as a debt discount to the face of the debt liability based on fair value to be amortized into interest expense over the life of the debt agreement. As the warrants provide for partial price protection that allow for a reduction in the price in the event of a lower per share priced issuance, the warrants were valued utilizing a Monte Carlo simulation that considers the probabilities of future financings. The Monte Carlo model simulates the present value of the potential outcomes of future stock prices of the Company over the seven-year life of the warrants. The projection of stock prices is based on the risk-free rate of return and the volatility of the stock price of the Company and correlates future equity raises based on the probabilities provided. A summary of all outstanding warrants is as follows: Number of Warrants Strike Price 2017 Common Stock Warrants 3,357,000 $ 2.00 2017 Banker Warrants 148,554 $ 2.50 2018 Common Stock Warrants 13,827,473 $ 3.50 Merger Warrants 2,200,000 $ 3.50 Executive 1,327,434 $ 5.00 Squadron Capital 845,000 $ 3.15 Squadron Capital 4,838,710 $ 2.17 Other 195,312 $ 3.85 * Total 26,739,483 * - Represents weighted average exercise price. 2017 Distributor Inducement Plan In December 2017, the Board of Directors approved and adopted the 2017 Distributor Inducement Plan which authorizes the Company to issue to distributors restricted shares of common stock of the Company and/or warrants to purchase the Company’s common stock. The warrants are issuable with an exercise price equal to the fair market value of the common stock on the date of issuance. Each warrant and common stock issuance is subject to a time-based or net sales-based vesting provision. The Board of Directors authorized the grant of up to 1.0 million shares of common stock under the 2017 Distributor Inducement Plan and also authorized the grant of warrants to purchase 50,000 shares of common stock, and 75,000 restricted stock units to a distributor of which 75,000 were earned and issued. These warrants and restricted stock units are subject to time based and net sales based vesting conditions. As of September 30, 2019, 0.2 million warrants and 92,000 shares of common stock were earned and issued under the 2017 Distributor Inducement Plan. Total expense for the plan was $0.1 million for both the three months ended September 30, 2019 September 30, 2019 2017 Development Services Plan In December 2017, the Board approved and adopted the 2017 Development Services Plan which authorizes the Company to enter into Development Services Agreements with third-party individuals or entities whereby, upon the achievement of certain Company financial and commercial revenue milestones, future royalty payments for product and/or intellectual property development work may be paid in either cash or restricted shares of Company common stock at the option of the developer. Each common stock issuance would be subject to net sales-based vesting provisions and satisfaction of applicable laws and market regulations regarding the issuance of restricted shares to such developers. The Board of Directors authorized the grant of up to 3,000,000 shares of common stock under the Development Services Plan. As of September 30, 2019, 2.4 million shares of restricted common stock have been granted under the 2017 Development Services Plan, but none are deemed probable of election as of September 30, 2019. In addition, no common stock elections or cash payouts have been made as of September 30, 2019. |