Preferred Stock, Common Stock and Stockholders' Equity | 5. Preferred Stock, Common Stock and Stockholders’ Equity Preferred Stock Under the Company’s amended and restated certificate of incorporation, the Company is authorized to issue 5,000,000 shares of preferred stock with a $0.0001 par value. No shares of preferred stock were outstanding as of December 31, 2019 or 2018. Common Stock As of December 31, 2019, there were 24,431,914 shares of common stock outstanding. Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors of the Company. To date, no dividends have been declared. As of December 31, 2019, the holders of 1,509,789 shares of the Company’s common stock are entitled to reasonable best efforts registration rights with respect to the registration of their shares under the Securities Act of 1933, as amended (“Securities Act.”). Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. At the Market Equity Offering Program In November 2017, the Company filed a shelf registration with the SEC on Form S-3. The shelf registration statement includes a prospectus for the at-the-market offering to sell up to an aggregate of $16.0 million of shares of the Company’s common stock through B. Riley FBR, Inc. (“FBR”) as a sales agent (the “FBR Sales Agreement”). During the year ended December 31, 2018, the Company sold 1,985,054 shares of common stock at a weighted-average price per share of $2.38 pursuant to the FBR Sales Agreement and received proceeds of approximately $4.6 million, net of commissions and fees. During the year ended December 31, 2019, the Company sold 7,004,381 shares of common stock at a weighted-average price per share of $0.89 pursuant to the FBR Sales Agreement and received proceeds of approximately $6.1 million, net of commissions and fees. From January 1, 2020 through February 29, 2020, the Company has not sold any shares of common stock pursuant to the FBR Sales Agreement. Future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of the Company’s common stock and the Company’s capital needs. There can be no assurance that FBR will be successful in consummating future sales based on prevailing market conditions or in the quantities or at the prices that the Company deems appropriate. In addition, the Company will not be able to make future sales of common stock pursuant to the FBR Sales Agreement unless certain conditions are met, which include the accuracy of representations and warranties made to FBR under the FBR Sales Agreement. Furthermore, FBR is permitted to terminate the FBR Sales Agreement in its sole discretion upon ten days’ notice, or at any time in certain circumstances, including the occurrence of an event that would be reasonably likely to have a material adverse effect on the Company’s assets, business, operations, earnings, properties, condition (financial or otherwise), prospects, stockholders’ equity or results of operations. The Company has no obligation to sell the remaining shares available for sale pursuant to the FBR Sales Agreement. Warrants The Company has issued warrants to purchase common stock to banks that have previously loaned funds to the Company, as well as to representatives of the underwriters of the Company’s public offerings and certain of their affiliates. In March 2018, the Company entered into the Warrant Amendments with each of the holders of the Company’s outstanding Warrants acquired as a part of the Company’s financings which closed in July and August 2016. As a result of the Warrant Amendments, all of the remaining Warrants to purchase 2,449,129 shares of the Company’s common stock were no longer required to be classified as liabilities. The value of the amended Warrants was adjusted to the fair value immediately prior to the Warrant Amendments, resulting in a net gain of approximately $433,000 in the statement of operations for 2018, and approximately $3.3 million was reclassified from warrant liability to additional paid-in capital. In September 2018, warrants to purchase 84,000 shares of the Company’s common stock, issued to representatives of the underwriters in connection with the Company’s initial public offering in September 2013, expired and have been cancelled. At December 31, 2019 and 2018, there were warrants outstanding to purchase 2,713,561 shares of the Company’s common stock with a weighted average exercise price of $2.91. At December 31, 2019, the weighted average remaining contractual term of the outstanding warrants is 2.04 years. Equity Incentive Award Plans The Company adopted the 2007 Equity Incentive Plan (the “2007 Plan”) in May 2007 under which 450,000 shares of common stock were reserved for issuance to employees, nonemployee directors and consultants of the Company. There are no options available for future grant under this plan. In August 2013, the Company adopted the 2013 Equity Incentive Award Plan (the “2013 Plan”) as a successor to the 2007 Plan. Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company. A total of 510,000 shares of common stock were initially reserved for issuance under the 2013 Plan. In addition, the number of shares of common stock available for issuance under the 2013 Plan will be annually increased on the first day of each fiscal year during the term of the 2013 Plan, beginning with the 2014 fiscal year, by an amount equal to the least of: (i) 300,000 shares; (ii) four percent of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amount as the Company’s board of directors may determine. In April 2016, the Company’s stockholders approved an amendment and restatement of the 2013 Equity Plan to increase the number of shares of common stock reserved under the 2013 Plan by 500,000 shares, to an aggregate of 4,786,425 shares, and to extend the term of the 2013 Plan into 2026. In April 2018, the Company’s stockholders approved another amendment and restatement of the 2013 Plan (the “Restated Plan”) to increase the number of shares of common stock authorized for issuance under the 2013 Plan by 1,500,000 shares, to an aggregate of 6,286,425 shares, and to extend the term of the 2013 Plan to February 2028. In addition, beginning on January 1, 2019, the number of shares available for issuance will be annually increased on the first day of each fiscal year by that number of shares equal to the least of (a) four percent of the outstanding shares of common stock on the last day of the immediately preceding calendar year, and (b) such other amount determined by the Company’s board of directors. Notwithstanding the foregoing, the number of shares of common stock that may be issued or transferred pursuant to incentive stock options under the Restated Plan may not exceed an aggregate of 8,000,000 shares. In June 2019, the Company effected a one-time option exchange, wherein employees were offered the opportunity to exchange certain outstanding stock options for the grant of a lesser number of replacement stock options. The participants received three new stock options for every four stock options tendered for exchange. As a result, 2,456,999 stock options were exchanged for 1,842,746 replacement stock options. The replacement stock options have a four-year vesting schedule and an exercise price of $0.62 per share, which was the closing price of the Company’s common stock on the date of the option exchange. All other terms of the replacement stock options remain the same as the original stock options that were exchanged. As a result of this transaction, the Company will recognize approximately $84,000 of additional stock-based compensation expense over the four-year vesting term of the exchanged options. As a result of the annual increases since the 2013 Plan originated, and the increase of stock options reserved under the Restated Plan approved by the Company’s stockholders through April 2018, the Company has increased the number shares reserved for issuance under the 2013 Plan by 4,073,526 shares. As of December 31, 2019, 1,587,155 options remain available for future grant under the 2013 Plan. On January 1, 2020, the Company further increased the number of shares reserved for issuance under the 2013 Plan by 977,277 shares, making 2,564,432 options available for future grant under the 2013 Plan. Options granted under the 2007 Plan and 2013 Plan have ten-year terms from the date of grant and generally vest over a one to four year period. The Company granted options to purchase 829,500 and 886,000 shares of common stock in 2019 and 2018, respectively. The exercise price of all options granted during the years ended December 31, 2019 and 2018 was equal to the market value per share of the Company’s common stock on the date of grant. A summary of the Company’s stock option activity under the 2007 Plan and 2013 Plan is as follows: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Outstanding at December 31, 2018 3,017,624 $ 3.11 7.68 $ 382,160 Granted/Exchanged 2,672,246 $ 1.20 9.36 — Exercised — — — — Expired/Forfeited/Exchanged (2,575,499 ) $ 2.82 7.48 — Outstanding at December 31, 2019 3,114,371 $ 1.71 8.32 $ 2,143,756 Vested and expected to vest at December 31, 2019 3,114,371 $ 1.71 8.32 $ 2,143,756 Exercisable at December 31, 2019 1,230,605 $ 3.17 6.70 $ 392,604 The intrinsic values above represent the aggregate value of the total pre-tax intrinsic value based upon a common stock price of $1.62 and $2.48 at December 31, 2019 and 2018, respectively, and the contractual exercise price. The weighted average grant date fair value per share of employee stock options granted during the years ended December 31, 2019 and 2018, was $0.91 and $1.86, respectively. There were no options exercised in 2019 and 2018. The Company had the following nonvested options under the 2007 Plan and 2013 Plan: Shares Weighted Average Grant Date Fair Value Per Share Nonvested at December 31, 2018 1,117,407 $ 2.44 Granted 2,672,246 $ 1.20 Vested (494,674 ) $ 1.53 Expired/Forfeited/Exchanged (1,411,213 ) — Nonvested at December 31, 2019 1,883,766 $ 0.75 Employee Stock Purchase Plan In June 2013, the Company’s board of directors adopted the ESPP, and the Company’s stockholders approved the ESPP on August 29, 2013. The ESPP became effective on the day prior to the effectiveness of the IPO. The ESPP permits participants to purchase the Company’s common stock at 85% of the fair market value through payroll deductions of up to 20% of their eligible compensation. A total of 30,000 shares of common stock were initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP has been annually increased on the first day of each fiscal year during the term of the ESPP by an amount equal to the lesser of: (i) 30,000 shares; (ii) one percent of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amount as the Company’s board of directors may determine. Payroll withholdings from the Company’s employees of approximately $47,000 resulted in the issuance of 28,869 shares of common stock through its ESPP during the year ended December 31, 2018. No shares of common stock were issued through the ESPP during 2019. Stock-Based Compensation Stock-based compensation expense includes charges related to employee stock purchases under the ESPP and stock option grants. The Company measures stock-based compensation expense based on the grant date fair value of any awards granted to its employees. Such expense is recognized over the period of time that employees provide service and earn rights to the awards. The estimated fair value of each stock option award granted was determined on the date of grant using the Black Scholes option-pricing valuation model with the following weighted-average assumptions for option grants during the years ended December 31, 2019 and 2018: Year Ended December 31, 2019 2018 Risk free interest rate 1.80% - 2.55% 2.66% - 2.85% Expected option term 4.27 - 6.0 years 5.5 - 6.0 years Expected volatility of common stock 90.34% - 112.58% 90.15% - 92.30% Expected dividend yield 0.0% 0.0% The estimated fair value of the shares to be acquired under the ESPP was determined on the initiation date of each six-month purchase period using the Black-Scholes option-pricing valuation model with the following weighted-average assumptions for ESPP shares to be purchased during the years ended December 31, 2019 and 2018 as follows: Year Ended December 31, 2019 2018 Risk free interest rate 1.89% - 2.52% 1.85% - 2.29% Expected term 0.5 years 0.5 years Expected volatility of common stock 130.36% - 170.68% 45.24% - 58.76% Expected dividend yield 0.0% 0.0% The Company recognized non-cash stock-based compensation expense to employees and directors in its research and development and its general and administrative functions during the years ended December 31, 2019 and 2018 as follows: Year Ended December 31, 2019 2018 Research and development $ 710,155 $ 673,525 General and administrative 663,803 865,944 Total stock-based compensation expense $ 1,373,958 $ 1,539,469 As of December 31, 2019, there was approximately $2.1 million of unrecognized compensation costs related to outstanding employee and board of director options, which are expected to be recognized over a weighted-average period of 1.24 years. Common Stock Reserved for Future Issuance Common stock reserved for future issuance consists of the following at December 31, 2019 and 2018: December 31, 2019 2018 Stock options issued and outstanding 3,114,371 3,017,624 Authorized for future option grants 1,587,155 986,801 Warrants to purchase common stock 2,713,561 2,713,561 Authorized for employee stock purchase plan 263,065 163,065 Total common stock reserved for future issuance 7,678,152 6,881,051 |