| SHARE-BASED COMPENSATION | 10. SHARE-BASED
COMPENSATION The
Company uses the Black-Scholes option pricing model to value the options at each grant date, using the following weighted average
assumptions:
Three months ended Six months ended
2017 2016 2017 2016
Expected
dividend rate 0.00 % 0.00 % 0.00 % 0.00 %
Expected
volatility 75.86 % 74.77 % 77.02 % 74.73 %
Risk-free
interest rate 1.86 % 1.41 % 1.98 % 1.42 %
Expected
life of options (in years) 5.69 6.23 5.69 6.23 The
expected life represents the period that the Company’s stock options are expected to be outstanding and is based on historical
data. The expected volatility is based on the historical volatility of the Company’s common stock for a period equal to
the stock option’s expected life. The risk-free interest rate is based on the yield at the time of grant of a U.S. Treasury
security with an expected term equivalent to the expected term of the option. The Company does not expect to pay dividends on
its common stock. The amounts estimated according to the Black-Scholes option pricing model may not be indicative of the actual
values realized upon the exercise of these options by the holders. The
Company recognizes share-based compensation expense net of estimated forfeitures. The forfeiture rate is estimated at the time
of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. The Company’s estimated
forfeiture rate at the time of grant is based on its historical experience. Share-based
compensation expense under the 2016 Equity Incentive Plan (2016 EIP), the Amended and Restated Share Option Plan (the Option Plan),
and for an inducement grant, was $1.0 million and $1.0 million for the three months ended June 30, 2017 and June 30, 2016, respectively.
Share-based compensation expense was $1.7 million and $3.8 million for the six months ended June 30, 2017 and June 30, 2016, respectively.
The Share-based compensation expense during the six months ended June 30, 2016 included the acceleration of share-based compensation
expense in connection with management changes in the first quarter of 2016. 2016
Equity Incentive Plan On
June 23, 2016, the Company’s stockholders approved the 2016 EIP. As of that date, the Company ceased granting options under
its Option Plan, ceased granting restricted shares units under its Amended and Restated RSU Plan (the RSU Plan) and transferred
the remaining shares available for issuance under the Option Plan and the RSU Plan to the 2016 EIP. As of the effective date of
the 2016 EIP, 1,200,905 shares of common stock were reserved for issuance under the 2016 EIP, consisting of 1,050,000 shares available
for awards under the 2016 EIP plus 82,884 and 68,021 shares of common stock previously reserved but unissued under the Option
Plan and the RSU Plan, respectively, that were available for issuance under the 2016 EIP on the effective date of the 2016 EIP.
On June 8, 2017, the Company’s stockholders approved an amendment to the 2016 EIP to increase the total shares of common
stock available for issuance under the 2016 EIP from 1,200,905 shares to 7,900,905 shares. All
grants under the 2016 EIP may have a term up to ten years from the date of grant. Vesting schedules are determined by the compensation
committee of the board of directors or its designee when each award is granted. Upon vesting of RSUs granted to employees, a portion
of the RSUs will be settled in cash equivalent to the employee’s minimum required withholding tax on the value of the vested
RSUs. The Company measures and recognizes compensation expense for equity-classified restricted stock units (RSUs), and stock
options granted to our employees based on the fair value of the awards on the date of grant. The fair value of each RSU was determined
to be the closing trading price of the Company’s common shares on the date of grant as quoted in NASDAQ Global Market. The
fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. Share-based compensation
expense for equity-classified RSUs, and stock options is recognized on a straight-line basis over the requisite service period,
which is generally the vesting period of the respective award. RSU grants made to its non-employee directors are classified as
liabilities. Share-based compensation expense for liability-classified RSUs are re-measured at each reporting date until settlement
of the award. During
the three and six months ended June 30, 2017, the Company granted 95,999 RSUs with a fair value of approximately $350,000 to its
non-employee directors. During the three and six months ended June 30, 2017, the Company issued 45,290 shares and 54,348 shares,
respectively, upon conversion of RSUs under the 2016 EIP. During the three months ended June 30, 2017, the Company granted 38,600
stock options and 7,990 RSUs to its employees under the 2016 EIP. During the six months ended June 30, 2017, the Company granted
724,543 stock options and 144,140 RSUs to its employees under the 2016 EIP. No stock options were exercised under the 2016 EIP
during the three and six months ended June 30, 2017. As of June 30, 2017, there were 6,718,951 shares of common stock
available for future grant under the 2016 EIP. Option
Plan Under
the Option Plan, a maximum fixed reloading percentage of 10% of the issued and outstanding common stock of the Company could be
granted to employees, directors and service providers. On June 23, 2016, the stockholders approved the 2016 EIP and the Company
ceased granting options under the Option Plan. Options granted under the Option Plan prior to January 2010 began vesting after
one year from the date of grant, are exercisable in equal amounts over four years on the anniversary date of the grant, and expire
eight years following the date of grant. Options granted to employees under the Option Plan after January 2010 vest 25% on the
first anniversary of the vesting commencement date, with the balance vesting in monthly increments for 36 months following
the first anniversary of grant, and expire eight years following the date of grant. Due to the adoption of the 2016 EIP on June
23, 2016, all shares remaining for future grant under the Option Plan were transferred to the 2016 EIP plan leaving no shares
of common stock available for future grant under the Option Plan. During
the three and six months ended June 30, 2016, the Company granted 284,706 and 313,040 stock options under the Option Plan. No
stock options were exercised during the three and six months ended June 30, 2017 and June 30, 2016. Inducement
Grant On
April 4, 2016, the Company made an inducement stock option grant (Inducement Grant) of 474,810 options. Options granted under
the Inducement Grant vest 25% on the first anniversary of the vesting commencement date, with the balance vesting in monthly increments
for 36 months following the first anniversary of grant, and expire ten years following the date of grant. No stock options
were exercised under the inducement grant during the three and six months ended June 30, 2017. Restricted
Share Unit Plan The
RSU Plan was established in 2005 for non-employee directors. On June 23, 2016, the stockholders approved the 2016 EIP and the
Company ceased granting RSUs under the RSU Plan. The
RSU Plan provided for grants to be made from time to time by the board of directors or a committee thereof. RSU grants to non-employee
directors are classified as liabilities. The fair value of each RSU was determined to be the closing trading price of the Company’s
common shares on the date of grant as quoted in NASDAQ Global Market. Each RSU granted was made in accordance with the RSU Plan
and terms specific to that grant. Outstanding RSUs under the RSU Plan have a vesting term of one to two years. Approximately 75%
of each RSU represents a contingent right to receive approximately 0.75 of a share of the Company’s common stock upon vesting
and approximately 25% represents a contingent right to receive cash, equivalent to the value of 0.25 of a share, upon vesting
without any further consideration payable to the Company in respect thereof. For the contingent right to receive cash, the Company
is required to deliver an amount in cash equal to the fair market value of these shares on the vesting date to facilitate the
satisfaction of the non-employee directors’ U.S. federal income tax obligation with respect to the vested RSUs. The outstanding
RSU awards are required to be re-measured at each reporting date until settlement of the award, and changes in valuation are recorded
as compensation expense for the period. The fair value of the outstanding RSUs on the reporting date was determined to be the
closing trading price of the Company’s common shares on that date. The
re-measurement of the outstanding RSUs together with the conversion of the RSUs under the RSU Plan resulted in a reduction of
$10,864 and $14,070 in share-based compensation expense recorded in general and administrative expenses in the condensed consolidated
statement of operations for the three and six months ended June 30, 2017, respectively. The re-measurement of the outstanding
RSUs together with the conversion of the RSUs resulted in a reduction of $0.1 million and $0.3 million in share-based compensation
expense recorded in general and administrative expenses in the condensed consolidated statement of operations for the three and
six months ended June 30, 2016, respectively. Upon
the adoption of the 2016 EIP on June 23, 2016, all shares remaining for future grant under the RSU Plan became available for issuance
under the 2016 EIP plan and the Company ceased granting RSUs under the RSU Plan. For the three and six months ended June 30,
2017, 8,592 and 17,771 shares, respectively, were issued upon conversion of RSUs under the RSU Plan. For each of the three and
six months ended June 30, 2016, 10,893 shares were issued upon conversion of RSUs under the RSU Plan. Employee
Stock Purchase Plan The
Company adopted an Employee Stock Purchase Plan (ESPP) on June 3, 2010, pursuant to which a total of 150,000 shares of common
stock were reserved for sale to employees of the Company. The ESPP is administered by the compensation committee of the board
of directors and is open to all eligible employees of the Company. Under the terms of the ESPP, eligible employees may purchase
shares of the Company’s common stock at six month intervals during 18-month offering periods through periodic payroll deductions,
which may not exceed 15% of any employee’s compensation and may not exceed a value of $25,000 in any calendar year, at a
price not less than the lesser of an amount equal to 85% of the fair market value of the Company’s common stock at the beginning
of the offering period or an amount equal to 85% of the fair market value of the Company’s common stock on each purchase
date. The maximum aggregate number of shares that may be purchased by each eligible employee during each offering period is 15,000
shares of the Company’s common stock. For the three and six months ended June 30, 2017, expense related to this plan
was $49,567 and $98,963, respectively. For the three and six months ended June 30, 2016, expense related to this plan was
$31,078 and $68,692, respectively. Under the ESPP, the Company issued 27,146 shares to employees during each of the three
and six months ended June 30, 2017 and 8,261 shares during each of the three and six months ended June 30, 2016. There
were 42,527 shares reserved for future issuances under the ESPP as of June 30, 2017. |
