| Stockholders' Equity | Note 8. Stockholders’ Equity
Convertible Preferred Stock
The Company is authorized to issue 10,000,000 shares of Preferred
Stock.
The Company has issued a total of 13,780 shares of Series B
Convertible Preferred Stock under the 2016 Sabby Purchase
Agreement, with a par value of $0.001 and a stated value of $1,000
per share. The Series B Convertible Preferred Stock is convertible
to Common Stock of the Company at the rate of 200 shares of Common
Stock for each converted share of Series B Convertible Preferred
Stock. Under the terms of the Series B Convertible Preferred Stock,
in no event shall shares of Common Stock be issued to Sabby upon
conversion of the Series B Convertible Preferred Stock to the
extent such issuance of shares of Common Stock would result in
Sabby having ownership in excess of 4.99%. The Series B Convertible
Preferred Stock do not have an expiration date and are not
redeemable at the option of the holders. In connection with each
close of the Series B Convertible Preferred Stock, the Company was
obligated to repurchase the remaining outstanding Series A
Convertible Preferred Stock at the original issuance price. In
addition, the exercise price of the existing Series D Warrants
originally issued in conjunction with the 2015 Sabby Purchase
Agreement was reduced from $12.30 to $8.75 per share on the
effective date of the 2016 Sabby Purchase Agreement. Sabby
converted 1,000 shares of Series B Convertible Preferred Stock into
200,000 shares of Common Stock during 2016.
During the six months ended June 30, 2018 and 2017 Sabby
converted 4,571 and 601 shares of Series B Convertible Preferred
stock into 914,200 and 120,200 shares of Common Stock,
respectively. As of June 30, 2018, there were no shares of
Series B Convertible Preferred Stock outstanding.
Common Stock
On December 22, 2016, the Company entered into the Merger
Agreement with Essentialis. Consummation of the Merger was subject
to various closing conditions, including the Company’s
consummation of a financing of at least $8 million at, or
substantially contemporaneous with, the closing of the Merger,
which occurred on March 7, 2017 and the receipt of stockholder
approval of the Merger at a special meeting of stockholders, which
the Company received on March 6, 2017.
On March 7, 2017, the Company completed the Merger with
Essentialis and issued 3,783,388 shares of common stock to
shareholders of Essentialis. Pursuant to the terms of the Merger
Agreement, the Company held back shares of common stock as partial
recourse to satisfy indemnification claims. Effective March 7,
2018, on the 1-year carve-out
On January 27, 2017, the Company entered into the 2017 Aspire
Purchase Agreement with Aspire Capital, which provides that, upon
the terms and subject to the conditions and limitations set forth
therein, Aspire Capital is committed to purchase up to an aggregate
of $17.0 million in value of shares of the Company’s
common stock over the 30-month
In December 2017, the Company entered into a Securities Purchase
Agreement, or the Unit Purchase Agreement, with purchasers of the
Company’s securities pursuant to which the Company sold and
issued 8,141,116 immediately separable units at a price per unit of
$1.84 for aggregate gross proceeds of approximately
$15.0 million. Each unit consisted of one share of the
Company’s common stock and a warrant to purchase 0.74 of a
share of the Company’s common stock at an exercise price of
$2.00 per share, for an aggregate of 8,141,116 shares of common
stock, and corresponding warrants, or the 2017 PIPE Warrants, to
purchase 6,024,425 shares of common stock. Soleno refers to the
Shares and the Warrant Shares collectively as the Resale Shares.
The Company also granted certain registration rights to the
investors pursuant to the Unit Purchase Agreement pursuant to
which, among other things, the Company prepared and filed a
registration statement with the SEC to register for resale the
Resale Shares. The registration statement was declared effective in
February 2018.
Stock Incentive Plan
The Company has adopted the 1999 Incentive Stock Plan, the 2010
Equity Incentive Plan, and the 2014 Equity Incentive Plan, or the
2014 Plan, and together, the Plans. The 1999 Incentive Stock Plan
expired in 2009, and the 2010 Equity Incentive Plan has been closed
to new issuances. Under the 2014 Plan the Company may grant stock
options, stock appreciation rights, restricted stock, restricted
stock units, performance units or performance shares to employees,
directors, advisors, and consultants. Options granted under the
2014 Plan may be incentive stock options (“ISOs”) or
nonqualified stock options (“NSOs”). ISOs may be
granted only to Company employees, including officers and
directors.
The Board of Directors has the authority to determine to whom stock
options will be granted, the number of options, the term, and the
exercise price. Options are to be granted at an exercise price not
less than fair value. For individuals holding more than 10% of the
voting rights of all classes of stock, the exercise price of an
option will not be less than 110% of fair value. The vesting
period is normally monthly over a period of 4 years from the
vesting date. The contractual term of an option is no longer than
five years for ISOs for which the grantee owns greater than 10% of
the voting power of all classes of stock and no longer than ten
years for all other options. The terms and conditions governing
restricted stock units is at the sole discretion of the Board.
There have been no grants of stock appreciation rights, performance
units or performance shares as of June 30, 2018. As of
June 30, 2018, a total of 1,150,218 shares are available for
future grant under the 2014 Plan.
The Company recognized stock-based compensation expense related to
options and restricted stock units granted to employees, directors
and consultants for the three months ended June 30, 2018 and
2017 of $198,000 and $443,000, respectively of which $19,000 and
$38,000 was recorded in discontinued operations during the three
months ended June 30, 2018 and 2017, respectively. Stock-based
compensation expense related to options and restricted stock units
granted to employees, directors and consultants for the six months
ended June 30, 2018 and 2017 of $558,000 and $628,000,
respectively of which $38,000 and $83,000 was recorded in
discontinued operations during the six months ended June 30,
2018 and 2017, respectively. The compensation expense is allocated
on a departmental basis, based on the classification of the option
holder.
Stock compensation expense was allocated between departments in
continuing operations as follows (in thousands).
Three Months Ended June 30,
Six Months Ended June 30,
2018 2017 2018 2017
Research and development $ 34 $ 37 $ 140 $ 47
General and administrative 145 368 380 498
Total $ 179 $ 405 $ 520 $ 545
Stock Options
The Company granted options to purchase 119,586 and 610,755 shares
of the Company’s common stock during the three months ended
June 30, 2018 and 2017, respectively, and granted options to
purchase 736,086 and 622,755 shares of the Company’s common
stock during the six months ended June 30, 2018 and 2017,
respectively. The fair value of each award granted was estimated on
the date of grant using the Black-Scholes option pricing model with
the following assumptions.
Three Months Ended June 30,
Six Months Ended June 30,
2018 2017 2018 2017
Expected life (years) 5.5 5.78-6.08 5.5-6.02 5.5-6.08
Risk-free interest rate 2.8% 1.9%-2.1% 2.7%-2.8% 1.9%-2.2%
Volatility 70% 69% 70% 61%-69%
Dividend rate — % — % — % — %
The Black-Scholes option-pricing model requires the use of highly
subjective assumptions to estimate the fair value of stock-based
awards. These assumptions include:
•
Expected volatility:
•
Expected term:
•
Risk-free rate:
•
Expected dividend yield:
The following table summarizes stock option transactions for the
six months ended June 30, 2018 as issued under the Plans:
Number of Weighted-Average
Weighted Average (in years)
Balance at December 31, 2017 1,026,987 $ 9.99 7.94
Options granted 736,086 1.68
Options exercised
—
Options canceled/forfeited (95,177 ) 14.63
Balance at June 30, 2018 1,667,896 $ 6.06 8.75
Options vested at June 30, 2018 656,360 $ 11.13 7.91
Options vested and expected to vest at June 30, 2018 1,667,896 $ 6.06 8.75
The weighted-average grant date fair value of employee options
granted was $1.09 and $3.05 per share for the six months ended
June 30, 2018 and 2017, respectively. At June 30, 2018,
total unrecognized employee stock-based compensation was
$1.6 million, which is expected to be recognized over the
weighted-average remaining vesting period of 2.9 years. As of
June 30, 2018, the outstanding stock options had an intrinsic
value of $0.5 million.
The fair value of an equity award granted to
a non-employee non-employees
Restricted Stock Units
There were 99,217 restricted stock units granted by the Company
during the six months ended June 30, 2018 to employees and
nonemployees. The shares were 100% vested on the grant date and
were valued based on the Company’s common stock price on the
grant date, with all of the related stock-based compensation
expense recognized at that time.
2014 Employee Stock Purchase Plan
Soleno’s board of directors and stockholders have adopted the
2014 Employee Stock Purchase Plan, or the ESPP. The ESPP has become
effective, and the board of directors will implement commencement
of offers thereunder in its discretion. A total of 27,967 shares of
the Company’s Common Stock has been made available for sale
under the ESPP. In addition, the ESPP provides for annual increases
in the number of shares available for issuance under the plan on
the first day of each year beginning in the year following the
initial date that the board of directors authorizes commencement,
equal to the least of:
•
1.0% of the outstanding shares of the Company’s
Common Stock on the first day of such year; 55,936 shares; or
•
such amount as determined by the board of
directors.
As of June 30, 2018, there were no purchases by employees
under the ESPP.
Series D Warrants
The Company issued 256,064 Series D Warrants in October 2015, which
are exercisable into 586,182 shares of the company’s Common
Stock, with an exercise price of $12.30 and a term of five years
expiring on October 15, 2020. The Company’s Series D
Warrants contain standard anti-dilution provisions for stock
dividends, stock splits, subdivisions, combinations and similar
types of recapitalization events. They also contain a cashless
exercise feature that provides for their net share settlement at
the option of the holder in the event that there is no effective
registration statement covering the continuous offer and sale of
the warrants and underlying shares. The Company is required to
comply with certain requirements to cause or maintain the
effectiveness of a registration statement for the offer and sale of
these securities. The Series D Warrant agreement further provides
for the payment of liquidated damages at an amount per month equal
to 1% of the aggregate VWAP of the shares into which each Series D
Warrant is convertible into in the event that the Company is unable
to maintain the effectiveness of a registration statement as
described herein. The Company evaluated the registration payment
arrangement stipulated in the terms of this securities agreement
and determined that it is probable that the Company will maintain
an effective registration statement and has therefore not allocated
any portion of the proceeds to the registration payment
arrangement. The Series D Warrant agreement specifically
provides that under no circumstances will the Company be required
to settle any Series D Warrant exercise for cash, whether by net
settlement or otherwise.
Accounting Treatment
The Company accounts for the Series D Warrants in accordance with
the guidance in ASC 815 Derivatives and
Hedging.
Other Common Stock Warrants
As of June 30, 2018, the Company had 102,070 Common Stock
warrants outstanding from the 2010/2012 convertible notes, with an
exercise price of $24.35 and a term of 10 years expiring in
November 2024. The Company also had outstanding 1,851 Common Stock
warrants issued in 2009, with an exercise price of $108.00 and a
term of 10 years, expiring in January 2019 and 16,500 Common Stock
warrants issued to the underwriter in the Company’s IPO, with
an exercise price of $35.70 and a term of 10 years, expiring in
November 2024. |
