| Stockholders' Equity | Note 8. Stockholders’ Equity Equity Incentive Plans 2014 Plan The Company has adopted the 2014 Equity Incentive Plan, or the 2014 Plan. 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 Company’s Board of Directors (the “Board”) 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. As of September 30, 2020, a total of 1,780,797 shares are available for future grant under the 2014 Plan. Inducement Plan On September 28, 2020, the Company adopted the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”) and, subject to the adjustment provisions of the Inducement Plan, reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules. The Inducement Plan provides for the grant of equity-based awards, including nonstatutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the 2014 Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals’ entry into employment with the Company, or, to the extent permitted by Rule 5635(c)(3) of the Nasdaq Listing Rules, in connection with a merger or acquisition. There have been no awards granted under the Inducement Plan as of September 30, 2020. Stock-based compensation expense The Company recognizes stock-based compensation expense related to options and restricted stock units granted to employees, directors and consultants. The compensation expense is allocated on a departmental basis, based on the classification of the award holder. No income tax benefits have been recognized in the statements of operations for stock-based compensation arrangements during any of the periods presented Stock-based compensation expense was recognized in the condensed consolidated statements of operations as follows (in thousands).
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Research and development
$
91
$
42
$
252
$
132
General and administrative
283
111
855
489
Total
$
374
$
153
$
1,107
$
621
Stock Options The Company granted options to purchase 47,500 and zero shares of the Company’s common stock during the three months ended September 30, 2020 and 2019, respectively, and 500,150 and 565,785 shares of the Company’s common stock during the nine months ended September 30, 2020 and 2019, respectively.
Three Months Ended
Nine Months Ended September 30,
September 30, 2020
2020
2019
Expected life (years)
6.0
5.5-6.0
5.5-6.1
Risk-free interest rate
0.4%
0.4%-0.5%
1.9%-2.6%
Volatility
84%
64%-84%
70%-71%
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 the following estimates:
•
Expected life: The expected life of stock options represents the average of the contractual term of the options and the weighted-average vesting period, as permitted under the simplified method. The Company does not believe it is able to rely on historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in estimating the fair value-based measurement of stock options. Therefore, it has opted to use the “simplified method” for estimating the expected term of options.
•
Risk-free interest rate: The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected time to liquidity.
•
Volatility: The estimated volatility rate is based on the volatilities of the Company’s common stock together with comparable companies in the Company’s industry.
•
Dividend rate: The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero. The following table summarizes stock option transactions for the nine months ended September 30, 2020 as issued under the 2014 Plan:
Number of Options
Weighted- Average Exercise Price per
Weighted Average Remaining Contractual Term
Outstanding
Share
(in years)
Balance at January 1, 2020
2,123,117
$
4.62
7.87
Options granted
500,150
$
3.26
Options exercised
(8,518
)
$
1.96
Options canceled/forfeited
(101,010
)
$
2.34
Balance at September 30, 2020
2,513,739
$
4.45
7.58
Options vested at September 30, 2020
1,447,808
$
5.95
6.76
Options vested and expected to vest at September 30, 2020
2,513,739
$
4.45
7.58
The weighted-average grant date fair value of options granted was $1.89 and $1.17 per share for the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020 total unrecognized employee stock-based compensation related to stock options was $1.6 million, which is expected to be recognized over the weighted-average remaining vesting period of 2.5 years. As of September 30, 2020, the outstanding stock options had an intrinsic value of $1.0 million. Restricted Stock Units There were 23,347 and zero restricted stock units granted by the Company during the three months ended September 30, 2020 and 2019, respectively, and 727,065 and 38,123 restricted stock units granted during the nine months ended September 30, 2020 and 2019, respectively, to employees and directors. The shares granted to directors were 100% vested on the grant date and represent compensation for past board services. The shares granted to employees typically vest annually over a period of four years. The shares were valued based on the Company’s common stock price on the grant date. The following table summarizes restricted stock unit transactions for the nine months ended September 30, 2020 as issued under the 2014 Plan:
Number of Restricted Stock Units
Weighted- Average Grant-Date Fair Value per Share
Outstanding at January 1, 2020
—
Restricted stock units granted
727,065
$
3.74
Restricted stock units vested
(78,565
)
$
2.87
Restricted stock units cancelled
(67,500
)
$
3.85
Outstanding at September 30, 2020
581,000
$
3.85
The weighted-average grant-date fair value of all restricted stock units granted during the nine months ended September 30, 2020 and 2019 was $3.74 and $2.42, respectively. The fair value of all restricted stock units vested during the nine months ended September 30, 2020 and 2019 was $0.2 million and approximately $92,000, respectively. At September 30, 2020 total unrecognized employee stock-based compensation related to restricted stock units was $1.9 million, which is expected to be recognized over the weighted-average remaining vesting period of 3.3 years. 2014 Employee Stock Purchase Plan The Company’s Board and stockholders have adopted the 2014 Employee Stock Purchase Plan, or the ESPP. The ESPP has become effective, and the Board 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 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. As of September 30, 2020, there were no purchases by employees under this plan. Series D Warrants The Company issued 270,270 Series D Warrants in October 2015, which are exercisable into 540,540 shares of the Company’s common stock, with an exercise price of $8.75 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 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 September 30, 2020, 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 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. |
