| Stockholders' Equity | (9) Stockholders’ Equity
(a) Issuance of Common Stock
In March 2017, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), to sell shares of our common stock, with aggregate gross sales proceeds of up to $20.0 million, from time to time, through an “at the market” (“ATM”), equity offering program, under which Cantor acts as sales agent. The shares of common stock to be sold under the Sales Agreement were originally sold and issued pursuant to the Company’s Registration Statement on Form S‑3 (File No. 333‑199093) (the “Prior Form S‑3”), which was previously declared effective by the Securities and Exchange Commission, and the related prospectus and one or more prospectus supplements. On October 13, 2017, the Company filed a Form S‑3 (File No. 333‑220942) (the “New Form S‑3”) to replace the Prior Form S‑3. The New Form S‑3 has been declared effective by the Securities and Exchange Commission, and the Prior Form S‑3 has been terminated. The New Form S‑3 registered the sale of up to $150.0 million of any combination of common stock, preferred stock, debt securities, warrants and units pursuant to a shelf registration statement. The New Form S‑3 also contains a prospectus pursuant to which we may sell, from time to time, shares of our common stock having an aggregate offering price of up to $25.0 million through Cantor as our sales agent, pursuant to the Sales Agreement.
As of September 30, 2019, we had sold an aggregate of 6,261,342 shares at a weighted-average sales price of $3.02 per share under the ATM for aggregate gross proceeds of $18.9 million and net proceeds of $18.2 million, after deducting sales agent commissions and discounts and other offering and accounting costs. During the three months ended September 30, 2019, the Company sold an aggregate of 283,782 shares at a weighted-average sales price of $2.22 per share under the ATM for aggregate gross proceeds of $629,000 and $604,000 in net proceeds. During the nine months ended September 30, 2019, the Company sold an aggregate of 3,276,286 shares at a weighted-average sales price of $2.19 per share under the ATM for aggregate gross proceeds of $7.2 million and $6.9 million in net proceeds. During the three and nine months ended September 30, 2018, the Company sold an aggregate of 69,768 shares at a weighted-average sales price of $1.40 per share under the ATM for aggregate gross proceeds of $98,000 and net proceeds of $91,000.
(b) Rights Agreement
On November 13, 2015, the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent, entered into a Rights Agreement. Also on November 12, 2015, the board of directors of the Company authorized and the Company declared a dividend of one preferred stock purchase right (each a “Right” and collectively, the “Rights”) for each outstanding share of common stock of the Company. The dividend was payable to stockholders of record as of the close of business on November 30, 2015 and entitles the registered holder to purchase from the Company one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock of the Company at a price of $63.96 per one-thousandth share (the “Purchase Price”). The Rights will generally become exercisable upon the earlier to occur of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons has become an Acquiring Person (as defined below) or (ii) 10 business days (or such later date as may be determined by action of the board of directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding common stock of the Company. Except in certain situations, a person or group of affiliated or associated persons becomes an “Acquiring Person” upon acquiring beneficial ownership of 15% or more of the outstanding shares of common stock of the Company.
In general, in the event a person becomes an Acquiring Person, then each Right not owned by such Acquiring Person will entitle its holder to purchase from the Company, at the Right’s then current exercise price, in lieu of shares of Series A Junior Participating Preferred Stock, common stock of the Company with a market value of twice the Purchase Price. In addition, if after any person has become an Acquiring Person, (a) the Company is acquired in a merger or other business combination, or (b) 50% or more of the Company’s assets, or assets accounting for 50% or more of its earning power, are sold, leased, exchanged or otherwise transferred (in one or more transactions), proper provision shall be made so that each holder of a Right (other than the Acquiring Person, its affiliates and associates and certain transferees thereof, whose Rights became void) shall thereafter have the right to purchase from the acquiring corporation, for the Purchase Price, that number of shares of common stock of the acquiring corporation which at the time of such transaction would have a market value of twice the Purchase Price.
The Company will be entitled to redeem the Rights at $0.001 per Right at any time prior to the time an Acquiring Person becomes such. The terms of the Rights are set forth in the Rights Agreement, which is summarized in the Company’s Current Report on Form 8‑K dated November 13, 2015. The rights plan was originally set to expire on November 12, 2018; however, on November 5, 2018 our Board of Directors approved an Amended and Restated Rights Agreement pursuant to which the expiration date was extended to November 5, 2021, unless the rights are earlier redeemed or exchanged by the Company.
(c) Share-Based Payments
The Company recognizes stock-based compensation expense for grants of stock option awards, restricted stock units and restricted stock under the Company’s Incentive Plan to employees and nonemployee members of the Company’s board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service period. In addition, the Company grants stock options to nonemployee consultants from time to time in exchange for services performed for the Company.
The Company uses the Black-Scholes model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company’s common stock price, (ii) the periods of time over which employees and members of the board of directors are expected to hold their options prior to exercise (expected term), (iii) expected dividend yield on the Common Stock, and (iv) risk-free interest rates. Stock-based compensation expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation cost that has been expensed in the statements of operations amounted to $58,000 and $244,000, respectively, for the three months ended September 30, 2019 and 2018 and $781,000 and $1.1 million, respectively, for the nine months ended September 30, 2019 and 2018, is allocated as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Research and development
$
27,072
$
151,580
$
313,247
$
451,662
General and administrative
31,041
91,956
468,143
673,308
$
58,113
$
243,536
$
781,390
$
1,124,970
The Company issued 24,000 stock options during the three months ended September 30, 2019 and did not issue any options during the three months ended September 30, 2018. Additionally, the Company issued 79,000 stock options and 80,000 stock options, respectively, during the nine months ended September 30, 2019 and 2018. The Company did not issue any restricted stock units during the three months ended September 30, 2019 and 2018. The Company issued 50,000 restricted stock units during the nine months ended September 30, 2019, and did not issue any restricted stock units during the nine months ended September 30, 2018.
Key assumptions used in the determination of the fair value of stock options granted are as follows:
2019
2018
Expected term
5.67
years
5.50
years
Risk-free interest rate
1.82
%
2.72
%
Expected dividend yield
—
—
Expected volatility
80.38
%
77.29
%
Expected Term : The expected term represents the period that the stock-based awards are expected to be outstanding. Due to limited historical experience of similar awards, the expected term was estimated using the simplified method in accordance with the provisions of Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment, for awards with stated or implied service periods. The simplified method defines the expected term as the average of the contractual term and the vesting period of the stock option. For awards with performance conditions, and that have the contractual term to satisfy the performance condition, the contractual term was used.
Risk-Free Interest Rate : The risk-free interest rate used was based on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term.
Expected Dividend : The expected dividend assumption is based on management’s current expectation about the Company’s anticipated dividend policy. The Company does not anticipate declaring dividends in the foreseeable future.
Expected Volatility : Since the Company did not have sufficient trading history, the volatility factor was based on the average of similar public companies through August 2014. When selecting similar companies, the Company considered the industry, stage of life cycle, size, and financial leverage. Beginning in August 2014, the volatility factor is based on a combination of the Company’s trading history since March 2014 and the average of similar public companies. Beginning in July 2017, the volatility factor is based solely on the Company’s trading history since March 2014.
FASB ASC 718, Stock Compensation, requires the Company to recognize compensation expense for the portion of options that are expected to vest. Therefore, the Company applied estimated forfeiture rates that were derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.
As of September 30, 2019, there was $653,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company’s stock option plan. That cost is expected to be recognized over a weighted average period of 1.61 years and will be adjusted for subsequent changes in estimated forfeitures. Additionally, as of September 30, 2019, there was $587,000 of total unrecognized compensation cost related to unvested restricted stock units that have either time-based or performance vesting.
(d) Stock Option Plan
In April 2014, the board of directors adopted the 2014 Stock and Incentive Plan ("2014 Plan") subject to shareholder approval which was received in June 2014. The 2014 Plan provides for the granting of nonqualified and incentive stock options, stock appreciation rights, restricted stock units, restricted stock and dividend equivalents. An aggregate of 1,000,000 shares are authorized for issuance under the 2014 Plan. Additionally, 271,906 remaining authorized shares under the 2011 Equity Incentive Plan ("2011 Plan") were issuable under the 2014 Plan at the time of the 2014 Plan adoption. Upon receiving shareholder approval in June 2016, the 2014 Plan was amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 1,271,906 to 2,471,906. Additionally, upon receiving shareholder approval in June 2018, the 2014 Plan was further amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 2,471,906 to 3,221,906. The board of directors, on an option-by-option basis, determines the number of shares, exercise price, term, and vesting period. Options granted generally have a ten-year contractual life. The Company issues shares of common stock upon the exercise of options with the source of those shares of common stock being either newly issued shares or shares held in treasury. An aggregate of 3,221,906 shares are authorized for issuance under the 2014 Plan, with 892,383 shares remaining available for grant as of September 30, 2019.
A summary of stock option activity is as follows:
Outstanding stock options
Number of
Weighted average
shares
exercise price
Balance at December 31, 2018
2,424,617
$
5.00
Options granted
79,000
1.84
Options exercised
(20,000)
2.81
Options forfeited
(21,221)
2.17
Options cancelled
(151,911)
6.93
Balance at September 30, 2019
2,310,485
4.81
Options exercisable at September 30, 2019
1,752,657
5.69
The following table summarizes information about stock options outstanding and exercisable at September 30, 2019:
Options outstanding
Options exercisable
Weighted
Weighted
average
average
remaining
Weighted
remaining
Weighted
contractual
average
Aggregate
contractual
average
Aggregate
Number
life
exercise
intrinsic
Number
life
exercise
intrinsic
outstanding
(Years)
price
value
exerciseable
(Years)
price
value
2,310,485
6.29
$
4.81
$
747,653
1,752,657
5.45
$
5.69
$
181,143
The intrinsic value for stock options is defined as the difference between the current market value and the exercise price. There were 20,000 stock options exercised during the three and nine months ended September 30, 2019 no stock options exercised during the three and nine months ended September 30, 2018.
(e) Restricted Stock Units
A summary of restricted stock unit activity is as follows:
Number of
unvested restricted
shares
Balance at December 31, 2017
682,124
Granted
50,000
Vested
—
Cancelled
(53,437)
Balance at September 30, 2018
678,687 |
