Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation and Warrants

v3.10.0.1
Stock-Based Compensation and Warrants
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
4. Stock-Based Compensation and Warrants
 
Stock Incentive Plan
 
On March 20, 2007, the Company’s Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 71,429 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. This plan was approved by the stockholders on November 2, 2007. The exercise price of stock options under the 2007 Stock Plan was determined by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2007 plan shall not exceed 7,143. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of December 31, 2018, there were 18,645 options issued and outstanding under the 2007 Stock Plan.
 
On November 2, 2010, the Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 85,714 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. On October 22, 2013, the stockholders approved and adopted an amendment to the Company’s 2010 Incentive Stock Plan to increase the number of shares of Company’s common stock reserved for issuance under the Plan from 85,714 to 171,429. On May 15, 2015, the stockholders approved and adopted an amendment to the Company’s 2010 Incentive Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the Plan from 171,429 to 228,572. On August 25, 2016, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 228,572 to 400,000. On September 7, 2017, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 400,000 to 500,000. On September 24, 2018, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 500,000 to 1,000,000. The exercise price of stock options under the 2010 Stock Plan is determined by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Options become exercisable over various period from the date of grant, and expire between five and ten years after the grant date. As of December 31, 2018, there were 920,337 options issued and outstanding under the 2010 Stock Plan.
 
In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee. Stock forfeitures are recognized as incurred. There is no deferred compensation recorded upon initial grant date. Instead, the fair value of the stock-based payment is recognized over the stated vesting period.
 
The Company has applied fair value accounting for all stock-based payment awards since inception. The fair value of each option or warrant granted is estimated on the date of grant using the Black-Scholes option pricing model.
The assumptions used for the years ended December 31, 2018 and 2017 are as follows:
 
 
 
Year ended December 31,
 
 
 
2018
 
 
2017
 
Exercise price
 
$
0.69
 
 
$
18.2 – $30.45
 
Expected dividends
 
 
0
%
 
 
0
%
Expected volatility
 
 
86
%
 
 
83% – 96
%
Risk free interest rate
 
 
2.75
%
 
 
1.67% – 2.28
%
Expected life of option
 
 
4  years
 
 
 
4-7 years
 
 
Expected dividends —
The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future.
 
Expected volatility
—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period.
 
Risk-free interest rate
—The assumed risk free rate used is a zero coupon U.S. Treasury security with a maturity that approximates the expected term of the option.
 
Expected life of the option
—The period of time that the options granted are expected to remain unexercised. Options granted during the year have a maximum term of seven years. The Company estimates the expected life of the option term based on the weighted average life between the dates that options become fully vested and the maximum life of options granted.
 
The Company records stock-based compensation based upon the stated vested provisions in the related agreements. The vesting provisions for these agreements have various terms as follows:
 
  •  
immediate vesting,
 
  •  
in full on one-year anniversary date of grant date,
 
  •  
half vesting immediately and remaining over three years,
 
  •  
quarterly over three years,
 
  •  
annually over three years,
 
  •  
one-third immediate vesting and remaining annually over two years,
 
  •  
one-half immediate vesting and remaining over nine months,
 
  •  
one-quarter immediate vesting and remaining over three years,
 
  •  
one-quarter immediate vesting and remaining over 33 months; and
 
  •  
monthly over three years.
 
During the years ended December 31, 2018 and 2017, the Company granted 671,500 and 90,262 options to employees and directors having an approximate fair value of $0.3 million and $1.8 million based upon the Black-Scholes options pricing model, respectively.
 
Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to employees for the years ended December 31, 2018 and 2017 was $1.8 million and $3.0 million, respectively. Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to consultants for the years ended December 31, 2018 and 2017 were $297,000 and $434,000, respectively.
 
A summary of stock option activities for the years ended December 31, 2018 and 2017, is as follows:
 
 
 
Options
 
 
Weighted  

Average Exercise

 Price
 
 
Weighted Average

Remaining

Contractual Life
 
 
Aggregate

Intrinsic  

Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2016
 
 
332,561
 
 
$
61.87
 
 
 
5.49 years
 
 
$
194,355
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted
 
 
90,286
 
 
$
20.12
 
 
 
 
 
 
 
 
 
Exercised
 
 
(11,966
)
 
$
13.89
 
 
 
 
 
 
$
163,050
 
Expired
 
 
(19,091
)
 
$
77.46
 
 
 
 
 
 
 
 
 
Forfeited
 
 
(32,714
)
 
$
42.21
 
 
 
 
 
 
 
 
 
Balance - December 31, 2017
 
 
359,076
 
 
$
53.93
 
 
 
4.60 years
 
 
$
1,800
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted
 
 
671,500
 
 
$
0.69
 
 
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
$
-
 
 
 
 
 
 
$
-
 
Expired
 
 
(78,667
)
 
$
67.02
 
 
 
 
 
 
 
 
 
Forfeited
 
 
(12,927
)
 
$
23.72
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance -December 31, 2018 - outstanding
 
 
938,982
 
 
$
15.18
 
 
 
6.19 years
 
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance -  December 31, 2018 - exercisable
 
 
221,068
 
 
$
57.61
 
 
 
4.01 years
 
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grant date fair value of options granted -  December 31, 2018
 
 
 
 
 
$
301,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average grant date fair value - December 31, 2018
 
 
 
 
 
$
0.45
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grant date fair value of options granted - December 31, 2017
 
 
 
 
 
$
1,164,732
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average grant date fair value - December 31, 2017
 
 
 
 
 
$
0.37
 
 
 
 
 
 
 
 
 
 
The options outstanding and exercisable at December 31, 2018 are as follows:
 
Options Outstanding
 
Options Exercisable
 
Range of

Exercise Price
 
Options
 
 
Weighted

Average

Exercise

Price
 
 
Weighted

Average

Remaining

Contractual

Life
 
 
Options
 
 
Weighted

Average

Exercise

Price
 
 
Weighted

Average

Remaining

Contractual

Life
 
$
 
 
0.00 – $40.00
 
 
 
811,214
 
 
$
4.63
 
 
 
6.62 years
 
 
 
94,094
 
 
$
24.55
 
 
 
4.83 years
 
 
 
 
41.00 – $70.00
 
 
 
22,370
 
 
 
55.10
 
 
 
2.30 years
 
 
 
22,291
 
 
 
55.13
 
 
 
2.30 years
 
$
 
 
71.00 – $102.00
 
 
 
105,398
 
 
$
87.84
 
 
 
3.65 years
 
 
 
104,683
 
 
$
87.86
 
 
 
3.65 years
 
 
 As of December 31, 2018, total unrecognized stock-based compensation expense related to stock options was $824,000, which is expected to be expensed through December 2020.
 
The FASB’s guidance for stock-based payments requires cash flows from excess tax benefits to be classified as a part of cash flows from operating activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. The Company did not record any excess tax benefits in 2018 or 2017. Cash received from option exercises under the Company’s stock-based compensation plans for the years ended December 31, 2018 and 2017 was $
0 and $166,000, respectively.
 
Stock Warrants
 
On October 10, 2018, the Company entered into an underwriting agreement with A.G.P./Alliance Global Partners (the “Underwriters”), as representative of the underwriters, pursuant to which the Company agreed to issue and sell to the Underwriters in a firm commitment underwritten public offering an aggregate of (i) 2,520,000 Class A Units (the “Class A Units”), with each Class A Unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and one five-year warrant to purchase one share of Common Stock at an exercise price of $1.38 per share (each a “Warrant” and collectively, the “Warrants”), with each Class A Unit to be offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B Units (the “Class B Units”, and together with the Class A Units, the “Units”), with each Class B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting of one share of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), with a stated value of $1,000 and convertible into shares of Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173
Warrants . In addition, pursuant to the Underwriting Agreement, the Company granted the Underwriters a 45 day option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional Warrants to purchase an additional 2,428,825 shares of Common Stock. The Underwriters partially exercised the Over-allotment Option by electing to purchase from the Company additional Warrants to purchase 1,807,826 shares of Common Stock.
 
The Warrants are immediately exercisable at a price of $1.38 per share of Common Stock (which is 120% of the public offering price of the Class A Units) and will expire on October 15, 2023. If at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares of Common Stock to the holder, then the Warrants may only be exercised through a cashless exercise. No fractional shares of Common Stock will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional amount multiplied by the fair market value of any such fractional shares. The Company has concluded that the Warrants are required to be equity classified. The Warrants were valued on the date of grant using Monte Carlo simulations.
 
 
The assumptions used by the Company are summarized in the following table:
 
 
 
Issuance

Date
 
Closing stock price
 
$
0.88
 
Expected dividends
 
 
0
%
Expected volatility
 
 
90
%
Risk free interest rate
 
 
3.01
%
Expected life of warrant (years)
 
 
5.00
 
 
On November 18, 2016, the Company completed a public offering of 714,286 shares of common stock in combination with accompanying warrants to purchase an aggregate of 1,428,571 shares of the common stock. The stock and warrants were sold in combination, with two warrants for each share of common stock sold, a Series A warrant and a Series B warrant, each representing the right to purchase one share of common stock. The purchase price for each share of common stock and accompanying warrants was $35.00. The shares of common stock were immediately separable from the warrants and were issued separately. The initial per share exercise price of the Series A warrants is $50.05 and the per share exercise price of the Series B warrants is $60.20, each subject to adjustment as specified in the warrant agreements. The Series A and Series B warrants may be exercised at any time on or after the date of issuance. The Series A warrants are exercisable until the four-year anniversary of the issuance date. The Series B warrants expired December 31, 2017 and none were exercised prior to expiration. The warrants include a provision, that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from the holder for cash. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance date of $15.7 million and changes in estimated fair value will be recorded as non-cash income or expense in the Company’s Statement of Operations at each subsequent period. At December 31, 2018, the fair value of the warrant liability was $100 which resulted in non-cash income of $3.7 million in 2018. At December 31, 2017, the fair value of the warrant liability was $3.7 million, which resulted in non-cash income of $9.0
million in 2017. The warrants were valued on the date of grant and on each remeasurement period using Monte Carlo simulations.
 
The assumptions used by the Company are summarized in the following table:
 
 
 
 
 
 
Series A
 
 
 
 
 
Series B
 
 
 
December 31,

2018
 
 
December 31,

2017
 
 
November 18, 
2016
 
 
November 18,
2016
 
Closing stock price
 
$
0.56
 
 
$
17.85
 
 
$
31.15
 
 
$
31.15
 
Expected dividends
 
 
0
%
 
 
0
%
 
 
0
%
 
 
0
%
Expected volatility
 
 
92.5
%
 
 
80
%
 
 
85
%
 
 
85
%
Risk free interest rate
 
 
2.50
%
 
 
1.97
%
 
 
1.58
%
 
 
0.81
%
Expected life of warrant
 
 
1.9 years
 
 
 
2.9 years
 
 
 
4.0 years
 
 
 
1.1 years
 
 
On October 10, 2014, the Company raised net proceeds of $19.1 million through the sale of 14,059,616 units at a price of $1.47 per unit to certain institutional investors in a registered direct offering. Each unit consisted of one share of the Company’s common stock and a warrant to purchase 0.50 shares of common stock. The warrants, exercisable for an aggregate of 200,852 shares of common stock, have an exercise price of $61.25 per share and a life of five years. The warrants vested immediately and expire on October 10, 2019.
 
The warrants issued in conjunction with the registered direct offering in October 2014 include a provision that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from the holder at a premium. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance date, which was $7.4 million, and changes in estimated fair value being recorded as non-cash income or expense in the Company’s Consolidated Statements of Operations at each subsequent period. At December 31, 2018, the fair value of the warrant liability was zero, which resulted in non-cash income of $416,000 in 2018. At December 31, 2017, the fair value of the warrant liability was $416,000, which resulted in non-cash income of $1.7 million in 2017. The warrants were valued on the date of grant using the Black-Scholes valuation model which approximates the value derived using Monte Carlo simulations. The assumptions used by the Company are summarized in the following table:
 
 
 
December 31,

2018
 
 
December 31,

2017
 
 
October 10,
2014
 
Closing stock price
 
$
0.56
 
 
$
17.85
 
 
$
61.25
 
Expected dividends
 
 
0
%
 
 
0
%
 
 
0
%
Expected volatility
 
 
110
%
 
 
80
%
 
 
95
%
Risk free interest rate
 
 
2.60
%
 
 
1.86
%
 
 
1.39
%
Expected life of warrant
 
 
.79 years
 
 
 
1.79 years
 
 
 
5.0 years
 
 
The following table summarizes the estimated fair value of the warrant liability
(in thousands)
:
 
Balance at December 31, 2016
 
$
14,821
 
Change in fair value of warrant liability
 
 
(10,738
)
Balance at December 31, 2017
 
 
4,083
 
Change in fair value of warrant liability
 
 
(4,083
)
Balance at December 31, 2018
 
$
0
 
 
A summary of all warrant activity for the Company for the years ended December 31, 2018 and 2017 is as follows:
 
 
 
Number of

Warrants
 
 
Weighted Average

Exercise Price
 
 
 
 
 
 
 
 
Balance at December 31, 2016
 
 
1,638,333
 
 
$
56.00
 
Granted
 
 
-
 
 
 
-
 
Exercised
 
 
-
 
 
 
-
 
Forfeited
 
 
(723,195
)
 
 
60.20
 
Balance at December 31, 2017
 
 
915,138
 
 
 
52.50
 
Granted
 
 
18,000,713
 
 
 
1.38
 
Exercised
 
 
-
 
 
 
-
 
Forfeited
 
 
-
 
 
 
-
 
Balance at December 31, 2018
 
 
18,915,851
 
 
$
3.85
 
 
There was no stock-based compensation expense included in general and administrative and research and development expenses relating to warrants issued to consultants for the years ended December 31, 2018 and 2017.
 
On December 26, 2017, the Company entered into a consulting agreement for advisory services for a period of six months. As compensation for such services, the consultant was paid an upfront payment, is paid a monthly fee and on January 24, 2018, was issued a warrant exercisable for 714 shares of the Company’s common stock on the date of issue. The warrant is equity classified and the fair value of the warrant approximated $9,000 and was measured using the Black-Scholes option pricing model. This entire expense was recorded in the quarter ended March 31, 2018. The assumptions used by the Company are summarized in the following table:
  
Closing stock price
 
$
18.55
 
Expected dividends
 
 
0
%
Expected volatility
 
 
85
%
Risk free interest rate
 
 
2.42
%
Expected life of warrant (years)
 
 
4.92
 
 
A summary of all outstanding and exercisable warrants as of December 31, 2018 is as follows:
 
Exercise Price
 
 
Warrants

Outstanding
 
 
Warrants

Exercisable
 
 
Weighted Average

Remaining

Contractual Life
 
$
1.38
 
 
 
17,999,999
 
 
 
17,999,999
 
 
 
4.78 years
 
 
18.20
 
 
 
714
 
 
 
714
 
 
 
3.99 years
 
 
50.05
 
 
 
714,286
 
 
 
714,286
 
 
 
1.88 years
 
 
61.25
 
 
 
200,852
 
 
 
200,852
 
 
 
0.78 years
 
$
52.48
 
 
 
18,915,851
 
 
 
18,915,851
 
 
 
4.63 years