Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation and Warrants

v3.8.0.1
Stock-Based Compensation and Warrants
12 Months Ended
Dec. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
5. 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 2,500,000 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 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. 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 250,000. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of December 31, 2017, there were 712,258 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 3,000,000 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 3,000,000 to 6,000,000. 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 6,000,000 to 8,000,000. 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 8,000,000 to 14,000,000. 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 8,000,000 to 17,500,000. 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, 2017, there were 11,851,840 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. 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, 2017, 2016 and 2015 are as follows:
  
 
 
Year ended December 31,
 
 
 
2017
 
2016
 
2015
 
Exercise price
 
$
0.52 – $0.87
 
$
0.80 – $2.66
 
$
1.54 – $2.76
 
Expected dividends
 
 
0
%
 
0
%
 
0
%
Expected volatility
 
 
83% – 96
%
 
96% – 123
%
 
88% – 131
%
Risk free interest rate
 
 
1.67% – 2.28
%
 
1.40% – 2.13
%
 
1.32% – 2.19
%
Expected life of option
 
 
4 – 7 years
 
 
7 years
 
 
5 years – 10 years
 
 
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, 2017, 2016 and 2015, the Company granted 3,159,177, 3,861,425 and 3,781,666 options to employees and directors having an approximate fair value of $1.8 million, $3.1 million and $8.0 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, 2017, 2016 and 2015 was $3.0 million, $3.4 million and $2.3 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, 2017, 2016 and 2015 were $434,000, $603,000 and $888,000, respectively.
 
A summary of stock option activities for the years ended December 31, 2017, 2016 and 2015, is as follows:
 
 
 
Options
 
Weighted
Average Exercise
Price
 
Weighted Average
Remaining
Contractual Life
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2014
 
 
5,981,106
 
$
2.01
 
 
5.80 years
 
$
685,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted
 
 
3,781,666
 
 
2.37
 
 
 
 
 
 
 
Exercised
 
 
(35,008)
 
 
1.16
 
 
 
 
$
44,000
 
Expired
 
 
(483,332)
 
 
2.48
 
 
 
 
 
 
 
Forfeited
 
 
(302,502)
 
 
1.91
 
 
 
 
 
 
 
Balance - December 31, 2015
 
 
8,941,930
 
 
2.14
 
 
5.67 years
 
$
2,900,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted
 
 
3,861,425
 
 
0.98
 
 
 
 
 
 
 
Exercised
 
 
(445,334)
 
 
1.83
 
 
 
 
$
137,488
 
Expired
 
 
(338,529)
 
 
1.96
 
 
 
 
 
 
 
Forfeited
 
 
(383,265)
 
 
2.26
 
 
 
 
 
 
 
Balance - December 31, 2016
 
 
11,636,227
 
 
1.77
 
 
5.49 years
 
$
194,355
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted
 
 
3,159,177
 
 
0.59
 
 
 
 
 
 
 
Exercised
 
 
(418,773)
 
 
0.40
 
 
 
 
$
163,050
 
Expired
 
 
(667,628)
 
 
2.21
 
 
 
 
 
 
 
Forfeited
 
 
(1,144,905)
 
 
1.20
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance -December 31, 2017 - outstanding
 
 
12,564,098
 
$
1.55
 
 
4.60 years
 
$
1,800
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2017 - exercisable
 
 
7,805,796
 
$
1.96
 
 
3.43 years
 
$
1,800
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grant date fair value of options granted - December 31, 2017
 
 
 
 
$
1,164,732
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average grant date fair value - December 31, 2017
 
 
 
 
$
0.37
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grant date fair value of options granted - December 31, 2016
 
 
 
 
$
3,091,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average grant date fair value - December 31, 2016
 
 
 
 
$
0.80
 
 
 
 
 
 
 
 
The options outstanding and exercisable at December 31, 2017 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
 
$
0.09 – $2.00
 
 
7,244,099
 
$
.85
 
 
5.28 years
 
 
3,082,751
 
$
1.13
 
 
3.41 years
 
$
2.01 – $3.00
 
 
5,319,999
 
 
2.49
 
 
3.66 years
 
 
4,723,045
 
 
2.50
 
 
3.44 years
 
$
0.09 – $3.00
 
 
12,564,098
 
$
1.55
 
 
4.60 years
 
 
7,805,796
 
$
1.96
 
 
3.43 years
 
 
As of December 31, 2017, total unrecognized stock-based compensation expense related to stock options was $2.9 million, which is expected to be expensed through August 2019.
 
FASB’s guidance for stock-based payments requires cash flows from excess tax benefits to be classified as a part of cash flows from financing 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 2017, 2016 or 2015. Cash received from option exercises under the Company’s stock-based compensation plans for the years ended December 31, 2017, 2016 and 2015 was $166,000, $814,000 and $41,000, respectively.
 
Stock Warrants
 
On November 18, 2016, the Company completed a public offering of 25 million shares of common stock in combination with accompanying warrants to purchase an aggregate of 50,000,000 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 $1.00. 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 $1.43 and the per share exercise price of the Series B warrants is $1.72, 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, 2017, the fair value of the warrant liability was $3.7 million, which resulted in non-cash income of $9.0 million in 2017. At December 31, 2016, the fair value of the warrant liability was $12.7 million, which resulted in non-cash income of $3.0 million in 2016. 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:
 
 
 
 
 
 
 
Series A
 
 
 
 
 
 
Series B
 
 
 
December 31,
2017
 
 
December 31,
2016
 
 
Issuance
Date
 
 
December 31,
2016
 
Issuance
Date
 
Closing stock price
 
$
0.51
 
 
$
0.76
 
 
$
0.89
 
 
$
0.76
 
$
0.89
 
Expected dividends
 
 
0
%
 
 
0
%
 
 
0
%
 
 
0
%
 
0
%
Expected volatility
 
 
80
%
 
 
85
%
 
 
85
%
 
 
90
%
 
85
%
Risk free interest rate
 
 
1.97
%
 
 
1.67
%
 
 
1.58
%
 
 
0.85
%
 
0.81
%
Expected life of warrant
 
 
2.9 years
 
 
 
3.9 years
 
 
 
4.0 years
 
 
 
1.0 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 0.5 shares of common stock. The warrants, exercisable for an aggregate of 7,029,808 shares of common stock, have an exercise price of $1.75 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 will be recorded as non-cash income or expense in the Company’s Consolidated Statements of Operations at each subsequent period. 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. At December 31, 2016, the fair value of the warrant liability was $2.1 million, which resulted in non-cash income of $8.5 million in 2016. 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,
2017
 
 
December 31,
2016
 
 
Issuance
Date
 
Closing stock price
 
$
0.51
 
 
$
0.76
 
 
$
1.75
 
Expected dividends
 
 
0
%
 
 
0
%
 
 
0
%
Expected volatility
 
 
80
%
 
 
95
%
 
 
95
%
Risk free interest rate
 
 
1.86
%
 
 
1.41
%
 
 
1.39
%
Expected life of warrant
 
 
1.79 years
 
 
 
2.79 years
 
 
 
5.0 years
 
 
The following table summarizes the estimated fair value of the warrant liability (in thousands):
 
Balance at December 31, 2015
 
$
10,566
 
Issuance of warrants
 
 
15,667
 
Change in fair value of warrant liability
 
 
(11,412)
 
Balance at December 31, 2016
 
 
14,821
 
Change in fair value of warrant liability
 
 
(10,738)
 
Balance at December 31, 2017
 
$
4,083
 
 
On October 25, 2012, the Company entered into a Common Stock Purchase Agreement with certain accredited investors. As part of this agreement, the Company issued warrants to purchase 635,855 shares of common stock to the placement agent, or its permitted assigns. The warrants have an exercise price of $1.60 and a life of five years. The warrants vested immediately and expired October 25, 2017. Since these warrants were granted as part of an equity raise, the Company treated them as a direct offering cost. The result of the transaction has no affect to equity. As of December 31, 2017, none of these warrants remained outstanding.
 
A summary of warrant activity for the Company for the years ended December 31, 2017 and 2016 is as follows:
 
 
 
Number of
Warrants
 
Weighted Average
Exercise Price
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
 
7,908,899
 
$
1.79
 
Granted
 
 
50,000,000
 
 
1.58
 
Exercised
 
 
-
 
 
-
 
Forfeited
 
 
(567,257)
 
 
2.35
 
Balance at December 31, 2016
 
 
57,341,642
 
 
1.60
 
Granted
 
 
-
 
 
-
 
Exercised
 
 
-
 
 
-
 
Forfeited
 
 
(25,311,834)
 
 
1.72
 
Balance at December 31, 2017
 
 
32,029,809
 
$
1.50
 
 
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, 2017, 2016 and 2015.
 
A summary of all outstanding and exercisable warrants as of December 31, 2017 is as follows:
 
Exercise Price
 
Warrants
Outstanding
 
Warrants
Exercisable
 
Weighted Average
Remaining
Contractual Life
 
$
1.43
 
 
25,000,000
 
 
25,000,000
 
 
2.88 years
 
$
1.75
 
 
7,029,809
 
 
7,029,809
 
 
1.78 years
 
$
1.50
 
 
32,029,809
 
 
32,029,809
 
 
2.64 years