Annual report pursuant to Section 13 and 15(d)

Stock Options and Warrants

v3.8.0.1
Stock Options and Warrants
12 Months Ended
Dec. 31, 2017
Stock Options and Warrants [Abstract]  
Stock Options and Warrants

Note 14—Stock Options and Warrants

 

Stock Options

 

On July 1, 2013, the Company’s board of directors adopted and approved the 2013 Equity Incentive Plan (the “2013 Plan”) and amended the 2013 Plan on March 24, 2015 to increase the number of shares available for issuance. The 2013 Plan previously authorized us to grant non-qualified stock options and restricted stock purchase rights to purchase up to 420,000 shares of the Company’s common stock to employees (including officers) and other service providers. With the approval of the 2015 Plan, described below, as of August 29, 2015, no shares of common stock were available for issuance under the 2013 Plan, other than pursuant to previously issued options.

 

On July 15, 2015, the Company’s board of directors approved the 2015 Omnibus Incentive Plan (the “2015 Plan”), which was approved by the Company’s stockholders on August 28, 2015. Upon adoption, the 2015 Plan authorized us to grant up to 300,000 shares of the Company’s common stock and replaced the 2013 Equity Incentive Plan. As a result of the approval of the 2015 Plan, no additional grants will be made under the 2013 Plan. On August 22, 2016, the Company’s board of directors approved an amendment to the 2015 Plan to increase the total authorized pool available under the 2015 Plan to 600,000 shares of the Company’s common stock, subject to automatic increase for any shares subject to outstanding awards under the 2013 Plan that are subsequently canceled or expire. The Company’s stockholders approved the foregoing amendment on September 26, 2016. As of December 31, 2017, 85,857 shares of the Company’s common stock were available for issuance under the 2015 Plan.

 

The 2015 Plan permits the granting of any or all of the following types of awards: incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, and performance awards payable in a combination of cash and company shares. As of December 31, 2017, the Company had issued 210,000 shares of restricted common stock and options to purchase an aggregate of 446,000 shares of common stock  under the 2015 plan.

 

The 2015 Plan has the following limitations:

 

  Limitation on terms of stock options and stock appreciation rights. The maximum term of each stock option and stock appreciation right (SAR) is 10 years.

 

  No repricing or grant of discounted stock options. The 2015 Plan does not permit the repricing of options or SARs either by amending an existing award or by substituting a new award at a lower price without stockholder approval. The 2015 Plan prohibits the granting of stock options or SARs with an exercise price less than the fair market value of the Company’s common stock on the date of grant.

 

  Clawback. Awards granted under the 2015 Plan are subject to any then current compensation recovery or clawback policy of the Company that applies to awards under the 2015 Plan and all applicable laws requiring the clawback of compensation.

 

  Double-trigger acceleration. Acceleration of the vesting of employee awards that are assumed or replaced by the resulting entity after a change in control is not permitted unless an employee’s employment is also terminated by the Company without cause or by the employee with good reason within two years of the change in control.

 

  Code Section 162(m) Eligibility. The 2015 Plan provides flexibility to grant awards that qualify as “performance-based” compensation under Internal Revenue Code Section 162(m).

 

  Dividends. Dividends or dividend equivalents on stock options, SARs or unearned performance shares under the 2015 Plan will not be paid.

 

At December 31, 2017, total unrecognized deferred stock compensation expected to be recognized over the remaining weighted-average vesting periods of 1.9 years for outstanding grants was $1.1 million.

 

The fair value of option awards is estimated on the grant date using the Black-Scholes option valuation model. No options were issued in 2016. All options granted during 2017 were valued using an exercise price of $2.50 per share, a risk free interest rate of 1.88%, an expected life of 5 years, and a volatility of 92% for a grant date fair value of $0.98 per option granted.

 

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us.

  

Stock-based compensation expense is recorded only for those awards expected to vest. Currently, the forfeiture rate used to calculate stock-based compensation expense is zero, which approximates the effective actual forfeiture rate. The rate is adjusted if actual forfeitures differ from the estimates in order to recognize compensation cost only for those awards that actually vest. If factors change and different assumptions are employed in future periods, the share-based compensation expense may differ from that recognized in previous periods.

 

Stock-based award activity was as follows:

 

                Weighted-        
          Weighted-     Average        
          Average     Remaining     Aggregate  
          Exercise     Contractual     Intrinsic  
    Options     Price     Life     Value  
Balance, December 31, 2016     273,550     $ 13.70       5.02     $  
Forfeited during 2017     (44,943 )     15.41              
Granted during 2017     440,000       2.50       9.25        
Balance, December 31, 2017     668,607     $ 6.21       7.38     $  
Exercisable on December 31, 2017     404,287     $ 8.30       6.38     $  

 

The options granted have a contract term ranging between three and ten years. Options granted typically vest over a four-year period, with 25% vesting after one year and the remainder ratably over the remaining three years.

 

Of the Company’s outstanding options, options to purchase 224,314 shares of the Company’s common stock were outstanding and options to purchase 202,541 shares of the Company’s common stock were exercisable under the 2013 Plan and options to purchase 444,293 shares of the Company’s common stock were outstanding with 201,746 exercisable under the 2015 Plan on December 31, 2017.

 

The following table summarizes information about stock options outstanding and exercisable at December 31, 2017:

 

        Options Outstanding   Options Exercisable  
            Weighted-                    
            Average     Weighted-           Weighted-  
        Number   Remaining     Average     Number     Average  
  Exercise     of   Contractual     Exercise     of     Exercise  
  Prices     Shares   Life     Price     Shares     Price  
            (In years)                    
  $0–$10.00     529,748     8.47     $ 3.35       269,758   $ 3.82  
  $10.01–$15.00     28,300     5.95     $ 12.50       23,970   $ 12.50  
  $15.01–$20.00     94,845     2.33     $ 17.50       94,845   $ 17.50  
  $20.01–$25.00     15,714     3.56     $ 23.24       15,714   $ 23.24  
        668,607     7.38     $ 6.21       404,287   $ 8.30  

 

Stock based compensation expense is composed of $174,000 attributable to vesting of restricted stock grants and $709,000 was attributable to options awards and consisted of the following:

 

   

Year ended
December 31

 
    2017     2016  
Research and development   $ 420,000     $ 535,000  
General and administrative     463,000       792,000  
Total   $ 883,000     $ 1,327,000  

  

Warrants

 

From time to time, we issue warrants to purchase shares of our common stock to investors, note holders and to non-employees for services rendered or to be rendered in the future. The following table represents the activity for warrants outstanding, exchanged, and issued for the year ending December 31, 2017.

 

    Warrants     Weighted Average Exercise
Price
 
Balance outstanding at December 31, 2016     5,358,881     $ 3.77  
Issued for Convertible Unsecured Notes       62,500       3.00  
Issued for Backstop Security Amendment       41,000       3.00  
Issued for 2017 Senior Notes       622,222       1.50  
Balance outstanding at December 31, 2017       6,084,603     $ 3.38  

 

All warrants were exercisable at December 31, 2017, the weighted average exercise price per share was $3.38 and the weighted average remaining life was 3.78 years. The warrants outstanding as of December 31, 2017 had no intrinsic value. All warrants issued in 2017 were valued using the Black-Scholes pricing model with a five year life and the following range of input variables: risk free rate 1.84–2.24%; volatility 68%–92% and 0% dividend rate.

 

2017 Notes Warrants

 

Between September and December 2017, the Company issued warrants to purchase up to 622,222 shares of common stock to the holders of the 2017 Senior Notes with a $1.50 per share exercise price. The Company incorporated the fair value of the warrants issued of $305,000, valued using the Black-Scholes pricing model into the debt discount recorded for the 2017 Senior Notes as described in Note 9.

 

Backstop Security Warrants

 

On April 27, 2017, the Company issued a warrant to purchase 41,000 shares of common stock at an exercise price of $3.00 per share in conjunction with the amendment of the Letter of Credit described in Note 17. The warrant was valued using the Black-Scholes option pricing model at $26,000, which was recorded to deferred financing charges and amortized to expense ratably through the end of March 2018.

 

Convertible Unsecured Notes Warrants

 

Under the terms of securities purchase agreement for the Convertible Unsecured Notes, the holders of the Convertible Unsecured Notes were entitled, in the aggregate, to receive additional warrants to purchase up to 62,500 shares of common stock on each of the following dates: November 1, 2016, December 1, 2016, December 31, 2016, and January 30, 2017, in each case only in the event that the Convertible Unsecured Notes are not repaid or converted into an equity transaction prior to each issuance date. The Company issued warrants to purchase 62,500 shares of the Company’s common stock on January 30, 2017, with a five-year term and a $3.00 per share exercise price. The Company recorded the fair value of the warrants, valued using the Black-Scholes pricing model as $73,000 as an additional debt discount which was amortized to interest expense during 2017.

  

Warrants outstanding as of December 31, 2017 consist of:

 

   

Issue

Date

 

Expiry

Date

 

Number of

Warrants

   

Exercise

Price

per Share

 
2013 Services Warrants—July   Jul-13   Jul-18     9,494     $ 37.50  
2013 Services Warrants—August   Aug-13   Aug-18     729       37.50  
2013 Services Warrants—November   Nov-13   Nov-18     2,400       50.00  
2014 Services Warrants—April(1)   Apr-14   Apr-19     13,657       39.00  
2014 Services Warrants—September(2)   Aug-14   Aug-19     16,000       25.00  
2014 PIPE Warrants—September(3)   Sept-14   Sept-18     26,500       25.00  
2014 Services Warrants—November(4)   Nov-14   Nov-18     6,500       25.00  
2014 Settlement Warrants—December(5)   Dec-14   Dec-19     38,464       25.00  
2015 Senior Notes Warrants(6)(14)   Apr/May-15   Apr/May-20     219,785       3.00  
2015 Services Warrants—May(7)   May-15   May-20     5,514       12.50  
2015 LOC Guarantee Warrants—November(8)   Nov-15   Nov-20     74,000       3.00  
2015 Debt Amendment Warrants—December(9)(15)   Dec-15   Dec-20     50,000       3.00  
2015 PIPE Warrants—December(10)   Dec-15   Dec-20     312,500       4.00  
2016 Debt Amendment Warrants—February(11)(15)   Feb-16   Feb-21     50,000       3.00  
2016 Debt Amendment Warrants—March(12)(15)   Mar-16   Mar-21     500,000       3.00  
2016 Unsecured Debt Warrants (13)   Sep–Dec-16   Sep–Dec-21     312,499       3.00  
2016 Senior Notes Warrants   Dec-16   Dec-21     3,720,839       3.00  
2017 Convertible Unsecured Notes Warrants   Jan-17   Jan-22     62,500       3.00  
2017 Backstop Warrants   Apr-17   Apr-22     41,000       3.00  
2017 Senior Notes Warrants   Sep/Nov/Dec 17   Sep/Nov/Dec 22     622,222       1.50  
Warrants outstanding and exercisable at December 31, 2017             6,084,603     $ 3.38  

 

(1) The 2014 Services Warrants—April were issued for fees incurred in conjunction with the issuance of convertible notes in 2014. The warrants were valued on the issuance date at $11.50 per share in conjunction with the valuation approach used for the initial valuation of the warrants issued in connection with the convertible notes issued in 2014.
   
(2) The 2014 Services Warrants—September were issued to a consultant in exchange for advisory services with no readily available fair value. The warrants were originally issued at an exercise price of $39.00 per share and had a one-time price reset provision to the exercise price of the warrants issued to investors in the convertible notes offering in April 2014 if the exercise price of such convertible notes warrants changed prior to September 30, 2014. On September 22, 2014, the exercise price was changed to $25.00 per share. There are no further exercise price changes for this warrant series. The warrants were valued using the Black-Scholes option pricing model at $131,000 on the issuance date with an additional $6,000 recorded to expense on September 22, 2014 to reflect the change in fair value resulting from the exercise price change.
   
(3) On September 22, 2014, the Company issued warrants to purchase up to 26,500 shares of common stock with an exercise price of $25.00 per share in conjunction with placement agent services for the Company’s September 2014 private equity placement. The warrants were valued using the Black-Scholes option pricing model at $296,000 on the issuance date.
   
(4) On November 26, 2014, the Company issued warrants to purchase up to 6,500 shares of common stock with an exercise price of $25.00 per share for compensation for investor relations services provided. The warrants were valued using the Black-Scholes option pricing model at $43,000 on the issuance date.

 

(5) On December 1, 2014, the Company issued warrants to purchase up to 19,232 shares of common stock with an exercise price of $39.00 per share and on December 15, 2014 issued warrants to purchase up to 19,232 shares of common stock with an exercise price of $25.00 per share to settle potential legal disputes resulting from claims made by the investors in the November 2013 private equity placement. The warrants issued on December 1, 2014 were issued concurrent with the issuance of 8,462 shares of the Company’s common stock in partial settlement of the potential legal disputes arising from claims by two investors. The Company settled all remaining potential legal disputes with all of the remaining investors in the November 2013 private placement on December 15, 2014 by issuing the second tranche of warrants and setting the exercise price of each warrant series issued at $25.00 with no further reset provisions. The combined issuance of the warrants and expense resulting from any price changes were valued using the Black-Scholes option pricing model at $246,000 and expensed to general and administrative expense.
   
(6) On April 23, 2015, the Company issued warrants to purchase up to 136,267 shares of common stock and on May 7, 2015, the Company issued warrants to purchase up to 83,518 shares of common stock, each with an exercise price of $12.50 per share in conjunction with the 2015 Senior Notes described in Note 9. The warrants were valued using the Black-Scholes option pricing model at $2,139,000 on the issuance date. On August 24, 2016, the exercise price of the warrants was reduced to $4.00 per share. Concurrent with the issuance of the 2016 Senior Notes, the exercise price of the warrants was further reduced to $3.00 per share.
   
(7) On May 1, 2015, the Company issued warrants to purchase up to 5,514 shares of common stock with an exercise price of $12.50 per share in conjunction with placement agent services for the Company’s May 2015 private equity placement. The warrants were valued using the Black-Scholes option pricing model at $56,000 on the issuance date.

 

(8)

On November 2, 2015, the Company issued warrants to purchase up to 74,000 shares of common stock with an exercise price of $15.00 per share in conjunction with the Letter of Credit described in Note 17. The warrants were valued using the Black-Scholes option pricing model at $246,000 on the issuance date. The warrants are exercisable beginning on November 1, 2016. In April, 2017 the exercise price was reduced to $3.00 per share as a term of the amendment to the backstop security agreement amendment described above.

 

(9) On December 30, 2015, the Company issued warrants to purchase up to 50,000 shares of common stock with an initial exercise price of $12.50 per share in conjunction with the amendment of the 2015 Senior Notes in December 2015, as described in Note 9 above. On March 31, 2016, concurrent with the issuance of the March 2016 Warrants, the exercise price was reduced to $5.00 per share. On August 24, 2016, the exercise price of the warrants was reduced to $4.00 per share. Concurrent with the issuance of the 2016 Senior Notes, the exercise price of the warrants was further reduced to $3.00 per share.
   
(10) On December 31, 2015, the Company issued warrants to purchase up to 312,500 shares of common stock with an initial exercise price of $5.00 per share in conjunction with the December private equity placement (the “December PIPE”). The warrants initially provided that if, prior to the earlier of June 30, 2016 or thirty days after the date on which the December PIPE shares and underlying warrants are registered for resale, the Company issued common share derivative securities at a price per share less than $5.00 per share, the Company was obligated to reduce the exercise price of the December PIPE warrants to a price per share equal to the newly issued shares or derivative common stock securities. This price protection clause expired on June 30, 2016. On August 24, 2016, the warrant agreement was amended to remove all provisions that had previously required derivative liability accounting treatment and the exercise price of the warrants was reduced to $4.00 per share.

  

(11) On February 2, 2016, the Company issued warrants to purchase up to 50,000 shares of common stock with an initial exercise price of $12.50 per share in conjunction with the amendment of the 2015 Senior Notes in December 2015, as described in Note 9 above. The warrants were valued using the Black-Scholes option pricing model at $148,000 on the issuance date and were recorded as a derivative liability and additional debt discount. The warrants provided that, in the event that the Company issued additional common stock derivative securities at a price per share less than the exercise price, the Company was obligated to reduce the exercise price of the February 2016 Warrants to a price per share equal to the newly issued shares or derivative common stock securities. On March 31, 2016, concurrent with the issuance of the additional debt amendment warrants, the exercise price was reduced to $5.00 per share. This price protection clause expired on June 30, 2016. On August 24, 2016, the exercise price of the warrants was reduced to $4.00 per share.  Concurrent with the issuance of the 2016 Senior Notes, the exercise price of the warrants was further reduced to $3.00 per share.
   
(12) On March 31, 2016, the Company issued warrants to purchase up to 500,000 shares of common stock with an initial exercise price of $5.00 per share in conjunction with the amendment of the 2015 Senior Notes in December 2015, as described in Note 9 above. The warrants were valued using the Black-Scholes option pricing model at $1,497,000 on the issuance date and were recorded as a derivative liability and additional debt discount. The warrants provided that, in the event that the Company issued additional common stock derivative securities at a price per share less than the exercise price, the Company was obligated to reduce the exercise price of the March 2016 Warrants to a price per share equal to the newly issued shares or derivative common stock securities. This price protection clause expired on June 30, 2016. On August 24, 2016, the exercise price of the warrants was reduced to $4.00 per share. Concurrent with the issuance of the 2016 Senior Notes, the exercise price of the warrants was further reduced to $3.00 per share.
   
(13)

On September 1, 2016, the Company issued warrants to purchase up to 124,999 shares of common stock with an initial exercise price of $4.00 per share in conjunction with Unsecured Convertible Notes as described in Note 10 above. The warrants were valued using the Black-Scholes option pricing model at $271,000 on the issuance date and were recorded as additional debt discount. Between November 1, 2016 and December 31, 2016, the Company issued additional warrants to purchase up to 187,500 shares of common stock, as described above. The additional warrants were valued using the Black-Scholes option pricing model at $305,000 and were recorded as additional debt discount. Concurrent with the issuance of the 2016 Senior Notes, the exercise price of the warrants issued on November 1, 2016 was reduced to $3.00 per share. The warrants issued on November 1, 2016 were issued with an initial exercise price of $4.00 and reduced to $3.00 per share. The warrants issued on December 1, 2016, December 31, 2016, and January 29, 2017 were issued with an initial exercise price of $3.00 per share.

   
(14) Warrant exercise price was reduced from $12.50 to $4.00 per share on August 24, 2016 and further reduced to $3.00 per share concurrent with the issuance of the 2016 Senior Notes.
   
(15) Warrant exercise price was reduced from $5.00 to $4.00 per share on August 24, 2016 and further reduced to $3.00 per share concurrent with the issuance of the 2016 Senior Notes. On August 24, 2016, the warrant agreement was amended to remove all provisions that had previously required derivative liability accounting treatment.