Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION AND WARRANTS

v3.19.2
STOCK-BASED COMPENSATION AND WARRANTS
 12 Months Ended
Jun. 30, 2019
STOCK-BASED COMPENSATION AND WARRANTS  
STOCK-BASED COMPENSATION AND WARRANTS

NOTE 7 — STOCK-BASED COMPENSATION AND WARRANTS

Stock Option Plans

The Company currently has two active stock option plans consisting of the 2015 Non-Qualified Stock Option Plan (the “2015 Plan”) and the 2016 Non-Qualified Stock Option Plan, as amended (the “2016 Plan”). The Company also has an aggregate of approximately 2,190,000 stock options outstanding under the 2014 Stock and Incentive Plan (the “2014 Plan”) that terminated on March 21, 2019. Stock options outstanding under the 2014 Plan expire pursuant to their contractual provisions on various dates in 2021.

A total of 6,850,000 shares of Common Stock are authorized for awards that may be granted under the 2015 Plan. As of June 30, 2019, approximately 4,155,000 shares of Common Stock remain available for future grants under the 2015 Plan and 2,695,000 shares of Common Stock are subject to currently outstanding stock options. The 2015 Plan is scheduled to terminate in February 2020 whereby no additional awards may be granted after that date.

The Company held its annual meeting of stockholders on April 24, 2019, whereby the Company’s stockholders approved an amendment to the 2016 Plan to increase the authorized number of shares of Common Stock available for issuance from 15.0 million shares to 28.0 million shares. As of June 30, 2019, under the 2016 Plan there are 19,020,000 shares of Common Stock available for future grants and awards for 8,980,000 shares are subject to currently outstanding stock options. The 2016 Plan is scheduled to terminate in October 2021 whereby no additional awards may be granted after that date.

The following table sets forth a summary of combined stock option activity under the 2015 Plan, the 2016 Plan and the Terminated Plans for the fiscal years ended June 30, 2019 and 2018 (shares in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

    

Shares

    

Price (1)

    

Term (2)

    

Shares

    

Price (1)

    

Term (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, beginning of fiscal year

 

19,415

 

$

1.55

 

7.8

 

21,291

 

$

1.65

 

7.7

Granted

 

1,125

 

 

0.52

 

  

 

255

 

 

1.08

 

  

Forfeited

 

(6,675)

 

 

1.53

 

  

 

(1,881)

 

 

1.62

 

  

Expired

 

 —

 

 

 —

 

  

 

(250)

 

 

4.50

 

  

Outstanding, end of fiscal year

 

13,865

 

 

1.60

 

6.4

 

19,415

 

 

1.55

 

7.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested, end of fiscal year

 

9,604

 

 

1.85

 

5.7

 

11,399

 

 

1.92

 

6.4

(1)

Represents the weighted average exercise price.

(2)

Represents the weighted average remaining contractual term until the stock options expire.

As discussed in Note 13, in July 2019 the Company granted stock options for an aggregate of 34.0 million shares of Common Stock that are not reflected in the table above.

The aggregate fair value of stock options for 1,125,000 shares of Common Stock granted for the fiscal year ended June 30, 2019 amounted to approximately $445,000, or $0.40 per share as of the grant date. The aggregate fair value of stock options for 255,000 shares of Common Stock granted for the fiscal year ended June 30, 2018 amounted to approximately $207,000, or $0.81 per share as of the grant date.  For the fiscal years ended June 30, 2019 and 2018, the fair value of stock options was estimated on the date of grant using the BSM option-pricing model, with the following weighted-average assumptions:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

Grant date fair value of common stock

 

$

0.52

 

$

1.08

 

Expected volatility

    

 

84

%

 

84

%

Risk free interest rate

 

 

2.8

%

 

2.1

%

Expected term (years)

 

 

7.0

 

 

7.0

 

Dividend yield

 

 

 —

%

 

 —

%

 

Compensation cost is recognized ratably as the options vest which is generally over a period of 48 months from the grant date. Stock-based compensation expense for the fiscal years ended June 30, 2019 and 2018 is included in compensation and benefits under the following captions in the consolidated statements of operations (in thousands):

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

 

 

 

 

 

Research and development

 

$

538

 

$

982

General and administrative

 

 

2,098

 

 

4,113

Total

 

$

2,636

 

$

5,095

 

The unrecognized stock-based compensation expense as of June 30, 2019 is approximately $2.7 million and this amount is expected to be recognized over the weighted average remaining vesting period of 1.8 years. As of June 30, 2019 and 2018, there was no intrinsic value associated with any outstanding stock options.

Warrants

The Company has issued warrants to purchase shares of Common Stock in conjunction with various debt and equity financings and for services. For the fiscal years ended June 30, 2019 and 2018, no warrants were exercised. Presented below is a summary of warrant activity for the fiscal years ended June 30, 2019 and 2018 (shares in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

    

Shares

    

Price (1)

    

Term (2)

    

Shares

     

Price (1)

    

Term (2)

Outstanding, beginning of fiscal year

 

45,635

  

$

1.37

 

3.4

 

32,796

  

$

1.71

 

3.7

Warrants issued for:

 

  

  

 

  

 

  

 

  

  

 

  

 

  

Consulting services

 

 —

  

 

 —

 

  

 

650

(3)

 

1.03

 

  

Debt discount for Fiscal 2018 Notes

 

 —

  

 

 —

 

  

 

12,185

(4)

 

0.52

 

  

Placement agent debt discount

 

 —

  

 

 —

 

  

 

289

(5)

 

0.52

 

  

Modification for debt discount to

 

  

  

 

  

 

  

 

  

  

 

  

 

  

former member of Board of Directors:

 

  

  

 

  

 

  

 

  

  

 

  

 

  

Replacement warrant

 

1,207

(6)

 

0.18

 

  

 

 —

  

 

 —

 

  

Canceled warrant

 

(500)

(6)

 

0.52

 

  

 

 —

  

 

 —

 

  

Warrant expirations

 

(345)

  

 

2.41

 

  

 

(285)

  

 

2.43

 

  

Outstanding, end of fiscal year

 

45,997

  

 

1.34

 

2.3

 

45,635

  

 

1.37

 

3.4

(1)

Represents the weighted average exercise price.

(2)

Represents the weighted average remaining contractual term until the warrants expire.

(3)

Consists of three warrants for an aggregate of 650,000 shares granted to consultants for services that were immediately exercisable. The commitment date fair value of approximately $0.5 million is included in consulting expense for the fiscal year ended June 30, 2018. The fair value of these warrants was determined on the commitment date using the BSM option-pricing model. Key weighted average assumptions included the grant date fair value of Company’s Common Stock of $1.07 per share, expected volatility of 82%, a risk-free interest rate of 2.1%, and a remaining term of 6.5 years.

(4)

The aggregate commitment date fair value of the warrants issued to convertible note holders and the placement agent was approximately $3.8 million. The warrants and debt were recorded based on their relative fair value which resulted in a debt discount of $2.5 million related to the Fiscal 2018 Notes discussed in Note 5. The fair value of these warrants was determined on the commitment date using the BSM option-pricing model. Key weighted average assumptions included the grant date fair value of Company’s Common Stock of $0.45 per share, expected volatility of 96%, a risk-free interest rate of 2.8%, and an estimated term of 5.0 years.

(5)

Pursuant to the terms of the warrants, the exercise price was not established until June 30, 2018 so the fair value of these warrants was determined using a lattice option-pricing model. Key weighted average assumptions included the grant date fair value of Company’s Common Stock of $0.58 per share, expected volatility of 86%, a risk-free interest rate of 2.8%, a remaining term of 10 years, and a discount rate of 20%.

(6)

As discussed in Note 10, in January 2019 the Company agreed to modify a warrant originally issued in June 2018 for 500,000 shares that was exercisable at $0.52 per share. This warrant was originally issued in connection with one of the Fiscal 2018 Notes issued to a former member of the Board of Directors. The difference between the fair value of the modified warrant and the fair value of the canceled warrant amounted to $138,000, which was accounted for as an additional debt discount that was charged to interest expense upon repayment of the Fiscal 2018 Notes on January 30, 2019. Key assumptions for valuation of the modified warrant and the canceled warrant included the fair value of Company’s Common Stock on the modification date of $0.23 per share, expected volatility of 100%, a risk-free interest rate of 2.5%, and an estimated remaining term of 4.0 years.

In order to calculate the fair value of the warrants discussed above, certain assumptions were made regarding components of the BSM and lattice valuation models, including volatility of the Company’s Common Stock trading price which was estimated based on several peer companies, the remaining term of the warrant, and the risk-free interest rate that coincides with the remaining term. For the valuation of all of the warrants discussed above, the Company assumed that no dividends would be paid over the expected remaining term since the Company has never paid dividends and does not expect to pay dividends in the future.