Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION AND WARRANTS

v3.19.3
STOCK-BASED COMPENSATION AND WARRANTS
 3 Months Ended
Sep. 30, 2019
STOCK-BASED COMPENSATION AND WARRANTS  
STOCK-BASED COMPENSATION AND WARRANTS

NOTE 6 — STOCK-BASED COMPENSATION AND WARRANTS

Stock Option Plans

The Company currently has three active stock option plans consisting of the 2015 Non-Qualified Stock Option Plan (the “2015 Plan”), the 2016 Non-Qualified Stock Option Plan, as amended (the “2016 Plan”), and the 2019 Non Qualified Stock Option Plan (the “2019 Plan”). On July 31, 2019, the 2019 Plan was adopted by the Board of Directors and provides authority to grant non-qualified stock options for up to 15.0 million shares of the Company’s Common Stock. The Company also has stock options outstanding to purchase up to approximately 2.2 million shares of Common Stock 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. Presented below is a summary of the number of shares authorized, outstanding, and available for future grants under each of the Company’s stock option plans (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Termination

 

Number of Shares

Description

    

Date

    

Authorized

    

Outstanding

    

Available

2014 Plan

 

March 2019

 

2,185

 

2,185

 

 —

2015 Plan

 

February 2020

 

6,850

 

2,610

 

4,240

2016 Plan

 

October 2021

 

28,000

 

26,630

 

1,370

2019 Plan

 

July 2029

 

15,000

 

15,000

 

 —

Total

 

  

 

52,035

 

46,425

 

5,610

 

July 2019 Grants

On July 31, 2019, the Board of Directors granted stock options for an aggregate of approximately 34.0 million shares of Common Stock to certain officers and employees at an exercise price of $0.29 per share. The closing price of the Company’s shares of Common Stock on the date of grant was approximately $0.21 per share. The option grants were designated for approximately 19.0 million shares under the 2016 Plan and 15.0 million shares under the 2019 Plan. As of July 31, 2019, the number of shares subject to stock options, the related fair value and compensation that was immediately recognized for vested options are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time-Based Vesting

 

 

Hybrid

 

 

 

 

 

Number of Shares

 

 

Vesting

 

 

 

 

    

Vested

  

    

Unvested

  

 

Shares

  

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive officers

 

 

3,588

(1)

 

 

11,562

(1)(3)

 

 

7,550

(2)(3)

 

22,700

Other employees

 

 

921

(1)

 

 

6,629

(1)

 

 

3,700

(2)

 

11,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

4,509

 

 

 

18,191

 

 

 

11,250

(6)

 

33,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fair value

 

$

817

(4)

 

$

3,297

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Stock options are subject to time-based vesting in two tranches, whereby (i) 25% of such options are immediately exercisable for employees who have been employed by the Company for more than one year, and for employees that have been employed by the Company less than one year, 25% of such options will vest on the one year anniversary of the employee’s start date, and (ii) the remaining 75% of the stock options will vest ratably over a period of 36 months beginning on the vesting date for the initial 25% tranche.

(2)

Stock options that commence vesting upon the achievement of market, performance and service conditions (‘Hybrid” terms). These options will vest ratably over a period of 36 months beginning when all of the following have occurred: (i) the option recipient has been employed by the Company for at least one year, (ii) the Company’s shares of Common Stock have been listed for trading on a national stock exchange, and (iii) such date no later than July 31, 2023, when the Company’s closing stock price exceeds $0.58 per share for 20 trading days in any consecutive 30 day period.

(3)

In August 2019, an executive officer terminated employment which resulted in forfeiture of stock options shown in the table above with time-based vesting for 0.8 million shares and performance vesting for 0.4 million shares.

(4)

Represents the aggregate grant date fair value for stock options that were immediately vested on the grant date, which is included in stock-based compensation expense for the three months ended September 30, 2019.

(5)

Represents the aggregate grant date fair value for stock options that were not immediately vested on the grant date and will be charged to expense from the grant date through the respective vesting dates through July 2023.

(6)

A Monte Carlo valuation model will be used to determine the grant date fair value of these stock options that commence vesting upon the achievement of market, performance and service conditions. The Company has not recognized any expense related to these stock options for the three months ended September 30, 2019, since it is not yet probable that the performance criterion will be achieved. The Company will begin recognizing compensation expense at such time that the performance criterion is achieved and continuing through the end of the requisite service period which will also be determined upon completion of the Monte Carlo valuation.

Stock Options Outstanding

The following table sets forth a summary of the combined stock option activity under all of the Company’s stock option plans for the three months ended September 30, 2019 (shares in thousands):

 

 

 

 

 

 

 

 

 

 

    

Shares

    

Price (1)

    

Term (2)

 

 

  

 

 

  

 

  

Outstanding, beginning of period

 

13,865

 

$

1.60

 

6.4

Granted

 

33,950

 

 

0.29

 

  

Forfeited

 

(1,390)

 

 

0.47

 

  

Outstanding, end of period

 

46,425

 

 

0.68

 

8.8

 

 

  

 

 

  

 

  

Vested, end of period

 

16,365

 

 

1.27

 

7.1

(1)

Represents the weighted average exercise price.

(2)

Represents the weighted average remaining contractual term for the number of years until the stock options expire.

Stock-based compensation expense is included in compensation and benefits under the following captions in the unaudited condensed consolidated statements of operations (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 30, 

 

    

2019

    

2018

 

 

 

 

 

 

 

Research and development

 

$

574

 

$

130

General and administrative

 

 

820

 

 

748

    Total

 

$

1,394

 

$

878

 

Unrecognized stock-based compensation expense related to stock options that provide solely for time-based vesting as of September 30, 2019 is approximately $5.3 million. This amount is expected to be recognized over a remaining weighted average period of 2.4 years. The Company has not completed its Monte Carlo valuation of stock options with hybrid vesting criteria so the related unrecognized compensation has not yet been determined. The three-year vesting period for these stock options commences upon achievement of all three of the market, performance and service conditions discussed above. If the market condition is not achieved by July 31, 2023, the stock options will expire. Unrecognized compensation related to stock options with hybrid vesting criteria will be based on a derived service period and is expected to be recognized starting when it is considered probable that the performance criterion will be achieved.

For the three months ended September 30, 2019, the aggregate fair value of stock options granted for approximately 22.7 million shares of Common Stock that provide solely for time-based vesting, amounted to $4.1 million or approximately $0.18 per share as of the grant date. Fair value was computed using the Black-Scholes-Merton (“BSM”) option-pricing model and will result in the recognition of compensation cost ratably over the expected vesting period of the stock options. For the three months ended September 30, 2019, the fair value of each time-based option was estimated on the date of grant using the BSM option-pricing model, with the following weighted-average assumptions:

 

 

 

 

 

 

 

 

 

 

 

Valuation Inputs

    

  

 

    

 

 

 

 

 

Fair value of common stock on grant date

 

$

0.21

 

Exercise price of stock options

 

 

0.29

 

Expected volatility 

 

 

118

%  

Risk free interest rate 

 

 

1.9

%  

Expected term (years) 

 

 

6.5

 

Dividend yield 

 

 
0

%  

 

Warrants

The Company has issued warrants in conjunction with various debt and equity financings and for services. For the three months ended September 30, 2019, no warrants were granted or exercised. Presented below is a summary of warrant activity for the three months ended September 30, 2019 (shares in thousands):

 

 

 

 

 

 

 

 

 

 

    

Shares

    

Price (1)

    

Term (2)

Outstanding, beginning of period

 

45,997

 

$

1.34

 

2.3

Warrant expirations

 

(451)

 

 

1.85

 

  

Outstanding, end of period

 

45,546

 

 

1.33

 

2.1

(1)

Represents the weighted average exercise price.

(2)

Represents the weighted average remaining contractual term for the number of years until the warrants expire.