Quarterly report pursuant to Section 13 or 15(d)

Stock-based Activity

v3.7.0.1
Stock-based Activity
6 Months Ended
Jun. 30, 2017
Notes to Financial Statements  
Stock-based Activity

Amendment of Equity Incentive Plan

 

On March 31, 2015, the Company approved a Second Amended and Restated 2014 Employee, Director and Consultant Equity Incentive Plan (the “Plan”) to increase the number of shares reserved for issuance under the Plan from 21,362 to 1,129,837 shares of common stock. Additional changes to the Plan include:

 

An “evergreen” provision to reserve additional shares for issuance under the Plan on an annual basis commencing on the first day of fiscal 2016 and ending on the second day of fiscal 2024, such that the number of shares that may be issued under the Plan shall be increased by an amount equal to the lesser of: (i) 1,081,081 or the equivalent of such number of shares after the administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the Plan; (ii) the number of shares necessary such that the total shares reserved under the Plan equals (x) 15% of the number of outstanding shares of common stock on such date (assuming the conversion of all outstanding shares of Preferred Stock (as defined in the Plan) and other outstanding convertible securities and exercise of all outstanding warrants to purchase common stock) plus (y) 30,946; and (iii) an amount determined by the Board.

   

 

Provisions that no more than 405,406 shares may be granted to any participant in any fiscal year.

   

Provisions to allow for performance based equity awards to be issued by the Company in accordance with Section 162(m) of the Internal Revenue Code.

 

On September 22, 2016, the Board of Directors ratified an automatic increase in the number of shares reserved for issuance under the Plan, increasing the total shares reserved from 1,129,837 to 1,208,307 shares of common stock, under the annual evergreen provision for the Plan, plus a fixed amount of 30,946.

   

On January 1, 2017, the Board of Directors ratified an automatic increase in the number of shares reserved for issuance under the Plan, effective January 1, 2017, increasing the total shares reserved from 1,208,307 to 2,159,352 shares of common stock, under the annual evergreen provision for the Plan , plus a fixed amount of 30,946.

   

On June 12, 2017, at the Company’s stockholders at its annual meeting approved a proposal to increase in the number of shares reserved for issuance under the Plan, increasing the total shares reserved under the Plan from 2,128,406 (including the fixed amount of 30,946) to 4,128,406, and increasing the number of shares that may be granted to any participant in any fiscal year to 900,000, from 405,406.

 

Stock-based Compensation

 

We measure stock-based compensation expense for equity-classified awards, principally related to stock options and restricted stock units, or RSUs, based on the estimated fair value of the award on the date of grant. We recognize the value of the portion of the award that we ultimately expect to vest as stock-based compensation expense over the requisite service period in our condensed consolidated statements of operations. Due to limited activity in 2017, 2016 and 2015, we assumed a forfeiture rate of zero.

 

We use the Black-Scholes model to estimate the fair value of stock options granted. The expected term of stock options granted represents the period of time that we expect them to be outstanding. For the three and six months ended June 30, 2017 and 2016, the following valuation assumptions were used:

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

  2017   2016   2017   2016
Risk-free interest rate 1.8%   1.2 to 1.4%   1.5 to 2.0%   1.2 to 1.4%
Dividend yield 0%   0%   0%   0%
Expected volatility 80%   82 to 84%   73 to 85%   82 to 84%
Expected life of options, in years 5 yrs.   6 yrs.   1.4 to 6.0 yrs.   6 yrs.
Weighted-average grant date fair value $1.14   $2.76   $1.53   $2.93

 

Total estimated stock-based compensation expense, related to all of the Company’s stock-based payment awards recognized under ASC 718, “Compensation—Stock Compensation” and ASC 505, “Equity” was comprised of the following:

 

    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2017     2016     2017     2016  
Research and development   $ 376,684     $ 284,057     $ 697,359     $ 587,681  
General and administrative     2,093,140       673,506       2,805,277       1,903,770  
Total stock-based compensation expense   $ 2,469,824     $ 957,563     $ 3,502,636     $ 2,491,451  

 

Stock-based Award Activity

 

The following table summarizes the Company’s stock option activity during the six months ended June 30, 2017:

 

    Options Outstanding     Weighted-Average Exercise Price  
Outstanding at December 31, 2016     851,375     $ 10.94  
Granted     2,046,690       2.37  
Exercised            
Forfeited/cancelled/expired     (1,081 )     4.19  
Outstanding and expected to vest at June 30, 2017     2,896,984     $ 4.89  
Vested and exercisable at June 30, 2017     1,672,364     $ 4.73  

 

The total unrecognized compensation cost related to unvested stock option grants as of June 30, 2017, was $3,385,133 and the weighted average period over which these grants are expected to vest is 2.23 years. The weighted average remaining contractual life of stock options outstanding at June 30, 2017 and 2016 is 9.35 and 9.0 years, respectively.

 

During the first six months of 2017, the Company granted 2,046,690 options to officers and employees with a weighted average exercise price of $2.37 which consisted of 1,300,000 shares vesting immediately at grant and remainder vesting over a three-year period starting at the one-year anniversary of the grant date.  During the first six months of 2016, the Company granted 223,716 options to officers and employees with a weighted average exercise price of $5.40.

 

Stock options granted to employees generally vest over a three-year period with one third of the grants vesting at each one-year anniversary of the grant date.  

 

Because the Company had a net operating loss carryforward as of June 30, 2017, no tax benefits for the tax deductions related to stock-based compensation expense were recognized in the Company’s condensed consolidated statements of operations. Additionally, no stock options were exercised in the three and six months ended June 30, 2017 and 2016.

 

A summary of activity related to restricted stock grants under the Plan for the six months ended June 30, 2017 is presented below:

 

    Shares     Weighted Average Grant-Date Fair Value  
Non-vested at December 31, 2016     205,478     $ 16.84  
Granted            
Vested     (98,238 )     17.02  
Forfeited            
Non-vested at June 30, 2017     107,240     $ 16.84  

 

As of June 30, 2017, there were 107,240 nonvested restricted stock units remaining outstanding.

 

As of June 30, 2017, and 2016, unamortized compensation expense related to restricted stock grants amounted to $1,271,294 and $2,975,469, respectively, which is expected to be recognized over a weighted average period of 0.79 and 1.8 years, respectively.

 

Management Bonus Plan and Compensation for Non-Employee Directors

 

On February 16, 2016, our Compensation Committee approved a 2016 Management Bonus Plan (the “2016 Management Plan”) outlining maximum target bonuses of the base salaries of certain of our executive officers. Under the terms of the 2016 Management Plan, the Company's Chief Executive Officer shall receive a maximum target bonus of up to 50% of his annual base salary, and the Chief Financial Officer and each of the Company's Vice Presidents shall receive a maximum target bonus of up to 30% of their annual base salary.

 

On February 16, 2016, the Compensation Committee of the Board of Directors of the Company approved the following amendments to Company's policy for compensating non-employee members of the Board:

 

The initial equity grant upon first appointment (or election) of future non-employee directors to the Board shall be a 10-year option to purchase 6,757 shares of the Company's common stock, under the Company's Second Amended and Restated 2014 Equity Incentive Plan with 3-year annual vesting and a strike price equal the closing price of the Company's common stock on the effective date of the appointment (or election);

 

The annual cash retainer for each non-employee director, paid quarterly, is increased by $1,000 per calendar quarter to a total of $7,000 per quarter, effective April 1, 2016; and

 

The additional annual cash retainer for the chairperson of each of the Audit, Compensation, and Nominating and Governance Committees, paid quarterly, is increased by $1,000 per calendar year, such that each chairperson retainer shall be as follows, effective April 1, 2016: Audit Committee: $13,000; Compensation Committee: $9,000; Nominating and Governance Committee: $6,000.

 

On August 25, 2016, the Compensation Committee of the Board of Directors of the Company approved the following amendments to Company's policy for compensating non-employee members of the Board:

 

The initial equity grant upon first appointment (or election) of future non-employee directors to the Board shall be a 10-year option to purchase 25,000 shares of the Company's common stock, under the Company's Second Amended and Restated 2014 Equity Incentive Plan with 3-year annual vesting and a strike price equal to the closing price of the Company's common stock on the effective date of the appointment (or election); and

 

The additional automatic annual option grant to each non-employee director on the date of the Company's annual meeting shall be a 10-year option to purchase 17,500 shares of the Company's common stock, under the Company's Second Amended and Restated 2014 Equity Incentive Plan with 1-year vesting and a strike price equal to the closing price of the Company's common stock on the date of the annual meeting.

 

On February 6, 2017, the Compensation Committee of the Board of Directors of the Company approved the following amendments to Company's policy for compensating non-employee members of the Board:

 

The initial equity grant upon first appointment (or election) of future non-employee directors to the Board shall be a 10-year option to purchase 30,000 shares of the Company's Common Stock, under the Company's Second Amended and Restated 2014 Equity Incentive Plan with 3-year annual vesting and a strike price equal to the closing price of the Company's common stock on the effective date of the appointment (or election);

 

The additional automatic annual option grant to each non-employee director on the date of the Company's annual meeting shall be a 10-year option to purchase 20,000 shares of the Company's Common Stock, under the Company's Second Amended and Restated 2014 Equity Incentive Plan with 1-year vesting and a strike price equal the closing price of the Company's common stock on the date of the annual meeting.

 

Common stock reserved for future issuance

 

Common stock reserved for future issuance consists of the following at June 30, 2017:

 

Common stock reserved for conversion of preferred stock and warrants     8,038,563  
Common stock options outstanding     2,896,984  
Authorized for future grant or issuance under the Stock Plan     972,129  
Unvested restricted stock     107,240  
Total     12,014,916