Stock Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Stock Based Compensation

Stock Based Compensation

Our 2017 Stock Incentive Plan (the “2017 Plan”) and 2010 Stock Incentive Plan (the “2010 Plan”) provides for the issuance of 4,530,071 shares of our common stock. We have granted stock options to executive officers, employees, members of our board of directors, and certain outside consultants. The terms and conditions upon which options become exercisable vary among grants; however, option rights expire no later than ten years from the date of grant and employee and Board of Director awards generally vest over three to five years on a straight-line basis. As of December 31, 2019, we had 4,006,351 vested and unvested stock options outstanding and 328,369 shares reserved for future awards.

Share-based compensation expense was approximately $5.2 million and $2.1 million for the years ended December 31, 2019 and 2018, respectively.

The assumptions used in the Black-Scholes option-pricing model are determined as follows:

	December 31, 2019		December 31, 2018
Volatility	100.34	%	100.34% - 102.90
Risk-free interest rate	1.63%-2.60%		2.56% - 2.85%
Expected life (in years)	2.85-6.08		2.4 - 6.08
Dividend yield	0	%	0	%

The expected volatility assumptions have been based on the historical and expected volatility of our stock, measured over a period generally commensurate with the expected term. The weighted average expected option term for the year ended December 31, 2019, reflects the application of the simplified method prescribed in Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 107 (as amended by SAB 110), which defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches.

Stock Options – Employees and Directors

A summary of stock option activity for employee and director grants is as follows:

	Number of Shares Outstanding	Weighted- Average Exercise Price
Balance, December 31, 2017	1,885,383	$	11.46
Stock options granted	1,985,539	7.70
Stock options forfeited and canceled	(109,644)	14.29
Balance, December 31, 2018	3,761,278	$	9.44
Exercisable at December 31, 2018	721,766	$	17.14
Stock options granted	1,459,289	14.18
Stock options exercised	(195,351)	9.69
Stock options forfeited and canceled	(1,068,865)	10.36
Balance at December 31, 2019	3,956,351	$	10.93
Exercisable at December 31, 2019	1,062,178	$	11.24

Share-based compensation expense relating to stock options granted to employees and directors was $5.1 million and $2.1 million for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, there was $18.0 million of unrecognized compensation costs related to non-vested share-based compensation arrangements granted to employees and directors under the Plan. These costs are expected to be recognized over a weighted-average period of 2.67 years.

Stock Options and Warrants – Non-employees

The Company issued 50,000 stock options to consultants as of December 31, 2019 at a weighted average exercise price of $9.93. Stock option expense related to consultants was $0.1 million for the year ended December 31, 2019.

In addition to stock options granted under the Plan, we have also granted warrants to purchase common stock to certain non-employees that have been approved by our Board of Directors.

A summary of warrants granted to non-employees outstanding as of December 31, 2019 and 2018 is as follows:

	Number of Warrants Outstanding	Weighted- Average Exercise Price
Warrants issued in connection with debt agreements	224,440	$	16.04
Warrants issued for services	4,167	13.82
Balance at December 31, 2019	228,607	$	16.00

	Number of Warrants Outstanding	Weighted- Average Exercise Price
Warrants issued in connection with debt agreements	9,720	$	7.72
Warrants issued for services	24,000	4.68
Balance at December 31, 2018	33,720	$	5.56

A summary of warrant activity for the years ended December 31, 2019 and 2018 is as follows:

	Number of Warrants Outstanding	Weighted- Average Exercise Price
Balance at December 31, 2017	2,011,528	$	4.85
Warrants granted	33,720	5.56
Warrants exercised	(436,252)	(4.70)
Balance at December 31, 2018	1,608,996	$	4.71
Warrants granted	228,607	16.00
Warrants exercised	(232,461)	(4.85)
Warrants expired	(54,167)	(12.46)
Balance at December 31, 2019	1,550,975	$	6.08

Performance-Based and Market-Based Awards

The Company’s Compensation Committee designed a compensation structure to align the compensation levels of certain executives to the performance of the Company through the issuance of performance-based and market-based stock options. The performance-based options vest upon the Company meeting certain revenue targets and the total amount of compensation expense recognized is based on the number of shares that the Company determines are probable of vesting. The market-based options vest

upon the Company’s stock price reaching a certain price at a specific performance period and the total amount of compensation expense recognized is based on a Monte Carlo simulation that factors in the probability of the award vesting.

Issuances under this structure are as follows:

Grant Date	Performance Measures	Vesting Term	Performance Period	# of Shares	Exercise Price
December 2017	Weighted Average Price of our common stock is $15.00 for at least twenty trading days within a period of thirty consecutive trading days ending on the trading day prior to January 1, 2023.	Fully vest on January 1, 2023	January 1, 2023	642,307	$	7.50
August 2018	Weighted Average Price of our common stock is $15.00 for at least twenty trading days within a period of thirty consecutive trading days ending on the trading day prior to January 1, 2023.	Fully vest on January 1, 2023	January 1, 2023	397,693	$	7.50
April 2018	The Options will be divided into five equal tranches and Performance Targets to be established by Board of Directors for each tranche at the beginning of the fiscal year	Amended and vested 115,950 options based on severance agreement	Amended and vested 115,950 options based on severance agreement	115,950	$	7.50
August 2018	The Options will be divided into five equal tranches and Performance Targets to be established by Board of Directors for each tranche at the beginning of the fiscal year	Amended and fully forfeited based on severance agreement	Amended and fully forfeited based on severance agreement	—	$	7.50

During the quarter ended September 30, 2019, the Company determined that it is not probable to achieve its internal performance targets for the tranche issued for the fiscal year 2019, resulting the reversal of the compensation expense recognized previously for the shares that did not vest.

During the quarter ended December 31, 2019, the company entered into a separation agreement with a key executive as part of restructuring the organization. As part of the agreement, 115,950 of previously forfeited awards were immediately vested. As a result, $1.1 million of stock compensation expense was recorded during the quarter and has been classified in operating expenses' within the consolidated statement of operations. The remaining awards has been forfeited.