Convertible Preferred Stock and Stockholders' Equity

12 Months Ended

Dec. 31, 2018

Stockholders' Equity Note [Abstract]

Convertible Preferred Stock and Stockholders' Equity

10. Convertible Preferred Stock and Stockholders’ Equity

The holders of common stock are entitled one vote for each share held and to receive dividends whenever funds are legally available and when declared by the Board of Directors subject to the prior rights of holders of all classes of stock having priority rights as dividends and the conditions of the Revolving Credit Agreement. No dividends have been declared or paid as of December 31, 2018.

Convertible Preferred Stock and Warrants

In September 2016, the Company issued 24,000 shares of Series A Convertible Preferred Stock, par value $0.001 with a stated value of $1,000 per share which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65 per share and (ii) warrants to purchase an aggregate of 36,923,078 shares of common stock. The convertible preferred shares are entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations. The convertible preferred shares bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation, dissolution or winding up of the Company or any redemption of the convertible preferred shares. Each holder of convertible preferred shares has the right to require us to redeem such holder’s convertible preferred shares upon the occurrence of specified events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to redeem the convertible preferred shares in the event of a defined change of control. The convertible preferred shares rank senior to our common stock as to distributions and payments upon the liquidation, dissolution, and winding up of the Company. Since the convertible preferred shares are subject to conditions for redemption that are outside the Company’s control, the convertible preferred shares are presently reported in the mezzanine section of the balance sheet.

The warrants issued in conjunction with the convertible preferred stock have an exercise price equal to $0.70 per share subject to adjustments as provided under the terms of the warrants. The warrants are exercisable through September 29, 2021, subject to specified beneficial ownership issuance limitations. Prior to their modification in February 2018, the warrants were puttable upon the occurrence of certain events outside of the Company’s control, and were classified as liabilities under ASC 480-10. The calculated fair value of the warrants was periodically re-measured with any changes in value recognized in “Other income (expense)” in the Statements of Operations. See Note 11 for additional details.

The warrants were modified on February 28, 2018 to allow for a reduction in the exercise price from $0.70 per share to $0.28 per share for a period between March 1, 2018 and March 5, 2018. Additionally, the beneficial ownership limitation related to the warrants was modified and the right of holders to require the Company to redeem their SPA Warrants in exchange for cash in certain circumstances was eliminated. Following these modifications, the warrants were no longer subject to liability accounting and were reclassified to equity. During the restricted exercise period, Stereotaxis received exercise notices for 35,791,927 warrants and received an aggregate of $10.0 million in cash from the warrant exercise. As a result of these transactions, total stockholders’ equity increased by $27.0 million and common shares outstanding increased by 35,791,927 shares.

The Company has reserved shares of common stock for conversion of convertible preferred stock, exercise of warrants, and the issuance of options granted under the Company’s stock option plan and its stock purchase plan as follows:

	December 31, 2018		December 31, 2017
Warrants		1,131,151		38,779,119
Series A Convertible Preferred Stock Series		47,844,562		47,844,562
Stock award plans		4,438,503		5,573,046
Employee Stock Purchase Plan		51,251		125,618
		53,465,467		92,322,345

Stock Award Plans

The Company has various stock plans that permit the Company to provide incentives to employees and directors of the Company in the form of equity compensation. In August 2012, the Board of Directors adopted a stock incentive plan (the 2012 Stock Incentive Plan) which was subsequently approved by the Company’s stockholders. This plan replaces the 2002 Stock Incentive Plan which expired on March 25, 2012.

The 2012 Stock Incentive Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted share units to employees, directors, and consultants. Options granted under the 2012 Stock Incentive Plan expire no later than ten years from the date of grant. The exercise price of each incentive stock option shall not be less than 100% of the fair value of the stock subject to the option on the date the option is granted. The vesting provisions of individual options may vary, but incentive stock options generally vest 25% on the first anniversary of each grant and 1/48 per month over the next three years. Stock appreciation rights are rights to acquire a calculated number of shares of the Company’s common stock upon exercise of the rights. The number of shares to be issued is calculated as the difference between the exercise price of the right and the aggregate market value of the underlying shares on the exercise date divided by the market value as of the exercise date. Stock appreciation rights granted under the 2012 Stock Incentive Plan generally vest 25% on the first anniversary of such grant and 1/48 per month over the next three years and expire no later than ten years from the date of grant. The Company generally issues new shares upon the exercise of stock options and stock appreciation rights.

Restricted share grants are either time-based or performance-based. Time-based restricted shares generally cliff vest three years after grant. Performance-based restricted shares vest upon the achievement of performance objectives which are determined by the Company’s Board of Directors.

Restricted stock unit grants are time-based and generally vest over a period of four years. Options granted to non-employee directors expire no later than ten years from the date of grant. The exercise price of options to non-employee directors shall not be less than 100% of the fair value of the stock subject to the option on the date the option is granted. Initial grants of equity awards to new directors generally vest over a two year period. Annual grants to directors generally vest between one and five years following grant.

A summary of the option and stock appreciation rights activity for the year ended December 31, 2018 is as follows:

	Number of Options/SARs			Range of Exercise Price		Weighted Average Exercise Price per Share
Outstanding, December 31, 2017		413,301		$	0.62 - $54.90	$	9.04
Granted		950,500		$	0.74 - $1.07	$	0.76
Exercised		(2,916	)	$	0.62	$	0.62
Forfeited		(195,799	)	$	0.62 - $54.90	$	7.66
Outstanding, December 31, 2018		1,165,086		$	0.74 - $43.90	$	2.54

As of December 31, 2018, the weighted average remaining contractual life of the options and stock appreciation rights outstanding was 8.18 years. Of the 1,165,086 options and stock appreciation rights that were outstanding as of December 31, 2018, 291,679 were vested and exercisable with a weighted average exercise price of $7.83 per share and a weighted average remaining term of 5.16 years.

A summary of the options and stock appreciation rights outstanding by range of exercise price is as follows:

	Year Ended December 31, 2018
Range of Exercise Prices	Options Outstanding		Weighted Average Remaining Life		Weighted Average Exercise Price		Number of Options Currently Exercisable		Weighted Average Exercise Price Per Vested Share
$0.00 - $1.00		818,500		9.18	$	0.75		-	$	-
$1.01 - $2.00		101,500		7.86	$	1.48		51,718	$	1.86
$2.01- $4.00		115,791		6.11	$	2.15		110,666	$	2.15
$4.01 - $10.00		86,500		5.24	$	4.04		86,500	$	4.04
$10.01 - $20.00		-		-	$	-		-	$	0.00
$30.01 - $40.00		30,545		1.92	$	34.74		30,545	$	34.74
$40.01 - $50.00		12,250		0.44	$	43.90		12,250	$	43.90
		1,165,086		8.18	$	2.54		291,679	$	7.83

The intrinsic value of options and stock appreciation rights is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the options and stock appreciation rights that were in-the-money at December 31, 2018. The intrinsic value of the options and stock appreciation rights outstanding at December 31, 2018 was approximately $0.3 million based on a closing share price of $1.08 on December 31, 2018. There were no fully vested options or stock appreciation rights outstanding at December 31, 2018 with an exercise price less than the closing stock price on December 31, 2018. During the year ended December 31, 2018 the aggregate intrinsic value of options and stock appreciation rights exercised under the Company’s stock option plans was less than $0.1 million. No options or stock appreciation rights were exercised under the Company’s stock option plans during the year-ended December 31, 2017, and the Company realized no proceeds during that period. The weighted average grant date fair value of options and stock appreciation rights granted during the year ended December 31, 2018 was $0.76 per share.

A summary of the restricted stock unit activity for the year ended December 31, 2018 is as follows:

	Number of Restricted Stock Units			Weighted Average Grant Date Fair Value per Unit
Outstanding, December 31, 2017		680,363		$	1.11
Granted		422,167		$	0.80
Vested		(385,606	)	$	1.24
Forfeited		(69,275	)	$	1.12
Outstanding, December 31, 2018		647,649		$	0.83

The intrinsic value of restricted stock units outstanding at December 31, 2018 was $0.7 million based on a closing share price of $1.08 as of December 31, 2018. During the year ended December 31, 2018, the aggregate intrinsic value of restricted stock units vested was $0.3 million determined at the date of vesting.

As of December 31, 2018, the total compensation cost related to options, stock appreciation rights and non-vested stock granted to employees under the Company’s stock award plans but not yet recognized was approximately $0.6 million. This cost will be amortized over a period of up to four years over the underlying estimated service periods and will be adjusted for subsequent changes in actual forfeitures and anticipated vesting periods.

2009 Employee Stock Purchase Plan

In 2009, the Company adopted its 2009 Employee Stock Purchase Plan (“ESPP”). In June 2014, our shareholders approved an amendment of the ESPP to increase the number of shares authorized for issuance under the ESPP by 250,000 shares. Eligible employees have the opportunity to participate in a new purchase period every 3 months. Under the terms of the plan, employees can purchase up to 15% of their compensation of the Company’s common stock, subject to an annual maximum of $25,000, at 95% of the fair market value of the stock at the end of the purchase period, subject to certain plan limitations. As of December 31, 2018, there were 51,251 remaining shares available for issuance under the Employee Stock Purchase Plan.