Note 6 - Stockholders' Equity and Stock-based Compensation

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

6. Stockholders’ Equity and Stock-Based Compensation

Preferred Stock

The Company has authorized a total of 50,000,000 shares of preferred stock, par value $0.001 per share, none of which were outstanding at December 31, 2022 and 2021. The Company’s Board of Directors (the “Board”) has the authority to issue preferred stock and to determine the rights, preferences, privileges, and restrictions, including voting rights, without any further vote or action by the Company’s stockholders.

Common Stock

The Company has authorized a total of 500,000,000 shares of common stock, par value $0.001 per share.

Rights Offering

On June 9, 2022, the Company completed a rights offering (the “2022 Rights Offering") resulting in the sale of 7,317,072 units (the “Units”), at a price of $2.05 per Unit, with each Unit consisting of one share of the Company’s common stock, par value $0.001 per share, and one warrant (the “2022 Rights Offering Warrants”) to purchase one share of common stock. The common stock and warrants comprising the Units separated upon the closing of the 2022 Rights Offering and were issued individually. 7,317,072 shares of common stock and warrants to acquire up to an additional 7,317,072 shares of common stock were issued in the 2022 Rights Offering. The Company received aggregate gross proceeds from the 2022 Rights Offering of $15 million. If exercised, additional gross proceeds of up to $15 million may be received through the exercise of the 2022 Rights Offering Warrants. Each 2022 Rights Offering Warrant is exercisable for one share of the Company’s common stock at an exercise price equal to $2.05. The 2022 Rights Offering Warrants are exercisable immediately and expire on the fifth anniversary of the closing of the 2022 Rights Offering. The 2022 Rights Offering Warrants are subject to redemption by the Company for $0.01 per underlying share of common stock, on not less than 30 days written notice, if the volume weighted average price of the Company’s common stock equals or exceeds 200% of the exercise price for the warrants, subject to adjustment, per share, for 20 consecutive trading days, provided that the Company may not redeem the warrants prior to the date that is three months after the issuance date. Robert W. Duggan, the Company’s largest stockholder and Executive Chairman, purchased approximately 56% of the shares offered in the 2022 Rights Offering.

Private Placement Securities Purchase Agreement

On June 30, 2021, the Company entered into a Securities Purchase Agreement with Robert W. Duggan, the Company’s largest stockholder and Executive Chairman, pursuant to which the Company issued and sold to Mr. Duggan 3,048,780 shares of the Company’s common stock, par value $0.001 per share, in a private placement (the “Private Placement”), at a price per share of $16.40, which was the market closing price on the date of the transaction. These shares were paid for through (i) the conversion of $41.0 million aggregate principal amount, together with all accrued and unpaid interest outstanding, owed to Mr. Duggan under the Loan Agreement by and between the Company and Mr. Duggan (Note 13), and (ii) additional cash in the amount of approximately $8.4 million. Upon the closing of this Private Placement and satisfaction of the outstanding debt, the Loan Agreement terminated, without any early termination fees or penalties being owed by the Company, and no additional amounts were owed to Mr. Duggan under the Loan Agreement. The cash proceeds of approximately $8.4 million were received by the Company in July 2021.

At-the-Market Equity Offering

On February 4, 2021, the Company entered into a sales agreement (the “Sales Agreement”) with Stifel, Nicolaus & Company, Inc. (“Stifel”) as sales agent, pursuant to which the Company may offer and sell, from time to time, through Stifel, up to $60.0 million in shares of common stock, by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Company has no obligation to make any sales of its common stock pursuant to such Sales Agreement. During the year ended December 31, 2022, the Company did not issue or sell any shares of common stock under the Sales Agreement. During the year ended  December 31, 2021 the Company issued and sold 288,490 shares of common stock under the Sales Agreement. The shares were sold at a weighted average price of $27.73 per share for aggregate net proceeds of approximately $7.4 million, after deducting sales commissions and offering costs payable by the Company.

Common Stock Warrants

In connection with a private placement in November 2014 of the Company’s common stock, par value $0.001 per share, the Company issued warrants as compensation to the placement agent to purchase a total of 299,625 shares of its common stock at an exercise price of $2.67 per share (the “Private Placement Warrants”). The Private Placement Warrants were exercisable for a period of seven years from issuance. In March 2021, warrants to purchase 45,638 shares of common stock were net exercised, resulting in the issuance of 40,563 shares of common stock. In November 2021, the last remaining 600 Private Placement Warrants expired unexercised, resulting in no further Private Placement Warrants outstanding.

In connection with the closing of the Company’s initial public offering in May 2016, the Company issued warrants as compensation to its underwriters, to purchase a total of 574,985 shares of its common stock at an exercise price of $5.00 per share (the “IPO Warrants”). The IPO Warrants were exercisable for a period of five years from issuance. In March 2021, warrants to purchase 85,385 shares of common stock were net exercised, resulting in the issuance of 68,958 shares of common stock. All IPO Warrants were exercised prior to their expiration in May 2021, resulting in no further IPO Warrants outstanding.

In connection with a June 2020 rights offering, the Company issued warrants (the “2020 Rights Offering Warrants”) to purchase a total of 641,571 shares of its common stock at an exercise price of $7.01. These 2020 Rights Offering Warrants were exercisable immediately and expired on the fifth anniversary of the completion of the Rights Offering, or June 16, 2025, subject to certain redemption rights by the Company. The 2020 Rights Offering Warrants were subject to redemption by the Company, on or after December 16, 2020, six months after the issuance date, for $0.01 per warrant, with not less than 30 days written notice, if the volume weighted average price of our common stock equaled or exceeded 200% of the exercise price for the 2020 Rights Offering Warrants for 10 consecutive trading days. On December 31, 2020, the Company met the requirements for redemption of these warrants and delivered a notice of redemption to redeem all of the outstanding warrants that remained unexercised at February 5, 2021, for the redemption price of $0.01 per warrant. Pursuant to the redemption, the Company redeemed 5,139 warrants. Prior to the February 5, 2021 redemption date, 636,432 warrants were exercised, generating approximately $4.5 million of total gross proceeds to the Company. As of December 31, 2022, there were no 2020 Rights Offering Warrants outstanding.

In connection with the 2022 Rights Offering, the Company issued 2022 Rights Offering Warrants to purchase a total of 7,317,072 shares of its common stock at an exercise price of $2.05. The 2022 Rights Offering Warrants are exercisable immediately and expire on the fifth anniversary of the closing of the 2022 Rights Offering. The 2022 Rights Offering Warrants are subject to redemption by the Company for $0.01 per underlying share of common stock, on not less than 30 days written notice, if the volume weighted average price of the Company’s common stock equals or exceeds 200% of the exercise price for the warrants, subject to adjustment, per share, for 20 consecutive trading days, provided that the Company may not redeem the warrants prior to the date that is three months after the issuance date. In the year ended December 31, 2022, a total of 13,240 warrants were exercised. As of December 31, 2022, there were 7,303,832 2022 Rights Offering Warrants outstanding.

A summary of total warrants activity for the year ended December 31, 2022 is presented below:

						Weighted
						Average
				Weighted		Remaining
	Number of			Average		Contractual
	Shares			Exercise Price		Life (in Years)
Warrants outstanding at December 31, 2021		—		$	—		—
Issued		7,317,072			2.05
Exercised		(13,240	)		2.05
Expired/Redeemed		—			—
Warrants outstanding and exercisable at December 31, 2022		7,303,832		$	2.05		4.43

Equity Plans

2017 Equity Incentive Plan and 2017 Inducement Equity Incentive Plan

The Board previously adopted, and the Company’s stockholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”).

The 2017 Plan has a 10-year term, and provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to employees, directors and consultants of the Company and any parent or subsidiary of the Company, as the Compensation Committee of the Board may determine. Subject to an annual evergreen increase and adjustment in the case of certain capitalization events, the Company initially reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to awards under the 2017 Plan. In addition, shares remaining available under the Company’s 2015 Equity Incentive Plan, as amended (the “2015 Plan”), and shares reserved but not issued pursuant to outstanding equity awards that expire or terminate without being exercised or that are forfeited or repurchased by the Company will be added to the shares of common stock available for issuance under the 2017 Plan. The 2017 Plan is administered by the Board’s Compensation Committee. Effective January 1, 2022 and 2021, the number of shares of common stock available under the 2017 Plan increased by 1,188,657 and 1,022,002 shares, respectively, pursuant to the evergreen provision of the 2017 Plan. Under the evergreen provision of the 2017 Plan, the share increase is determined based on the least of (i) 1,200,000 shares, (ii) 4% of the Company’s common stock outstanding at December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. As of December 31, 2022, 2,368,716 shares of common stock remained available for issuance under the 2017 Plan.

During November 2017, the Board of the Company adopted the 2017 Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan was adopted without stockholder approval.

The Inducement Plan has a 10-year term and provides for the grant of equity-based awards, including non-statutory stock options, RSUs, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the 2017 Plan, including with respect to treatment of equity awards in the event of a “merger” or “change in control” as defined under the Inducement Plan. Options issued under the Inducement Plan may have a term up to ten years and have variable vesting provisions. New hire grants generally vest 25% per year starting upon the first anniversary of the grant. Equity-based awards issued under the Inducement Plan are only issuable to individuals not previously engaged as employees or non-employee directors of the Company prior to the Inducement Plan’s adoption date. In May 2021, the Board approved an amendment to the Inducement Plan to reserve an additional 1,000,000 shares of the Company’s common stock for issuance pursuant to the Inducement Plan. As of December 31, 2022, 1,053,767 shares of common stock were available for issuance under the Inducement Plan.

A summary of stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the year ended December 31, 2022 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2021		5,996,813		$	15.77		7.33
Options granted		1,440,100			2.97
Options exercised		—			—
Options canceled		(1,472,385	)		14.88
Options expired		(713,832	)		14.62
Balances — December 31, 2022		5,250,696		$	12.67		6.24
Exercisable — December 31, 2022		3,479,531		$	15.17		5.06

Time-based Options

The Company awards time-based options which vest and become exercisable, subject to the individual’s continued employment or service through the applicable vesting date. Time-based options can have various vesting schedules, most commonly new hire grants which generally vest 25% per year starting upon the first anniversary of the grant.

A summary of the time-based stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the year ended December 31, 2022 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2021		4,796,716		$	16.44		7.05
Options granted		1,240,100			2.59
Options exercised		—			—
Options canceled		(674,465	)		16.73
Options expired		(631,957	)		15.05
Balances — December 31, 2022		4,730,394		$	12.95		6.16
Exercisable — December 31, 2022		3,230,670		$	15.39		5.07

The intrinsic value of time-based options exercised during the years ended  December 31, 2022, 2021 and 2020 was zero, $0.8 million, and $1.6 million, respectively.

The fair value of the time-based options granted to employees and directors during the years ended  December 31, 2022, 2021 and 2020 was $2.3 million, $15.1 million, and $6.7 million, respectively.

Performance Options

Certain stock options awarded to the Company’s executives and other employees contain performance conditions related to certain financial measures and achievements of strategic/operational milestones. The options will vest and become exercisable once the specific performance condition is fulfilled.

A summary of the performance option activity under the 2017 Plan and Inducement Plan for the year ended December 31, 2022 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2021		1,200,097		$	13.11		8.44
Options granted		200,000			5.32
Options exercised		—			—
Options canceled		(797,920	)		13.32
Options expired		(81,875	)		11.28
Balances — December 31, 2022		520,302		$	10.08		7.02
Exercisable — December 31, 2022		248,861		$	12.25		4.92

The fair value of the performance options granted to employees during the years ended December 31, 2022, 2021 and 2020 was $0.8 million, $2.5 million, and $5.5 million, respectively.

The fair value of employee stock options was estimated using the Black-Scholes option-pricing model utilizing the following assumptions:

	Year Ended December 31,
	2022	2021	2020
Expected term in years	5.3 - 6.8	5.3 - 6.1	5.3 - 6.1
Expected volatility	83 - 88%	78%	70%
Risk-free interest rate	1.9 - 3.2%	0.9 - 1.4%	0.3 - 0.5%
Dividend yield	—	—	—

2017 Employee Stock Purchase Plan

The Board previously adopted and the stockholders approved the Company’s 2017 Employee Stock Purchase Plan (the “2017 ESPP”).

The 2017 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of Company common shares at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of 250,000 common shares of the Company were available for purchase at adoption of the 2017 ESPP. Pursuant to the 2017 ESPP, the annual share increase pursuant to the evergreen provision is determined based on the least of (i) 450,000 shares, (ii) 1.5% of the Company’s common stock outstanding at December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. In 2020 the Board determined not to increase the number of shares of common stock available pursuant to the evergreen provision. Effective January 1, 2021, pursuant to the evergreen provision of the 2017 ESPP, the number of shares of common stock available under the 2017 ESPP was increased by 383,250 shares. During the years ended December 31, 2022 and 2021, the Company issued 188,097 and 91,378 shares of common stock under the 2017 ESPP, respectively. As of December 31, 2022, 460,999 shares of common stock remained available for issuance under the 2017 ESPP.

The fair value of ESPP was estimated using the Black-Scholes option-pricing model utilizing the following assumptions:

	Year Ended December 31,
	2022	2021	2020
Expected term in years	0.5 - 1.0	0.5 - 1.0	0.5 - 1.0
Expected volatility	83%	78%	70	%
Risk-free interest rate	0.6% - 3.5%	0.06% - 0.1%	0.1% - 1.0%
Dividend yield	—	—	—

Restricted Stock Units

The fair value of RSU awards is determined based on the number of units granted and the closing price of the Company’s common stock as of the grant date. The estimated fair value of RSUs is recognized on a straight-line basis over the requisite service period.

During the year ended December 31, 2017, the Company granted 160,974 RSUs to the Chief Executive Officer, all of which vested in June 2018. These shares were partially released in 2019, resulting in a net issuance of shares. Additional paid in capital was reduced for tax payments related to shares withheld in connection with the release. The remaining shares under this grant were released in 2021, and at December 31, 2022 no shares were outstanding under this grant. There was no stock-based compensation expense related to these RSUs recorded in the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022, there was no unrecognized compensation expense related to these RSUs.

During the year ended December 31, 2017, the Company granted 68,800 RSUs to certain employees, of which 50% vested on June 1, 2019 while the remaining 50% vested on June 1, 2021. The stock-based compensation expense recorded in the years ended December 31, 2022, 2021 and 2020 related to these RSUs was approximately zero million, $0.1 million, and $0.3 million, respectively. As of December 31, 2022, there was no unrecognized compensation expense related to these RSUs.

Stock-based Compensation

Total stock-based compensation expense recorded in the consolidated statements of operations and comprehensive loss was as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Cost of revenues	$	217	$	129	$	—
Research and development		1,563		5,211		4,013
Sales and marketing		733		2,749		1,187
General and administrative		2,678		6,512		4,875
Total stock-based compensation expense	$	5,191	$	14,601	$	10,075

As of December 31, 2022, not all of the performance conditions of the performance options are probable to be achieved. Compensation expense has only been recognized for those conditions that are assumed to be probable.

In February 2021, the Compensation Committee approved of a modification to certain vesting conditions of outstanding Performance Options. The Company had not recognized any compensation expense in relation to these Performance Options as the performance condition was previously deemed to be improbable. However, upon modification those specific performance conditions were deemed probable and fully vested. As such, during the year ended December 31, 2021 the full expense in relation to the amended performance conditions was recognized resulting in $4.1 million of additional stock-compensation expense.

In October 2021, the Board amended the outstanding option awards of Kenneth A. Clark upon his resignation from the Board. The requirement that Mr. Clark exercise his vested options within ninety days of his resignation was waived. Mr. Clark will have the ability to exercise his outstanding vested option awards at any time during their ten-year term from the date of each grant, subject to earlier termination as may occur under the 2017 Plan. This amendment resulted in $1.4 million of additional stock-compensation expense during the year ended December 31, 2021.

Total stock-based compensation expense by award type was as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Time-based options	$	4,467	$	9,235	$	8,739
Performance options		233		4,840		133
RSU		—		—		86
ESPP		491		526		1,117
Total stock-based compensation expense	$	5,191	$	14,601	$	10,075

At December 31, 2022, there was $5.6 million of unrecognized compensation cost related to unvested stock-based compensation arrangements, which is expected to be recognized over a weighted average period of 2.25 years.