Note 6 - Stockholders' Equity and Stock-based Compensation

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

6. Stockholders’ Equity and Stock-Based Compensation

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. See the Common Stock Warrants section below for further details. Robert W. Duggan, the Company’s largest stockholder and Executive Chairman, purchased approximately 56% of the shares offered through the 2022 Rights Offering.

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. The Company did not issue or sell any shares of common stock under the Sales Agreement during the three months ended March 31, 2023 and 2022, respectively.

Common Stock Warrants

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. On May 10, 2023, the Company issued a press release announcing that on May 9, 2023 the terms for warrant redemption had been met. The warrants may be exercised for cash in accordance with the terms therein at any time prior to June 16, 2023, the anticipated redemption date for the warrants. In the three months ended March 31, 2023, a total of 95,639 warrants were exercised. As of March 31, 2023, there were 7,208,193 2022 Rights Offering Warrants outstanding.

Equity Plans

2017 Equity Incentive Plan and 2017 Inducement Equity Incentive Plan

The Board of Directors of the Company (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, restricted stock units, 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, 2023, the number of shares of common stock available under the 2017 Plan increased automatically by 1,200,000 shares pursuant to the evergreen provision of the 2017 Plan, which provides that the number of shares available to grant under the 2017 Plan will increase each year by the lesser 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 March 31, 2023, 3,136,838 shares of common stock remained available for issuance under the 2017 Plan.

In November 2017, the Board 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 nonstatutory stock options, restricted stock units, 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 as 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 March 31, 2023, 1,140,501 shares of common stock remained available for issuance under the Inducement Plan.

A summary of stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the three-months ended  March 31, 2023 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2022		5,250,696		$	12.67		6.24
Options granted		807,300			2.92
Options exercised		—			—
Options canceled		(68,894	)		11.24
Options expired		(380,892	)		13.07
Balances — March 31, 2023		5,608,210		$	11.25		6.90
Exercisable — March 31, 2023		3,434,715		$	14.72		5.66

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 three-months ended  March 31, 2023 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2022		4,730,394		$	12.95		6.16
Options granted		25,000			2.52
Options exercised		—			—
Options canceled		(68,894	)		11.24
Options expired		(302,720	)		13.13
Balances — March 31, 2023		4,383,780		$	12.91		6.34
Exercisable — March 31, 2023		3,226,526		$	14.98		5.59

The fair value of the time-based options granted during the three-months ended March 31, 2023 was $49 thousand.

Performance Options

Certain stock options awarded by the Company 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 three-months ended  March 31, 2023 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2022		520,302		$	10.08		7.02
Options granted		782,300			2.92
Options exercised		—			—
Options canceled		—			—
Options expired		(78,172	)		12.84
Balances — March 31, 2023		1,224,430		$	5.33		8.90
Exercisable — March 31, 2023		208,189		$	10.72		6.71

The fair value of the performance options granted during the three-months ended March 31, 2023 was $1.8 million.

The Company estimates the fair value of employee stock options on the grant date using the Black-Scholes option pricing model. The estimated fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The fair value of employee stock options was estimated using the following weighted-average assumptions:

	Three Months Ended March 31,
	2023		2022
Expected term in years		6.03		6.3 - 6.8
Expected volatility		94%		83%
Risk-free interest rate		3.80%		1.90%
Dividend yield		—		—

2017 Employee Stock Purchase Plan

The Board previously adopted, and the Company's 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. The Board waived the evergreen provision for 2022 and 2023 and no additional shares were reserved under the 2017 ESPP. During the three months ended March 31, 2023, the Company issued 262,470 shares of common stock under the 2017 ESPP. As of March 31, 2023, 198,529 shares of common stock remained available for issuance under the 2017 ESPP.

The Company estimates the fair value of ESPP grants on their grant date using the Black-Scholes option pricing model. The estimated fair value of ESPP grants is amortized on a straight-line basis over the requisite service period of the grants. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The Company utilizes its estimated volatility in the Black-Scholes option pricing model to determine the fair value of ESPP grants. The fair value of ESPP grants was estimated using the following weighted-average assumptions:

	Three Months Ended March 31,
	2023		2022
Expected term in years		0.5 - 1.0		0.5 - 1.0
Expected volatility		83%		83%
Risk-free interest rate		5.1% - 5.2%		0.6% - 0.9%
Dividend yield		—		—

Stock-based Compensation

Total stock-based compensation expense consisted of the following (in thousands):

	Three Months Ended March 31,
	2023		2022
Cost of revenues	$	—	$	90
Research and development		258		457
Sales and marketing		—		454
General and administrative		638		1,006
Total stock-based compensation expense	$	896	$	2,007

As of March 31, 2023, 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.

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

	Three Months Ended March 31,
	2023		2022
Time-based options	$	678	$	1,807
Performance options		117		84
ESPP		101		116
Total stock-based compensation expense	$	896	$	2,007