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STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
 3 Months Ended
Mar. 31, 2022
Equity [Abstract]  
STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

NOTE 14. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

 

Preferred Stock

 

At March 31, 2022 and December 31, 2021, the Company had 5,000,000 shares of preferred stock, $0.001 par value, authorized and no shares of preferred stock issued and outstanding.

 

Common Stock

 

During the three months ended March 31, 2022, the Company issued 53,594 shares of common stock to Mark L. Baum, the Company’s Chief Executive Officer, upon the cashless exercise of options to purchase 125,000 shares at an exercise price of $2.40 per share. The Company withheld from Mr. Baum 36,014 shares as consideration for the cashless exercise and an additional 35,392 shares for payroll tax obligations totaling $295,000.

 

 

50,000 RSUs granted in February 2019 to Andrew R. Boll, the Company’s Chief Financial Officer, vested, and in February 2022, the Company issued 29,395 shares of common stock to Mr. Boll, net of 20,605 shares of common stock withheld for payroll tax withholdings totaling $162,000.

 

50,000 RSUs granted in February 2019 to John P. Saharek, the President of ImprimisRx, vested, and in February 2022, the Company issued 24,077 shares of common stock to Mr. Saharek, net of 25,923 shares of common stock withheld for payroll tax withholdings totaling $204,000.

 

35,000 RSUs granted in February 2019 vested, and in February 2022, the Company issued 20,298 shares of common stock, net of 14,702 shares of common stock withheld for payroll tax withholdings totaling $116,000.

 

During the three months ended March 31, 2022, the Company issued 1,000 shares of common stock and received net proceeds of $4,000 upon the exercise of options to purchase 1,000 shares of common stock with exercise price of $3.95 per share.

 

During the three months ended March 31, 2022, 9,644 shares of the Company’s common stock underlying RSUs issued to directors vested, but the issuance and delivery of these shares are deferred until the applicable director resigns.

 

Stock Option Plan

 

On September 17, 2007, the Company’s Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended on November 5, 2008, February 26, 2012, July 18, 2012, May 2, 2013 and September 27, 2013 (as amended, the “2007 Plan”). The 2007 Plan reached its term in September 2017, and we can no longer issue additional awards under this plan; however, options previously issued under the 2007 Plan will remain outstanding until they are exercised, reach their maturity or are otherwise cancelled/forfeited. On June 13, 2017, the Company’s Board of Directors and stockholders adopted the Company’s 2017 Incentive Stock and Awards Plan which was subsequently amended on June 3, 2021 (as amended, the “2017 Plan” together with the 2007 Plan, the “Plans”). As of March 31, 2022, the 2017 Plan provides for the issuance of a maximum of 6,000,000 shares of the Company’s common stock. The purposes of the Plans are to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development and financial success. Under the Plans, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, restricted stock units and restricted stock. The Plans are administered by the Compensation Committee of the Company’s Board of Directors. The Company had 2,229,399 shares available for future issuances under the 2017 Plan at March 31, 2022.

 

Stock Options

 

A summary of stock option activity under the Plans for the three months ended March 31, 2022 is as follows:

 

   Number of Shares   Weighted Average Exercise Price   Weighted Average Remaining Contractual Life   Aggregate Intrinsic Value 
Options outstanding – January 1, 2022   3,039,546   $5.52           
Options granted   170,250   $7.60           
Options exercised   (126,000)  $2.41           
Options cancelled/forfeited   -   $-           
Options outstanding – March 31, 2022   3,083,796   $5.76    5.01   $4,781,000 
Options exercisable   2,408,629   $5.29    4.61   $4,639,000 
Options vested and expected to vest   3,083,796   $5.76    5.01   $4,781,000 

 

The aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option holders had exercised and immediately sold all shares underlying options with an exercise price lower than the market price on March 31, 2022, based on the closing price of the Company’s common stock of $6.82 on that date.

 

 

During the three months ended March 31, 2022, the Company granted stock options to certain employees and a consultant. The stock options were granted with an exercise price equal to the current market price of the Company’s common stock, as reported by the securities exchange on which the common stock was then listed, at the grant date and have contractual terms of 10 years. Vesting terms for options granted to employees during the three months ended March 31, 2022 included the following vesting schedule: 25% of the shares subject to the option vest and become exercisable on the first anniversary of the grant date and the remaining 75% of the shares subject to the option vest and become exercisable quarterly in equal installments thereafter over three years. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans) and in the event of certain modifications to the option award agreement.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The expected term of options granted to employees and directors was determined in accordance with the “simplified approach,” as the Company has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates. For option grants to employees and directors, the Company assigns a forfeiture factor of 10%. These factors could change in the future, which would affect the determination of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of grant.

 

The table below illustrates the fair value per share determined using the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees:

 

   2022 
Weighted-average fair value of options granted  $4.65 
Expected terms (in years)   6.11 
Expected volatility   70%
Risk-free interest rate   1.54%
Dividend yield   - 

 

The following table summarizes information about stock options outstanding and exercisable at March 31, 2022:

 

    Options Outstanding   Options Exercisable 
                      
Range of Exercise Prices  

Number

Outstanding

  

Weighted

Average

Remaining

Contractual

Life in Years

   Weighted Average Exercise Price  

Number

Exercisable

   Weighted Average Exercise Price 
$1.47 - $1.73    312,887    5.70   $1.72    312,887   $1.72 
$2.23 - $2.60    313,068    4.84   $2.26    312,943   $2.26 
$2.76 - $3.50    25,500    7.95   $3.49    12,906   $3.48 
$3.95    370,000    4.00   $3.95    370,000   $3.95 
$4.08 - $6.30    578,850    5.71   $5.76    525,027   $5.85 
$6.81 - $7.37    388,995    6.27   $7.30    297,495   $7.30 
$7.52 - $7.79    221,823    8.33   $7.61    49,323   $7.66 
$7.87    600,000    3.33   $7.87    300,000   $7.87 
$7.89 - $8.98    92,673    7.47   $8.16    48,048   $8.22 
$8.99    180,000    1.09   $8.99    180,000   $8.99 
$1.47 - $8.99    3,083,796    5.01   $5.76    2,408,629   $5.29 

 

As of March 31, 2022, there was approximately $1,806,000 of total unrecognized compensation expense related to unvested stock options granted under the Plans. That expense is expected to be recognized over the weighted-average remaining vesting period of 4.89 years. The stock-based compensation for all stock options was $272,000 and $452,000 during the three months ended March 31, 2022 and 2021, respectively.

 

The intrinsic value of options exercised during the three months ended March 31, 2022 was $745,000.

 

 

Restricted Stock Units/Performance Stock Units

 

RSU awards are granted subject to certain vesting requirements and other restrictions, including performance and market-based vesting criteria. The grant date fair value of the RSUs, which has been determined based upon the market value of the Company’s common stock on the grant date, is expensed over the vesting period of the RSUs.

 

A summary of the Company’s RSU activity (including performance stock units) and related information for the three months ended March 31, 2022 is as follows:

 

   Number of RSUs   Weighted Average Grant Date Fair Value 
RSUs unvested - January 1, 2022   2,233,202   $6.78 
RSUs granted   -   $- 
RSUs vested   (144,644)  $6.57 
RSUs cancelled/forfeited   -    - 
RSUs unvested at March 31, 2022   2,088,558   $6.79 

 

As of March 31, 2022, the total unrecognized compensation expense related to unvested RSUs was approximately $8,756,000, which is expected to be recognized over a weighted-average period of 1.33 years, based on estimated and actual vesting schedules of the applicable RSUs. The stock-based compensation for RSUs during the three months ended March 31, 2022 and 2021 was $1,744,000 and $346,000, respectively.

 

Warrants

 

From time to time, the Company issues warrants to purchase shares of the Company’s common stock to investors, lenders, underwriters and other non-employees for services rendered or to be rendered in the future, or pursuant to settlement agreements.

 

A summary of warrant activity for the three months ended March 31, 2022 is as follows:

 

  

Number of

Shares Subject

to Warrants Outstanding

  

Weighted

Average

Exercise Price

 
Warrants outstanding - January 1, 2022   373,847   $2.08 
Granted   -      
Exercised   -      
Expired   -      
Warrants outstanding and exercisable - March 31, 2022   373,847   $2.08 
Weighted average remaining contractual life of the outstanding warrants in years - March 31, 2022   2.3      

 

Warrants outstanding and exercisable as of March 31, 2022 are as follows:

 

Warrant Series  Issue Date 

Warrants

Outstanding

  

Exercise

Price

  

Expiration

Date

Lender warrants  7/19/2017   373,847   $2.08   7/19/2024

 

Subsidiary Stock-Based Transactions

 

The Company recognized $0 and $57,000 in stock-based compensation expense related to subsidiary stock options during the three months ended March 31, 2022 and 2021.

 

 

Stock-Based Compensation Summary

 

The Company recorded stock-based compensation related to equity instruments granted to employees, directors and consultants as follows:

 

         
   For the Three Months Ended 
   March 31, 
   2022   2021 
Employees - selling, general and administrative  $1,676,000   $755,000 
Employees – research and development   186,000    - 
Directors - selling, general and administrative   100,000    100,000 
Consultants – research and development   54,000    - 
Total  $2,016,000   $855,000