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Stockholders' Equity | 12 Months Ended
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Dec. 31, 2019
Stockholders' Equity |
Stockholders' Equity | Note 10 – Stockholders’ Equity Reverse Stock Split Effective January 8, 2018, pursuant to authority granted by the stockholders of the Company, the Company implemented a 1-for-3.75 reverse split of the Company’s issued and outstanding common stock and preferred stock (the “Reverse Split”). The number of authorized shares remained unchanged. All share and per share information has been retroactively adjusted to reflect the Reverse Split for all periods presented, unless otherwise indicated. Authorized Capital The Company is authorized to issue 90,000,000 shares of common stock, par value of $0.0001 per share, and 6,000,000 shares of preferred stock, par value of $0.0001 per share. The holders of the Company’s common stock are entitled to one vote per share. The Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, redemption, voting or other rights. Equity Incentive Plans On January 5, 2018, the Company’s Board of Directors and stockholders approved an amendment to the Company’s 2014 Equity Incentive Plan (“2014 Plan”) to increase the number of shares of common stock authorized under the 2014 Plan from 1,733,333 shares to 1,866,667 shares. As of December 31, 2019, there were 15,333 shares available for future issuance under the 2014 Plan. On March 6, 2018, the Company’s Board of Directors adopted the 2018 Omnibus Stock Incentive Plan (“2018 Plan”), which stockholders approved on June 11, 2018. The 2018 Plan was subsequently amended by the Board on April 5, 2019 and approved by stockholders on June 11, 2019 (the “2018 Plan, as amended”). The 2018 Plan, as amended, provides for the issuance of incentive stock options, nonstatutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock and restricted stock units (“RSUs”) to employees, directors and consultants of the Company and its affiliates. The 2018 Plan, as amended, terminates on June 11, 2028. The 2018 Plan, as amended, requires the exercise price of stock options to be greater than or equal to the fair value of the Company’s common stock on the date of grant. There are 1,250,000 shares of common stock authorized under the 2018 Plan, as amended. As of December 31, 2019, there were 106,074 shares available for future issuance under the 2018 Plan, as amended. Public Offerings On January 29, 2018, the Company consummated its IPO of 2,730,000 shares of its common stock at an offering price of $10.00 per share, generating $27.3 million and $24.5 million in gross and net proceeds, respectively. Underwriting discounts, commissions and other offering expenses were approximately $2.8 million, which were recorded as a reduction of additional paid-in capital. On December 21, 2018, the Company consummated a follow-on public offering of 1,380,000 shares of its common stock at an offering price of $2.45 per share, generating $3.4 million and $2.8 million in gross and net proceeds, respectively. Underwriting discounts, commissions and other offering expenses were approximately $0.6 million, which were recorded as a reduction of additional paid-in capital. On July 15, 2019, the Company closed an underwritten public offering of 4,388,490 shares of its common stock at a public offering price of $2.78 per share. The Company granted the underwriters a 30-day over-allotment option to purchase up to an additional 658,273 shares of the Company’s common stock at the same price, which was exercised in full on July 16, 2019. Including the over-allotment shares, the Company issued a total of 5,046,763 shares in the underwritten public offering, and received gross proceeds of approximately $14.0 million and net proceeds of approximately $13.0 million, after deducting underwriting discounts, commissions and other offering expenses, which were recorded as a reduction of additional paid-in capital. Series A and Series A‑2 Convertible Preferred Stock The Series A and Series A-2 Convertible Preferred Stock did not contain a redemption provision and an overall analysis of its features performed by the Company determined that it was more akin to equity and, therefore, it has been classified within stockholders’ equity on the balance sheet. While the embedded conversion option (“ECO”) was subject to an anti-dilution price adjustment, since the ECO was clearly and closely related to the equity host, it was not required to be bifurcated and accounted for as a derivative liability under ASC 815. The Company determined that the preferred stock did not contain a beneficial conversion feature because the conversion price exceeded the estimated fair value of the Company’s common stock as of the commitment date. The Series A and Series A-2 Convertible Preferred Stock was convertible, at the option of the holder, at any time into shares of common stock on a one-for-one basis. In the event of any issuances by the Company for less than the in-force conversion price, the preferred stock conversion price would be reduced on a weighted average basis. Each share of preferred stock was automatically convertible into shares of common stock at the then effective conversion price: (i) immediately prior to the closing of a firm commitment underwritten initial public offering provided that (A) the aggregate offering price, net of underwriters’ discounts and expenses, was at least $2.00 per share of common stock and (B) the aggregate proceeds of such offering were not less than $20,000,000; or (ii) the date specified by written consent or agreement of the holders of at least 75% of the then outstanding shares of preferred stock. All of the Series A and Series A‑2 Convertible Preferred Stock converted immediately prior to the Company’s IPO. See Note 10 – Stockholders’ Equity – Conversion of Preferred Stock for additional details. Series B Convertible Preferred Stock The Series B Convertible Preferred did not contain a redemption provision and an overall analysis of its features performed by the Company determined that it was more akin to equity and therefore, has been classified within stockholders’ equity on the balance sheet. While the embedded conversion option (“ECO”) was subject to an anti-dilution price adjustment, since the ECO was clearly and closely related to the equity host, it was not required to be bifurcated and accounted for as a derivative liability under ASC 815. The Company determined that the Series B Convertible Preferred did not contain a beneficial conversion feature, since the conversion price exceeded the estimated fair value of the Company’s common stock as of the commitment date. The Series B Convertible Preferred Stock was convertible, at the option of the holder, at any time into shares of common stock on a one-for-one basis, subject to certain adjustments. In the event of any issuances by the Company for less than the in-force conversion price, the Series B Convertible Preferred Stock conversion price would be reduced on a weighted average basis. Each share of Series B Convertible Preferred Stock was automatically convertible into shares of common stock at the then effective conversion price: (i) immediately prior to the closing of a firm commitment underwritten initial public offering provided that (A) the aggregate offering price, net of underwriters’ discounts and expenses, is at least $2.00 per share of common stock and (B) the aggregate proceeds of such offering are not less than $20,000,000; or (ii) the date specified by written consent or agreement of the holders of at least 75% of the then outstanding shares of preferred stock. All of the Series B Convertible Preferred Stock converted immediately prior to the Company’s IPO. See Note 10 – Stockholders’ Equity – Conversion of Preferred Stock for additional details. Conversion of Preferred Stock Immediately prior to the closing of the IPO on January 29, 2018, all outstanding shares of preferred stock were automatically converted into an aggregate of 4,702,116 shares of the Company’s common stock. Stock-Based Compensation Expense The Company records stock-based compensation expense related to stock options and RSUs. For the years ended December 31, 2019 and 2018, the Company recorded expense of $2,511,944 ($1,459,055 of which was included within research and development expenses and $1,052,889 was included within general and administrative expenses on the statements of operations) and $1,615,470 ($818,239 of which was included within research and development expenses and $797,231 was included within general and administrative expenses on the statements of operations), respectively. As of December 31, 2019, there was $3,249,222 of unrecognized stock-based compensation expense which will be recognized over a weighted average period of 1.9 years. Restricted Stock Units On July 24, 2018, the Company granted an aggregate of 20,165 RSUs to its directors under the 2018 Plan. The grants vest on the earlier of (i) the one-year anniversary of the date of grant and (ii) the date of the 2019 annual stockholders meeting, subject to the grantee remaining on the Board until then. The RSUs had a grant date fair value of $125,000, which was recognized over the vesting period. On August 16, 2019, the Company granted to members of its Board of Directors an aggregate of 40,190 restricted stock units (“RSUs”) under the 2018 Plan, as amended. The grants vest on the earlier of (i) the one-year anniversary of the date of grant and (ii) the date of the 2020 annual stockholders meeting, subject to the grantee remaining on the Board until then. The RSUs had a grant date fair value of $125,000, which will be recognized over the vesting period. Stock Options On April 16, 2018, the Compensation Committee of the Board of Directors approved the grant of ten-year stock options to purchase 175,668 shares of common stock to Company employees and consultants under the 2014 Plan. The stock options will vest in equal monthly increments over 36 months beginning on the one-month anniversary of the date of grant, subject to continued service to the Company, and have an exercise price of $8.72 per share, which was the closing stock price on the date of grant. The stock options had a grant date fair value of $1,412,700, which the Company expects to recognize over the vesting period. During the year ended December 31, 2018, the Company granted ten-year stock options to purchase an aggregate of 395,999 shares of common stock to its employees, consultants and directors under the 2018 Plan. Of the 395,999 shares, (i) 313,674 vest over three years from the date of grant with one-third vesting on the one-year anniversary of the date of grant and the balance vesting monthly over the remaining 24 months, subject to continued service to the Company, (ii) 60,000 vest monthly over 36 months beginning on the one-month anniversary of the date of grant, subject to continued service to the Company, and (iii) 22,325 vest on the earlier of the one-year anniversary of the date of grant and the date of the 2019 annual stockholders meeting, subject to continued service to the Company. The stock options have exercise prices ranging from $5.10 per share to $6.30 per share, which represents the Company’s closing stock price on the date of grant. The stock options had a grant date value of $2,237,800, which the Company expects to recognize over the vesting period. On January 2, 2019, stock options to purchase 180,000 and 133,686 shares of common stock with an exercise price of $1.24 and $1.95 per share, respectively, were exercised for aggregate proceeds of $483,888. In connection with the exercise of the stock options, the Company remitted a portion of an employee’s payroll taxes of $62,193 to the Internal Revenue Service. The Company was reimbursed in full by the employee. On January 14, 2019, the Company granted ten-year stock options to purchase an aggregate of 11,000 shares of common stock to its employees under the 2018 Plan. The 11,000 shares vest over three years from the date of grant with one-third vesting on the one-year anniversary of the date of grant and the balance vesting monthly over the remaining 24 months, subject to continued service to the Company. The stock options have an exercise price of $2.74 per share, which represents the Company’s closing stock price on the date of grant. The stock options had a grant date value of $27,500, which the Company expects to recognize over the vesting period. On February 6, 2019, stock options to purchase an aggregate of 320,001 shares of common stock with an exercise price of $1.24 per share were exercised on a cashless basis, which resulted in the issuance of an aggregate of 236,466 shares of common stock. On February 13, 2019, the Board of Directors of the Company approved the acceleration and immediate vesting of 124,210 stock options originally granted to Dr. Ianchulev on July 24, 2018 in connection with his employment. In connection with the acceleration and immediate vesting, the Company recognized $609,322 of stock-based compensation expense during the year ended December 31, 2019 , which represents the remaining unamortized grant date fair value of the award. On May 14, 2019, stock options to purchase 34,815 shares of common stock with an exercise price of $1.95 per share were exercised for aggregate proceeds of $67,889. On August 16, 2019, the Company granted ten-year stock options to purchase an aggregate of 681,572 shares of common stock to its employees, consultants and directors under the 2018 Plan, as amended. Of the 681,572 shares, (i) 636,287 vest over three years from the date of grant with one-third vesting on the one-year anniversary of the date of grant and the balance vesting monthly over the remaining 24 months, subject to continued service to the Company and (ii) 45,285 vest on the earlier of the one-year anniversary of the date of grant and the date of the 2020 annual stockholders meeting, subject to continued service to the Company. The stock options have an exercise price of $3.11 per share, which represents the Company’s closing stock price on the date of grant. The stock options had a grant date value of $1,909,700, which the Company expects to recognize over the vesting period. In applying the Black-Scholes option pricing model to stock options granted, the Company used the following approximate assumptions:
|  | For the Year Ended |
|  | December 31, |
|  | 2019 |  | 2018 |
Expected term (years) |  | 5.50 - 10.00 |  | 5.50 - 10.00 |
Risk free interest rate |  | 1.42 - 2.53 | % | 2.69 - 3.24 | %
Expected volatility |  | 134 - 139 | % | 140 -141 | %
Expected dividends |  | 0.00 | % | 0.00 | %
The Company has computed the fair value of stock options granted using the Black-Scholes option pricing model. Option forfeitures are accounted for at the time of occurrence. The expected term used for options issued is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” option grants. The Company does not currently have a sufficient trading history to support its historical volatility calculations. Accordingly, the Company is utilizing an expected volatility figure based on a review of the historical volatility of three comparable entities over a period of time equivalent to the expected life of the instrument being valued. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued. The weighted average estimated grant date fair value of the stock options granted for the years ended December 31, 2019 and 2018 was approximately $3.10 and $6.39 per share, respectively. A summary of the option activity during the year ended December 31, 2019 is presented below:
|  |  |  |  |  |  | Weighted |  |  |
|  |  |  | Weighted |  | Average |  |  |
|  |  |  | Average |  | Remaining |  | Aggregate
|  | Number of |  | Exercise |  | Life |  | Intrinsic
|  | Options |  | Price |  | In Years |  | Value
Outstanding January 1, 2019 |  | 2,220,868 |  | $ | 3.01 |  |  |  |  |
Granted |  | 692,572 |  |  | 3.10 |  |  |  |  |
Exercised |  | (668,502) |  |  | 1.42 |  |  |  |  |
Forfeited |  | (7,500) |  |  | 4.73 |  |  |  |  |
Outstanding December 31, 2019 |  | 2,237,438 |  | $ | 3.51 |  | 8.1 |  | $ | 3,559,915
Exercisable December 31, 2019 |  | 1,183,637 |  | $ | 3.33 |  | 7.3 |  | $ | 2,222,680
The following table presents information related to stock options as of December 31, 2019:
Options Outstanding |  | Options Exercisable
|  |  |  | Weighted |  |
|  | Outstanding |  | Average |  | Exercisable
Exercise |  | Number of |  | Remaining Life |  | Number of
Price |  | Options |  | In Years |  | Options
$ 1.24 |  | 260,000 |  | 5.2 |  | 260,000
$ 1.95 |  | 700,281 |  | 7.5 |  | 545,170
$ 2.74 |  | 6,000 |  | — |  | —
$ 3.11 |  | 681,572 |  | — |  | —
$ 4.00 |  | 2,000 |  | 8.9 |  | 723
$ 5.10 |  | 6,000 |  | 8.7 |  | 2,667
$ 5.19 |  | 16,500 |  | 8.7 |  | 6,875
$ 5.25 |  | 26,668 |  | 6.8 |  | 21,249
$ 6.20 |  | 311,499 |  | 8.6 |  | 224,438
$ 6.30 |  | 60,000 |  | 8.5 |  | 28,333
$ 8.72 |  | 166,918 |  | 8.3 |  | 94,182
|  | 2,237,438 |  | 7.3 |  | 1,183,637

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- Definition The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -URI http://asc.fasb.org/topic&trid=2208762 + Details
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