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Stockholders' Equity | 3 Months Ended
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Mar. 31, 2020
Stockholders' Equity Note [Abstract] |
Shareholders' Equity and Share-based Payments | STOCKHOLDERS’ EQUITY Preferred Stock Pursuant to the terms of the Convertible Notes, on January 16, 2020 following approval by our stockholders of certain amendments to our certificate of incorporation, the principal amount of all of the Convertible Notes and the accumulated interest thereon in the amount of $1.8 million converted at a conversion price of $0.67 per share into an aggregate of 2,709,018 shares of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share, which is convertible on a one-for-one basis into shares of our common stock. The Series A Preferred Stock was created by the filing of a Certificate of Designation with the Secretary of State of the State of Delaware on March 29, 2019, which authorized 2,000,000 shares of Series A Preferred Stock (“Original Series A Certificate of Designation”). The Original Series A Certificate of Designation was amended on January 15, 2020 following stockholder approval to increase the number of authorized shares of Series A Preferred Stock to 5,000,000 (the Original Series A Certificate of Designation as so amended, the “Series A Certificate of Designation”). Of the 5,000,000 Series A Preferred Stock, 3,300,000 shares were further designated as Series A Convertible Preferred Stock. Pursuant to the Series A Certificate of Designation, each holder of outstanding shares of Series A Preferred Stock is entitled to vote with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration, except as provided by law. In any such vote, each share of Series A Preferred Stock shall be entitled to a number of votes equal to 55.37% of the number of shares of common stock into which such share of Series A Preferred Stock is convertible. The Series A Preferred Stock (a) has a preference upon liquidation equal to $0.67 per share and then participates on an as-converted basis with the common stock with respect to any additional distributions, (b) shall receive any dividends declared and payable on our common stock on an as-converted basis, and (c) is convertible at the option of the holder into shares of our common stock on a one-for-one basis. We also filed a Certificate of Elimination with respect to its authorized, but unissued, Series A Participating Preferred Stock, to return such shares to the status of preferred stock available for designation as the Series A Preferred Stock. The purchase agreement related to the Convertible Notes contain customary representations and warranties and provide for resale registration rights with respect to the shares of our common stock issuable upon conversion of the Series A Preferred Stock. January 2020 Equity Offering Issuance of Common Stock and Warrants In January 2020, we completed a registered direct offering for the sale of 3,441,803 shares of our common stock to certain institutional investors, at a purchase price of $0.674 per share. We also sold, to the same institutional investors, warrants to purchase up to 3,441,803 shares of common stock at an exercise price of $0.674 per share in a concurrent private placement for a purchase price of $0.125 per warrant. We paid the placement agent commissions of $193 thousand plus $50 thousand in expenses in connection with the registered direct offering and the concurrent private placement and we also paid legal, accounting and other fees of $231 thousand related to the offering. Total offering costs of $474 thousand have been presented as a reduction of additional paid-in capital and have been netted within equity. In addition, we issued warrants to the placement agent to purchase up to 240,926 shares of common stock at an exercise price of $0.9988 per share. Net proceeds to us from the sale of common stock and warrants were approximately $2.3 million. In accordance with the terms of the Iliad Note, 10% of the gross proceeds from the January 2020 Equity Offering ($275 thousand) were used to make payments on the Iliad Note, of which $226 thousand went towards the outstanding principal amount. As of March 31, 2020, we had the following outstanding non-tradeable, registered warrants to purchase shares of common stock:
| Number of Underlying Shares |  | Exercise Price |  | Expiration
Investor Warrants | 3,441,803 |  | $0.6740 |  | January 13, 2025
Placement Agent Warrants | 240,926 |  | $0.9988 |  | January 13, 2025
| 3,682,729 |  |  |  |
Warrant Liabilities We account for common stock warrants as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. Common stock warrants that could require cash settlement are accounted for as liabilities. We classify these warrant liabilities on the consolidated balance sheet as a current liability. The warrant liabilities are revalued at fair value at each balance sheet date subsequent to the initial issuance. Changes in the fair market value of the warrant are reflected in the consolidated statement of operations as income (expense) based upon the change in fair value of warrants. The warrants we issued in the January 2020 registered direct offerings contain a provision for a cash payment in the event that the shares are not delivered to the holder within two trading days. The cash payment equals $10 per day per $1,000 of warrant shares for each day late. The warrants issued in the January 2020 private placement also contain a provision for net cash settlement in the event that there is a fundamental transaction (e.g., merger, sale of substantially all assets, tender offer, or share exchange). If a fundamental transaction occurs in which the consideration issued consists of all cash or stock in a non-public company, then the warrant holder has the option to receive cash equal to a Black-Scholes value of the remaining unexercised portion of the warrant. The warrants have been classified as liabilities, as opposed to equity, due to the potential adjustment to the exercise price that could result upon late delivery of the shares or potential cash settlement upon the occurrence of certain events as described above, and are recorded at their fair values at each balance sheet date. Stock-based compensation Stock-based compensation expense is attributable to stock options and restricted stock unit awards. For all stock-based awards, we recognize expense using a straight-line amortization method. The following table summarizes stock-based compensation expense and the impact it had on operations for the periods presented (in thousands):
| Three months ended March 31, |  |  |  |  |  |
| 2020 |  | 2019 |  |  |  |
Cost of sales | $ | 1 |  |  | $ | 7 |  |  |  |  |
Product development | 1 |  |  | 28 |  |  |  |  |
Selling, general, and administrative | 18 |  |  | 508 |  |  |  |  |
Total stock-based compensation | $ | 20 |  |  | $ | 543 |  |  |  |  |
Total unearned stock-based compensation was $0.2 million at March 31, 2020, compared to $0.4 million at March 31, 2019. These costs will be charged to expense and amortized on a straight-line basis in future periods. The weighted average period over which the unearned compensation at March 31, 2020 is expected to be recognized is approximately 2.7 years. Stock options The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model. Estimates utilized in the calculation include the expected life of the option, risk-free interest rate, and expected volatility, and are further comparatively detailed as follows:
| Three months ended March 31, |  |
| 2020 |  | 2019
Fair value of options issued | $ | 0.22 |  |  | $ | — |
Exercise price | $ | 0.30 |  |  | $ | — |
Expected life of options (in years) | 6.1 |  | 0
Risk-free interest rate | 0.7 | % |  | — | %
Expected volatility | 92.8 | % |  | — | %
Dividend yield | 0.0 | % |  | 0.0 | %
A summary of option activity under all plans for the three months ended March 31, 2020 is presented as follows:
| Number of Options |  | Weighted Average Exercise Price Per Share |  | Weighted Average Remaining Contractual Life (in years)
Balance at December 31, 2019 | 777,153 |  |  | $ | 1.04 |  |  |
Granted | 431,250 |  |  | 0.30 |  |  |
Canceled/forfeited | (29,800) |  |  | 0.47 |  |  |
Expired | — |  |  | — |  |  |
Balance at March 31, 2020 | 1,178,603 |  |  | $ | 0.78 |  |  | 8.0
Vested and expected to vest at March 31, 2020 | 868,008 |  |  | $ | 0.93 |  |  | 7.9
Exercisable at March 31, 2020 | 113,353 |  |  | $ | 4.59 |  |  | 5.8
Restricted stock units A summary of restricted stock unit activity under all plans for the three months ended March 31, 2020 is presented as follows:
| Restricted Stock Units |  | Weighted Average Grant Date Fair Value |  | Weighted Average Remaining Contractual Life (in years)
Balance at December 31, 2019 | 33,051 |  |  | $ | 2.63 |  |  |
Granted | 80,000 |  |  | 0.30 |  |  |
Released |  | (19,873) |  |  | 2.72 |  |  |
Canceled/forfeited |  | — |  |  | — |  |  |
Balance at March 31, 2020 | 93,178 |  |  | $ | 0.61 |  |  | 8.7

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- Definition The entire disclosure for shareholders' equity and share-based payment arrangement. Includes, but is not limited to, disclosure of policy and terms of share-based payment arrangement, deferred compensation arrangement, and employee stock purchase plan (ESPP). + 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 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 + Details
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