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Stockholders' Equity | 9 Months Ended
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Sep. 30, 2020
Stockholders' Equity Note [Abstract] |
Shareholders' Equity | STOCKHOLDERS’ EQUITY 1-for-5 Reverse Stock Split On June 11, 2020, in accordance with previous stockholder approval, our Board of Directors effected a 1-for-5 reverse stock split of the Company’s common stock, par value $0.0001 per share. The reverse stock split became effective immediately (the “Effective Time”) upon the filing of the Certificate of Amendment to the Company’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”), with the Delaware Secretary of State. At the Effective Time, every five shares of common stock issued and outstanding automatically combined into one validly issued, fully paid and non-assessable share of common stock. No fractional shares were issued as a result of the reverse stock split. The fractional shares were settled in cash in an amount not material to the Company. The $0.0001 par value per share of common stock and other terms of the common stock were not affected by the reverse stock split. The number of authorized shares of common stock under the Certificate of Incorporation remained unchanged at 50,000,000 shares. The current financial statements, as well as prior period financial statements, have been retroactively adjusted to reflect the reverse stock split. Proportional adjustments were made to the conversion and exercise prices of our outstanding warrants and stock options, and to the number of shares issued and issuable under our stock incentive plans in connection with the reverse stock split. The current financial statements as well as prior period financial statements have been retroactively adjusted to reflect the reverse stock split. Preferred shares outstanding were not affected by the reverse stock split and, as such, those shares have not been adjusted. The reverse stock split was effected solely to increase the per share trading price of the common stock to satisfy the $1.00 minimum bid price requirement pursuant to Nasdaq Listing Rule 5550(a)(2) for continued listing on Nasdaq. The common stock began trading on Nasdaq on a split-adjusted basis at the opening of trading on June 12, 2020. Preferred Stock Pursuant to the terms of the Convertible Notes, on January 16, 2020, following approval by our stockholders of certain amendments to the Certificate of Incorporation, the principal amount of all of the Convertible Notes and the accumulated interest thereon and unamortized issuance costs at the date of conversion (totaling $1.8 million) were converted at a conversion price of $0.67 per share into an aggregate of 2,709,018 shares of the Company’s Series A Preferred Stock, which is convertible on a one-for-five basis into shares of our common stock. During the second quarter of 2020, 111,548 shares of the Series A Preferred Stock were converted into 22,310 shares of common stock. No conversions of the Series A Preferred Stock occurred during the third quarter of 2020. 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 designated 2,000,000 shares of the Company’s preferred stock, par value $0.0001 per share, as Series A Preferred Stock (the “Original Series A Certificate of Designation”). On January 15, 2020 with prior stockholder approval, the Company amended the Certificate of Incorporation to increase the number of authorized shares of preferred stock to 5,000,000. The Original Series A Certificate of Designation was also amended on January 15, 2020, to increase the number of shares of preferred stock designated as Series A Preferred Stock to 3,300,000 (the Original Series A Certificate of Designation, as so amended, the “Series A Certificate of Designation”). 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 entitle its holder to a number of votes equal to 11.07% 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-five basis. On March 29, 2019, the Company 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 undesignated preferred stock available for designation as Series A Preferred Stock. The purchase agreement related to the Convertible Notes contains customary representations and warranties and provides 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 688,360 shares of our common stock to certain institutional investors, at a purchase price of $3.37 per share. We also sold, to the same institutional investors, warrants to purchase up to 688,360 shares of common stock at an exercise price of $3.37 per share in a concurrent private placement for a purchase price of $0.625 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 the Condensed Consolidated Balance Sheet as of September 30, 2020. In addition, we issued warrants to the placement agent to purchase up to 48,185 shares of common stock at an exercise price of $4.99 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 and the balance to interest. Warrants to purchase an aggregate of 539,152 shares remain outstanding at September 30, 2020 with a weighted average exercise price of $3.50 per share. The exercise of warrants could provide us with cash proceeds of up to $1.9 million in the aggregate if all warrants are exercised. During the nine months ended September 30, 2020, 197,394 warrants were exercised resulting in total proceeds of $676 thousand. As of September 30, 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 | 497,472 |  | $3.3700 |  | January 13, 2025
Placement Agent Warrants | 41,680 |  | $4.9940 |  | January 13, 2025
| 539,152 |  |  |  |
Warrant Liabilities We account for common stock warrants as either liabilities or 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 Equity Offering contain a provision for net cash settlement in the event that there is a fundamental transaction involving the Company (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 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 September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Cost of sales | $ | 1 |  |  | $ | 1 |  |  | $ | 2 |  |  | $ | 8 |
Product development | 3 |  |  | 2 |  |  | 5 |  |  | 24 |
Selling, general, and administrative | 31 |  |  | 31 |  |  | 89 |  |  | 525 |
Total stock-based compensation | $ | 35 |  |  | $ | 34 |  |  | $ | 96 |  |  | $ | 557 |
Total unearned stock-based compensation was $0.2 million at both September 30, 2020 and September 30, 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 September 30, 2020 is expected to be recognized is approximately 3.3 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 detailed below.
| Nine months ended September 30,
| 2020 |  | 2019
Fair value of options issued | $ | 2.00 |  |  | $ | 1.60 |
Exercise price | $ | 2.61 |  |  | $ | 2.10 |
Expected life of options (in years) | 6.2 |  | 6.3
Risk-free interest rate | 0.7 | % |  | 1.9 | %
Expected volatility | 93.5 | % |  | 90.0 | %
Dividend yield | 0.0 | % |  | 0.0 | %
*Options have been restated for the 1-for-5 reverse stock split effective June 11, 2020.
A summary of option activity under all outstanding stock incentive plans for the nine months ended September 30, 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 | 155,031 |  |  | $ | 5.23 |  |  |
Granted | 110,800 |  |  | 2.61 |  |  |
Canceled/forfeited | (30,774) |  |  | 7.14 |  |  |
Balance at September 30, 2020 | 235,057 |  |  | $ | 3.74 |  |  | 8.9
Vested and expected to vest at September 30, 2020 | 185,427 |  |  | $ | 4.04 |  |  | 8.8
Exercisable at September 30, 2020 | 40,577 |  |  | $ | 9.91 |  |  | 7.5
*Options have been restated for the 1-for-5 reverse stock split effective June 11, 2020.
Restricted stock units A summary of restricted stock unit activity under all outstanding stock incentive plans for the nine months ended September 30, 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 | 6,603 |  |  | $ | 13.17 |  |  |
Granted | 19,200 |  |  | 2.44 |  |  |
Vested | (20,068) |  |  | 3.96 |  |  |
Canceled/forfeited | (1,255) |  |  | 12.40 |  |  |
Balance at September 30, 2020 | 4,480 |  |  | $ | 8.64 |  |  | 7.3
*Restricted stock units have been restated for the 1-for-5 reverse stock split effective June 11, 2020.

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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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