Equity

9 Months Ended

Sep. 30, 2022

Equity

Equity

15. Equity

Commitment purchase agreement

On May 9, 2018, the Company entered into a commitment purchase agreement (the “Commitment Purchase Agreement”) with Lincoln Park Capital (“LPC”), pursuant to which the Company, at its sole discretion, had the right to sell up to $10.0 million of the Company’s common stock to LPC, subject to certain limitations and conditions contained in the Commitment Purchase Agreement (the “LPC Program”). The Company closed on the Commitment Purchase Agreement in July 2018.  Under the terms of the agreement, the LPC Program expired as of June 30, 2021.

In anticipation of the June 2021 expiration of the agreement, the Company wrote off the remaining balance of $353,000 of deferred LPC Program costs to “Interest and Other Expense” on the Condensed Consolidated Statement of Operations during the nine-month period ended September 30, 2021.  

At the Market Offering Agreement

In December 2016, the Company entered into an at-the-market offering agreement (as amended from time to time, the “ATM Agreement”) with H. C. Wainwright & Co., LLC (“Wainwright”), under which the Company may, from time to time, issue and sell shares of the Company’s common stock through Wainwright as sales manager in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $5.0 million (the “ATM Program”) or a maximum of 10 million shares.  On November 23, 2018, the Company entered into a second amendment of the ATM Agreement, extending the agreement until the earlier of December 20, 2020, or the date that the ATM Agreement is terminated in accordance with the terms therein. On December 11, 2020, the Company entered into a third amendment of the ATM Agreement further extending the agreement so that it will remain in full force and effect until such time as the ATM Agreement is terminated in accordance with certain other terms therein or upon mutual agreement by the parties, and to reflect a new registration statement on Form S-3 (No. 333-249218).  

The common stock will be distributed at the market prices prevailing at the time of sale. As a result, prices of the common stock sold under the ATM Program may vary as between purchasers and during the period of distribution. The ATM Agreement provides that Wainwright will be entitled to compensation for its services at a commission rate of 2.0% of the gross sales price per share of common stock sold. 

During the first nine months of 2022, the Company did not sell shares of common stock under the ATM Program. At September 30, 2022, there was a remaining balance of $70,000 of deferred ATM Program costs, recorded in “Other long-term assets” on the Condensed Consolidated Balance Sheet.

During the first nine months of 2021, the Company sold an aggregate of 1,856,960 shares of common stock under the ATM Program at an average price of $0.97 per share of common stock for net proceeds of approximately $1.8 million. Also, during the first nine months of 2021, approximately $57,000 of deferred ATM Program costs were amortized.  The Company has not sold any shares of common stock under the ATM after March 31, 2021.  

There is currently approximately $2.2 million remaining available for issuance under the ATM Program based on a prospectus supplement filed with SEC on December 11, 2020.

Equity Incentive Plans

Under the Company’s Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”), awards of the Company’s common stock may be made to officers, directors, employees, consultants and agents of the Company and its subsidiaries.  The Company recognizes stock-based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award.

Restricted Stock Grants

The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at September 30, 2022, and the changes during the nine months then ended:

		Weighted
		Average Grant
		Date Fair
	Number of	Value Per
Restricted Stock Grants	Shares	Share
Outstanding at December 31, 2021	293,334	$	0.61
Granted during the period	550,000		0.38
Restrictions lifted during the period	(348,332)		0.49
Forfeited during the period	—		—
Outstanding September 30, 2022	495,002	$	0.44

For the nine months ended September 30, 2022, the Company recognized approximately $163,000 of stock compensation expense related to the restricted stock grants. During the nine months ended September 30, 2022, 500,000 shares were granted to nine employees, with one-third of the grants vesting on the grant date and the remaining shares vesting equally on the first and second anniversaries of the grant date. Also, during the nine months ended September 30, 2022, 50,000 shares were granted to a new employee, with one-third of the shares vesting equally on the first, second and third anniversaries of the grant date. During the period, restrictions were also lifted on the normal vesting of 181,666 shares granted to nine employees in prior years.

Restricted Stock Units

The Equity Plan permits the Company to issue Restricted Stock Units (“RSUs”), which entitle each recipient to receive one unrestricted share of common stock upon termination of the recipient’s employment or board service. Also, pursuant to the Equity Plan, the Company’s Board of Directors adopted the Non-Employee Director’s Deferred Compensation and Equity Award Plan (the “Deferred Compensation Plan”). Pursuant to the Deferred Compensation Plan, non-employee directors, and employees as allowed by Equity Plan, receive a portion of their compensation in the form of RSUs issued under the Equity Plan. The RSUs generally vest on the first anniversary of the grant.

The following table summarizes the status of the RSU grants issued to Directors of the Company under the Equity Plan, including awards to non-employee directors under the Deferred Compensation Plan, at September 30, 2022, and the changes during the nine months then ended:

		Weighted
		Average Grant
		Date Fair
	Number of	Value Per
Restricted Stock Units	Shares	Share
Outstanding at December 31, 2021	4,010,038	$	0.69
Granted during the period	1,700,000		0.40
Restrictions lifted during the period	—		—
Forfeited during the period	—		—
Outstanding September 30, 2022	5,710,038	$	0.60

For the nine months ended September 30, 2022, the Company recognized approximately $244,000 of stock compensation expense related to the restricted stock units. During the nine months ended September 30, 2022, the Company granted each non-employee Director 100,000 RSUs and recognized approximately $94,000 of stock compensation expense related to the grants.

Included in the grants shown in the table during the period is a grant by the Company to its CEO of 1,000,000 RSUs. One-half of the RSUs vest on each of the first and second anniversaries of the grant. The Company recognized approximately $63,000 of stock compensation expense related to the grant during the first nine months of 2022.

During the nine months ended September 30, 2021, the Company also granted a consultant 100,000 RSUs and recognized $67,000 of stock compensation expense. The RSUs vested on the grant date and each vested RSU entitles the

consultant to receive one unrestricted share of common stock upon termination of the consulting agreement with the Company.

Key Employee Long-Term Incentive Plan

The Company’s 2013 Key Employee Long-Term Incentive Plan (the “KELTIP”) provides for the grant of units (“KELTIP Units”) to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount, in cash or in Company common stock (such method of settlement at the sole discretion of the Board of Directors) issued pursuant to the Company’s Equity Plan, measured generally by the price of the Company’s common stock on the settlement date. KELTIP Units are not an actual equity interest in the Company and are solely unfunded and unsecured obligations of the Company that are not transferable and do not provide the holder with any stockholder rights. Payment of the settlement amount of vested KELTIP Units is deferred generally until the earlier of a change of control of the Company or the date the grantee ceases to serve as an officer or employee of the Company.

The Company intends to settle all the KELTIP Units in common stock of the Company, an option that the Board of Directors holds in its sole discretion so long as sufficient shares remain available under the Equity Plan. As a result, all outstanding KELTIP Units are recorded in equity at September 30, 2022, and December 31, 2021.

During the first quarter of 2022, the Company granted 450,000 KELTIP Units to a new officer of the Company. One-third of the KELTIP Units granted vested on the grant date with the remaining KELTIP Units vesting one-third on each of the first and second anniversaries of the grant.  For the nine months ended September 30, 2022, the Company recognized approximately $97,000 of stock compensation expense related to the grant. During the second quarter of 2022, the Company granted 500,000 KELTIP Units to another new officer of the Company. The KELTIP Units granted will vest one-half on each of the first and second anniversaries of the grant. For the nine months ended September 30, 2022, the Company recognized approximately $39,000 of stock compensation expense related to the grant. Also, during the nine months ended September 30, 2022, an officer of the Company retired and was issued 1,123,380 shares of the Company’s common stock net of 456,620 shares relinquished to cover withholding taxes. The shares issued were in settlement of previously granted KELTIP Units.

During the nine months ended September 30, 2021, the Company granted 1,605,000 KELTIP Units to two officers of the Company and recognized approximately $1.0 million of stock compensation expense related to the grants. There were 4,700,000 and 5,330,000 KELTIP Units outstanding at September 30, 2022, and December 31, 2021, respectively.

Common stock warrants

The following table summarizes the status of the Company’s common stock warrants at December 31, 2021, and September 30, 2022, and the changes during the nine months then ended:

		Weighted
	Number of	Average Exercise
	Underlying	Price Per
Common Stock Warrants	Shares	Share
Outstanding at December 31, 2021	12,803,846	$	0.34
Granted during the period	—
Exercised during period	—
July 2019 Series B warrants	(3,000,000)		0.35
Expired during period	—
Outstanding September 30, 2022	9,803,846	$	0.34

The warrants relate to prior registered offerings and private placements of the Company’s stock.

All outstanding warrants are recorded in equity at September 30, 2022, and December 31, 2021, following the guidance established by ASC Topic 815-40. The Company’s warrants allow for the potential settlement in cash if certain extraordinary events are effected by the Company, including a 50% or greater change of control in the Company’s common stock. Since those events have been deemed to be within the Company’s control, the Company continues to apply equity treatment for these warrants.