STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2022

Equity [Abstract]

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

NOTE 14. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Preferred Stock

At June 30, 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 six months ended June 30, 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.

During the six months ended June 30, 2022, the Company issued 3,000 shares of common stock and received net proceeds of $7,000 upon the exercise of options to purchase 3,000 shares of common stock with exercise prices between $1.70 to $3.95 per share.

During the six months ended June 30, 2022, 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.

During the six months ended June 30, 2022, 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.

During the six months ended June 30, 2022, 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 six months ended June 30, 2022, 50,000 RSUs granted in May 2019 vested, and in May 2022, the Company issued 36,851 shares of common stock, net of 13,149 shares of common stock withheld for payroll tax withholdings totaling $99,000.

During the six months ended June 30, 2022, 19,288 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 June 30, 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 2,067,284 shares available for future issuances under the 2017 Plan at June 30, 2022.

Stock Options

A summary of stock option activity under the Plans for the six months ended June 30, 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		281,250		$	7.38
Options exercised		(128,000	)	$	2.45
Options cancelled/forfeited		(14,500	)	$	7.60
Options outstanding – June 30, 2022		3,178,296		$	5.80		4.92	$	5,539,000
Options exercisable		2,444,993		$	5.32		4.42	$	5,366,000
Options vested and expected to vest		3,178,296		$	5.80		4.92	$	5,539,000

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 June 30, 2022, based on the closing price of the Company’s common stock of $7.28 on that date.

During the six months ended June 30, 2022, the Company granted stock options to certain employees. 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 ten years. Vesting terms for options granted to employees during the three and six months ended June 30, 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	$	4.54
Expected terms (in years)		6.11
Expected volatility		68-70	%
Risk-free interest rate		1.54-2.78	%
Dividend yield		-

The following table summarizes information about stock options outstanding and exercisable at June 30, 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 - $2.23		595,887		5.04	$	1.97		595,887	$	1.97
$	2.40 - $3.50		53,568		6.05	$	3.00		42,507	$	2.88
$	3.95		370,000		3.75	$	3.95		370,000	$	3.95
$	4.08 - $6.30		578,850		5.47	$	5.76		534,605	$	5.83
$	6.80 - $7.30		409,995		7.81	$	7.21		230,370	$	7.27
$	7.37 - $7.79		297,323		6.34	$	7.54		139,699	$	7.47
$	7.87		600,000		3.08	$	7.87		300,000	$	7.87
$	7.89 - $8.75		82,673		7.06	$	8.06		48,800	$	8.16
$	8.98		10,000		8.59	$	8.98		3,125	$	8.98
$	8.99		180,000		0.84	$	8.99		180,000	$	8.99
$	1.47 - $8.99		3,178,296		4.92	$	5.80		2,444,993	$	5.32

As of June 30, 2022, there was approximately $2,013,000 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 3.15 years. The stock-based compensation for all stock options was $258,000 and $530,000 during the three and six months ended June 30, 2022, respectively, and $569,000 and $1,021,000 during the same periods in 2021, respectively.

The intrinsic value of options exercised during the six months ended June 30, 2022 was $754,000.

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 six months ended June 30, 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		65,615		$	7.62
RSUs vested		(204,288	)	$	6.52
RSUs cancelled/forfeited		-			-
RSUs unvested - June 30, 2022		2,094,529		$	6.83

As of June 30, 2022, the total unrecognized compensation expense related to unvested RSUs was approximately $8,819,000, which is expected to be recognized over a weighted-average period of 1.10 years, based on estimated and actual vesting schedules of the applicable RSUs. The stock-based compensation for RSUs during the three and six months ended June 30, 2022 was $1,735,000 and $3,479,000, respectively, and $481,000 and $827,000 during the same periods in 2021, respectively.

Warrants

From time to time, the Company has issued 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 six months ended June 30, 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 – June 30, 2022		373,847	$	2.08
Weighted average remaining contractual life of the outstanding warrants in years – June 30, 2022		2.1

Warrants outstanding and exercisable as of June 30, 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 in stock-based compensation expense related to subsidiary stock options during the three and six months ended June 30, 2022, and $28,000 and $85,000 during the same periods in 2021, respectively.

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 June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Employees – selling, general and administrative	$	1,655,000	$	923,000	$	3,331,000	$	1,678,000
Employees – R&D		176,000		55,000		362,000		55,000
Directors – selling, general and administrative		112,000		100,000		212,000		200,000
Consultants – R&D		50,000		-		104,000		-
Total	$	1,993,000	$	1,078,000	$	4,009,000	$	1,933,000