Note 10 – Stockholders’ Equity

Authorized Capital

The Company has authorized the issuance and sale of up to 185 million shares of stock, consisting of 180 million shares of common stock having a par value of $0.001 and 5 million shares of Preferred Stock having a par value of $0.001 per share. As of December 31, 2021 and 2020, there were no shares of Preferred Stock outstanding and there were no declared but unpaid dividends or undeclared dividend arrearages on any shares of the Company’s capital stock.

At-the-Market Offering

During the year ended December 31, 2020, the Company entered into an At-the-Market Offering Sales Agreement (“ATM”) with Virtu Americas, LLC as sales agent. During the year ended December 31, 2021, the Company sold 1.7 million shares of its common stock under the ATM program for proceeds of $2.9 million, net of commissions. The Company incurred professional fees of $21,294 related to the ATM and recognized those costs as a reduction to additional paid-in capital in the accompanying condensed balance sheets. During the year ended December 31, 2020, the Company sold 2.4 million shares of its common stock under the ATM program for proceeds of $4.3 million, net of commissions and professional fees of $0.2 million. As of December 31, 2021, the Company had $12.5 million available in its ATM program.

Underwritten Public Offerings

During the year ended December 31, 2021, the Company completed an underwritten public offering of its securities (the “Public Offering”) pursuant to which it sold 20.8 million shares of its common stock and warrants to purchase up to 20.8 million shares of common stock for proceeds of $13.8 million, net of commissions and professional fees of approximately $1.2 million. The warrants issued in the Public Offering were immediately exercisable and have a term of five years and a per share exercise price of $0.72.

During the year ended December 31, 2020, the Company completed an underwritten public offering of the Company’s securities (the “Public Offering”) pursuant to which the Company sold 12.3 million shares of its common stock and warrants to purchase 10.6 million shares of common stock for proceeds of $13.7 million, net of commissions and professional fees of $1.4 million. The warrants issued in the Public Offering were immediately exercisable and have a term of five years and a per share exercise price of $1.44.

Stock Options

The Company has an incentive stock plan, the Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”), and has granted stock options to employees, non-employee directors and consultants from the 2011 Plan. Options granted under the 2011 Plan may be Incentive Stock Options or Non-statutory Stock Options, as determined by the Administrator at the time of grant. During the year ended December 31, 2020, the Company’s stockholders approved an amendment to the 2011 Plan to increase the number of shares authorized for issuance under the 2011 Plan to a total of 14 million. As of December 31, 2021, there were 3.2 million shares remaining available for issuance under the 2011 Plan.

During the year ended December 31, 2021, the Company granted stock options to employees to purchase 6.3 million shares of the Company’s common stock, including the time and performance-based Inducement Awards, with grant date prices that ranged between $0.34 to $1.38 per share. The stock options have terms of ten years and are subject to vesting based on continuous service of the awardee over periods ranging from three to four years. The stock options have an aggregate grant date fair value of $5.8 million.

In connection with the appointment of Joseph Sarret as the Company’s Chief Executive Officer, the Company entered into an Inducement Stock Option Agreement with Dr. Sarret on May 3, 2021. Pursuant to such agreement, the Company granted Dr. Sarret (1) a time-based inducement nonqualified stock option to purchase 2.3 million shares of common stock and (2) a performance-based inducement nonqualified stock option to purchase 1.3 million shares of common stock (the “Inducement Awards”). The options have an exercise price of $1.35, and the time-based grant will vest as to 25% of the shares on the one-year anniversary of the grant date, May 3, 2021, with the remaining shares subject to the option vesting in 36 equal monthly installments. The time-based Inducement Award has an aggregate grant date fair value of $2.2 million. As of December 31, 2021, Dr. Sarret satisfied a portion of the performance conditions and vested performance-based stock options to purchase 0.7 million shares of the 1.3 million shares possible under the grant. The performance-based award had a fair value of $0.1 million.

During the year ended December 31, 2021, stock options to purchase 1.3 million shares of common stock were exercised for cash proceeds of $1.2 million.

During the year ended December 31, 2021, stock options to purchase 1.5 million shares of common stock were cancelled and returned to the option pool for future issuance.

During the year ended December 31, 2020, the Company granted stock options to employees to purchase 0.3 million shares of the Company’s common stock at exercise prices that ranged between $1.55 to $2.56 per share. The options have terms of ten years. The stock options have an aggregate grant date fair value of $0.5 million.

During the year ended December 31, 2020, stock options to purchase 0.2 million shares of common stock were exercised for cash proceeds of $0.3 million.

During the year ended December 31, 2020, stock options to purchase 0.2 million shares of common stock were cancelled and returned to the option pool for future issuance.

The Company recorded stock-based compensation as follows:

The following table represents stock option activity for the years ended December 31, 2021 and 2020:

The following table summarizes information on stock options outstanding and exercisable as of December 31, 2021:

Warrants

During the year ended December 31, 2021, the Company granted warrants to two service providers to purchase a total of 0.1 million shares of its common stock with an exercise price of $1.38 per share. Fifty thousand of these warrants were valued using the Black-Scholes option pricing model and the corresponding expense will be recognized over the service period of three years. Ten thousand of these warrants were performance based. During the year ended December 31, 2021, the performance criteria were met and the warrants were valued and expensed at the time the performance conditions were met. The warrants have terms that range from two to three years with vesting over a one-year period.

During the year ended December 31, 2021, warrants to purchase 1.5 million shares of common stock were exercised for cash proceeds of $2.1 million.

During the year ended December 31, 2021, warrants to purchase 3.2 million shares of common stock expired and were cancelled.

During the year ended December 31, 2020, the Company issued warrants to purchase 10.6 million shares of the Company’s common stock as part of the Public Offering (see Note 10 – Underwritten Public Offerings) and to the note holders that extended the due date of their unsecured promissory notes (see Note 10 – Amendments to Notes and Warrants) and warrants to purchase 2.4 million shares of the Company’s common stock as part of the Private Offering that converted outstanding amounts due under the Company’s 8% Unsecured Promissory Notes due 2021 (see Note 7 - Notes Payable).

During the year ended December 31, 2020, warrants to purchase 20,000 shares of common stock were exercised for cash proceeds of $45,000.

The following table represents warrant activity for the years ended December 31, 2021 and 2020:

Amendments to Notes and Warrants

During the year ended December 31, 2020, the Company entered into amendments (the “Amendments”) with certain holders of the Company’s 8% Unsecured Promissory Notes (the “2018 Notes”) and Nontransferable Common Stock Purchase Warrants (the “2018 Warrants”). Pursuant to the Amendments, the maturity date of the applicable 2018 Notes was extended from March 29, 2021 to June 30, 2021 and the expiration date of the applicable 2018 Warrants was extended from March 29, 2021 to March 29, 2022. The terms of the applicable 2018 Notes were also amended to grant the holders of such 2018 Notes a right to participate in a future private offering of the Company’s securities upon terms substantially similar to those offered to investors in a future primary offering of the Company’s securities and to grant resale registration rights in connection therewith. The Company recognized $0.2 million of non-cash costs in Other Expenses in the accompanying statements of operations relating to the 2018 Warrants extension.

The Company subsequently entered into a second amendment to the 2018 Notes with certain holders whereby the maturity date of the applicable 2018 Notes was extended from June 30, 2021 to June 30, 2022 and the expiration date of the applicable 2018 Warrants was extended from March 29, 2022 to March 29, 2026. The exercise price of the 2018 Warrants was adjusted from $5.30 per share to $2.00 per share. The terms of the applicable 2018 Notes were also amended to require that the holders of such 2018 Notes participate in a future private offering of the Company’s securities upon terms substantially similar to those offered to investors in a future primary offering of the Company’s securities (see Note 7 – Notes Payable). The Company also granted an additional warrant to purchase 0.5 of one share of its common stock, or 1.5 million shares of common stock in total, per dollar of each participating 2018 Note holder’s principal amount of the 2018 Notes with an exercise price of $2.00 per share and an expiration date of March 29, 2026 (the “New Warrants”). The New Warrants will be exercisable beginning on the six-month anniversary of the date of issuance, and the Company granted to the participating 2018 Note holders certain registration rights with respect to its securities issued in the Private Offering and the shares of common stock underlying the New Warrants. The Company recognized $0.5 million of non-cash costs in Other Expenses in the accompanying statements of operations related to this second amendment.

Also, during the year ended December 31, 2020, the Company entered into amendments with certain holders of the Company’s Common Stock Purchase Warrants (the “2017 Warrants”) pursuant to which the expiration date of the applicable 2017 Warrants was extended from June 30, 2020 to September 30, 2021. The Company recognized $1.6 million of non-cash costs in Other Expenses in the accompanying statements of operations relating to the 2017 Warrants extension.

The Company determined the proper classification of the loan modification based on ASC 470-50, Debt Modifications and Extinguishments. Because the change in present value of cash flows of the modified debt is less than 10% when compared to the present value of the cash flows of the original debt, no change is required to be made to the debt in the accompanying condensed financial statements.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (“ESPP”) in which employees may purchase shares with the amounts accumulated during the offering period from employee directed payroll deferrals. Purchases of the Company’s common stock are equal to 85% of the closing market price of its common stock on the first day or last day of the offering period, whichever is lower. During the year ended December 31, 2021, 17,662 shares were issued under the ESPP for $16,814 of employee compensation deferrals. As of December 31, 2021, 482,338 shares are available for future issuance under the ESPP.