8. COMMON STOCK

150,000,000 authorized common shares, par value of $0.001, and 5,000,000 preferred shares, par value of $0.001. 

May 2021 Public Offering

On May 27, 2021, we completed an underwritten public offering of our securities, pursuant to which we sold an aggregate of 3,285,714 shares of our common stock, including 428,571 shares subject to the underwriter’s option to purchase additional shares, or the May Shares. The May Shares were sold at the public offering price of $7.00 per share.

The underwritten public offering raised total gross proceeds of approximately $23.0 million and after deducting approximately $1.7 million in underwriting discounts and commissions and offering expenses, we received net proceeds of approximately $21.3 million. The underwriting discounts and commissions and offering expenses have been charged against the gross proceeds.

At-the-Market Sales Agreement

On December 21, 2021, we entered into an At-the-Market Offering Sales Agreement, or ATM, with Virtu Americas, LLC, as sales agent, pursuant to which we may sell shares of common stock with an aggregate offering price of up to $25 million.

During the nine months ended September 30, 2022, we offered and sold 200,000 shares of our common stock pursuant to the ATM. These aggregate sales resulted in gross proceeds to us of approximately $1.5 million. Since entry into the ATM, from December 21, 2021 through September 30, 2022, we offered and sold an aggregate of 200,000 shares of our common stock. These aggregate sales resulted in gross proceeds to us of approximately $1.5 million. As of September 30, 2022, shares of our common stock having an aggregate value of approximately $23.5 million remained available for sale under the ATM.

Equity Award Issuances and Settlements

During the three and nine months ended September 30, 2022, we did not issue any shares of common stock to satisfy stock option exercises and we issued 26,625 common stock to satisfy restricted stock unit settlements. During the three and nine months ended September 30, 2021, we did not issue any shares of common stock to satisfy stock option exercises and issued 231 shares of common stock to satisfy restricted stock unit settlements.

2018 Equity Incentive Plan

As of September 30, 2022, we had reserved, pursuant to the 2018 Equity Incentive Plan, or the 2018 Plan, 967,152 shares of common stock for issuance upon exercise of stock options and settlement of restricted stock units by employees, directors, officers and consultants of ours, of which 714,155 were reserved for options currently outstanding, 252,875 for restricted stock units currently outstanding, and 122 were available for future equity grants.

Under the 2018 Plan, we may grant options to purchase common shares or restricted stock units to our employees, directors, officers and consultants. The exercise price of the options is determined by our board of directors, or Board, but will be at least equal to the fair value of the shares of common stock at the grant date. The options vest in accordance with terms as determined by our Board, typically over three to four years for options issued to employees and consultants, and over one to three years for members of our Board. The expiry date for each option is set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2018 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

New Employee Inducement Grants

We grant stock options as a material inducement to new employees for entering into employment agreements with us in accordance with Nasdaq Listing Rule 5635(c)(4). The stock options approved under the inducement grants are issued pursuant to a stock option agreement on terms substantially similar to those described in our 2018 Plan. The exercise price of the options is determined by our board of directors but will be at least equal to the fair value of the common shares at the grant date. The options vest in accordance with terms as determined by our board of directors. The expiry date for each option is set by our board of directors with a maximum expiry date of ten years from the date of grant. For the nine months ended September 30, 2022, we granted 50,000 inducement stock options to new employees. As of September 30, 2022, 95,000 stock options granted as new employee inducement grants were outstanding.

2017 Equity Incentive Plan

As of September 30, 2022, we had reserved, pursuant to the 2017 Equity Incentive Plan, or the 2017 Plan, 13,156 shares of common stock for issuance upon exercise of stock options, currently outstanding, by employees, directors and officers of ours. Upon the effectiveness of our 2018 Plan, we ceased granting equity awards under our 2017 Plan.

Under the 2017 Plan, we granted options to purchase shares of common stock or restricted stock units to our employees, directors, officers and consultants. The exercise price of the options was determined by our board of directors but was at least equal to the fair value of the shares of common stock at the grant date. The options vest in accordance with terms as determined by our Board, typically over three to four years for options issued to employees and consultants, and over one to three years for members of our Board. The expiry date for each option was set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2017 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

2010 Performance Incentive Plan

As of September 30, 2022, we had reserved, pursuant to the 2010 Performance Incentive Plan, or the 2010 Plan, 204 shares of common stock for issuance upon exercise of stock options and settlement of restricted stock units by employees, directors, officers and consultants of ours, of which 204 were reserved for options currently outstanding and zero were reserved for restricted stock units currently outstanding.

Under the 2010 Plan we granted options to purchase shares of common stock and restricted stock units to our employees, directors, officers and consultants. The exercise price of the options was determined by our board of directors and was at least equal to the fair value of the shares of common stock at the grant date. The options vest in accordance with terms as determined by our Board, typically over three to four years for options issued to employees and consultants, and over one to three years for members of our Board. The expiry date for each option is set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2010 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

Stock Option Summary

We grant stock options that vest over time in accordance with terms as determined by our Board, which are typically four years for employee and consultant grants and one to three years for Board option grants. We also grant stock option awards that vest in conjunction with certain performance conditions to executive officers, employees and consultants. At each reporting date, we are required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance condition. The expiry date for each option is set by our Board, which is typically seven to ten years. The exercise price of the options is determined by our Board.

Stock option transactions and the number of stock options outstanding are summarized below:

The fair value of each stock award for employees and directors is estimated on the grant date and for consultants at each reporting period, using the Black-Scholes option-pricing model based on the weighted-average assumptions noted in the following table:

The expected life was calculated based on the simplified method as permitted by the SEC’s Staff Accounting Bulletin 110, Share-Based Payment. We consider the use of the simplified method appropriate because of the lack of sufficient historical exercise data following the Arrangement. The computation of expected volatility was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization. The risk-free interest rate is based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In addition to the assumptions above, as required under ASC 718, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. Forfeiture rates are estimated using historical actual forfeiture rates. These rates are adjusted on a quarterly basis and any change in compensation expense is recognized in the period of the change. We have never paid or declared cash dividends on our common stock and do not expect to pay cash dividends in the foreseeable future.

The results for the periods set forth below included share-based compensation expense for stock options, restricted stock units and employee share purchase plan compensation expenses in the following expense categories of the consolidated statements of loss (in thousands):

As of September 30, 2022, the total unrecognized compensation expense related to stock options granted was $3.7 million, which is expected to be recognized as expense over a period of approximately 2.17 years from September 30, 2022.

For the nine months ended September 30, 2022, a total of 2,315,337 shares, consisting of warrants to purchase 1,239,947 shares, options exercisable for 822,515 shares and 252,875 restricted stock units, have not been included in the loss per share computation, as their effect on diluted per share amounts would have been anti-dilutive. For the same period in 2021, a total of 1,818,996 shares underlying options, restricted stock units and warrants have not been included in the loss per share computation. Additionally, the outstanding Convertible Debt is included in the calculation of diluted per share amounts only if its inclusion is dilutive for periods during which the notes were outstanding. As of September 30, 2022, the outstanding Convertible Debt was not included in the calculation of diluted per share amounts as its effect would have been anti-dilutive

We grant restricted stock unit awards that generally vest and are expensed over a four-year period. We also grant restricted stock unit awards that vest in conjunction with certain performance conditions to certain executive officers, key employees and consultants. At each reporting date, we are required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance condition. For the three and nine months ended September 30, 2022, we recorded a compensation expense of $0.3 million and $0.8 million, respectively, related to these awards, compared to $0.1 million and $0.3 million, for the three and nine months ended September 30, 2021.

The following table summarizes our restricted stock unit award activity during the nine months ended September 30, 2022:

As of September 30, 2022, we had approximately $1.5 million in total unrecognized compensation expense related to our restricted stock unit awards that is to be recognized over a weighted-average period of approximately 0.88 years.

We recognize non-employee stock-based compensation expense over the period of expected service by the non-employee. As the service is performed, we are required to update our valuation assumptions, re-measure unvested options and restricted stock units and record the stock-based compensation using the valuation as of the vesting date. This differs from the accounting for employee awards where the fair value is determined at the grant date and is not subsequently adjusted. This re-measurement may result in higher or lower stock-based compensation expense in the Consolidated Statements of Loss and Comprehensive Loss. As such, changes in the market price of our stock could materially change the value of an option or restricted stock unit and the resulting stock-based compensation expense.

Our board of directors and stockholders approved the 2017 Employee Stock Purchase Plan, or ESPP, in August 2017. Contributions are made by eligible employees, subject to certain limits defined in the ESPP. The maximum number of shares authorized to be purchased under the ESPP is 0.2 million shares. All shares purchased under the ESPP are new share issuances. During the nine months ended September 30, 2022, 28,892 shares were purchased under the ESPP.

The following is a summary of outstanding warrants to purchase common stock as at September 30, 2022:

*The pre-funded warrants do not have an expiration date.

For the nine months ended September 30, 2022, warrants to purchase 3,709 shares, issued in the December 2019 financing, were exercised at a per share price of $6.60, for proceeds of $24,480. For the nine months ended September 30, 2021, warrants to purchase 47,084 shares, issued in the December 2019 financing, were exercised at a per share price of $6.60, for proceeds of $0.3 million and warrants to purchase 3,750 shares issued in the April 2020 financing were exercised for a per share price of $7.32, for proceeds of $27,450. As of September 30, 2022, all of our outstanding warrants were classified as equity.