Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity and Stock-Based Compensation

v3.19.1
Stockholders' Equity and Stock-Based Compensation
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Note 7. Stockholders' Equity and Stock-Based Compensation

At March 31, 2019, there were 36,149,325 common shares outstanding, and there were also outstanding warrants relating to 844,337 shares of common stock, stock options relating to 5,342,192 shares of common stock, 813,624 shares of Series A convertible preferred stock convertible into 813,624 shares of common stock (plus accrued dividends of $453,597 relating to an additional 165,239 common shares), and 2,666,667 shares of Series B convertible preferred stock convertible into 2,666,667 shares of common stock (plus accrued dividends of $337,456, relating to an additional 224,970 common shares), all totaling 46,206,354 shares of common stock and all common stock equivalents, including accrued preferred stock dividends, outstanding at March 31, 2019.

 

At December 31, 2018, there were 32,862,090 common shares outstanding, and there were also outstanding warrants relating to 844,337 shares of common stock, stock options relating to 5,604,154 shares of common stock, 813,624 shares of Series A convertible preferred stock convertible into 813,624 shares of common stock (plus accrued dividends of $407,382 relating to an additional 148,403 common shares), and 2,666,667 shares of Series B convertible preferred stock convertible into 2,666,667 shares of common stock (plus accrued dividends of $262,856, relating to an additional 175,237 common shares), all totaling 43,114,512 shares of common stock and all common stock equivalents, including accrued preferred stock dividends, outstanding at December 31, 2018.

 

Common Stock Equity Offerings

 

ATM Offering

 

On March 30, 2018, the Company entered into an at-the-market issuance sales agreement (“2018 ATM”) with B. Riley FBR, Inc. (the “Distribution Agent”), pursuant to which the Company could issue and sell shares of its common stock from time to time through the Distribution Agent as the Company’s sales agent. Sales of the Company’s common stock through the Distribution Agent were made by any method that is deemed to be an “at-the-market” equity offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-223674), the base prospectus filed as part of such registration statement and the prospectus supplement dated March 30, 2018, which registered the offer and sale of up to $50 million of common stock under this 2018 ATM. Effective March 29, 2019, the Company and the Distribution Agent terminated this 2018 ATM agreement.

 

Sales under this 2018 ATM that were made during the quarter ended March 31, 2019 were 3.3 million shares that totaled gross proceeds of approximately $2.0 million. The Company records its ATM sales on a settlement date basis. A total of 0.3 million shares sold on March 28, 2019 and March 29, 2019, for total gross proceeds of $0.2 million, were recorded with settlement dates in the first week in April 2019.

 

On January 24, 2018, January 26, 2018, February 7, 2018, and March 2, 2018, the Company filed prospectus supplements registering an aggregate amount of approximately $22.6 million under the prior at-the-market (“ATM”) agreement with B. Riley FBR, Inc. The Company received approximately $20.7 million of net proceeds from its ATM during the three months ended March 31, 2018 under these above-mentioned prospectus supplements.

 

Preferred Stock Equity Offerings

 

Series B Preferred Stock - Securities Purchase Agreement

 

On January 30, 2018, the Company issued 2,666,667 shares of newly created Non-Voting Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and associated warrants to purchase up to 666,664 shares of the Company’s common stock to the several purchasers for approximately $4.0 million or approximately $1.50 per share of Series B Preferred Stock and associated 0.25 of a warrant. Dividends accrue on the Series B Preferred Stock at the rate of 7% per year and will be paid in-kind through an increase in the liquidation preference per share. The liquidation preference, initially $1.50 per share of Series B Preferred Stock, is the base that is also used to determine the number of common shares into which the Series B Preferred Stock will convert as well as the calculation of the 7% dividend. Each share of Series B Preferred Stock is convertible at the option of the holder into such number of shares of the Company’s common stock equal to the liquidation preference divided by the conversion price of $1.50 per share subject to adjustments in the case of stock splits and stock dividends.

  

Holders of the Series B Preferred Stock are also entitled to participating dividends whenever dividends in cash securities (other than shares of the Company’s common stock paid on shares of common stock) or property are paid on common shares or shares of Series A Preferred Stock. The amount of the dividends will equal the amount to which the holder would be entitled if all shares of Series B Preferred Stock had been converted to common stock immediately prior to the record date.

 

The warrants had a per share of common stock exercise price of $1.875. The warrants were exercisable upon issuance and expired six months after issuance on July 30, 2018. Warrants were also issued to the investment bank who introduced these investors, which were subsequently transferred to the principal of the investment bank, entitling the holder to purchase 133,432 common shares in the Company at an exercise price of $1.50 per share, up to and including January 30, 2021. On February 6, 2017 the Company entered into an agreement with this investment bank. The agreement calls for monthly retainer payments of $15,000, which are credited against any transaction introductory fee earned by the investment bank. This agreement calls for a 7% transaction introductory fee and warrants equal to 5% of the total transaction amount, at a strike price equal to the offering price for a three-year term.

 

The holders of the Series B Preferred Stock have no voting rights. In addition, as long as the shares of Series A Preferred Stock are outstanding, the Company may not take certain actions without first having obtained the affirmative vote or waiver of the holders of a majority of the outstanding shares of Series B Preferred Stock. The Company has the option at any time after August 2, 2019 to redeem some or all of the outstanding Series B Preferred Stock for an amount in cash equal to the liquidation preference plus the amount of any accrued but unpaid dividends of the Series B Preferred Stock being redeemed. The holders of the Series B Preferred Stock do not have the ability to require the Company to redeem the Series B Preferred Stock.

 

The accumulated dividend (unpaid) at March 31, 2019 and December 31, 2018 was approximately $0.3 million. The liquidation preference of the Series B Preferred Stock at March 31, 2019 was approximately $4.3 million, which includes the accumulated dividend.

 

The Company has the option of forcing the conversion of all or part of the Series B Preferred Stock if at any time the average closing price of the Company’s common stock for a thirty-trading day period is greater than $5.4902 prior to August 2, 2019 or greater than $8.2353 at any time. The Company can only exercise this option if it also requires the conversion of the Series A Preferred Stock in the same proportion as it is requiring of the Series B Preferred Stock.

 

Of the $4 million proceeds, approximately $0.3 million was allocated to the warrants with the remaining $3.7 million allocated to the Series B Preferred Stock. The Series B Preferred Stock was initially convertible into 2,666,667 shares of common stock. The average of the high and low market prices of the common stock on January 30, 2018, the date of the closing of the sale of the preferred stock, was approximately $2.34 per share. At $2.34 per share the common stock into which the Series B Preferred Stock was initially convertible was valued at approximately $6.2 million. This amount was compared to the $3.6 million of proceeds allocated to the Series B Preferred Stock to indicate that a BCF of approximately $2.6 million existed at the date of issuance, which was immediately accreted as a deemed dividend because the conversion rights were immediately effective. This deemed dividend is included on the statement of operations for the three months ended March 31, 2018.

  

Additionally, comparison of the $1.50 conversion price of the PIK dividends to the $2.34 commitment date fair value per share indicates that each PIK dividend will accrete $0.84 of BCF as an additional deemed dividend for every $1.50 of PIK dividend accrued. Total deemed dividends for this PIK dividend as of March 31, 2019 and December 31, 2018 was approximately $0.2 million and $0.1 million dollars, respectively.

 

Series A Preferred Stock - Securities Purchase Agreement

 

On August 2, 2016, the Company issued 1,020,000 shares of newly created Non-Voting Series A Convertible Preferred Stock (the “Series A Preferred Stock”) to General International Holdings, Inc. for $2.8 million or approximately $2.75 per share. Dividends accrue on the Series A Preferred Stock at the rate of 7% per year and will be paid in-kind through an increase in the liquidation preference per share. The liquidation preference, initially $2.7451 per share of Series A Preferred Stock, is the base that is also used to determine the number of common shares into which the Series A Preferred Stock will convert as well as the calculation of the 7% dividend. Each share of Series A Preferred Stock is convertible at the option of the holder into such number of shares of the Company’s common stock equal to the liquidation preference divided by the conversion price of $2.7451 per share subject to adjustments in the case of stock splits and stock dividends.

 

Holders of the Series A Preferred Stock are also entitled to participating dividends whenever dividends in cash securities (other than shares of the Company’s common stock) or property are paid on common shares. The amount of the dividends is the amount to which the holder would be entitled if all shares of Series A Preferred Stock had been converted to common stock immediately prior to the record date.

 

On September 30, 2018 the holders of the Series A Preferred Shares were issued 729 common shares in payment of the dividend for the month of April 2018. On the same date, the holders of the Series A Preferred Shares converted 95,116 preferred shares into 110,530 common shares. On April 30, 2018, the holders of the Series A Preferred Shares converted 111,260 preferred shares into 124,882 common shares.

 

The accumulated dividend (unpaid) at March 31, 2019 and December 31, 2018 was approximately $0.5 million and $0.4 million, respectively. The Series A Preferred Shares outstanding as of March 31, 2019 was 813,624 shares with a liquidation preference of approximately $2.7 million, including accumulated dividends, while the Series A Preferred Shares outstanding as of December 31, 2018 was 813,624 shares with a liquidation preference of approximately $2.6 million, including accumulated dividends.

 

The Company has the option of forcing the conversion of the Series A Preferred Stock if the trading price for the Company’s common stock is more than two times the applicable conversion price (approximately $2.75 per share) before the third anniversary of the issuance of the Series A Preferred Stock, or if the trading price is more than three times the applicable conversion price following the third anniversary of issuance. The Company may also redeem the Series A Preferred Stock following the third anniversary of the issuance.

 

The Series A Preferred Stock was initially convertible into 1,020,000 shares of common stock. The average of the high and low market prices of the common stock on August 6, 2016, the date of the closing of the sale of the Series A Preferred Stock, was approximately $3.315 per share. At $3.315 per share the common stock into which the Series A Preferred Stock was initially convertible was valued at approximately $3.4 million. This amount was compared to the $2.8 million of proceeds of the Series A Preferred Stock to indicate that a BCF of approximately $0.6 million existed at the date of issuance in 2016, which was immediately accreted as a deemed dividend because the conversion rights were immediately effective.

  

Additionally, comparison of the $2.7451 conversion price of the PIK dividends to the $3.315 commitment date fair value per share indicates that each PIK dividend will accrete $0.5699 of BCF as an additional deemed dividend for every $2.7451 of PIK dividend accrued. Total deemed dividends for this PIK dividend as of March 31, 2019 and December 31, 2018 was approximately $0.1 million and $0.1 million dollars, respectively.

 

The holders of the Series A Preferred Stock have no voting rights. In addition, as long as 255,000 shares of Series A Preferred Stock are outstanding, the Company may not take certain actions without first having obtained the affirmative vote or waiver of the holders of a majority of the outstanding shares of Series A Preferred Stock. The Company has the option at any time after August 2, 2019 to redeem some or all of the outstanding Series A Preferred Stock for an amount in cash equal to the liquidation preference plus the amount of any accrued but unpaid dividends of the Series A Preferred Stock being redeemed. The holders of the Series A Preferred Stock do not have the ability to require the Company to redeem the Series A Preferred Stock.

 

Warrants

 

    March 31,     December 31,  
Outstanding Warrants   2019     2018  
Issued to Investors on October 25, 2013, entitling the holders to purchase 250,000 common shares in the Company at an exercise price of $11.50 per common share up to and including April 24, 2021. In 2016, 59,450 of these warrants were exchanged for common stock, and all remaining warrant holders agreed to new warrant terms, which excluded any potential net cash settlement provisions in exchange for a reduced exercise price of $6.25 per share.     163,986       163,986  
                 
Issued to Investors on November 17, 2014, entitling the holders to purchase 546,919 common shares in the Company at an exercise price of $11.55 per common share up to and including May 16, 2022. On June 30, 2016, the warrant holders agreed to new warrant terms, which excluded any potential net cash settlement provisions in order to classify them as equity in exchange for a reduced exercise price of $6.25 per share.     546,919       546,919  
                 
Issued to an investment bank and subsequently transferred to a principal of the investment bank regarding the Series B Preferred Stock investment on January 30, 2018, entitling the holder to purchase 133,432 common shares in the Company at an exercise price of $1.50 per share, up to and including January 30, 2021.     133,432       133,432  
                 
Total     844,337       844,337  

 

Stock-based Compensation – Stock Options

 

2015 Equity Incentive Plan

 

On March 25, 2015, the Compensation Committee and Board of Directors approved the Lightbridge Corporation 2015 Equity Incentive Plan (the “2015 Plan”) to authorize grants of (a) Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, and (f) Performance Compensation Awards to the employees, consultants, and directors of the Company. The 2015 Plan initially authorized a total of 600,000 shares to be available for grant under the 2015 Plan, of which the amount was increased to 1,400,000 shares in May 2016, 2,900,000 shares in May 2017, and 6,300,000 shares in May 2018.

  

Total stock options outstanding at March 31, 2019 and December 31, 2018 under the 2006 Stock Plan and 2015 Plan were 5,342,192 and 5,604,154, of which 3,673,176 and 3,935,138 of these options were vested at March 31, 2019 and December 31, 2018, respectively.

 

The components of stock-based compensation expense included in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 are as follows:

 

   

Three Months ended

March 31,

 
    2019     2018  
             
Research and development expenses   $ 170,134     $ 503,217  
General and administrative expenses     164,879       769,818  
Total stock-based compensation expense   $ 335,013     $ 1,273,035  

 

Long-Term Non-Qualified Option Grants

 

In August 2018 the Compensation Committee of the Board of Directors granted long-term non-qualified stock options relating to 1,752,791 shares to employees, consultants, and directors of the Company. These stock options have a strike price of $0.90. Out of this total, approximately 1,540,263 stock options were issued to employees and consultants. These non-qualified stock options contain service, performance and market conditions of which one must be achieved in order for the options to vest. The service condition vests one-third annually over a 3-year period with accelerated vesting of these options occurring upon applicable performance or market conditions being satisfied by certain milestone dates. Accelerated vesting of these option grants to employees and consultants would occur upon achievement of either of the following performance and market-based milestones:

 

  1. The Company’s closing stock price is above $3 per share for 10 consecutive trading days by December 31, 2019.
     
  2. The Company secures at least $5 million of funding from the Department of Energy by June 30, 2019.

 

The remaining approximately 212,528 stock options were service based options issued to the directors of the Company that vest over a one-year period on the anniversary date of the grant. All options granted have a 10-year contractual term.

 

In accordance with ASC 718, awards with service, market and performance conditions for the employees and consultants were assigned a fair value of $0.69 per share and the awards with service conditions for the directors of the Company were assigned a fair value of $0.70 per share (total value of $1.2 million). The value was determined using a Monte Carlo simulation. The following assumptions were used in the Monte Carlo simulation model:

 

Expected volatility     90 %
Risk free interest rate     2.84 %
Dividend yield rate     0 %
Weighted average years     9.8 months  
Closing price per share – common stock   $ 0.88  

 

The weighted average years remaining of expected life was itself calculated based on a Monte Carlo simulation under which it was assumed that the options would be exercised, if vested, when the stock reached a price of $4.50, otherwise they would be exercised at expiration, if in the money. The Company determined that it was not probable that the outcome of the above performance-based milestone (i.e., DOE funding) would be met prior to the annual vesting dates. In accordance with ASC 718-10-55-104 the Company then based the amortization period for the compensation expense on the shorter of the explicit service periods or the “derived service period” based solely on the market condition.

  

Stock option transactions to the employees, directors and consultants are summarized as follows for the three months ended March 31, 2019:

 

   

Options

Outstanding

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Grant Date

Fair Value

 
Beginning of the period     5,604,154     $ 2.72     $ 1.96  
Granted     -       -       -  
Exercised     -       -       -  
Forfeited     (215,598 )     2.44       1.75  
Expired     (46,364 )     19.10       18.47  
End of the period     5,342,192     $ 2.59     $ 1.82  
                         
Options exercisable     3,673,176     $ 3.36     $ 2.34  

 

Stock option transactions of the employees, directors, and consultants are summarized as follows for the year ended December 31, 2018:

 

   

Options

Outstanding

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Grant Date

Fair Value

 
Beginning of the year     3,976,884     $ 3.58     $ 2.49  
Granted     1,784,455       0.90       0.70  
Exercised     -       -       -  
Forfeited     (143,980 )     1.10       0.83  
Expired     (13,205 )     30.60       21.13  
End of the year     5,604,154     $ 2.72     $ 1.96  
                         
Options exercisable     3,935,138     $ 3.50     $ 2.49  

 

A summary of the status of the Company’s non-vested options as of March 31, 2019 and December 31, 2018, and changes during the year ended December 31, 2018 and the three months ended March 31, 2019, is presented below:

 

    Shares    

Weighted-

Average Fair

Value

Grant Date

   

Weighted

Average

Exercise Price

 
                   
Non-vested – December 31, 2017     1,542,736     $ 1.10     $ 1.58  
Granted     1,784,455       0.70       0.90  
Vested     (1,514,195 )     1.27       1.58  
Forfeited     (143,980 )     0.83       1.10  
Non-vested – December 31, 2018     1,669,016     $ 0.54     $ 0.91  
                         
Granted     -       -       -  
Vested     -       -       -  
Forfeited     -       -       -  
Non-vested – March 31, 2019     1,669,016     $ 0.54     $ 0.91  

  

The above tables include options issued and outstanding as of March 31, 2019 as follows:

 

i) A total of 64,677 non-qualified 10-year options have been issued, and are outstanding, to advisory board members at exercise prices of $1.05 to $28.05 per share.
   
ii) A total of 4,801,248 incentive stock options and non-qualified 5-10 year options have been issued, and are outstanding, to the directors, officers, and employees at exercise prices of $0.90 to $43.25 per share. From this total, 1,409,248 options are outstanding to the Chief Executive Officer, who is also a director, with remaining contractual lives of 0.1 years to 9.4 years. All other options issued to directors, officers, and employees have a remaining contractual life ranging from 0.1 years to 9.4 years.
   
iii) A total of 476,267 non-qualified 3-10-year options have been issued, and are outstanding, to consultants at exercise prices of $0.90 to $43.25 per share.

 

As of March 31, 2019, there was approximately $0.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of approximately 0.41 years. For stock options outstanding at March 31, 2019, the intrinsic value was approximately $0. For stock options outstanding at December 31, 2018, the intrinsic value was approximately $0 million.

 

The following table provides certain information with respect to the above-referenced stock options that were outstanding and exercisable at March 31, 2019:

 

    Stock Options Outstanding     Stock Options Vested  
    Weighted                 Weighted              
    Average                 Average              
    Remaining           Weighted     Remaining           Weighted  
    Contractual     Number     Average     Contractual     Number     Average  
    Life     of     Exercise     Life     of     Exercise  
Exercise Prices     -Years     Awards     Price       -Years     Awards     Price  
                                         
$0.90-$1.04     9.35       1,616,402     $ 0.90       -       -     $ -  
$1.05-$2.00     8.32       2,397,193     $ 1.18       8.31       2,344,579     $ 1.19  
$2.01-$6.00     6.61       787,760     $ 4.59       6.61       787,760     $ 4.59  
$6.01-$20.00     3.95       465,850     $ 7.49       3.95       465,850     $ 7.49  
$20.01-$43.25     0.79       74,987     $ 32.87       0.79       74,987     $ 32.87  
Total     7.89       5,342,192     $ 2.59       7.24       3,673,176     $ 3.36  

  

The following table provides certain information with respect to the above-referenced stock options that were outstanding and exercisable at December 31, 2018:

 

    Stock Options Outstanding     Stock Options Vested  
    Weighted                 Weighted              
    Average                 Average              
    Remaining           Weighted     Remaining           Weighted  
    Contractual     Number     Average     Contractual     Number     Average  
    Life     of     Exercise     Life     of     Exercise  
Exercise Prices     -Years     Awards     Price       -Years     Awards     Price  
                                         
$0.90-$1.04     9.60       1,616,402     $ 0.90             -     $  
$1.05-$2.00     8.57       2,560,330     $ 1.18       8.56       2,507,716     $ 1.18  
$2.01-$6.00     6.86       813,583     $ 4.59       6.86       813,583     $ 4.59  
$6.01-$20.00     4.16       501,334     $ 7.48       4.16       501,334     $ 7.48  
$20.01-$43.25     0.72       112,505     $ 29.46       0.72       112,505     $ 29.46  
Total     8.07       5,604,154     $ 2.72       7.42       3,935,138     $ 3.50