Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity and Stock-Based Compensation

v3.19.2
Stockholders' Equity and Stock-Based Compensation
6 Months Ended
Jun. 30, 2019
Stockholders' Equity and Stock-Based Compensation  
Note 7. Stockholders' Equity and Stock-Based Compensation

At June 30, 2019, there were 37,605,914 common shares outstanding, and there were also outstanding warrants relating to 844,337 shares of common stock, stock options relating to 5,224,720 shares of common stock, 785,877shares of Series A convertible preferred stock convertible into 785,877 shares of common stock (plus accrued dividends of $483,708 relating to an additional 176,208 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 $413,362, relating to an additional 275,574 common shares), all totaling, 47,579,297 shares of common stock and all common stock equivalents, including accrued preferred stock dividends, outstanding at June 30, 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 Offerings

 

On May 28, 2019, the Company entered into an at-the-market equity offering sales agreement (“2019 ATM”) with Stifel, Nicolaus & Company, Incorporated (“Stifel”), pursuant to which the Company may issue and sell shares of its common stock from time to time through Stifel as the Company’s sales agent. Sales of the Company’s common stock through the Agent, if any, will be 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) filed on March 15, 2018 and declared effective March 23, 2018. Due to the offering limitations currently applicable to the Company under General Instruction I.B.6. of Form S-3 and the Company’s public float as of May 28, 2019, and in accordance with the terms of the sales agreement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $13,500,000 through this prospectus supplement.

 

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. Effective March 29, 2019, the Company and the Distribution Agent terminated this 2018 ATM agreement.

 

Sales under the 2019 ATM and the 2018 ATM that were made during the six months ended June 30, 2019 were 4.7 million shares that totaled gross proceeds of approximately $3.1 million. The Company records its ATM sales on a settlement date basis. A total of 37,000 shares sold on June 27, 2019 and June 28, 2019, for total gross proceeds of $24,000, were recorded with settlement dates in the first week in July 2019.

 

Sales under the 2018 ATM that were made during the six months ended June 30, 2018 were 4.6 million shares that totaled gross proceeds of $5.4 million.Additionally, under the prior at-the-market agreement with B. Riley FBR, Inc. the Company received approximately $20.4 million of net proceeds from its ATM during the three months ended March 31, 2018, which were made under prospectus supplements the Company filed on January 24, 2018, January 26, 2018, February 7, 2018, and March 2, 2018.

 

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 June 30, 2019 and December 31, 2018 was approximately $0.4 million and $0.3 million, respectively. The liquidation preference of the Series B Preferred Stock at June 30, 2019 was approximately $4.4 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 exercise this option only 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 six months ended June 30, 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 June 30, 2019 and December 31, 2018 was approximately $0.1 million and $0.1 million, 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.

 

On April 16, 2019, an investor converted 27,747 Series A Preferred Shares into the 33,383 common shares issued as payment of the dividend leaving 785,877 Series A Preferred Shares outstanding with a liquidation preference of $2.6 million at April 30, 2019.

 

The accumulated dividend (unpaid) at June 30, 2019 and December 31, 2018 was approximately $0.5 million and $0.4 million, respectively. The Series A Preferred Shares outstanding as of June 30, 2019 was 785,877 shares with a liquidation preference of approximately $2.6million, 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 June 30, 2019 and December 31, 2018 was approximately $19,000 and $41,000 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

 

 

 

June 30,

 

 

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 June 30, 2019 and December 31, 2018 under the 2006 Stock Plan and 2015 Plan were 5,224,720 and 5,604,154, of which 3,555,704 and 3,935,138 of these options were vested at June 30, 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 and six months ended June 30, 2019 and 2018 are as follows:

 

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Research and development expenses

$ 113,488

$ 63,118

$ 283,622

$ 566,335

General and administrative expenses

123,784

85,592

288,663

855,410

Total stock-based compensation expense

$ 237,272

$ 148,710

$ 572,285

$ 1,421,745

 

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 six months ended June 30, 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

 

(218,096

)

 

2.86

 

2.13

 

Expired

 

(161,338

)

 

14.74

 

11.04

 

End of the period

 

5,224,720

 

$

2.35

 

$

1.67

 

Options exercisable

 

3,555,704

 

$

3.03

 

$

2.13

 

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 June 30, 2019 and December 31, 2018, and changes during the year ended December 31, 2018 and the three months ended June 30, 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 – June 30, 2019

 

1,669,016

 

$

0.54

 

$

0.91

 

The above tables include options issued and outstanding as of June 30, 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 4,728,255 incentive stock options and non-qualified 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, 1,378,186 options are outstanding to the Chief Executive Officer, who is also a director, with remaining contractual lives of 0.7 years to 9.1 years. All other options issued to directors, officers, and employees have a remaining contractual life ranging from 0.7 years to 9.1 years.

 

iii)

A total of 431,788 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 June 30, 2019, there was approximately $0.1 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 1.23 years. For stock options outstanding at June 30, 2019, the intrinsic value was $0. For stock options outstanding at December 31, 2018, the intrinsic value was $0.

 

The following table provides certain information with respect to the above-referenced stock options that were outstanding and exercisable at June 30, 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

 

9.10

 

1,616,402

 

$

0.90

 

 

 

$

 

$

1.05-$2.00

 

8.07

 

2,397,193

 

$

1.18

 

8.06

 

2,344,579

 

$

1.19

 

$

2.01-$6.00

 

6.36

 

787,760

 

$

4.59

 

6.36

 

787,760

 

$

4.59

 

$

6.01-$20.00

 

4.84

 

359,224

 

$

6.29

 

4.84

 

359,224

 

$

6.29

 

$

20.01-$43.25

 

0.64

 

64,141

 

$

32.83

 

0.64

 

64,141

 

$

32.83

 

Total

 

7.82

 

5,224,720

 

$

2.35

 

7.22

 

3,555,704

 

$

3.03

 

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