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STOCKHOLDERS' EQUITY | 9 Months Ended
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Sep. 30, 2018
Stockholders' Equity: |
STOCKHOLDERS' EQUITY | NOTE 11 – STOCKHOLDERS’ EQUITY Preferred Stock At September 30, 2018, we had 10,000,000 shares of preferred stock, par value $0.001, authorized for issuance, of which no shares of preferred stock were issued or outstanding. Common Stock At September 30, 2018, we had 350,000,000 shares of Common Stock authorized for issuance, of which 236,464,789 shares of Common Stock were issued and outstanding. On August 1, 2018, we entered into an underwriting agreement with Goldman Sachs & Co. LLC, as representative of the underwriters, relating to an underwritten public offering of 12,745,098 shares of our Common Stock at a price of $5.10 per share. We granted the underwriters an option, exercisable for a period of 30 days, to purchase up to 1,911,764 additional shares of Common Stock. On August 2, 2018, the underwriters exercised the option in full. The net proceeds from the offering, including the exercise of the option to purchase additional shares, were approximately $69,908,000, after deducting the underwriting discount and offering expenses payable by us. The offering closed on August 6, 2018. In connection with the Knight License Agreement, Knight entered into a subscription agreement with us, pursuant to which Knight purchased $20,000,000 of shares of our Common Stock concurrently with the closing of the underwritten public offering of Common Stock on August 6, 2018. Issuances During the Three and Nine Months Ended September 30, 2018 During the three months ended September 30, 2018, certain individuals exercised stock options to purchase 1,052,300 shares of Common Stock for $107,318 in cash. During the nine months ended September 30, 2018, certain individuals exercised stock options to purchase 1,446,876 shares of Common Stock for $1,236,313 in cash. Also, during the nine months ended September 30, 2018, stock options to purchase 10,000 shares of Common Stock were exercised pursuant to the options’ cashless exercise provisions, wherein 9,841 shares of Common Stock were issued. Issuances During the Three and Nine Months Ended September 30, 2017 On September 25, 2017, we entered into an underwriting agreement with J.P. Morgan Securities LLC relating to an underwritten public offering of 12,400,000 shares of our Common Stock at a price of $5.55 per share. The net proceeds to us from the offering were approximately $68,573,000, after deducting estimated offering expenses payable by us. The offering closed on September 28, 2017 and we issued 12,400,000 shares of Common Stock. During the three months ended September 30, 2017, certain individuals exercised stock options to purchase 2,500 shares of Common Stock for $255 in cash. During the nine months ended September 30, 2017, certain individuals exercised stock options to purchase 102,546 shares of Common Stock for $212,615 in cash. Warrants to Purchase Common Stock As of September 30, 2018, we had warrants outstanding to purchase an aggregate of 3,007,571 shares of Common Stock with a weighted-average contractual remaining life of approximately 1.8 years, and exercise prices ranging from $0.24 to $8.20 per share, resulting in a weighted average exercise price of $2.78 per share. The valuation methodology used to determine the fair value of our warrants is the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions, including volatility of the stock price, the risk-free interest rate, dividend rate and the term of the warrant. During the nine months ended September 30, 2018, we granted warrants to purchase 175,000 shares of Common Stock to outside consultants at an exercise price of $5.16. The fair value for these warrants was determined by using the Black-Scholes Model on the date of the grant using a term of 5 years; volatility of 62.1%; risk free rate of 2.36%; and dividend yield of 0%. The grant date fair value of the warrants was $2.79 per share. The warrants vest ratably over a 12-month period and have an expiration date of March 15, 2023. During the nine months ended September 30, 2017, we granted warrants to purchase 125,000 shares of Common Stock to outside consultants at an exercise price of $6.83 per share. The fair value for these warrants was determined by using the Black-Scholes Model on the date of the grant using a term of five years; volatility of 63.24%; risk free rate of 1.47%; and dividend yield of 0%. The grant date fair value of the warrants was $3.67 per share. The warrants vest ratably over a 12-month period and have an expiration date of March 15, 2022. During the three months ended September 30, 2018 and 2017, we recorded $150,977 and $101,376, respectively, and during the nine months ended September 30, 2018 and 2017, we recorded $407,292 and $217,150, respectively, as share based compensation expense in the accompanying consolidated financial statements related to warrants. As of September 30, 2018, total unrecognized estimated compensation expense related to the unvested portion of these warrants was approximately $218,000 which is expected to be recognized over a weighted-average period of 0.5 years. In May 2012, we issued warrants to purchase an aggregate of 1,300,000 shares of Common Stock to Sancilio and Company, Inc. for services to be rendered over approximately five years beginning in May 2012. The warrants vested upon issuance. Services provided are to include (a) services in support of our drug development efforts, including services in support our ongoing and future drug development and commercialization efforts, regulatory approval efforts, third-party investment and financing efforts, marketing efforts, chemistry, manufacturing and controls efforts, drug launch and post-approval activities, and other intellectual property and know-how transfer associated therewith; (b) services in support of our efforts to successfully obtain new drug approval; and (c) other consulting services as mutually agreed upon from time to time in relation to new drug development opportunities. The warrants were valued at $1,532,228 on the date of the issuance using an exercise price of $2.57; a term of five years; a volatility of 44.71%; risk free rate of 0.74%; and a dividend yield of 0%. During the three months ended September 30, 2018 and 2017, we did not record any expenses with respect to these warrants, and during the nine months ended September 30, 2018 and 2017, we recorded $0 and $128,898, respectively, as non-cash compensation with respect to these warrants in the accompanying consolidated financial statements. This warrant was fully exercised, of which 800,000 shares were exercised in 2017 and 500,000 shares were exercised in 2016. During both the three months ended September 30, 2018 and 2017, no warrants were exercised. During the nine months ended September 30, 2018, no warrants were exercised. During the nine months ended September 30, 2017, certain individuals exercised warrants to purchase 2,476,666 shares of Common Stock for $3,798,999 in cash. In addition, during the nine months ended September 30, 2017, certain individuals exercised warrants to purchase 6,590,000 shares of Common Stock pursuant to the warrants’ cashless exercise provisions, wherein 4,762,208 shares of Common Stock were issued. Options to Purchase Common Stock In 2009, we adopted the 2009 Long Term Incentive Compensation Plan, or the 2009 Plan, to provide financial incentives to employees, directors, advisers, and consultants of our company who are able to contribute towards the creation of or who have created stockholder value by providing them stock options and other stock and cash incentives, or the Awards. The Awards available under the 2009 Plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock or cash awards as described in the 2009 Plan. There are 25,000,000 shares of Common Stock authorized for issuance thereunder. Generally, the options vest annually over four years or as determined by our board of directors, upon each option grant. Options may be exercised by paying the price for shares or on a cashless exercise basis after they have vested and prior to the specified expiration date provided and applicable exercise conditions are met, if any. The expiration date is generally ten years from the date the option is issued. As of September 30, 2018, there were non-qualified stock options to purchase 18,558,875 shares of Common Stock outstanding under the 2009 Plan. As of September 30, 2018, there were 900,037 shares of Common Stock available to be issued under 2009 Plan. In 2012, we adopted the 2012 Stock Incentive Plan, or the 2012 Plan, a non-qualified plan that was amended in August 2013. The 2012 Plan was designed to serve as an incentive for retaining qualified and competent key employees, officers, directors, and certain consultants and advisors of our company. The Awards available under the 2012 Plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock or cash awards as described in the 2012 Plan. Generally, the options vest annually over four years or as determined by our board of directors, upon each option grant. Options may be exercised by paying the price for shares or on a cashless exercise basis after they have vested and prior to the specified expiration date provided and applicable exercise conditions are met, if any. The expiration date is generally ten years from the date the option is issued. There are 10,000,000 shares of Common Stock authorized for issuance thereunder. As of September 30, 2018, there were non-qualified stock options to purchase 6,278,474 shares of Common Stock outstanding under the 2012 Plan. As of September 30, 2018, there were 3,473,333 shares of Common Stock available to be issued under 2012 Plan. The valuation methodology used to determine the fair value of stock options is the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the risk-free interest rate, and the expected life of the stock options. The assumptions used in the Black-Scholes Model for options granted during the nine months ended September 30, 2018 and 2017 are set forth in the table below.
|  | Nine Months Ended September 30, |
|  | 2018 |  |  | 2017 |
Risk-free interest rate |  |  | 2.78-2.82% |  |  |  | 1.84-2.01% |
Volatility |  |  | 61.80-63.34% |  |  |  | 61.56-63.95% |
Term (in years) |  |  | 5.5-6.25 |  |  |  | 5.5-6.25 |
Dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
A summary of activity under the 2009 and 2012 Plans and related information follows:
|  | Number of Shares Underlying Stock Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Aggregate Intrinsic Value |
Balance at December 31, 2017 |  |  | 23,365,225 |  |  | $ | 3.78 |  |  |  | 5.1 |  |  | $ | 64,664,821 |
Granted |  |  | 3,006,500 |  |  | $ | 5.50 |  |  |  |  |  |  |  |  |
Exercised |  |  | (1,456,876 | ) |  | $ | 0.85 |  |  |  |  |  |  | $ | 8,025,055 |
Expired/Forfeited |  |  | (77,500 | ) |  | $ | 7.41 |  |  |  |  |  |  |  |  |
Balance at September 30, 2018 |  |  | 24,837,349 |  |  | $ | 4.15 |  |  |  | 5.2 |  |  | $ | 68,682,857 |
Vested and Exercisable at September 30, 2018 |  |  | 19,661,975 |  |  | $ | 3.65 |  |  |  | 4.3 |  |  | $ | 64,794,996 |
Unvested at September 30, 2018 |  |  | 5,175,374 |  |  | $ | 6.04 |  |  |  | 8.9 |  |  | $ | 3,887,861 |
At September 30, 2018, our outstanding stock options had exercise prices ranging from $0.10 to $8.92 per share. The weighted average grant date fair value per share of options granted was $3.27 and $3.82 during the nine months ended September 30, 2018 and 2017, respectively. Share-based compensation expense for options recognized in our results of operations for the three months ended September 30, 2018 and 2017 ($2,109,218 and $1,885,050, respectively) and for the nine months ended September 30, 2018 and 2017 ($5,981,343 and $4,691,735, respectively) is based on vested awards. At September 30, 2018, total unrecognized estimated compensation expense related to unvested options granted prior to that date was approximately $14,203,000 which may be adjusted for future forfeitures. This cost is expected to be recognized over a weighted-average period of 2.2 years. No tax benefit was realized due to a continued pattern of operating losses. Cash-Settled Stock Appreciation Rights (SARs) On July 1, 2018, we issued cash-settled SARs to certain consultants and employees. The SARs plan year begins on July 1 and ends on or immediately following June 30, 2019. SARs are granted with a grant price equal to the market value of a share of our Common Stock on the date of grant. Cash-settled SARs provide for the cash payment of the excess of the fair market value of our Common Stock on June 30, 2019 over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of our Common Stock over the grant price is paid in cash and not in Common Stock. Cash settled SARs are recorded in our consolidated balance sheets as a liability until the date of exercise. The fair value of each SAR award is estimated using the Black-Scholes valuation model. In accordance with ASC Topic 718, “Stock Compensation,” the fair value of each SAR award is recalculated at the end of each reporting period and the liability and expense adjusted based on the new fair value and the percent vested. At September 30, 2018, we had 106,000 SARs outstanding and the liability related to SAR calculation was $36,392. The assumptions used to determine the fair value of the cash settled SAR awards at September 30, 2018 were expected life of 1 year, 52.2% volatility, 2.45% risk-free rate, and zero annual dividends. As of September 30, 2018, the fair value of SARs outstanding was $1.36 per award.

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