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STOCKHOLDERS' EQUITY | 12 Months Ended
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Dec. 31, 2018
Stockholders' Equity: |
STOCKHOLDERS' EQUITY | NOTE 9 – STOCKHOLDERS’ EQUITY Preferred Stock At December 31, 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 December 31, 2018, we had 350,000,000 shares of Common Stock authorized for issuance, of which 240,462,439 shares of our 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, on August 6, 2018, Knight entered into a subscription agreement with us, pursuant to which Knight purchased 3,921,568 of shares of our Common Stock concurrently with the closing of the underwritten public offering of Common Stock at a price of $5.10, for proceeds of $20,000,000. Issuances During 2018 During the year ended December 31, 2018, certain individuals exercised stock options to purchase 5,444,526 shares of Common Stock for $1,666,208 in cash. Also, during the year ended December 31, 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 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 year ended December 31, 2017, certain individuals exercised stock options to purchase 102,546 shares of Common Stock for $212,615 in cash. Issuances During 2016 On January 6, 2016, we entered into an underwriting agreement with Goldman Sachs & Co. and Cowen and Company, LLC, as the representatives of the several underwriters relating to an underwritten public offering of 15,151,515 shares of our Common Stock at a public offering price of $8.25 per share. Under the terms of the underwriting agreement, we granted the Underwriters a 30-day option to purchase up to an aggregate of 2,272,727 additional shares of Common Stock, which the option was exercised in full. The net proceeds to us from the offering were approximately $134,864,000, after deducting underwriting discounts and commissions and other expenses payable by us. The offering closed on January 12, 2016 and we issued 17,424,242 shares of our Common Stock. During the year ended December 31, 2016, certain individuals exercised stock options to purchase 525,362 shares of Common Stock for $989,060 in cash. Also, during the same period, stock options to purchase 127,109 shares of Common Stock were exercised pursuant to the options’ashless exercise provisions, wherein 87,833 shares of Common Stock were issued. Warrants to Purchase Common Stock As of December 31, 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 1.6 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 yield and the term of the warrant. During the year ended December 31, 2018, we granted warrants to purchase 175,000 shares of Common Stock to outside consultants at an exercise price of $5.16 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 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 year ended December 31, 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 year ended December 31, 2016, we granted warrants to purchase 245,000 shares of Common Stock to outside consultants at the weighted average price of $7.90 per share. These warrants vest and have expiration dates as follows: warrants to purchase 75,000 shares of Common Stock vested on April 21, 2016 and have an expiration date of April 21, 2021, warrants to purchase 50,000 shares of Common Stock vest ratably over a 24-month period and have an expiration date of April 21, 2021, and warrants to purchase 120,000 shares of Common Stock vest ratable over a 12-month period and have an expiration date of January 21, 2021. We recorded share-based compensation expense related to warrants previously issued of $494,136, $313,271 and $936,974 for the years ended December 31, 2018, 2017 and 2016, respectively, in the accompanying consolidated financial statements. At December 31, 2018, total unrecognized estimated compensation expense related to unvested warrants was approximately $106,000 which is expected to be recognized over weighted-average period of 0.2 years. Summary of our Warrant activity during the year ended December 31, 2018:
|  | Number of Shares Under Warrants |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Aggregate Intrinsic Value |
Balance at December 31, 2017 |  |  | 3,115,905 |  |  | $ | 2.58 |  |  |  | 1.8 |  |  | $ | 11,348,273 |
Granted |  |  | 175,000 |  |  | $ | 5.16 |  |  |  |  |  |  |  |  |
Exercised |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |
Expired |  |  | (283,334 | ) |  | $ | 2.01 |  |  |  |  |  |  |  |  |
Cancelled/Forfeited |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2018 |  |  | 3,007,571 |  |  | $ | 2.78 |  |  |  | 1.58 |  |  | $ | 4,826,403 |
Vested and Exercisable at December 31, 2018 |  |  | 2,963,818 |  |  | $ | 2.75 |  |  |  | 1.54 |  |  | $ | 4,826,403 |
Unvested at December 31, 2018 |  |  | 43,753 |  |  | $ | 5.16 |  |  |  | 4.21 |  |  | $ | 0 |
The weighted average fair value per share of warrants issued and the assumptions used in the Black-Scholes Model during the years ended December 31, 2018, 2017, and 2016 are set forth in the table below.
|  | 2018 |  |  | 2017 |  |  | 2016 |
Weighted average exercise price |  | $ | 5.16 |  |  | $ | 6.83 |  |  | $ | 7.90 |
Weighted average grant date fair value |  | $ | 2.79 |  |  | $ | 3.67 |  |  | $ | 4.78 |
Risk-free interest rate |  |  | 2.36 | % |  |  | 1.47 | % |  |  | 1.04-1.28 | %
Volatility |  |  | 62.12 | % |  |  | 63.24 | % |  |  | 74.10-74.15 | %
Term (in years) |  |  | 5 |  |  |  | 5 |  |  |  | 5 |
Dividend yield |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | %
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the instrument. Estimated volatility is a measure of the amount by which the stock price is expected to fluctuate each year during the term of the instrument. Our calculation of estimated volatility is based on historical stock prices over a period equal to the term of the instrument. The expected volatility of warrants was estimated based on a historical volatility analysis of our Company as well as peers that were similar to the Company with respect to industry, stage of life cycle, market capitalization, and financial leverage. In May 2013, we entered into a consulting agreement with Sancilio and Company, Inc., or SCI, to develop drug platforms to be used in our hormone replacement drug candidates. These services include support of our efforts to successfully obtain FDA approval for our drug candidates, including a vaginal capsule for the treatment of VVA. In connection with the agreement, SCI agreed to forfeit its rights to receive warrants to purchase 833,000 shares of our Common Stock that were to be granted pursuant to the terms of a prior consulting agreement dated May 17, 2012. As consideration under the agreement, we agreed to issue to SCI a warrant to purchase 850,000 shares of our Common Stock at $2.01 per share that has vested or will vest, as applicable, as follows:
| 1. | 283,333 shares were earned on May 11, 2013 upon acceptance of an Investigational New Drug application by the FDA for an estradiol-based drug candidate in a softgel vaginal capsule for the treatment of VVA; however, pursuant to the terms of the consulting agreement, the shares did not vest until June 30, 2013. The fair value of $405,066 for the shares vested on June 30, 2013 was determined by using the Black-Scholes Model on the date of vesting using a term of five years; a volatility of 45.89%; risk free rate of 1.12%; and a dividend yield of 0%. We recorded the entire $405,066 as non-cash compensation as of June 30, 2013. These shares were exercised in 2017 and are included in the warrant exercise details below;
| 2. | 283,333 shares vested on June 30, 2013. The fair value of $462,196 for these shares was determined by using the Black-Scholes Model on the date of vesting using a term of five years; a volatility of 45.84%; risk free rate of 1.41%; and a dividend yield of 0%. During the years ended December 31, 2017, 2016, and 2015, we recorded $0, $0, and $77,026, respectively, as non-cash compensation in the accompanying consolidated financial statements related to this warrant. As of December 31, 2017 this warrant was fully amortized. These shares were exercised in 2017 and are included in the warrant exercise details below; and
| 3. | 283,334 shares were going to vest upon the receipt by us, prior to the warrant expiration date of April 30, 2018, of any final FDA approval of a drug candidate that SCI helped us design. Since the receipt of such approval did not occur before warrant’s expiration date, the warrant expired on April 30, 2018.
In May 2012, we issued warrants to purchase an aggregate of 1,300,000 shares of Common Stock to SCI 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 years ended December 31, 2018, 2017, and 2016, we recorded $0, $128,898, and $257,796, respectively as non-cash compensation with respect to these warrants in the accompanying consolidated financial statements. As of December 31, 2017, the SCI warrants issued in 2013 and 2012 were fully amortized. This warrant was fully exercised, of which 800,000 shares were exercised in 2017 and 500,000 shares were exercised in 2016. Warrant exercises During the year ended December 31, 2018, no warrants were exercised. During the year ended December 31, 2017, certain individuals exercised warrants to purchase 2,476,666 shares of Common Stock for $3,798,999 in cash, which included SCI warrants issued in 2012 and 2013. In addition, during the year ended December 31, 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. During the year ended December 31, 2016, certain individuals exercised warrants to purchase 722,744 shares of Common Stock for $1,373,000 in cash, of which 500,000 shares related to SCI warrant issued in 2012. Options to Purchase Common Stock of the Company 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 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 December 31, 2018, there were non-qualified stock options to purchase 14,594,350 shares of Common Stock outstanding under the 2009 Plan. As of December 31, 2018, there were 866,912 shares 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 December 31, 2018, there were non-qualified stock options to purchase 6,278,474 shares of Common Stock outstanding and 1,040,000 restricted stock units outstanding under the 2009 Plan. As of December 31, 2018, there were 2,433,333 shares 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 ranges of assumptions used in the Black-Scholes Model during the years ended December 31, 2018, 2017, and 2016 are set forth in the table below.
|  | 2018 |  |  | 2017 |  |  | 2016 |
Weighted average exercise price |  | $ | 5.45 |  |  | $ | 6.60 |  |  | $ | 6.22 |
Weighted average grant date fair value |  | $ | 3.24 |  |  | $ | 3.82 |  |  | $ | 3.94 |
Risk-free interest rate |  |  | 2.38-2.89 | % |  |  | 1.84-2.05 | % |  |  | 1.13-1.90 | %
Volatility |  |  | 59.45-64.04 | % |  |  | 61.56-64.25 | % |  |  | 70.26-73.34 | %
Term (in years) |  |  | 5.1-6.25 |  |  |  | 5.5-6.25 |  |  |  | 5.5-6.25 |
Dividend yield |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | %
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the expected term. Estimated volatility is a measure of the amount by which the stock price is expected to fluctuate each year during the term of an award. Our calculation of estimated volatility is based on historical stock prices over a period equal to the term of the awards. The expected volatility of share options was estimated based on a historical volatility analysis of our Company as well as peers that were similar to us with respect to industry, stage of life cycle, market capitalization, and financial leverage. The average expected life is based on the contractual terms of the stock option using the simplified method. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. Future stock-based compensation may significantly differ based on changes in the fair value of our Common Stock and our estimates of expected volatility and the other relevant assumptions. A summary of activity under the 2009 and 2012 Plans and related information during the year ended December 31, 2018 is as follows:
|  | Number of Shares Under 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 |  |  |  | 5.13 |  |  | $ | 64,664,821 |
Granted |  |  | 3,264,500 |  |  | $ | 5.45 |  |  |  |  |  |  |  |  |
Exercised |  |  | (5,454,526 | ) |  | $ | 0.31 |  |  |  |  |  |  | $ | 27,534,623 |
Expired |  |  | (25,000 | ) |  | $ | 7.76 |  |  |  |  |  |  |  |  |
Cancelled/Forfeited |  |  | (277,375 | ) |  | $ | 5.47 |  |  |  |  |  |  |  |  |
Balance at December 31, 2018 |  |  | 20,872,824 |  |  | $ | 4.93 |  |  |  | 5.94 |  |  | $ | 12,239,876 |
Vested and Exercisable at December 31, 2018 |  |  | 16,068,991 |  |  | $ | 4.61 |  |  |  | 5.09 |  |  | $ | 12,239,876 |
Unvested at December 31, 2018 |  |  | 4,803,833 |  |  | $ | 5.99 |  |  |  | 8.8 |  |  | $ | 0 |
At December 31, 2018, our outstanding options had exercise prices ranging from $0.10 to $8.92 per share. Share-based compensation expense related to options recognized in our results of operations for the years ended December 31, 2018, 2017, and 2016 was approximately $8,091,294, $6,447,154, and $16,139,225, respectively, and it is based on awards vested. At December 31, 2018, total unrecognized estimated compensation expense related to unvested options was approximately $12,175,000, which may be adjusted for future changes in forfeitures. This cost is expected to be recognized over a weighted-average period of 2.01 years. No tax benefit was realized due to a continued pattern of operating losses. Restricted Stock Restricted stock awards granted under our 2009 and 2012 Plans entitle the holder to receive, at the end of vesting period, a specified number of shares of our Common Stock. Share-based compensation expense is measured by the market value of our Common Stock on the day of the grant. The shares vest ratably over the period specified in the grant. There is no partial vesting and any unvested portion is forfeited. On December 13, 2018, we granted 1,040,000 restricted stock units to certain executive employees which will vest at the end of the third year. The grant date fair value was $4.06 per unit. During the year ended December 31, 2018, we recorded $73,132 in share-based compensation expense related to restricted stock units. At December 31, 2018, total unrecognized estimated compensation expense related to unvested restricted stock units was approximately $4,149,000, which may be adjusted for future changes in forfeitures. This cost is expected to be recognized over a weighted-average period of 2.95 years. At December 31, 2018, 1,040,000 restricted stock awards remained outstanding. 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 December 31, 2018, we had 103,000 SARs outstanding and the liability related to SAR calculation was $3,406. The assumptions used to determine the fair value of the cash settled SAR awards at December 31, 2018 were life of 6 months, 49.7% volatility, 2.7% risk-free rate, and zero annual dividends. As of December 31, 2018, the fair value of SARs outstanding was $0.07 per award.

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- Definition The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -URI http://asc.fasb.org/topic&trid=2208762 + Details
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