Annual report pursuant to Section 13 and 15(d)

Common Stock, Stock Options and Warrants

v3.10.0.1
Common Stock, Stock Options and Warrants
12 Months Ended
Sep. 30, 2018
Stockholders' Equity Note [Abstract]  
COMMON STOCK, STOCK OPTIONS AND WARRANTS

7. COMMON STOCK, STOCK OPTIONS AND WARRANTS

 

Private Offerings and Common Stock Issued for Services and Release Agreements

 

During the year ended September 30, 2016, the Company sold 290,000 Units for a purchase price of $8.10 per Unit and 17,778 Units for a purchase price of $9.00 per Unit for gross proceeds of $2,509,000. There was no placement agent for these private placements and other cash expenses related to the placements were $81,312. In connection with these placements, the Company credited $1,229,124 to stockholders’ equity and $1,198,564 to derivative warrant liability.

 

On March 22, 2016, the Company sold 333,333 shares of common stock at $9.00 per share to its Chairman of the Board, Leonard Mazur, for gross proceeds of $3,000,000. There were no expenses related to this placement.

 

In February 2017, the Company completed its 2016 Offering. The Company sold 128,017 units at $6.00 per unit for gross proceeds of $768,100. Each unit consisted of (i) one share of common stock and (ii) a five-year warrant to purchase one share of common stock at an exercise price of $8.25 per share. The placement agent received a 10% cash commission on the gross proceeds, an expense allowance equal to 3% of the proceeds, and warrants to purchase 12,802 shares of common stock at an exercise price of $8.25 per share. The estimated fair value of the 128,017 warrants issued to the investors was $587,592 and the estimated fair value of the 12,802 warrants issued to the placement agent was $58,759. The placement agent commissions and expense allowance was $99,853. Other costs of the placement were $176,896.

 

During January 2017, the Company issued 29,729 shares of its common stock for investor relations services. The $298,774 fair value of the common stock was expensed during the year ended September 30, 2017.

 

On May 5, 2017, the Company issued 11,400 shares of common stock valued at $77,748 in connection with a settlement agreement and release with a consultant that had an agreement with Leonard-Meron Biosciences. The Company expensed the $77,748 as a settlement expense during the year ended September 30, 2017.

 

On June 7, 2017, the Company entered into a release agreement with the placement agent for the 2016 Offering. The placement agent consented to future financings and waived certain covenants contained in the 2016 Offering agreements. As consideration for the release, the Company issued 6,668 shares of common stock valued at $45,476 to the placement agent. The Company expensed the $45,476 as a settlement expense during the year ended September 30, 2017.

 

On June 8, 2017, the Company entered into release agreements with the investors in the 2016 Offering where each investor released the Company from the restrictions included in the unit purchase agreements. In exchange, the Company agreed that (i) in the event that a financing is conducted at a price per share or price per unit lower than $6.00, then the Company will issue additional shares to each investor sufficient to effectively reprice the sale of the 2016 Offering units to the lower price; (ii) in the event that the financing is conducted at a price per share or price per unit less than the $8.25 exercise price of the warrants issued in the 2016 Offering then the exercise price of the warrants shall be reduced to the lower price; and (iii) the Company will give each investor no less than 6 hours of notice before the closing of any subsequent financing, through and including the Company’s 2017 registered public offering, and each investor shall have a 6-hour option to purchase up to 20% of the securities sold in such offering. In connection with these agreements the Company reclassified the $641,385 fair value of the 140,819 warrants issued in the 2016 Offering to derivative warrant liability on June 8, 2017 (see Note 6). On August 8, 2017, the Company completed the 2017 public offering and issued 58,191 shares of common stock to the investors in the 2016 Offering to reprice the sale of the 2016 Offering units to $4.125 per unit and repriced the 2016 Offering Warrants to an exercise price of $4.125 per share. During the year ended September 30, 2017, the Company recorded a settlement expense of $161,771 in connection with the issuance of the additional 58,191 shares of common stock and reclassified the current fair value of the warrants to additional paid-in capital.

 

On February 7, 2018, the Company issued 22,200 shares of common stock for services provided by two consultants and expensed the $88,800 fair value of the common stock issued.

 

On April 1, 2018, the Company issued 10,000 shares of common stock for services provided by a consultant and expensed the $31,000 fair value of the common stock issued.

 

2017 Public Offering and Release Agreement

 

On August 8, 2017, the Company closed an underwritten public offering of 1,648,484 shares of common stock and warrants to purchase 1,648,484 shares of common stock at an offering price of $4.125 per share and $0.01 per warrant. The warrants have a per share exercise price of $4.125, are exercisable immediately and will expire five years from the date of issuance.  Gross proceeds were $6,802,469, before deducting underwriting discounts and commissions and other estimated offering expenses of $685,573. The Company granted the underwriters a 45-day option to purchase up to an additional 247,272 shares of common stock and warrants to purchase 247,272 shares of common stock to cover over-allotments, if any. On August 8, 2017, the underwriters partially exercised the over-allotment to purchase an additional 247,272 warrants. The estimated fair value of the 1,895,756 warrants issued to the investors was $4,160,195 and the estimated fair value of the 65,940 warrants issued to the underwriters was $142,419.

 

On November 7, 2017, the Company entered into a release agreement with the underwriter. The Company had previously granted a right of first refusal to underwrite all equity and debt offerings for a period of twelve months following completion of the 2017 public offering (“Right of First Refusal”). Under the release, the Company agreed to pay the underwriter $100,000 in cash and issue 60,000 shares of restricted common stock with a fair value of $257,400 in exchange for a full release from all obligations related to the Right of First Refusal. The Company expensed the $357,400 cost of the release agreement in November 2017.

 

Registered Direct/Private Placement Offerings

 

On December 19, 2017, the Company closed a registered direct offering with several institutional and accredited investors for the sale of 1,280,360 shares of common stock at $4.6925 per share for gross proceeds of $6,008,089. Simultaneously, the Company sold the investors 640,180 immediately exercisable five and a half year warrants at $4.63 per share. The Company paid the placement agent for the offering a fee of 7% of the gross proceeds totaling $420,566 and issued the placement agent 89,625 immediately exercisable five-year warrants at $5.8656 per share. The Company also reimbursed the placement agent for $85,000 in expenses and incurred $20,000 in other expenses. Net proceeds from the offering were $5,482,523. The estimated fair value of the 640,180 warrants issued to the investors was $2,407,276 and the estimated fair value of the 89,625 warrants issued to the placement agent was $316,071.

 

On March 29, 2018, the Company closed a registered direct offering with an institutional and an accredited investor for the sale of 669,504 shares of common stock at $2.985 per share for gross proceeds of $1,998,469. Simultaneously, the Company sold to the investors 669,504 immediately exercisable five and a half year warrants at $2.86 per share. The Company paid the placement agent for the offering a fee of 7% of the gross proceeds totaling $139,893 and issued the placement agent 46,866 immediately exercisable five-year warrants at $3.73125 per share. The Company also reimbursed the placement agent for $85,000 in expenses and incurred $10,000 in other expenses. Net proceeds from the offering were $1,763,576. The estimated fair value of the 669,504 warrants issued to the investors was $1,679,482 and the estimated fair value of the 46,866 warrants issued to the placement agent was $110,511.

 

August 2018 Offering

 

On August 13, 2018, Citius closed an underwritten offering of (i) 5,521,569 units, each unit consisting of one share of common stock and one immediately exercisable five-year warrant to purchase one share at $1.15 per share, and (ii) 2,321,569 pre-funded units, each pre-funded unit consists of one pre-funded warrant to purchase one share and one immediately exercisable five-year warrant to purchase one share at $1.15 per share. The pre-funded warrants included in the pre-funded units are immediately exercisable at a price of $0.01 per share and do not expire. The offering price was $1.275 per unit and $1.265 per pre-funded unit. The net proceeds of the offering were $8,926,786. The Company issued underwriter warrants to purchase up to 549,020 shares at $1.59375 per share with an estimated fair value of $491,737. The underwriter warrants are exercisable following February 8, 2019 and expire on August 8, 2023. The estimated fair value of the 2,321,569 pre-funded warrants was $2,630,072, and the estimated fair value of the 7,843,138 warrants included in the units and the pre-funded units issued to the investors was $7,311,727.

 

Unit Purchase Options

 

On April 7, 2017, the Company issued a three-year Unit Purchase Option Agreement to a consultant for 38,000 units at a purchase price of $9.00 per unit. Each unit consists of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $9.00 per share which expires on the earlier of three years after exercise of the Unit Purchase Option Agreement or April 7, 2023. The consultant provided the Company with business development and financing assistance for the three months ended June 30, 2017. The Company estimated the fair value of the unit purchase option agreement at $104,138 and expensed it during the year ended September 30, 2017.

 

On June 29, 2017, the Company issued a three-year Unit Purchase Option Agreement to a consultant for 62,667 units at a purchase price of $9.00 per unit. Each unit consists of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $9.00 per share which expires on the earlier of three years after exercise of the Unit Purchase Option Agreement or June 29, 2022. The consultant will provide the Company with business development and financing assistance through December 31, 2017. The Company estimated the fair value of the unit purchase option agreement at $193,860 and recorded it as a prepaid expense. The Company recorded an expense of $96,930 for this agreement during the year ended September 30, 2017 and expensed the remaining balance of $96,930 during the year ended September 30, 2018.

 

Stock Option Plans

 

On September 12, 2014, the Board of Directors adopted the 2014 Stock Incentive Plan (the “2014 Plan”) and reserved 866,667 shares of common stock for issuance to employees, directors and consultants. On September 12, 2014, our stockholders approved the plan. Pursuant to the 2014 Plan, the Board of Directors (or committees and/or executive officers delegated by the Board of Directors) may grant stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards. As of September 30, 2018, there were options to purchase 856,039 shares outstanding under the 2014 Plan, options to purchase 4,829 shares were exercised, and 5,799 shares were available for future grants.

 

On February 7, 2018, our stockholders approved the 2018 Omnibus Stock Incentive Plan (the “2018 Plan”) and the Company reserved 2,000,000 shares of common stock for issuance to employees, directors and consultants. Pursuant to the 2018 Plan, the Board of Directors (or committees and/or executive officers delegated by the Board of Directors) may grant stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards. As of September 30, 2018, there were options to purchase 745,000 shares outstanding under the 2018 Plan and 1,255,000 shares were available for future grants.

 

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. Due to its limited operating history and limited number of sales of its common stock, the Company estimated its volatility in consideration of a number of factors including the volatility of comparable public companies. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption. The expected term of stock options granted to employees and directors, all of which qualify as “plain vanilla,” is based on the average of the contractual term (generally 10 years) and the vesting period. For non-employee options, the expected term is the contractual term.

 

The following assumptions were used in determining the fair value of stock option grants for the years ended September 30, 2018, 2017 and 2016:

 

    2018     2017     2016  
Risk-free interest rate     2.78 – 2.99 %     1.79 – 1.90 %     0.95 – 1.40 %
Expected dividend yield     0 %     0 %     0 %
Expected term     6.50 – 10 years       6.50 – 10 years       4.75 – 9 years  
Expected volatility     116 %     85 – 108 %     57 – 74 %

 

A summary of option activity under the 2014 Plan and 2018 Plan is presented below:

 

    Shares     Weighted-
Average
Exercise
Price
    Weighted-
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value
 
Outstanding at September 30, 2017     861,039     $ 6.69                  
Granted     745,000       1.63                  
Exercised                            
Forfeited or expired     (5,000 )     3.45                  
Outstanding at September 30, 2018     1,601,039     $ 4.35       8.56 years     $ 173,291  
Exercisable at September 30, 2018     729,675     $ 7.15       7.10 years     $ 112,541  

 

On March 30, 2016, the Company assumed stock options to purchase 77,252 shares of common stock in connection with the acquisition of LMB. The LMB option holders received stock options to purchase 71,217 shares at an exercise price of $0.01 per share and 6,035 shares at an exercise price of $13.65 per share. Pursuant to the original grants, options to purchase 4,829 shares were immediately vested and options to purchase 72,423 shares vest over three years. These options all had original terms of 10 years.

 

On June 23, 2016, the Board of Directors granted stock options to four directors. Each director received an option to purchase 13,333 shares of common stock at an exercise price of $12.00 per share in consideration for their services. These options vest in full on June 23, 2017 and have a term of 10 years.

 

In July 2016, the Board of Directors granted stock options to purchase a total of 138,267 shares to three employees at prices ranging from $10.50 to $13.50 per share. These options vest over terms of 19 to 36 months and have a term of 10 years.

 

On January 1, 2017, the Board of Directors granted stock options to purchase a total of 8,669 shares to four consultants at $10.05 per share. These options vest over terms of 12 to 36 months and have a term of 10 years.

 

In September 2017, the Board of Directors granted stock options to purchase a total of 225,000 shares to 12 employees and 50,000 options to two consultants at $3.45 per share. These options vest over terms of 12 to 36 months and have a term of 10 years.

 

In September 2018, the Board of Directors granted stock options to purchase a total of 520,000 shares to six employees, 75,000 options to five directors, and 80,000 options to three consultants at $1.62 per share. In addition, the Board granted stock options to purchase 70,000 shares to a financial consultant at $1.75 per share. These options vest over terms of 12 to 36 months and have a term of 10 years.

 

Stock-based compensation expense for the years ended September 30, 2018, 2017 and 2016 was $779,701, $986,620 and $732,151, respectively.

 

At September 30, 2018, unrecognized total compensation cost related to unvested awards of $1,425,957 is expected to be recognized over a weighted average period of 2.3 years.

 

Warrants

 

The Company has reserved 15,193,192 shares of common stock for the exercise of outstanding warrants. The following table summarizes the warrants outstanding at September 30, 2018:

 

    Exercise price     Number     Expiration Dates
Investor and Placement Agent Warrants   $ 9.00       384,006     September 12, 2019
Investor Warrants     9.00       202,469     March 19, 2020 – September 14, 2020
Investor Warrants     9.00       307,778     November 5, 2020 – April 25, 2021
LMB Warrants     6.15       90,151     June 12, 2019 – March 2, 2021
LMB Warrants     9.90       8,155     September 30, 2019 – January 8, 2020
LMB Warrants     20.70       17,721     November 3, 2019 – March 6, 2020
LMB Warrants     7.50       73,883     August 18, 2020 – March 14, 2021
LMB Warrants     7.50       53,110     March 24, 2022 – April 29, 2022
Financial Advisor Warrants     3.00       25,833     August 15, 2021
2016 Offering Warrants     4.13       140,819     November 23, 2021 – February 27, 2022
Convertible Note Warrants     9.75       40,436     September 12, 2019
2017 Public Offering Warrants     4.13       1,622,989     August 2, 2022
2017 Public Offering Underwriter Warrants     4.54       65,940     February 2, 2023
December 2017 Registered Direct/Private Placement Offering Investor Warrants     4.63       640,180     June 19, 2023
December 2017 Registered Direct/Private Placement Offering Agent Warrants     5.87       89,625     December 19, 2022
March 2018 Registered Direct/Private Placement Offering Investor Warrants     2.86       669,504     October 2, 2023
March 2018 Registered Direct/Private Placement Offering Agent Warrants     3.73       46,866     March 28, 2023
August 2018 Offering Investor Warrants     1.15       7,843,138     August 14, 2023
August 2018 Offering Pre-Funded Unit Warrants     0.01       2,321,569     No expiration date
August 2018 Offering Agent Warrants     1.59       549,020     August 8, 2023
                     
              15,193,192      

 

On March 30, 2016, the Company granted warrants to purchase 243,020 shares of common stock in connection with the acquisition of LMB. The warrants have exercise prices between $6.15 and $20.70 per share. All warrants were vested at March 30, 2016. The fair value of the warrants was estimated at $1,071,172 and has been included in the purchase price of LMB.

 

On August 16, 2016, the Company granted warrants to purchase 66,667 shares of common stock in connection with a one-year financial advisory agreement. The warrants were vested on issuance, have an exercise price of $3.00 per share and are exercisable on a cash or cashless basis. The fair value of the warrants was estimated at $477,181 and recorded as a prepaid expense on the issuance date. During the years ended September 30, 2017 and 2016, the Company expensed $417,181 and $60,000, respectively, in connection with the agreement. During the year ended September 30, 2018, 40,834 warrants were exercised on a cashless basis resulting in the issuance of 16,547 shares of common stock.

 

During the year ended September 30, 2017, the Company sold 128,017 2016 Offering Units, at a price of $6.00 per Unit, consisting of (i) one share of common stock and (ii) a warrant to purchase one share of common stock. Each 2016 Offering Warrant had an exercise price of $8.25 and is exercisable for five years from the date of issuance. Additionally, warrants to purchase 12,802 shares of common stock were granted to the Placement Agent pursuant to the above pricing terms. On June 8, 2017, the Company entered into release agreements with the investors and as a result the Company repriced the 2016 Offering Warrants to an exercise price of $4.125 per share on August 8, 2017.

 

On June 7, 2017, the Company issued a warrant to purchase 40,436 shares of common stock at $9.75 per share in settlement of issues related to the July 31, 2014 conversion of a subordinated convertible promissory note. The Company charged the $119,402 estimated fair value of the warrant to settlement expenses during the year ended September 30, 2017.

 

Effective June 16, 2017, the Company amended warrants associated with the Leonard-Meron Biosciences, Inc. 2015 private placement offering. The warrant amendments removed the exercise price reset provisions, adjusted the exercise price of the warrants to $7.50 per share and extended the term of the warrants by three years. The estimated fair value of the warrants on June 16, 2017 after the amendments was $250,733. As a result of the amendment, the Company recorded an incremental cost of $71,488 as a settlement expense during the year ended September 30, 2017.

 

See Note 7 above for descriptions of the warrants issued in the 2017 public offering, the December 2017 and March 2018 registered direct/private placement offerings, and the August 2018 offering. During the year ended September 30, 2018, 272,767 of the 2017 public offering warrants were exercised at $4.25 per share for net proceeds of $1,125,148.

 

At September 30, 2018, the weighted average remaining life of all of the outstanding warrants is 3.89 years, all warrants are exercisable, and the aggregate intrinsic value for the warrants outstanding was $8,402,648. 

 

Common Stock Reserved 

 

A summary of common stock reserved for future issuances as of September 30, 2018 is as follows:

 

Stock plan options outstanding     1,601,039  
Stock plan shares available for future grants     1,260,799  
Warrants     15,193,192  
Unit purchase options     201,334  
Total     18,256,364