Panbela Therapeutics, Inc. - Quarter Report: 2018 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

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FORM 10-Q

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(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended September 30, 2018
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from ________ to ________.

 

Commission File No.: 000-55242

Sun BioPharma, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware		87-0543922
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
712 Vista Blvd #305, Waconia, Minnesota
(Address of principal executive offices)

 

(952) 479-1196

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑   No ☐ *

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☑
Emerging growth company ☑

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☑

 

On November 3, 2018, there were 5,060,594 shares of the registrant’s common stock, par value $0.001, outstanding.

 

 

 

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		September 30, 2018 (Unaudited)				December 31, 2017
ASSETS
Current Assets:
Cash		$	239			$	152
Prepaid expenses and other current assets			115				195
Income tax receivable			538				420
Total current assets			892				767
Other noncurrent assets			53				-
Total Assets		$	945			$	767
LIABILITITES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable		$	1,017			$	1,196
Accrued expenses			140				1,254
Convertible notes payable, net			25				1,525
Term debt, current portion			300				14
Accrued interest			5				181
Total current liabilities			1,487				4,170
Long-term liabilities:
Term debt, noncurrent portion			-				286
Total long-term liabilities			-				286
Stockholders' deficit:
Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued or outstanding as of September 30, 2018 and December 31, 2017			-				-
Common stock, $0.001 par value; 100,000,000 authorized; 5,060,594 and 3,841,652 shares issued and outstanding, as of September 30, 2018 and December 31, 2017, respectively			5				4
Additional paid-in capital			33,612				25,625
Accumulated deficit			(34,318	)			(29,153	)
Accumulated comprehensive income (loss)			159				(165	)
Total stockholders' deficit			(542	)			(3,689	)
Total liabilities and stockholders' deficit		$	945			$	767

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2018				2017				2018				2017
Operating expenses:
General and administrative		$	467			$	515			$	1,779			$	2,252
Research and development			450				530				1,475				1,955
Operating loss			(917	)			(1,045	)			(3,254	)			(4,207	)
Other income (expense):
Interest income			-				1				-				1
Grant income			29				27				51				110
Interest expense			(3	)			(474	)			(1,763	)			(1,145	)
Loss on induced debt conversions			-				-				-				(3,696	)
Other (expense) income			(90	)			75				(362	)			264
Total other expense			(64	)			(371	)			(2,074	)			(4,466	)
Loss before income tax benefit		$	(981	)		$	(1,416	)		$	(5,328	)		$	(8,673	)
Income tax benefit			54				197				163				460
Net loss			(927	)			(1,219	)			(5,165	)			(8,213	)
Foreign currency translation adjustment gain (loss)			255				(62	)			324				(246	)
Comprehensive loss		$	(672	)		$	(1,281	)		$	(4,841	)		$	(8,459	)
Basic and diluted net loss per share		$	(0.18	)		$	(0.33	)		$	(1.14	)		$	(2.33	)
Weighted average shares outstanding - basic and diluted			5,060,594				3,670,443				4,522,606				3,518,839

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		Common Stock								Additional Paid-In				Accumulated				Accumulated Other Comprehensive				Total Stockholders'
		Shares				Amount				Capital				Deficit				Gain (Loss)				Deficit
Balances at January 1, 2018			3,842			$	4			$	25,625			$	(29,153	)		$	(165	)		$	(3,689	)
Sale of common stock and warrants, net			468				-				2,313				-				-				2,313
Charge for fair market value of beneficial conversion feature			-				-				121				-				-				121
Conversion of convertible notes payable and accrued interest into common stock			104				-				350				-				-				350
Conversion of convertible notes payable and accrued interest into common stock and warrants			647				1				2,907				-				-				2,908
Stock based compensation			-				-				2,296				-				-				2,296
Net loss			-				-				-				(5,165	)			-				(5,165	)
Foreign currency translation adjustment			-				-				-				-				324				324
Balances at September 30, 2018			5,061			$	5			$	33,612			$	(34,318	)		$	159			$	(542	)

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		Nine Months Ended September 30,
		2018				2017
Cash flows from operating activities:
Net loss		$	(5,165	)		$	(8,213	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on induced debt conversions			-				3,696
Stock-based compensation			1,202				1,167
Amortization of debt discount			1,687				961
Amortization of debt issuance costs			9				53
Non-cash interest expense			6				87
Changes in operating assets and liabilities:
Income tax receivable			(157	)			9
Prepaid expenses and other current assets			23				(131	)
Accounts payable			186				(654	)
Accrued liabilities			(16	)			406
Net cash used in operating activities			(2,225	)			(2,619	)
Cash flows from financing activities:
Net proceeds from the sale of convertible promissory notes			-				3,059
Net proceeds from sale of common stock and warrants			2,314				-
Proceeds from the exercise of stock options			-				28
Proceeeds from exercise of stock purchase warrants			-				19
Net cash provided by financing activities			2,314				3,106
Effect of exchange rate changes on cash			(2	)			18
Net increase in cash			87				505
Cash at beginning of period			152				438
Cash at end of period		$	239			$	943
Supplemental disclosure of cash flow information:
Cash paid during period for interest		$	61			$	5
Supplemental disclosure of non-cash transactions:
Conversion of convertible notes payable and accrued interest into common stock		$	350			$	2,888
Conversion of convertible notes payable and accrued interest into common stock and warrants		$	2,908			$	-
Intrinsic value of beneficial conversion feature in convertible notes		$	121			$	2,954
Conversion of demand notes into common stock		$	-			$	250
Options granted in exchange for release from contingent payment obligations		$	1,094			$	-

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1.     Business

 

Sun BioPharma, Inc. and its wholly-owned subsidiary Sun BioPharma Australia Pty Ltd. (collectively “we,” “us,” “our,” and the “Company”) exist for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for a second indication in chronic and recurrent acute pancreatitis. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the University of Florida Research Foundation, Inc. (“UFRF”).

 

Effective November 7, 2017, we implemented a 1-for-10 reverse split of our common stock. All references to share and per share amounts included in these Condensed Consolidated Financial Statements have been retroactively restated to reflect the reverse split.

 

2.     Risks and Uncertainties

 

The Company operates in a highly regulated and competitive environment. The development, manufacturing and marketing of pharmaceutical products require approval from, and are subject to ongoing oversight by, the Food and Drug Administration (“FDA”) in the United States, the Therapeutic Goods Administration (“TGA”) in Australia, the European Medicines Agency (“EMA”) in the European Union, and comparable agencies in other countries. Obtaining approval for a new pharmaceutical product is never certain, may take many years, and is normally expected to involve substantial expenditures.

 

We have incurred losses of $34.3 million since our inception in 2011. For the nine months ended September 30, 2018, we incurred a net loss of $5.2 million, which includes the amortization of discount on debt of $1.7 million. We also incurred negative cash flows from operating activities of $2.2 million for this period. During this same period, we raised $2.3 million from the sale of equity securities, and had a non-cash conversion of promissory notes into common stock totaling $3.3 million in principal and accrued interest. We expect to incur substantial losses for the foreseeable future, which will typically generate negative net cash flows from operating activities, as we continue to pursue development activities and seek to commercialize our initial product candidate, SBP-101. As of September 30, 2018, we had cash of $0.2 million, working capital deficit of $0.6 million, and stockholders’ deficit of $0.5 million. The Company’s principal sources of cash have historically included the issuance of convertible debt and equity securities.

 

The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties. Our current independent registered public accounting firm included a paragraph emphasizing this going concern uncertainty in their audit report regarding our 2017 financial statements dated March 21, 2018. Our ability to continue as a going concern, realize the carrying value of our assets and discharge our liabilities in the ordinary course of business is dependent upon a number of factors, including our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-101 product candidate in the United States, Australia, the European Union or other markets and ultimately our ability to market and sell our SBP-101 product candidate. These factors, among others, raise substantial doubt about our ability to continue operations as a going concern. See Note 4 titled “Liquidity and Management’s Plans.”

 

 

3.     Basis of Presentation

 

We have prepared the accompanying interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our consolidated financial position, consolidated results of operations and consolidated cash flows for the periods and as of the dates presented. Our fiscal year ends on December 31. The condensed consolidated balance sheet as of December 31, 2017 was derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in our most recent filed Annual Report on Form 10-K and our other filings with the SEC. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

 

 

Recently Adopted Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition” and most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles-based and provides a five-step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising from contracts with customers. The Company has evaluated the impact of this revised guidance on its financial statements and determined it had no material impact.

 

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2017. The Company has evaluated the impact of this revised guidance on its financial statements and determined it had no material impact.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, “Leases,” which created a new Topic, ASC Topic 842 and established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments, that arise from leases.  For leases with a term of 12 months or less, a lessee is permitted to make an election under which such assets and liabilities would not be recognized, and lease expense would be recognized generally on a straight-line basis over the lease term.  This standard is effective for the Company beginning in 2019, and early application is permitted.  The Company has evaluated the potential impact of this guidance and does not believe it will have a material impact on the Company’s financial statements.

 

In June 2018, the FASB issued (“ASU”) 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee stock-based payment transactions. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the potential impact of this guidance and at this time does not believe that it will have a material impact on the Company’s financial statements

 

 

4.     Liquidity and Management Plans

 

We will need to obtain additional funds to continue our operations and execute our current business plans. We may seek to raise additional funds through various sources, such as equity and debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.

 

Between March 1, 2016 and September 30, 2017, we accrued a portion of cash base salaries for all senior employees in an effort to conserve cash. In lieu of a portion of base salary, the affected employees were entitled to receive a cash payment in an amount equal to the foregone salary. The cash payment would have become due upon a change of control or the issuance of equity securities resulting in cash gross proceeds of $10 million or more. As of December 31, 2017, the contingent payments under these arrangements totaled $1.1 million. On February 27, 2018, each of the affected employees agreed to waive their rights to receive the contingent payments in exchange for common stock options. See Note 6, titled “Employment agreement amendments and waiver of contingent payment rights.”

 

 

On February 20, 2018, we entered into a Securities Purchase Agreement (the “2018 Purchase Agreement”) with certain accredited investors and completed an initial closing on the same date. Pursuant to the initial closing, we sold a total of 168,000 shares of common stock and warrants to purchase an aggregate of up to the same number of additional shares of common stock. The warrants issued under the 2018 Purchase Agreement will be exercisable for a period of three years from the date of issuance at an exercise price of $5.00 per share. On March 16, 2018 and May 16, 2018, we completed additional closings under the 2018 Purchase Agreement, resulting in the sale of an additional 84,200 and 216,000, respectively, shares of common stock and warrants to purchase up to the same number of additional shares of common stock. We have received aggregate gross proceeds totaling $2.3 million pursuant to private placements under the 2018 Purchase Agreement, of which $125,000 was received from directors and officers of the Company or its subsidiary.

 

On May 16, 2018, as the result of receiving aggregate gross proceeds exceeding $2.0 million for the sale equity securities, under terms of the convertible debt, the Company completed the conversion of previously outstanding debt. Debt totaling $330,500 and accrued interest totaling approximately $19,500 was converted into 104,463 shares of common stock. Debt totaling approximately $2.7 million and accrued interest totaling approximately $163,500 was converted into 646,279 units (each consisting of a share of common stock and a warrant to purchase one additional share of common stock). The units were available through the 2018 Purchase Agreement.

 

To further preserve funds, effective November 1, 2018 the Company’s Board of Directors and management team implemented temporary salary reductions for all employees. After the resignation of the Company’s President and CEO, the Company consolidated this position with that of our Executive Chairman as of the same date. There was no impact to the condensed consolidated financial statements as a result of these reductions as of September 30, 2018 and for the three- and nine-month periods then ended. It is expected that the future savings associated with both changes will be approximately $250,000 per full calendar quarter.

 

If we are unable to obtain additional financing when needed, we will need to reduce our operations by taking actions that may include, among other things, reducing use of outside professional service providers, reducing staff or further reducing staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate, licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or discontinuing operations entirely.

 

Our future success is dependent upon our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-101 product candidate in the United States or other markets and ultimately our ability to market and sell our SBP-101 product candidate. If we are unable to obtain additional financing when needed, if our clinical trials are not successful or if we are unable to obtain marketing approval, we would not be able to continue as a going concern and would be forced to cease operations and liquidate our company.

 

There can be no assurances that we will be able to obtain additional financing on commercially reasonable terms, or at all. The sale of additional convertible debt or equity securities would likely result in dilution to our current stockholders.

 

 

5.     Summary of Significant Accounting Policies

 

Principles of consolidation

 

The accompanying condensed consolidated financial statements include the assets, liabilities and expenses of Sun BioPharma, Inc. and our wholly-owned subsidiary, Sun BioPharma Australia Pty Ltd. All significant intercompany transactions and balances have been eliminated in consolidation.

 

Use of estimates

 

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of expenses during the reporting period. Actual results could differ from those estimates.

 

Beneficial conversion feature

 

For convertible debt where the rate of conversion is below fair market value for our common stock, the Company records a "beneficial conversion feature" ("BCF") and related debt discount that is presented as a direct deduction from the carrying amount of the related debt and as an increase to additional paid-in capital. The debt discount is amortized through interest expense over the life of the related debt.

 

 

Debt issuance costs

 

Costs associated with the issuance of debt instruments are capitalized and presented as a direct deduction from the carrying amount of the related debt liability. These costs are amortized through interest expense over the life of the related debt.

 

Research and development costs

 

Research and development costs include expenses incurred in the conduct of our Phase 1 human clinical trial, for third-party service providers performing various testing and accumulating data related to our preclinical studies; sponsored research agreements; developing and scaling the manufacturing process necessary to produce sufficient amounts of the SBP-101 compound for use in our pre-clinical studies and human clinical trials; consulting resources with specialized expertise related to execution of our development plan for our SBP-101 product candidate; personnel costs, including salaries, benefits and share-based compensation; and costs to license and maintain our licensed intellectual property.

 

We charge research and development costs, including clinical trial costs, to expense when incurred. Our human clinical trials are, and will be, performed at clinical trial sites and are administered jointly by us with assistance from contract research organizations (“CROs”). Costs of setting up clinical trial sites are accrued upon execution of the study agreement. Expenses related to the performance of clinical trials generally are accrued based on contracted amounts and the achievement of agreed upon milestones, such as patient enrollment, patient follow-up, etc. We monitor levels of performance under each significant contract, including the extent of patient enrollment and other activities through communications with the clinical trial sites and CROs, and adjust the estimates, if required, on a quarterly basis so that clinical expenses reflect the actual effort expended at each clinical trial site and by each CRO.

 

All material CRO contracts are terminable by us upon written notice and we are generally only liable for actual effort expended by the CROs and certain non-cancelable expenses incurred at any point of termination.

 

We expense costs associated with obtaining licenses for patented technologies when it is determined there is no alternative future use of the intellectual property subject to the license.

 

Stock-based compensation

 

In accounting for stock-based incentive awards, we measure and recognize the cost of employee and non-employee services received in exchange for awards of equity instruments based on the fair value of those awards on the grant date. Calculating stock-based compensation expense requires the input of highly subjective assumptions, which represent our best estimates and involve inherent uncertainties and the application of management’s judgment. Compensation cost is recognized ratably using the straight-line attribution method over the vesting period, which is considered to be the requisite service period. The performance date for non-employee awards is generally not met until the individual award vests. Accordingly, we re-measure the current fair value each quarter until the award vests. Compensation expense for performance-based stock option awards is recognized when “performance” has occurred or is probable of occurring.

 

The fair value of stock-based awards is estimated at the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based awards is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. Risk free interest rates are based upon U.S. Treasury rates appropriate for the expected term of each award. Expected volatility rates are based primarily on the volatility rates of a set of guideline companies, which consist of public and recently public biotechnology companies. The assumed dividend yield is zero, as we do not expect to declare any dividends in the foreseeable future. The expected term of options granted is determined using the “simplified” method. Under this approach, the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term.

 

Foreign currency translation adjustments

 

The functional currency of Sun BioPharma Australia Pty Ltd is the Australian Dollar (“AUD”). Accordingly, assets and liabilities, and equity transactions of Sun BioPharma Australia Pty Ltd are translated into U.S. dollars at period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect for the period. The resulting translation gains and losses are recorded as a component of accumulated comprehensive loss presented within the stockholders’ equity (deficit). During the nine-month periods ended September 30, 2018 and 2017, any reclassification adjustments from accumulated other comprehensive loss to operations were inconsequential.

 

 

Comprehensive loss

 

Comprehensive loss consists of our net loss and the effects of foreign currency translation.

 

Net loss per share

 

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average of common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be anti-dilutive or reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.

 

The following table sets forth the potential shares of common stock that were not included in the calculation of diluted net loss per share as their effects would have been anti-dilutive as of September 30:

 

 

 

6.     Employment agreement amendments and waiver of contingent payment rights

 

Effective February 27, 2018, we entered into waivers and third amendments (collectively, the “Amendments”) to the previously disclosed employment agreements, as amended (the “Agreements”), with our Executive Chairman, Michael T. Cullen, M.D., M.B.A., our former President and Chief Executive Officer, David B. Kaysen, and our former Chief Financial Officer, Scott Kellen, each of whom was an executive officer of the Company (collectively, the “Executives”), and our Chief Medical Officer, Suzanne Gagnon, M.D. (together with the Executives, the “Employees”). Dr. Cullen, Mr. Kaysen and Dr. Gagnon are also current members of the Company’s Board of Directors.

 

For each of the Employees, the Amendments waived the contingent cash payment and/or equity payments that had been established by the amendments to the Agreements dated October 1, 2017, each of which could have become due upon a change of control or the Company’s completion of an underwritten public offering of its common stock before June 30, 2018. The potential payments waived by the Employees totaled $1.1 million at the time of the amendments and was recorded as a reduction in salary expense. The Amendments also entitled Dr. Cullen, Mr. Kaysen, Mr. Kellen and Dr. Gagnon to grants of new non-qualified stock options to purchase up to 100,000 shares, 50,000 shares, 25,000 shares and 95,000 shares of Company common stock, respectively, at an exercise price equal to fair market value as of the date of grant. These options vested upon grant and have option terms of 10 years. The options were granted under the Company’s 2016 Omnibus Incentive Plan effective as of February 27, 2018 and had a fair value of approximately $1.3 million which was recorded as stock-based compensation expense.

 

 

 

7.     Stockholders’ Deficit

 

Private Placement

 

During the nine months ended September 30, 2018, we issued an aggregate of 468,200 shares of our common stock and warrants to purchase an aggregate of up to the same number of additional shares of common stock pursuant to closings under the 2018 Purchase Agreement. Total proceeds from the sale of common stock and warrants was $2.3 million. Pursuant to the 2018 Purchase Agreement, we may be required to file a registration statement with the SEC covering the resale of the shares issued and/or warrant shares issuable thereunder. See Note 4, titled “Liquidity and Management’s Plans.”

 

Debt Conversion

 

During the nine months ended September 30, 2018, the Company issued 104,463 shares of common stock as the result of the conversion of previously outstanding debt totaling $330,500 and accrued interest totaling approximately $19,500. Also, during the nine months ended September 30, 2018, the Company issued 646,279 units (each consisting of a share of common stock and a warrant to purchase one additional share) as the result of the conversion of previously outstanding debt totaling approximately $2.7 million and accrued interest totaling approximately $163,500. The units were issued to note holders selecting an alternative conversion from units made available under the 2018 Purchase Agreement. The conversion occurred under the original terms of the convertible debt.

 

Shares reserved

 

Shares of common stock reserved for future issuance are as follows as of September 30, 2018:

 

 

 

8.     Stock-based Compensation

 

2016 Omnibus Incentive Plan

 

The Sun BioPharma, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”) was adopted by our Board of Directors in March 2016 and approved by our stockholders in May 2016. The 2016 Plan permits the granting of incentive and non-statutory stock options, restricted stock, stock appreciation rights, performance units, performance shares and other stock awards to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the 2016 Plan at no less than the fair market value of the underlying common stock as of the date of grant. Options granted under the 2016 Plan have a maximum term of ten years. Under the 2016 Plan, a total of 1,500,000 shares of common stock were initially reserved for issuance. As of September 30, 2018, options to purchase 836,350 shares of common stock were outstanding under the 2016 Plan and 663,650 shares remained available for future awards.

 

2011 Stock Option Plan

 

Our Board of Directors ceased making awards under the Sun BioPharma, Inc. 2011 Stock Option Plan (the “2011 Plan”) upon the receipt of stockholder approval for the 2016 Plan. Awards outstanding under the 2011 Plan remain outstanding in accordance with and pursuant to the terms thereof. Options granted under the 2011 Plan have a maximum term of ten years and generally vest over zero to two years for employees. As of September 30, 2018, options to purchase 294,360 shares of common stock remained outstanding under the 2011 Plan.

 

Stock-based Compensation Expense

 

General and administrative and research and development expenses include non-cash stock-based compensation expense as a result of our issuance of stock options. The terms and vesting schedules for stock-based awards vary by type of grant and the employment status of the grantee. The awards granted through September 30, 2018 vest based upon time-based and performance conditions. There was approximately $270,000 unamortized stock-based compensation expense related to options granted to employees as of September 30, 2018.

 

 

Stock-based compensation expense for each of the periods presented is as follows (in thousands):

 

 

A summary of option activity is as follows:

 

 

Information about stock options outstanding, vested and expected to vest as of September 30, 2018, is as follows:

 

 

Nonemployee stock-based compensation

 

We account for stock options granted to nonemployees in accordance with FASB Accounting Standards Codification Topic 505. In connection with stock options granted to nonemployees, we recorded $0.3 million and $0.4 million for nonemployee stock-based compensation during the nine months ended September 30, 2018 and 2017, respectively. These amounts were based upon the fair values of the vested portion of the grants. Amounts expensed during the remaining vesting period will be determined based on the fair value at the time of vesting.

 

Key assumptions

 

The estimated fair values of the stock options were calculated using the Black-Scholes valuation model, based on the following assumptions for the nine months ended September 30, 2018 and 2017:

 

 

 

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