Quarterly report pursuant to Section 13 or 15(d)

Stock Purchase Warrants

v3.7.0.1
Stock Purchase Warrants
3 Months Ended
Mar. 31, 2017
Stock Purchase Warrants [Abstract]  
Stock Purchase Warrants [Text Block]
6. Stock Purchase Warrants
 
On November 18, 2016, the Company completed a public offering of 25 million shares of common stock in combination with accompanying warrants to purchase an aggregate of 50 million shares of the common stock. The stock and warrants were sold in combination, with two warrants for each share of common stock sold, a Series A warrant and a Series B warrant, each representing the right to purchase one share of common stock. The purchase price for each share of common stock and accompanying warrants was $1.00. The shares of common stock were immediately separable from the warrants and were issued separately. The initial per share exercise price of the Series A warrants is $1.43 and the per share exercise price of the Series B warrants is $1.72, each subject to adjustment as specified in the Warrants. The Series A and Series B warrants may be exercised at any time on or after the date of issuance. The Series A warrants are exercisable until the four year anniversary of the issuance date. The Series B warrants are exercisable until December 31, 2017. The warrants include a provision, that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from the holder for cash. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance date, which was $15.7 million, and changes in estimated fair value will be recorded as non-cash income or expense in the Company’s Statement of Operations at each subsequent period. At March 31, 2017, the fair value of the warrant liability was $8.6 million, which resulted in non-cash income of $4.1 million in 2017. In accordance with U.S. GAAP, the warrants were valued on the date of grant using a Monte Carlo simulation. The assumptions used by the Company are summarized in the following table:
 
 
 
 
 
 
 
Series A
 
 
 
 
 
 
 
 
Series B
 
 
 
 
 
 
 
March 31,
 
 
December 31,
 
 
Issuance
 
 
March 31,
 
 
December 31,
 
 
Issuance
 
 
 
2017
 
 
2016
 
 
Date
 
 
2017
 
 
2016
 
 
Date
 
Closing stock price
 
$
0.63
 
 
$
0.76
 
 
$
0.89
 
 
$
0.63
 
 
$
0.76
 
 
$
0.89
 
Expected dividends
 
 
0
%
 
 
0
%
 
 
0
%
 
 
0
%
 
 
0
%
 
 
0
%
Expected volatility
 
 
90
%
 
 
85
%
 
 
85
%
 
 
85
%
 
 
90
%
 
 
85
%
Risk free interest rate
 
 
1.64
%
 
 
1.67
%
 
 
1.58
%
 
 
0.97
%
 
 
0.85
%
 
 
0.81
%
Expected life of warrant
 
 
3.64 years
 
 
 
3.9 years
 
 
 
4 years
 
 
 
0.75 years
 
 
 
1.0 years
 
 
 
1.1 years
 
 
On October 10, 2014, the Company raised net proceeds of $19.1 million through the sale of 14,059,616 units at a price of $1.47 per unit to certain institutional investors in a registered direct offering. Each unit consisted of one share of the Company’s common stock and a warrant to purchase 0.5 shares of common stock. The warrants, exercisable for an aggregate of 7,029,808 shares of common stock, have an exercise price of $1.75 per share and a life of five years. The warrants vested immediately and expire October 10, 2019.
 
The warrants issued in conjunction with the registered direct offering in October 2014 include a provision that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from the holder at a premium. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance date, which was $7.4 million, and changes in estimated fair value are being recorded as non-cash income or expense in the Company’s condensed consolidated statement of operations at each subsequent period. At March 31, 2017, the fair value of the warrant liability was $1.1 million, which resulted in non-cash income of $1.0 million in 2017. At March 31, 2016, the fair value of the warrant liability was $11.1 million, which resulted in non-cash income of $0.5 million in 2016. In accordance with guidance U.S. GAAP, the warrants were valued on the date of grant using the Black-Scholes valuation model which approximates the value derived using a Monte Carlo simulation. The assumptions used by the Company are summarized in the following table:
 
 
 
March 31,
 
 
December 31,
 
 
Issuance
 
 
 
2017
 
 
2016
 
 
Date
 
Closing stock price
 
$
0.63
 
 
$
0.76
 
 
$
1.75
 
Expected dividends
 
 
0
%
 
 
0
%
 
 
0
%
Expected volatility
 
 
0.85
%
 
 
95
%
 
 
95
%
Risk free interest rate
 
 
1.4
%
 
 
1.41
%
 
 
1.39
%
Expected life of warrant
 
 
2.55 years
 
 
 
2.79 years
 
 
 
5 years
 
 
The following table summarizes the estimated fair value of the warrant liability (in thousands):
 
Balance at December 31, 2016
 
$
14,821
 
Change in fair value of warrant liability
 
 
(5,090)
 
Balance at March 31, 2017
 
$
9,731
 
 
On October 25, 2012, the Company entered into a Common Stock Purchase Agreement with certain accredited investors. As part of this agreement, the Company issued warrants to purchase 635,855 shares of common stock to the placement agent, or its permitted assigns. The warrants have an exercise price of $1.60 and a life of five years. The warrants vested immediately and expire October 25, 2017. Since these warrants were granted as part of an equity raise, the Company has treated them as a direct offering cost. The result of the transaction has no effect to equity. Warrants outstanding as of March 31, 2017 were 311,834.
 
A summary of warrant activity for the Company for the three months ended March 31, 2017 and for the year ended December 31, 2016 is as follows:
 
 
 
Number of
 
Weighted Average
 
 
 
Warrants
 
Exercise Price
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
 
7,908,899
 
$
1.79
 
Granted
 
 
50,000,000
 
 
1.58
 
Exercised
 
 
-
 
 
-
 
Forfeited
 
 
(567,257)
 
 
2.35
 
Balance at December 31, 2016
 
 
57,341,642
 
 
1.60
 
Granted
 
 
-
 
 
-
 
Exercised
 
 
-
 
 
-
 
Forfeited
 
 
-
 
 
-
 
Balance at March 31, 2017
 
 
57,341,642
 
$
1.60
 
 
A summary of all outstanding and exercisable warrants as of March 31, 2017 is as follows:
 
 
 
 
 
 
 
Weighted Average
 
 
 
Warrants
 
Warrants
 
Remaining
 
Exercise Price
 
Outstanding
 
Exercisable
 
Contractual Life
 
$
1.43
 
 
25,000,000
 
 
25,000,000
 
3.64 years
 
$
1.60
 
 
311,834
 
 
311,834
 
0.57 years
 
$
1.72
 
 
25,000,000
 
 
25,000,000
 
0.75 years
 
$
1.75
 
 
7,029,808
 
 
7,029,808
 
2.53 years
 
$
1.60
 
 
57,341,642
 
 
57,341,642
 
2.23 years