Quarterly report pursuant to Section 13 or 15(d)

Stock Purchase Warrants

v3.10.0.1
Stock Purchase Warrants
9 Months Ended
Sep. 30, 2018
Stock Purchase Warrants [Abstract]  
Stock Purchase Warrants [Text Block]
5. Stock Purchase Warrants
 
On November 18, 2016, the Company completed a public offering of 714,286 shares of common stock with accompanying warrants to purchase an aggregate of 1,428,571 million shares of 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 $35. 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 was $50.05 and the per share exercise price of the Series B warrants was $60.20, each subject to adjustment as specified in the warrant agreements. The Series A warrants are exercisable until the four year anniversary of the issuance date. The Series B warrants expired on December 31, 2017 and none were exercised prior to expiration. The Series A warrants may be exercised at any time until they expire. 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 condensed consolidated statements of operations at each subsequent period. At September 30, 2018, the fair value of the warrant liability was $19,000, which resulted in non-cash income of $605,000 and $3.6 million for the three and nine months ended September 30, 2018, respectively. At September 30, 2017, the fair value of the warrant liability was $10.7 million, which resulted in non-cash expense of $4.1 million for the three months ended September 30, 2017 and non-cash income of $2.0 million for the nine months ended September 30, 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
 
 
 
September 31,

2018
 
 
December 31,

2017
 
 
Issuance

Date
 
Closing stock price
 
$
2.60
 
 
$
17.85
 
 
$
31.15
 
Expected dividends
 
 
0
%
 
 
0
%
 
 
0
%
Expected volatility
 
 
80
%
 
 
80
%
 
 
85
%
Risk free interest rate
 
 
2.82
%
 
 
1.97
%
 
 
1.58
%
Expected life of warrant (years)
 
 
2.14
 
 
 
2.90
 
 
 
4.00
 
 
On October 10, 2014, the Company raised net proceeds of $19.1 million through the sale of 401,703 units at a price of $51.45 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 200,852 shares of common stock, have an exercise price of $61.25 per share and a life of five years. The warrants vested immediately and expire on 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 September 30, 2018, the fair value of the warrant liability was $200.00, which resulted in non-cash income of $21,000 and $415,000 for the three and nine months ended September 30, 2018, respectively. At September 30, 2017, the fair value of the warrant liability was $2.0 million, which resulted in non-cash expense of $1.0 million for the three months ended September 30, 2017 and non-cash income of $0.2 million for the nine months ended September 30, 2017.  In accordance with 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:
 
 
 
September 30,

2018
 
 
December 31,

2017
 
 
Issuance

Date
 
Closing stock price
 
$
2.60
 
 
$
17.85
 
 
$
61.25
 
Expected dividends
 
 
0
%
 
 
0
%
 
 
0
%
Expected volatility
 
 
90
%
 
 
80
%
 
 
95
%
Risk free interest rate
 
 
2.60
%
 
 
1.86
%
 
 
1.39
%
Expected life of warrant (years)
 
 
1.04
 
 
 
1.79
 
 
 
5.00
 
 
The following table summarizes the estimated fair value of the warrant liability
(in thousands)
:
 
Balance at December 31, 2017
 
$
4,083
 
Change in fair value of warrant liability
 
 
(4,064
)
Balance at September 30, 2018
 
$
19
 
 
On December 26, 2017, the Company entered into a consulting agreement for advisory services for a period of six months. As compensation for such services, the consultant was paid an upfront payment, is paid a monthly fee and on January 24, 2018, was issued a warrant exercisable for 714 shares
of the Company’s common stock on the date of issue. The warrant is equity classified and the fair value of the warrant
approximated $9,000 and
was measured using the Black-Scholes option pricing model. This entire expense was recorded in the quarter ended March 31, 2018. The assumptions used by the Company are summarized in the following
table:
 
 
 
Issuance

Date
 
Closing stock price
 
$
18.55
 
Expected dividends
 
 
0
%
Expected volatility
 
 
85
%
Risk free interest rate
 
 
2.42
%
Expected life of warrant (years)
 
 
4.92
 
 
A summary of warrant activity for the Company for the nine months ended September 30, 2018 is as follows:
 
 
 
Number of

Warrants
 
 
Weighted Average

Exercise Price
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
 
915,138
 
 
$
52.50
 
Granted
 
 
714
 
 
 
18.20
 
Exercised
 
 
-
 
 
 
-
 
Forfeited
 
 
-
 
 
 
-
 
Balance at September 30, 2018
 
 
915,852
 
 
$
52.48
 
 
A summary of all outstanding and exercisable warrants as of September 30, 2018 is as follows:
 
Exercise Price
 
 
Warrants

Outstanding
 
 
Warrants

Exercisable
 
 
Weighted Average

Remaining

Contractual Life (years)
 
$
18.20
 
 
 
714
 
 
 
714
 
 
 
4.24
 
$
50.05
 
 
 
714,286
 
 
 
714,286
 
 
 
2.14
 
$
61.25
 
 
 
200,852
 
 
 
200,852
 
 
 
1.03
 
$
52.48
 
 
 
915,852
 
 
 
915,852
 
 
 
1.90