Quarterly report pursuant to Section 13 or 15(d)

Stock Warrants

v3.19.2
Stock Warrants
6 Months Ended
Jun. 30, 2019
Stock Warrants  
Stock Warrants

5. Stock Warrants

On October 15, 2018, the Company closed its underwritten public offering pursuant to which it received gross proceeds of approximately $18.6 million before deducting underwriting discounts, commissions and other offering expenses payable by the Company and sold an aggregate of (i) 2,520,000 Class A Units (the “Class A Units”), with each Class A Unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and one five-year warrant to purchase one share of Common Stock at an exercise price of $1.38 per share (each a “Warrant” and collectively, the “Warrants”), with each Class A Unit to be offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B Units (the “Class B Units”, and together with the Class A Units, the “Units”), with each Class B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting of one share of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), with a stated value of $1,000 and convertible into shares of Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173 Warrants . In addition, pursuant to the underwriting agreement that the Company had entered into with A.G.P./Alliance Global Partners (the “Underwriters”), as representative of the underwriters, the Company granted the Underwriters a 45 day option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional Warrants to purchase an additional 2,428,825 shares of Common Stock. The Underwriters partially exercised the Over-allotment Option by electing to purchase from the Company additional Warrants to purchase 1,807,826 shares of Common Stock.

The Warrants are immediately exercisable at a price of $1.38 per share of Common Stock (which is 120% of the public offering price of the Class A Units) and expire on October 15, 2023. If, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares of Common Stock to the holder, then the Warrants may only be exercised through a cashless exercise. No fractional shares of Common Stock will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional amount multiplied by the fair market value of any such fractional shares. The Company has concluded that the Warrants are required to be equity classified. The Warrants were valued on the date of grant using Monte Carlo simulations.

The assumptions used by the Company are summarized in the following table:

 

 

 

 

 

 

 

    

Issuance

 

 

 

Date

 

Closing stock price

 

$

0.88

 

Expected dividends

 

 

 0

%

Expected volatility

 

 

90

%

Risk free interest rate

 

 

3.01

%

Expected life of warrant (years)

 

 

5.00

 

 

On November 18, 2016, the Company completed a public offering of 714,286 shares of common stock in combination with accompanying warrants to purchase an aggregate of 1,428,571 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 $35.00. The shares of common stock were immediately separable from the warrants and were issued separately. The per share exercise price of the Series A warrants is $50.05 and the per share exercise price of the Series B warrants is $60.20, each subject to adjustment as specified in the warrant agreements. 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 expired December 31, 2017 and none were exercised prior to expiration. 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 of $15.7 million and changes in estimated fair value are being recorded as non-cash income or expense in the Company’s Condensed Consolidated Statements of Operations at each subsequent period. At June 30, 2019, the fair value of the warrant liability was $100. At June 30, 2018, the fair value of the warrant liability was $624,000, which resulted in non-cash income of $714,000 and $3.0 million for the three and six months ended June 30, 2018, respectively. The warrants were valued on the date of grant and on each remeasurement period using Monte Carlo simulations. A third party valuation was not obtained for these warrants as of June 30, 2019 due to the nominal value of the warrants as of December 31, 2018 and the Company’s continued low stock price.

The assumptions used by the Company are summarized in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Series A

    

  

 

 

 

 

December 31, 

 

December 31, 

 

November 18,

 

 

 

2018

 

2017

 

2016

 

Closing stock price

 

$

0.56

 

$

17.85

 

$

31.15

 

Expected dividends

 

 

 0

%  

 

 0

%  

 

 0

%

Expected volatility

 

 

92.5

%  

 

80

%  

 

85

%

Risk free interest rate

 

 

2.50

%  

 

1.97

%  

 

1.58

%

Expected life of warrant

 

 

1.9 years

 

 

2.9 years

 

 

4.0 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 0.50 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 Consolidated Statements of Operations at each subsequent period. At June 30, 2019, the fair value of the warrant liability was zero. At June 30, 2018, the fair value of the warrant liability was $21,000, which resulted in non-cash income of $69,000 and $395,000 for the three and six months ended June 30, 2018, respectively. The warrants were valued on the date of grant using the Black-Scholes valuation model which approximates the value derived using Monte Carlo simulations. The warrants were not valued during 2019 due the current minimal value and stock price. The assumptions used by the Company are summarized in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 

 

December 31, 

    

October 10,

 

 

 

2018

 

2017

 

2014

 

Closing stock price

 

$

0.56

 

$

17.85

 

$

61.25

 

Expected dividends

 

 

 0

%  

 

 0

%  

 

 0

%

Expected volatility

 

 

110

%  

 

80

%  

 

95

%

Risk free interest rate

 

 

2.60

%  

 

1.86

%  

 

1.39

%

Expected life of warrant

 

 

 .79

years

 

 1.79

years

 

 5.0

years

 

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

 

 

(4,083)

Balance at December 31, 2018

 

 

 —

Change in fair value of warrant liability

 

 

 —

Balance at June 30, 2019

 

$

 —

 

A summary of all warrant activity for the Company for the six months ended June 30, 2019 and the year ended December 31, 2018 is as follows:

 

 

 

 

 

 

 

 

    

Number of

    

Weighted Average

 

 

Warrants

 

Exercise Price

 

 

 

 

 

 

Balance at December 31, 2017

 

915,138

 

$

52.50

Granted

 

18,000,713

 

 

1.38

Exercised

 

 —

 

 

 —

Forfeited

 

 —

 

 

 —

Balance at December 31, 2018

 

18,915,851

 

 

3.85

Granted

 

 —

 

 

 —

Exercised

 

 —

 

 

 —

Forfeited

 

 —

 

 

 —

Balance at June 30, 2019

 

18,915,851

 

$

3.85

 

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 issuance. The warrant is equity classified and the fair value of the warrant approximated $9,000 on the date of grant 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 all outstanding and exercisable warrants as of June 30, 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Weighted Average

 

 

 

Warrants

 

Warrants

 

Remaining

Exercise Price

 

Outstanding

 

Exercisable

 

Contractual Life

$

1.38

 

17,999,999

 

17,999,999

 

4.29 years

 

18.20

 

714

 

714

 

3.49 years

 

50.05

 

714,286

 

714,286

 

1.39 years

 

61.25

 

200,852

 

200,852

 

0.28 years

$

3.85

 

18,915,851

 

18,915,851

 

4.14 years