Quarterly report pursuant to Section 13 or 15(d)

Warrants

v3.4.0.3
Warrants
3 Months Ended
Mar. 31, 2016
Warrants [Abstract]  
Warrants

12. Warrants

As of March 31, 2016, warrants to purchase 38,991,904 shares were outstanding, having exercise prices ranging from $0.40 to $1.50 and expiration dates ranging from July 5, 2016 to September 2, 2021.  





 

 

 

 

 

 



 

 

 

 

 

 



2016

2015



Number of warrants

Weighted average exercise price

Number of warrants

Weighted average exercise price

Balance, January 1

26,491,904 

$

0.80  13,205,871 

$

1.07 

Issued during the period

12,500,000 

$

0.42 

 -

$

 -

Exercised during the period

 -

$

 -

 -

$

 -

Expired during the period

 -

$

 -

 -

$

 -



 

 

 

 

 

 

Balance, March 31

38,991,904 

$

0.68  13,205,871 

$

1.07 

At March 31, 2016 the weighted average remaining contractual life of the outstanding warrants was 4.1 years.  



The warrants issued to investors in the March 2011, December 2012, November 2015 and March 2016 offerings contain a provision for net cash settlement in the event that there is a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer or share exchange).  If a fundamental transaction occurs in which the consideration issued consists principally of cash or stock in a non-public company, then the warrant holder has the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant.  Due to this contingent redemption provision, the warrants require liability classification in accordance with ASC 480 and are recorded at fair value.  The warrants issued to investors in the July 2013, October 2013 and January 2014 offerings contain a fundamental transaction provision, but the warrant holders only have an option as to the type of consideration received if the holders of common stock receive an option as to their consideration.  In addition, the warrants issued in the March 2011, December 2012, July 2013, October 2013, January 2014, November 2015 and March 2016 contain a cashless exercise provision that is exercisable only in the event that a registration statement is not effective. That provision may not be operative if an effective registration statement is not available because an exemption under the U.S. securities laws may not be available to issue unregistered shares.  As a result, net cash settlement may be required, and the warrants require liability classification.



ASC 820 provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition.  Fair values for warrants were determined using the Binomial Lattice (“Lattice”) valuation technique. The Lattice model provides for dynamic assumptions regarding volatility and risk-free interest rates within the total period to maturity. Accordingly, within the contractual term, the Company provided multiple date intervals over which multiple volatilities and risk free interest rates were used. These intervals allow the Lattice model to project outcomes along specific paths that consider volatilities and risk free rates that would be more likely in an early exercise scenario.



Significant assumptions are determined as follows:

Trading market values—Published trading market values;

Exercise price—Stated exercise price;

Term—Remaining contractual term of the warrant;

Volatility—Historical trading volatility for periods consistent with the remaining terms; and

Risk-free rate—Yields on zero coupon government securities with remaining terms consistent with the remaining terms of the warrants.



Due to the fundamental transaction provision, which could provide for early redemption of the warrants, the model also considered the probability the Company would enter into a fundamental transaction during the remaining term of the warrant. Because the Company is not yet achieving positive cash flow, management believes the probability of a fundamental transaction occurring over the term of the warrant is unlikely and therefore estimates the probability of entering into a fundamental transaction to be 5%.  For valuation purposes, the Company also assumed that if such a transaction did occur, it was more likely to occur towards the end of the term of the warrants.



The significant unobservable inputs used in the fair value measurement of the warrants include management’s estimate of the probability that a fundamental transaction may occur in the future.  Significant increases (decreases) in the probability of occurrence would result in a significantly higher (lower) fair value measurement.

The following table summarizes the fair value of the warrants as of the respective balance sheet dates:





 

 

 

 

 



 

 

 

 

 



 

Fair Value as of:

Warrant Issuance:

 

March 31, 2016

December 31, 2015

March 31, 2011 financing:

 

 

 

 

 

     Warrants to institutional investors

 

$

33 

$

30 

December 4, 2012 financing:

 

 

 

 

 

     Warrants to institutional investors

 

 

8,451 

 

9,818 

     Warrants to placement agent

 

 

529 

 

1,206 

July 26, 2013 financing:

 

 

 

 

 

     Warrants to institutional investors

 

 

90,766 

 

121,420 

     Warrants to placement agent

 

 

64 

 

384 

October 16, 2013 financing:

 

 

 

 

 

     Warrants to institutional investors

 

 

142,908 

 

169,349 

     Warrants to placement agent

 

 

145 

 

970 

January 21, 2014 financing:

 

 

 

 

 

     Warrants to institutional investors

 

 

106,190 

 

131,476 

November 12, 2015 financing:

 

 

 

 

 

     Warrants to institutional investors

 

 

1,840,663 

 

2,169,375 

     Warrants to placement agent

 

 

113,251 

 

135,135 

March 2, 2016 financing:

 

 

 

 

 

     Warrants to institutional investors

 

 

2,027,777 

 

 -

     Warrants to placement agent

 

 

128,291 

 

 -

Total:

 

$

4,459,068 

$

2,739,163 

The following table summarizes the number of shares indexed to the warrants as of the respective balance sheet dates:





 

 

 



 

 

 



 

Number of Shares indexed as of:

Warrant Issuance

 

March 31, 2016

December 31, 2015

March 31, 2011 financing:

 

 

 

     Warrants to institutional investors

 

3,333,333  3,333,333 

December 4, 2012 financing:

 

 

 

     Warrants to institutional investors

 

174,300  174,300 

     Warrants to placement agent

 

40,000  40,000 

July 26, 2013 financing:

 

 

 

     Warrants to institutional investors

 

2,000,000  2,000,000 

     Warrants to placement agent

 

124,032  124,032 

October 16, 2013 financing:

 

 

 

     Warrants to institutional investors

 

2,317,309  2,317,309 

     Warrants to placement agent

 

407,692  407,692 

January 21, 2014 financing:

 

 

 

     Warrants to institutional investors

 

4,761,905  4,761,905 

November 12, 2015 financing:

 

 

 

     Warrants to institutional investors

 

12,500,000  12,500,000 

     Warrants to placement agent

 

833,333  833,333 

March 2, 2016 financing:

 

 

 

     Warrants to institutional investors

 

11,718,750 

 -

     Warrants to placement agent

 

781,250 

 -

Total:

 

38,991,904  26,491,904 

The assumptions used in calculating the fair values of the warrants are as follows:





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

March 31, 2016

December 31, 2015

Trading market prices

 

$

0.33 

 

$

0.36 

 

Estimated future volatility

 

 

105 

%

 

105 

%

Dividend

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

0.23-1.70

%

 

0.82-2.38

%

Equivalent volatility

 

 

51-66 

%

 

44-65 

%

Equivalent risk-free rate

 

 

0.16-0.79

%

 

0.22-1.11

%



Changes in the fair value of the warrant liabilities, carried at fair value, as reported as “unrealized gain on fair value of warrants” in the statement of operations:









 

 

 

 



Three Months Ended March 31,



 

2016

 

2015

March 31, 2011 financing:

 

 

 

 

     Warrants to institutional investors

 

(3)

 

102,077 

December 4, 2012 financing:

 

 

 

 

     Warrants to institutional investors

 

1,368 

 

(2,897)

     Warrants to placement agent

 

677 

 

143 

July 26, 2013 financing:

 

 

 

 

     Warrants to institutional investors

 

30,654 

 

(24,786)

     Warrants to placement agent

 

321 

 

4,345 

October 16, 2013 financing:

 

 

 

 

     Warrants to institutional investors

 

26,440 

 

(17,760)

     Warrants to placement agent

 

826 

 

15,179 

January 21, 2014 financing:

 

 

 

 

     Warrants to institutional investors

 

25,286 

 

39,114 

November 12, 2015 financing:

 

 

 

 

     Warrants to institutional investors

 

328,713 

 

 -

     Warrants to placement agent

 

21,882 

 

 -

March 2, 2016 financing:

 

 

 

 

     Warrants to institutional investors

 

392,145 

 

 -

     Warrants to placement agent

 

27,646 

 

 -

Total:

$

855,955 

$

115,415