Annual report pursuant to Section 13 and 15(d)

Warrants

v3.8.0.1
Warrants
12 Months Ended
Dec. 31, 2017
Warrants [Abstract]  
Warrants

12. Warrants

As of December 31, 2017, warrants to purchase 7,099,609 shares were outstanding, having exercise prices ranging from $2.85 to $12.80 and expiration dates ranging from July 26, 2018 to April 17, 2023.  





 

 

 

 

 

 



 

 

 

 

 

 



2017

2016



Number of warrants

Weighted average exercise price

Number of warrants

Weighted average exercise price

Balance, January 1

5,452,691 

$

4.92  2,649,199 

$

7.97 

Issued during the period

3,525,543 

$

3.42  3,194,000 

$

3.47 

Exercised during the period

(1,861,195)

$

3.51 

 -

$

 -

Expired during the period

(17,430)

$

4.72  (390,508)

$

13.72 



 

 

 

 

 

 

Balance, December 31

7,099,609 

$

4.55  5,452,691 

$

4.92 

At December 31, 2017, the weighted average remaining contractual life of the outstanding warrants was 4.0 years.  



The warrants issued to investors in the December 2012, November 2015, March 2016 and September 2016 offerings contain a provision for net cash settlement in the event of a fundamental transaction (contractually defined to include a merger, sale of substantially all assets, tender offer or share exchange).  Pursuant to the November 2015, March 2016, and September 2016 warrants, if fundamental transaction occurs, then the warrant holder has the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant.  The option is available to holders of the December 2012 warrants only if the consideration issued in the fundamental transaction consists of cash or stock in a non-public company.  The June 2017 and October 2017 warrants contain a provision that allows the holder to opt for cash settlement in a fundamental transaction that was approved by, or required to be approved by, the board of directors of the Company. All of the Company’s outstanding warrants provide the holder the option as to the type of consideration received if the holders of common stock receive an option as to their consideration. In addition, all of the Company’s outstanding warrants 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:

 

December 31, 2017

December 31, 2016

December 2012 Investor Warrants

 

$

 -

$

49 

July 2013 Investor Warrants

 

 

8,762 

 

2,060 

October 2013 Investor Warrants

 

 

26,288 

 

3,708 

January 2014 Investor Warrants

 

 

29,257 

 

714 

November 2015 Investor Warrants

 

 

1,260,050 

 

260,500 

November 2015 Placement Agent Warrants 

 

 

2,936 

 

13,542 

March 2016 Investor Warrants

 

 

697,554 

 

358,945 

March 2016 Placement Agent Warrants

 

 

 -

 

21,320 

September 2016 Investor Warrants

 

 

1,054,083 

 

854,640 

September 2016 Placement Agent Warrants

 

 

 -

 

57,888 

June 2017 Investor Warrants

 

 

1,981,864 

 

 -

June 2017 Placement Agent Warrants

 

 

221,591 

 

 -

October 2017 Investor Warrants

 

 

2,305,552 

 

 -

October 2017 Placement Agent Warrants

 

 

265,698 

 

 -

Total:

 

$

7,853,635 

$

1,573,366 

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

 

December 31, 2017

December 31, 2016

December 2012 Investor Warrants

 

 -

17,430 

July 2013 Investor Warrants

 

200,000  200,000 

October 2013 Investor Warrants

 

231,732  231,732 

January 2014 Investor Warrants

 

476,193  476,193 

November 2015 Investor Warrants

 

1,250,001  1,250,001 

November 2015 Placement Agent Warrants 

 

3,334  83,335 

March 2016 Investor Warrants

 

607,806  1,171,875 

March 2016 Placement Agent Warrants

 

 -

78,125 

September 2016 Investor Warrants

 

805,000  1,800,000 

September 2016 Placement Agent Warrants

 

 -

144,000 

June 2017 Investor Warrants

 

1,515,152 

 -

June 2017 Placement Agent Warrants

 

181,818 

 -

October 2017 Investor Warrants

 

1,632,654 

 -

October 2017 Placement Agent Warrants

 

195,919 

 -

Total:

 

7,099,609  5,452,691 

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





 

 

 

 

 

 

 



 

December 31, 2017

December 31, 2016

Trading market prices

 

$

2.02 

 

$

1.40 

 

Estimated future volatility

 

 

104 

%

 

104 

%

Dividend

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

2.14-2.45

%

 

1.06-2.44

%

Equivalent volatility

 

 

85-104 

%

 

51-60 

%

Equivalent risk-free rate

 

 

1.30-1.89

%

 

0.59-1.25

%



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







 

 

 

 

 

 



For the Year Ended December 31,



 

2017

 

2016

 

2015

Expired Warrants

$

 -

$

2,590 

$

458,439 

December 2012 Investor Warrants

 

49 

 

9,769 

 

70,856 

July 2013 Investor Warrants

 

(6,702)

 

119,360 

 

666,894 

October 2013 Investor Warrants

 

(22,580)

 

165,641 

 

780,407 

January 2014 Investor Warrants

 

(28,543)

 

130,762 

 

1,347,724 

November 2015 Investor Warrants

 

(999,550)

 

1,908,875 

 

623,125 

November 2015 Placement Agent Warrants 

 

(365,748)

 

121,593 

 

39,282 

March 2016 Investor Warrants

 

(2,708,163)

 

2,060,977 

 

 -

March 2016 Placement Agent Warrants

 

(351,899)

 

134,617 

 

 -

September 2016 Investor Warrants

 

(4,571,872)

 

816,480 

 

 -

September 2016 Placement Agent Warrants

 

(503,150)

 

59,243 

 

 -

June 2017 Investor Warrants

 

1,691,304 

 

 -

 

 -

June 2017 Placement Agent Warrants

 

212,729 

 

 -

 

 -

October 2017 Investor Warrants

 

54,907 

 

 -

 

 -

October 2017 Placement Agent Warrants

 

5,056 

 

 -

 

 -

Total:

$

(7,594,162)

$

5,529,907 

$

3,986,727