Annual report pursuant to Section 13 and 15(d)

Warrants

v2.4.0.8
Warrants
12 Months Ended
Dec. 31, 2013
Warrants [Abstract]  
Warrants

13. Warrants

As of December 31, 2013, warrants to purchase 24,968,868 shares were outstanding, having exercise prices ranging from $0.41 to $1.90 and expiration dates ranging from May 19, 2014 to October 16, 2018.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

2012

 

Number of warrants

Weighted average exercise price

Number of warrants

Weighted average exercise price

Balance, January 1

21,656,142

$

0.89 
8,676,142 

$

1.53 

Issued during the period

8,421,001

 

0.59 
12,980,000 

$

0.47 

Exercised during the period

(4,681,497)

 

0.47 

 -

$

 -

Expired during the period

(426,778)

 

1.67 

 -

$

 -

 

 

 

 

 

 

 

Balance, December 31

24,968,868

$

0.86 
21,656,142 

$

0.89 

At December 31, 2013 and December 31, 2012, the average remaining contractual life of the outstanding warrants was 3.2 and 3.8 years, respectively.

 

The warrants issued to investors in the December 2007, March 2008, May 2009, October 2009, June 2010, March 2011 and December 2012 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 and October 2013 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 May 2009, October 2009, June 2010, March 2011, December 2012, July 2013, and October 2013 offerings 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 is not 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 are 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;

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 still in its development stage and 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 warrants issued in December 2007 and March 2008 were not only subject to traditional anti-dilution protection, such as for stock splits and dividends, but also were subject to down-round anti-dilution protection. Accordingly, if the Company sold common stock or common stock indexed financial instruments below the stated exercise price, the exercise price related to these warrants will adjust to that lower amount.  The Lattice model used to value the warrants with down-round anti-dilution protection provides for multiple, probability-weighted scenarios at the stated exercise price and at five additional decrements/scenarios on each valuation date in order to encompass the value of the anti-dilution provisions in the estimate of fair value of the warrants. Calculations were performed at the stated exercise price and at five additional decrements/scenarios on each valuation date. The calculations provided for multiple, probability-weighted scenarios reflecting decrements that result from declines in the market prices. Decrements are predicated on the trading market prices in decreasing ranges below the contractual exercise price. For each valuation date, multiple Binomial Lattice calculations were performed which were probability weighted by considering both the Company’s (i) historical market pricing trends, and (ii) an outlook for whether or not the Company may need to issue equity or equity-indexed instruments in the future with a price less than the current exercise price.

 

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 or transaction dates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value as of:

Warrant Issuance:

 

December 31, 2013

December 31, 2012

Transaction Date

December 18, 2007 financing

 

$

-     

$

 -     

$

1,392,476 

March 20, 2008 financing

 

 

-

 

-

 

190,917 

June 5, 2009 financing:

 

 

 

 

 

 

 

    Series I warrants

 

 

-

 

-

 

707,111 

    Series II warrants

 

 

-

 

-

 

1,315,626 

    Series III warrants

 

 

11 

 

35,311 

 

1,306,200 

    Warrants to placement agent

 

 

 

3,489 

 

122,257 

October 23, 2009 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

19,689 

 

73,454 

 

1,012,934 

    Warrants to placement agent

 

 

 -

 

41 

 

101,693 

June 30, 2010 financing

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

10 

 

12,200 

 

1,800,800 

    Warrants to placement agent

 

 

 -

 

20 

 

180,080 

March 31, 2011 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

311,360 

 

306,333 

 

2,826,666 

    Warrants to placement agent

 

 

 -

 

83 

 

97,667 

December 4, 2012 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

2,124,444 

 

2,263,910 

 

2,474,120 

    Warrants to placement agent

 

 

222,286 

 

147,224 

 

163,096 

July 26, 2013 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

1,148,390 

 

 -

 

1,295,952 

    Warrants to placement agent

 

 

83,808 

 

 -

 

110,489 

October 16, 2013 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

1,051,454 

 

 -

 

1,070,193 

    Warrants to placement agent

 

 

72,605 

 

 -

 

87,368 

Total:

 

$

5,034,058 

$

2,842,065 

$

16,255,645 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares indexed as of:

Warrant Issuance

 

December 31, 2013

December 31, 2012

Transaction Date

December 18, 2007 financing

 

          -     

          -     

1,078,579 

March 20, 2008 financing

 

          -     

          -     

128,572 

June 5, 2009 financing:

 

 

 

 

    Series I warrants

 

-

-

2,222,222 

    Series II warrants

 

-

-

1,866,666 

    Series III warrants

 

1,555,555 
1,555,555 
1,555,555 

    Warrants to placement agent

 

132,143 
132,143 
142,857 

October 23, 2009 financing:

 

 

 

 

    Warrants to institutional investors

 

1,228,333 
1,228,333 
2,125,334 

    Warrants to placement agent

 

 -

18,445 
245,932 

June 30, 2010 financing

 

 

 

 

    Warrants to institutional investors

 

2,000,000 
2,000,000 
2,000,000 

    Warrants to placement agent

 

 -

200,000 
200,000 

March 31, 2011 financing:

 

 

 

 

    Warrants to institutional investors

 

3,333,333 
3,333,333 
3,333,333 

    Warrants to placement agent

 

 -

208,333 
208,333 

December 4, 2012 financing:

 

 

 

 

    Warrants to institutional investors

 

7,418,503 
12,100,000 
12,100,000 

    Warrants to placement agent

 

880,000 
880,000 
880,000 

July 26, 2013 financing:

 

 

 

 

    Warrants to institutional investors

 

3,990,000 

 -

3,990,000 

    Warrants to placement agent

 

456,000 

 -

456,000 

October 16, 2013 financing:

 

 

 

 

    Warrants to institutional investors

 

3,567,309 

 -

3,567,308 

    Warrants to placement agent

 

407,692 

 -

407,692 

Total:

 

24,968,868 
21,656,142 
36,508,383 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 18, 2007 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

 -

 

$

 -

 

$

1.75 

 

Estimated future volatility

 

 

-

 

 

-

 

 

143 

%

Dividend

 

 

-

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

-

 

 

-

 

 

3.27 

%

Equivalent volatility

 

 

-

 

 

-

 

 

106 

%

Equivalent risk-free rate

 

 

-

 

 

-

 

 

3.26 

%

Estimated additional shares to be issued upon dilutive event

 

 

-

 

 

-

 

 

98,838 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 20, 2008 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

 -

 

$

 -

 

$

2.14 

 

Estimated future volatility

 

 

-

 

 

-

 

 

142 

%

Dividend

 

 

-

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

-

 

 

-

 

 

1.95 

%

Equivalent volatility

 

 

-

 

 

-

 

 

97 

%

Equivalent risk-free rate

 

 

-

 

 

-

 

 

1.31 

%

Estimated additional shares to be                      issued upon dilutive event

 

 

-

 

 

-

 

 

7,479 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 5, 2009 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

0.51 

 

$

0.31 

 

$

1.14 

 

Estimated future volatility

 

 

109 

%

 

100 

%

 

100 

%

Dividend

 

 

-

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

0.13 

%

 

0.16 

%

 

0.63-4.31

%

Equivalent volatility

 

 

43-45

%

 

92 

%

 

103-117

%

Equivalent risk-free rate

 

 

0.05-0.06

%

 

0.11 

%

 

0.20-1.44

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 23, 2009 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

0.51 

 

$

0.31 

 

$

0.69 

 

Estimated future volatility

 

 

109 

%

 

100 

%

 

100 

%

Dividend

 

 

-

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

0.13 

%

 

0.16-0.34

%

 

2.63-3.80

%

Equivalent volatility

 

 

57 

%

 

74-93

%

 

98-99

%

Equivalent risk-free rate

 

 

0.07 

%

 

0.06-0.13

%

 

0.93-1.16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2010 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

0.51 

 

$

0.31 

 

$

1.43 

 

Estimated future volatility

 

 

109 

%

 

100 

%

 

100 

%

Dividend

 

 

-

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

0.13 

%

 

0.16-0.34

%

 

1.78 

%

Equivalent volatility

 

 

49 

%

 

74-75

%

 

98 

%

Equivalent risk-free rate

 

 

0.06 

%

 

0.06 

%

 

0.59 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2011 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

0.51 

 

$

0.31 

 

$

1.18 

 

Estimated future volatility

 

 

109 

%

 

93-100

%

 

100 

%

Dividend

 

 

-

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

1.58 

%

 

0.16-0.58

%

 

1.32-3.64

%

Equivalent volatility

 

 

71 

%

 

74-89

%

 

79-96

%

Equivalent risk-free rate

 

 

0.27 

%

 

0.06-0.23

%

 

0.39-1.09

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 4, 2012 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

0.51 

 

$

0.31 

 

$

0.30-0.33

 

Estimated future volatility

 

 

109 

%

 

85-100

%

 

100 

%

Dividend

 

 

-

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

1.58-2.72

%

 

0.58-1.26

%

 

0.52-1.065

%

Equivalent volatility

 

 

69-73

%

 

88 

%

 

88-90

%

Equivalent risk-free rate

 

 

0.22-0.40

%

 

0.21-0.32

%

 

0.22-0.31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 26, 2013 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

0.51 

 

 

-

 

$

0.53 

 

Dividend

 

 

-

 

 

-

 

 

-

 

Equivalent volatility

 

 

69-77

%

 

-

 

 

78-80

%

Equivalent risk-free rate

 

 

0.22-0.62

%

 

-

 

 

0.20-0.48

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 16, 2013 financing:

 

December 31, 2013

December 31, 2012

Transaction Date

 

Trading market prices

 

$

0.51 

 

 

-

 

$

0.49 

 

Dividend

 

 

-

 

 

-

 

 

-

 

Equivalent volatility

 

 

69-76

%

 

-

 

 

81-83

%

Equivalent risk-free rate

 

 

0.20-0.52

%

 

-

 

 

0.21-0.55

%

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2013

Year Ended December 31, 2012

Cumulative from March 19, 2001 (Inception) to December 31, 2013

December 18, 2007 financing

 

$

 -

$

 -

$

50,722 

March 20, 2008 financing

 

 

-

 

 -

 

160,063 

June 5, 2009 financing:

 

 

 

 

 

 

 

    Series I warrants

 

 

-

 

-

 

707,111 

    Series II warrants

 

 

-

 

-

 

(2,191,175)

    Series III warrants

 

 

35,300 

 

54,445 

 

1,306,189 

    Warrants to placement agent

 

 

3,488 

 

5,404 

 

107,876 

    Derivative loss at inception

 

 

-

 

-

 

(328,937)

October 23, 2009 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

53,765 

 

55,767 

 

(55,995)

    Warrants to placement agent

 

 

41 

 

673 

 

(135,938)

June 30, 2010 financing

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

12,190 

 

77,600 

 

1,800,790 

    Warrants to placement agent

 

 

20 

 

2,300 

 

180,080 

March 31, 2011 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

(5,027)

 

237,667 

 

2,515,306 

    Warrants to placement agent

 

 

83 

 

3,938 

 

97,667 

December 4, 2012 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

(1,598,195)

 

210,210 

 

(1,387,985)

    Warrants to placement agent

 

 

(75,062)

 

15,872 

 

(59,190)

July 26, 2013 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

147,562 

 

 -

 

147,562 

    Warrants to placement agent

 

 

26,681 

 

 -

 

26,681 

October 16, 2013 financing:

 

 

 

 

 

 

 

    Warrants to institutional investors

 

 

18,739 

 

 -

 

18,739 

    Warrants to placement agent

 

 

14,761 

 

 -

 

14,761 

Total:

 

$

(1,365,654)

$

663,876 

$

2,974,327