Quarterly report pursuant to Section 13 or 15(d)

Warrants

v2.4.0.8
Warrants
6 Months Ended
Jun. 30, 2014
Warrants [Abstract]  
Warrants

12. Warrants

As of June 30, 2014, warrants to purchase 13,984,204 shares were outstanding, having exercise prices ranging from $0.41 to $1.50 and expiration dates ranging from October 23, 2014 to January 21, 2019.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

2013

 

Number of warrants

Weighted average exercise price

Number of warrants

Weighted average exercise price

Balance, January 1

24,968,868

$

0.86 
21,656,142 

$

0.89 

Issued during the period

4,761,905

$

1.28 

 -

$

 -

Exercised during the period

(12,058,871)

$

0.52 
(56,650)

$

0.47 

Expired during the period

(3,687,698)

$

1.71 

 -

$

 -

 

 

 

 

 

 

 

Balance, June 30

13,984,204

$

1.06 
21,599,492 

$

0.89 

At June 30, 2014 and December 31, 2013, the average remaining contractual life of the outstanding warrants was 3.5 and 3.2 years, respectively.

 

The warrants issued to investors in the June 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, 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 June 2009, October 2009, June 2010, March 2011, December 2012, July 2013, October 2013, and January 2014 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 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 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 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:

 

June 30, 2014

December 31, 2013

June 5, 2009 financing:

 

 

 

 

 

    Series III warrants

 

$

 -

$

11 

    Warrants to placement agent

 

 

 -

 

October 23, 2009 financing:

 

 

 

 

 

    Warrants to institutional investors

 

 

32,112 

 

19,689 

June 30, 2010 financing

 

 

 

 

 

    Warrants to institutional investors

 

 

 -

 

10 

March 31, 2011 financing:

 

 

 

 

 

    Warrants to institutional investors

 

 

1,059,450 

 

311,360 

December 4, 2012 financing:

 

 

 

 

 

    Warrants to institutional investors

 

 

139,968 

 

2,124,444 

    Warrants to placement agent

 

 

23,605 

 

222,286 

July 26, 2013 financing:

 

 

 

 

 

    Warrants to institutional investors

 

 

1,214,938 

 

1,148,390 

    Warrants to placement agent

 

 

60,294 

 

83,808 

October 16, 2013 financing:

 

 

 

 

 

    Warrants to institutional investors

 

 

1,444,796 

 

1,051,454 

    Warrants to placement agent

 

 

194,673 

 

72,605 

January 21, 2014 financing:

 

 

 

 

 

    Warrants to institutional investors

 

 

2,413,567 

 

 -

Total:

 

$

6,583,403 

$

5,034,058 

 

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

 

June 30, 2014

December 31, 2013

June 5, 2009 financing:

 

 

 

    Series III warrants

 

 -

1,555,555 

    Warrants to placement agent

 

 -

132,143 

October 23, 2009 financing:

 

 

 

    Warrants to institutional investors

 

778,333 
1,228,333 

June 30, 2010 financing

 

 

 

    Warrants to institutional investors

 

 -

2,000,000 

March 31, 2011 financing:

 

 

 

    Warrants to institutional investors

 

3,333,333 
3,333,333 

December 4, 2012 financing:

 

 

 

    Warrants to institutional investors

 

221,600 
7,418,503 

    Warrants to placement agent

 

40,000 
880,000 

July 26, 2013 financing:

 

 

 

    Warrants to institutional investors

 

2,000,000 
3,990,000 

    Warrants to placement agent

 

124,032 
456,000 

October 16, 2013 financing:

 

 

 

    Warrants to institutional investors

 

2,317,309 
3,567,309 

    Warrants to placement agent

 

407,692 
407,692 

January 21, 2014 financing:

 

 

 

    Warrants to institutional investors

 

4,761,905 

 -

Total:

 

13,984,204 
24,968,868 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 5, 2009 financing:

 

June 30, 2014

December 31, 2013

Trading market prices

 

$

 -

 

$

0.51 

 

Estimated future volatility

 

 

 -

 

 

109 

%

Dividend

 

 

 -

 

 

-

 

Estimated future risk-free rate

 

 

 -

 

 

0.13 

%

Equivalent volatility

 

 

 -

 

 

43-45

%

Equivalent risk-free rate

 

 

 -

 

 

0.05-0.06

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 23, 2009 financing:

 

June 30, 2014

December 31, 2013

Trading market prices

 

$

0.87 

 

$

0.51 

 

Estimated future volatility

 

 

109 

%

 

109 

%

Dividend

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

0.06 

%

 

0.13 

%

Equivalent volatility

 

 

43 

%

 

57 

%

Equivalent risk-free rate

 

 

0.03 

%

 

0.07 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2010 financing:

 

June 30, 2014

December 31, 2013

Trading market prices

 

$

 -

 

$

0.51 

 

Estimated future volatility

 

 

 -

 

 

109 

%

Dividend

 

 

 -

 

 

-

 

Estimated future risk-free rate

 

 

 -

 

 

0.13 

%

Equivalent volatility

 

 

 -

 

 

49 

%

Equivalent risk-free rate

 

 

 -

 

 

0.06 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2011 financing:

 

June 30, 2014

December 31, 2013

Trading market prices

 

$

0.87 

 

$

0.51 

 

Estimated future volatility

 

 

109 

%

 

109 

%

Dividend

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

1.05 

%

 

1.58 

%

Equivalent volatility

 

 

89 

%

 

71 

%

Equivalent risk-free rate

 

 

0.20 

%

 

0.27 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 4, 2012 financing:

 

June 30, 2014

December 31, 2013

Trading market prices

 

$

0.87 

 

$

0.51 

 

Estimated future volatility

 

 

109 

%

 

109 

%

Dividend

 

 

-

 

 

-

 

Estimated future risk-free rate

 

 

0.85-1.98

%

 

1.58-2.72

%

Equivalent volatility

 

 

89-90

%

 

69-73

%

Equivalent risk-free rate

 

 

0.16-0.38

%

 

0.22-0.40

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 26, 2013 financing:

 

June 30, 2014

December 31, 2013

Trading market prices

 

$

0.87 

 

 

0.51 

 

Dividend

 

 

-

 

 

-

 

Equivalent volatility

 

 

88-89

%

 

69-77

%

Equivalent risk-free rate

 

 

0.16-0.49

%

 

0.22-0.62

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 16, 2013 financing:

 

June 30, 2014

December 31, 2013

Trading market prices

 

$

0.87 

 

 

0.51 

 

Dividend

 

 

-

 

 

-

 

Equivalent volatility

 

 

89 

%

 

69-76

%

Equivalent risk-free rate

 

 

0.16-0.53

%

 

0.20-0.52

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 21, 2014 financing:

 

June 30, 2014

December 31, 2013

Trading market prices

 

$

0.87 

 

 

-

 

Dividend

 

 

-

 

 

-

 

Equivalent volatility

 

 

87 

%

 

-

 

Equivalent risk-free rate

 

 

0.57 

%

 

-

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2014

Three Months Ended June 30, 2013

Six Months Ended June 30, 2014

Six Months Ended June 30, 2013

Exercised and Expired Warrants

$

 

$

 

$

 

$

144 

June 5, 2009 financing:

 

 

 

 

 

 

 

 

    Series III warrants

 

80,889 

 

47 

 

11 

 

30,069 

    Warrants to placement agent

 

8,484 

 

(53)

 

 

2,802 

October 23, 2009 financing:

 

-

 

 

 

 

 

 

    Warrants to institutional investors

 

284,047 

 

(15,355)

 

(309,903)

 

26,040 

June 30, 2010 financing

 

 

 

 

 

 

 

 

    Warrants to institutional investors

 

61,000 

 

200 

 

10 

 

9,000 

March 31, 2011 financing:

 

 

 

 

 

 

 

 

    Warrants to institutional investors

 

725,883 

 

(116,666)

 

(748,090)

 

(20,000)

December 4, 2012 financing:

 

 

 

 

 

 

 

 

    Warrants to institutional investors

 

55,683 

 

(1,004,301)

 

(4,170,019)

 

(837,321)

    Warrants to placement agent

 

9,359 

 

(70,528)

 

(523,891)

 

(48,488)

July 26, 2013 financing:

 

 

 

 

 

 

 

 

    Warrants to institutional investors

 

501,262 

 

 -

 

(1,699,355)

 

 -

    Warrants to placement agent

 

28,959 

 

 -

 

(264,579)

 

 -

October 16, 2013 financing:

 

 

 

 

 

 

 

 

    Warrants to institutional investors

 

604,836 

 

 -

 

(1,435,140)

 

 -

    Warrants to placement agent

 

95,196 

 

 -

 

(122,066)

 

 -

January 21, 2014 financing:

 

 

 

 

 

 

 

 

    Warrants to institutional investors

 

1,209,767 

 

 -

 

1,277,862 

 

 -

Total:

$

3,665,365 

$

(1,206,656)

$

(7,995,159)

$

(837,754)