Quarterly report pursuant to Section 13 or 15(d)

Warrant Liability

v3.8.0.1
Warrant Liability
3 Months Ended
Mar. 31, 2018
Warrant Liability [Abstract]  
Warrant Liability
Warrant Liability
 
The basis of value of the warrant liability is fair value, which is defined pursuant to Accounting Standards Codification (“ASC”) 820 to be “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. We used the Black-Scholes option pricing model (“BSM”) to determine the fair value of the Series A and Series B Warrants from the February 2017 Issuance, described below, along with the warrants issued in the February 2018 Issuance. We used a Monte Carlo simulation (“MCM”) with regard to the Series C Warrants from the February 2017 Issuance because of the path dependent vesting terms of the contract.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date.

Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the warrants. Where appropriate, we used the historical volatility of peer entities due to the lack of sufficient historical data of our stock price during 2017-2018.

February 2018 Issuance of Warrants

On February 16, 2018, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with
certain institutional investors for the sale by us of 4,290,000 shares of our common stock, at a purchase price of $2.10 per share. Concurrently with the sale of the common shares, pursuant to the Purchase Agreement, we also sold warrants to purchase 2,145,000 shares of common stock. The total number of warrants issued were 2,273,700, which includes the Roth warrants below. We sold the common shares and warrants for aggregate gross proceeds of approximately $9.0 million. Subject to certain beneficial ownership limitations, the warrants will be initially exercisable on the six-month anniversary of the issuance date at an exercise price equal to $2.80 per share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the initial exercise date. The closing of the sales of these securities under the Purchase Agreement occurred on February 21, 2018.

The warrants and the shares issuable upon exercise of the warrants were sold without registration under the Securities
Act of 1933 ("Securities Act") in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 506 promulgated under the Securities Act as sales to accredited investors, and in reliance on similar exemptions under applicable state laws.

We also entered into a placement agent agreement (the “Placement Agency Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which Roth agreed to serve as exclusive placement agent for the issuance and sale of the common shares and warrants. We paid Roth an aggregate fee equal to 6.5% of the gross proceeds received by us from the sale of the securities in the transactions. Pursuant to the Placement Agency Agreement, we also issued Roth warrants to purchase up to 3% of the aggregate number of shares of common stock sold in the transactions (the “Roth Warrants”) or 128,700 shares. The Roth Warrants have substantially the same terms as the investor warrants described above, except that the Roth Warrants will expire on February 15, 2023. The Roth Warrants and the shares issuable upon exercise of the Roth Warrants will be issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and in reliance on similar exemptions under applicable state laws. We also reimbursed Roth for its expenses of $75,000. We agreed to give Roth a nine-month right of first refusal to act as our lead underwriter or exclusive placement agent for any further capital raising transactions we undertake. With certain exceptions, we also granted Roth a six-month tail fee equal to the cash and warrant compensation in the offering, if any investor with which Roth had substantive discussions with respect to the offering, provides us with further capital during such six-month period following termination of our engagement of Roth.

The assumptions used in the BSM and MCM models for the February 2018 warrants are as follows:

 
 
Three Months Ended March 31, 2018
 
Year Ended December 31,
2017
Risk-free interest rate
 
2.58%-2.68%
 
N/A
Volatility
 
80%-85%
 
N/A
Expected life (years)
 
5.38-5.5
 
N/A
Dividend yield
 
—%
 
N/A


A summary of our February 2018 Warrant activity and related information follows:
Description
 
Number of
Shares Under
Warrant
 
Range of
Warrant Price
per Share
 
Weighted
Average
Exercise Price
 
Weighted Average
Remaining
Contractual Life (Years)
Balance at January 1, 2018
 

 

 

 

Granted
 
2,273,700

 
$2.80
 
$
2.80

 
5.5

Exercised
 

 

 
$

 

Expired
 

 

 
$

 

Balance at March 31, 2018
 
2,273,700

 
$
2.80

 
$
2.80

 
5.5

Vested and Exercisable at March 31, 2018
 
2,273,700

 
$
2.80

 
$
2.80

 


    
February 2017 Issuance of Warrants

On February 9, 2017, we entered into an Underwriting Agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, as representative of the several underwriters identified therein (collectively, the “Underwriters”), pursuant to which we sold in a registered public offering (the “Offering”), 3,710,000 units, priced at a public offering price of $1.35 per unit (the closing price that day was $1.50), with each unit consisting of: (i) one share of common stock, (ii) a five-year Series A warrant to purchase 0.50 of a share of common stock, (iii) a 90-day Series B warrant to purchase one share of common stock, and (iv) a five-year Series C warrant to purchase 0.50 of a share of common stock. The Series C warrants in a unit could only be exercised to the extent and in proportion to a holder of the Series C warrants exercising its Series B warrants included in the unit. The Series A and Series C warrant have an exercise price of $1.50 per share of common stock. The Series B warrant had an exercise price of $1.35 per share of common stock.

Under the terms of the Underwriting Agreement, we granted the Underwriters a 45-day option to purchase an additional 556,500 shares of common stock and/or an additional 556,500 warrant combination (comprised of an aggregate of 278,250 Series A warrants, 556,500 Series B warrants and 278,250 Series C warrants), in any combinations thereof, from us to cover over-allotments at the public offering price per share of $1.349 and public offering price per warrant combination of $.001, respectively, less the underwriting discounts and commissions. Upon the closing of the Offering, the Underwriters exercised the over-allotment option with respect to $278,100 warrant combinations. We received approximately $4.5 million in net proceeds from the Offering, after deducting underwriting discounts and commissions and estimated offering expenses.

The assumptions used in the BSM model for the February 2017 warrants are as follows:
 
 
 
Three Months Ended March 31, 2018
 
Year Ended December 31,
2017
Risk-free interest rate
 
2.46%-2.55%
 
1.68%-1.86%
Volatility
 
80.0%
 
80.00%-160.11%
Expected life (years)
 
3.87-3.96
 
0.5-5.0
Dividend yield
 
—%
 
—%


A summary of our February 2017 warrant activity and related information follows:
Description
 
Number of
Shares Under
Warrant
 
Range of
Warrant Price
per Share
 
Weighted
Average
Exercise Price
 
Weighted Average
Remaining
Contractual Life (Years)
Balance at January 1, 2018
 
419,772

 
$1.35-$1.50

 
1.46

 
4.38

Granted
 

 

 
$

 

Exercised
 
(9,752
)
 

 
$
1.50

 

Expired
 

 

 
$

 

Balance at March 31, 2018
 
410,020

 
$
1.50

 
$
1.50

 
3.88

Vested and Exercisable at March 31, 2018
 
410,020

 
$
1.50

 
$
1.50

 
3.88



Series B and Series C Warrants
 
The Series B Warrants and the unvested Series C Warrants expired May 15, 2017. Therefore, the associated warrant liability of $1.24 million was extinguished on May 15, 2017 as no other Series B Warrants were exercised prior to that date.