Quarterly report pursuant to Section 13 or 15(d)

Warrant Liability

v3.10.0.1
Warrant Liability
9 Months Ended
Sep. 30, 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”. The Company 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 and June 2018 Issuance. The Company 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 issuance date.

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

June 2018 Issuances of Warrants

On June 22, 2018, the Company entered into a definitive agreement with institutional investors for a registered direct offering of securities for the sale of 1,092,636 shares of its common stock, at a purchase price of $2.105 per share. Concurrently with the sale of the common shares, pursuant to the agreement, the Company also sold warrants to purchase 710,212 shares of common stock. The total number of warrants issued were 742,991, which includes the Roth Warrants below. The Company sold the common shares and warrants for aggregate gross proceeds of approximately $2.3 million. Subject to certain beneficial ownership limitations, the warrants will be initially exercisable on the six months anniversary of the issuance date at an exercise price equal to $2.02 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 agreement occurred on June 22, 2018.

The Company 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. The Company paid Roth an aggregate fee equal to 6.5% of the gross proceeds received from the sale of the securities in the transactions. Pursuant to the Placement Agency Agreement, the Company 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 32,779 shares. The Roth Warrants have substantially the same terms as the investor warrants described above, except that the Roth Warrants will expire on June 21, 2023 and have an exercise price of $2.3155 per share. 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. The Company also reimbursed Roth for its expenses of $50,000. The Company agreed to give Roth a nine months right of first refusal to act as its lead underwriter or exclusive placement agent for any further capital raising transactions the Company undertakes. With certain exceptions, the Company also granted Roth a 6-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 MBI with further capital during such six-month period following termination of its engagement of Roth.

The assumptions used in the BSM model for the June 2018 warrants are as follows:


Nine Months Ended September 30, 2018 Year Ended December 31, 2017
Risk-free interest rate  2.93%-2.95%  N/A 
Volatility  80%    N/A 
Expected life (years)  4.72-5.23  N/A 
Dividend yield  —%    N/A 
A summary of the Company's June 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 as of January 1, 2018  —  —  —  — 
Granted  742,991  $2.02-$2.32  $ 2.03  5.22
Exercised  —  —  —  — 
Expired  —  —  —  — 
Balance as of September 30, 2018  742,991  $2.02-$2.32  $ 2.03  5.22
Vested and exercisable at September 30, 2018 —  $2.02-$2.32  $ 2.03  — 

February 2018 Issuance of Warrants

On February 16, 2018, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors for the sale of 4,290,000 shares of its common stock, at a purchase price of $2.10 per share. Concurrently with the sale of the common shares, pursuant to the Purchase Agreement, the Company 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. The Company sold the common shares and warrants for aggregate gross proceeds of approximately $9.0 million. Subject to certain beneficial ownership limitations, the warrants became 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 5 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.

The Company also entered into a placement agent agreement (the “Placement Agency Agreement”) with Roth, pursuant to which Roth agreed to serve as exclusive placement agent for the issuance and sale of the common shares and warrants. The Company paid Roth an aggregate fee equal to 6.5% of the gross proceeds received from the sale of the securities in the transactions. Pursuant to the Placement Agency Agreement, the Company 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. The Company also reimbursed Roth for its expenses of $75,000. The Company agreed to give Roth a nine-month right of first refusal to act as its lead underwriter or exclusive placement agent for any further capital raising transactions it undertakes. With certain exceptions, the Company 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 MBI with further capital during such six-month period following termination of its engagement of Roth.

The assumptions used in the BSM model for the February 2018 warrants are as follows:

Nine Months Ended September 30, 2018 Year Ended December 31, 2017
Risk-free interest rate
2.92%-2.94% 
N/A
Volatility
80%
N/A
Expected life (years)
4.38-4.88  N/A
Dividend yield
—%   
N/A
A summary of the Company's 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  4.89
Exercised  —  —  $ —  — 
Expired  —  —  $ —  — 
Balance at September 30, 2018  2,273,700  $ 2.80  $ 2.80  4.89
Vested and Exercisable at September 30, 2018  2,273,700  $ 2.80  $ 2.80  4.89

February 2017 Issuance of Warrants

On February 9, 2017, the Company 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 it 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 5-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 5-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, the Company 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 MBI to cover over-allotments at the public offering price per share of $1.349 and public offering price per warrant combination of $0.001, 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. The Company 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 and MCM models for the February 2017 warrants are as follows:
 
Nine Months Ended September 30, 2018  Year Ended December 31, 2017
Risk-free interest rate  2.89%    1.68%-1.86% 
Volatility  77.50%    80.00%-160.11% 
Expected life (years)  3.37 0.5-5.0
Dividend yield  —%    —%   

A summary of the Company's 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
Balance at January 1, 2018  419,772  $1.35-$1.50  $ 1.46  4.38
Granted  —  —  $ —  — 
Exercised  (9,752) —  $ 1.50  — 
Expired  —  —  $ —  — 
Balance at September 30, 2018 410,020  $ 1.50  $ 1.50  3.38
Vested and exercisable at September 30, 2018 410,020  $ 1.50  $ 1.50  3.38

Warrant Activity
 
The Series B Warrants and the unvested Series C Warrants expired in May 2017. Therefore, the associated warrant liability of $1.2 million was extinguished on that date and no other Series B Warrants were exercised.

On September 30, 2018, the warrants were revalued with a fair value determination of $3.1 million which included a fair value adjustment for the three and nine months ended of $0.6 million and $1.6 million, respectfully, and was included as a gain in "Gain (loss) from change in fair value of warrant liability" in the accompanying financial statements.

During the three months ended September 30, 2018, there was no additional warrant activity except for the revaluation of the warrant liability.