Annual report pursuant to Section 13 and 15(d)

Warrants

v3.3.1.900
Warrants
12 Months Ended
Dec. 31, 2015
Accounting Policies [Abstract]  
Warrants

10.        Warrants

 

The following is a summary of activity in the number of warrants outstanding to purchase the Company’s common stock for the year ended December 31, 2015 (in thousands):

 

    Warrants accounted for as:     Warrants accounted for as:                    
    Equity                 Liabilities                                
    January 2012 warrants     March 2013 warrants     April 2013 warrants     February 2012 warrants     August 2013 warrants     October 2013 warrants     October 2013 Series A warrants     January 2014 warrants     Total  
                                                       
Outstanding, January 1, 2014     -       -       -       -       -       -       -       -       -  
Warrants acquired in merger with Biozone     650       455       1,864       1,000       10,000       200       7,000       -       21,169  
Warrants issued     -       -       -       -       -       -       -       5,500       5,500  
Outstanding, December 31, 2014     650       455       1,864       1,000       10,000       200       7,000       5,500       26,169  
                                                                         
Warrants exercised     -       -       (364 )     -       (10,000 )     (200 )     (6,325 )     (1,500 )     (18,389 )
Outstanding, December 31, 2015     650       455       1,500       1,000       -       -       675       4,000       8,280  
                                                                         
Expiration date   January 11, 2016     March 1, 2016     April 25, 2018     February 28, 2016     August 26, 2023     October 18, 2018     October 24, 2023     January 16, 2024          

 

 

Warrants consist of warrants potentially settleable in cash, which are liability-classified warrants, and equity-classified warrants.

 

Warrants classified as liabilities

 

Liability-classified warrants consist of warrants issued by Biozone in connection with equity financings in February 2012, August 2013, October 2013 and January 2014, which were assumed by the Company in connection with its merger with Biozone in January 2014.  As of December 31, 2015, 5,765,000 warrants are accounted for as liabilities and 2,605,000 warrants are accounted for as equity.  Warrants accounted for as liabilities are either potentially settleable in cash or not indexed to the Company’s own stock because they contain contingencies under which the Company could be forced to settle them for cash or because they contain potential adjustments to their exercise price.  As such, they are therefore accounted for as liabilities.

 

The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the consolidated statement of operations and comprehensive income (loss) as changes in fair value of derivative liabilities. The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of December 31, 2015:

 

    February 2012 warrants     August 2013 warrants     October 2013 warrants     October 2013 warrants     January 2014 warrants  
                               
Strike price   $ 0.60     $ 0.40     $ 0.50     $ 0.50     $ 0.50  
                                         
Expected term (years)     0.2       7.7       2.8       7.8       8.0  
Cumulative volatility %     81 %     101 %     78 %     101 %     100 %
Risk-free rate %     0.49 %     2.18 %     1.26 %     2.14 %     2.15 %

 

The Company’s expected volatility is based on a combination of implied volatilities of similar publicly traded entities given that the Company has limited history of its own observable stock price. The expected life assumption is based on the remaining contractual terms of the warrants. The risk-free rate is based on the zero coupon rates in effect at the balance sheet date. The dividend yield used in the pricing model is zero, because the Company has no present intention to pay cash dividends.