C:
C:
3. Derivative Liability
During 2012, in relation to the reverse Merger and the three offerings under the Private Placement, the Company issued 21,347,182
five-year warrants to purchase the Company’s common stock. In October and November of 2011, the Company issued 1,500,000 five-year warrants in connection with Convertible Notes. The exercise price of the warrants is protected against
down-round financing throughout the term of the warrant. Pursuant to ASC 815-15 and ASC 815-40, the fair value of the warrants of approximately $32.7 million and $1.3 million in 2012 and 2011, respectively, was recorded as a derivative liability on
the issuance dates.
The Company revalues the warrants as of the end of each reporting period, and the estimated fair value of the outstanding
warrant liabilities was approximately $6.0 million and $6.9 million, as of June 30, 2013 and March 31, 2013, respectively. The changes in fair value of the derivative liabilities for the three months ended June 30, 2013 and 2012
were increases of approximately $23,000 and $33,937,000, respectively, and are included in other expense in the statement of operations.
During the three months ended June 30, 2013 and 2012, 35,000 and 100,000 warrants, respectively, that were classified as derivative liabilities were
exercised. The warrants were revalued as of the settlement dates, and the change in fair value was recognized to earnings. In addition, during the three month period ended June 30, 2013, the Company entered into amendment agreements with
certain of the warrant holders, which removed the down-round pricing protection provisions, resulting in 269,657 of these warrants being reclassified from liability instruments to equity instruments. The Company also recognized a reduction in the
warrant liability based on the fair value as of the settlement date for the warrants exercised and as of the modification date for the warrants that were amended, with a corresponding increase in additional paid-in capital.
The derivative liabilities were valued at the closing dates of the Private Placement and the end of
each reporting period using a Monte Carlo valuation model with the following assumptions:
C:
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June 30, 2013 |
|
|
March 31, 2013 |
|
|
June 30, 2012 |
|
C:
C:
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|
|
Closing price per share of common stock
|
|
$ |
3.78 |
|
|
$ |
3.68 |
|
|
$ |
3.99 |
|
Exercise price per share
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
Expected volatility
|
|
|
86.9 |
% |
|
|
88.8 |
% |
|
|
102.9 |
% |
Risk-free interest rate
|
|
|
1.04 |
% |
|
|
0.57 |
% |
|
|
0.72 |
% |
Dividend yield
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Remaining expected term of underlying securities (years)
|
|
|
3.63 |
|
|
|
3.88 |
|
|
|
4.80 |
|
C:
In addition, as of the valuation dates, management assessed the probabilities of future financing assumptions in the Monte Carlo
valuation models. Management also applied a discount for lack of marketability to the valuation of the derivative liabilities based on such trading restrictions due to certain of the shares not being registered.
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