6. Series B Warrants

 

In conjunction with the Series B Preferred Stock financing, the Company issued 6,437,500 warrants that are exercisable at a price of $1.15 per share and expire five years from the issuance date. The warrants were valued at $2,935,800 utilizing the Black-Scholes pricing model and the following assumptions:

	For the Nine Months Ended   September 30,
	2015		2014
Dividend yield	0.00%		NA
Volatility factor	70.00%		NA
Risk-free interest rate	1.75%		NA
Expected term (years)	4.61		NA
Weighted-average fair value of warrants granted during the periods	$0.46		NA

 

The warrants are exercisable in cash or through a cashless exercise provision. The Series B warrants also have a "down-round" protection feature provided to the investors if the Company subsequently issues or sell any shares of common stock, stock options, or convertible securities at a price less than the exercise price of $1.15 per each warrant. The conversion price is automatically adjusted down to the price of the instrument being issued. The Company reviewed the classification of the warrants as liabilities or equity under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the Series B warrants should be classified as a liability. The Company then applied the relative fair value allocation methodology for allocating the proceeds of $5.0 million received from the Series B financing between the conversion liability and the warrants with the residual amount being allocated to the Preferred Stock. As such, the warrant value as of September 30, 2015 was $2,892,392 and will be subject to fair value re-measurement at the end of each reporting period.