Quarterly report pursuant to Section 13 or 15(d)

Capital Stock

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Capital Stock
9 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Capital Stock

At our Annual Meeting of Stockholders on September 5, 2019, as approved by and recommended to our stockholders by our Board, our stockholders approved an amendment to our Restated Articles of Incorporation to increase the authorized number of shares of common stock that we may issue from 100.0 million shares to 175.0 million shares. The amendment became effective on September 6, 2019, upon our filing of a certificate of amendment with the Nevada Secretary of State.

 

Fall 2019 Private Placement 

 

Between October 30, 2019 and November 7, 2019, in a self-placed private placement and pursuant to subscription agreements received from certain accredited investors, we sold to such investors units, at a purchase price of $1.00 per unit, consisting of an aggregate of 650,000 unregistered shares of our common stock and warrants, exercisable beginning six months following issuance and through November 1, 2023, to purchase 325,000 unregistered shares of our common stock at an exercise price of $2.00 per share (the Fall 2019 Private Placement). We received cash proceeds of $650,000 from the Fall 2019 Private Placement.

 

As further described below under “Winter 2019 Warrant Modification,” in December 2019, we modified the warrants issued in connection with the Fall 2019 Private Placement to (i) reduce the exercise price from $2.00 per share to $0.50 per share and (ii) to allow for the warrants to become immediately exercisable. Further, we issued warrants to purchase an aggregate of 325,000 additional shares of our common stock to the participants in the Fall 2019 Private Placement (the Additional Warrants) to increase the number of unregistered shares of common stock issuable upon exercise of the warrants from 50% to 100%. The Additional Warrants are immediately exercisable through March 31, 2024 at an exercise price of $0.50 per share.

 

We calculated the fair value of the Additional Warrants using the Black Scholes Option Pricing Model and the weighted average assumptions indicated in the table below, recognizing $88,800 as the fair value of the new warrants and as warrant modification expense, included as a component of general and administrative expenses, in our Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended December 31, 2019.

 

Assumption:  

 

Additional Warrants

Market price per share   $ 0.44  
Exercise price per share   $ 0.50  
Risk-free interest rate     1.59 %
Contractual term in years     4.32  
Volatility     86.64 %
Dividend rate     0.0 %
         
Number of warrant shares     325,000  
Weighted average fair value per share   $ 0.27  

 

Winter 2019 Warrant Modification

 

On December 4, 2019, we modified outstanding warrants previously issued as a part of completed private placements to temporarily reduce, for a period of two years or, if sooner, until the expiration of the warrant, the exercise price of such warrants to $0.50 per share, in order to more closely align the exercise price of the warrants with the trading price of our common stock at such time (the Winter 2019 Warrant Modification). Following the two-year period during which the exercise price is reduced, the exercise price of each modified warrant will revert to its pre-modification price. As a result of the Winter 2019 Warrant Modification, outstanding warrants to purchase a total of approximately 6.6 million unregistered shares of our common stock were modified.

 

We calculated the fair value of the modified warrants, including those issued in the Fall 2019 Private Placement, immediately before and after the modification using the Black Scholes Option Pricing Model for pre-modification valuations and for post-modification valuations for warrants expiring in less than two years. For the warrants expiring after the December 4, 2021 exercise price reversion date, we ran a binomial model using 24 steps, one for each month, and lognormal distribution to estimate our stock price at December 4, 2021, the termination date for the exercise price reduction. We then compared the exercise value of each warrant at each estimated stock price to the remaining option value if the warrant was not exercised on December 4, 2021 and allowed to revert to its original exercise price. For any estimated stock price above $0.50 per share (an in-the-money warrant), we determined that the holders would convert their warrants. For any estimated stock price below $0.50 per share, we determined that the holders would continue to hold their warrants. Given the significant reductions in exercise price (the pre-modification exercise prices range from $1.50 to $2.24 per share), if the warrants are not exercised prior to December 4, 2021, the Black-Scholes values upon the reversion of the exercise prices are very low, such that there is nominal additional value for continuing to hold the warrants. Accordingly, our estimated post-modification fair value for warrants having an expiration date later than the two-year exercise price reversion date, December 4, 2021, is equal to the value of an option determined using the Black Scholes Option Pricing Model having an exercise price of $0.50 per share and a two-year term and related assumptions. The table below indicates the pre- and post-modification weighted average assumptions used in our valuations. We recognized the incremental fair value, $702,500, as warrant modification expense, included as a component of general and administrative expenses, in our Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended December 31, 2019.

 

Assumption:  

 

Pre-modification

 

 

 

Post-modification

 

Market price per share   $ 0.44     $ 0.44  
Exercise price per share   $ 1.98     $ 0.50  
Risk-free interest rate     1.58 %     1.58 %
Remaining contractual term in years     2.25       1.91  
Volatility     87.5 %     88.1 %
Dividend rate     0.0 %     0.0 %
                 
Number of warrant shares     6,611,759       6,611,759  
Weighted average fair value per share   $ 0.08     $ 0.19  

 

Following the Winter 2019 Warrant Modification, investors holding a total 820,000 warrants elected to exercise their warrants at the reduced price of $0.50 per share, resulting in proceeds to us of $410,000.

 

December 19, 2019 Warrant Modification

 

On December 19, 2019, we modified outstanding warrants previously issued as a part of a completed private placement to permanently reduce the exercise price of such warrants to $0.805 per share and to extend the term of such warrants through December 31, 2022, in order to more closely align the exercise price of the warrants with the current trading price of our common stock and to provide additional time for the holders to exercise the warrants (the December 19, 2019 Warrant Modification). As a result of the December 19, 2019 Warrant Modification, outstanding warrants to purchase a total of 80,431 shares of common stock were modified.

 

We calculated the fair value of the modified warrants immediately before and after the modification using the Black Scholes Option Pricing Model and the weighted average assumptions indicated in the table below. We recognized the incremental fair value, $35,600, as warrant modification expense, included as a component of general and administrative expenses, in our Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended December 31, 2019.

 

Assumption:  

 

Pre-modification

 

 

 

Post-modification

 

Market price per share   $ 0.805     $ 0.805  
Exercise price per share   $ 7.00     $ 0.805  
Risk-free interest rate     1.57 %     1.65 %
Remaining contractual term in years     0.58       3.034  
Volatility     98.7 %     84.9 %
Dividend rate     0.0 %     0.0 %
                 
Number of warrant shares     80,431       80.431  
Weighted average fair value per share   $ 0.00     $ .044  

 

Winter 2019 Warrant Offering

 

In December 2019, we commenced a self-placed private placement of warrants to purchase unregistered shares of our common stock at an offering price of $0.15 per warrant (the Winter 2019 Warrant Offering). Warrants offered and sold in the Winter 2019 Warrant Offering have an exercise price of $0.50 per share and term of three years from the issuance date. Over the course of the Winter 2019 Warrant Offering, we sold warrants to purchase a total of 2.0 million unregistered shares of common stock for cash proceeds to us of $300,000, which we accounted for with a corresponding credit to additional paid-in capital, an equity account.

 

Warrants Outstanding

 

The following table summarizes warrants outstanding and exercisable as of December 31, 2019 subsequent to the issuances and modifications described above. The weighted average exercise price of outstanding and exercisable warrants at December 31, 2019 is $1.88 per share and $1.90 per share, respectively.

 

        Warrants   Warrants
Exercise       Outstanding at   Exercisable at
Price   Expiration   December 31,   December 31,
per Share    Date   2019  

2019

 

             
$ 0.50       5/20/2020 to 3/31/2024       8,116,759       7,791,759  
$ 0.805       12/31/2022       80,431       80,431  
$ 1.50       12/13/2022       9,596,200       9,596,200  
$ 1.82       3/7/2023       1,388,931       1,388,931  
$ 3.51       12/31/2021       50,000       50,000  
$ 5.30       5/16/2021       2,705,883       2,705,883  
$ 7.00       1/11/2020 to 3/3/2023       1,092,000       1,092,000  
$ 10.00       1/11/2020       20,000       20,000  
                             
                  23,050,204       22,725,204  

 

 

Of the warrants outstanding at December 31, 2019, 2,705,883 shares of common stock underlying the warrants exercisable at $5.30 per share issued in our May 2016 public offering, 1,388,931 shares of common stock underlying the warrants exercisable at $1.82 per share issued in our September 2017 public offering and 9,596,200 shares of common stock underlying the warrants exercisable at $1.50 per share issued in our December 2017 public offering are registered for resale by the warrant holders. The common shares issuable upon exercise of our remaining outstanding warrants are unregistered. At December 31, 2019, none of our outstanding warrants are subject to down round anti-dilution protection features and all of the outstanding warrants are exercisable by the holders only by payment in cash of the stated exercise price per share.