5. Hybrid Debt Instrument |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Hybrid Debt Instrument |
On July 1, 2015, the Company entered into a Securities Purchase Agreement (the “SPA”) with Pharmsynthez providing for the issuance of a minimum of a $3 million 10% Senior Secured Collateralized Convertible Promissory Note (the “SPA Note”). The SPA also provides for the issuance of certain warrants up to the amount of the SPA Note. The convertible debt and its embedded debt-like features were recorded on the face of the condensed consolidated balance sheet within current liabilities as an aggregate hybrid debt instrument. See also Note 12. Subsequent Events.
On November 13, 2015, the Company entered into an Asset Purchase Agreement (the “APA”) with Pharmsynthez providing for the issuance of a minimum of a $3.5 million 10% Senior Secured Collateralized Convertible Promissory Note (the “APA Note”) and the transfer to the Company of certain intellectual property rights with respect to Virexxa in exchange for, among others, 111.5 million shares of our common stock. The APA also provides for the issuance of certain warrants covering up to half the amount of the APA Note. During the quarter ended March 31, 2016, the Company issued $3.5 million of convertible debt as well as the associated warrants, both in connection with the APA Note. The convertible debt and its embedded debt-like features were recorded on the face of the condensed consolidated balance sheet within current liabilities as an aggregate hybrid debt instrument. See also Note 12. Subsequent Events.
The fair value of the compound derivatives (both from the SPA Note and the APA Note) are remeasured at each report date until settled, with changes in fair value recognized in the consolidated statement of comprehensive loss as a gain or loss on derivative. Refer to Note 6 Fair Value Measurements for a table showing changes in the combined compound derivative during the three months ended March 31, 2016.
The key assumptions used to calculate the estimated fair value of the compound derivative liability as of March 31, 2016, and as of December 31, 2015 are as follows:
Upon issuance of the APA Note the offset to debt arising from the associated recording of the compound derivative liability, the warrants and the associated issuance costs exceeded the debt proceeds by $1,584,218. This amount was recorded as a loss in other expense in the condensed consolidated statement of comprehensive loss for the three months ended March 31, 2016.
Interest expense related to the SPA Note and the APA Note of approximately $245,000 was recognized in interest expense in the condensed consolidated statement of comprehensive loss for the three months ended March 31, 2016.
The Company also evaluated the provision in the SPA Note that increases the annual interest rate in the event of default and concluded that the initial value of this contingent feature is immaterial to the condensed consolidated financial statements as of March 31, 2016. The Company will evaluate the value of this contingent feature at each reporting period. |
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