7. Stockholders' Equity
|9 Months Ended|
Sep. 30, 2016
Reverse Stock Split
On May 16, 2016, our board of directors approved a reduction, on a 1 for 33 basis, in our authorized common stock, par value $0.001, along with a corresponding and proportional decrease in the number of shares issued and outstanding. This reduction was filed with the Nevada Secretary of State on May 18, 2016, but required a review by the Financial Industry Regulatory Authority, Inc. (“FINRA”) before becoming effective in the market. On May 31, 2016, FINRA announced that this change took effect in the over-the-counter securities markets on June 1, 2016.
All share information provided herein reflects the effect of the reverse stock split for all periods presented.
On April 29, 2016, the Company closed on the APA with an effective date of April 27, 2016, acquiring in-process research and development (“IPR&D”) related to certain intellectual property rights with respect to the immunomodulator product Virexxa held by Kevelt including the grant of the worldwide right to develop, market and license Virexxa for certain uses. In connection with the closing of the APA, the Company issued 3.05 million shares of its common stock to Pharmsynthez and, because there was no alternative use for the IPR&D, the Company recognized $39.5 million of expense based on the fair value of Virexxa IP received, which was determined to be more reliably measured than the related equity consideration. Included in the $39.5 million expense was the $3.74 million prepayment recorded in 2015.
On September 15, 2016, the Company issued 211,486 shares of common stock to Serum in exchange for $750,000 of research and development (“R&D”) and clinical PSA supply as well as settlement of prior purchases of PSA supply. Serum is a related party and the share transaction was approved by the Company’s Board of Directors. Following the issuance and as of September 30, 2016, Serum’s share ownership of the Company was approximately 7.6%.
On September 23, 2016, SynBio, one of our largest shareholders, exchanged 970,000 shares of common stock in the Company for an equal number of shares of Series A Preferred Stock.
As approved by the Company’s Board of Directors, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series A Preferred Stock on September 13, 2016, and subsequently filed an Amended and Restated Certificate of Designation of Series A Preferred Stock (the “Amended Series A Certificate of Designation”). Pursuant to the Amended Series A Certificate of Designation, the Company designated 1,000,000 shares as Series A preferred stock. Each share of Series A preferred stock has a stated value of $0.001 per share. In the event of a liquidation, dissolution or winding up of the Company, each share of Series A preferred stock will be entitled to a per share preferential payment equal to $4.80, the stated value. Each share of Series A preferred stock is convertible into one (1) share of common stock. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. Except as otherwise provided in the Amended Series A Certificate of Designation or as otherwise required by law, the Series A has no voting rights.
As of September 30, 2015, there were 970,000 shares of Series A preferred stock issued and outstanding which are convertible into 970,000 shares of common stock.
In connection with the Company’s issuance of the APA Note in March 2016, the Company issued a warrant to purchase 0.35 million shares of common stock in accordance with the terms of the APA (the “APA Warrant”) at the Exercise Price. The APA Warrant has a five-year term and is exercisable commencing March 31, 2016. If the APA Note is not repaid or converted on or before six months from the date of issuance, the Holder will be issued an additional warrant to purchase 0.35 million shares of common stock under the same terms as the Warrant. At issuance the Company determined there was a low probability that the APA Note would not be repaid or converted within the period six months from the date of issuance and, therefore, did not account for the additional warrant as issued. (The APA Note was converted in April 2016.) The fair value of the warrant was calculated using the Black-Scholes option pricing model. Key valuation assumptions used consist of the Company’s stock price, a risk free rate of 1.42% and an expected volatility of 135% and no expected dividends. Using an allocation of the APA Note proceeds between the relative fair values of the APA Warrant and the APA Note, the Company recorded the APA Warrant at a value of $1.7 million on the condensed consolidated balance sheet as equity paid-in-capital.
In connection with the Company’s issuance of each of the Period Notes during the three months ended September 30, 2016, the Company issued warrants to purchase an aggregate of 138,379 shares of common stock at the Exercise Price and that are immediately exercisable. If the Period Notes are not repaid or converted on or before six months from the date of the respective issuances, the holders will be issued additional warrants to purchase 138,379 shares of common stock under the same terms as the immediately exercisable warrants. The Company has accounted for both sets of warrants (the “Period Warrants”) as issued contemporaneous with the issuance of the associated debt instrument. The Period Warrants have five-year terms. The fair values of the Period Warrants were calculated using the Black-Scholes option pricing model. Key valuation assumptions used consist of the Company’s stock price, risk free rates between 1.00% and 1.13% and expected volatilities of 110% and 120% and no expected dividends. Using allocations of the individual Period Note proceeds between the relative fair values of the individual Period Warrants and the Period Notes, the Company recorded the Period Warrants at an aggregate value of $0.41 million on the condensed consolidated balance sheet as equity paid-in-capital.
The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.
Reference 1: http://www.xbrl.org/2003/role/presentationRef