Note 7 - Financial Instruments

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Financial Instruments Disclosure [Text Block]

7

.

Financial Instruments

2016

Warrant

On

September 2, 2016,

in connection with the entry into the Loan Agreement (see

Note

8

for additional information), the Company issued a warrant (the “Warrant”) to the Lender to purchase a number of shares of the Company’s common stock equal to

$4.0

million divided by the lower of (i)

$2.29

per share and (ii) the subscription price paid in connection with the Rights Offering. The Warrant provides for weighted average anti-dilution protection and is exercisable in whole or in part for

ten

(

10

) years from the date of issuance. The per share subscription price paid was

$1.50

in connection with the Rights Offering; accordingly, the exercise price of the Warrant was set at

$1.50

per share, and there were

2.7

million shares underlying the Warrant. Subsequent to partial exercises of the Warrant, there are approximately

1.5

million

 shares underlying the Warrant as of

March 31, 2020

.

The Company accounted for the Warrant in accordance with the authoritative guidance which requires that free-standing derivative financial instruments with certain anti-dilution and cash settlement features be classified as assets or liabilities at the time of the transaction, and recorded at their fair value. Any changes in the fair value of the derivative instruments are reported in earnings or loss as long as the derivative contracts are classified as assets or liabilities. The Company classified the Warrant as a liability and reports the change in fair value in the statement of operations.

As of

March 31, 2020

, the fair value of the Warrant was

$6.1

million

. The fair value of the liability-classified Warrant was calculated using the following assumptions: risk free interest rate of

0.50%

;

no

dividend yield; an expected life of

6.42

years

; and a volatility factor of

75%

.