Warrants

12 Months Ended

Dec. 31, 2018

Federal Home Loan Banks [Abstract]

Warrants

12. Warrants

The following common stock warrants were outstanding at December 31, 2018:

	Number of Common Stock Warrants		Per Share Exercise Price		Issuance Date	Expiration Date
Replacement warrants issued in connection with the Mergers		155	$	483.00	March 3, 2012	March 3, 2022
Issued with redeemable preferred stock*		1,612		80.10	August 16, 2017	August 16, 2022
Issued with common units in Unit Offering		2,516,250		4.18	October 2, 2018	October 2, 2023
Underwriter warrant issued with public offering		196,650		6.25	October 2, 2018	September 28, 2021
Issued with common units in Registered Direct Offering		4,629,630		5.40	October 10, 2018	October 10, 2023
Total		7,344,297
*Liability classified warrants

The following common stock warrants were outstanding at December 31, 2017:

	Number of Common Stock Warrants		Per Share Exercise Price		Issuance Date	Expiration Date
Replacement warrants issued in connection with the Mergers		155	$	483.00	March 3, 2012	March 3, 2022
Issued with redeemable preferred stock*		78,181		80.10	August 16, 2017	August 16, 2022
Total		78,336
*Liability classified warrants

In March 2017, the Company issued warrants to purchase up to 1,659 shares of common stock in connection with the Notes (see Note 1). Those warrants were classified as permanent equity and were recorded at the issuance date using a relative fair value allocation method which were not subsequently remeasured. In connection with the Mergers, 22,022 shares of common stock were issued upon the cashless exercises of 22,063 warrants. In May 2017, the Company issued 155 common stock warrants to replace outstanding PharmAthene common stock warrants in connection with the Mergers.

In August 2017, in connection with the redeemable preferred stock issuance (Note 10), the Company granted warrants to holders of redeemable preferred stock to purchase up to 78,181 shares of the Company’s common stock. Warrants issued with the redeemable preferred stock are classified as a liability and are initially recorded at their grant date fair value, to be remeasured on each subsequent balance sheet date. The warrant liability is classified as component of other long-term liabilities. During the year ended December 31, 2018, 76,569 of these warrants were exchanged for a combination common stock and cash, leaving 1,612 of these warrants outstanding as of December 31, 2018.

On June 29, 2018 the Company closed on privately negotiated exchange agreements with certain investors to exchange warrants to purchase 53,125 common shares of the Company (the “First Exchange”) in exchange for:

(i) 167,700 shares of the Company’s common stock valued at approximately $12.60 per share;

(ii) Convertible notes with an initial aggregate principal balance of $1,500,000 (Note 9), and;

(iii) $1,100,000 in cash consideration.

The total fair value of the consideration given in exchange for the warrants in the First Exchange was $4,727,000, which exceeded the March 31, 2018 fair value of the warrants by $3,467,935. The warrant fair value at March 31, 2018 was determined assuming an orderly transaction between market participants, using a Monte Carlo simulation valuation model. The Company was compelled to enter into the exchange transaction as management believes the dilutive features of the common stock warrants prevented the Company from obtaining sufficient financing on acceptable terms. Accordingly, the Company recorded a loss on exchange of warrants in the First Exchange of $3,593,082, inclusive of transaction costs of $125,147, which is reported in changes in fair value of warrant liability including loss on exchange. The Company additionally agreed to redeem the First Exchange investors’ remaining shares of Series B Preferred Stock at their face value of $2,364,044 (Note 10).

The value of the shares of the Company’s common stock which were part of the First Exchange consideration were valued at a 5% discount to the June 29, 2018 closing price. This amount is considered a marketability discount calculated based on an analysis of the leak out provision provided for in the exchange agreements. The key assumptions used in calculating the marketability discount were:

Holding period, in years	0.03
Risk free rate	1.77	%
Dividend yield	0	%
Volatility	109.9	%

On July 11, 2018, the Company entered into exchange agreements with certain other holders of the redeemable preferred stock and warrants (the “Second Exchange”) pursuant to which we (i) issued an aggregate of 32,124 shares of common stock and (ii) paid $22,241 in cash, in exchange for all of the outstanding shares of our Series B Preferred Stock (Note 10). We additionally issued 145,038 shares of common stock in exchange for warrants to purchase 22,523 shares of common stock. Consideration for the Series B Preferred Stock was transferred to the holders on July 11, 2018. Consideration for the warrant exchange was subject to shareholder approval which the Company obtained at its annual shareholder meeting on August 30, 2018, and the shares of common stock were subsequently transferred to the holders on September 12, 2018.

Finally, on September 7, 2018, we closed on exchange agreements with certain holders of our warrants (the “Third Exchange”) pursuant to which we issued 5,929 shares of common stock in exchange for warrants to purchase 921 shares of common stock.

The consideration given for the warrants in the Second and Third Exchange was valued at the closing price of the common stock on the day the transactions closed and the shares were transferred, which was $8.64 and $8.85 per share, respectively. Accordingly, the Company realized a gain on the exchange of warrants of $779,923 based on the fair value of the shares transferred as compared to the last determination of fair value of the warrants performed by us as of June 30, 2018, which is reported in changes in fair value of warrant liability including loss on exchange. The following is a summary of the income statement effect of changes in the Company’s outstanding warrants:

	Twelve Months Ended December 31, 2018
Changes in fair value of warrants	$	(9,160	)
Loss on warrants exchanged		(2,688,012	)
Transaction costs		(181,312	)
Change in fair value of warrant liability, including gain (loss) on exchange	$	(2,878,484	)

A summary of warrant activity during the years ended December 31, 2018 and 2017 is as follows:

	Year Ended December 31,
	2018			2017
Warrants outstanding, January 1		78,336			20,404
Issuances		7,342,530			79,840
Replacement warrants issued in connection with the Mergers		—			155
Exercises, conversions and exchanges		(76,569	)		(22,063	)
Warrants outstanding, December 31		7,344,297			78,336

Warrants outstanding at December 31, 2018 have an aggregate grant date fair value of $23,511,785 with a weighted average exercise price of $5.03.

The fair value used to determine the initial carrying value of the August 2017 warrants was measured using Level 3 inputs and was estimated using the Black-Scholes option pricing model. The following assumptions were used to estimate the fair value of the August 2017 warrants outstanding during the years ended December 31, 2018 and 2017:

	March 9, 2017 Issuance
Expected volatility		84.40	%
Expected term (years)		5.00
Risk-free interest rate		2.13	%
Expected dividend yield		0.00	%

The periodic changes in the fair value of the warrant liability is as follows:

Balance, January 1, 2017	$	—
Issuance		3,498,632
Changes in fair value		(97,763	)
Balance, December 31, 2017		3,400,869
Warrants settled upon exchange		(3,345,029	)
Changes in fair value		9,160
Balance, December 31, 2018	$	65,000

The following assumptions were used to estimate the fair value of warrants classified as a liability using the Monte Carlo simulation valuation model with Level 3 inputs at December 31, 2018, December 31, 2017, and the redeemable preferred stock issuance date of August 16, 2017 were as follows:

	December 31, 2018			December 31, 2017			August 16, 2017
Expected volatility		93.90	%		91.30	%		86.90	%
Expected term (years)		3.60			4.60			5.00
Risk-free interest rate		2.48	%		2.16	%		1.76	%
Expected dividend yield		0.00	%		0.00	%		0.00	%