8. Warrants

The following table summarizes information about warrants outstanding and exercisable into shares of the Company’s common stock as of September 30, 2019 and 2018:


	Nine Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2018
	(unaudited)
Warrants outstanding, beginning balance		34,682		4,590
Issuances		19,387,761		12,713
Expirations and cancellations		(551)		(722)
Warrants outstanding, ending balance		19,421,892		16,581

For the nine months ended September 30, 2019, the Company issued 19,387,761 warrants, as follows:

March 2019 Ladenburg Warrants

In March 2019, in consideration of services provided in the Company’s March 2019 public offering of 19,019 common shares, the Company issued to Ladenburg Thalmann & Co. warrants to purchase an aggregate of 761 shares of common stock at an exercise price of $17.50 per common share. The warrants were valued at $13,028 using the Black-Scholes option pricing model as follows: exercise price of $17.50 per share, stock price of $18.90 per share, expected life of five years, volatility of 146%, and a risk-free rate of 2.21%. The warrants were classified in stockholders’ equity.

March 2019 LOC Warrant

In March 2019, in consideration of a letter of credit cancellation related to the Company’s office lease, the Company issued a warrant to purchase warrant shares equal to a fixed principal amount divided by a variable exercise price (see Note 3). The warrants were initially classified as liabilities pursuant to ASC 480-10 due to their debt-like nature. On July 23, 2019, upon the exercise price of the warrants becoming fixed, the warrants became exercisable into 45,750 shares of the Company’s common stock and were reclassified to additional paid-in-capital with a fair value of $71,079 (see Note 3).

2019 Bridge Note Warrants

Between March 18, 2019 and June 26, 2019, concurrent to the Company entering into Promissory Notes of $5,050,000, the Company issued twenty-one warrants to purchase warrant shares equal to a fixed principal amount divided by a variable exercise price (see Note 3). The warrants for all twenty-one Bridge Notes were initially liability classified pursuant to ASC 480-10 due to their debt-like nature. On July 23, 2019, upon the exercise price of the warrants becoming fixed, the warrants became exercisable into 2,781,250 shares of the Company’s common stock and were reclassified to additional paid-in-capital with a fair value of $4,259,327 (see Note 3).

Series 1 Warrants

In July 2019, the Company entered into an underwriting agreement (see Note 1), relating to a public offering, which was comprised of (1) 2,886,500 Class A Units, priced at $2.00 per unit, with each unit consisting of (i) one share of the Company’s voting common stock, (ii) one Series 1 warrant to purchase one share of Common Stock, and (iii) one Series 2 warrant to purchase one share of Common Stock, and (2) 10,787 Class B Units, priced at a price of $1,000 per unit, with each unit consisting of (i) one share of Series B convertible preferred stock, convertible into 500 shares of Common Stock, (ii) 500 Series 1 Warrants and (iii) 500 Series 2 Warrants.

The Series 1 Warrants have an exercise price of $2.00 and expire on the earlier of (a) 5 years from the date of issuance and (b) 30 calendar days following the public announcement of Positive Interim Results related to the diarrhea results from the HALT-D investigator initiated trial, if and only if certain trading benchmarks are achieved during such 30 calendar day period.

In the offering, the Company sold (i) 2,886,500 Class A Units, which included Series 1 warrants to purchase 2,886,500 shares of the Company’s common stock and (ii) 10,787 Class B Units, which included Series 1 warrants to purchase 5,393,500 shares of the Company’s common stock. In total, 8,280,000 Series 1 warrants were issued, with an initial valuation of $5,304,989 computed using the Black-Scholes-Merton pricing model using a stock price of $1.73, a strike price of $2.00, an expected term of 5.0 years, volatility of 144.76% and a risk-free discount rate of 1.83%. Upon issuance, the Series 1 warrants were classified in additional paid-in-capital.

Modification of the Series 1 Warrants

In September 2019, the Company reduced the exercise price all 8,280,000 Series 1 Warrants from $2.00 to $1.40. The Company determined the impact of this modification to be an increase in the fair value of the warrants of $252,106. Because the modification applied to the entire class of Series 1 Warrant holders, the increase in fair value represented a deemed dividend to the entire class of Series 1 Warrant holders. The modification did not result in the reclassification of the equity-classified Series 1 warrants from additional paid-in-capital to liability classification.

Series 2 Warrants

The Series 2 Warrants have an exercise price of $2.00 and expire on the first date on the earlier of (a) 5 years from the date of issuance and (b) 30 calendar days following the public announcement by the Company that a pivotal phase 3 clinical trial using crofelemer (Mytesi®, or the same or similar product with a different name) for the treatment of cancer therapy-related diarrhea in humans has met its primary endpoint in accordance with the protocol, if and only if certain trading benchmarks are achieved during such 30 calendar day period. In addition, each Series 2 Warrant has an embedded call option that allows the Company to redeem any unexercised warrants if certain contingencies are met.

In the offering, the Company sold (i) 2,886,500 Class A Units, which included Series 2 warrants to purchase 2,886,500 shares of the Company’s common stock and (ii) 10,787 Class B Units, which included Series 1 warrants to purchase 5,393,500 shares of the Company’s common stock. In total, 8,280,000 Series 2 warrants were issued, with an initial valuation of $5,304,989 computed using the Black-Scholes-Merton pricing model using a stock price of $1.73, a strike price of $2.00, an expected term of 5.0 years, volatility of 144.76% and a risk-free discount rate of 1.83%. Upon issuance, the Series 2 Warrants were classified in additional paid-in-capital.

For the nine months ended September 30, 2018, the Company issued 12,713 warrants, as follows:

August 2018 LOC Warrant

In August 2018, in consideration of the Letter of Credit associated with the Company’s office lease, the Company issued to an existing shareholder a five-year warrant to purchase 9,580 shares of the Company’s common stock. The Warrant is exercisable on or after March 28, 2019 at an exercise price of $49.08. The warrants had an issuance-date fair value of $493,688 and classified in additional paid-in-capital with an offset to deferred rent.

September 2018 L2 Warrants

Concurrent to entering into the Note Purchase Agreement with L2 Capital in September 2018, the Company issued to L2 Capital a 5-year warrant to purchase 2,649 shares of the Company’s common stock. The warrants had an issuance-date fair value of $100,330 at an exercise price of $63.00 per share. The warrants were recorded in additional paid-in-capital and treated as a discount to the L2 Capital Promissory note balance.

September 2018 Conte Warrants

Concurrent to entering into the Note Purchase Agreement with an accredited investor in September 2018, the Company issued to the accredited investor a 5-year warrant to purchase 484 shares of the Company’s common stock. The warrants had an issuance-date fair value of $17,818 at an exercise price of $86.10 per share. The warrants were recorded in additional paid-in-capital and treated as a discount to the Conte Promissory note balance.