10-Q 1 hsdt-10q_20180630.htm 10-Q hsdt-10q_20180630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period to

Commission File No. 001-38445

 

HELIUS MEDICAL TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

36-4787690

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

642 Newtown Yardley Road Suite 100

Newtown, Pennsylvania, 18940

(Address of principal executive office) (Zip Code)

(215) 944-6100

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

Outstanding as of August 7, 2018

Class A Common Stock

23,377,541

 

 

 

 


 

HELIUS MEDICAL TECHNOLOGIES, INC.
INDEX

 

Part I.

Financial Information

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended
June 30, 2018 and 2017

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the six months ended June 30, 2018

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017

6

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

Part II.

Other Information

28

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

Item 3.

Defaults Upon Senior Securities

28

 

 

 

Item 4.

Mine Safety Disclosures

29

 

 

 

Item 5.

Other Information

29

 

 

 

Item 6.

Exhibits

30

 

 

 

Signatures

31

2


 

Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Balance Sheets

(Except for share data, amounts in thousands and expressed in United States Dollars)

 

 

 

June 30, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

15,987

 

 

$

5,562

 

Receivables

 

 

530

 

 

 

704

 

Prepaid expenses

 

 

200

 

 

 

352

 

Total current assets

 

 

16,717

 

 

 

6,618

 

Property and equipment, net

 

 

350

 

 

 

173

 

Other assets

 

 

18

 

 

 

18

 

TOTAL ASSETS

 

$

17,085

 

 

$

6,809

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,521

 

 

$

3,479

 

Accrued liabilities

 

 

1,408

 

 

 

1,242

 

Derivative financial instruments

 

 

15,615

 

 

 

9,578

 

Stock-based compensation liability

 

 

10,594

 

 

 

 

Total current liabilities

 

 

29,138

 

 

 

14,299

 

TOTAL LIABILITIES

 

 

29,138

 

 

 

14,299

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Common stock (Unlimited Class A common shares authorized); (23,377,491 shares issued and outstanding as of June 30, 2018 and 20,178,226 shares issued and outstanding as of December 31, 2017)

 

 

70,512

 

 

 

52,230

 

Additional paid-in capital

 

 

3,582

 

 

 

6,602

 

Accumulated other comprehensive income (loss)

 

 

(787

)

 

 

47

 

Accumulated deficit

 

 

(85,360

)

 

 

(66,369

)

TOTAL STOCKHOLDERS’ DEFICIT

 

 

(12,053

)

 

 

(7,490

)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

17,085

 

 

$

6,809

 

 

(The accompanying notes are an integral part of the condensed consolidated financial statements.)

3


 

Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(Amounts in thousands except shares and per share data, and expressed in United States Dollars)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

2,921

 

 

$

4,295

 

 

$

5,472

 

 

$

7,322

 

General and administrative

 

 

8,886

 

 

 

1,685

 

 

 

11,051

 

 

 

3,692

 

Total operating expenses

 

 

11,807

 

 

 

5,980

 

 

 

16,523

 

 

 

11,014

 

Operating loss

 

 

(11,807

)

 

 

(5,980

)

 

 

(16,523

)

 

 

(11,014

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

1

 

 

 

 

 

 

59

 

 

 

 

Change in fair value of derivative financial instruments

 

 

(6,249

)

 

 

1,024

 

 

 

(3,724

)

 

 

508

 

Foreign exchange gain (loss)

 

 

229

 

 

 

(723

)

 

 

1,197

 

 

 

(851

)

Total other income (expense)

 

 

(6,019

)

 

 

301

 

 

 

(2,468

)

 

 

(343

)

Net loss

 

 

(17,826

)

 

 

(5,679

)

 

 

(18,991

)

 

 

(11,357

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

119

 

 

 

654

 

 

 

(834

)

 

 

650

 

Comprehensive loss

 

$

(17,707

)

 

$

(5,025

)

 

$

(19,825

)

 

$

(10,707

)

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.78

)

 

$

(0.31

)

 

$

(0.88

)

 

$

(0.63

)

Diluted

 

$

(0.78

)

 

$

(0.31

)

 

$

(0.90

)

 

$

(0.63

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,918,692

 

 

 

18,304,636

 

 

 

21,633,948

 

 

 

17,934,009

 

Diluted

 

 

23,045,565

 

 

 

18,304,636

 

 

 

21,763,083

 

 

 

17,934,009

 

 

(The accompanying notes are an integral part of the condensed consolidated financial statements.)

4


 

Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statement of Stockholders’ Deficit

(Except shares data, amounts in thousands and expressed in United States Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-In

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Total

 

Balance as of December 31, 2017

 

 

20,178,226

 

 

$

52,230

 

 

$

6,602

 

 

$

47

 

 

$

(66,369

)

 

$

(7,490

)

Proceeds from the issuance of common stock and accompanying warrants from April 2018 public offering

 

 

2,463,185

 

 

 

18,400

 

 

 

 

 

 

 

 

 

 

 

 

18,400

 

Fair value of liability-classified warrants issued in connection with April 2018 Offering

 

 

 

 

 

(7,372

)

 

 

 

 

 

 

 

 

 

 

 

(7,372

)

Share issuance costs

 

 

 

 

 

(1,272

)

 

 

 

 

 

 

 

 

 

 

 

(1,272

)

Proceeds from the exercise of stock options and warrants

 

 

736,080

 

 

 

4,636

 

 

 

 

 

 

 

 

 

 

 

 

4,636

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

380

 

Reclassification of liability-classified warrants upon exercise

 

 

 

 

 

3,748

 

 

 

 

 

 

 

 

 

 

 

 

3,748

 

Reclassification of exercised compensation options and warrants from additional paid-in capital

 

 

 

 

 

110

 

 

 

(110

)

 

 

 

 

 

 

 

 

 

Reclassification of April 2016 compensation options and warrants from additional paid-in capital to derivative financial instruments due to change in functional currency

 

 

 

 

 

 

 

 

(1,586

)

 

 

 

 

 

 

 

 

(1,586

)

Reclassification of USD denominated warrants from derivative financial instruments to additional paid-in capital due to change in functional currency

 

 

 

 

 

 

 

 

2,478

 

 

 

 

 

 

 

 

 

2,478

 

Reclassification of equity-classified stock options to stock-based compensation liability due to change in functional currency

 

 

 

 

 

 

 

 

(4,182

)

 

 

 

 

 

 

 

 

(4,182

)

Reclassification from stock-based compensation liability to common stock as a result of exercise of stock options

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

32

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,991

)

 

 

(18,991

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(834

)

 

 

 

 

 

(834

)

Balance as of June 30, 2018

 

 

23,377,491

 

 

$

70,512

 

 

$

3,582

 

 

$

(787

)

 

$

(85,360

)

 

$

(12,053

)

 

(The accompanying notes are an integral part of the condensed consolidated financial statements.)

5


 

Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(Amounts in thousands and expressed in United States Dollars)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,991

)

 

$

(11,357

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Change in fair value of derivative financial instruments

 

 

3,724

 

 

 

(508

)

Stock-based compensation expense

 

 

6,720

 

 

 

790

 

Unrealized foreign exchange loss (gain)

 

 

(1,285

)

 

 

807

 

Depreciation expense

 

 

22

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

174

 

 

 

(1,019

)

Prepaid expenses

 

 

152

 

 

 

195

 

Other assets

 

 

 

 

 

(18

)

Accounts payable

 

 

(1,938

)

 

 

1,678

 

Accrued liabilities

 

 

294

 

 

 

136

 

Net cash used in operating activities

 

 

(11,128

)

 

 

(9,296

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(199

)

 

 

(115

)

Net cash used in investing activities

 

 

(199

)

 

 

(115

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from the issuance of common stock and accompanying warrants

 

 

18,400

 

 

 

14,547

 

Share issuance costs

 

 

(1,324

)

 

 

(1,248

)

Proceeds from the exercise of stock options and warrants

 

 

4,636

 

 

 

460

 

Net cash provided by financing activities

 

 

21,712

 

 

 

13,759

 

Effect of foreign exchange rate changes on cash

 

 

40

 

 

 

(158

)

Net increase in cash

 

 

10,425

 

 

 

4,190

 

Cash at beginning of period

 

 

5,562

 

 

 

2,669

 

Cash at end of period

 

$

15,987

 

 

$

6,859

 

 

(The accompanying notes are an integral part of the condensed consolidated financial statements.)

6


 

Helius Medical Technologies, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.    DESCRIPTION OF BUSINESS

Helius Medical Technologies, Inc. (the “Company”) is a neurotech company engaged primarily in the medical device industry focused on neurological wellness. The Company’s mission is to develop, license and acquire unique and non-invasive platform technologies that amplify the brain’s ability to heal itself.

Many patients with brain injury or chronic neurological diseases suffer from movement, gait and balance disorders. Our first product in development, known as the portable neuromodulation stimulator or PoNS®, is an investigational, non-invasive, medical device designed to enhance the brain’s ability to compensate for this damage. Our PoNS Treatment is the first and only tongue-delivered neuromodulation that combines stimulation of cranial nerves with physical and cognitive therapy to restore lost neurological function.

 

During the third quarter of 2017, the Company completed its registrational clinical trial of the PoNS device for the treatment of mild- to moderate traumatic brain injury (“TBI”), in which the Company observed statistically and clinically significant increases in composite sensory observation test scores for patients who received the PoNS Treatment. Based on the safety and efficacy results from this clinical trial, the Company intends to submit a request for FDA marketing authorization for the treatment of chronic balance deficit due to mild- to moderate-TBI via the FDA’s de novo classification process in the third quarter of 2018. In addition, the Company intends to submit applications for marketing authorizations in Canada, the European Union and Australia during the second half of 2018.

 

The Company was incorporated in British Columbia, Canada, on March 13, 2014. On May 28, 2014, the Company completed a continuation via a plan of arrangement whereby the Company moved from being a corporation governed by the British Columbia Corporations Act to a corporation governed by the Wyoming Business Corporations Act. On July 20, 2018, the Company completed its reincorporation from Wyoming to the state of Delaware. The Company is based in Newtown, Pennsylvania.

The Company has two wholly-owned subsidiaries, Neurohabilitation Corporation (“NHC”) and Helius Medical Technologies (Canada), Inc. (“Helius Canada”).

The Company’s Class A common stock (“common stock”) is listed on the Nasdaq Capital Market (“Nasdaq”) and the Toronto Stock Exchange (the “TSX”). The common stock began trading on the Canadian Securities Exchange on June 23, 2014, under the ticker symbol “HSM” and the trading was subsequently transferred to the TSX on April 18, 2016. On April 11, 2018, the common stock began trading on Nasdaq under the ticker symbol “HSDT” after having been traded on the OTCQB in the United States (“U.S.”) under the ticker symbol “HSDT” since February 10, 2015. The Company’s financial information is presented in United States Dollars (“USD$”).

Reverse Stock Split

Effective after the close of business on January 22, 2018, the Company completed a 1-for-5 reverse stock split of its Class A Common Stock. All share and per share amounts in this Quarterly Report have been reflected on a post-split basis.

Going Concern

The Company has never generated any product revenues or achieved profitable operations. As of June 30, 2018, the Company’s cash was approximately $16.0 million. In April 2018, the Company issued 2,463,185 shares of its common stock and warrants to purchase 2,463,185 shares of the Company’s common stock in an underwritten public offering at a price of $7.47 per share and accompanying warrants. Net proceeds from the offering after deducting underwriting discounts and commissions and offering expenses incurred by the Company were $16.3 million (see Note 3). The Company expects to continue to incur operating losses and net cash outflows until such time as it generates a level of revenue to support its cost structure. There is no assurance that the Company will achieve profitable operations, and, if achieved, whether it will be sustained on a continued basis. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business.

 

The Company intends to fund ongoing activities by utilizing its current cash and by raising additional capital through equity or debt financings. There can be no assurance that the Company will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, the Company may be compelled to reduce the scope of its operations and planned capital expenditures.

7


 

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Use of Estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and disclosure of contingent assets and liabilities. Significant estimates include the assumptions used in the fair value pricing model for stock-based compensation, derivative financial instruments and deferred income tax asset valuation allowance. Financial statements include estimates which, by their nature, are uncertain. Actual outcomes could differ from these estimates.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements reflect the operations of Helius Medical Technologies, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current period amounts.

Concentrations of Credit Risk

The Company is subject to credit risk with respect to its cash. Amounts invested in such instruments are limited by credit rating, maturity, industry group, investment type and issuer. The Company is not currently exposed to any significant concentrations of credit risk from these financial instruments. The Company seeks to maintain safety and preservation of principal and diversification of risk, liquidity of investments sufficient to meet cash flow requirements and a competitive after-tax rate of return.

Receivables

Receivables are stated at their net realizable value. As of June 30, 2018 and December 31, 2017, receivables consisted primarily of Goods and Services Tax (“GST”) and Quebec Sales Tax (‘QST”) refunds related to the Company’s expenditures.

 

Property and Equipment

Property and equipment are carried at cost, less accumulated depreciation. Depreciation is recognized using the straight-line method over the useful lives of the related asset or the term of the related lease. Expenditures for maintenance and repairs, which do not improve or extend the expected useful life of the assets, are expensed to operations while major repairs are capitalized. The Company’s property and equipment is comprised of leasehold improvements, furniture and fixtures, and software. The estimated useful life of its leasehold improvement is over the term of its lease of 5 years, the estimated useful life for the Company’s furniture and fixtures is 7 years, while software and hardware has an estimated useful life of 3 to 5 years.

The following tables summarizes the Company’s property and equipment as of June 30, 2018 and December 31, 2017 (amounts in thousands).

 

 

As of

 

 

As of

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Leasehold improvement

 

$

175

 

 

$

173

 

Furniture and fixtures

 

 

170

 

 

 

 

Software

 

 

44

 

 

 

17

 

Property and equipment

 

 

389

 

 

 

190

 

Less accumulated depreciation

 

 

(39

)

 

 

(17

)

Property and equipment, net

 

$

350

 

 

$

173

 

 

Foreign Currency

 

Prior to April 1, 2018, the Company's functional currency was the Canadian dollar (“CAD$”). Translation gains and losses from the application of the USD$ as the reporting currency during the period that the Canadian dollar was the functional currency were included as part of cumulative currency translation adjustment, which is reported as a component of stockholders' deficit as accumulated other comprehensive income (loss).

 

The Company re-assessed its functional currency and determined that as of April 1, 2018, its functional currency had changed from the CAD$ to the USD$ based on management's analysis of changes in the primary economic environment in which the Company operates. The change in functional currency was accounted for prospectively from April 1, 2018 and financial statements prior to and including the period ended March 31, 2018 have not been restated for the change in functional currency.

 

8


 

For periods commencing April 1, 2018, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets acquired, and non-monetary liabilities incurred after April 1, 2018 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction. Foreign exchange gains and losses are included in the condensed consolidated statement of operations and comprehensive loss as foreign exchange gain (loss).

 

The functional currency of Helius Canada, the Company’s Canadian subsidiary is the CAD$ and the functional currency of NHC is the U.S. dollar USD$. Transactions in foreign currencies are recorded into the functional currency of the relevant subsidiary at the exchange rate in effect at the date of the transaction. Any monetary assets and liabilities arising from these transactions are translated into the functional currency at exchange rates in effect at the balance sheet date or on settlement. Revenues, expenses and cash flows are translated at the weighted-average rates of exchanges for the reporting period. The resulting currency translation adjustments are not included in the Company’s condensed consolidated statements of operations for the reporting period, but rather are accumulated and gains and losses are recorded in foreign exchange gain (loss) within the condensed consolidated statements of operations and comprehensive loss.

Stock-Based Compensation

The Company accounts for all stock-based payments and awards under the fair value-based method. The Company recognizes its stock-based compensation expense using the straight-line method.

The Company accounts for the granting of stock options to employees and non-employees using the fair value method whereby all awards to are measured at fair value on the date of the grant. The fair value of all employee-related stock options is expensed over the requisite service period with a corresponding increase to additional paid-in capital. Upon exercise of stock options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to common stock. Stock options granted to employees are accounted for as liabilities when they contain conditions or other features that are indexed to other than a market, performance or service conditions.

Stock-based payment to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees are re-measured at the end of each reporting period until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity-based instruments. The fair value of the stock-based payments to non-employees that are fully vested and non-forfeitable as of the grant date are measured and recognized at that date.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock options. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected term of the option, risk-free interest rates, the value of the common stock and expected dividend yield of the common stock. Changes in these assumptions can materially affect the fair value estimate.

As a result of the change in the Company’s functional currency effective April 1, 2018, awards of options that provide for an exercise price that is not denominated in: (a) the currency of a market in which a substantial portion of the Company's equity securities trades, (b) the currency in which the employee's pay is denominated, or (c) the Company's functional currency, are required to be classified as liabilities.  The change in the Company’s functional currency resulted in the reclassification of these awards from equity to liability-classified options. Liability classified options are re-measured to their fair values at the end of each reporting date with changes in the fair value recognized in stock-based compensation expense or additional paid-in capital until settlement or cancellation. Under ASC 718, when an award is reclassified from equity to liability, if at the reclassification date the original vesting conditions are expected to be satisfied, then the minimum amount of compensation cost to be recognized is based on the grant date fair value of the original award. Fair value changes below this minimum amount are recorded in additional paid-in capital. In June 2018, the Company’s Board of Directors approved subject to the consent of option holders the modification of outstanding stock options with exercise prices denominated in CAD$ to convert the exercise prices of such options to USD$ based on the prevailing USD$/CAD$ exchange rates on the dates of the grants for such modified stock options. On August 8, 2018, option holders owning stock options representing an aggregate of 2,631,146 shares of common stock consented to the modification. The fair value of the modified stock options outstanding, as re-measured on August 8, 2018, will be reclassified from liabilities to equity during the third quarter of 2018.

 

Income Taxes

The Company accounts for income taxes using the asset and liability method. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

9


 

The Company has adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 Income Taxes regarding accounting for uncertainty in income taxes. The Company initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of the tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits. These periodic adjustments may have a material impact on the consolidated statements of operations and comprehensive loss. When applicable, the Company classifies penalties and interest associated with uncertain tax positions as a component of income tax expense in its condensed consolidated statements of operations and comprehensive loss.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of personnel costs, including salaries, benefits and stock-based compensation, clinical studies performed by contract research organizations, development and manufacturing of clinical trial devices and devices for manufacturing testing and materials and supplies. R&D costs are charged to operations when they are incurred.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company operates and manages its business within one operating and reportable segment. Accordingly, the Company reports the accompanying consolidated financial statements in the aggregate in one reportable segment.

Derivative Financial Instruments

The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815, Derivatives and Hedging. The result of this accounting treatment is that the fair value of the derivative is re-measured at each balance sheet date and recorded as a liability or asset and the change in fair value is recorded in the condensed consolidated statements of operations and comprehensive loss. The Company’s derivative financial instruments are comprised of warrants and non-employee stock options. Upon settlement of a derivative financial instrument, the instrument is re-measured at the settlement date and the fair value of the underlying instrument is reclassified to equity.

The classification of derivative financial instruments, including whether such instruments should be recorded as liabilities/assets or as equity, is reassessed at the end of each reporting period. Derivative financial instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative financial instruments will be classified in the condensed consolidated balance sheet as current if the right to exercise or settle the derivative financial instrument lies with the holder.

 

Fair Value Measurements

 

The Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The Company’s financial instruments recorded in its condensed consolidated balance sheets consist primarily of cash, receivables, accounts payable, accrued liabilities, stock-based compensation liability, and derivative financial instruments. The book values of these instruments, with the exception of derivative financial instruments and stock-based compensation liability, approximate their fair values due to the immediate or short-term nature of these instruments.

The Company’s derivative financial instruments and stock-based compensation liability are classified as Level 3 within the fair value hierarchy and required to be recorded at fair value on a recurring basis. Unobservable inputs used in the valuation of these financial instruments include volatility of the underlying share price and the expected term. See Note 3 for the inputs used in the Black-Scholes option-pricing model as of June 30, 2018 and 2017 and the roll forward of the derivative financial instruments related to the warrants. See Note 4 for the inputs used in the

10


 

Black-Scholes option-pricing model as of June 30, 2018 for the roll forward of the derivative financial instruments related to the non-employee stock options.

 

The following table summarizes the Company’s derivative financial instruments and stock-based compensation liability within the fair value hierarchy as of June 30, 2018 and December 31, 2017 (amounts in thousands):

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-employee stock options

 

$

1,244

 

 

 

 

 

 

 

 

$

1,244

 

Warrants

 

 

14,371

 

 

 

 

 

 

 

 

 

14,371

 

Derivative financial instruments

 

$

15,615

 

 

 

 

 

 

 

 

$

15,615

 

Stock-based compensation liability

 

$

10,594

 

 

 

 

 

 

 

 

$

10,594

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-employee stock options

 

$

2,637

 

 

 

 

 

 

 

 

$

2,637

 

Warrants

 

 

6,941

 

 

 

 

 

 

 

 

 

6,941

 

Derivative financial instruments

 

$

9,578

 

 

 

 

 

 

 

 

$

9,578

 

There were no transfers between any levels for any of the periods presented.

Basic and Diluted Income (Loss) per Share

Earnings or loss per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average of all potentially dilutive shares of common stock that were outstanding during the periods presented.

The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options and warrants, which assumes that any proceeds received from the exercise of in-the-money stock options and warrants, would be used to purchase common shares at the average market price for the period.

The basic and diluted loss per share for the periods noted below is as follows (amounts in thousands except shares and per share data):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(17,826

)

 

$

(5,679

)

 

$

(18,991

)

 

$

(11,357

)

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

22,918,692

 

 

 

18,304,636

 

 

 

21,633,948

 

 

 

17,934,009

 

Basic net loss per share

 

$

(0.78

)

 

$

(0.31

)

 

$

(0.88

)

 

$

(0.63

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss, basic

 

$

(17,826

)

 

$

(5,679

)

 

$

(18,991

)

 

$

(11,357

)

Effect of dilutive securities: liability-classified stock options

 

 

(107

)

 

 

-

 

 

 

(532

)

 

 

-

 

Net loss, diluted

 

$

(17,933

)

 

$

(5,679

)

 

$

(19,523

)

 

$

(11,357

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

22,918,692

 

 

 

18,304,636

 

 

 

21,633,948

 

 

 

17,934,009

 

Potential common share issuances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incremental dilutive shares from liability-classified stock options (treasury stock method)

 

 

126,873

 

 

 

-

 

 

 

129,135

 

 

 

-

 

Weighted average common shares outstanding

 

 

23,045,565

 

 

 

18,304,636

 

 

 

21,763,083

 

 

 

17,934,009

 

Diluted net loss per share

 

$

(0.78

)

 

$

(0.31

)

 

$

(0.90

)

 

$

(0.63

)

 

11


 

For the three and six months ended June 30, 2018 a total of 2,561,146 stock options, 4,016,930 warrants and 963 restricted stock units (“RSUs”) were excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive. For the three and six months ended June 30, 2017 a total of 2,602,835 stock options, 2,030,176 warrants and 1,926 RSUs were excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use, or ROU, model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the condensed consolidated financial statements, with certain practical expedients available. The Company is currently evaluating the potential impact of the standard on its condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. This standard expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The guidance specifies that Topic 718 will be applied to all share-based payment transactions in which a grantor acquires goods and services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASU 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the potential impact of the standard on its condensed consolidated financial statements.

12


 

3.   STOCKHOLDERS’ DEFICIT

On June 28, 2018, at the Company’s 2018 annual meeting of stockholders, the Company’s stockholders approved the Company’s reincorporation from the state of Wyoming to the state of Delaware. On July 20, 2018, the Company completed its reincorporation from Wyoming to the state of Delaware.

As a result, upon the Company’s reincorporation in the state of Delaware, the Company’s authorized capital stock pursuant to its Delaware charter consisted of 150,000,000 authorized shares of Class A common stock, at a par value per share of $0.001 and 10,000,000 authorized shares of preferred stock at a par value per share of $0.001. Holders of common stock are entitled to vote at any meeting of the Company’s stockholders on the basis of one vote per share of common stock owned as of the record date of such meeting. Each share of common stock held will entitle the holder to receive dividends, if any, as declared by the directors.

No dividends have been declared since inception of the Company through June 30, 2018. In the event of a liquidation, dissolution or winding-up of the Company, other distribution of assets of the Company among its stockholders for the purposes of winding-up its affairs or upon a reduction of capital, the stockholders shall, share equally, share for share, in the remaining assets and property of the Company.

In October 2015, the Company entered into a $7.0 million funding commitment with A&B Company Limited (“A&B”), in the form of a convertible promissory note consisting of an initial $2.0 million note and a $5.0 million funding commitment. On October 9, 2015, the Company received the conversion notice on the promissory note and in November 2015, the Company issued 416,666 shares of common stock at a price of $4.80 per share and 208,333 warrants exercisable at $7.20 per share for a period of three years from the date of issuance. The shares of common stock and the warrants were issued on November 10, 2015. On December 29, 2015, the Company drew down the $5.0 million funding commitment through the issuance of 1,111,111 shares of common stock at a price of $4.50 per share and 555,556 warrants exercisable at $6.75 per share for a period of three years from the date of issuance. The shares of common stock and the warrants were issued on January 7, 2016. In November 2017, A&B exercised 208,333 warrants at a price of $7.20 per share and the Company received gross cash proceeds of $1.5 million upon the exercise. During the first quarter of 2018, A&B exercised its remaining 555,556 warrants at a price of $6.75 per share and the Company received gross cash proceeds of $3.8 million.

On April 18, 2016, the Company closed its short form prospectus offering in Canada and a concurrent U.S. private placement (the “April 2016 Offering”) of units (the “Units”) with gross proceeds to the Company of $7.2 million through the issuance of Units at a price of CAD$5.00 per Unit.  Each Unit consisted of one Class A common share in the capital of the Company (a “Common Share’) and one half of one Common Share purchase warrant (each whole warrant, a “Warrant”).  Each warrant entitles the holder thereof to acquire one additional Common Share at an exercise price of CAD$7.50 per share on or before April 18, 2019. Mackie Research Capital Corporation (the “Agent”) acted as agent and sole book runner in connection with the April 2016 Offering.  The Company paid the Agent a cash commission of $0.3 million and granted the Agent compensation options exercisable to purchase 87,210 Units at an exercise price of CAD$5.00 per Unit for a period of 24 months from the closing of the April 2016 Offering.  The Company incurred other cash issuance costs of $1.1 million related to this offering. As of June 30, 2018, all remaining outstanding compensation options had been cancelled due to their expiration.

On May 2, 2016, the Company closed the sale of the additional units issued pursuant to the exercise of the over-allotment option granted to the Agent in connection with the April 2016 Offering.  The April 2016 Offering was made pursuant to a short form prospectus filed with the securities regulatory authorities in each of the provinces of Canada, except Québec. Pursuant to the exercise of the over-allotment option, the Company issued an additional 218,025 units at a price of CAD$5.00 per unit for additional gross proceeds to the Company of $0.9 million, bringing the total aggregate gross proceeds to the Company under the Offering to $8.1 million. Each over-allotment unit consisted of one Class A common share in the capital of the Company and one half of one Common Share purchase warrant. Each over-allotment warrant entitles the holder thereof to acquire one additional over-allotment Common Share at an exercise price of CAD$7.50 per share on or before April 18, 2019. In connection with the closing of the over-allotment option, the Company paid the Agent a cash commission of $0.1 million and granted to the Agent compensation options exercisable to purchase 13,081 over-allotment units at an exercise price of CAD$5.00 per unit for a period of 24 months from the closing of this Offering. As of June 30, 2018, all remaining outstanding compensation options had been cancelled due to their expiration.

The proceeds from the April 2016 Offering were allocated on a relative fair value basis between the common stock and the warrants issued. The warrants issued in connection with the April 2016 Offering were classified within equity in the Company’s condensed consolidated balance sheets. These warrants were recorded in additional paid-in capital in the Company’s condensed consolidated balance sheets at their fair value. As discussed in Note 1, due to the change in the Company’s functional currency, as of April 1, 2018, these warrants have been reclassified to liabilities as derivative financial instruments on the Company’s condensed consolidated balance sheet as they are now priced in a currency other than the Company’s functional currency.

As a result of the change in the Company’s functional currency effective April 1, 2018, warrants and compensation options having a fair value on grant date of approximately $1.4 million and $0.2 million, respectively, issued in connection with the April 2016 Offering were reclassified from additional paid-in capital to derivative financial instruments. As of June 30, 2018, there was 960,749 warrants outstanding related to the April 2016 offering with a fair value of $4.3 million, and no compensation options remained outstanding.

13


 

The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants granted in the April 2016 Offering using the Black-Scholes option pricing model as of the grant date and as of April 1, 2018 and June 30, 2018:

 

 

 

June 30, 2018

 

 

April 1, 2018

 

 

Grant Date

 

Stock price

 

CAD $12.49

 

 

CAD $12.87

 

 

CAD $5.45

 

Exercise price

 

CAD $7.50

 

 

CAD $7.50

 

 

CAD $7.50

 

Warrant term

 

0.8 years

 

 

1.05 years

 

 

3.0 years

 

Expected volatility

 

 

73.89

%

 

 

71.13

%

 

 

83.83

%

Risk-free interest rate

 

 

1.70

%

 

 

1.60

%

 

 

0.60

%

Dividend rate

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

On February 16, 2017, the Company completed an underwritten registered public offering and issued an aggregate of 1,311,000 shares of common stock for gross proceeds of $9.2 million. The Company incurred share issuance costs of $1.2 million in connection with this offering.

On June 28, 2017, the Company completed a non-brokered private placement of 800,000 shares of common stock for gross proceeds of $5.4 million. The Company incurred approximately $9 thousand in share issuance costs related to the private placement.

In December 2017, the Company completed a three-tranche non-brokered private placement (the “December 2017 financing”) of 646,016 units for gross proceeds of approximately $6.3 million. Each unit consisted of one share of common stock and one share purchase warrant, and was sold at a price of $9.80 per unit. Each warrant entitles the holder to acquire one additional share of common stock and is exercisable over a period of 36 months following the respective closing of the December 2017 financing at an exercise price of USD$12.25 per warrant share. The first tranche, which closed on December 22, 2017, was for 270,915 units for which the Company received gross proceeds of approximately $2.6 million. The second tranche which closed on December 28, 2017, was for 171,020 units for which the Company received approximately $1.7 million, while the third tranche which closed on December 29, 2017, was for 204,081 units for which the Company received $2.0 million. The Company paid $0.1 million in share issuance costs related to the December 2017 financing.

As a result of the change in the Company’s functional currency, these warrants have been reclassified from liabilities as derivative financial instruments to additional paid-in capital in the Company’s condensed consolidated balance sheet. As of April 1, 2018, $2.5 million, representing the fair value of warrants having USD$ exercise price were reclassified from derivative financial instruments to additional paid-in capital.

The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants granted in the December 2017 financing using the Black-Scholes option pricing model as of the grant dates and on April 1, 2018.

 

 

 

April 1, 2018

 

 

December 22, 2017

 

 

December 28, 2017

 

 

December 29, 2017

 

Stock price

 

$

10.11

 

 

$

10.60

 

 

$

12.45

 

 

$

12.32

 

Exercise price

 

$

12.25

 

 

$

12.25

 

 

$

12.25

 

 

$

12.25

 

Warrant term

 

2.7 years

 

 

3.0 years

 

 

3.0 years

 

 

3.0 years

 

Expected volatility

 

 

65.40

%

 

 

60.24

%

 

 

60.24

%

 

 

60.24

%

Risk-free interest rate

 

 

2.39

%

 

 

2.01

%

 

 

2.00

%

 

 

1.98

%

Dividend rate

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

On April 13, 2018, the Company issued 2,141,900 shares of its common stock and warrants to purchase 2,141,900 shares of the Company’s common stock in an underwritten public offering at a price of $7.47 per share and accompanying warrants. Gross proceeds from the offering were approximately $16.0 million. On April 24, 2018, the Company closed on the sale of an additional 321,285 shares of its common stock and warrants pursuant to the exercise of the over-allotment option (‘collectively the “April 2018 offering”) granted to the underwriters in connection with the offering at a price of $7.47 per share and accompanying warrants. Gross proceeds from the exercise of the over-allotment option were $2.4 million. BTIG, LLC and Echelon Wealth Partners acted as joint book-running managers for the April 2018 Offering. The Company paid approximately $1.1 million in underwriting discounts and commissions and incurred offering expenses of approximately $1.0 million in connection with the April 2018 Offering, resulting in net proceeds of $16.3 million from the April 2018 offering. The underwriting discounts and commission and offering expenses was allocated between share issuance costs and expenses based on the relative fair values of common stock and warrants issued in connection with the April 2018 Offering.

Each warrant issued in connection with the April 2018 offering entitles the holder to acquire one additional share of common stock at an exercise price of CAD$12.25 per share on or before April 10, 2021. Pursuant to the guidance of ASC 815 Derivatives and Hedging, the Company has determined that warrants issued in connection with the April 2018 offering should be accounted for as liabilities as the ability to maintain an effective registration is outside of the Company’s control and that it may be required to settle the exercise of the warrants in cash and because, as a result of the change in the Company’s functional currency (see Note 2), the exercise price of these warrants are in a currency other than the Company’s functional currency. Consequently, the Company determined the fair value of each warrant issuance using the Black-Scholes option pricing model, with the remainder of the proceeds allocated to the common shares. As of June 30, 2018, 70,900 warrants had been exercised for

14


 

gross proceeds of CAD$0.9 million. The remaining 2,392,285 warrants had a fair value of $10.1 million as of June 30, 2018 and were recorded as derivative financial instruments.

The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants granted in the April 2018 Offering using the Black-Scholes option pricing model as of the offering and over allotment dates as well as of June 30, 2018.

 

 

 

June 30, 2018

 

 

April 24, 2018

 

 

April 13, 2018

 

Stock price

 

CAD $12.49

 

 

CAD $10.76

 

 

CAD $9.85

 

Exercise price

 

CAD $12.25

 

 

CAD $12.25

 

 

CAD $12.25

 

Warrant term

 

2.8 years

 

 

3.0 years

 

 

3.0 years

 

Expected volatility

 

 

67.13

%

 

 

64.49

%

 

 

64.20

%

Risk-free interest rate

 

 

1.98

%

 

 

2.02

%

 

 

1.99

%

Dividend rate

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

The following table summarizes warrants accounted for as liabilities and recorded as derivative financial instruments on the Company’s condensed consolidated balance sheets for the six months ended June 30, 2018 and 2017 (amounts in thousands):

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Fair value of warrants at beginning of period

 

$

6,941

 

 

$

2,857

 

Issuance of warrants

 

 

7,372

 

 

 

 

Exercise of warrants

 

 

(3,012

)

 

 

 

Fair value of previously equity-classified warrants

 

 

5,049

 

 

 

 

Fair value of previously liability-classified warrants reclassified to additional paid-in capital

 

 

(2,478

)

 

 

 

Foreign exchange (gains) losses

 

 

(390

)

 

 

 

Change in fair value of warrants during the period

 

 

889

 

 

 

(595

)

Fair value of warrants at end of period

 

$

14,371

 

 

$

2,262

 

 

These warrants which are classified as derivative financial instruments in the Company’s condensed consolidated balance sheets are required to be re-measured at each reporting period, with the change in fair value recorded as a gain or loss in the change of fair value of derivative financial instruments, included in other income (expense) in the Company’s condensed consolidated statements of operations and comprehensive loss. The fair value of the warrants will continue to be classified as a liability until such time as they are exercised, expire or there is an amendment to the respective agreements that renders these financial instruments to be no longer classified as such.

The fair value of all warrants classified as derivative financial instruments outstanding as of June 30, 2018 and December 31, 2017 were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Stock price

 

$

12.49

 

 

$

12.32

 

Exercise price

 

$