| Equity Transactions | Note 9 – Equity Transactions
Fiscal Year Ended June 30, 2017 Transactions
For the year ended June 30, 2017, the Scientific Advisory Board was granted fully vested warrants to purchase 57,160 shares of common stock at exercise prices between $1.40‑ $2.04 per share expiring in the fiscal year ending June 30, 2021. These warrants were valued at $37,948 and recorded as consulting expense.
For the year ended June 30, 2017, the Company estimated the fair value of the warrants granted quarterly to the Scientific Advisory Board on the date of grant using the Black-Scholes Option-Pricing Model with the following weighted-average assumptions:
Expected life (year)
4
Expected volatility
55.57% - 87.09
%
Expected annual rate of quarterly dividends
0.00
%
Risk-free rate(s)
1.00 - 1.79
%
For the year ended June 30, 2017, the Company’s Board of Directors authorized the issuance of 57,650 shares of its Series A Convertible Preferred Stock, which are fully vested with a restrictive legend for employee compensation. The Company recorded an expense of $164,592 which is the fair value at date of issuance.
On January 25, 2017 the Board of Directors authorized the issuance of 200,000 fully vested shares of its Series A Convertible Preferred stock to Anil Diwan. The Company recorded an expense of $512,984.
For the year ended June 30, 2017, the Company recognized a noncash compensation expense of $297,267 related to Series A Preferred Shares issued on July 21, 2015 in accordance with Dr. Anil Diwan’s employment agreement that vest over three years. The remaining balance of $267,143 will be recognized as the remaining shares are vested over the term of the contract.
For the year ended June 30, 2017, the Company recognized a noncash compensation expense of $297,267 related to Series A Preferred Shares issued on July 21, 2015 in accordance with Dr. Eugene Seymour’s employment agreement that vest over three years. The remaining balance of $267,143 will be recognized as the remaining shares are vested over the term of the contract.
For the year ended June 30, 2017, the Company’s Board of Directors authorized the issuance of 71,430 fully vested shares of its common stock for employee compensation. The Company recognized a noncash compensation expense of $82,145.
The fair value of the Series A Preferred stock was the following for the dates indicated:
Date
Shares
Value
7/31/2016
2,572
$
11,439
8/31/2016
2,572
11,978
9/30/2016
2,572
10,847
10/31/2016
2,572
9,591
11/30/2016
2,572
7,631
12/31/2016
2,572
6,583
1/25/2017
200,000
512,984
1/31/2017
2,572
6,231
2/28/2017
2,572
6,357
3/03/2017
26,786
65,630
3/31/2017
2,572
6,493
4/30/2017
2,572
6,679
5/31/2017
2,572
7,500
6/30/2017
2,572
7,633
257,650
$
677,576
There is currently no market for the shares of Series A Preferred Stock and they can only be converted into shares of common stock upon a Change of Control of the Company as more fully described in the Certificate of Designation. The Company, therefore, estimated the fair value of the Series A Preferred Stock granted to various employees and others on the date of grant. The Series A Preferred Stock fair value is based on the greater of i) the converted value to common at a ratio of 1:3.5; or ii) the value of the voting rights since the holder would lose the voting rights upon conversion. The conversion of the shares is triggered by a Change of Control. The valuations of the Series A Preferred Stock at each issuance used the following inputs:
a.
The common stock price was in the range $1.07 to $1.74;
b.
The calculated weighted average number of shares of common stock in the period;
c.
A 26.63% premium over the common shares for the voting preferences;
d.
The calculated weighted average number of total voting shares and the monthly shares representing voting rights of 10.25% to 12.26% of the total;
e.
The conversion value was based on an assumption for calculation purposes only, for the period ended September 30, 2016 of a Change of Control in 4 years from March 1, 2013 and a remaining restricted term of 1.92 to 1.67 years. For the period from October 1, 2016 to June 30, 2017, the conversion value was based on an assumption for calculation purposes only of a Change of Control in 4 years and a remaining restricted term of 4 to 3.34 years;
f.
21.76% to 38.87% restricted stock discount (based on a restricted stock analysis and call-put analysis curve: 63.58% to 85.39% volatility, 0.37% to 1.50% risk free rate) applied to the converted common.
For the year ended June 30, 2017, the Company’s Board of Directors authorized the issuance of 164,465 fully vested shares of its common stock with a restrictive legend for consulting services. The Company recorded an expense of $201,313, which was the fair value at date of issuance.
For the year ended June 30, 2017, the Company’s Board of Directors authorized the issuance of 33,933 fully vested shares of its common stock with a restrictive legend for Director services. The Company recorded an expense of $45,000, which was the fair value at date of issuance.
On February 8, 2017 two Holders of the Company’s Series B Debentures elected to convert $5,000,000 of the principal into restricted common stock of the Company. The Company’s Board of Directors authorized the issuance of 4,335,386 of the Company’s restricted common stock. One of the Holders is controlled by Dr. Milton Boniuk, a Director of the Company. The second Holder is a foundation established by him.
For the year ended June 30, 2017 two Holders of the Company’s Series B Debentures elected to receive $107,178 in restricted common stock of the Company. For the year ended June 30, 2017, the Company’s Board of Directors authorized the issuance of 97,999 shares of the Company’s restrict common stock for interest payable to the Holders. One of the Holders is controlled by Dr. Milton Boniuk, a Director of the Company. The second Holder is a foundation established by Dr. Milton Boniuk.
For the year ended June 30, 2017, the Company's Board of Directors authorized the issuance of 423,862 shares of its common stock to the Holder of the Company’s Series C Debentures. The Holder of the Company’s Series C Debentures elected to receive $375,000 of the quarterly interest payments and $125,000 of the deferred interest in restricted common stock of the Company. One Holder is an entity controlled by Dr. Milton Boniuk, a director of the Company. The other Holder is a charitable foundation established by Dr. Milton Boniuk.
Fiscal Year Ended June 30, 2018 Transactions
For the year ended June 30, 2018, the Scientific Advisory Board was granted fully vested warrants to purchase 45,728 shares of common stock at exercise prices between $0.64‑ $1.56 per share expiring in the fiscal year ending June 30, 2022. These warrants were valued at $16,770 and recorded as consulting expense.
For the year ended June 30, 2018, the Company estimated the fair value of the warrants granted quarterly to the Scientific Advisory Board on the date of grant using the Black-Scholes Option-Pricing Model with the following weighted-average assumptions:
Expected life (year)
4
Expected volatility
53.56% - 56.10
%
Expected annual rate of quarterly dividends
0.00
%
Risk-free rate(s)
1.67 - 2.84
%
For the year ended June 30, 2018, Eugene Seymour was granted five year warrants (the “Warrants”) to purchase 250,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at an exercise price of $2.00 per share, vesting in three, equal installments over three years with the last installment vesting on May 1, 2021. The fair value of these warrants was $53,500 and recorded as employee compensation expense for severance.
For the year ended June 30, 2018, the Company estimated the fair value of the warrants granted to Eugene Seymour on the date of grant using the Black-Scholes Option-Pricing Model with the following weighted-average assumptions:
Expected life (year)
5
Expected volatility
53.56
%
Expected annual rate of quarterly dividends
0.00
%
Risk-free rate(s)
2.56
For the year ended June 30, 2018, the Company’s Board of Directors authorized the issuance of 57,650 shares of its Series A Convertible Preferred Stock, which are fully vested with a restrictive legend for employee compensation. The Company recorded an expense of $136,106, which is the fair value at date of issuance.
The fair value of the Series A Preferred Stock was the following for the dates indicated:
Date
Shares
Value
7/31/2017
2,572
$
8,242
8/31/2017
2,572
8,397
9/30/2017
2,572
8,588
10/31/2017
2,572
7,011
11/30/2017
2,572
6,313
12/31/2017
2,572
6,513
1/31/2018
2,572
5,552
2/28/2018
2,572
5,404
3/03/2018
26,786
60,725
3/31/2018
2,572
5,811
4/30/2018
2,572
5,215
5/31/2018
2,572
4,639
6/30/2018
2,572
3,696
57,650
$
136,106
There is currently no market for the shares of Series A Preferred Stock and they can only be converted into shares of common stock upon a Change of Control of the Company as more fully described in the Certificate of Designation. The Company, therefore, estimated the fair value of the Series A Preferred Stock granted to various employees and others on the date of grant. The Series A Preferred Stock fair value is based on the greater of i) the converted value to common at a ratio of 1:3.5; or ii) the value of the voting rights since the holder would lose the voting rights upon conversion. The conversion of the shares is triggered by a Change of Control. The valuations of the Series A Preferred Stock at each issuance used the following inputs:
a.
The common stock price was in the range $.58 to $1.14;
b.
The calculated weighted average number of shares of common stock in the period;
c.
A 26.63% premium over the common shares for the voting preferences;
d.
The calculated weighted average number of total voting shares and the monthly shares representing voting rights of 10.25% to 15.50% of the total;
e.
The conversion value was based on an assumption for calculation purposes only, for the period ended September 30, 2016 of a Change of Control in 4 years from March 1, 2013 and a remaining restricted term of 1.92 to 1.67 years. For the period from October 1, 2016 to June 30, 2017, the conversion value was based on an assumption for calculation purposes only of a Change of Control in 4 years and a remaining restricted term of 4 to 3.34 years;
f.
21.76% to 38.87% restricted stock discount (based on a restricted stock analysis and call-put analysis curve: 53.22% to 85.39% volatility, 0.37% to 2.10% risk free rate) applied to the converted common.
For the year ended June 30, 2018, the Company recognized a noncash compensation expense of $267,144 related to Series A Preferred Shares issued on July 21, 2015 in accordance with Dr. Anil Diwan’s employment agreement that vest over the three years ended June 30, 2018.
For the year ended June 30, 2018, the Company recognized a noncash compensation expense of $121,008 related to Series A Preferred Shares issued on July 21, 2015 in accordance with Dr. Eugene Seymour’s employment agreement that vested over three years. On January 27, 2018, Dr. Eugene Seymour resigned as Chief Executive Officer and as a Director of the Company. See Note 12.
For the year ended June 30, 2018, the Company’s Board of Directors authorized the issuance of 150,000 shares of its Series A Convertible Preferred Stock, which are fully vested with a restrictive legend to the Holder of the Company’s Series C Convertible Debenture in consideration for its waiver of all early redemption payments provided for in the Debenture. See Note 7. The Company recorded an expense of $314,343, which is the fair value at date of issuance.
For the year ended June 30, 2018, the Company’s Board of Directors authorized the issuance of 71,430 fully vested shares of its common stock for employee compensation. The Company recognized a noncash compensation expense of $65,716.
For the year ended June 30, 2018, the Company’s Board of Directors authorized the issuance of 243,759 fully vested shares of its common stock with a restrictive legend for consulting services. The Company recorded an expense of $156,190, which was the fair value at the dates of issuance.
For the year ended June 30, 2018, the Company’s Board of Directors authorized the issuance of 49,777 fully vested shares of its common stock with a restrictive legend for Director services. The Company recorded an expense of $45,000, which was the fair value at date of issuance.
For the year ended June 30, 2018 the Holder of the Company’s Series C Debentures elected to receive 5,500,000 shares of the Company’s restricted common stock in redemption for its $5,000,000 Series C Debenture, quarterly interest payments of $375,000 and deferred interest of $125,000. For the year ended June 30, 2018, the Company’s Board of Directors authorized the issuance of 5,500,000 shares of the Company’s restricted common stock for the redemption of the debenture payable to the Holder and quarterly and deferred interest payments. (See Note 7)
Fiscal Year Ended June 30, 2019 Transactions
On July 11, 2018 the Board of Directors approved an extension of the employment agreement with Dr. Anil Diwan, the Company’s President. Pursuant to the terms of the employment agreement, the Company’s Board of Directors authorized the issuance of 525,000 of the Company’s Series A preferred stock to Dr. Anil Diwan. The shares shall be vested in one-third increments on June 30, 2019, June 30, 2020 and June 30, 2021 and are subject to forfeiture. The Company recognized non-cash compensation expense related to the issuance of the Series A preferred stock of $189,040 for the year ended June 30, 2019. The balance of $371,650 will be recognized as the shares vest and service is rendered.
On July 19, 2018, the Company entered into an Employment Agreement with Dr. Irach Taraporewala as Chief Executive Officer of the Company beginning on September 1, 2018. Dr. Taraporewala was granted options to purchase up to 300,000 shares of the Company’s common stock, par value $0.001 per share at an exercise price equal to 20% above the closing bid price of $0.41 of the common stock on September 1, 2018 (“Effective Date”). The options shall vest in three, equal, annual installments commencing on the effective date. The grant date fair value of the options was $35,761 of which $11,920 was recognized and recorded as compensation expense for the year ended June 30, 2019. On January 24, 2019, Dr. Taraporewala resigned as the Chief Executive Officer of NanoViricides, Inc. (the “Company”) for personal reasons and all unvested options were forfeited. (See Note 13).
The Company estimated the fair value of the options granted to Dr. Taraporewala on the date of the grant using a lattice model that values the options based upon a stock price modeled such that it follows a geometric Brownian motion with constant drift and volatility.
For the year ended June 30, 2019, the Scientific Advisory Board was granted fully vested warrants to purchase 45,728 shares of common stock at exercise prices between $0.30‑ $0.47 per share expiring in the fiscal year ending June 30, 2023. These warrants were valued at $5,475 and recorded as consulting expense.
For the year ended June 30, 2019, the Company estimated the fair value of the warrants granted quarterly to the Scientific Advisory Board on the date of grant using the Black-Scholes Option-Pricing Model with the following weighted-average assumptions:
Expected life (year)
4
Expected volatility
47.46- 55.12
%
Expected annual rate of quarterly dividends
0.00
%
Risk-free rate(s)
2.14- 2.93
%
On February 27, 2019, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Purchasers”), for a registered direct offering (the “Offering”) of 6,944,446 shares of common stock (“Shares”) at the purchase price of $0.36 (“Purchase Price”) per share for an aggregate of $2,500,000.
The offer and sale of the Shares in the registered direct offering was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s shelf registration statement on Form S-3, as amended (File No. 333-216345), which became effective on April 25, 2017. Pursuant to Rule 424(b) under the Securities Act, the Company has filed a prospectus supplement in connection with such offering.
In a concurrent private placement, the Purchasers received warrants (the “Warrants”) to purchase up to 6,944,446 shares of Common Stock. The Warrants have an exercise price of $0.61 per share, shall be exercisable on the six month anniversary of issuance and will expire five (5) years thereafter. The Warrants are exercisable for cash or, solely in the absence of an effective registration statement or prospectus, by cashless exercise.
The Company accounted for the proceeds of the Offering at February 27, 2019 as follows:
Gross proceeds
$
2,500,000
Less: Offering costs
150,000
Net proceeds
2,350,000
Portion allocated to derivative liability - warrants
(1,527,259)
Net proceeds from issuance of common stock
$
822,741
The exercise price of the Warrants is subject to adjustment in the case of customary events such as stock dividends or other distributions on shares of common stock or any other equity or equity equivalent securities payable in shares of common stock, stock splits, stock combinations, reclassifications or similar events affecting our common stock, and also, subject to limitations, upon any distribution of assets, including cash, stock or other property to our stockholders. The exercise of the Warrants is subject to certain beneficial ownership and other limitations set forth in the Warrants. The Company will receive proceeds from the concurrent private placement transaction solely to the extent the Warrants are exercised for cash.
In connection with the Offering and the concurrent private placement, the Company engaged Chardan Capital Markets, LLC (the “Placement Agent”) to act as its exclusive placement agent. The Company agreed to pay the Placement Agent a cash placement fee equal to 5% of the aggregate purchase price for the common stock sold in the offering, plus $25,000 in legal fees. The net proceeds from the offering were $2,350,000.
The Company determined the fair value of the Warrants at February 27, 2019 to be $1,527,259. The Company used a lattice model to calculate the fair value of the derivative warrants based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise and full reset features. Under applicable accounting guidance contained in ASU 2017-11, adopted by the Company on January 1, 2019, stock warrants are to be accounted for as equity if the warrants contain full-ratchet anti-dilution provisions. The warrants described above contained a full-ratchet anti-dilution feature but also contained other adjustment features which required that the warrants be classified as a derivative liability.
The Warrants were valued as of February 27, 2019 (the issuance date) and June 30, 2019 with the following assumptions:
-
The 5.5-year warrants were issued on February 27, 2019 with an exercise price of $.61 (subject to adjustments-full ratchet reset).
-
The stock price would fluctuate with the Company’s projected volatility.
-
The Holder would exercise the warrants as they become exercisable (effective registration at issuance) at target prices of the higher of 2 times the projected exercise/reset price or 2 times the stock price.
-
The Holder would exercise the warrant at maturity if the stock price was above the project reset prices.
-
The risk free rate at February 27, 2019 and June 30, 2019 were 2.48% and 1.95% respectively.
-
The fundamental transaction projected with 0% probability increasing 1% per quarter to maximum of 10% and settlement based on the Black Scholes value.
-
Stock price at February 27, 2019 was $0.48
-
Stock price at June 30, 2019 was $0.24
-
The next capital raise is projected to occur during 2020 (annually 12 months from issuance) at prices approximating 100% market triggering a reset event and exercise price adjustment.
-
The stock price would fluctuate with an annual volatility. The projected volatility curve was based on historical volatilities of the Company for the valuation period. The projected annual volatility for the valuation date is:
1 Year
2/27/2019
75
%
6/30/2019
76.1
%
The primary factors driving the economic value of options are stock price; stock volatility; reset events and exercise behavior. Projections of these variables over the remaining term of the warrant are either derived or based on industry averages. Based on the above, a probability was assigned to each scenario for each future period, and the appropriate derivative value was determined for each scenario. The option value was then probability weighted and discounted to the present. (See Note 11).
For the year ended June 30, 2019, the Company’s Board of Directors authorized the issuance of 57,650 shares of its Series A preferred stock, which are fully vested with a restrictive legend for employee compensation. The Company recorded an expense of $48,828, which is the fair value at date of issuance.
The fair value of all Series A preferred stock issued during the year ended June 30, 2019 was the following for the dates indicated:
Date
Shares
Value
7/11/2018
525,000
$
560,690
7/31/2018
2,572
2,795
8/31/2018
2,572
2,374
9/30/2018
2,572
2,598
10/31/2018
2,572
2,233
11/30/2018
2,572
1,883
12/31/2018
2,572
2,245
1/31/2019
2,572
1,203
2/28/2019
2,572
1,949
3/01/2019
26,786
24,340
3/31/2019
2,572
2,336
4/30/2019
2,572
1,636
5/31/2019
2,572
1,540
6/30/2019
2,572
1,696
582,650
$
609,518
There is currently no market for the shares of Series A preferred stock and they can only be converted into shares of common stock upon a change of control of the Company as more fully described in the Certificate of Designation. The Company, therefore, estimated the fair value of the Series A preferred stock granted to various employees and others on the date of grant. The Series A preferred stock fair value is based on the greater of i) the converted value to common stock at a ratio of 1:3.5; or ii) the value of the voting rights since the holder would lose the voting rights upon conversion. The conversion of the shares is triggered by a change of control. The valuations of the Series A preferred stock at each issuance used the following inputs:
a.
The common stock price was in the range $.20 to $.58;
b.
The calculated weighted average number of shares of common stock in the period;
c.
A 26.63% premium over the common shares for the voting preferences;
d.
The calculated weighted average number of total voting shares and the monthly shares representing voting rights of 19.28% to 19.52% of the total;
e.
The conversion value was based on an assumption for calculation purposes only, of a change of control in 4 years from October 31, 2016 and a remaining restricted term of 2.34 to 1.34 years.
f.
31.25% to 33.16% restricted stock discount (based on a restricted stock analysis and call-put analysis curve: 79.20% to 90.60% volatility, 2.50% to 2.35% risk free rate) applied to the converted common.
For the year ended June 30, 2019, the Company’s Board of Directors authorized the issuance of 71,430 fully vested shares of its common stock for employee compensation. The Company recognized a noncash compensation expense of $28,572, which was the fair value on the date of issuance.
For the year ended June 30, 2019, the Company’s Board of Directors authorized the issuance of 564,189 fully vested shares of its common stock with a restrictive legend for consulting services. The Company recorded an expense of $208,960, which was the fair value at the dates of issuance.
For the year ended June 30, 2019, the Company’s Board of Directors authorized the issuance of 146,490 fully vested shares of its common stock with a restrictive legend for director services. The Company recorded an expense of $45,000, which was the fair value at date of issuance. |
