WARRANTS | NOTE 11 WARRANTS As of December 31, 2014, the Company had 5,447,940 warrants outstanding to purchase shares of common stock. The following table outlines the warrants outstanding and exercisable as of December 31, 2014: Warrants Outstanding Warrant Common Total Aggregate Expiration Class A 2,041,239 $4.92 60 : 1 34,021 $295.20 April 2021 - July Class B 1,645,845 $0.20 60 : 1 27,431 $12.00 April 2021 - July 2021 Series A 1,322,500 $7.00 60 : 1 22,042 $420.00 October 2015 Common 438,356 $2.00 - $32.00 60 : 1 7,306 $120.00 - $1,920.00 April 2016 - Total Warrants 5,447,940 90,800 During the year ended December 31, 2014 Class A and Class B warrants totaling 2,855,664 were granted as part of the sale for cash of the Series D preferred stock units (see NOTE 10 COMMON AND PREFERRED STOCK). In addition during 2014 prior to the IPO, 1,048,698 common warrants, Class A warrants and Class B warrants to purchase common stock and 7,200,000 warrants to purchase Series D preferred stock were granted in conjunction with the issuance of certain convertible notes payable, consulting services and as financing fees. The Company determined that the fair value of the warrants granted was nominal due to the fair value of the Company’s common stock as of the grant date being nominal as a result of the priority provisions of the preferred stock outstanding at that time. In October 2014, 57,500 common warrants and 1,322,500 Series A warrants were issued in conjunction with our IPO (see NOTE 10 COMMON AND PREFERRED STOCK). In October 2014 upon the closing of the IPO, 2,231,727 outstanding warrants to purchase shares of Series A preferred stock and 7,200,000 outstanding warrants to purchase shares of Series D preferred stock were converted at a ratio of 200 to 1 into 47,158 common warrants to purchase shares of common stock. In September 2014, 157,093 warrants previously issued were amended to eliminate a clause that would cancel the warrant upon the completion of an IPO. The Company recorded an expense for the incremental fair value based on the difference between the fair value of the modified award and the fair value of the original award immediately before it was modified using the Black-Scholes option valuation model to calculate the fair value. The Company determined the incremental fair value of the warrants to be $25,061 which was expensed in the period as the warrants were fully vested. The following is the weighted average of the assumptions used in calculating the fair value of the warrants at an exchange ratio of 60 warrants for one share of common stock after they were modified in September 2014 using the Black-Scholes method: Fair market value of one share of common stock $ 296.40 Aggregate exercise price of 60 warrants $ 600.00 Risk free rate 0.61 % Dividend yield 0.00 % Expected volatility 37.23 % Remaining contractual term 1.97 years The following table summarizes the Preferred A stock warrant activity during the year ended December 31, 2014: Preferred A Weighted Weighted As of December 31, 2014: Warrants outstanding as of January 1, 2014 2,231,727 $ 0.16 3.1 Granted — — — Converted (2,231,727 ) 0.16 2.3 Expired — — — Warrants outstanding as of December 31, 2014 — $ — — The following table summarizes the preferred D stock warrant activity during the year ended December 31, 2014: Preferred D Weighted Weighted As of December 31, 2014: Warrants outstanding as of January 1, 2014 — — — Granted 7,200,000 $ 0.025 6.8 Converted (7,200,000 ) $ 0.025 6.7 Expired — — — Warrants outstanding as of December 31, 2014 — $ — — As of December 31, 2015, the Company had 13,219,597 warrants outstanding to purchase shares of common stock. The following table outlines the warrants outstanding and exercisable as of December 31, 2015: Warrants Outstanding Warrant Common Total Aggregate Expiration Class A 1,532,598 $0.03 60 : 1 25,566 $1.85 April 2021 - July 2021 Class B 1,310,956 $0.03 60 : 1 21,862 $1.85 April 2021 - July 2021 Series B 1,074,082 $8.75 60 : 1 17,917 $525.00 March 2021 - July 2021 Series C 5,229,973 $2.55 60 : 1 87,167 $153.00 January 2017 Series D 3,503,116 $1.85 1 : 1 3,503,116 $1.85 June 2021 Subordination 105,516 $1.85 1 : 1 105,516 $1.85 June 2021 Common 463,356 $0.03 - $32.00 60 : 1 7,735 $1.85 - $1,920.00 April 2016 - July 2021 Total Warrants 13,219,597 3,768,879 Class A Warrants During the year ended December 31, 2015, 508,641 Class A Warrants were exercised pursuant to the cashless exercise provision of the warrant resulting in the issuance of 3,936 shares of common stock. The Class A Warrants include a provision which provides that the exercise price of the Class A Warrants will be adjusted in connection with certain equity issuances by the Company. In March 2015, as a result of the February 2015 Unit Offering, the price adjustment provision was triggered for our Class A Warrants and the exercise price was adjusted from $4.92 to $2.20. In December 2015, the price adjustment was triggered again for our Class A Warrants as the Company closed a senior secured convertible note financing and the exercise price was adjusted from $2.20 to $0.03. Class B Warrants During the year ended December 31, 2015, 334,889 Class B Warrants were exercised pursuant to the cashless exercise provision of the warrant resulting in the issuance of 5,284 shares of common stock. The Class B Warrants include a provision which provides that the exercise price of the Class B Warrants will be adjusted in connection with certain equity issuances by the Company. In December 2015, the Company closed a senior secured convertible note financing and the price adjustment provision was triggered for our Class B Warrants and the exercise price was adjusted from $0.20 to $0.03. Series A Warrants During the year ended December 31, 2015, 1,074,082 Series A Warrants were exercised into 17,917 shares of common stock resulting in net cash proceeds of $2,252,020. The Series A Warrants include a provision which provides that the exercise price of the Series A Warrants will be adjusted in connection with certain equity issuances by the Company. In March 2015, as a result of the February 2015 Unit Offering, the price adjustment provision was triggered for our Series A Warrants and the exercise price was adjusted from $7.00 to $2.20. The Series A Warrants expired on October 15, 2015 and all remaining 248,418 outstanding Series A Warrants expired unexercised. Series B Warrants The Company sold Units in connection with the Company’s IPO in October 2014, with one Unit consisting of one share of common stock and one Series A Warrant to purchase: (i) one share of common stock for every 60 Series A Warrants and (ii) one Series B Warrant to purchase one share of common stock for every 60 Series B Warrants. The Series B Warrants are only issued upon the exercise of the Series A Warrants, are exercisable immediately at an exercise price of 125% of the public offering price and expire 6 years from the date of issue. The exercise price and the number of shares for which each Series B Warrant may be exercised is subject to adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our common stock. In addition, subject to certain exceptions, the exercise price of the Series B Warrants is subject to reduction if the Company issues shares of common stock (or securities convertible into common stock) in the future at a price below the then current market price. There have been no issuances that have triggered the price adjustment provision on the Series B Warrants. During the year ended December 31, 2015, the Company issued 1,074,082 Series B Warrants pursuant to the exercise of 1,074,082 Series A Warrants. Series C Warrants In connection with the February 2015 Units Offering, the Company issued Series C Warrants to purchase 21,792,000 shares of common stock as part of the Units sold in the follow-on offering (see NOTE 10 COMMON AND PREFERRED STOCK) with and exercise price of $2.55 and expire in five years. The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our common stock and the exercise price. The Series C Warrants have a cashless exercise provision where in lieu of payment of the exercise price in cash, the holder may receive, at the Company’s discretion, either a cash payment of a predetermined Black Scholes Value of the number of shares the holder elects to exercise, or a number of shares of the Company’s common stock determined according to a cashless exercise formula using the predetermined Black Scholes Value. On December 11, 2015, an amendment was made to the Series C Warrants to require that all warrants be exercised within 25 trading days or be subject to a mandatory exercise provision. In June 2015, 48,000 of the Units were separated early pursuant to the optional early separation as 384,000 Series C Warrants were exercised into 6,400 shares of common stock resulting in cash proceeds of $979,200. On August 25, 2015 the remaining 2,676,000 Units separated into 2,676,000 shares of Series E Convertible Preferred Stock and 21,408,000 Series C Warrants. From August 25, 2015 through December 31, 2015, 15,128,027 Series C Warrants were exercised pursuant to the cashless exercise provision resulting in the issuance of 9,899,174 shares of Common Stock. During the year ended December 31, 2015, 14,750 Underwriter Purchase Options were exercised for cash in the amount of $162,250. Upon the exercise of these options, 118,000 Series C Warrants were issued and immediately exercised pursuant to the cashless exercise provision resulting in the issuance of 195,906 shares of common stock. As of December 31, 2015, 5,229,973 Series C Warrants remain outstanding. Had the cashless exercise provision been exercised by all holders of our Series C Warrants at December 31, 2015, the Company would have had to either pay $11.7 million in cash or issue 9,962,354 shares of common stock. The number of shares of common stock that would be required to satisfy the cashless exercise provision increases as the price of the Company’s stock decreases and decreases as the price of the Company’s stock increases. Series D Warrants In connection with the issuance of the Notes under the Securities Purchase Agreement, the Company issued Series D Warrants (the “Series D Warrants”), exercisable to acquire 3,503,116 shares of Common Stock. Each Series D Warrant is exercisable by the holder beginning six months after December 30, 2015 and continuing for a period five years thereafter. Each Series D Warrant will be exercisable initially at an exercise price of $1.85 per share, subject to adjustments for certain dilutive events and subject to an exercise price floor equal to $1.16 per share. On December 31, 2016, the number of warrants issuable upon exercise of the Series D Warrants will be increased to equal the difference, if positive, obtained by subtracting (x) the shares of Common Stock issuable under the Warrants on the date of issuance from (y) 16.6% of the sum of the number of shares of Common Stock actually outstanding on December 31, 2016, plus the number of shares of Common Stock deemed to be outstanding pursuant to all outstanding options or convertible securities of the Company. The Series D Warrants are exercisable on a cashless basis in the event that there is no effective registration statement under the Securities Act covering the resale of the shares of Common Stock issuable upon exercise of the Series D Warrants. Pursuant to the registration rights agreement between the investors under the Securities Purchase Agreement and the Company, the Company is required to file a registration statement for these shares of Common Stock and the Company intends to file the registration statement in early 2016. Subordination Warrants The Subordination Warrants were issued to Spring Forth Investments LLC and Utah Autism Foundation in relation to their agreement to enter into subordination agreements with the collateral agent in the Note Financing whereby each agreed to subordinate their debt to the Notes issued in the Note Financing. The Subordination Warrants have the same general material terms and conditions of the Series D Warrants. The Subordination Warrants are exercisable for 105,516 shares of common stock. On December 31, 2016, the number of warrants issuable upon exercise of the Subordination Warrants will be increased to equal the difference, if positive, obtained by subtracting (x) the shares of common stock issuable under the Subordination Warrants on the date of issuance from (y) 0.5% of the sum of the number of shares of common stock actually outstanding on December 31, 2016, plus the number of shares of common stock deemed to be outstanding pursuant to all outstanding options or convertible securities of the Company. Each Subordination Warrant is exercisable by the holder beginning six months after December 30, 2015 and continuing for a period five years thereafter. Each Subordination Warrant will be exercisable initially at a price of $1.85 per share, subject to adjustments for certain dilutive events (same as the Series D Warrants) and subject to an exercise price floor equal to the Series D Warrant exercise floor price of $1.16 per share. Common Warrants For the year ended December 31, 2015, the Company granted 25,000 Common Stock warrants to a consultant of the Company. The warrants are fully vested, have an exercise price of $2.56 and expire in August 2020. The Company recorded an expense in the amount of $54,489 on the date of grant which represents the fair value of the warrants. The Company estimates the fair value of the warrants at grant date using a Black-Scholes valuation model. The estimates in the Black-Scholes option-pricing model are based, in part, on assumptions, including a stock price volatility of 127.37%, the warrant life of 5 years, a risk free rate of 1.53%, the fair value of $153.60 of the equity stock underlying the option and the aggregate exercise price of $153.60 for one share of common stock. The following table summarizes the common stock warrant activity during the years ended December 31, 2015 and 2014: Common Weighted Weighted As of December 31, 2014: Warrants outstanding as of January 1, 2014 274,420 8.00 4.2 Granted 5,331,520 3.91 5.5 Exercised (158,000 ) 0.20 6.6 Expired — — — Warrants outstanding as of December 31, 2014 5,447,940 4.17 4.9 As of December 31, 2015: Warrants outstanding as of January 1, 2015 5,447,940 4.17 4.9 Granted 26,617,714 2.71 4.3 Exercised (17,547,639 ) 2.47 4.0 Expired (1,298,418 ) 2.48 3.4 Warrants outstanding as of December 31, 2015 13,219,597 2.71 4.7 Underwriters’ Unit Purchase Option In connection with the February 2015 Units Offering, the Company issued to the representative of the underwriters’ a Unit Purchase Option (“Option”) to purchase a number of our Units equal to an aggregate of 5% of the Units sold or 136,200 Units. The purchase option has an exercise price equal to 125% of the public offering price of the Units or $11.00, and the units may be exercised on a cashless basis and will expire 5 years from the date of issue. Each Unit consists of one share of Series E Convertible Preferred Stock and eight Series C Warrants. During the year ended December 31, 2015, 14,750 Underwriter Purchase Options were exercised for cash in the amount of $162,250. Pursuant to the exercise of these options, 14,750 shares of Series E Convertible Preferred Stock were issued and immediately converted into 984 shares of common stock and 118,000 Series C Warrants were issued and immediately exercise pursuant to the cashless exercise provision into 195,906 shares of common stock. As of December 31, 2015, 121,450 Unit Purchase Options remain outstanding. |