Note 10 - Warrants

12 Months Ended

Dec. 31, 2017

Warrants [Text Block]

10.

Warrants

March 2016,

the Company sold and certain investors purchased for a total purchase price of

$19.9

million a total of

182,621

shares of common stock and warrants to purchase a total of

136,966

shares of common stock at a per share exercise price of

$107.00.

These warrants will terminate on

March 14, 2021

or such earlier date as specified in the warrants. Additionally, in

June

2016,

the Company sold and such investors purchased for a total purchase price of

$29.8

million a total of

273,933

shares of common stock and warrants to purchase a total of

205,450

shares of common stock at a per share exercise price of

$107.00.

These warrants will terminate on

June 29, 2021

or such earlier date as specified in the warrants. In

June 2016,

warrants to purchase

2,803

shares of common stock were exercised for proceeds of

$0.3

million to the Company.

August 2016,

the Company sold and certain investors purchased for a total purchase price of

$50.0

million a total of

454,545

shares of common stock and warrants to purchase a total of

340,909

shares of common stock at a per share exercise price of

$110.00

(the

“August 2016

Warrants”). These warrants will terminate on

August 2, 2021

or such earlier date as specified in the warrants.

As discussed in Note

regarding the Company’s notes payable, in connection with the Loan Agreement in

September 2014,

the Company issued to the Lenders and their affiliates the Venture Loan Warrants. Upon the Company’s satisfaction of the conditions precedent to the making of the

second

tranche loan, the Venture Loan Warrants became exercisable in full. The Venture Loan Warrants will terminate on

September 29, 2021

or such earlier date as specified in the Venture Loan Warrants. In addition, in

March 2017,

the Company issued to the Lenders

five

year warrants to purchase an aggregate of

5,000

shares of the Company’s common stock at an exercise price of

$26.00

per share in consideration of the Lenders accepting the early pay-off of the indebtedness under the Loan Agreement. These warrants were recorded at a fair value of

$87,100

and included in additional paid-in capital as of

December 31, 2017.

All outstanding warrants were issued with an original life of

five

years.

As of

December 31, 2017,

outstanding warrants to purchase a total of

689,661

shares of the Company’s common stock were as follows:

Type of Warrant and Classification	Date of Issuance	Number of Shares		Exercise Price		Expiration Date(s)
Common stock - Equity	9/29/14		4,139	$	181.20	9/29/21
Common stock - Equity	3/4/16		134,163	$	107.00	3/4/21
Common stock - Equity	6/29/16		205,450	$	107.00	6/29/21
Common stock - Liability	8/2/16		340,909	$	110.00	8/02/21
Common stock - Equity	3/6/17		5,000	$	26.00	3/06/22

The following warrants were issued in

August 2016

and remained outstanding as of

December

31,

2017,

and include provisions that could require cash settlement of the

August 2016

warrants. The

August 2016

Warrants are therefore recorded as liabilities of the Company at the estimated fair value as of the date of issuance. The

August 2016

Warrants are required to be recorded at fair value as of the end of each subsequent reporting period, with changes in fair value recorded as other income or expense in the Company’s consolidated statement of operations in each subsequent period:

	August 2016 Warrants
Exercise price	$	110.00
Expiration date		August 2, 2021
Total shares issuable on exercise		340,909

The fair value of the

August 2016

Warrants is measured using the Black-Scholes valuation model. Inherent in the Black-Scholes valuation model are assumptions related to expected stock price volatility, expected life, risk-free interest rate and dividend yield. The risk-free interest rate is based on the U.S. Treasury

five

-year maturity yield curve in effect on the date of valuation. The dividend yield percentage is

zero

because the Company neither currently pays dividends nor intends to do so during the expected term of the

August 2016

Warrants. Expected stock price volatility is based on the weighted average of the Company’s historical common stock volatility and the volatility of several peer public companies. The expected life of the

August 2016

Warrants is assumed to be equivalent to their remaining contractual term.

The assumptions used by the Company to determine the fair value of the

August 2016

Warrants are summarized in the following table as of

December 31, 2016

and

2017:

	December 31, 2016			December 31, 2017

Exercise price of warrants	$	110.00		$	110.00
Closing underlying stock price on date of valuation	$	98.00		$	3.00
Expected stock price volatility		84	%		112	%
Expected life (in years)		4.58			3.58
Risk-free interest rate		1.93	%		2.04	%
Expected dividend yield		0.0	%		0.0	%
Valuation per common share underlying each warrant	$	61.38		$	0.49
Total liability for warrants on the consolidated balance sheet	$	20,926,061		$	167,636
Decrease in fair value in the years ended December 31, 2016 and 2017		1,007,352		$	20,758,425

2013,

the Company agreed to enter into a manufacturing rights agreement for the manufacturing of rocapuldencel-T in the European market with Pharmstandard, which also provided for the issuance of warrants to Pharmstandard to purchase

24,989

shares of the Company’s common stock at an exercise price of

$116.40

per share. As of

March 31, 2018,

the Company had

not

entered into this manufacturing rights agreement or issued such warrants.

ARGOS THERAPEUTICS INC 10-K