Quarterly report pursuant to Section 13 or 15(d)

Warrant Liabilities

v3.21.1
Warrant Liabilities
3 Months Ended
Mar. 31, 2021
Warrant Liabilities  
Warrant Liabilities

NOTE 8 – WARRANT LIABILITIES

 

In 2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection with a private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing of the reverse recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company, pursuant to the Series C Warrant terms as adjusted. The Series C Warrants were classified as liabilities, but had minimal fair value prior to the merger with Ritter.

 

In exchange for the Series C Warrants, upon closing of the merger with Ritter, the holders received warrants to purchase an aggregate of 4,713,490 shares of the Company’s common stock at $0.72 per share, subject to adjustment. As of March 31, 2021, the warrants received in exchange for the Series C Warrants have remaining terms ranging from 2.7 to 3.2 years. The warrants were determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, resulting from inclusion of a leveraged ratchet provision for subsequent dilutive issuances.

 

The following table summarizes the activity in the warrants received in exchange for the Series C Warrants for the three months ended March 31, 2021:

 

   

Common Stock Warrants (received in exchange for the

Series C Warrants)

 
    Shares    

Weighted–

Average

Exercise

Price

   

Range of Exercise

Price

   

Weighted–

Average

Remaining
Life (Years)

 
Total outstanding – December 31, 2020     3,378,596     $ 0.72                  
Exercised     (473,608 )     0.72                  
Forfeited     (36,097 )     0.72                  
Expired                            
Granted                            
Total outstanding – March 31, 2021     2,868,891     $ 0.72                  
Exercisable     2,868,891     $ 0.72     $ 0.72       2.75  

 

Of the 473,608 shares issued upon the exercise of warrants during the three months ended March 31, 2021, 192,373 shares were issued upon net-exercises rather than upon exercises for cash.

  

The following table summarizes the Series C Warrants activity for the three months ended March 31, 2020:

 

    Series C Preferred Stock Warrants  
    Shares    

Weighted–

Average

Exercise

Price

   

Range of Exercise

Price

   

Weighted– Average Remaining

Life (Years)

 
Total outstanding – December 31, 2019     1,441,180     $ 2.35                  
Forfeited                            
Expired                            
Granted                            
Total outstanding – March 31, 2020     1,441,180     $ 2.35                  
Exercisable     1,441,180     $ 2.35     $ 2.25 – 2.70       4.85  

 

The following table presents the Company’s fair value hierarchy for its warrant liabilities (all of which arise under the warrants received in exchange for the Series C Warrants) measured at fair value on a recurring basis using Level 3 inputs as of March 31, 2021:

 

      Quoted                          
      Market       Significant                  
      Prices for       Other       Significant          
      Identical       Observable       Unobservable          
      Assets       Inputs       Inputs          
Warrant liabilities     (Level 1)       (Level 2)       (Level 3)       Total  
Balance as of March 31, 2021   $     $     $ 6,187,200     $ 6,187,200  

 

There were no transfers of financial assets or liabilities between category levels for the three months ended March 31, 2021.

 

During the three months ended March 31, 2021 the Company experienced $2.1 million in other income because the fair value of the warrant liabilities declined to $6.2 million from $8.3 million at December 31, 2020, primarily due to warrant exercises. For the three months ended March 31, 2020, change in fair value of warrant liabilities was $0 because the fair value was immaterial at both the beginning and the end of the three months ended March 31, 2020.

 

The value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher or lower fair value measurements.

 

The following are the weighted average and the range of assumptions used in estimating the fair value of warrant liabilities (weighted average calculated based on the number of outstanding warrants on each issuance) as of March 31, 2021:

 

    March 31, 2021  
    Range    

Weighted

Average

 
Risk-free interest rate     0.28% — 0.42 %     0.30 %
Expected volatility (peer group)     81.00 — 84.00 %     83.52 %
Term of warrants (in years)     2.65 — 3.24       2.75  
Expected dividend yield     0.00 %     0.00 %