XML 27 R13.htm IDEA: XBRL DOCUMENT

WARRANT LIABILITIES

6 Months Ended

Jun. 30, 2021

NOTE 7 – 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 June 30, 2021, the warrants received in exchange for the Series C Warrants have remaining terms ranging from 2.4 to 3.0 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 six months ended June 30, 2021:

SCHEDULE OF WARRANTS ACTIVITY

	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
Common stock warrants received in exchange for Series C preferred stock warrants upon reverse recapitalization		-			-
Exercised		(542,737	)		0.72
Forfeited		(36,097	)		0.72
Expired		—			—
Granted		—			—
Total outstanding – June 30, 2021		2,799,762		$	0.72
Exercisable		2,799,762		$	0.72	$	0.72		2.5

Of the 542,737 shares issued upon the exercise of warrants (previously received in exchange for the Series C Warrants) during the six months ended June 30, 2021, 156,861 shares were issued upon net-exercises rather than upon exercises for cash.

The following table summarizes the activity in the warrants received in exchange for the Series C Warrants activity for the six months ended June 30, 2020:

	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, 2019		—	$	—
Common stock warrants received in exchange for Series C preferred stock warrants upon reverse recapitalization		4,713,490		0.72
Forfeited		—		—
Expired		—		—
Granted		—		—
Total outstanding – June 30, 2020		4,713,490	$	0.72
Exercisable		4,713,490	$	0.72	$	0.72		3.82

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 June 30, 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 December 31. 2020	$	—	$	—	$	8,310,100	$	8,310,100
Balance as of June 30, 2021		—		—	$	4,112,100	$	4,112,100

There were no transfers of financial assets or liabilities between category levels for the three and six months ended June 30, 2021.

During the six months ended June 30, 2021 the Company recorded $4.2 million gain in other income because the fair value of the warrant liabilities declined to $4.1 million from $8.3 million at December 31, 2020, primarily due to a reduction in the stock price and to warrant exercises. For the six months ended June 30, 2020, change in fair value of warrant liabilities was $16.2 million due to the reverse recapitalization transaction.

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 table shows the range of assumptions used in estimating the fair value of warrant liabilities as of June 30, 2021 and December 31, 2020:

	June 30, 2021			December 31, 2020
	Range
Risk-free interest rate		0.34% — 0.46	%		0.17% — 0.22	%
Expected volatility (peer group)		82.00 — 83.00	%		82.00	%
Term of warrants (in years)		2.41 — 2.99			2.90 — 3.49
Expected dividend yield		0.00	%		0.00	%