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WARRANT LIABILITIES
 12 Months Ended
Dec. 31, 2022
Warrant Liabilities  
WARRANT LIABILITIES

NOTE 10 – 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.

 

In exchange for the Series C Warrants, upon closing of the merger with Ritter, the holders received warrants to purchase shares of the Company’s common stock at $7.195 per share, subject to adjustment. As of December 31, 2022, the warrants have remaining terms ranging from 0.90 to 1.49 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. On April 25, 2022 the warrants were repriced from $7.195 to $6.00 with an additional 49,318 ratchet shares issued, and on May 26 2022 the warrants were repriced from $6.00 to $5.136 with an additional 49,952 ratchet shares issued. On December 22, 2022 the warrants were repriced again from $5.136 to $1.32 with an additional 1,002,717 ratchet shares issued.

 

Additionally, on December 22, 2022, in conjunction with the issuance of Convertible Debt - Related Party (Note 11), the Company issued to Alpha Capital a warrant to purchase 2,500,000 shares of the Company’s common stock. The exercise price of the warrant is $1.65 (equal to 125% of the conversion price of the Debenture on the closing date). The warrant may be exercised by Alpha, in whole or in part, at any time on or after June 22, 2023 and before June 22, 2028, subject to certain terms conditions described in the warrant, including the Company’s receipt of the necessary stockholder approvals.

 

 

The following table summarizes the activity in liability classified warrants for the year ended December 31, 2022:

 

   Common Stock Warrants 
   Shares   Weighted–
Average
Exercise
Price		   Range of Exercise
Price		   Weighted–
Average
Remaining Life (Years)		 
Total outstanding – December 31, 2021   248,162   $7.20   $7.20    2.00 
Exercised   (536)   7.20           
Forfeited   (247,625)   7.20           
Expired   —    —           
Granted   3,849,570    1.53           
Total outstanding – December 31, 2022   3,849,571   $1.53    1.32 - 1.65    3.9 
Exercisable   1,349,571   $1.32   $1.32    1.00 

 

The following table summarizes the activity in the Common Stock Warrants received in exchange for the Series C Warrants for the year ended December 31, 2021:

 

   Common Stock Warrants 
   Shares   Weighted– Average
Exercise
Price		   Range of Exercise
Price		   Weighted–
Average
Remaining
Life (Years)		 
Total outstanding –December 31, 2020   337,860   $7.20           
Exercised   (80,731)   7.20           
Forfeited   (8,967)   7.20           
Expired   —    —           
Granted   —    —           
Total outstanding – December 31, 2021   248,162   $7.20           
Exercisable   248,162   $7.20   $7.20    2.00 

 

The following table presents the Company’s fair value hierarchy for its Common Stock Warrant liabilities measured at fair value on a recurring basis as of December 31, 2022:

 

   Quoted             
   Market   Significant         
   Prices for   Other   Significant     
   Identical   Observable   Unobservable     
   Assets   Inputs   Inputs     
Common Stock Warrant liabilities  (Level 1)   (Level 2)   (Level 3)   Total 
Balance as of December 31, 2021  $—   $—   $1,686,200   $1,686,200 
Exercises   —    —    (858)   (858)
Issuance of Alpha warrants   —    —    2,834,547    2,834,547 
Gain on change in fair value of warrant liabilities   —    —    (897,242)   (897,242)
Balance as of December 31, 2022  $—   $—   $3,622,647   $3,622,647 

 

The following table presents the Company’s fair value hierarchy for its Common Stock Warrant liabilities (all of which arose under the warrants received in exchange for the Series C Warrants) measured at fair value on a recurring basis as of December 31, 2021:

 

   Quoted             
   Market   Significant         
   Prices for   Other   Significant     
   Identical   Observable   Unobservable     
   Assets   Inputs   Inputs     
Common Stock Warrant liabilities  (Level 1)   (Level 2)   (Level 3)   Total 
Balance as of December 31, 2020  $—   $—   $8,310,100   $8,310,100 
Exercises   —    —    (1,900,713)   (1,900,713)
Gain on change in fair value of warrant liabilities   —    —    (4,723,187)   (4,723,187)
Balance as of December 31, 2021  $—   $—   $1,686,200   $1,686,200 

 

 

There were no transfers of financial assets or liabilities between category levels for the year ended December 31, 2022.

 

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 December 31, 2022 and December 31, 2021:

 

   December 31, 2022   December 31, 2021 
   Range   Weighted
Average		   Range   Weighted
Average		 
                 
Risk-free interest rate   3.906% — 4.628 %   4.15%   0.69% — 0.84 %   0.72%
Expected volatility (peer group)   88% — 103%   98%   84% — 87%   85%
Term of warrants (in years)   .90 — 5.48    3.9    1.90 — 2.50    2.01 
Expected dividend yield   0.00%   0.00%   0.00%   0.00%

 

The value of the warrant liabilities is based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation.