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Warrants

6 Months Ended

Jun. 30, 2021

(9) Warrants

In connection with the May 2, 2018, issuance of the Convertible Promissory Note designated as “Note One” (see Note 7), the Company agreed to pay a cash fee to the finder involved in the sale and to issue to the finder warrants to purchase shares of the Company’s common stock. The number of shares of common stock subject to the warrants is equal to five percent of the number of shares of Common Stock into which Note One converts. The exercise price is the conversion price applicable on conversion of the Note. The number of shares of Common Stock to be issued to the holder of the Note on conversion of the Note is equal to the principal amount of the Note, plus accrued but unpaid interest to the date of conversion, divided by the applicable conversion price. The applicable conversion price is equal to the price paid for the Company’s equity securities in a Qualified Financing (as defined) less a discount. The discount ranges from 20% to 30% depending on the length of time after the investment to complete the Qualified Financing.

Regardless of the applicable conversion price resulting from application of the foregoing process, the applicable conversion price cannot exceed that price per share that equates to a $15 million pre-money valuation. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or from time to time until May 2, 2028, except that the warrants terminate upon an initial public offering of the Company’s Common Stock or a change in control of the Company. The warrants were exercised the day prior to the IPO resulting in the issuance of 12,763 shares of common stock. See Subsequent Events.

Pursuant to ASC 718, the obligation to issue the Warrants will be a liability until issuance as they are an award that embodies an unconditional obligation to issue an undeterminable number of shares for a fixed monetary amount known at inception. Upon issuance, the liability would be reclassified to equity.

The obligation to issue Warrants has been recorded at fair value on inception date and remeasured at each reporting period until issuance. The compensation cost recognized for a liability-classified award equals the amount for which the award is settled. Therefore, the Company measured the obligation to issue warrants at fair value on May 2, 2018, and remeasures fair value at each reporting period until issuance of the Warrants.

A summary regarding the fair value of the warrant liability is as follows:


	Warrant Liability
Fair value at December 31, 2020	$	29,376
Change in fair value		4,769
Fair value at June 30, 2021	$	34,145

The fair value of the Company’s warrant liability was calculated using the Black-Scholes model and the following assumptions:


	As of			As of
	June 30,			December 31,
	2021			2020
Fair value per share of Company’s common stock	$	3.94		$	3.91
Dividend yield		0.0	%		0.0	%
Expected volatility		88.0	%		84.0	%
Risk free interest rate		0.6	%		0.3	%
Expected life (years)		3.44			4.67
Fair value of warrants	$	34,145		$	29,376