Annual report pursuant to Section 13 and 15(d)

Warrants and Derivative Liabilities

v3.23.1
Warrants and Derivative Liabilities
 12 Months Ended
Dec. 31, 2022
Warrants and Rights Note Disclosure [Abstract]  
Warrants and Derivative Liabilities Warrants and Derivative Liabilities
There are significant judgments and estimates inherent in the determination of the fair value of the Company’s warrants and derivative liabilities. These judgments and estimates include assumptions regarding the Company’s future operating performance, the time to completing a liquidity event, if applicable, and the determination of the appropriate valuation methods. If the Company had made different assumptions, the fair value of the warrants and derivative liabilities could have been significantly different (See Note 2).
Warrants
Warrants vested and outstanding as of December 31, 2022 are summarized as follows:
Source Exercise
Price		 Term
(Years)		 Number of
Warrants
Outstanding
Pre 2015 Common Stock Warrants $ 1.00  10 1,110,000 
2015 Common Stock Warrants 5.00  10 100,000 
2016 Common Stock Warrants to Service Providers 1.15  10 40,000 
2018 Emerald Financing Warrants 0.10  5 3,400,000 
Emerald Multi-Draw Credit Agreement Warrants 0.02  5 7,500,000 
2019 Common Stock Warrants 0.35  5 8,000,000 
2020 Common Stock Warrants to Placement Agent 0.08  5 8,166,667 
2021 Inducement Warrants 0.15  5 21,166,667 
2021 Inducement Warrants to Placement Agent 0.19  5 1,481,667 
2021 Common Stock Warrants 0.09  5 77,777,779 
2021 Common Stock Warrants to Placement Agent 0.11  5 5,444,445 
2022 Common Stock Warrants to Service Provider 0.04  2 2,000,000 
November 2019 EHT Common Stock Warrants* 0.29  5 8,552,630 
December 2019 EHT Common Stock Warrants* 0.02  5 9,141,486 
December 2019 EHT Common Stock Warrants* 0.15  5 945,750 
February 2020 EHT Common Stock Warrants* 0.15  5 20,172,409 
June 2020 EHT Common Stock Warrants* 0.10  3 22,135,132 
Total warrants outstanding as of December 31, 2022 197,134,632 
*Replacement warrants issued on November 10, 2022 in conjunction with the Acquisition (see Note 3).
As of December 31, 2022, all of the Company's warrants are fully vested with the exception of the "2022 Common Stock Warrants to Service Provider."
November 2022 Sciences Warrant Repricing
On November 17, 2022, the Company entered into an Amendment and Acknowledgement Agreement (the "Amendment Agreement") with Sciences. Under the terms of the Amendment Agreement, the exercise prices of all the outstanding Emerald Multi-Draw Credit Agreement Warrants and the December 2019 EHT Common Stock Warrants were repriced to $0.017. Refer to Note 6 for further information on the Amendment Agreement.
The Company accounted for the repricing of the warrants as a modification by comparing the fair value of the warrants immediately before and after the modification date to determine the incremental fair value of the repricing. The aggregate modified fair value of $150,851 resulted in an increase in fair value of $120,228. The Company recorded the incremental fair value as a financial charge to other expense in the Consolidated Statements of Operations for the year ended December 31, 2022. On the date of modification, the Company revalued the warrants with a Black-Scholes valuation method using the following assumptions as of the repricing date:
November 17, 2022
Dividend yield 0.00%
Volatility factor
97.53 - 115.96%
Risk-free interest rate
4.40 - 4.67%
Expected term (years)
0.96 - 2.12
Underlying common stock price $0.017
EHT Rollover Warrants
On November 10, 2022, the Company issued equity classified replacement warrants with a fair value of $203,515 in exchange for all outstanding warrants of EHT adjusted in accordance with the Exchange Ratio. The replacement warrants were exchanged with identical terms, including exercise prices, vest terms, and expiration dates (see Note 3).
2022 Common Stock Warrants Issued to a Service Provider
On April 1, 2022, the Company granted 2,000,000 equity classified warrants with a fair value of $35,688 to a service provider at an exercise price of $0.04 per share. The warrants vest monthly over one year and expire on April 1, 2024. Refer to Note 8 for the summary of stock-based compensation expense.
As of the date of grant, the Company valued the warrants with a Black-Scholes valuation method using the following assumptions:
April 1, 2022 Date of Issuance
Dividend yield 0.00  %
Volatility factor 118.46  %
Risk-free interest rate 1.92  %
Expected term (years) 1.27
Underlying common stock price $ 0.037 
July 2021 Inducement Warrants and September 2021 Financing Warrants
In connection with the July 2021 Inducement (Note 7), the Company issued 21,166,667 common stock warrants and 1,481,667 warrants to the placement agent. The warrants were equity classified at issuance and the Company recorded the fair value of the common stock warrants and placement agent warrants of $2,790,884 and $192,224, respectively, as equity issuance costs related to the September 2021 Financing within equity.
The warrants were vested at issuance and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions:
Common Stock
 Warrants		 Placement Agent
 Warrants
Dividend yield —  % —  %
Volatility factor 137.87  % 137.87  %
Risk-free interest rate 0.73  % 0.73  %
Expected term (years) 5.0 5.0
Underlying common stock price $ 0.15  $ 0.15 
In connection with the September 2021 Financing (Note 7), the Company issued 77,777,779 common stock warrants, 19,666,667 pre-funded warrants, and 5,444,445 common stock warrants to the placement agent. The warrants were equity classified at issuance and the Company allocated $3,265,676 and $943,489 of the gross proceeds to the common stock warrants and pre-funded warrants on a relative fair value basis, respectively. The common stock warrants issued to the placement agent were valued at $421,522 and recorded as equity issuance costs within equity. The warrants vested immediately and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions:
Common Stock
Warrants		 Pre-funded
Warrants		 Placement Agent
Warrants
Dividend yield —  % —  % —  %
Volatility factor 136.02  % 135.06  % 136.02  %
Risk-free interest rate 1.01  % 1.55  % 1.01  %
Expected term (years) 5.0 10.0 5.00
Underlying common stock price $ 0.09  $ 0.09  $ 0.09 
Derivative Liability
The following tables summarize the activity of derivative liability for the periods indicated:
Year Ended December 31, 2022
December 31,
2021, Fair
Value of
Derivative Liability		 Fair
Value of
Derivative Liability Issued		 Change in
Fair value of
Liability		 Reclassification
of Derivative
to Equity		 December 31,
2022, Fair
Value of
Derivative Liability
Emerald Financing - warrant liability
59,732  —  (59,729) —  3 
Total derivative liability $ 59,732  $ —  $ (59,729) $ —  $ 3 
Year Ended December 31, 2021
December 31,
2020 , Fair Value of Derivative Liabilities		 Fair Value of Derivative Liabilities Issued Change in
Fair value of
Liabilities
Reclassification of Derivatives to Equity
December 31,
2021, Fair Value of Derivative Liabilities
Emerald Financing - warrant liability 38,567  —  21,165  —  59,732 
Total derivative liability $ 38,567  $ —  $ 21,165  $ —  $ 59,732 
Emerald Financing Warrant Liability
The Emerald Financing Warrants were issued during 2018 in connection with the Emerald Financing, and originally contained a price protection feature. In connection with the August 2020 Financing, the exercise price was permanently set to $0.10. The warrants contain a contingent put option if the Company undergoes a subsequent financing that results in a change in control. The warrant holders also have the right to participate in subsequent financing transactions on an as-if converted basis.
The Company reviewed the warrants for liability or equity classification under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the warrants should be classified as a liability and re-measured to fair value at the end of each reporting period. The Company also reviewed the warrants under ASC 815, Derivatives and Hedging/Contracts in Entity’s Own Equity, and determined that the warrants also meet the definition of a derivative. With the assistance of a third party valuation specialist, the Company valued the warrant liabilities utilizing the Monte Carlo valuation method pursuant to the accounting guidance of ASC 820-10, Fair Value Measurements. Beginning March 31, 2021, the Company changed its valuation model for the Emerald Financing Warrant Liability to a Black-Scholes valuation method, as it was determined that a more simplistic model such as the Black-Scholes valuation method yields a substantially similar result as a Monte Carlo simulation due to the Company's current assumptions.
The warrant liability is valued at the balance sheet dates using the following assumptions:
As of December 31,
2022 2021
Dividend yield —  % —  %
Volatility factor 140.83  % 126.50  %
Risk-free interest rate 4.21  % 0.43  %
Expected term (years) 0.13 1.13
Underlying common stock price $ 0.02  $ 0.05 
The Emerald Financing Warrants expired exercised subsequent to year end.