Quarterly report pursuant to Section 13 or 15(d)

Warrants and Derivative Liabilities

v3.21.1
Warrants and Derivative Liabilities
 3 Months Ended
Mar. 31, 2021
Warrants and Rights Note Disclosure [Abstract]  
Warrants and Derivative Liabilities Warrants and Derivative Liabilities
Warrants
There are significant judgments and estimates inherent in the determination of the fair value of the Company’s warrants. These judgments and estimates include assumptions regarding the Company’s future operating performance, the time to completing a liquidity event and the determination of the appropriate valuation methods. If the Company had made different assumptions, the fair value of the warrants could have been significantly different (See Note 2).
Warrants vested and outstanding as of March 31, 2021 are summarized as follows:
Source Exercise
Price		 Term
(Years)		 Number of
Warrants
Vested and
Outstanding
Pre 2015 Common Stock Warrants $ 1.00 
6-10
 1,110,000 
2015 Common Stock Warrants 5.00  10 100,000 
2016 Common Stock Warrants to Service Providers $ 1.15  10 40,000 
2016 Series C Common Stock Warrants to Placement Agent $ 0.40  5 125,000 
2017 Series D Common Stock Warrants to Placement Agent $ 0.25  5 480,000 
2017 Common Stock Warrants to Service Provider $ 0.41  5 125,000 
2018 Emerald Financing Warrants $ 0.10  5 3,400,000 
Emerald Multi-Draw Credit Agreement Warrants $ 0.50  5 7,500,000 
2019 Common Stock Warrants $ 0.35  5 8,000,000 
2020 Common Stock Warrants $ 0.06  5 49,500,001 
2020 Common Stock Warrants to Placement Agent $ 0.075  4.99 8,166,667 
Total warrants vested and outstanding as of March 31, 2021 78,546,668 
Derivative Liabilities
The following tables summarize the activity of derivative liabilities for the periods indicated:
Three Months Ended March 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
March 31, 2021
Fair
Value of Derivative Liabilities
Emerald Financing - warrant liability (1)
$ 38,567  $ —  $ 238,350  $ —  $ 276,917 
Current balance of derivative liabilities $ 38,567  $ —  $ 238,350  $ —  $ 276,917 
Three Months Ended March 31, 2020
December 31, 2019
Fair
Value of Derivative Liabilities
 Fair
Value of
Derivative
Liabilities
Issued		 Change in
Fair
value of
Derivative
Liabilities		 Reclassification
of Derivatives
to Equity
March 31, 2020
Fair
Value of Derivative Liabilities
Emerald Multi Draw Credit Agreement - compound derivative liability $ 90,797  $ —  $ 100,085  $ —  $ 190,882 
Emerald Financing - warrant liability (1)
276,024  —  (81,879) —  194,145 
Series B - warrant liability 134,579  —  (54,109) (26,563) 53,907 
Total derivative liabilities $ 501,400  $ —  $ (35,903) $ (26,563) $ 438,934 
Less, noncurrent portion of derivative liabilities (90,797) (190,882)
Current balance of derivative liabilities $ 410,603  $ 248,052 
Emerald Financing Warrant Liability (1)
In connection with the August 2020 Financing, the exercise price of the warrants 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. As of March 31, 2021, the Company changed its valuation approach 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:
March 31,
2021		 December 31,
2020
Dividend yield 0.00  % 0.00  %
Volatility factor 137.5  % 90.9  %
Risk-free interest rate 0.15  % 0.14  %
Expected term (years) 1.88 2.13
Underlying common stock price $ 0.12  $ 0.04