Quarterly report pursuant to Section 13 or 15(d)

Warrants and Derivative Liabilities

v3.23.3
Warrants and Derivative Liabilities
 9 Months Ended
Sep. 30, 2023
Warrants and Rights Note Disclosure [Abstract]  
Warrants and Derivative Liabilities Warrants and Derivative LiabilitiesThere are significant judgements and estimates inherent in the determination of the fair value of the Company’s warrants. These judgements and estimates include assumptions regarding the Company’s future operating performance 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 (Note 2).
Warrants
Warrants vested and outstanding as of September 30, 2023 are summarized as follows:
Source Exercise
Price		 Weighted
Average
Remaining
Contractual
Term
(Years)		 Number of
Warrants
Outstanding
2015 Common Stock Warrants $ 1,250.00  1.57 400 
2016 Common Stock Warrants to Service Providers 287.50  3.09 160 
2019 Common Stock Warrants 87.50  1.15 32,000 
2020 Common Stock Warrants to Placement Agent 20.00  1.84 32,668 
2021 Inducement Warrants 37.50  2.82 84,667 
2021 Inducement Warrants to Placement Agent 47.00  2.82 5,927 
2021 Common Stock Warrants 22.50  3.00 311,113 
2021 Common Stock Warrants to Placement Agent 27.50  3.00 21,778 
2022 Common Stock Warrants to Service Provider 10.00  0.50 8,000 
November 2019 EHT Common Stock Warrants 72.25  1.17 34,213 
November 2019 EHT Common Stock Warrants 37.25  1.25 3,783 
December 2019 EHT Common Stock Warrants 37.25  1.36 80,694 
August 2023 Convertible Note Common Stock Warrants 5.16  9.89 340,000 
August 2023 PIPE Financing Common Stock Warrants 5.16  9.89 2,325,537 
Total warrants outstanding as of September 30, 2023 3,280,940 
As of September 30, 2023, all of the Company's warrants are fully vested.
August 2023 PIPE Financing Common Stock Warrants
In connection with the PIPE Financing (Note 7), the Company issued 2,325,537 common stock warrants. The warrants were equity classified at issuance and $4,784,894 of the gross proceeds from the PIPE Financing were allocated to the common stock warrants on a relative fair value basis. The warrants vested immediately and the fair value of $7,881,972 was determined using the Black-Scholes Merton option pricing model with the following assumptions:
August 18,
2023
Dividend yield 0.00  %
Volatility factor 87.88  %
Risk-free interest rate 4.26  %
Expected term (years) 10
Underlying common stock price
 $ 5.16 
August 2023 Convertible Note Common Stock Warrants
In connection with the Convertible Note (See Note 6), the Company issued 340,000 common stock warrants. The warrants were equity classified at issuance and $931,576 of the gross proceeds from the Convertible Note were allocated to the common stock warrants on a relative fair value basis. The warrants vested immediately and the fair value of $1,144,886 was determined using the Black-Scholes Merton option pricing model with the following assumptions:
August 18,
2023
Dividend yield 0.00  %
Volatility factor 87.88  %
Risk-free interest rate 4.26  %
Expected term (years) 10
Underlying common stock price
 $ 5.16 
February 2023 Sciences Warrant Exercises
Effective February 16, 2023, Company and Emerald entered into a Master Transaction Agreement (the "MTA"). Under the MTA, Emerald agreed to exercise 66,566 common stock warrants at $4.25 per share (the "MTA Warrants"). Under the MTA, the parties agreed that the aggregate proceeds from the exercise of the MTA Warrants of $282,905 was to be paid through a reduction of the Amended Credit Agreement owed by the Company to Sciences (Note 6). On February 22, 2023, the Company issued 66,566 shares of common stock to Emerald in connection with the exercise of the MTA Warrants (Note 5).
Derivative Liability
During the nine months ended September 30, 2023, the warrant shares underlying the Emerald Financing - warrant liability expired unexercised and the decrease in fair value during the nine months ended September 30, 2023 was nominal.
The following table summarizes the activity of the derivative liability for the period indicated:
Nine Months Ended September 30, 2022
December 31, 2021
Fair
Value of Derivative Liability
 Fair
Value of
Derivative
Liability		 Change in
Fair Value of Derivative
Liability		 Reclassification
of Derivative
to Equity
September 30, 2022
Fair
Value of Derivative Liability
Emerald Financing - warrant liability $ 59,732  $ —  $ (59,406) $ —  $ 326 
Total derivative liability $ 59,732  $ —  $ (59,406) $ —  $ 326 
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 $25.00. The warrants contained a contingent put option in the event of a subsequent financing resulting in a change in control. The warrant holders also had the right to participate in certain 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.
The warrant liability is valued at the balance sheet date using the following assumptions:
December 31,
2022
Dividend yield —  %
Volatility factor 140.83  %
Risk-free interest rate 4.21  %
Expected term (years) 0.13
Underlying common stock price $ 4.00