Note 9 – Warrants

The Company accounts for common stock warrants pursuant to applicable accounting guidance contained in ASC 815, "Derivatives and Hedging - Contracts in Entity's Own Equity" and makes a determination as to their treatment as either equity instruments or a warrant liability based on an analysis of the underlying warrant agreements.


	Issued		Outstanding		Exercise Price		Expire
2015 Warrant Issuance		383,500		383,500		2.05		Jun 2021
2016 Warrant Issuance		2,947,949		2,947,949		2.60		Feb 2022
2017 Warrant Issuance(1)		100,000		100,000		2.25		Mar 2022
2017 Warrant Issuance(2)		1,650,000		1,650,000		2.45		Nov 2022
2018 Warrant Issuance(2)		4,004,324		3,974,324		1.55		Jul 2023
2019 Warrant Issuance		240,000		210,000		0.55		Apr 2024
2019 Warrant Issuance(3)		6,000,000		6,000,000		0.78		Oct 2024
				15,265,773

(1)

Issued in conjunction with an unsecured line of credit.

(2)

Warrants are subject to liability accounting.

(3)

Private Placement unregistered warrants exercisable six months following issuance.

Equity classified warrants

The 2015, 2016, and 2019 warrants share similar terms, and the exercise price of the Warrant Shares are subject to adjustment in the event of any stock dividends and splits, reverse stock splits, stock dividends, recapitalizations, reorganizations or similar transactions. The Warrants will be exercisable on a “cashless” basis in certain circumstances, including in the event a registration statement is not in effect at time of exercise. The warrant agreements contain a clause specifying that in the event there is no effective registration in effect for the underlying warrant shares to be issued at time of exercise, in no circumstance will the Company be required to net cash settle the warrants.

Based on the Company’s analysis of the terms and conditions of the warrants, the Company has concluded that they meet the conditions outlined in applicable accounting guidance to be classified as equity instruments. As a result, the Company has accounted for the exercise price paid by investors for purchase of the pre-funded warrants as additional paid in capital on the accompanying Balance Sheets.

Liability classified warrants

The 2017 and 2018 warrants have alternative settlement provisions that, at the option of the holder, provide for physical settlement or if, at the time of settlement there is no effective registration statement, a cashless exercise as defined in the warrant agreement.

Based on analysis of the underlying warrant agreement and applicable accounting guidance, the Company concluded that these registered warrants require the issuance of registered securities upon exercise and do not sufficiently preclude an implied right to net cash settlement. Accordingly, these warrants were classified in the accompanying Consolidated Balance Sheet as a current liability upon issuance and will be revalued at each subsequent balance sheet date.

The fair value of the liability for common stock purchase warrants is estimated using the Black Scholes option pricing model based on the market value of the underlying common stock at the measurement date, the contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

Based on the Black Sholes method the fair value of the Company’s warrants are as follows (in thousands):


	June 30,		December 31,
	2020		2019
2018 January and February Issuance
Fair Value	$	1,216	$	22

2017 May issuance
Fair Value		308		1
	$	1,524	$	23


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Change in Fair Value of common stock warrant liability (1)	$	(1,481)	$	536	$	(1,501)		1,330

(1)

The combined changes in fair value is reflected as income from change in the fair market value of common stock warrant liability.

During the quarter ended June 30, 2020, 4,000,000 of pre-funded warrants were exercised (with cash exercise price of $0.01 per share) in exchange for 4,000,000 shares of the Company’s common stock. On June 12, 2020, 30,000 warrants were exercised on a cashless basis in exchange for 17,500 shares of the Company’s common stock.