Note 8 - Warrants

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Warrant Disclosure [Text Block]

Note 8 – Warrants: 

In connection with an agreement to operators of Freshpet Kitchens South during the third quarter of 2022 in exchange for services, we issued our partner warrants to purchase up to an aggregate of 194 thousand shares of voting common stock of the Company at a purchase price of $0.01 per share. The Company determined these warrants are accounted for under FASB ASC 718 Stock Compensation. The warrants were recorded as a prepaid expense as the warrants were exercisable at the grant date. The prepaid expense will be amortized within Cost of Goods Sold as services are provided by the supplier. As of December 31, 2022 there were $5,750 of warrants in prepaid expense and $1,438 of warrants in other assets. 

During 2022, 194 thousand warrants were both issued and exercised, respectively. The grant date fair value of warrants granted during 2022 was $50.32 per share.

Warrants Assumptions

Fair value of the warrants at September 30, 2022 was based on the Black Scholes Option Pricing Model, which is based, in part, upon level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions. 

The Company used the following assumptions for its warrants:

Expected Volatility - Expected volatility was based on the historical volatility of the Company's common stock.

Exercise Price of Warrants Granted - The Company determined the exercise price pursuant to the terms of the warrant agreement of $0.01 per share.

Risk-Free Interest Rate - The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term in effect at the time of the warrant issuance. 

Expected Dividend Yield - The Company has not historically declared dividends, and no future dividends are expected to be available to benefit warrant holders at the time of warrant issuance. Accordingly, the Company used an expected dividend yield of zero in the valuation model. 

A summary of warrants assumptions as of December 31, 2022 was as follows:

	As of September 30,
	2022
Exercise price of warrants granted	$	0.01
Expected volatility		52.5	%
Expected terms in years		0.0
Risk-free interest rate		3.9	%
Expected dividend yield		0.0	%

Total amortization associated with partner warrants during 2022 was $2,587.