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Warrant Liability
6 Months Ended
Jun. 30, 2022
Warrant Liability  
Warrant Liability

6. Warrant Liability

 

AgeX determines the accounting classification of warrants it issues, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under ASC 480, Distinguishing Liabilities from Equity, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate AgeX to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares. If warrants do not meet liability classification under ASC 480-10, AgeX assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, and in order to conclude equity classification, AgeX also assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable U.S. GAAP.

 

As a condition of each amount drawn from the $13,160,000 Secured Note, on receipt of each amount drawn AgeX shall grant to Juvenescence a number of warrants equal to 50% of the gross value of the relevant advance made. The gross value is the quotient of the drawdown amount and the exercise price. The exercise price is based on the market closing price of AgeX’s common stock on the NYSE American on the one day preceding the delivery of the relevant drawdown notice. (See Note 5)

 

Given AgeX’s history, it is AgeX’s judgement that it is more-likely-than-not that AgeX will utilize the full credit available under the Secured Note and accordingly warrants will be issued for each of the advances made within the credit availability period consisting of the 12 month period starting February 14, 2022. After all relevant assessments, AgeX determined that the warrants issued under the Secured Note require classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. In accordance with the accounting guidance, the number of warrants that would have been issued if the $13,160,000 was drawn in full is measured at the inception date at fair value and recognized as a warrant liability on the balance sheet, adjusted for the fair value of warrants actually issued upon each advance, and subsequently the number of warrants that may be issued for the remaining credit available is re-measured at each reporting period with changes being recorded as a component of net other expense in the condensed consolidated statement of operations.

 

The fair value of the warrant liabilities was measured using a Black-Scholes option pricing model. Significant inputs into the model at the inception, date when warrants were issued upon receipt of amounts drawn during the period, and as of the reporting period end remeasurement dates are as follows:

 

Black-Scholes Assumptions 

Inception Date

14-Feb-22

  

Issuance Date

14-Feb-22

  

Issuance Date

15-Feb-22

  

Period Ended

31-Mar-22

  

Issuance Date

04-Apr-22

  

Issuance Date

06-Jun-22

  

Period Ended

30-Jun-22

 
Exercise Price (1)  $0.780   $0.780   $0.780   $0.940   $0.880   $0.711   $0.600 
Warrant Expiration Date (2)   13-Feb-25    13-Feb-25    14-Feb-25    30-Mar-25    03-Apr-25    05-Jun-25    29-Jun-25 
Stock Price (3)  $0.691   $0.691   $0.747   $0.854   $0.819   $0.800   $0.576 
Interest Rate (annual) (4)   1.80%   1.80%   1.80%   2.45%   2.61%   2.94%   2.99%
Volatility (annual) (5)   122.99%   122.99%   123.28%   123.28%   123.31%   122.62%   122.21%
Time to Maturity (Years)   3    3    3    3    3    3    3 
Calculated fair value per share  $0.486   $0.486   $0.535   $0.607   $0.585   $0.592   $0.413 

 

(1)Based on the market closing price of AgeX’s common stock on the NYSE American on the one day prior to the debt inception date and each presented period ending date and also the market closing price of AgeX’s common stock on the NYSE American one day preceding the delivery of the relevant drawdown notice in accordance with terms per the Secured Note.

 

(2)Warrants are exercisable over a three-year period from each issuance date.

 

(3)Based on the market price of AgeX’s common stock on the NYSE American as of each date presented.

 

(4)Interest rate for U.S. Treasury Bonds, as of each date presented, as published by the U.S. Federal Reserve.

 

(5)Based on the historical daily volatility of AgeX Therapeutics, Inc. as of each date presented.

 

 

The warrants outstanding and fair values at each of the respective valuation dates are summarized below:

 

Warrant Liability 

Amount

(in thousands)

   Warrants  

Fair Value

per Share

  

Fair Value

(in thousands)

 
Fair value as of January 1, 2022  $-    -    -   $- 
Fair value at initial measurement date of 2/14/2022   13,160(1)   8,435,897(2)  $0.4864    4,103 
Fair value of warrants issued on 2/14/2022   (7,160)(3)   (4,589,743)(4)   0.4864    (2,232)
Fair value of warrants issued on 2/15/2022   (1,000)(3)   (641,025)(4)   0.5349    (343)
Fair value of warrants issued on 4/4/2022   (1,000)(3)   (568,440)(4)   0.5854    (333)
Fair value of warrants issued on 6/6/2022   (1,000)(3)   (703,234)(4)   0.5924    (417)
Unrealized loss on change in fair value of warrant liability   -    -    -    255 
Fair value as of June 30, 2022  $3,000(1)   2,500,000(2)  $0.4132   $1,033 

 

(1)Amount of credit available under the Secured Note on date of inception and as of each period end date.

 

(2)Number of warrants issuable if the amount of credit available were drawn for measurement as of inception date and subsequently for remeasurement as of each period end date.

 

(3)Amount of drawdown as of each date presented.

 

(4)Number of warrants issued upon receipt of amounts drawn against the Secured Note as of each date presented.

 

During the three and six months ended June 30, 2022, AgeX recorded a loss on changes in fair value of warrant liability of $168,000 and $255,000, respectively. There were no warrant liabilities or corresponding changes in valuation during the same period in 2021.

 

The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about future activities and AgeX’s stock prices and historical volatility as inputs. During the six months ended June 30, 2022, none of the warrants issued were exercised.