In connection with Series B redeemable convertible preferred stock financing transactions, we issued to our financial advisor warrants to purchase 1,781,387 shares of our Series B redeemable convertible preferred stock at an exercise price of at $1.4034 per share. These warrants will terminate at the earlier of seven-year anniversary from the issuance date and a liquidation of the company. Additionally, in connection with the entrance into the Loan Agreement, the Company issued Pacific Western Bank a warrant to purchase shares of its Series B redeemable convertible preferred stock (see Note 9). These warrants together are referred to as Series B Warrants.

Prior to the Merger, the Company classified the Series B Warrants as a liability on its consolidated balance sheet because the warrants are freestanding financial instruments that may have required the Company to transfer assets upon exercise. The liability associated with each of these warrants was initially recorded at fair value upon the issuance date of each warrant and was subsequently remeasured to fair value as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. Upon the closing of the Merger (see Note 3), pursuant to the Merger Agreement, all of the outstanding redeemable convertible preferred stock was converted to shares of the Company’s common stock and the Series B Warrants converted to warrants for the purchase of the shares of the Company’s common stock. The Company assessed the features of the warrants and determined that they qualify for classification as permanent equity upon the closing of the Merger. Accordingly, the Company remeasured the warrants to fair value upon the closing of the Merger, which was $2.9 million on September 15, 2020. Upon the closing of the Merger, the warrant liability was reclassified to additional paid-in capital. The fair value of the warrants to purchase shares of the Company’s common stock was equal to the fair value of the Series B Warrants on the Merger date. Accordingly, no incremental expense was recognized at the Merger date.

The Series B Warrants had a fair value of $1.9 million as of December 31, 2019. The change in fair value of $0.9 million and $0.8 during the three and nine months ended September 30, 2020, respectively, was recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The change in fair value of $0.1 million and $0.1 during the three and nine months ended September 30, 2019, respectively, was recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

The redeemable convertible preferred stock warrant liability was valued using the following assumptions under the Black-Scholes option-pricing model:

	September 14, 2020 (Conversion Date)			April 28, 2020 (Issuance Date)			December 31, 2019
Stock price	$	16.59		$	11.61		$	11.32
Expected term (years)	5.86 - 6.62				7.00		6.57 - 6.74
Expected volatility	81.1% - 82.1%				91.17	%	82.1% - 93.3%
Risk-free interest rate	0.35% - 0.42%				0.52	%	1.80% - 1.81%
Dividend yield		0	%		0	%		0	%

	Number of warrants			Weighted Average Exercise Price		Weighted Average Contractual Term (Years)
Outstanding and exercisable warrants to purchase preferred shares as of December 31, 2019		1,781,387		$	1.4034		6.64
Issued		128,260
Converted to warrants for the purchase of common stock and adjusted for the Exchange Ratio and Reverse Stock Split		(1,672,854	)
Outstanding and exercisable warrants to purchase common stock as of September 30, 2020		236,793		$	11.3177		5.94

As of September 30, 2020, the Company’s outstanding warrants to purchase shares of common stock, including the New PacWest Warrant, consisted of the following:

Issuance Date	Number of Shares of Common Stock Issuable		Exercise Price		Classification	Expiration Date
September 15, 2020		101,610	$	11.3177	Equity	July 25, 2026
September 15, 2020		30,924	$	11.3177	Equity	August 21, 2026
September 15, 2020		77,312	$	11.3177	Equity	September 19, 2026
September 15, 2020		11,044	$	11.3177	Equity	September 26, 2026
September 15, 2020		15,903	$	11.3177	Equity	April 28, 2027
		236,793

As of December 31, 2019, the Company’s outstanding warrants to purchase shares of redeemable convertible preferred stock (which converted into warrants to purchase common stock upon close of the Merger) consisted of the following (not adjusted for the Exchange Ratio):

Warrant Name

Issuance Date

Number of

Shares of

Preferred

Stock Issuable

Exercise

Price

Exercisable

for

Classification

Expiration Date

Series B warrants

July 25, 2019

819,438

1.4034

Series B

Liability

July 25, 2026

Series B warrants

August 21, 2019

249,394

1.4034

Series B

Liability

August 21, 2026

Series B warrants

September 19, 2019

623,486

1.4034

Series B

Liability

September 19, 2026

Series B warrants

September 26, 2019

89,069

1.4034

Series B

Liability

September 26, 2026

1,781,387