| The Company and a Summary of its Significant Accounting Policies | 1.
The Company and a Summary of its Significant Accounting Policies
(a)
On August 29, 2019, DermTech, Inc., formerly known as Constellation Alpha Capital Corp, (the “Company”), and DermTech Operations, Inc., formerly known as DermTech, Inc., (“DermTech Operations”), consummated the transactions contemplated by the Agreement and Plan of Merger, dated as of May 29, 2019, by and among the Company, DT Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and DermTech Operations. The Company refers to this agreement, as amended by that certain First Amendment to Agreement and Plan of Merger dated as of August 1, 2019, as the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub merged with and into DermTech Operations, with DermTech Operations surviving as a wholly-owned subsidiary of the Company. The Company refers to this transaction as the Business Combination. In connection with and two days prior to the completion of the Business Combination, the Company domesticated from the British Virgin Islands to Delaware. DermTech Operations changed its name from DermTech, Inc. to DermTech Operations, Inc. shortly before the completion of the Business Combination. On August 29, 2019, immediately following the completion of the Business Combination, the Company changed its name from Constellation Alpha Capital Corp. to DermTech, Inc., and then effected a one-for-two reverse stock split of its common stock (“Reverse Stock Split”). The Company is an emerging growth molecular diagnostic company developing and marketing its Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) laboratory services including molecular pathology tests to facilitate the diagnosis of dermatologic conditions including melanoma. The Company has developed a proprietary, non-invasive technique for sampling the surface layers of the skin using an adhesive patch called the DermTech Smart Sticker™ (the “Smart Sticker”) in order to collect individual biological information for commercial applications in the medical diagnostic field. From the end of the first quarter of 2020 and through the first quarter of 2021, there has been a widespread worldwide impact from the COVID-19 pandemic. The Company is considered an essential business due to the importance of early melanoma detection, which has allowed the Company’s CLIA laboratory to remain fully operational. The Company has implemented additional safety measures and social distancing with its CLIA laboratory operations and has transitioned administrative functions to predominantly remote work. Beginning in March 2020 and continuing through the first quarter of 2021, the ongoing COVID-19 pandemic has reduced patient access to clinician offices for in-person testing, which has resulted in a reduced volume of billable samples received during the first quarter of 2021 relative to the Company’s pre-pandemic expectations. The Company expects the ongoing COVID-19 pandemic to continue to adversely impact billable sample volume until patient access to in-person testing fully resumes or telemedicine options are more widely adopted. Additionally, the ongoing COVID-19 pandemic has negatively affected and will continue to negatively affect the Company’s pharmaceutical customers’ clinical trials. The extent of such effect on the Company’s future revenue is uncertain and will depend on the duration and extent of the effects of the ongoing COVID-19 pandemic on the Company’s pharmaceutical customers’ clinical trials.
(b)
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions among the consolidated entity have been eliminated in consolidation. These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission, or SEC, Regulation S-X. Accordingly, they do not include all the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.
(c)
During the course of preparing the quarterly report Form 10-Q for the three months ended March 31, 2021, the staff of the Securities and Exchange Commission (the “SEC Staff”) public statement entitled “ The Company previously issued warrants to purchase common stock in public and private placement offerings consummated on June 23, 2017 (the “SPAC Warrants”), which were originally classified as equity in the Company’s financial statements. As part of the aforementioned public offering, the Company issued 14,375,000 warrants (the “Public SPAC Warrants”) and as part of the aforementioned private placement offering, the Company issued 561,250 warrants (the “Private SPAC Warrants”). The SPAC Warrants have a five-year life from the date the Business Combination was consummated and every four SPAC Warrants entitle the holder to purchase one whole share of common stock at an exercise price of $23.00 per whole share. The Private SPAC Warrants are identical to the Public SPAC Warrants but they (i) are exercisable either for cash or on a cashless basis at the holder’s option, (ii) are not redeemable by the Company as long as such warrants are held by the initial purchasers or their affiliates and permitted transferees, and (iii) may be subject to the limitations on exercise as specified in the warrant agreement. Historically, the Private SPAC Warrants were recorded as a component of equity as opposed to liabilities on the Company’s consolidated balance sheets and the Company’s consolidated statements of operations did not include the subsequent non-cash changes in estimated fair value of the Private SPAC Warrants, based on our application of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815-40, Derivatives and Hedging Contracts in Entity’s Own Equity In addition, the Company analyzed the impact of the aforementioned adjustments on its previously issued audited consolidated financial statements for the years ended December 31, 2020 and 2019 and previously issued unaudited consolidated financial statements for the periods ended September 30, 2020 and 2019, June 30, 2020, and March 31, 2020 (such years and periods, the “Affected Periods”). The Company Accounting Changes and Error Corrections Interim Financial Reporting Assessing Materiality Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements The Company’s accounting for the Private SPAC Warrants as components of liabilities instead of as equity did not have any effect on the Company’s previously reported operating expenses, total cash flows from operating activities, investing activities, and financing activities, cash or total assets. The impact on the individual line items of our condensed consolidated balance sheets for each period presented from the adjustment was as follows (in thousands):
As Previously Reported
Adjustments
As Revised
Consolidated Balance Sheet as of December 31, 2019
Long term liabilities:
Warrant liability
—
628
628
Total liabilities
5,722
628
6,350
Stockholders’ equity:
Additional paid-in capital
103,599
(187
)
103,412
Accumulated deficit
(91,111
)
(441
)
(91,552
)
Total stockholders’ equity
12,489
(628
)
11,861
Consolidated Balance Sheet as of March 31, 2020
Long term liabilities:
Warrant liability
—
524
524
Total liabilities
5,337
524
5,861
Stockholders’ equity:
Additional paid-in capital
164,741
(187
)
164,554
Accumulated deficit
(98,112
)
(337
)
(98,449
)
Total stockholders’ equity
66,630
(524
)
66,106
Consolidated Balance Sheet as of December 31, 2020
Long term liabilities:
Warrant liability
—
1,650
1,650
Total liabilities
6,290
1,650
7,940
Stockholders’ equity:
Additional paid-in capital
189,849
19
189,868
Accumulated deficit
(126,360
)
(1,669
)
(128,029
)
Total stockholders’ equity
63,490
(1,650
)
61,840
The impact on the individual line items of the Company’s condensed consolidated statements of operations for the periods presented from the adjustment was as follows (in thousands):
Year Ended December 31, 2019
As Previously Reported
Adjustments
As Revised
Consolidated Statement of Operations
Other income/(expense):
Change in fair value of warrant liability
$
—
$
(441
)
$
(441
)
Total other expense
(2,084
)
(441
)
(2,525
)
Net loss
$
(19,689
)
$
(441
)
$
(20,130
)
Net loss per share of common stock outstanding, basic and diluted
$
(2.81
)
$
(0.06
)
$
(2.87
)
Three Months Ended March 31, 2020
As Previously Reported
Adjustments
As Revised
Consolidated Statement of Operations
Other income/(expense):
Change in fair value of warrant liability
$
—
$
104
$
104
Total other income/(expense)
—
104
104
Net loss
$
(7,001
)
$
104
$
(6,897
)
Net loss per share of common stock outstanding, basic and diluted
$
(0.53
)
$
—
$
(0.53
)
Year Ended December 31, 2020
As Previously Reported
Adjustments
As Revised
Consolidated Statement of Operations
Other income/(expense):
Change in fair value of warrant liability
$
—
$
(1,228
)
$
(1,228
)
Total other income/(expense)
40
(1,228
)
(1,188
)
Net loss
$
(35,249
)
$
(1,228
)
$
(36,477
)
Net loss per share of common stock outstanding, basic and diluted
$
(2.08
)
$
(0.07
)
$
(2.15
) The condensed consolidated statements of cash flow are not presented because there is no impact on total cash flows from operating activities, investing activities, or financing activities. Certain components of net cash used in operating activities changed, as caused by the revision, such as incorporating the non-cash item from the change in fair value of warrant liability in the adjustments to reconcile net loss to net cash used in operating activities, but the net change amounted to zero for the Affected Periods.
( d )
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the amounts of revenues and expenses reported during the period. On an ongoing basis, management evaluates these estimates and judgments, including but not limited to those related to assay revenue, stock-based compensation, short-term marketable securities, accounts receivable, accrued bonus, warrant liability and the realization of deferred tax assets. Actual results may differ from those estimates.
( e )
The Company considers all highly liquid investments with remaining maturities of three months or less when purchased to be cash equivalents. The Company maintains its cash balances at banks and financial institutions. The balances are insured up to the Federal Deposit Insurance Corporation legal limit. The Company maintains cash balances that may, at times, exceed this insured limit.
( f )
The Company considers securities with original maturities of greater than 90 days to be marketable securities. The Company has the ability, if necessary, to liquidate any of its cash equivalents and marketable securities to meet its liquidity needs in the next 12 months. Accordingly, such marketable securities are classified as current assets on the accompanying condensed consolidated balance sheets even if they have contractual maturities greater than one year from the date of purchase. The Company’s marketable securities consist of U.S. Treasury and agency securities, commercial paper, and corporate debt securities. Marketable securities are recorded at fair value and unrealized gains and losses are recorded within accumulated other comprehensive income/(loss). The estimated fair value of the marketable securities is determined based on quoted market prices or rates for similar instruments. The Company evaluates securities with unrealized losses to determine whether such losses, if any, are other than temporary. Realized gains and losses are calculated using the specific identification method and recorded as interest income or expense. The Company has determined that there were no other-than-temporary declines in fair values of its investments as of March 31, 2021.
( g )
Property and equipment is recorded at cost less accumulated depreciation. Property and equipment consists of mainly assets such as leasehold improvements, office, computer and laboratory equipment, including laboratory equipment acquired under capital lease arrangements. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from two to five years. Leasehold improvements are depreciated over the shorter of the remaining term of the lease or the useful life of the asset. The Company recorded depreciation expense of $0.2 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively, which includes amortization of laboratory equipment acquired under capital leases of $17,000 and zero for the three months ended March 31, 2021 and 2020, respectively. Amortization of assets that are recorded under capital leases in depreciation expense is included in cost of revenues on the condensed consolidated statement of operations. Gross assets recorded under capital leases were $0.3 million as of March 31, 2021 and December 31, 2020. Accumulated amortization associated with capital leases was $27,000 and $10,000 as of March 31, 2021 and December 31, 2020, respectively. Maintenance and repairs are expensed as incurred, and material improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations in the period realized. $0.1 million and zero of equipment was disposed of during the three months ended March 31, 2021 and 2020, respectively. The Company assesses its long-lived assets, consisting primarily of property and equipment, for impairment when material events or changes in circumstances indicate that the carrying value may not be recoverable. There were no impairment losses for the three months ended March 31, 2021 and 2020
( h )
Costs incurred in connection with research and development (“R&D”) activities are expensed as incurred. R&D expenses consist of (i) employee-related expenses, including salaries, benefits, travel and stock-based compensation expense; (ii) and facilities and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and laboratory and other supplies. The Company expenses all costs as incurred in connection with patent applications (including direct application fees and the legal and consulting expenses related to making such applications), and such costs are included in general and administrative expenses.
( i )
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. As of March 31, 2021, the Company maintained $100.0 million in a sweep account, which maintains cash balances throughout various interest bearing bank accounts under the $250,000 insurance limit provided by the Federal Deposit Insurance Corporation for one federally insured financial institution. Approximately $118.4 million was held in excess of the Federal Deposit Insurance Corporation insured limit as of March 31, 2021. The Company has not experienced any losses in such accounts.
( j )
The Company provides for federal and state income taxes on the asset and liability approach which requires deferred tax assets and liabilities to be recognized based on temporary differences between the consolidated financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in management’s opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company’s valuation allowance is based on available evidence, including its current year and prior year operating losses, evaluation of positive and negative evidence with respect to certain specific deferred tax assets including evaluation sources of future taxable income to support the realization of the deferred tax assets. The Company has established a full valuation allowance on the deferred tax assets as of March 31, 2021. Current and deferred tax assets and liabilities are recognized based on the tax positions taken or expected to be taken in the Company’s income tax returns. U.S. GAAP requires that the tax benefits of an uncertain tax position can only be recognized when it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authority. Tax benefits related to tax positions that do not meet this criterion are not recognized in the condensed consolidated financial statements, of which there are none. The Company recognizes interest and penalties related to income tax matters in income tax expense.
( k )
The Company’s revenue is generated from two revenue streams: contract revenue and assay revenue. The Company accounts for revenue in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) Assay Revenue The Company generates revenues from its Pigmented Lesion Assay (“PLA”) test it provides to healthcare clinicians in various states throughout the United States to assist in a clinician’s diagnosis of melanoma. The Company provides prescribing clinicians with its Smart Sticker adhesive sample collection kits to perform non-invasive skin biopsies of clinically ambiguous pigmented skin lesions on patients. The Company also offers clinicians a telemedicine solution where they can request the PLA collection kit be sent to the patient’s home for a clinician-guided remote collection on ambiguous pigmented skin lesions. Once the sample is collected by the healthcare clinician or the patient via the telemedicine solution, it is returned to the Company’s CLIA laboratory for analysis. The patient’s ribonucleic acid (“RNA”) and deoxyribonucleic acid (“DNA”) are extracted from the Smart Sticker adhesive patch collection kit and analyzed using gene expression technology to determine if the pigmented skin lesion contains certain genomic features indicative of melanoma. Upon completion of the gene expression analysis, a final report is drafted and provided to the dermatologists detailing the test results for the pigmented skin lesion indicating whether the sample collected is indicative of melanoma or not. Contract Revenue Contract revenue is generated from the sale of laboratory services and Smart Sticker adhesive sample collection kits to third-party companies through contract research agreements. Revenues are generated from providing gene expression tests to facilitate the development of drugs designed to treat dermatologic conditions. The provision of gene expression services may include sample collection using the Company’s patented Smart Sticker adhesive patch collection kits, assay development for research partners, RNA extraction, isolation, expression, amplification and detection, including data analysis and reporting. (a) Disaggregation of Revenue The following table presents the Company’s revenues disaggregated by revenue source during the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
2021
2020
Assay Revenue
PLA test
$
2,190
$
796
Contract Revenue
Adhesive patch kits
189
14
RNA extractions
104
671
Project management fees
41
76
Total revenues
2,524
1,557
For the three months ended March 31, 2021, there were two payors that each accounted for more than 10% of our total revenue. These two payors combined accounted for 43% of our total revenue for the three months ended March 31, 2021. For the three months ended March 31, 2020, there was one payor and one customer that each accounted for more than 10% of our total revenue. The one payor and one customer combined accounted for 56% of our total revenue for the three months ended March 31, 2020. There were no other payors or customers that individually accounted for more than 10% of our total revenue for the three months ended March 31, 2021 and 2020. In addition, the Company had one payor that accounted for more than 10% of accounts receivable as of March 31, 2021. The one payor accounted for 26% of accounts receivable as of March 31, 2021. There were no other payors or customers that individually accounted for more than 10% of accounts receivable as of March 31, 2021. In addition, the Company had one payor and one customer that accounted for more than 10% of accounts receivable as of March 31, 2020. The one payor and one customer accounted for 43% of accounts receivable as of March 31, 2020. There were no other payors or customers that individually accounted for more than 10% of accounts receivable as of March 31, 2020. (b) Deferred Revenue and Remaining Performance Obligations The timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue on the condensed In a majority of agreements that produce contract revenue, the Company receives a substantial up-front payment and additional payments upon the achievement of various milestones over the life of the agreement. This results in deferred revenue and is relieved upon delivery of the applicable Smart Sticker adhesive patch kits or RNA extraction results. Changes in accounts receivable and deferred revenue were not materially impacted by any other factors. The Company records a deferred revenue liability if a customer pays consideration before the Company transfers a good or service to the customer. Deferred revenue primarily represents upfront milestone payments, for which consideration is received prior to when goods/services are completed or delivered. Upfront fees that are estimated to be recognized as revenue more than one year from the date of collection are classified as long-term deferred revenue. Short-term deferred revenue as of March 31, 2021 and December 31, 2020 was $1.4 million and $0.9 million, respectively. Long-term deferred revenue as of March 31, 2021 and December 31, 2020 was $0.1 million and $0.6 million, respectively. Remaining performance obligations include deferred revenue and amounts the Company expects to receive for goods and services that have not yet been delivered or provided under existing agreements. For agreements that have an original duration of one year or less, the Company has elected the practical expedient applicable to such agreements and does not disclose the remaining performance obligations at the end of each reporting period. As of March 31, 2021, the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed agreements with an original duration of one year or more was approximately $1.3 million. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next two to three years.
( l )
Assay Accounts Receivable Due to the nature of the Company’s assay revenue, it can take a significant amount of time to collect upon billed PLA tests. The Company prepares an analysis on reimbursement collections and data obtained for each financial reporting period to determine the amount of receivables to be recorded relating to PLA tests performed in the applicable period. The Company generally does not perform evaluations of customers’ financial condition and generally does not require collateral. Accounts receivable are written off when all efforts to collect the balance have been exhausted. Adjustments for implicit price concessions attributable to variable consideration are incorporated into the measurement of the accounts receivable balances. The Company recorded $1.5 million and $1.0 million of gross assay accounts receivable as of March 31, 2021 and December 31, 2020, respectively. Contract Accounts Receivable Contract accounts receivable are recorded at the net invoice value and are not interest bearing. The Company reserves specific receivables if collectability is no longer reasonably assured, and as of March 31, 2021, the Company did not maintain any reserve over contract receivables as they relate to large established credit worthy customers. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve. The Company recorded $0.4 million and $0.5 million of contract accounts receivable as of March 31, 2021 and December 31, 2020, respectively.
( m )
The Company records outbound freight and shipping costs for its contract and assay revenues in cost of revenues.
( n )
Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. We report net loss and the components of other comprehensive loss, including unrealized gains and losses on marketable securities, net of their related tax effect to arrive at total comprehensive loss.
( o )
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.
( p )
Basic and diluted net loss per share of common stock is determined by dividing net loss applicable to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Because there is a net loss attributable to holders of common stock during the three months ended March 31, 2021 and 2020, the outstanding common stock warrants, stock options, restricted stock units (“RSUs”) and preferred stock have been excluded from the calculation of diluted loss per share of common stock because their effect would be anti-dilutive. Therefore, the weighted average shares used to calculate both basic and diluted loss per share are the same. Diluted net loss per share of common stock for the three the Company’s
( q )
Effective January 1, 2020, the Company elected an accounting policy change to no longer estimate forfeitures in connection with expense recognition of stock options and RSUs. All stock options and RSUs granted on or subsequent to January 1, 2020 will recognize forfeitures when they occur in accordance with ASU 2016-09, Compensation—Stock Compensation (Topic 718) Compensation costs associated with stock option awards and other forms of equity compensation are measured at the grant-date fair value of the awards and recognized over the requisite service period of the awards on a ratable basis. The Company grants stock options to purchase common stock to employees with exercise prices equal to the fair market value of the underlying stock, as determined by the board of directors, management and outside valuation experts prior to the Business Combination. The board of directors and outside valuation experts determined the fair value of the underlying stock by considering a number of factors, including historical and projected financial results, the risks the Company faced at the time, the preferences of the Company’s debt holders and preferred stockholders, and the lack of liquidity of the Company’s common stock. Subsequent to the close of the Business Combination, the fair market value of stock options is based on the closing stock price on the grant date. The fair value of each stock option award is estimated using the Black-Scholes-Merton valuation model. Such value is recognized as expense over the requisite service period using the ratable method. The expected term of options is based on the simplified method which defines the expected term as the average of the contractual term of the options and the weighted average vesting period for all option tranches. The expected volatility of stock options is based upon the historical volatility of a number of related publicly traded companies in similar stages of development as well as the volatility of the Company’s common stock. The risk-free interest rate is based on the average yield of U.S. Treasury securities with remaining terms similar to the expected term of the share-based awards. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The Company accounts for stock options to non-employees using the fair value approach. The fair value of these options is measured using the Black-Scholes-Merton option pricing model, reflecting the same assumptions applied to employee options, other than expected life, which is assumed to be the remaining contractual life of the award. Options that are granted to employees generally have a requisite service period of three to four years. RSUs are considered restricted stock. The fair market value of RSUs is based on the closing stock price on the grant date. The Company recognizes stock-based compensation expense based on the fair value on a ratable basis over the requisite service periods of the awards. RSUs that are granted to employees have a requisite service period typically between two and four years. All stock options and RSUs granted prior to January 1, 2020 will maintain the estimated forfeiture approach and will be recognized over the requisite service period using the straight-line method. The fair value of each option for employees was estimated on the date of grant using the following assumptions:
Three Months Ended March 31,
2021
2020
Assumed risk-free interest rate
0.52% - 1.13%
0.79% - 1.69%
Assumed volatility
74.88% - 77.57%
64.03% - 65.92%
Expected option term
6.08 years
5.04 - 6.08 years
Expected dividend yield
—
—
The following table sets forth assumptions used to determine the fair value of the purchase rights issued under the ESPP:
Three Months Ended March 31,
2021
2020
Assumed risk-free interest rate
0.10% - 0.18%
Not applicable
Assumed volatility
68.44% - 69.34%
Not applicable
Expected option term
0.49 - 0.50 years
Not applicable
Expected dividend yield
—
Not applicable The Company recorded stock-based compensation expense for employee options, RSUs, ESPP contributions, and consultant options of $2.2 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. The total compensation cost related to non-vested awards not yet recognized as of March 31, 2021 was $32.8 million,
(r)
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC Topic 480, Distinguishing Liabilities from Equity Derivatives and Hedging – Contracts in Entity’s Own Equity For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants classified as liabilities and are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a component of other income/(expense) in the condensed consolidated statements of operations. The fair value of the warrants is estimated using a Black-Scholes-Merton valuation model. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of its warrants. At that time, the portion of the warrant liability related to the Company’s warrants will be reclassified to additional paid-in capital. The following assumptions were used to calculate the fair value of the Company’s warrant liability using the Black-Scholes-Merton valuation model:
Three Months Ended March 31,
2021
2020
Assumed risk-free inter |
