• Filing Date: 2018-11-13
  • Form Type: 10-Q
  • Description: Quarterly report
9 Months Ended
Sep. 30, 2018
Warrant Derivative Liability  

On March 17, 2015, Brekford issued the Brekford Warrants which permit the holders to purchase at any time over five years, up to 56,000 shares of common stock with an exercise price of $7.50 per share.


The Brekford Warrants exercise price is subject to anti-dilution adjustments that allow for its reduction in the event the Company subsequently issues equity securities, including shares of common stock or any security convertible or exchangeable for shares of common stock, for no consideration or for consideration less than $7.50 a share. The Company accounted for the conversion option of the Brekford Warrants in accordance with ASC Topic 815. Accordingly, the conversion option is not considered to be solely indexed to the Company’s own stock and, as such, is recorded as a liability. The derivative liability associated with the Brekford Warrant has been measured at fair value at September 30, 2018 and December 31, 2017 using the Black Scholes option-pricing model. The assumptions used in the Black-Scholes model are as follows: (i) dividend yield of 0%; (ii) expected volatility of 70.0%; (iii) weighted average risk-free interest rate of 1.89%-2.81%; (iv) expected life of 1.46-2.21 years; and (v) estimated fair value of the common stock of $1.22-$4.90 per share.


At September 30, 2018 and December 31, 2017, the outstanding fair value of the derivative liability, which is included in accrued liabilities in the consolidated balance sheets, was $851 and $78,228, respectively.


Effective October 16, 2018, the Company entered into exchange agreements with holders of the Brekford Warrants pursuant to which the Company issued to the holders an aggregate of 96,924 shares of common stock in exchange for the return of the warrants to the Company for cancellation.