Quarterly report pursuant to Section 13 or 15(d)

Stock Warrants

v3.22.2.2
Stock Warrants
9 Months Ended
Sep. 30, 2022
Warrants and Rights Note Disclosure [Abstract]  
Stock Warrants

Note 14. Stock Warrants

Legacy Markforged Common Stock Warrants

As part of a loan agreement entered into with a lending institution during 2015, Legacy Markforged issued warrants to the lender granting the right to purchase 180,928 shares of the Legacy Markforged common stock at an exercise price of $0.06 per share. The loan agreement was terminated prior to January 1, 2018. The warrants were due to expire on February 17, 2025.

The warrants were classified as a derivative liability within other liabilities prior to exercise in the condensed consolidated balance sheets and subsequent adjustments to fair value are shown in other expense in the condensed consolidated statements of operations.

The fair value is measured at each reporting date using the Black-Scholes model using the following inputs. The inputs below correspond to June 10, 2021:

 

 

 

 

 

 

 

June 10,
2021

 

Expected (remaining) option term (in years)

 

3.69

 

Expected volatility%

 

 

65.0

%

Risk-free interest rate%

 

 

0.45

%

Expected dividend yield%

 

 

0

%

Fair value of common stock (per share)

 

$

9.51

 

 

Management considers contemporaneous third-party valuations in its determination of the fair value of common stock. The fair value of common stock increased significantly in large part due to the change in the probability of special purpose acquisition company (SPAC) exit. For the June 30, 2021 valuation, the Company assigned a 95% probability of a SPAC exit and a 5% probability of staying a private company.

Preferred Stock Warrants

As part of a development agreement executed with a customer in 2019, Legacy Markforged agreed to issue warrants to the customer to purchase Series D convertible preferred stock that would vest upon the achievement of certain payment milestones. The warrants granted the customer the right to purchase up to 280,528 shares of the Company’s Series D convertible preferred stock at an exercise price of $0.0001 per share. As the customer remits payment for goods purchased from the Company under the development agreement, a pro-rata share of warrants vest. The warrants were set to expire on September 24, 2029 but were completely vested and exercised as of the Closing.

The Company accounts for the warrants issued to the customer as consideration payable to the customer and a reduction of revenue with a corresponding adjustment to convertible preferred stock. The Company accounts for the warrants that vest to the customer as a reduction to deferred revenue and a corresponding adjustment to convertible preferred stock. The value of the warrants is measured based on the grant date fair value. The grant date was considered to occur at the execution date of the development agreement.

In accordance with the development agreement, 19,036 warrants vested during the three months ended September 30, 2021 and 110,212 warrants vested during the nine months ended September 30, 2021. As a result, the Company recorded $0.4 and $0.6 million of expense related to the warrants for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, there were no outstanding but unvested warrants remaining under the terms of the development agreement.

Private Placement Warrants and Public Warrants

The Private Placement Warrants were initially recognized as a liability on July 14, 2021 at a fair value of $5.7 million. The Private Placement Warrants were remeasured to a fair value of $0.9 million as of September 30, 2022. The Company recorded a gain of $0.0 million and $1.7 million, respectively, for the three and nine months ended September 30, 2022, which is included in change in fair value of derivative liabilities on the condensed consolidated statements of operations.

The Private Placement Warrants were valued using the following assumptions under the Binomial Lattice Model:

 

 

 

September 30,
2022

 

 

September 30,
2021

 

 

July 14,
2021

 

Market price of public stock

 

$

1.98

 

 

$

6.56

 

 

$

8.56

 

Exercise price

 

$

11.50

 

 

$

11.50

 

 

$

11.50

 

Expected term (years)

 

3.79

 

 

4.79

 

 

5.01

 

Volatility

 

 

121.0

%

 

 

66.0

%

 

 

39.1

%

Risk-free interest rate

 

 

4.13

%

 

 

0.93

%

 

 

0.85

%

Dividend rate

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

The Public Warrants were recognized in stockholder’s equity at a fair value of $9.7 million on July 14, 2021.