Notes

Original Post: December 6, 2022
• Edited Dec 7, 2022: Added Link to the News Release on Exro's site regarding the Debenture issue.
• Edited Jan 30, 2023: Updated warrant calculations for the $1.36 warrants using data from the Q3 financials.
• Edited March 1, 2023: Darrel Bishop stated in the live webcast that in the first couple months of 2023, around 7.5 million in warrants had been exercised
• Edited March 30, 2023: Added Q and A for 2 common questions
• Edited March 31, 2023: Updated/added some notes based on the annual report, also further clarification on exercised warrants since FY2022
• Edited May 11, 2023: Updated warrants outstanding and $ values as per the 1Q23 report.
• Edited Aug 14, 2023: Updated warrants outstanding and $ values as per the 2Q23 report.
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Questions often come up in the live chat surrounding the warrants that EXRO has issued.
I have put together this rough DD around the warrants to try and demystify them somewhat.
***** Disclaimer: I am not a financial advisor or any kind of insider to EXRO or other publicly traded company. All information contained below is to the best of my knowledge and should not be relied upon as fact. *****
- All Dollar values are $CDN
What is a warrant?:
• Warrants are essentially just an option wherein the exercise of the warrant is filled by the company issuing new shares rather than in the case of an option where an opposing side trader must supply an existing share from the market)
Why would I buy a share when a warrant is trading for less?:
• The warrant price is only the 'up front' cost of the share. The warrant only gives you the option to purchase the share from the company at a later date by providing the exercise value to the company. The warrant trading price + the exercise price is the total cost, but only the warrant cost needs to be paid until it is exercised.
Why would I buy a warrant if I have to pay extra for the share which would be more than just buying the share?:
• The answer is 'Leverage'- The intrinsic value of the warrant increases by the same amount as the share price increases, resulting in greater leverage for your investment
• For example:- If you have 10,000 shares of EXRO and it is trading at $2.72 and the $2 Warrant is trading at less than $1.36 you could own 20,000 warrants or more instead of 10,000 shares.- In that scenario, if the price of the of the share increases by $1, the 10,000 shares have increased $10,000 in value, but the warrants owned would theoretically increase by the same intrinsic value of $1 each ($20,000)- In practice, the warrants would not increase the whole $1 as the extrinsic value will decrease somewhat, but your overall profit will be more than if you owned the shares.- The flip side of that calculation is that when the share price declines or if the shares are not trading above the exercise price at expiry, the warrants will often decline in value or could become worthless.- See the end of this post for more information on intrinsic and extrinsic value.
EXRO has a variety of warrants issued at various pricing levels. (I will try to come back and edit these as circumstances change or information is clarified)

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- $2 Warrants:
Outstanding 1Q23: 6,191,225 x $2.00= $12,382,450 warrants +90,911 x $1.60=$145,457 Broker warrants
Total: $12,927, 907
Expiry: Feb 4, 2025
o This is the only warrant that trades openly on an exchange
o These warrants were issued as part of the financing EXRO performed in February of 2022. https://www.exro.com/news/exro-announces-closing-of-20-35-million-bought-deal-financing
o 6,361,225 were issued (6,281,225 remaining)
• Update March 31, 2023: All $2 warrants remained outstanding at Dec 31, 2022
• Update May 11, 2023: 6,281,225 Outstanding vs 6,361,225 at year end. 80,000 exercised in Q1
• Update Aug 14, 2023: 6,191,225 Outstanding vs 6,281,225 at Q1. 80,000 exercised in Q2
• Note that the 2022 annual report listed the outstanding number of warrants for the $1.60 broker shares and the $2 general shares in error. The balances should be flipped. This was corrected in the 1Q23 report.
o The broker shares do not trade on any exchange and have an outstanding amount of ~750,000 at Dec 31, 2022
o In Q1 of 2023, 609,597 broker warrants were exercised leaving 141,250 remaining.
o The warrant trades under the symbol EXRO.WT on the TSX
• Not all brokers have them available for trade.
• Only tradable in Canada to my understanding
o Each warrant gives the holder the option to purchase 1 share of EXRO from the company any time before Feb of 2025 by paying the company $2
o Therefore, the cost to obtain the share is $2 + whatever the holder paid to acquire the warrant. (the original holders received .5 warrants for free for each share they purchased in the offering)
o There is no acceleration clause for these warrants which means that a holder can not be forced by the company to exercise this right prior to expiry of the warrant.
o Exercising of the $2 warrants would net EXRO ~$12.7 Million (As of 2Q2023, ~$12.38 Million)
o Exercising of the broker warrants would net EXRO ~$1.2 Million (As of 2Q2023, $145,000)
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******************************************************************************- $1.36 Warrants:
Outstanding 1Q23: 4,000,847 x $1.36
Total: $5,441,151.92
Expiry: September 1 and 20, 2026
o These warrants do not trade on any exchange
o These warrants were issued as part of a combination public and private offering in September of 2022: https://www.exro.com/news/exro-announces-closing-of-brokered-public-offering-and-update-on-concurrent-non-brokered-private-placement
o Each warrant gives the holder the option to purchase 1 share of EXRO from the company any time before September 2026 by paying the company $1.36
o Approx 8 million of these warrants were issued
• Updated Jan 30, 2023 (9,323,757 were issued)
• Updated March 31, 2023 from the annual report: as at Dec 31, 2022 there remained 8,450,647 outstanding
• Updated May 11, 2023 from the quarterly report: 4,409,847 outstanding
• Updated Aug 14, 2023 from the quarterly report: 4,000,847 outstanding
• From the Q3 report: "The Company issued 7,920,000 warrants on September 1, 2022 in connection with the closing of the public offering agreement and issued 1,403,757 warrants on September 20, 2022 in connection with the closing of the private offering agreement "
o EXRO has the option to accelerate the expiry of these warrants upon 30 days notice if the regular shares trade above a Volume Weighted Average of $2.72 for 20 consecutive trading days.
o Exercising of these warrants would net EXRO ~$12.68 Million
• March 1st, 2023: Darrel Bishop stated in the live webcast that in the first couple months of 2023, around 7.5 million in warrants had been exercised (I believe the vast majority of these would be the $1.36 warrants, leaving around $5 million dollars worth to be exercised)
• May 11, 2023: As per Q1 report, 4,409,847 remain outstanding.
• Aug 14, 2023: As per Q2 report, 4,000,847 remain outstanding
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- $2.40 Warrants:
Outstanding 1Q23: 6,240,000 x $2.40
Total: $14,976,000
Expiry: Dec 30, 2027
o These warrants do not trade on an exchange
o These warrants were issued as part of the debenture issue in December of 2022: https://www.exro.com/news/exro-announces-15-million-bought-deal-offering-of-secured-convertible-debenture-units
o Each warrant gives the holder the option to purchase 1 share of EXRO from the company any time before December 31, 2027 by paying the company $2.40
o Approx 6.24-7.17 million of these warrants were/will be issued
• As per the 2022 annual report, confirmed 6,240,000 warrants issued and remain outstanding at Dec 31, 2022
• As per 1Q23 report all remain outstanding.
o EXRO has the option to accelerate the expiry of these warrants upon 30 days notice if the regular shares trade above a Volume Weighted Average of $4.80 for 20 consecutive trading days (After the initial 4 month hold period).
o Exercising of these warrants would net EXRO ~$15 Million
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Nuances of owning and trading the warrants:
- Currently only the $2 Feb 2025 expiry warrants are exchange tradable
- Due to the relatively low volume of warrants issued (compared to shares), the buy/ask spread of the warrants can be extreme. Limit orders with plenty of time to fill are your friend here as a market order can and will most likely result in huge slippage.
- The price/value of the warrants is calculated on 2 values:
o Intrinsic value:
• This is the easily quantifiable value based on the exercise price in relation to the current share price.
• Example. If the share price is $2.50 and the warrant exercise price is $2.00, then the warrant trading price includes 50 cents of intrinsic value. By extension, if the share price is below $2, there is no current intrinsic value in the price of the warrants
o Extrinsic value:
• This is the value included in the warrants trading price that fluctuates based on multiple variables.
• Outside of an individual’s perceived value, the recognizable extrinsic value is generally calculated in the same manner as it is for options.
• The primary variables relate to the amount of time remaining until expiry, current risk-free interest rates of capital in the general market, and the current volatility of the underlying share price.
o Fair Value (Intrinsic + Extrinsic Value):
• The method of calculating fair value that I am familiar with is Black-Scholes
• This is one common and accepted method used in accounting to value options/warrants
• Black-Scholes Calculators can be found easily online Example: https://www.mystockoptions.com/black-scholes.cfm
• The Volatility of EXRO’s share price can be calculated by taking the last years’ worth of closing prices and placing them into a volatility calculator
o When I want to update the volatility in my calculations, I download and updated .csv file from https://finance.yahoo.com/quote/EXRO.TO/history?p=EXRO.TO
o I then upload that .csv to https://goodcalculators.com/historical-volatility-calculator/ and calculate the value using default settings.
These are the basics to get you started in understanding EXRO's warrants. Feel free to ask questions below and I will try to answer or edit this post as necessary.