NOTE 11 — DERIVATIVE LIABILITIES

The following table sets forth a summary of the changes in the fair value of Level 3 derivative liabilities that are measured at fair value on a recurring basis:

During the year ended December 31, 2020, in connection with the Business Combination, the Company assumed derivative liabilities in the aggregate amounts of $188,940, $1,978,000, $587,925, $23,500, and $531,000 related to the AGP Warrants (defined below under AGP Warrants), public warrants, private warrants, embedded conversion options of certain convertible notes payable, and redemption features of the Series A Preferred Stock, respectively. See Note 13 – Convertible Notes Payable for additional details. See Note 15 – Stockholders’ Equity (Deficiency) for a description of the warrants issued and preferred stock redemption features deemed to be derivative liabilities. In applying the Monte-Carlo and Black-Scholes option pricing models to derivatives assumed on November 6, 2020, the Company used the following assumptions:

In connection with the modification of certain convertible notes on November 25, 2020 (See Note 13 – Convertible Notes Payable for additional details), the Company applied the Monte-Carlo and Black-Scholes option pricing models to value embedded features as derivative liabilities with the following assumptions:

During the year ended December 31, 2020, the Company extinguished an aggregate of $1,318,704 of derivative liabilities in connection with repayments and exchanges of certain convertible notes payable and preferred stock into shares of the Company’s common stock. See Note 13 – Convertible Notes Payable and Note 15 – Stockholders’ Equity (Deficiency) for additional details. In applying the Monte-Carlo and Black-Scholes option pricing models to derivatives related to the embedded features of the convertible notes during the year ended December 31, 2020, the Company used the following assumptions:

In applying the Monte-Carlo and Black-Scholes option pricing models to derivatives outstanding on December 31, 2020, the Company used the following assumptions:

Convertible Notes

On November 6, 2020, in connection with the Business Combination (see Note 5), the Company assumed certain convertible notes (see Note 13) which had default features that had been bifurcated from the notes and were recorded as derivative liabilities with a fair value of $23,500 on that date. On November 25, 2020, the conversion prices of the convertible notes were amended and the Company determined that the amendment should be recorded as an extinguishment (see Note 13). The existing derivative liabilities were first marked-to-market as of the date of the amendment, reducing the value by $3,200 and the $20,300 fair value of the derivative liabilities was then derecognized. The reissuance of the amended convertible notes was recorded, including the bifurcation of the default features and new redemption features which had an aggregate fair value of $1,219,700. Between November 27, 2020 and December 31, 2020, there were multiple conversions of the convertible notes that were recorded as extinguishments due to the existence of bifurcated derivative liabilities (see Note 13). The bifurcated derivative liabilities were marked-to-market just prior to each conversion and at period end, resulting in an aggregate reduction of $290,864 in the fair value of the derivative liabilities and $703,036 aggregate fair value of the bifurcated derivative liabilities were derecognized on the conversion dates, leaving derivative liabilities with a fair value of $225,800 outstanding on December 31, 2020. 

Alliance Global Partners (“AGP”) Warrants

In connection with the closing of the Business Combination on November 6, 2020, the Company became obligated to issue five-year warrants for the purchase of 63,658 shares of the Company’s common stock at an exercise price of $5.28 per share (the “AGP Warrant Liability”) to an investment banking firm in connection with a prior private placement. The value of the AGP Warrants assumed on the date of the Business Combination was $188,940 and at December 31, 2020 the value is $165,895, the difference is due to a change in fair value of $23,045. See Note 18 – Subsequent Events for details of the issuance of the AGP warrants.

Public Warrants

Participant’s in KBL’s initial public offering received an aggregate of 11,500,000 Public Warrants (“Public Warrants”). Each Public Warrant entitles the holder to purchase one-half of one share of the Company’s common stock at an exercise price of $5.75 per half share ($11.50 per whole share), subject to adjustment. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants are currently exercisable and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. The Company may redeem the Public Warrants, in whole and not in part, at a price of $0.01 per Public Warrant upon 30 days’ notice (“30-day redemption period”), only in the event that the last sale price of the common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption is given, provided there is an effective registration statement with respect to the shares of common stock underlying such Public Warrants and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the Company calls the Public Warrants for redemption as described above, the Company’s management will have the option to require all holders that wish to exercise Public Warrants to do so on a “cashless basis.” Management has determined that the Public Warrants contain a tender offer provision which could result in the Public Warrants settling for the tender offer consideration (including potentially cash) in a transaction that didn’t result in a change-in-control. This feature results in the Public Warrants being precluded from equity classification. Accordingly, the Public Warrants are classified as liabilities measured at fair value, with changes in fair value each period reported in earnings. The value of the Public Warrants assumed on the date of the Business Combination was $1,978,000 and at December 31, 2020 the value was $3,795,000, the difference is due to a change in fair value of $1,817,000.

Private Warrants

Participant’s in KBL’s initial private placement received an aggregate of 502,500 Private Warrants (“Private Warrants”). Each Private Warrant entitles the holder to purchase one-half of one share of the Company’s common stock at an exercise price of $5.75 per half share ($11.50 per whole share), subject to adjustment. No fractional shares will be issued upon exercise of the warrants. The Private Warrants are currently exercisable and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. The Private Warrants are non-redeemable so long as they are held by original holders or their permitted transferees. If the Private Warrants are held by other parties, the Company may redeem the Private Warrants, in whole and not in part, at a price of $0.01 per Warrant upon 30 days’ notice (“30-day redemption period”), only in the event that the last sale price of the common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption is given, provided there is an effective registration statement with respect to the shares of common stock underlying such Warrants and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the Company calls the Private Warrants for redemption as described above, the Company’s management will have the option to require all holders that wish to exercise Private Warrants to do so on a “cashless basis.” Management has determined that the Private Warrants contain a tender offer provision which could result in the Private Warrants settling for the tender offer consideration (including potentially cash) in a transaction that didn’t result in a change-in-control. This feature (amongst others) results in the Private Warrants being precluded from equity classification. Accordingly, the Private Warrants are classified as liabilities measured at fair value, with changes in fair value each period reported in earnings. The value of the Private Warrants assumed on the date of the Business Combination was $587,925 and at December 31, 2020, the value was $256,275, the difference is due to a change in fair value of $331,650.

The following is a summary of warrant activity (in whole shares) for the year ended December 31, 2020:

The following table presents information related to stock warrants (in whole shares) at December 31, 2020: