Quarterly report pursuant to Section 13 or 15(d)

Derivative Liabilities

v3.21.2
Derivative Liabilities
3 Months Ended
Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITIES

NOTE 6 - 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:


    For the Three Months Ended
March 31, 2021
 
    Warrants     Convertible Notes     Total  
Beginning balance as of January 1, 2021   $ 4,217,170     $ 225,800     $ 4,442,970  
Extinguishment of derivative liabilities in connection with conversion of debt     -       (591,203 )     (591,203 )
Warrants issued in private offering     7,294,836       -       7,294,836  
Change in fair value of derivative liabilities     12,573,904       665,404       13,229,308  
Ending balance as of March 31, 2021   $ 24,085,910     $ 290,001     $ 24,375,911  

The fair value of the derivative liabilities as of March 31, 2021 was estimated using the Monte-Carlo and Black Scholes option price models, with the following assumptions used:


    For the
Three Months Ended
 
    March 31,
2021
 
Risk-free interest rate   0.00% - 0.92%  
Expected term (years)   0.02 – 4.90  
Expected volatility   85% - 192%  
Expected dividends   0%  

Between January 15, 2021 and February 5, 2021, the fair value of derivative liabilities extinguished in connection with the conversion of debt were estimated using the Monte-Carlo and Black Scholes option price models with the following assumptions used:


    January 15, 2021
to
 
    February 5, 2021  
Risk-free interest rate   0.00% - 0.14%  
Expected term (years)   0.02 - 0.18  
Expected volatility   120% - 161%  
Expected dividends   0%  

AGP Warrants


In connection with the closing of the Business Combination on November 6, 2020, the Company became obligated to assume 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”) that had originally been issued by KBL to an investment banking firm in connection with a prior private placement.


On March 12, 2021, the Company issued a warrant to AGP (the “AGP Warrant”) to purchase up to an aggregate of 63,658 shares of the Company’s common stock at a purchase price of $5.28 per share, subject to adjustment, in full satisfaction of the AGP Warrant Liability. The purchase of shares pursuant to the AGP Warrant is limited at any given time not to exceed a beneficial ownership of 4.99% of the then total number of issued and outstanding shares of the Company’s common stock. The AGP Warrant is exercisable at any time between May 2, 2021 and May 2, 2025. The newly issued AGP Warrant did not meet the requirements for equity classification due to the existence of a tender offer provision that could potentially result in cash settlement of the AGP Warrant that did not meet the limited exception in the case of a change-in-control. Accordingly, the AGP Warrant will continue to be liability-classified. The AGP Warrant was revalued on March 31, 2021 at $403,332 which resulted in a $237,436 increase in the fair value of the derivative liabilities.


Warrants Issued in Private Offering


On February 23, 2021, the Company issued five-year warrants (the “PIPE Warrants”) to purchase 2,564,000 shares of common stock at an exercise price of $5.00 per share in connection with the private offering (see Note 10 – Stockholders’ Equity – Common Stock). The PIPE Warrants did not meet the requirements for equity classification due to the existence of a tender offer provision that could potentially result in cash settlement of the PIPE Warrants that didn’t meet the limited exception in the case of a change-in-control. Accordingly, the Company reclassified the $7,294,836 fair value of the PIPE Warrants, which was determined using the Black-Scholes option pricing model, from additional paid-in-capital to derivative liabilities. The PIPE Warrants were revalued on March 31, 2021 at $11,876,704 which resulted in a $4,581,868 change in the fair value of derivative liabilities. The following assumptions were used to value the PIPE Warrants at issuance:


    February 23,
2021
 
Risk-free interest rate   0.59%  
Expected term (years)   5.00  
Expected volatility   85.0%  
Expected dividends   0.0%