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Derivative Liabilities | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE LIABILITIES | NOTE 5 - DERIVATIVE LIABILITIES The following table sets forth a summary of the changes in the fair value of Level 3 derivative liabilities (except the Public SPAC warrants as defined below, which are Level 1 derivative liabilities) that are measured at fair value on a recurring basis:
|  | For the Nine Months Ended September 30, 2021 |
|  | Warrants |  |  |  |  |  |  |
|  | Public |  |  | Private |  |  |  |  |  |  |  |  | Convertible |  |  |  |
|  | SPAC |  |  | SPAC |  |  | PIPE |  |  | Other |  |  | Notes |  |  | Total |
Balance as of January 1, 2021 |  | $ | 3,795,000 |  |  | $ | 256,275 |  |  | $ | - |  |  | $ | 165,895 |  |  | $ | 225,800 |  |  | $ | 4,442,970 |
Extinguishment of derivative liabilities in connection with conversion of debt [1] |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (591,203 | ) |  |  | (591,203 | )
Warrants issued in connection with the financing |  |  | - |  |  |  | - |  |  |  | 7,294,836 |  |  |  | - |  |  |  | - |  |  |  | 7,294,836 |
Change in fair value of derivative liabilities |  |  | 7,130,000 |  |  |  | 624,600 |  |  |  | 4,581,868 |  |  |  | 237,436 |  |  |  | 655,404 |  |  |  | 13,229,308 |
Balance as of March 31, 2021 |  |  | 10,925,000 |  |  |  | 880,875 |  |  |  | 11,876,704 |  |  |  | 403,331 |  |  |  | 290,001 |  |  |  | 24,375,911 |
Change in fair value of derivative liabilities |  |  | 10,350,000 |  |  |  | 629,325 |  |  |  | 7,712,770 |  |  |  | 55,025 |  |  |  | 409,300 |  |  |  | 19,156,420 |
Balance as of June 30, 2021 |  |  | 21,275,000 |  |  |  | 1,510,200 |  |  |  | 19,589,474 |  |  |  | 458,356 |  |  |  | 699,301 |  |  |  | 43,532,331 |
Warrants issued relates to Alpha settlement [1] |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 95,677 |  |  |  | - |  |  |  | 95,677 |
Extinguishment of derivative liabilities in connection with the Alpha settlement [1] |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (699,301 | ) |  |  | (699,301 | )
Change in fair value of derivative liabilities |  |  | (10,695,000 | ) |  |  | (831,825 | ) |  |  | (10,232,374 | ) |  |  | (284,192 | ) |  |  | - |  |  |  | (22,043,391 | )
Balance as of September 30, 2021 |  | $ | 10,580,000 |  |  | $ | 678,375 |  |  | $ | 9,357,100 |  |  | $ | 269,841 |  |  | $ | - |  |  | $ | 20,885,316 |
[1] | See Note 7 - Convertible Notes Payable.
The fair value of the derivative liabilities as of September 30, 2021 were estimated using the Black Scholes option pricing model, with the following assumptions used:
|  | September 30, 2021 |
Risk-free interest rate |  |  | 0.53% - 0.85% |
Expected term in years |  |  | 2.84 - 4.40 |
Expected volatility |  |  | 85% - 90% |
Expected dividends |  |  | 0% |
SPAC Warrants Public SPAC Warrants Participants in KBL’s initial public offering received an aggregate of 11,500,000 Public SPAC Warrants (“Public SPAC Warrants”). Each Public SPAC 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) until November 6, 2025, subject to adjustment. No fractional shares will be issued upon exercise of the Public SPAC Warrants. Management has determined that the Public SPAC Warrants contain a tender offer provision which could result in the Public SPAC 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 SPAC Warrants being precluded from equity classification. Accordingly, the Public SPAC Warrants are classified as liabilities measured at fair value, with changes in fair value each period reported in earnings. The Public SPAC Warrants were revalued on September 30, 2021 at $10,580,000, which resulted in a $10,695,000 decrease and a $6,785,000 increase in the fair value of the derivative liabilities during the three and nine months ended September 30, 2021, respectively. Private SPAC Warrants Participants in KBL’s initial private placement received an aggregate of 502,500 Private SPAC Warrants (“Private SPAC Warrants”). Each Private SPAC 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) until November 6, 2025, subject to adjustment. No fractional shares will be issued upon exercise of the Private SPAC Warrants. Management has determined that the Private SPAC Warrants contain a tender offer provision which could result in the Private SPAC 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 SPAC Warrants being precluded from equity classification. Accordingly, the Private SPAC Warrants are classified as liabilities measured at fair value, with changes in fair value each period reported in earnings. The Private SPAC Warrants were revalued on September 30, 2021 at $678,375, which resulted in a $831,825 decrease and a $422,100 increase in the fair value of the derivative liabilities during the three and nine months ended September 30, 2021, respectively. PIPE Warrants 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 9 – 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 PIPE Warrants are liability-classified and the Company recorded the $7,294,836 fair value of the PIPE Warrants, which was determined using the Black-Scholes option pricing model, as derivative liabilities. The PIPE Warrants were revalued on September 30, 2021 at $9,357,100, which resulted in a $10,232,374 decrease and a $2,062,264 increase in the fair value of the derivative liabilities during the three and nine months ended September 30, 2021, respectively. The following assumptions were used to value the PIPE Warrants at issuance:
|  | February 23, 2021 |
Risk-free interest rate |  |  | 0.59% |
Expected term in years |  |  | 5.00 |
Expected volatility |  |  | 85% |
Expected dividends |  |  | 0% |
Other Warrants AGP Warrant 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 exercise of the AGP Warrant is limited at any given time to prevent AGP from exceeding beneficial ownership of 4.99% of the then total number of issued and outstanding shares of the Company’s common stock upon such exercise. The 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 September 30, 2021 at $202,947, which resulted in a $255,409 decrease and a $37,052 increase in the fair value of the derivative liabilities during the three and nine months ended September 30, 2021, respectively. Alpha Warrant In connection with the Alpha Settlement Agreement (see Note 7 – Convertible Notes Payable) that was agreed to on July 29, 2021 (signed on July 31, 2021), the Company issued a three-year warrant for the purchase of 25,000 shares of the Company’s common stock at an exercise price of $7.07 per share (the “Alpha Warrant Liability” and the “Alpha Warrant”). The exercise of shares of the Alpha Warrant is limited at any given time to prevent Alpha from exceeding a beneficial ownership of 4.99% of the then total number of issued and outstanding shares of the Company’s common stock upon such exercise. The warrant is exercisable until August 2, 2024. The newly issued Alpha 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 Alpha Warrant that did not meet the limited exception in the case of a change-in-control. Accordingly, the Alpha Warrant is liability-classified and the Company recorded the $95,677 fair value of the Alpha Warrant, which was determined using the Black-Scholes option pricing model, as a derivative liability. The Alpha Warrant was revalued on September 30, 2021 at $66,894, which resulted in a $28,783 decrease in the fair value of the derivative liabilities during the three and nine months ended September 30, 2021. The following assumptions were used to value the Alpha Warrant at issuance:
|  | July 29, 2021 |
Risk-free interest rate |  |  | 0.37% |
Expected term in years |  |  | 3.00 |
Expected volatility |  |  | 85% |
Expected dividends |  |  | 0% |
Convertible Notes The convertible notes issued in 2020 had embedded features that were bifurcated and recorded as derivative liabilities. Between January 15, 2021 and February 5, 2021, the fair value of derivative liabilities extinguished in connection with the conversion of debt was estimated using the Monte-Carlo and Black Scholes option pricing models with the following assumptions used:
|  | January 15, 2021 to |
|  | February 5, 2021 |
Risk-free interest rate |  |  | 0.00% - 0.14% |
Expected term in years |  |  | 0.02 - 0.18 |
Expected volatility |  |  | 120% - 161% |
Expected dividends |  |  | 0% |
As of June 30, 2021, the Alpha Capital Note (see Note 7 – Convertible Notes Payable) that was the only convertible note with an outstanding balance and the full amount of the July 31, 2021 Alpha Settlement Agreement was accrued as of that date. As of July 31, 2021, the Company recorded the extinguishment of the Alpha Capital Note, the related derivative liabilities and the balance of the settlement accrual. See Note 7, Convertible Notes Payable for additional details. Warrant Activity A summary of the warrant activity (including the August 2021 PIPE Warrants which are equity-classified; see Note 9, Stockholders’ Equity, Sale of Common Stock and Warrants in the August 2021 Offering) during the nine months ended September 30, 2021 is presented below:
|  |  | Number of Warrants |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Life in Years |  |  | Intrinsic Value |
Outstanding, December 31, 2020 |  |  |  | 6,001,250 |  |  |  | 11.50 |  |  |  |  |  |  |  |  |
Issued |  |  |  | 5,152,658 |  |  |  | 6.23 |  |  |  |  |  |  |  |  |
Exercised |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Cancelled |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Expired |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Outstanding, September 30, 2021 |  |  |  | 11,153,908 |  |  | $ | 9.06 |  |  |  | 4.3 |  |  | $ | 1,059,516 |
Exercisable, September 30, 2021 |  |  |  | 11,153,908 |  |  | $ | 9.06 |  |  |  | 4.3 |  |  | $ | 1,059,516 |
A summary of outstanding and exercisable warrants as of September 30, 2021 is presented below:
Warrants Outstanding |  |  | Warrants Exercisable |
|  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  |  | Average |  |  |  |
Exercise |  |  | Number of |  |  | Remaining |  |  | Number of |
Price |  |  | Shares |  |  | Life in Years |  |  | Shares |
$ | 5.00 |  |  |  | 2,564,000 |  |  |  | 4.4 |  |  |  | 2,564,000 |
$ | 5.28 |  |  |  | 63,658 |  |  |  | 3.6 |  |  |  | 63,658 |
$ | 7.07 |  |  |  | 25,000 |  |  |  | 2.8 |  |  |  | 25,000 |
$ | 7.50 |  |  |  | 2,500,000 |  |  |  | 4.9 |  |  |  | 2,500,000 |
$ | 11.50 |  |  |  | 6,001,250 |  |  |  | 4.1 |  |  |  | 6,001,250 |
|  |  |  |  | 11,153,908 |  |  |  | 4.3 |  |  |  | 11,153,908 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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