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Derivative Liabilities | 6 Months Ended
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Jun. 30, 2022
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 (except the Public SPAC Warrants as defined below, which are Level 1 derivative liabilities) that are measured at fair value on a recurring basis:
|  | Warrants |  |  |  |
|  | Public |  |  | Private |  |  |  |  |  |  |  |  |  |
|  | SPAC |  |  | SPAC |  |  | PIPE |  |  | Other |  |  | Total |
Balance as of January 1, 2022 |  | $ | 8,048,850 |  |  | $ | 467,325 |  |  | $ | 6,516,300 |  |  | $ | 187,892 |  |  | $ | 15,220,367 |
Change in fair value of derivative liabilities |  |  | (1,852,650 | ) |  |  | (251,250 | ) |  |  | (3,044,800 | ) |  |  | (81,414 | ) |  |  | (5,230,114 | )
Balance as of March 31, 2022 |  | $ | 6,196,200 |  |  | $ | 216,075 |  |  | $ | 3,471,500 |  |  | $ | 106,478 |  |  | $ | 9,990,253 |
Change in fair value of derivative liabilities |  |  | (4,357,350 | ) |  |  | (185,925 | ) |  |  | (2,849,900 | ) |  |  | (94,363 | ) |  |  | (7,487,538 | )
Balance as of June 30, 2022 |  | $ | 1,838,850 |  |  | $ | 30,150 |  |  | $ | 621,600 |  |  | $ | 12,115 |  |  | $ | 2,502,715 |
The fair value of the derivative liabilities as of June 30, 2022 and December 31, 2021 was estimated using the Black Scholes option pricing model, with the following assumptions used:
|  | June 30, 2022
Risk-free interest rate |  | 2.90% - 3.00%
Expected term in years |  | 2.09 - 3.65
Expected volatility |  | 91.00% - 91.50%
Expected dividends |  | 0%
Market Price |  | $0.85
|  | December 31, 2021
Risk-free interest rate |  | 0.85% - 1.14%
Expected term in years |  | 2.59 – 4.15
Expected volatility |  | 98.5%
Expected dividends |  | 0%
Market Price |  | $3.90
SPAC Warrants Public SPAC Warrants Participants in KBL’s initial public offering received an aggregate of 11,500,000 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 June 30, 2022 at $1,838,850, which resulted in decreases of $4,357,350 and $6,210,000 in the fair value of the derivative liabilities during the three and six months ended June 30, 2022, respectively. Private SPAC Warrants Participants in KBL’s initial private placement in connection with its initial public offering received an aggregate of 502,500 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 June 30, 2022 at $30,150, which resulted in decreases of $185,925 and $437,175 in the fair value of the derivative liabilities during the three and six months ended June 30, 2022, 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 a private placement offering. 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 June 30, 2022 at $621,600, which resulted in decreases of $2,849,900 and $5,894,700 in the fair value of the derivative liabilities during the three and six months ended June 30, 2022, respectively. Other Warrants AGP Warrant In connection with the transactions contemplated by the Company’s Business Combination Agreement (as amended, the “Business Combination Agreement”), dated as of July 25, 2019 (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 “Alliance Global Partners Warrant Liability” or “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 Alliance Global Partners (“AGP” and 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 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 June 30, 2022 at $10,395, which resulted in decreases of $76,052 and $133,936 in the fair value of the derivative liabilities during the three and six months ended June 30, 2022, respectively. Alpha Warrant In connection with that certain Mutual Release and Settlement Agreement dated July 31, 2021 (agreed to on July 29, 2021) between the Company and Alpha Capital Anstalt (“Alpha” and the “Alpha Settlement Agreement”), 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 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 June 30, 2022 at $1,720, which resulted in decreases of $18,311 and $41,841 in the fair value of the derivative liabilities during the three and six months ended June 30, 2022, respectively. Warrant Activity A summary of the warrant activity (including certain warrants granted in August 2021 as part of a private offering, which are equity-classified) during the six months ended June 30, 2022 is presented below:
|  | Number of Warrants |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Life in Years |  |  | Intrinsic Value |
Outstanding, December 31, 2021 |  |  | 11,153,908 |  |  | $ | 9.06 |  |  |  | 4.1 |  |  |  |  |
Issued |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Exercised |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Cancelled |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Expired |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Outstanding, June 30, 2022 |  |  | 11,153,908 |  |  | $ | 9.06 |  |  |  | 3.6 |  |  |  | - |
Exercisable, June 30, 2022 |  |  | 11,153,908 |  |  | $ | 9.06 |  |  |  | 3.6 |  |  |  | - |
A summary of outstanding and exercisable warrants as of June 30, 2022 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 |  |  |  | 3.7 |  |  |  | 2,564,000 |
$ | 5.28 |  |  |  | 63,658 |  |  |  | 2.8 |  |  |  | 63,658 |
$ | 7.07 |  |  |  | 25,000 |  |  |  | 2.1 |  |  |  | 25,000 |
$ | 7.50 |  |  |  | 2,500,000 |  |  |  | 4.2 |  |  |  | 2,500,000 |
$ | 11.50 |  |  |  | 6,001,250 |  |  |  | 3.4 |  |  |  | 6,001,250 |
|  |  |  |  | 11,153,908 |  |  |  | 3.6 |  |  |  | 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 https://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 https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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