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INVESTMENTS - RELATED PARTIES | 12 Months Ended
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Dec. 31, 2020
Investments, Debt and Equity Securities [Abstract] |
INVESTMENTS - RELATED PARTIES | 10. INVESTMENTS – RELATED PARTIES Investments in AVLP and Alzamend Neuro, Inc. (“Alzamend”) at December 31, 2020 and 2019, are comprised of the following:
|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Investment in convertible promissory note of AVLP |  | $ | 11,269,136 |  |  | $ | 9,595,079 |
Short term advance in Alzamend |  |  | 750,000 |  |  |  | — |
Investment in convertible promissory note of Alzamend |  |  | 50,000 |  |  |  | — |
Accrued interest in convertible promissory notes of AVLP and Alzamend |  |  | 2,026,812 |  |  |  | 2,025,475 |
Total investment in convertible promissory note of AVLP – Gross |  |  | 14,095,948 |  |  |  | 11,620,554 |
Less: original issue discount |  |  | (3,870 | ) |  |  | — |
Less: provision for loan losses |  |  | (3,423,608 | ) |  |  | (5,079,834 | )
Total investment in convertible promissory note of AVLP and Alzamend |  |  | 10,668,470 |  |  |  | 6,540,720 |
Investment in derivative instruments of AVLP |  |  | 4,986,552 |  |  |  | 1,330,684 |
Investment in common stock of AVLP |  |  | 499,588 |  |  |  | 238,602 |
Investment in common stock and warrants of Alzamend |  |  | 653,251 |  |  |  | 558,938 |
Investment in derivative instruments and common stock of AVLP and Alzamend |  |  | 6,139,391 |  |  |  | 2,128,224 |
Total investment in AVLP and Alzamend – Net |  | $ | 16,807,861 |  |  | $ | 8,668,944 |
Investment in warrants and common stock of AVLP and Alzamend |  | $ | 6,139,391 |  |  | $ | 2,128,224 |
Investment in convertible promissory notes and advances of AVLP and Alzamend |  |  | 10,668,470 |  |  |  | 6,540,720 |
Total investment in AVLP and Alzamend – Net |  | $ | 16,807,861 |  |  | $ | 8,668,944 |
The following table summarizes the changes in our investments in AVLP and Alzamend during the years ended December 31, 2020 and 2019:
|  |  |  |  | Investment in |  |  |  |
|  | Investment in |  |  | convertible |  |  |  |
|  | warrants and |  |  | promissory notes |  |  | Total |
|  | common stock |  |  | and advances |  |  | investment |
|  | of AVLP and |  |  | of AVLP and |  |  | in AVLP and |
|  | Alzamend |  |  | Alzamend |  |  | Alzamend – Net |
Balance at January 1, 2019 |  | $ | 3,043,499 |  |  | $ | 5,611,621 |  |  | $ | 8,655,120 |
Investment in convertible promissory notes of AVLP |  |  | — |  |  |  | 1,600,164 |  |  |  | 1,600,164 |
Investment in common stock of AVLP and Alzamend |  |  | 261,132 |  |  |  | — |  |  |  | 261,132 |
Fair value of derivative instruments issued by AVLP |  |  | 1,050,918 |  |  |  | — |  |  |  | 1,050,918 |
Unrealized loss in derivative instruments of AVLP |  |  | (1,950,875 | ) |  |  | — |  |  |  | (1,950,875 | )
Unrealized loss in common stock of AVLP and Alzamend |  |  | (276,450 | ) |  |  | — |  |  |  | (276,450 | )
Provision for loan losses |  |  | — |  |  |  | (4,000,000 | ) |  |  | (4,000,000 | )
Accretion of discount |  |  | — |  |  |  | 2,307,777 2,307,777 |  |  |  | 2,307,777 |
Accrued Interest |  |  | — |  |  |  | 1,021,158 |  |  |  | 1,021,158 |
Balance at December 31, 2019 |  | $ | 2,128,224 |  |  | $ | 6,540,720 |  |  | $ | 8,668,944 |
Investment in convertible promissory notes of AVLP |  |  | — |  |  |  | 1,330,283 |  |  |  | 1,330,283 |
Investment in convertible promissory note of Alzamend |  |  | — |  |  |  | 38,128 |  |  |  | 38,128 |
Investment in common stock of AVLP and Alzamend |  |  | 45,484 |  |  |  | — |  |  |  | 45,484 |
Investment in warrants of Alzamend |  |  | 11,872 |  |  |  | — |  |  |  | 11,872 |
Short term advance in Alzamend |  |  | — |  |  |  | 750,000 |  |  |  | 750,000 |
Fair value of derivative instruments issued by AVLP |  |  | 343,774 |  |  |  | — |  |  |  | 343,774 |
Unrealized gain in derivative instruments of AVLP |  |  | 3,312,094 |  |  |  | — |  |  |  | 3,312,094 |
Unrealized gain in common stock of AVLP and Alzamend |  |  | 297,943 |  |  |  | — |  |  |  | 297,943 |
Accretion of discount |  |  | — |  |  |  | 8,002 |  |  |  | 8,002 |
Provision for loan losses |  |  | — |  |  |  | 2,000,000 |  |  |  | 2,000,000 |
Accrued Interest |  |  | — |  |  |  | 1,337 |  |  |  | 1,337 |
Balance at December 31, 2020 |  | $ | 6,139,391 |  |  | $ | 10,668,470 |  |  | $ | 16,807,861 |
Investments in AVLP The Company’s investments in AVLP, a related party controlled by Philou Ventures, LLC (“Philou”), an affiliate of the Company, consist of convertible promissory notes, derivative instruments and shares of AVLP common stock. As of December 31, 2020, the Company has provided loans to AVLP in the principal amount $11,269,136 and, in addition to the 12% convertible promissory notes, AVLP has issued to the Company warrants to purchase 22,537,871 shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. The warrants were determined by the issuer to be derivative financial instruments. At December 31, 2020, the Company recorded a cumulative unrealized loss on its investment in warrants of AVLP of $1,052,162 compared to a cumulative unrealized loss of $4,364,256 at December 31, 2019 representing the difference between the cost basis and the estimated fair value of the warrants in the Company’s accumulated other comprehensive income in the stockholder's equity section of the Company’s consolidated balance sheet. During the year ended December 31, 2020, the Company recognized, in other comprehensive loss, net unrealized gain on derivative securities of related party of $3,312,094 compared to a net unrealized loss on derivative securities of related party of $1,950,875 during the year ended December 31, 2019. The Company’s investment in AVLP will be revalued on each balance sheet date. The fair value of the Company’s holdings in the AVLP warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate, which ranged between 0.13% and 2.98%, was derived from the U.S. Treasury yield curve, matching the term of our investment, in effect at the measurement date. The volatility factor which ranged between 68.7% and 104.6% was determined based on historical stock prices for similar technology companies with market capitalizations under $100 million. The warrant valuation is a Level 3 measurement. In accordance with ASC No. 310, Receivables (“ASC 310”), the Company had accounted for its convertible promissory notes in AVLP at amortized cost, which represents the amount at which the convertible promissory notes were acquired, adjusted for accrued interest and accretion of original issue discount and discount attributed to the fair value of the warrants that the Company received in conjunction with its investment. Interest was accreted using the effective interest method. The Company recorded interest on an accrual basis and recognized it as earned in accordance with the contractual terms of the convertible promissory notes, to the extent that such amounts are expected to be collected. During the year ended December 31, 2019, the Company recorded $2,307,777 of interest income for the discount accretion and $1,021,158 of interest income from the contractual 12% rate provided for by the convertible promissory notes. During the years ended December 31, 2020, no interest income was recognized from the Company’s investment in AVLP. The Company evaluated the collectability of both interest and principal for the convertible promissory notes in AVLP to determine whether there was an impairment. Based on current information and events, primarily the value of the underlying conversion feature and current economic events, the Company concluded that an impairment existed at December 31, 2019. At December 31, 2020, the Company determined that the fair value of the convertible promissory notes in AVLP was approximately $9,872,340. The Company’s determination of fair value was based upon the estimated present value of a future liquidity event combined with the closing price of AVLP’s common stock at December 31, 2020. Impairment assessments require significant judgments and are based on significant assumptions related to the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral. During the years ended December 31, 2020 and 2019, the Company acquired 5,000 shares of AVLP common stock for $1,274 and 91,000 shares of AVLP common stock for $53,032, respectively, in each case in the open market. At December 31, 2020, the closing market price of AVLP’s common stock was $0.50, an increase from $0.24 at December 31, 2019. The Company has determined that its investment in AVLP marketable equity securities should be accounted for in accordance with ASC No. 820, Fair Value Measurements and Disclosures. Based upon the closing market price of AVLP common stock at December 31, 2020, the Company’s investment in AVLP common stock had an unrealized loss of $248,248. In aggregate, the Company has 999,175 shares of AVLP common stock which represents 18.0% of AVLP’s outstanding shares of common stock. The Company has determined that AVLP is a variable interest entity (“VIE”) as it does not have sufficient equity at risk. The Company does not consolidate AVLP because the Company is not the primary beneficiary and does not have a controlling financial interest. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although the Company has made a significant investment in AVLP, the Company has determined that Philou, which controls AVLP through the voting power conferred by its equity investment and which is deemed to be more closely associated with AVLP, is the primary beneficiary. As a result, AVLP’s financial position and results of operations are not consolidated in our financial position and results of operations. Investments in Alzamend The Company’s investments in Alzamend, a related party, consist of a convertible promissory note, short-term advance, warrants and shares of Alzamend common stock. At December 31, 2020, the Company has provided Alzamend a short-term advance of $750,000 and invested $50,000 in an 8% convertible promissory note. In conjunction with the issuance of the 8% convertible promissory note, Alzamend issued to the Company warrants to purchase 16,667 shares of Alzamend common stock at an exercise price of $3.00 per share for a period of five years. The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded discount in the amount of $11,872 based on the estimated fair value of the warrants. At December 31, 2020, the Company recorded a cumulative unrealized loss on its investment in warrants of Alzamend of $453, representing the difference between the cost basis and the estimated fair value of the warrants in the Company’s net loss from continuing operations on the Company’s consolidated statements of operations and comprehensive loss. The Company’s investment in Alzamend will be revalued on each balance sheet date. The fair value of the Company’s holdings in the Alzamend warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate of 0.28% was derived from the U.S. Treasury yield curve, matching the term of our investment, in effect at the measurement date. The volatility factor of 103.7% was determined based on historical stock prices for similar companies with market capitalizations under $100 million. The warrant valuation is a Level 3 measurement. In accordance with ASC No. 310, Receivables (“ASC 310”), the Company had accounted for its convertible promissory notes in Alzamend at amortized cost, which represents the amount at which the convertible promissory notes were acquired, adjusted for accrued interest and accretion of the discount attributed to the fair value of the warrants that the Company received in conjunction with its investment. Interest was accreted using the effective interest method. The Company recorded interest on an accrual basis and recognized it as earned in accordance with the contractual terms of the convertible promissory notes, to the extent that such amounts are expected to be collected. During the year ended December 31, 2020, the Company recorded $8,002 of interest income for the discount accretion and $1,337 of interest income from the contractual 8% rate provided for by the convertible promissory notes. The Company evaluated the collectability of both interest and principal for the convertible promissory notes in Alzamend to determine whether there was an impairment. Based on current information and events, primarily the value of the underlying conversion feature and current economic events, the Company concluded that no impairment existed at December 31, 2020. During the years ended December 31, 2020 and 2019, the Company also acquired 55,263 shares of Alzamend common stock for $44,210 and 372,625 shares of Alzamend common stock for $208,100, respectively. At December 31, 2020, the estimated fair value of Alzamend’s common stock was $1.50. The Company has determined that its investment in Alzamend marketable equity securities should be accounted for in accordance with ASC No. 820, Fair Value Measurements and Disclosures and based upon the estimated fair value of Alzamend common stock at December 31, 2020, the Company’s investment in Alzamend common stock had an unrealized gain of $389,522.

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