Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  



Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. In prior years, the Company granted certain warrants that included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As a result, the fundamental transaction clause of these warrants is accounted for as a derivative liability in accordance with ASC 815 and are being re-measured every reporting period with the change in value reported in the statement of operations.


The derivative liabilities were valued using a Binomial pricing model with the following average assumptions:



September 30,




Extinguishment in 2021

    December 31, 2020  
Stock Price   $ 1.92     $ 2.47     $ 1.65  
Exercise Price   $ 1.41     $ 1.18     $ 1.41  
Expected Life     2.42       3.32       3.17  
Volatility     122 %     144 %     107 %
Dividend Yield     0 %     0 %     0 %
Risk-Free Interest Rate     0.35 %     0.33 %     0.23 %
Total Fair Value   $ 5,839,000     $ 4,513,000     $ 8,266,000  


The expected life of the note and warrants was based on the remaining contractual term of the instruments. The Company uses the historical volatility of its Common Stock to estimate the future volatility for its Common Stock. The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank.


As of December 31, 2020, the outstanding fair value of the derivative liability amounted to $8,266,000.


During the nine months ended September 30, 2021, the Company recorded a charge of $2,086,000 to account for the changes in the fair value of these derivative liabilities. In addition, 1,829,190 of the Series A warrants that were accounted as a derivative liability were exercised to common stock and 33,334 warrants that were accounted as a derivative liability were forfeited as part of a legal settlement (see Note 17). As a result, the Company computed the fair value of the corresponding derivate liabilities one last time that amounted to $4,513,000 and pursuant to current accounting guidelines, the extinguishment was accounted as part of equity.


At September 30, 2021, the fair value of the derivative liability amounted to $5,839,000. The details of derivative liability transactions for the nine months ended September 30, 2021 and 2020 are as follows:


    September 30, 2021     September 30, 2020  
Beginning balance   $ 8,266,000     $ 5,048,000  
Fair value upon issuance of notes payable and/or warrants     -       3,951,000  
Change in fair value     2,086,000       (4,295,000 )
Extinguishment     (4,513,000 )     (159,000 )
Ending balance   $ 5,839,000     $ 4,545,000