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COMMON STOCK PURCHASE WARRANTS

12 Months Ended

Dec. 31, 2021

NOTE 15. COMMON STOCK PURCHASE WARRANTS

The Company has issued common stock purchase warrants in conjunction with various debt and equity issuances. The warrants are either immediately exercisable, or have a delayed initial exercise date, no more than six months from their respective issue date and allow the holders to purchase up to 26,008,598 shares of common stock at $2.60 to $3.75 per share as of December 31, 2021. The warrants expire from February 23, 2022 through September 18, 2026 and certain of the outstanding warrants allow for cashless exercise.

On January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 42,550,000 shares of Common Stock. The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Furthermore, the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.

On August 19, 2021, the Company entered into a Warrant Exchange Agreement (the “Exchange Agreement”) with the Investors cancelling February Warrants exercisable for an aggregate of 7,681,540 shares of Common Stock in consideration for its issuance of (i) new warrants (the “Exchange Warrants”) to the Investors exercisable for an aggregate of up to 7,681,540 shares of Common Stock. The Company also issued warrants (the “Replacement Original Warrants”) replacing the February Warrants for the remaining shares of Common Stock exercisable thereunder, representing an aggregate of 6,618,460 shares of Common Stock, and extended the expiration date of the February Warrants to September 18, 2026. The Exchange Warrants provide for an initial exercise price of $3.25 per share, subject to customary adjustments thereunder, and are immediately exercisable upon issuance for cash and on a cashless basis. On the date of the exchange, the Company calculated the fair value, using the Black-Scholes method, of the cancelled February Warrants and the newly issued Exchange Warrants, the difference in fair value measurement of the respective warrants was attributed to warrant modification expense in the consolidated statement of operations.

On the date of the exchange, the February Warrants and Exchange Warrants were valued at $11,818,644 and $12,114,424 using the original and modified expiry date of the warrants, respectively, using the Black-Scholes method. The difference of $295,780 was accordingly recorded as a warrant modification expense in the consolidated statement of operations.

SCHEDULE OF WARRANT MODIFICATION

	Original terms at August 19, 2021			Modified terms at August 19, 2021
Volatility - range		109.3	%		104.7	%
Risk-free rate		0.78	%		0.78	%
Dividend		0	%		0	%
Remaining contractual term		4.5 years			5.1 years
Exercise price	$	3.25		$	3.25
Common stock issuable under the warrants		14,300,000			14,300,000

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.

The Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the warrant derivative liabilities as of their date of issuance and as of December 31, 2021:

	Issuance date assumptions			December 31, 2021 assumptions
Volatility - range		106.6 – 166.6	%		104.9	%
Risk-free rate		0.08 - 0.49	%		1.26	%
Dividend		0	%		0	%
Remaining contractual term		0.01 - 5 years			4.0 – 4.7 years
Exercise price	$	2.80 - 3.25		$	3.25
Common stock issuable under the warrants		42,550,000			24,300,000

During the year ended December 31, 2021, holders of pre-funded warrants exercised a total of 18,250,000 warrants which were fair valued at $1,817,549 at their date of issuance and recorded as a derivative warrant liability. On the date of exercise such pre-funded warrants were fair valued at zero, which was transitioned to permanent equity during the year ended December 31, 2021. The Company reported the $1,817,549 change in fair value from their issuance date to their exercise date in the statements of operations as the change in fair value of warrant derivative liabilities.

The following table summarizes information about shares issuable under warrants outstanding during the years ended December 31, 2021 and 2020:

SUMMARY OF WARRANT ACTIVITY

	Warrants			Weighted average exercise price
Vested Balance, January 1, 2020		4,824,573		$	5.15
Granted		1,273,374			1.31
Exercised		(2,704,583	)		(1.95	)
Cancelled		(5,000	)		(16.50	)
Vested Balance, December 31, 2020		3,388,364		$	6.24

	Warrants			Weighted average exercise price
Vested Balance, January 1, 2021		3,388,364		$	6.24
Granted		42,550,000			3.11
Exercised		(18,250,000	)		(2.92	)
Cancelled		(1,679,766	)		(9.42	)
Vested Balance, December 31, 2021		26,008,598		$	3.24

The total intrinsic value of all outstanding warrants aggregated $-0- as of December 31, 2021 and 2020, and the weighted average remaining term was 50.7 and 15.8 months as of December 31, 2021 and 2020, respectively.

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase common shares as of December 31, 2021:

		Outstanding and exercisable warrants
Exercise price		Number of warrants		Weighted average remaining contractual life
$	2.60		465,712		1.6 years
$	3.00		316,800		1.3 years
$	3.25		24,300,000		4.4 years
$	3.36		733,333		0.9 years
$	3.65		167,000		0.5 years
$	3.75		25,753		0.6 years

			26,008,598		4.2 years