WARRANT DERIVATIVE LIABILITY

6 Months Ended

Jun. 30, 2021

WARRANT DERIVATIVE LIABILITY.

WARRANT DERIVATIVE LIABILITY

NOTE 8. WARRANT DERIVATIVE LIABILITY

On May 31, 2019 we received gross proceeds of $3 million by issuing three million shares of our common stock and three million warrants (“2019 Warrants”) to purchase shares of our common stock (“2019 Units”) in a registered direct offering for $1.00 per 2019 Unit (collectively defined as the “2019 Capital Raise”). The 2019 Warrants, issued with the 2019 Capital Raise, are accounted for as a derivative liability. The 2019 Warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash based on the Black-Scholes value, upon certain fundamental transactions, as defined in the 2019 Warrant agreement, that are considered outside of the control of management, such as a change of control. The original exercise price of the 2019 Warrants was $1.30 per share. The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of such subsequent issuances of securities by the Company during the fourth quarter 2019, the exercise price of the 2019 Warrants decreased to $0.45 per share and the number of shares subject to the 2019 Warrants increased to 8,666,666 shares of common stock as of December 31, 2019. In May 2020, we issued securities at a price lower than the $0.45 per share above. As a result, the exercise price of the 2019 Warrants decreased to $0.3983 per share and the number of shares subject to the 2019 Warrants increased to 9,591,614 shares of common stock.

During the first quarter of 2021 the warrant holders exercised 1,323,000 warrants into 747,208 shares of our common stock through cashless exercise. We booked an adjustment to the derivative liability of $1,523,117 as a result. As of June 30, 2021, there were 322,807 of the 2019 Warrants outstanding.

The following are the key assumptions that were used to determine the fair value of the 2019 Warrants

	May 31,				December 31,		June 30,
	2019				2020		2021
Number of shares underlying the warrants		3,000,000			1,645,807			322,807
Fair market value of stock	$	0.95		$	0.48		$	0.59
Exercise price	$	1.30		$	0.3983		$	0.3983
Volatility		133	%		108	%		105	%
Risk-free interest rate		1.93	%		0.36	%		0.87	%
Warrant life (years)		5.00			3.41			2.92

The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis:

	Six months ended June 30,
	2021		2020
Beginning balance	$	561,368	$	4,620,593
Warrant exercise		(1,523,117)		(82,241)
Change in fair value of warrants derivative liability		1,095,983		(1,375,619)
Ending balance	$	134,234	$	3,162,733