Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS

v3.23.2
DERIVATIVE FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS

 

As discussed in Note 6, the Company recognized a loss on the extinguishment of the Convertible Notes based on the fair values of the New Notes including the conversion feature, New Warrants, Exchange Notes and conversion feature and Exchange Warrants. The Company determined that there was a derivative liability associated with the conversion features in the New Notes and Exchange Notes due to the variable conversion price subject to stockholder approval in the conversion feature. Therefore, the Company has separated conversion features from the New Notes and Exchange Notes and has recorded them at fair value and will continue to adjust them to fair value until the conversion price is fixed. The Company has also determined that the New Warrants and Exchange Warrants are derivative liabilities due to the potential adjustment in the exercise prices. The Company has accounted for the New Warrants and Exchange Warrants as liabilities at fair value and will continue to adjust them to fair value until the exercise prices are fixed.

 

The fair value of the conversion features and warrant liabilities were calculated using a Monte Carlo simulation and the following assumptions and methodologies: 

               
    May 24, 2023     June 30, 2023  
Conversion Feature Liabilities                
Company stock price on valuation date   $ 0.70     $ 0.57  
Volatility (closing prices of guideline comparable public companies)     86.3%       81.8%  
Conversion price per share   $ 0.75     $ 0.75  
Note term (years)     0.76       0.65  
Risk free interest rate     5.1%       5.30%  
                 
Warrant Liabilities                
Company stock price on valuation date   $ 0.70     $ 0.57  
Volatility (closing prices of guideline comparable public companies)     119.2%       116.4%  
Conversion price per share   $ 0.75     $ 0.75  
Warrant term (years)     4.25       4.15  
Risk free interest rate     3.8%       4.2%  

 

In addition to the above factors, the Company also used a probability assessment to evaluate whether stockholder approval would be received to lower the conversion and exercise prices. The Company utilized a 50/50 assessment that stockholders would or would not approve the lower conversion and exercise price. Management notes that at the time of the assessment, the stockholder vote had not yet started therefore there was no data to determine whether one scenario was more likely than another.

 

Based on the above factors, the estimated fair value of the Company’s derivative liabilities carried at fair value at May 24, 2023 and June 30, 2023 as follows: 

               
    May 24, 2023     June 30, 2023  
Conversion Feature - New Notes   $ 663,096     $ 338,657  
Conversion Feature - Series A Exchange Notes     970,805       497,276  
Conversion Feature - Series B Exchange Notes     4,324,792       2,099,053  
New Warrants     3,123,682       2,418,090  
Exchange Warrants     9,287,474       7,223,985  
  Total   $ 18,369,849     $ 12,577,061  

 

The Company recognized a gain of $5,792,788 for the change in the fair values of the conversion features of the May 2023 Notes and the New Warrants and Exchange Warrants from the period from May 24, 2023 to June 30, 2023.