Unit Purchase Options and Warrants

9 Months Ended

Sep. 30, 2021

Unit Purchase Options And Warrants

Unit Purchase Options and Warrants

Note 13 – Unit Purchase Options and Warrants

In connection with the issuance of the 2020 Convertible Notes, the Company also issued unit purchase options to purchase 303,623 units at an exercise price of $3.20 per unit, with each unit consisting of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $3.20 per share. The units and warrants vested immediately, are exercisable for a period of five years from the date of issuance and are subject to downward adjustment if the Company issues securities at a lower price. Warrant holders have a right to require the Company to pay cash in the event of a fundamental transaction. In accordance with ASC 815, the unit purchase options and warrants issued in this period were determined to require equity treatment.

In connection with the issuance of the 2020 Convertible Notes, the Company agreed to issue the placement agent and the selling agent five-year warrants to purchase 6,750 shares of the Company’s common stock at an exercise price of $3.20.

A Monte Carlo model was used because the investor unit purchase options and warrants contain fundamental transaction payouts and reset events that cannot be modeled with a Black Scholes model.

The fair value of the unit purchase options and warrants issued to the convertible debt holders is estimated as of the issue date using a Monte Carlo model with the following assumptions:

Risk-free interest rate range		0.33% - 0.39	%
Stock Price	$	3.00 - $3.95
Expected life of warrants and unit purchase options (years)		5.00
Expected stock price volatility		108.2% - 112.5	%
Expected dividend yield		0	%

The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the unit purchase options and warrants. Expected volatility is based upon the historical volatility of the Company’s common stock over the period commensurate with the expected term of the related instrument. The unit purchase options and warrants are valued assuming projected reset events adjusting the exercise price and a forced exercise upon a projected fundamental transaction by management. The unit purchase options and warrants early exercise are modeled assuming registration after 180 days. The Company does not currently pay dividends on its common stock, nor does it expect to in the foreseeable future.

The following table sets forth the activity of unit purchase options:

	Number of Unit Purchase Options		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding as of December 31, 2020		303,623	$	3.20	$	-
Granted		-		-		-
Exercised		210,730		3.20		427,839
Canceled		-		-		-
Balance as of September 30, 2021		92,893	$	3.20	$	2,606

The following table sets forth the activity of warrants:

	Number of Warrants		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding as of December 31, 2020		310,373	$	3.48	$	-
Granted		-		-		-
Exercised		180,323		3.20		457,839
Canceled		-		-		-
Balance as of September 30, 2021		130,050	$	3.74	$	4,431

INVO BIOSCIENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(UNAUDITED)