Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

7. Fair Value Measurements

The Company estimates the fair value of financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.

The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:

● Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;

● Level 2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

● Level 3 Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.

The Company accounts for certain warrants (as described under the heading Common Stock Warrants in Note 10) as derivative liabilities, which requires the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. The Company accounted for the embedded conversion features of the 12% senior convertible debentures (the “12% Convertible Debentures”) as derivative liabilities, which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. As of December 31, 2020, there was no longer any principal or accrued but unpaid interest outstanding under the 12% Convertible Debentures since certain holders converted the debt into shares of the Company’s common stock and certain holders were paid in cash.

These warrants are and the embedded conversion features were classified as Level 3 within the fair-value hierarchy. Inputs to the valuation model include the Company’s publicly quoted stock price, the stock volatility, the risk-free interest rate, the remaining life of the warrants and debentures, the exercise price or conversion price, and the dividend rate. The Company uses the closing stock price of its common stock over an appropriate period of time to compute stock volatility.

Warrant Derivative Liabilities

The following table presents the assumptions used for the warrant derivative liabilities under the Black-Scholes option-pricing model:

	As of September 30, 2021						As of December 31, 2020
	Strome Warrants			B. Riley Warrants			Strome Warrants			B. Riley Warrants
Expected life		1.70			4.50			2.45			4.79
Risk-free interest rate		0.28	%		0.76	%		0.13	%		0.36	%
Volatility factor		153.59	%		142.59	%		150.55	%		140.95	%
Dividend rate		0	%		0	%		0	%		0	%
Transaction date closing market price	$	0.38		$	0.38		$	0.60		$	0.60
Exercise price	$	0.50		$	0.33		$	0.50		$	0.33

The following table represents the carrying amounts and change in valuation for the Company’s warrants accounted for as a derivative liability and classified within Level 3 of the fair-value hierarchy:

	As of and for the Nine Months Ended September 30, 2021							As of and for the Nine Months Ended September 30, 2020
	Carry Amount at Beginning of Period		Change in Valuation			Carrying Amount at End of Period		Carry Amount at Beginning of Period		Change in Valuation		Carrying Amount at End of Period
Strome Warrants	$	704,707	$	(339,924	)	$	364,783	$	1,036,687	$	63,160	$	1,099,847
B. Riley Warrants		443,188		(156,888	)		286,300		607,513		71,750		679,263
Total	$	1,147,895	$	(496,812	)	$	651,083	$	1,644,200	$	134,910	$	1,779,110

For the three months ended September 30, 2021 and 2020, the change in valuation of warrant derivative liabilities recognized as other (expense) income on the condensed consolidated statement of operations, was $801,755 and ($517,405), respectively. For the nine months ended September 30, 2021 and 2020, the change in valuation of warrant derivative liabilities recognized as other (expense) income on the condensed consolidated statement of operations, as described in the above table, was $496,812 and ($134,910), respectively.

Embedded Derivative Liabilities

For the three months ended September 30, 2020, the change in valuation of embedded derivative liabilities recognized as other (expense) on the condensed consolidated statements of operations was ($2,370,000). For the nine months ended September 30, 2020, the change in valuation of embedded derivative liabilities recognized as other income on the condensed consolidated statements of operations was $2,173,000.