|6 Months Ended|
Jun. 30, 2022
8. DERIVATIVE LIABILITIES
As of June 30, 2022, the warrant liabilities represent aggregate fair value of publicly traded 3,088,198 Series A warrants, 135,999 representative’s warrants and 4,106,418 Debenture Warrants. The fair value of the IPO warrants and representative’s warrant amount to $1,173,286 (December 31, 2021 - $1,418,964) and were categorized as a Level 1 financial instrument. The fair value of the Debenture Warrants amounted to $4,080,958 (December 31, 2021 - $) and were categorized as a Level 3 financial instrument. The Black-Scholes option pricing model for the Debenture Warrants used the following assumptions: stock price $ , dividend yield – l, expected volatility 58.31%, risk free rate of return 3.14%, and expected term of 3.5 years.
The representative’s warrants are exercisable one year from the effective date of the registration statement for the IPO and will expire three years after the effective date. The exercise price of the representative’s warrant is $6 per share. The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or permitted assignees under Rule 5110(e)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the date of this prospectus. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or recapitalization, reorganization, merger or consolidation.
The fair value change on the warrant liability amounted to $218,462 and is recorded in the statement of comprehensive loss for the six months ended June 30, 2022.
Debenture Convertible Feature
On June 30, 2022, the Company issued Debentures with an equity conversion feature, see note 6. The fair value of the Debentures’ convertible features were $3,336,535 on June 30, 2022 and were categorized as a Level 3 financial instrument. The Black-Scholes option-pricing model for the convertible feature used the following assumptions: stock price $ , dividend yield – , expected volatility 101%, risk free rate of return 3.14%, and expected term of 1 year.