|9 Months Ended|
Sep. 30, 2019
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
NOTE 11 – DERIVATIVE LIABILITIES
On April 25, 2019, the Company issued 1,714,288 five-year warrants to several third party institutional investors in a registered direct offering (see Note 12). The warrants include the fundamental transaction provisions and the exercise price of the warrants is protected against down-round financing throughout the term of the warrants. Upon evaluation, the warrants meet the definition of derivative liabilities under FASB ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances. Accordingly, the fair value of the warrants was classified as derivative liabilities of $4,217,241 on the issuance date, April 25, 2019. The estimated fair value of the warrants was computed at issuance using Black-Scholes option-pricing model, with the following assumptions: stock price of $2.82, volatility of 142.55%, risk-free rate of 2.33%, annual dividend yield of 0% and expected life of 5 years (see Note 19).
The estimated fair value of the outstanding warrants as derivative liabilities was $1,895,611 at September 30, 2019. The estimated fair value of the warrants was computed as of September 30, 2019 using Black-Scholes option-pricing model, with the following assumptions: stock price of $1.87, volatility of 135.00%, risk-free rate of 1.55%, annual dividend yield of 0% and expected life of 4.57 years.
Increases or decreases in fair value of the derivative liabilities are included as a component of total other income (expenses) in the accompanying condensed consolidated statements of operations and comprehensive loss for the respective period. The changes to the derivative liabilities for the warrants resulted in a decrease of $1,160,137 and $1,621,630, respectively, in the derivative liabilities and the corresponding increase in other income as a gain for the three and nine months ended September 30, 2019. There were no derivative liabilities in the three and nine months ended September 30, 2018.
As of September 30, 2019, the total number of warrants outstanding was 1,714,288 with remaining life of 4.57 years. No warrants were exercised as of September 30, 2019.
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef