Annual report pursuant to Section 13 and 15(d)

DERIVATIVE LIABILITIES

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DERIVATIVE LIABILITIES
 12 Months Ended
Dec. 31, 2021
Derivative Liabilities  
DERIVATIVE LIABILITIES

12. DERIVATIVE LIABILITIES

 

The derivative liabilities at December 31, 2020 consisted of the True-Up Payment provision of the Series 2 Preferred (see Note 11). The True-Up Payment was settled in July 2021 with a cash payment of $0.1 million.

 

As discussed in Note 8(a), warrants were issued in connection with the 10% convertible note. The Company did not have an adequate amount of authorized common shares issuable upon exercise of the warrants and conversion of the 10% convertible note. As such, the warrants were liability classified and the conversion feature was bifurcated from the host debt instrument and both instruments were accounted for as derivatives. As a result of the amendment to the note discussed in Note 8(a), the warrant and conversion feature no longer required liability classification as of August 16, 2020 and were reclassified to equity.

 

The table presented below is a summary of changes in the fair market value of the Company’s Level 3 valuations for the years ended December 31, 2021 and 2020.

 SUMMARY OF CHANGES IN FAIR VALUE DERIVATIVE LIABILITIES

(in thousands)   True-Up Payment     Warrants     Debt Conversion Feature     Total  
Balance at January 1, 2020   $ —     $ —     $ —     $ —  
Inception of the instrument     529       935       11,231       12,695  
Change in fair value during the period     (344 )     (11 )     (261 )     (616 )
Instruments no longer meeting liability classification     —       (924 )     (10,970 )     (11,894 )
Balance at December 31, 2020     185       —       —       185  
Change in fair value during the period     (119 )     —       —       (119 )
Settlement of derivative liability     (66 )     —       —       (66 )
Balance at December 31, 2021   $ —     $ —     $ —     $ —  

 

Assumptions used in calculating the fair value of the warrants at the issuance date and as of August 16, 2020 include the following:

 

As of April 1, 2020
Stock price per share   $ 0.34  
Term     10.0 years  
Expected volatility     102 %
Dividend yield     — %
Risk-free interest rate     0.62 %

 

 

Amergent Hospitality Group, Inc. and Subsidiaries

Notes to the Consolidated and Combined Financial Statements

 

As of August 16, 2020
Stock price per share   $ 0.34  
Term     9.63 years  
Expected volatility     102 %
Dividend yield     — %
Risk-free interest rate     0.51 %

 

The Company also considered the probability, timing and amount of future capital raises.

 

Assumptions used in calculating the fair value of the convertible notes at the issuance date and as of August 16, 2020 include the following (amounts in thousands except conversion price data):

 

As of April 1, 2020
Face value   $ 4,038  
Term     2.0 years  
Expected volatility     120 %
Risk-free interest rate     0.23 %
Coupon     10.00 %
Conversion price   $ 0.10  
Credit spread     15.0 %

 

As of August 16, 2020
Face value   $ 4,038  
Term     1.63 years  
Expected volatility     127 %
Risk-free interest rate     0.23 %
Coupon     10.00 %
Conversion price   $ 0.10  
Credit spread     15.0 %

 

The Company also considered the probability, timing and amount of future capital raises.

 

Assumptions used in calculating the fair value of the True-Up Payment provision at the issuance date and as of December 31, 2020 include the following:

 SCHEDULE OF ASSUMPTIONS USED IN CALCULATING THE FAIR VALUE OF MAKE-WHOLE PROVISION AT ISSUANCE DATE

Issuance Date
Term     0.5 years  
Expected volatility     83 %
Dividend yield     — %
Risk-free interest rate     1.56 %

 

 

Amergent Hospitality Group, Inc. and Subsidiaries

Notes to the Consolidated and Combined Financial Statements

 

December 31, 2020
Term     0.25 years  
Expected volatility     89 %
Dividend yield     — %
Risk-free interest rate     0.09 %