Note 7 - Derivatives

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 7 - DERIVATIVES

The Company concluded the September 2018 Investor Note contained a conversion feature which is an embedded derivative and required bifurcation. The embedded derivative’s value was determined using the discounted stock price for the 20-trading days preceding the balance sheet date and the assumption of conversion on that date, as management believed it was probable that the notes would be convertible based on management’s expectation that additional financing would be required. During the year ended December 31, 2020, the maximum number of conversions was reached. The Company recognized an unrealized gain for the corresponding change in fair value of $50,989 for the year ended December 31, 2020. The fair value of the derivative liability related to the bridge loan was zero as of December 31, 2020.

The Company concluded the Promissory Note 2020 contained a conversion feature and a put each of which was an embedded derivative and are required to be bifurcated. In accordance with ASC 815, Derivatives and Hedging, the Company combined these two embedded derivatives into a single derivative and determined the fair value to record within the derivative liability on the consolidated balance sheet. At inception, the fair value of the derivative liability was $68,796, $52,125 and $20,542 for the first, second and third tranches, respectively. During the year ended December 31, 2020, the Company recognized a gain of $87,923 on the change in the fair value of the derivative liability. As a result of the repayment of the note as of March 1, 2021, the embedded derivative had a fair value of zero prior to the repayment. The Company recorded a gain on the fair value of the derivative of $104,529 during the year ended December 31, 2021. As of December 31, 2020, the fair value of the derivative liability was $104,529.

The Company concluded the A, B and agent warrants issued in connection with the March 2020 Private Placement discussed above are a derivative liability due to certain features of the warrants which could, in certain circumstances, result in the holder receiving the Black Scholes value of the outstanding warrants in the same type of consideration as the common stockholders. As a result, in those circumstances, the amount of consideration would differ from that provided to holders of common stock, therefore, the warrants were classified as a liability. At inception, the A, B and agent warrants had a fair value of $2,669,995. During the third quarter of 2020, the A and B warrants were amended as discussed in Note 6 - Notes Payable above. As a result of this amendment, the warrants no longer represented a liability to the Company and were reclassified to equity. Prior to reclassification, a gain on the change in fair value of $700,910 was recorded during the year ended December 31, 2020. As of December 31, 2021, the fair value of the agent warrants was determined to be $41,336 and the Company recorded a loss on the change in fair value of $7,683 during the year ended December 31, 2021. As of December 31, 2020, the fair value of the agent warrants was determined to be $33,654 and the Company recorded a gain on the change in fair value of $69,479 during the year ended December 31, 2020.

The Company concluded the warrants and agent warrants issued in connection with the May 2020 Offering discussed above are a derivative liability due to certain features of the warrants which could, in certain circumstances, result in the holder receiving the Black Scholes value of the outstanding warrants in the same type of consideration as the common stockholders. As a result, in those circumstances, the amount of consideration would differ from that provided to holders of common stock, therefore, the warrants were classified as a liability. At inception, the warrants and agent warrants had a fair value of $1,324,184. The Company recorded a loss on the change in fair value of the warrants of $460,065 during the year ended December 31, 2020. During June 2020, the investors exercised the warrants and exchanged the warrants for shares of common stock as discussed above. The fair value of the agent warrants was determined to be $33,819 and $42,646 as of December 31, 2021 and as of December 31, 2020, respectively. The Company recorded a loss on the change in fair value of the agent warrants of $8,827 during the year ended December 31, 2021 and a gain on the change in fair value of the agent warrants of $48,675 during the year ended December 31, 2020.

In connection with the June 2020 Warrant exercise and issuance, the Company concluded the warrants and agent warrants issued in connection with the June 2020 Warrant exercise and issuance, discussed above, are a derivative liability due to certain features of the warrants which could, in certain circumstances, result in the holder receiving the Black Scholes value of the outstanding warrants in the same type of consideration as the common stockholders. As a result, in those circumstances, the amount of consideration would differ from that provided to holders of common stock, therefore, the warrants were classified as a liability. At inception, the warrants and agent warrants had a fair value of $1,749,721. During the year ended December 31, 2020, the June warrants were amended. As a result of this amendment, the warrants no longer represented a liability to the Company and were reclassified to equity. Prior to reclassification, the Company recorded a gain on the change in fair value of the warrants of $834,520 during the year ended December 31, 2020. The Company recorded a loss on the change in fair value of the agent warrants of $12,797 during the year ended December 31, 2021 and a gain on the change in fair value of the agent warrants of $79,045 during the year ended December 31, 2020. The fair value of the agent warrants was $45,498 and $32,701 as of December 31, 2021 and as of December 31, 2020, respectively.

On September 30, 2020, the Promissory Note 2019 was amended. The Company concluded the Promissory Note 2019 contained a conversion feature which is an embedded derivative and is required to be bifurcated. In accordance with ASC 815, Derivatives and Hedging, the Company determined the fair value to record within the derivative liability on the consolidated balance sheet. At inception, the fair value of the derivative liability was $495,100. As a result of the repayment of the note as of March 1, 2021, the embedded derivative had a fair value of zero prior to the repayment. The Company recorded a gain on the fair value of the derivative of $89,680 during the year ended December 31, 2021. The Company recorded a gain on the change in fair value of the derivative liability of $405,420 during the year ended December 31, 2020. As of December 31, 2020, the fair value of the derivative liability was $89,680.

The table below discloses changes in value of the Company’s embedded derivative liabilities discussed above.

Derivative liability balance at December 31, 2019	$	50,989
Derivative instrument recognized for A, B and Agent Warrants		2,669,995
Derivative instrument related to Promissory Note 2020		120,921
Derivative instrument recognized for May 2020 Warrants		1,324,184
Derivative instrument recognized for June 2020 Warrants		1,749,721
Derivative instrument related to Promissory Note 2020		20,542
Reclassification of Warrant liabilities to Equity on exercise		(1,701,756	)
Reclassification of Warrant liabilities to Equity		(2,669,408	)
Derivative instrument related to September 30 debt amendments		495,100
Gain recognized to revalue derivative instrument at fair value		(1,765,906	)
Derivative liability balance at December 31, 2020	$	294,382
Gain recognized to revalue derivative instrument at fair value		(164,902	)
Derivative liability balance at December 31, 2021	$	129,480