DERIVATIVE LIABILITIES

12 Months Ended

Dec. 31, 2021

NOTE 10 – DERIVATIVE LIABILITIES

At December 31, 2021 and December 31, 2020, the Company had warrants that contain net cash settlement provisions or do not have fixed settlement provisions because their conversion and exercise prices may be lowered under certain conditions. The Company concluded that the warrants should be accounted for as derivative liabilities. The Company used a third party to determine the fair value of the derivative liabilities at December 31, 2021 and they used a Monte Carlo Simulation model to determine the fair value. In determining the fair value of the derivative liabilities on December 31, 2020, the Company used the Black-Scholes option pricing model. Key assumptions used are as follows:


	December 31, 2021
Common stock issuable upon exercise of warrants		2,043,291
Market value of common stock on measurement date	$	1.38
Exercise price	$	2.00
Risk free interest rate (1)		1.25	%
Expected life in years		5 years
Expected volatility (2)		79.3	%
Expected dividend yields (3)		-	%


	December 31, 2020
Common stock issuable upon exercise of warrants		295,000
Market value of common stock on measurement date	$	1.53
Exercise price	$	0.42
Risk free interest rate (1)		0.13	%
Expected life in years		1 year
Expected volatility (2)		160	%
Expected dividend yields (3)		—	%

(1)

The risk-free interest rate was determined using the applicable Treasury Bill as of the measurement date.

(2)

The historical trading volatility for 2020 was determined by calculating the volatility of the Company’s common stock. For 2021 the information was obtained from the third party model.

(3)

The Company does not expect to pay a dividend in the foreseeable future.

The following table shows the change in the Company’s derivative liabilities for the years ended December 31, 2021 and 2020 (in thousands):


	Amount
Balance, December 31, 2019	$	147
Change in fair value of warrants		216
Balance, December 31, 2020	$	363


	Amount
Balance, December 31, 2020	$	363
Exercise of warrants		(348)
Issuance of warrants		3,064
Change in fair value of warrants		(15)

Balance, December 31, 2021	$	3,064

The change in fair value of derivative liabilities includes losses from exercise price modifications.