Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. In prior years, the Company granted certain warrants that included fundamental transaction provisions that could give rise to an obligation to pay cash to the warrant holder. As a result, the fundamental transaction clause of these warrants is accounted for as a derivative liability in accordance with ASC 815 and are being re-measured every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued using a Binomial pricing model with the following weighted-average assumptions:

  SCHEDULE OF DERIVATIVE LIABILITY USING BINOMIAL PRICING MODEL ASSUMPTIONS

The expected life of the warrants was based on the remaining contractual term of the instruments. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank.

During the year ended December 31, 2021, the Company recorded other income of $598,000 to account for the decrease in the fair value of derivative liabilities. In addition, the Company recorded a decrease in derivative liability of $4,513,000 related to derivative liabilities that were extinguished due to the exercise of 1,829,190 warrants and the forfeiture of 33,334 warrants. The extinguishment was accounted for as an increase to equity. At December 31, 2021, the balance of derivative liabilities was $3,155,000.

During the year ended December 31, 2020, the Company recorded additions to derivative liability of $3,951,000 related to the issuance of 2,303,861 warrants exercisable into shares of common stock that contained a fundamental transaction clause. The Company also recorded other income of $574,000 to account for the decrease in the fair value of derivative liabilities. In addition, the Company recorded a decrease in derivative liability of $159,000 related to derivative liabilities that were extinguished due to the exercise of 95,000 Series A warrants. Pursuant to current accounting guidelines, the extinguishment was accounted for as an increase to equity. At December 31, 2020, the balance of derivative liabilities was $8,266,000.

The following table sets forth a summary of the changes in the estimated fair value of the derivative liabilities during the years ended December 31, 2021 and 2020:

 SCHEDULE OF DERIVATIVE LIABILITY TRANSACTION