DERIVATIVE LIABILITIES

6 Months Ended

Jun. 30, 2023

Derivative Liabilities

DERIVATIVE LIABILITIES

NOTE 6 – DERIVATIVE LIABILITIES

The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable conversion provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15, the fair values of the variable conversion option and warrants were recorded as derivative liabilities on the issuance date and revalued for the six months ended June 30, 2023 and December 31, 2022. There was no material change upon revaluing derivative liability prior to extinguishment.

At the end of June 30, 2023, the derivative liabilities were zero as the Company settled the convertible note and also extinguished its warrants related to its derivative liability as a result of the settlement. See Note 8.

Based on the convertible notes described in Note 5, the derivative liability day one loss was $390 thousand and the change in fair value for the six months ended June 30, 2023 and December 31, 2022 is $27 thousand and $166 thousand, respectively. The fair value of applicable derivative liabilities on notes, warrants and change in fair value of derivative liability are as follows for the six months ended June 30, 2023 (in thousands).

	Derivative Liability Convertible Notes			Derivative Liability Warrants			Total
Balance as of December 31, 2022	$	266		$	167		$	433
Change in fair value		1			(28	)		(27	)
Extinguishment of the derivative liability		(267	)		(139	)		(406	)
Balance as of June 30, 2023	$	–		$	–		$	–

During the six months ended June 30, 2023, the fair value of the derivative liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:

Market value of common stock	$	1.49
Expected volatility		52.60%
Expected term (in years)		0.25
Risk-free interest rate		4.42%

During the six months ended June 30, 2023, the fair value of the derivative liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:

Market value of common stock	$	1.49
Expected volatility		71.10%
Expected term (in years)		2.64
Risk-free interest rate		4.28%