Quarterly report pursuant to Section 13 or 15(d)

Derivative Liability

Derivative Liability
9 Months Ended
Sep. 30, 2021
Convertible Notes Payable  
Note 7. Derivative Liability

Note 7 – Derivative Liability


During the year ended December 31, 2020, the Company issued certain warrants that contained a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder upon occurrence of certain change in control type events.


In accordance with ASC 480, the fair value of these warrants are classified as a liability in the Consolidated Balance Sheet and will be re-measured at the end of 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 average assumptions:




September 30,




December 31,










Stock Price


$ 6.68



$ 7.21


Risk-free interest rate



0.98 %



0.36 %

Expected volatility



132 %



135 %

Expected life (in years)


3.83 years



4.60 years


Expected dividend yield


















Fair Value:











$ 340,000



$ 383,000



The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the derivative securities was determined by the remaining contractual life of the derivative instrument. For derivative instruments that already matured, the Company used the estimated life. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.


During the nine months ended September 30, 2021, the Company recognized a gain of $ 43,000 to account for the change in fair value of the derivative liability in accordance with ASC 842.