Quarterly report pursuant to Section 13 or 15(d)

Derivative Liability

Derivative Liability
3 Months Ended
Mar. 31, 2022
Derivative Liability  
Derivative Liability

Note 6 – 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 is classified as a liability in the Condensed 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:


    March 31     December 31  




Stock Price   $ 2.88     $ 3.05  
Risk-free interest rate     2.42 %     1.26 %
Expected volatility     127 %     129 %
Expected life (in years)     3.3       3.6  
Expected dividend yield     -       -  
Fair Value of Warrants   $ 120,000     $ 138,000  


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. 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 three months ended March 31, 2022, the Company recognized a gain of $18,000 to account for the change in fair value of the derivative liability between the reporting periods in accordance with ASC 842.