DERIVATIVE LIABILITY |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DERIVATIVE LIABILITY |
8. DERIVATIVE LIABILITY
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 a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As a result, the fundamental transaction clause of these warrants are 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 average 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.
As of December 31, 2021, the outstanding fair value of the derivative liability amounted to $3,155. During the three months ended March 31, 2022, the Company recorded income of $1,138 to account for the changes in the fair value of these derivative liabilities during the period. At March 31, 2022, the fair value of the derivative liability amounted to $2,017.
During the three months ended March 31, 2021, the Company recorded income of $500 to account for the changes in the fair value of these derivative liabilities during the period. In addition, shares of the Series A warrants that were accounted for as a derivative liability were exercised. As result, the Company computed the fair value of the corresponding derivative liability one last time which amounted to $(2,286) and the extinguishment was accounted for as part of equity.
The details of derivative liability transactions for the three months ended March 31, 2022 and 2021 are as follows:
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