Derivative Liability

3 Months Ended

12 Months Ended

Mar. 31, 2025

Dec. 31, 2024

Derivative Liability

Derivative Liability

Note 8 – Derivative Liability

Fair Value Assumptions Used in Accounting for Derivative Liabilities

ASC 815 requires us to assess the fair market value of derivative liabilities at the end of each reporting period and recognize any change in the fair market value as other income or expense.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Binomial Lattice model to calculate the fair value as of March 31, 2025 and December 31, 2024.

For the three months ended March 31, 2025 and the year ended December 31, 2024, the estimated fair values of the liabilities measured on a recurring basis, used the following significant assumptions:

		March 31,		December 31
		2025		2024
Expected term		0.21 – 1 year		0.29 years
Risk-free interest rate		4.02 – 4.30	%		4.15	%
Stock price at valuation date		0.89 – 1.20		$	0.73
Expected average volatility		97.5 – 146.5			95.41	%

The following table summarizes the changes in the derivative liabilities during the three months ended March 31, 2025:

Fair Value Measurements Using Significant Observable Inputs (Level 3)
Balance - December 31, 2024		$	1,055,233
Addition of new derivatives recognized as debt discounts			1,027,000
Loss on change in fair value of the derivative			804,767
Balance - March 31, 2025		$	2,887,000

Note 9 – Derivative Liability

Fair Value Assumptions Used in Accounting for Derivative Liabilities

ASC 815 requires us to assess the fair market value of derivative liabilities at the end of each reporting period and recognize any change in the fair market value as other income or expense. The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Binomial Lattice model to calculate the fair value as of issuance and December 31, 2024.

The underlying assumptions of Binomial Lattice model are as follows:

	1.	The short-term interest rates, including risk-free rate, are known and remain constant over time.
	2.	The absence of any arbitrage opportunities is assumed.
	3.	The stock price follows a continuous-time random walk, with the rate of variance proportional to the square of the stock price.
	4.	The distribution of possible stock prices at the end of any given finite interval is assumed to be lognormal.
	5.	The variance of the rate of return on the stock is constant.
	6.	No commissions or transaction costs are incurred when buying or selling the stock or option.
	7.	The option's early exercise value is evaluated at each node of the lattice.
	8.	If applicable, the tax rate remains consistent for all transactions and market participants.

For the year ended December 31, 2024, the estimated fair values of the liabilities measured on a recurring basis are as follows:

		December 31
		2024
Expected term		0.29 years
Total Nodes			72
Risk-free interest rate			4.15	%
Stock price at valuation date		$	0.73
Adjusted stock price at valuation date		$	7.30
Expected average volatility			95.41	%

The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2024:

Fair Value Measurements Using Significant Observable Inputs (Level 3)

Balance - December 31, 2023		$	-

Addition of new derivatives recognized as debt discounts			645,457
Addition of new derivatives recognized as loss on derivatives			409,776
Balance - December 31, 2024		$	1,055,233

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

+ References + Details