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Derivative Liabilities
 9 Months Ended
Sep. 30, 2024
Derivative Liabilities [Abstract]  
Derivative liabilities
12.Derivative liabilities

 

On July 15, 2022, the Company issued 231,828 common stock purchase warrants with an exercise price of $2.01 as part of the conversion of promissory notes.

 

On November 21, 2023, the Company completed its Initial Public Offering (“IPO”) and issued 75,000 warrants (the “IPO warrants”). Each IPO warrant is exercisable into one share of common stock of the Company at $4 per share and expire on November 21, 2028.

 

We analyzed the common stock purchase warrants issued as partial settlement of the promissory notes payable and the IPO warrants against the requirements of ASC 480, Distinguishing Liabilities from Equity, and determined that the warrants should be classified as financial liabilities.

 

ASC 815, Derivatives and Hedging, requires that the warrants be accounted for as derivative liabilities with initial and subsequent measurement at fair value with changes in fair value recorded as other income (expense).

 

A continuity of the Company’s common stock purchase derivative liability warrants is as follows:

 

   Derivative
liabilities		 
Outstanding, December 31, 2022  $68,455 
Addition of new derivatives during IPO   229,437 
Change in fair value of derivative liabilities   71,266 
Outstanding, December 31, 2023  $369,158 
Change in fair value of derivative liabilities   (367,277)
Outstanding, September 30, 2024  $1,881 

 

We determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes Option Pricing Model to calculate the fair value as of initial recognition and as of September 30, 2024, and December 31, 2023. The Black-Scholes Option Pricing Model requires six basic data inputs: the exercise or strike price, expected time to expiration or exercise, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement.

 

The following assumptions were used in the Black-Scholes option pricing model:

 

   September 30,
2024		   December 31,
2023		   November 21,
2023		   December 31,
2022		   July 15,
2022		 
Risk-free interest rate   3.58%   3.84 - 4.01%    4.41%   4.73%   3.12%
Expected life 1   2.57 – 4.15 years    3.32 – 4.90 years    5 years    0.75 years    0.6 years 
Expected dividend rate   0%   0%   0.00%   0.00%   0.00%
Expected volatility   100%   100%   100%   100%   100%

 

As of September 30, 2024, the following derivative liability warrants were outstanding:

 

Outstanding   Expiry date1  Weighted average
exercise price ($)		 
 75,840   April 27, 2027   2.01 
 63,037   April 27, 2027   2.01 
 80,388   April 27, 2027   2.01 
 12,563   April 27, 2027   2.01 
 75,000   November 21, 2028   4.00 
 306,828       2.50 

 

As of September 30, 2024, and December 31, 2023, the weighted average life of derivative liability warrants outstanding was 2.96 and 3.71 years, respectively.

 

1On April 28, 2023, the Company amended the warrant agreements for the 231,828 derivative liability warrants outstanding. The amendment removed the clause to automatically convert warrants to shares on IPO date and all warrants were given an expiry date of April 27, 2027. This led to an increase in the expected life input in the Black-Scholes model as of December 31, 2023, compared to December 31, 2022, when the Company used the expected IPO date to calculate the expected life of the warrants.