DERIVATIVE LIABILITIES

3 Months Ended

Mar. 31, 2025

NOTE 6 – DERIVATIVE LIABILITIES

The Company determined the conversion feature of the convertible notes, which all contain variable conversion rates, represented an embedded derivative since the notes were convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt under ASC 815 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability.

At any given time, certain of the Company’s embedded conversion features on debt and outstanding warrants may be treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant to SEC staff guidance that permits a sequencing approach based on the use of ASC 815-15-25 which provides guidance for contracts that permit partial net share settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance date or (2) latest maturity date. Pursuant to the sequencing approach, the Company evaluates its contracts based upon the latest maturity date.

The Company valued the derivative liabilities at March 31, 2025, and December 31, 2024, at $98,734 and $210,493 respectively. For the derivative liability associated with convertible notes, the Company used the Monte Carlo simulation valuation model with the following assumptions as of March 31, 2025, and December 31, 2024, risk free interest rates at 4.24% and 4.24%, respectively, and volatility of 201%, and 101%, respectively.

The following assumptions were utilized in the Black-Scholes valuation of outstanding warrants as of March 31, 2025, and December 31, 2024, risk free interest rate of 3.96% to 4.24%, and 4.18% to 4.25%, respectively, volatility of 205% to 253%, and 121% to 146%, respectively, and exercise prices of $0.0019 to $0.008, and $0.0019 to $0.008, respectively.

A summary of the activity related to derivative liabilities for the three months ended March 31, 2025, and 2024, is as follows:

	Derivative liabilities associated with warrants			Derivative liabilities associated with convertible notes		Total derivative liabilities

Balance January 1, 2025	$	176,103		$	34,390	$	210,493
Fair value of issuances during the period		-			-		-
Change in fair value		(118,783	)		7,024		(111,759	)
Balance March 31, 2025	$	57,320		$	41,414	$	98,734

	Derivative liabilities associated with warrants			Derivative liabilities associated with convertible notes		Total derivative liabilities

Balance January 1, 2024	$	1,187,076		$	29,002	$	1,216,078
Fair value of issuances during the period		-			-		-
Change in fair value		(465,157	)		3,152		(462,005	)
Balance March 31, 2024	$	721,919		$	32,154	$	754,073

OZOP ENERGY SOLUTIONS, INC. 10-Q