Quarterly report pursuant to Section 13 or 15(d)

Derivative Liability and Fair Value

v3.8.0.1
Derivative Liability and Fair Value
9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Derivative Liability and Fair Value

16. Derivative Liability and Fair Value

 

The Company has evaluated the application of ASC 815 Derivatives and Hedging and ASC 815-40-25 to the warrants to purchase common stock issued with the convertible notes and debentures. Based on the guidance in ASC 815 and ASC 815-40-25, the Company concluded these instruments were required to be accounted for as derivatives due to the down round protection feature on the conversion price and the exercise price. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the statements of operations as “Gain (loss) on derivative liabilities.” These derivative instruments are not designated as hedging instruments under ASC 815 and are disclosed on the balance sheet under Derivative Liabilities.

 

The Convertible Debenture issued March 27, 2017 and accrued interest are convertible into common shares at a fixed price of $1.50 prior to March 27, 2019. The gross proceeds from the sale of the debenture were recorded net of $70,617 related to the conversion feature and $11,923 was allocated to the warrants issued.

 

The Convertible Debenture issued June 5, 2017, and accrued interest are convertible into common shares at a fixed price of $1.50 prior to June 5, 2019. The gross proceeds from the sale of the debenture were recorded net of $86,815 related to the conversion feature and $14,826 was allocated to the warrants issued.

 

The Convertible Debenture issued June 9, 2017, and accrued interest are convertible into common shares at a fixed price of $1.50 prior to June 9, 2019. The gross proceeds from the sale of the debenture were recorded net of $43,874 related to the conversion feature and $7,489 was allocated to the warrants issued.

 

The Company accounted for the convertible debentures issued on March 27, 2017, June 5, 2017, and June 9, 2017 in accordance with ASC 815 “Derivatives and Hedging.” Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period.