|3 Months Ended|
Mar. 31, 2017
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
Note 4 – Derivative Liabilities
At March 31, 2017 and at December 31, 2016, the Company had warrants exercisable into 9,212,000 shares of common stock. The warrants have a term of five years and an exercise price as adjusted of $0.01 per share. The exercise price is subject to further adjustment if the Company issues securities at a price lower than the exercise price of these warrants (see Note 7).
Pursuant to FASB authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments, which do not have fixed settlement provisions, are deemed to be derivative instruments. The exercise price of the warrants did not have fixed settlement provisions because their exercise prices could be lowered if the Company issues securities at lower prices in the future. In accordance with the FASB authoritative guidance, the Company determined that the exercise feature of the warrants was not considered to be indexed to the Company’s own stock, and bifurcated the exercise feature of the warrants and recorded a derivative liability. The derivative liability is re-measured at the end of every reporting period with the change in fair value reported in the statement of operations.
At December 31, 2016, the fair value of the derivative liabilities was $280,316. During the three months ended March 31, 2017, the fair value of the derivative liabilities decreased by $104,739. At March 31, 2017, the fair value of the derivative liabilities was $175,577.
At March 31, 2017 and 2016, the fair value of the derivative liabilities was determined through use of a probability-weighted Black-Scholes-Merton valuation model based on the following assumptions:
The expected volatilities are based on historical volatility of the Company’s stock. The expected life of the warrants was based on the remaining term of the warrants. The risk-free interest rates were based on rates established by the Federal Reserve Bank. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://www.xbrl.org/2003/role/presentationRef