|9 Months Ended|
Sep. 30, 2016
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
Note 6 Derivative Liabilities
In September 2014, the Company issued warrants exercisable into 17,892,000 shares of common stock in relation to the sale of 11,928,000 shares of its common stock. The warrants had a term of five years and an exercise price of $0.25 per share, subject to adjustment, as defined, if the Company issues securities at a price lower than the exercise price of these warrants in the future (see Note 7). At December 31, 2015, 15,792,000 of these warrants were outstanding. During the nine months ended September 30, 2016, 6,580,000 of these warrants were exercised, and at September 30, 2016, 9,212,000 of these warrants were outstanding.
Pursuant to FASB authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entitys own stock, instruments, which do not have fixed settlement provisions, are deemed to be derivative instruments. The exercise price of the warrants issued in September 2014 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 Companys 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, 2015, the fair value of the derivative liabilities was $1,210,430. During the nine months ended September 30, 2016, 6,580,000 warrants accounted for as derivative liabilities were exercised and as such their corresponding fair value at the exercise date of $394,620 was extinguished from the derivative liabilities balance. During the nine months ended September 30, 2016, the fair value of the derivative liabilities decreased by $467,805, and at September 30, 2016, the fair value of the derivative liabilities was $348,005.
At September 30, 2016, the fair value of the derivative liabilities was determined through use of a probability-weighted Black-Scholes-Merton valuation model. At September 30, 2015, the fair value of the derivative liabilities was determined through use of a Black-Scholes-Merton option pricing model. At September 30, 2016 and December 31, 2015, fair values were based on the following assumptions:
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected life of the exercise feature of the warrants was based on the remaining term of the warrants. 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