Annual report pursuant to Section 13 and 15(d)

NOTE 16 ??? DERIVATIVE FINANCIAL INSTRUMENTS

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NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS
12 Months Ended
Dec. 31, 2016
Note 16 Derivative Financial Instruments  
NOTE 16 - DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”), under which convertible instruments and warrants, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt from derivative accounting treatment. As a result, the warrants are initially recorded as a liability at fair value and are revalued at fair value at each reporting date.  During the year ended December 31, 2016, the company issued 4,357,893 warrants in connection with a debt financing of $605,263. The warrants are for a five-year term, are exercisable initially at $0.15 per share and carry a re-pricing feature in the event that the stock price declines prior to repayment of the underlying debt instrument. The warrants were valued on the issuance date at $746,980, of which $529,000 was recorded as a debt discount and $217,980 was charged to derivative gain (loss).


The Company calculated the estimated fair values of the liabilities for warrant derivative instruments at December 31, 2016 and at the warrant issuance date of December 20, 2016 with the Black Scholes Pricing Model (“BSM”) option pricing model and Monte Carlo simulations using the closing price of the Company’s common stock of $0.038 and the ranges for volatility, expected term and risk free interest indicated below that follows (BSM inputs only). The Monte Carlo simulations were used to determine a range of expected volatilities and the implied volatility used was determined with a correlation to the highest probability results from that simulation.  Thus, for the year ended December 31, 2016, the Company recognized a loss from the change in derivative liability of $46,119 in warrant derivative gain (loss) related to the warrant derivative instruments.


 

 

BSM Inputs

 

 

Warrants

 

 

 

 

 

 

As of

December 20, 2016

 

As of

December 31, 2016

Expected Volatility

 

144%

 

144%

Expected Remaining Term

 

5.00 years

 

4.97 years

Risk Free Interest Rate

 

2.04%

 

2.04%