Annual report pursuant to Section 13 and 15(d)

Derivative Liability and Fair Value Measurements

v3.19.1
Derivative Liability and Fair Value Measurements
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Liability and Fair Value Measurements
Note 12 — Derivative Liability and Fair Value Measurements
 
The Company recognized a derivative liability for the warrants to purchase shares of its common stock issued in connection with the equity offering and related debt conversions on August 5, 2013. These warrants had a cashless exercise provision and an exercise price that was subject to adjustment in the event of subsequent equity sales at a lower purchase price (subject to certain exceptions) along with full-ratchet anti-dilution provisions. In accordance with ASC 815-10-25 
Derivatives and Hedging 
we measured the derivative liability using a Monte Carlo Options Lattice pricing model at the warrants’ life/ maturity issuance date and subsequently re-measured the liability on each reporting date.
 
Accordingly, at the end of each quarterly reporting date, the derivative fair market value is re-measured and adjusted to current market value. As at December 31, 2018 and 2017, a total of nil and 38,100, respectively, warrants were outstanding that contained a full-ratchet anti-dilution provision. In connection with the Series A Private Placement on January 2, 2015 (see Note 14), holders of approximately 86% of outstanding warrants issued by the Company in its public offering and in connection with the conversion by certain holders of the Company’s outstanding debt in connection with the Company’s public offering (collectively, the “Public Offering Warrants”) agreed to irrevocably waive their rights to anti-dilution protection under Section 2(b) of the Public Offering Warrants in the event the Company issues additional securities at a per share price lower than the exercise price of the Public Offering Warrants (the “Public Offering Warrant Waiver”). As a result, the related derivative liability was reversed to zero and reclassified into stockholders’ equity under Additional Paid-In Capital.
 
 
We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2018 and 2017:
 
2018:
 
Total
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Warrant Liability
 
$
 
 
$
 
 
$
 
 
$
 
Total liabilities measured at fair value (Current Liabilities)
 
$
 
 
$
 
 
$
 
 
$
 
 
2017:
 
Total
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Warrant Liability
 
$
152,927
 
 
$
 
 
$
 
 
$
152,927
 
Total liabilities measured at fair value (Current Liabilities)
 
$
152,927
 
 
$
 
 
$
 
 
$
152,927
 
 
Changes in the fair value of the warrant liability were as follows:
 
Fair value – December 31, 2015
 
$
240,786
 
 
 
 
 
 
Reclassification of warrant exercises to Additional Paid-in Capital
 
 
(32,911
)
Change in fair value for the period of warrant derivative liability
 
 
(34,744
)
Fair value – December 31, 2016
 
 
173,131
 
 
 
 
 
 
Reclassification of warrant exercises to Additional Paid-in Capital
 
 
 
Change in fair value for the period of warrant derivative liability
 
 
(20,204
)
Fair value – December 31, 2017
 
 
152,927
 
 
 
 
 
 
Reclassification of warrant exercises to Additional Paid-in Capital
 
 
(166,800
)
Change in fair value for the period of warrant derivative liability
 
 
13,873
 
 Fair value – December 31, 2018
 
$
 
 
The Monte Carlo Options Lattice pricing model was used to estimate the fair value of warrants outstanding and reflected the following assumptions:
 
 
 
December 31,

2018
 
 
December 31,

2017
 
 
December 31,

2016
 
Assumptions for Pricing Model:
 
 
 
 
 
 
 
 
 
 
 
 
Expected term in years
 
 
 
 
 
0.59
 
 
 
1.22
 
Volatility range for years
 
 
 
 
 
143
%
 
 
100
%
Risk-free interest rate
 
 
 
 
 
1.76
%
 
 
1.47
%
Expected annual dividends
 
 
 
 
 
None
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Value of warrants outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of warrants
 
$
 
 
$
152,927
 
 
$
173,131