|6 Months Ended|
Jun. 30, 2017
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
NOTE 6 – DERIVATIVE LIABILITY
We account for equity-linked financial instruments, such as our convertible preferred stock, and our common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the respective agreement. Equity-linked financial instruments are accounted for as derivative liabilities, in accordance with ASC Topic 815 – Derivatives and Hedging, if the instrument allows for cash settlement or provide for modification of the exercise price in the event subsequent sales of common stock are at a lower price per share than the then-current warrant exercise price. Additionally, financial instruments are classified as derivative liabilities if, as a result of the anti-dilution protection, there is no limit on the number of shares that may be subsequently issued and we conclude there are not adequate authorized shares available to provide for subsequent issuances. We classify derivative liabilities on the balance sheet at fair value, and changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent to the initial issuance of the stock warrant.
In March and April 2017, we issued shares of Series C convertible preferred stock which contain anti-dilution protection and other conversion price adjustment provisions, and related warrants which contain anti-dilution protection and other exercise price adjustment provisions. As a result, the Company assessed its outstanding equity-linked financial instruments and concluded that this series of preferred stock, and related warrants, is subject to derivative accounting. The fair value of these shares is classified as a liability in the financial statements, with the change in fair value during the periods presented recorded in the statement of operations. We have recorded a finance cost of approximately $0.2 million due to the excess of the liability over the proceeds received.
As a result of recent equity financings, the conversion prices of our Series A Preferred Stock and our Series B preferred stock has been reduced to $0.53 per share. The exercise prices of the warrants issued in conjunction with the Series B preferred stock have also been reduced to $0.53 per share. As a result, we have recorded a finance cost of approximately $1.3 million due to the repricing during the six months ended June 30, 2017.
During the six months ended June 30, 2017, we recorded a gain of approximately $2.0 million related to the change in fair value of the derivative liabilities during the period. For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuations of the derivatives at June 30, 2017 are as follows:
During the six months ended June 30, 2016, we recorded a gain of approximately $0.8 million related to the change in fair value of the derivative liability during the period. For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:
As of June 30, 2017 and December 31, 2016, the derivative liability recognized in the financial statements was approximately $2.2 million and $2.5 million, respectively.
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