Quarterly report pursuant to Section 13 or 15(d)

Derivatives

v3.5.0.2
Derivatives
 9 Months Ended
Sep. 30, 2016
Derivatives [Abstract]  
Derivatives

Note 6 - Derivatives

 

The Company has determined that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the warrants’ exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The warrants granted in connection with the issuance of the 2012 Common Stock Offering, and the placement agent warrants contain anti-dilution provisions that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower Price”) that is less than the exercise price of such warrant at the time. The amount of any such adjustment is determined in accordance with the provisions of the warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the time.

 

Activities for derivative warrant instruments during the nine months ended September 30, 2016 were as follows:

 

    Shares
subject to
warrants		     Fair Value  
             
Balance, December 31, 2015     1,627,369     $ 2,848,902  
                 
Transfer from liability to equity classification     (12,109 )     (17,455 )
                 
Change in fair value     -       (2,399,639 )
                 
Balance, September 30, 2016     1,615,260     $ 431,808  

 

During the nine months ended September 30, 2016, 183,718 warrants were exercised, of which 12,109 were derivative warrants. The fair value of these derivative warrants totaling $17,455 were measured on the exercise date and reclassified to additional paid-in capital.

 

The fair values of the derivative warrants were calculated using a modified binomial valuation model with the following assumptions at each balance sheet date. 

 

    September 30,     December 31,  
    2016     2015  
             
Market value of common stock on measurement date (1)   $ 1.35     $ 3.23  
Adjusted exercise price   $ 2.34     $ 2.48  
Risk free interest rate (2)     0.59 %     1.06 %
Warrant lives in years     1.25 years       2.0 years  
Expected volatility (3)     75 %     87 %
Expected dividend yield (4)     -       -  
Probability of stock offering in any period over 5 years (5)     100 %     100 %
Offering price (6)   $ 1.25     $ 2.60  

 

(1) The market value of common stock at the above measurement dates is based on the Company’s closing price quoted on the NYSE MKT.

  

(2) The risk-free interest rate was determined by management using the Treasury Bill rate as of the respective measurement date.

 

(3) As of September 30, 2016 and December 31, 2015, the volatility was estimated using the historical volatilities of the Company’s common stock traded in NYSE MKT market.

 

(4) Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.

 

(5) Management determines the probability of future stock offering at each evaluation date.
   
(6) Represents the estimated offering price in future offerings as determined by management.