Quarterly report pursuant to Section 13 or 15(d)

Provision for Conversion of Preferred Stock

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Provision for Conversion of Preferred Stock
6 Months Ended
Jun. 30, 2017
Provision For Conversion Of Preferred Stock [Abstract]  
Provision for Conversion of Preferred Stock

5. Provision for Conversion of Preferred Stock

 

Series B Preferred Stock Conversion Liability

 

As of August 20, 2015, in connection with the Series B Preferred Stock financing, the Company recorded a liability related to down-round protection provided to the stockholders in the event that the Company would effect another sale or issuance of common stock, stock options or convertible securities with a price per share below $0.80. With the assistance of a third-party valuation specialist, the Company valued the conversion liability pursuant to the accounting guidance of ASC 820-10, Fair Value Measurements, as of the closing date of the financing. The Company also performed a review of the conversion liability in conjunction with ASC 815, Derivatives and Hedging/Contracts in Entity's Own Equity, and determined that the liability requires bifurcation and re-measurement to fair market value at the end of each reporting period. The derivative was valued at $75,488 and was booked as a current liability as of September 30, 2015. The value of this embedded derivative was determined utilizing a with and without method by valuing the preferred stock with and without the down round protection.

 

As of June 30, 2017, the Company engaged a third-party valuation specialist to re-measure the conversion liability to fair market value as of that date utilizing the same methodology previously performed. The derivative was classified as a current liability was adjusted to $25,051 as of June 30, 2017. The change in fair market value was recorded as non-operating income of $3,326 and $88,532, respectively, for the three and six months ended June 30, 2017. As of June 30, 2016, the Company also conducted a third-party valuation utilizing the same methodology. The change in fair market value was recorded as non-operating income of $31,414 for the three months ended June 30, 2016 and $21,814 as non-operating expense for the six months ended June 30, 2016.