NOTE 6: DERIVATIVE LIABILITIES |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
NOTE 6: DERIVATIVE LIABILITIES
The Company analyzed the conversion options embedded in the convertible debt for derivative accounting consideration under ASC 815 and determined that the instruments embedded in the above referenced convertible promissory notes should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the conversion options. Additionally, the above referenced convertible promissory notes contain dilutive issuance clauses. Under these clauses, based on future issuances of the Company’s common stock or other convertible instruments, the conversion price of the above referenced convertible promissory notes can be adjusted downward. Because the number of shares to be issued upon settlement of the above referenced convertible promissory notes cannot be determined under this instrument, the Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other future share instruments. The fair values of the instruments were determined using a Black-Scholes option-pricing model.
As a result of the above, an aggregate of 142,857 previously issued nonemployee common stock options became tainted under ASC 815 and were reclassed from equity to derivative liability. On December 31, 2016 and 2015, the fair value of these tainted options was determined to be $9,193 and $10,374, respectively.
During November 2013, the Company issued 310,863 common stock warrants in connection with a note payable. The common stock warrants are required to be accounted for as derivative liabilities under ASC 815. On December 31, 2016 and 2015, the fair value of these warrants was determined to be $603,787 and $2,677,717, respectively.
During the year ended December 31, 2015, additional convertible notes with an aggregate principal amount of $6,149,511 became convertible. The fair value of the conversion options associated with these notes was determined to be $53,119,865, of which $5,479,767 was recorded as a discount to the notes, $45,965,278 was expensed as a loss on derivative liabilities and $1,674,821 was recognized as loss on debt extinguishment. The aggregate fair value of the outstanding derivative liabilities on the conversion option is $67,316,227 as December 31, 2015.
During the year ended December 31, 2016, additional convertible notes with an aggregate principal amount of $2,478,635 became convertible. The fair value of the conversion options associated with these notes was determined to be $5,473,082 of which $2,249,583 was recorded as a discount to the notes and $3,223,499 was expensed as a loss on derivative liabilities. Also during the year ended December 31, 2016, convertible notes with an aggregate principal amount of $1,231,250 and accrued interest of $56,723 were converted into common shares. The fair value of the derivative liabilities associated with these converted notes was determined to be $2,239,513 on the dates of conversion. This amount was reclassified from derivative liabilities to additional paid-in capital as resolution of derivative liabilities. As of December 31, 2016, the aggregate fair value of the outstanding derivative liabilities associated with convertible notes was $17,415,631. For the year ended December 31, 2016, the net gain on derivative liabilities was $51,985,777.
The Company estimated the fair value of the derivative liabilities using the Black-Scholes option pricing model and the following key assumptions during the years ended December 31:
The below table presents the change in the fair value of the derivative liabilities during the years ended December 31, 2016 and 2015:
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