Annual report pursuant to Section 13 and 15(d)

Derivative Liability

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Derivative Liability
12 Months Ended
Dec. 31, 2018
Derivative Liability [Abstract]  
DERIVATIVE LIABILITY

7 — DERIVATIVE LIABILITY

 

The Subordinated Notes and the 2016 Convertible Notes included default provisions that required payment of significant penalties in the case of a default event (greater than 10% of the principal). These default payment provisions were determined to be derivative instruments, and derivative liabilities were recognized.

 

The probability of a liquidity event and consequent repayment of the issuance of these notes at the time of their issuance and period end was sufficiently high that the resulting derivative liabilities were immaterial. The Company used the Monte-Carlo valuation model to determine the fair value of the derivative liability, using the following key assumptions for the year ended December 31, 2017, and through conversion or extinguishment.

 

  Underlying asset Common Stock
  Common Stock Expected term (years) 5 years
  Common Stock Volatility 90-92%
  Risk free rate 1.67-2.45%
  Event of default trigger Starts at 0%, then rises 0.5% per year to a maximum of 5%
  Probability of Company Sale 45% by 12/31/17 25% by 12/31/18 25% by 12/31/19