Quarterly report pursuant to Section 13 or 15(d)

12. Derivative Liability

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12. Derivative Liability
3 Months Ended
Mar. 31, 2017
Derivative Liability  
12. Derivative Liability

Fusion has issued warrants to purchase shares of its common stock in connection with certain debt and equity financing transactions. These warrants are accounted for in accordance with the guidance contained in ASC Topic 815, Derivatives and Hedging (“ASC 815”). For warrant instruments that are not deemed to be indexed to Fusion’s own stock, the Company classifies such instruments as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrant is exercised or expires, and any change in fair value is recognized in the Company’s statement of operations. At March 31, 2017, Fusion had 565,634 warrants outstanding which provide for a downward adjustment of the exercise price if Fusion were to issue common stock at an issuance price, or issue convertible debt or warrants with a conversion or exercise price, that is less than the exercise price of these warrants. During the three months ended March 31, 2017, 19,200 of such warrants were exercised, and as a result approximately $13,000 was reclassified from the Company’s derivative liability into equity.

 

The fair values of these warrants have been estimated using option pricing and other valuation models, and the quoted market price of Fusion’s common stock. The following assumptions were used to determine the fair value of the warrants for the three months ended March 31, 2017 and 2016:

 

    Three months ended March 31,  
    2017     2016  
Stock price ($)     1.58       1.79  
Adjusted Exercise price ($)     1.54       6.25  
Risk-free interest rate (%)     2.23       1.78  
Expected volatility (%)     74.40       96.70  
Time to maturity (years)     1.75       3.0  

 

At March 31, 2017 and December 31, 2016, the fair value of the derivative was $0.4 million and $0.3 million, respectively. For the three months ended March 31, 2017, the Company recognized a loss on the change in fair value of the derivative of approximately $28,000, and for the three months ended March 31, 2016, the Company recognized a gain on the change in the fair value of this derivative of $0.2 million.