Quarterly report pursuant to Section 13 or 15(d)

NOTE 5. DERIVATIVE LIABILITY

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NOTE 5. DERIVATIVE LIABILITY
 6 Months Ended
Jun. 30, 2017
Notes to Financial Statements  
NOTE 5. DERIVATIVE LIABILITY

On March 28, 2017, the Company filed a preliminary information statement (Schedule PRE 14C) with the SEC, reporting that stockholders of the Company owning a majority of the Company’s outstanding voting securities have approved the following action (The “Action”) by written consent dated March 10, 2017, in lieu of a special meeting of a stockholders.

 

  (1) To elect (4) directors to serve until the next Annual Meeting of Shareholders and thereafter until their successors are elected and qualified.
     
  (2) To approve an amendment to the Company’s Articles of Incorporation to increase the authorized common stock from 100,000,000 shares, par value $0.00001 to 800,000,000 shares of common stock, par value of $0.00001.
     
  (3) Approval of the 2017 Transbiotec, Inc. Omnibus Stock Grant and Option Plan (the “Plan”) which authorized 10,000,000 shares of the Company’s common stock, a number equal to ten percent (10%) of the Company’s outstanding common stock on the date the Plan was approved by a majority of the Company’s stockholders, for issuance to Eligible Recipients.

 

The stockholders of the Company owning a majority of the Company’s outstanding voting securities believe this action will help increase the likelihood of raising funds for the Company, although there is no assurance this will occur.

 

The SEC had 10 days from the March 28, 2017 filing date to comment on the Information Statement. The Company did not receive any comments on the Information Statement from the SEC within the 10-day period; filed a definitive information statement (Schedule DEF 14C) with the SEC on April 21, 2017 and mailed on April 26, 2017 to all shareholders of record as of March 27, 2017 (as identified in the certified shareholders list received from the Company’s transfer agent). The action will go into effect 20 days from the April 26, 2017 mailing date or on May 16, 2017. To complete the action, after May 16, 2017, the Company will file its amendment to the Articles of Incorporation with the State of Delaware, therefore on April 21, 2017, the company’s authorized shares increased from 100,000,000 million shares to 800,000,000. The Company then calculated a gain on its derivative liability due to mark to market adjustments of $189,113, and the remaining derivative liability balance of $350,214 was recorded to APIC and adjusted to zero on April 21, 2017.

 

The Company determined approximately 12,746,121 stock options for common shares that were granted, notes convertible of 22,137,880 common shares, and a shares purchase for 3,571,429 commons shares totaling 38,455,430 common shares at March 31, 2017 were in excess of the Company’s authorized shares amount of 100,000,000 which carries an embedded derivative and are therefore accounted for at fair value under ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments. Utilizing Level 1 Inputs, the Company recorded fair market value adjustments for the 38,455,430 common shares over the Company’s 100,000,000 authorized shares amount for March 31, 2017 and year ended December 31, 2016 of $539,327 and $180,038, respectively. The fair market value adjustments were calculated utilizing the Black-Sholes method using the following assumptions: risk free rates ranging between 0.10% - 1.06%, dividend yield of 0%, expected life of 1 year, volatility between 134% - 408%.

    

A summary of the activity of the derivative liability is shown below:

 

Balance at December 31, 2015     -  
Derivative loss due to new issuances     (113,180 )
Derivative loss due to mark to market adjustments     (66,858 )
Balance at December 31, 2016     (180,038 )
Derivative change due to reclassifications to equity     154,049  
Derivative change due to new issuances     (199,919 )
Derivative loss due to mark to market adjustment     (313,419 )
Balance at March 31, 2017     (539,327 )
Derivative gain due to mark to market adjustments     189,113  
Decrease in derivative liability due to increase in authorized shares     350,214  
Balance at June 30, 2017     -