Derivative Liabilities | 6 Months Ended |
Mar. 31, 2015 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Liabilities | 13. Derivative Liabilities: |
|
The following tables summarize the components of the Company’s derivative liabilities: |
|
| | 31-Mar-15 | | | | | | | | | | | | | | | | | |
Warrant | | $ | 203 | | | | | | | | | | | | | | | | | |
Convertible note | | | 47,758 | | | | | | | | | | | | | | | | | |
| | $ | 47,961 | | | | | | | | | | | | | | | | | |
|
Warrant |
|
The following tables summarize the components of the Company’s warrant derivative liabilities and linked common shares as of March 31, 2015 and the amounts that were reflected in income related to derivatives for the three months then ended: |
|
| | As at March 31, 2015 | | | | | | | | | | | | | |
| | Index shares | | | Fair values | | | | | | | | | | | | | |
Warrant derivatives | | | 75,000 | | | $ | 203 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
|
The Common Stock Purchase Warrant pursuant to a “Stairs Option/Joint Venture Agreement” with Teck Resources Limited (“Teck”) (see Note 15) issued on December 13, 2013 contained a variable conversion price, the Company has classified it as a derivative liability. |
|
The Binomial Lattice technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators. Significant assumptions utilized in the Binomial Lattice process are as follows for the warrants as of March 31, 2015: |
|
| | 31-Mar-15 | | | | | | | | | | | | | | | | | |
Linked common shares | | | 75,000 | | | | | | | | | | | | | | | | | |
Quoted market price on valuation date | | $ | 0.01 | | | | | | | | | | | | | | | | | |
Quoted market price on valuation date | | $ | 0.598 | | | | | | | | | | | | | | | | | |
Term (years) | | | 1.23 | | | | | | | | | | | | | | | | | |
Range of market volatities | | | 132.64% - 189.68 | % | | | | | | | | | | | | | | | | |
Risk free rates using zero coupon US Treasury Security rates | | | 0.07% - 0.38 | % | | | | | | | | | | | | | | | | |
|
The following table reflects the issuances of derivative warrants and changes in fair value inputs and assumptions related to the derivative warrants during the six months ended March 31, 2015. |
|
| | 31-Mar-15 | | | | | | | | | | | | | | | | | |
Balances at October 1, 2014 | | $ | 203 | | | | | | | | | | | | | | | | | |
Common stock purchase warrants | | | - | | | | | | | | | | | | | | | | | |
Changes in fair value inputs and assumptions reflected in income | | | - | | | | | | | | | | | | | | | | | |
Balances at March 31, 2015 | | $ | 203 | | | | | | | | | | | | | | | | | |
|
The fair value of all warrant derivatives is significantly influenced by the Company’s trading market price, the price volatility in trading and the risk free interest components of the Binomial Lattice technique. |
|
Convertible Note |
|
As of March 31, 2015, the estimated derivative fair value of our convertible promissory notes is as follows: |
|
Convertible Notes | | Fair Value | | | Fair Value | | | | | | | | | | | | | |
Issuance | 31-Mar-15 | | | | | | | | | | | | |
23-Feb-15 | | | | | | | | | | | | | |
VIS Vires Group Convertible Note - $30,000 | | $ | 46,092 | | | $ | 47,758 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
|
VIS Vires Group Convertible Notes |
|
On February 23, 2015 (the “Date of Issuance”), Trio Resources, Inc. issued convertible promissory notes to VIS Vires, Inc. (the “Holder”), in the amounts of $30,000 (1st tranche included no deferred financing cost or legal fees) (the “Convertible Promissory Notes” or the “Notes”). |
|
The Convertible Notes are convertible at 51% of the average 2 lowest bid prices for the last 15 trading days and contains a full ratchet reset. The Holders have the right after 180 days following the Date of Issuance, and until any time until the Convertible Promissory Note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible Promissory Note, and accrued interest, into fully paid and non-assessable shares of Common Stock. The Holder was not issued warrants with the Convertible Promissory Notes. |
|
The Convertible Notes: (a) bears interest at 8% per annum; (b) the principal and accrued interest is due and payable on 11/25/15; (c) is convertible optionally by the Holder at any time after 180 days; (d) bears 22% interest on default with a 150% payment penalty under specific default provisions; (e) redeemable at 120% to 145% for days 0-180; (f) and is subject to dilutive adjustments for share issuances (full ratchet reset feature). The embedded conversion feature in the Note should be accounted for as a derivative liability due to the variable conversion provision based on guidance in ASC 815 and EITF 07-05. |
|
The following table reflects the allocation of the VIS Vires Group purchase on the financing date February 23, 2015: |
|
VIS Vires Group Convertible Note | | Note | | | | | | | | | | | | | | | | | |
Allocation/Costs | | | | | | | | | | | | | | | | |
Convertible promissory notes | | $ | 30,000 | | | | | | | | | | | | | | | | | |
Compound embedded derivative | | | 46,092 | | | | | | | | | | | | | | | | | |
Day One derivative loss | | | 16,092 | | | | | | | | | | | | | | | | | |
|
Fair Value Considerations |
|
ASC 820 Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. |
|
The standard describes three levels of inputs that August be used to measure fair value: |
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations August be obtained from, or corroborated by, third-party pricing services. |
|
Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort. |
|
The Company follows the provisions of ASC 820 with respect to its financial instruments. As required by ASC 820, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The Company’s convertible promissory notes which are required to be measured at fair value on a recurring basis under of ASC 815 as of March 31, 2015are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities as of March 31, 2015. |
|
| | | | | Fair Value Measurements Using: | | | | | |
| | Fair Value | | | Quoted Prices | | | Significant | | | Significant | | | | | |
in Active | Other | Unobservable | | | | |
Markets | Observable | Inputs | | | | |
(Level 1) | Inputs | (Level 3) | | | | |
| (Level 2) | | | | | |
Convertible Note | | $ | 47,758 | | | $ | - | | | $ | - | | | $ | 47,758 | | | | | |
Warrant derivative | | | 203 | | | | | | | | | | | | 203 | | | | | |
Totals | | $ | 47,961 | | | $ | - | | | $ | - | | | $ | 47,961 | | | | | |
|
Our financial instruments consist of cash, loan receivable, accounts payable and accrued liabilities, loans payable, promissory notes payable, convertible notes payable, convertible draw down loan payable and derivative liabilities. It is management’s opinion that we are not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values based on their short maturities or for long-term debt based on borrowing rates currently available to us for loans with similar terms and maturities. Gains and losses recognized on changes in estimated fair value of the derivative liability are reported in other income (expense) as gain (loss) on change in fair value. |
|
The Company values its derivative instruments related to embedded derivative features from the issuance of convertible debentures in accordance with the Level 3 guidelines. |
|
Derivative Financial Instruments |
|
Derivative Liabilities |
|
The Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions and full ratchet conversion price reset feature. The conversion terms of the convertible note is variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures are included in the value of the derivative. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and full ratchet reset events and shares to be issued were recorded as derivative liabilities on the issuance date. According to ASC 815, the derivatives associated with the convertible notes were recognized as a discount to the debt instrument, and the discount is being amortized over the life of the note and any excess of the derivative value over the note payable value is recognized as additional expense at issuance date. |
|
Further, and in accordance with ASC 815, the embedded derivatives are revalued using a multi-nomial lattice model at issuance and at each balance sheet date and marked to fair value with the corresponding adjustment as a “gain or loss on change in fair values” in the consolidated statement of operations. As of March 31, 2015, the fair value of the notes included on the accompanying consolidated balance sheet was $47,758. During the three months period ended March 31, 2015, the Company recognized a gain on change in fair value totaling $1,666. |
|
Key assumptions used in the valuation of the convertible notes for each of the valuation dates were as follows: |
|
Note Holder | | Valuation | | | Term | | | Volatility | | | Risk | | | | | |
Date | Adjusted | | | | |
| Rate | | | | |
| | | | | | | | | | | | | | | | |
VIS Vires Group | | | 2/23/15 | | | | 0.75 | | | | 306.8 | % | | | 0.08 | % | | | | |
VIS Vires Group | | | 3/31/15 | | | | 0.65 | | | | 323.6 | % | | | 0.14 | % | | | | |
|
The fair value of the derivative liability was calculated using a multi-nomial lattice model that values the compound embedded derivatives and by applying based on a probability weighted discounted cash flow model, which is based on future projections of the various potential outcomes. The fair values including the embedded derivatives that were analyzed and incorporated into the model included the variable conversion price feature with the full ratchet reset, and the redemption options. Due to the significant estimates inherent in determining such a valuation and the unobservable nature of certain inputs in the multi-nomial lattice model and the probabilities used these in the discounted cash flow model, these instruments have been classified as Level 3 financial instruments. Any changes in these unobservable inputs would be likely to cause material changes in the fair value of these financial instruments. |
|
| | Balance at | | | New Issuances | | | Settlements | | | Change in Fair Values | | | Balance at | |
31-Dec-14 | 31-Mar-15 |
Level 3 – Fair Values from: | | | | | | | | | | | | | | | | | | | | |
Convertible Note | | $ | - | | | $ | 46,092 | | | | - | | | $ | 1,666 | | | $ | 47,758 | |
| | $ | | | | $ | 46,092 | | | | | | | $ | 1,666 | | | $ | 47,758 | |