Derivative Liabilities

9 Months Ended

Sep. 30, 2016

In connection with the issuance of convertible promissory notes, the Company may sell options or warrants to purchase Company’s common stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as embedded derivative features which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

The Company's derivative instrument liabilities are re-valued at amendment and at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income in the period in which the changes occur. For options, warrants and bifurcated embedded derivative features that are accounted for as derivative instrument liabilities, the Company estimates fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques. The valuation techniques require assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over the life of the option.

The following table summarizes the movements in derivative liabilities:

	$
Face value of convertible promissory notes issued during Q2 2015		132,200
Day-one derivative loss recognized immediately		252,683
Derivative liabilities on issuance		384,883
Change in fair value of derivatives		(77,316	)
Derivative liabilities as at June 30, 2015		307,567
Derivative liability on issuance		73,249
Change in fair value of derivatives		(217,605	)
Derivative liabilities as at September 30, 2015		163,211
Derivative liability on issuance		12,369
Change in fair value of derivatives		2,678
Derivative liabilities as at December 31, 2015		178,258
Change due to Debt Extinguishment		(175,223	)
Change due to Consolidated Debt Re-issuance (note 4)		217,959
Change in Fair Value		(12,098	)
Derivative liabilities as at March 31, 2016		208,896
Derivative liability on issuance		38,141
Change in fair value of derivatives		19,591
Fair value as at June 30, 2016		266,628
Derivative liability on issuance		24,720
Change in fair value of derivatives		6,444
Fair value as at September 30, 2016		297,792

The multinomial lattice model was used to value the convertible notes and the embedded derivative liabilities at issuance and period end date, using the following assumptions.

	September 30,
Assumptions	2016
Dividend yield		0.00	%
Risk-free rate for term		0.20% - 0.59%
Volatility		309.4	%
Remaining terms (years)		0.17-1.67 years
Stock price ($ per share)		0.80

SocialPlay USA, Inc. 10-Q