Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.8
Fair Value Measurements
 9 Months Ended
Sep. 30, 2014
Fair Value Measurements [Abstract]  
Fair Value Measurements

4. Fair Value Measurements

 

We record our financial assets and liabilities at fair value. The accounting standard for fair value provides a framework for measuring fair value, and defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting standard establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

  • Level 1—Quoted prices in active markets for identical assets or liabilities. We consider a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

  • Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

  • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The valuation of Level 3 assets or liabilities requires the use of significant management judgments or estimation.

 

Our fair value hierarchies for our financial assets and liabilities which require fair value measurement on a recurring basis are as follows:

 

    Total     Quoted Prices in
Active Markets for
Identical Items
(Level 1)		     Significant Other
Observable Inputs 
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  
                         

September 30, 2014

                                
Liabilities:                                
Warrant liability   $ 11,819,450     $ –     $ –     $ 11,819,450  
                                 

December 31, 2013

                                
Liabilities:                                
Warrant liability   $ 377,747     $ –     $ –     $ 377,747  
Convertible debt   $ 5,062,417     $ –     $ –     $ 5,062,417  

 

 The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities, which were measured at fair value on a recurring basis.

 

  Warrant liability     Convertible debt  
Beginning balance December 31, 2013   $ 377,747     $ 5,062,417  
Transfer to equity upon settlement     (377,747 )     (5,062,417 )
Fair value of warrants on date of issuance     10,613,550       –  
Change in fair value of warrants during the period     1,205,900       –  
Ending balance September 30, 2014   $ 11,819,450     $ –  

 

The fair value of each warrant was determined using a lattice model with the following assumptions:

 

 


September 30,

    
  2014    
Dividend yield     –  
Risk-free interest rate     0.72-1.53 %
Current share price   $ 0.84  
Expected term (in years)     2.30-4.30  
Volatility     65-70 %
Periodic rate     0.17-66 %
Periods in the model     10  

 

The warrant liability and convertible debt outstanding as of December 31, 2013 were settled in transactions related to the Merger. See Note 3, The Merger, Offering and Other Related Transactions.