Annual report pursuant to Section 13 and 15(d)

Fair Value of Assets and Liabilities

v3.3.1.900
Fair Value of Assets and Liabilities
12 Months Ended
Dec. 31, 2015
Fair Value Disclosures [Abstract]  
Fair Value of Assets and Liabilities

4.

FAIR VALUE OF ASSETS AND LIABILITIES

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2—Valuation is based on observable inputs other than Level 1 prices, 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—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The Company uses valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. The Company had no assets or liabilities classified as Level 1 or Level 2. Certain warrants issued for professional services (Note 14) were classified as Level 3. The fair values of these instruments were determined using models based on market observable inputs and management judgment. There were no material re-measurements of fair value during the years ended December 31, 2015 and 2014 with respect to financial assets and liabilities, other than those assets and liabilities that are measured at fair value on a recurring basis.

The Company had valued certain warrants as a derivative liability at December 31, 2013 and due to a modification in the terms of these warrants (See Note 14), the derivative liability was reclassified at June 30, 2014 to Additional Paid in Capital. The warrant derivative liability was re-measured at June 30, 2014 prior to reclassification using the Black-Scholes option pricing model based on the following assumptions:

 

 

 

As of June 30,

2014

 

Risk free interest rate

 

 

1.25

%

Expected dividend yield

 

 

0

%

Contractual term

 

 

3.97

 

Expected volatility

 

 

66

%

 

As of December 31, 2015 and 2014 there were no derivative warrant liabilities.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

 

 

 

December 31, 2014

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative warrant liability at December 31, 2013

 

$

 

 

$

 

 

$

19,932

 

 

$

19,932

 

Change in fair value of the derivative warrant liability

 

 

 

 

 

 

 

 

28,448

 

 

 

28,448

 

Reclassification of derivative warrant liability to equity

 

 

 

 

 

 

 

 

(48,380

)

 

 

(48,380

)

Derivative warrant liability at December 31, 2014

 

$

 

 

$

 

 

$

 

 

$