Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

5. Fair Value Measurements

The following tables summarize the Company's assets and liabilities measured at fair value on a recurring basis at December 31, 2014 and December 31, 2013:

December 31, 2014	Fair Value		(Level 1)		(Level 2)		(Level 3)
Common stock warrants	$	30,278	$	-	$	-	$	30,278
Total	$	30,278	$	-	$	-	$	30,278

December 31, 2013	Fair Value		(Level 1)		(Level 2)		(Level 3)
Convertible notes payable redemption derivative liability	$	534,975	$	-	$	-	$	534,975
Series A-1 preferred stock derivative liability	$	56,926	$	-	$	-	$	56,926
Total	$	591,901	$	-	$	-	$	591,901

As discussed in Note 6, prior to the Merger, the Company issued Senior Secured Notes (defined below) which were redeemable upon an event of default. The Senior Secured Notes were later exchanged in favor of the Amended Secured Convertible Notes (defined below), resulting in an extinguishment of the related derivative liability for the prior Senior Secured Notes. Also discussed in Note 6, the Company then issued the New Secured Convertible Notes, which may be redeemed upon an event of default. Since the Secured Convertible Notes were issued at a substantial discount and the event of default clause may require accelerated repayment, the Secured Convertible Notes include an embedded derivative that is not clearly and closely related to the host contract. Accordingly, the Company bifurcated the embedded derivative from the host contract and recognized a derivative liability at fair value upon issuance of the Secured Convertible Notes. The Company estimated the fair value of the derivative liability using a valuation model which included the weighted probability of the amount of redemption and the time until redemption occurs over the note term. The Secured Convertible Notes were paid in full on October 2, 2014, resulting in an extinguishment of the related derivative liability, see Note 6 below.

In May 2013, the Company sold Series A-1 redeemable convertible preferred stock (“Series A-1 Preferred Stock”) which contained provisions for anti-dilution protection in the event the Company issues common stock at a price below a price per share formula, as defined. At December 31, 2014, the threshold price was $0.289 per share. The anti-dilution protection requires the Company to issue the holders of Series A-1 Preferred Stock shares of common stock or in the event of unavailable authorized shares of common stock, cash. The anti-dilution provision represents an embedded derivative as it is not clearly and closely related to the host contract. Accordingly, the Company bifurcated the embedded derivative from the host contract and recognized a derivative liability at fair value upon issuance of the Series A-1 Preferred Stock. The Company estimated the fair value of the derivative liability using the Monte Carlo option pricing valuation model which included a probability weighted present value calculation. Post Merger, the Series A-1 Preferred Stock are no longer redeemable. Therefore, these were transferred to Series A Preferred Stock within the Stockholders' equity.

As discussed in Note 7, in January 2014, the Company issued warrants to purchase 238,412 shares common stock at an exercise price of $3.04 to a placement agent. The exercise price is subject to adjustment and the warrants may be exercised without cash consideration in lieu of forfeiting a portion of shares. Accordingly, the Company recognized a derivative liability at fair value upon issuance of the warrants. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model. The fair value of the derivative liability as of December 31, 2014 was estimated using the following assumptions:

Expected volatility	60	%
Risk free rate	1.35	%
Dividend yield	0	%
Expected term (in years)	4.0726

The assumptions utilized were derived in a similar manner as discussed in Note 7 related to the fair value of stock options.

The Company revalues the derivative liabilities at the end of each reporting period using the same models as at issuance, updated for new facts and circumstances, and recognizes the change in the fair value in the statements of operations as other income (expense). The following sets forth a summary of changes in fair value of the Company’s level 3 liabilities measured on a recurring basis for the twelve months ended December 31, 2014 and December 31, 2013: 

			Series A-1
	Convertible		Preferred		Common
	Notes Payable		Stock		Stock
	Derivative Liability		Derivative Liability		Warrants
Balance at December 31, 2012	$	-	$	-	$	-
Fair value at issuance		582,903		548,465		-
Change in fair value		(47,928)		(491,539)		-
Balance at December 31, 2013	$	534,975	$	56,926	$	-

			Series A-1
	Convertible		Preferred		Common
	Notes Payable		Stock		Stock
	Derivative Liability		Derivative Liability		Warrants
Balance at December 31, 2013	$	534,975	$	56,926	$	-
Extinguishment		(434,500)		-		-
Fair value at issuance		189,300		-		466,706
Change in fair value		(289,775)		(56,926)		(436,428)
Balance at December 31, 2014	$	-	$	-	$	30,278