FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

12 Months Ended

Jun. 30, 2016

Dec. 31, 2015

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company defines fair value as the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. The fair value estimates presented in the table below are based on information available to the Company as of June 30, 2016.

The accounting standard regarding fair value measurements discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

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Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

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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 and quoted prices for identical or similar assets or liabilities in markets that are not active.

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Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The Company has determined the fair value of certain liabilities using the market approach. The following table presents the Company’s fair value hierarchy for these liabilities measured at fair value on a recurring basis as of June 30, 2016:

			Quoted Market
			Prices in Active		Significant Other		Significant Other
	Fair Value		Markets		Observable Inputs		Unobservable Inputs
	June 30, 2016		(Level 1)		(Level 2)		(Level 3)

Liabilities:
Warrant liability - 2012 Series A	$	1,565,827	$	-	$	-	$	1,565,827
Warrant liability - 2012 placement agent		3,689		-		-		3,689
Warrant liability - 2013 Series D		2,958,572		-		-		2,958,572
Warrant liability - 2013 placement agent		2,823		-		-		2,823
Total	$	4,530,911	$	-	$	-	$	4,530,911

The following table presents the Company’s fair value hierarchy for these liabilities measured at fair value on a recurring basis as of December 31, 2015:

			Quoted Market Prices in Active		Significant Other		Significant Other
	Fair Value		Markets		Observable Inputs		Unobservable Inputs
	December 31, 2015		(Level 1)		(Level 2)		(Level 3)

Liabilities:
Warrant liability - 2012 Series A	$	1,753,969	$	-	$	-	$	1,753,969
Warrant liability - 2012 placement agent		7,661		-		-		7,661
Warrant liability - 2013 Series D		2,985,512		-		-		2,985,512
Warrant liability - 2013 placement agent		3,545		-		-		3,545
Total	$	4,750,687	$	-	$	-	$	4,750,687

The following table provides a summary of changes in fair value of the Company’s liabilities, as well as the portion of losses included in income attributable to unrealized depreciation that relate to those liabilities held at June 30, 2016:

Fair Value Measurement Using Significant Unobservable Inputs (Level 3)

	Total						2013						2012
	Warrant		2013		2013		Placement		2012		2012		Placement		2010
	Liability		Series E		Series D		Agent		Series B		Series A		Agent		Class B

Balance at January 1, 2015	$	6,671,524	$	25,737	$	3,011,249	$	18,907	$	12,381	$	3,507,938	$	67,246	$	28,066
Total gains or losses:
Unrealized appreciation/(depreciation)		(1,920,837)		(25,737)		(25,737)		(15,362)		(12,381)		(1,753,969)		(59,585)		(28,066)
Balance at December 31, 2015	$	4,750,687	$	-	$	2,985,512	$	3,545	$	-	$	1,753,969	$	7,661	$	-
Total gains or losses:
Unrealized appreciation/(depreciation)		(219,776)				(26,940)		(722)				(188,142)		(3,972)
Balance at June 30, 2016	$	4,530,911	$	-	$	2,958,572	$	2,823	$	-	$	1,565,827	$	3,689	$	-

Value per Warrant	$	0.106	$	-	$	0.123	$	0.043	$	-	$	0.086	$	0.013	$	-

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

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Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

⋅

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The Company has determined the fair value of certain liabilities using the market approach. The following table presents the Company’s fair value hierarchy for these assets measured at fair value on a recurring basis as of December 31, 2015:

			Quoted Market
			Prices in Active		Significant Other		Significant Other
	Fair Value		Markets		Observable Inputs		Unobservable Inputs
	December 31, 2015		(Level 1)		(Level 2)		(Level 3)

Liabilities:
Warrant liability - 2012 Series A	$	1,753,969	$	-	$	-	$	1,753,969
Warrant liability - 2012 placement agent		7,661		-		-		7,661
Warrant liability - 2013 Series D		2,985,512		-		-		2,985,512
Warrant liability - 2013 placement agent		3,545		-		-		3,545

Total	$	4,750,687	$	-	$	-	$	4,750,687

The following table presents the Company’s fair value hierarchy for these assets measured at fair value on a recurring basis as of December 31, 2014:

			Quoted Market
			Prices in Active		Significant Other		Significant Other
	Fair Value		Markets		Observable Inputs		Unobservable Inputs
	December 31, 2014		(Level 1)		(Level 2)		(Level 3)

Liabilities:
Warrant liability - 2010 Class B	$	28,066	$	-	$	-	$	28,066
Warrant liability - 2012 Series A&B		3,520,319		-		-		3,520,319
Warrant liability - 2012 placement agent		67,246		-		-		67,246
Warrant liability - 2013 Series D&E		3,036,986		-		-		3,036,986
Warrant liability - 2013 placement agent		18,907		-		-		18,907

Total	$	6,671,524	$	-	$	-	$	6,671,524

Fair Value Measurement Using Significant Unobservable Inputs (Level 3)

	Total						2013						2012
	Warrant		2013		2013		Placement		2012		2012		Placement		2010
	Liability		Series E		Series D		Agent		Series B		Series A		Agent		Class B

Balance at January 1, 2014	$	35,864,881	$	5,855,206	$	12,482,527	$	98,080	$	2,816,676	$	13,887,307	$	362,633	$	362,452
Total gains or losses:
Unrealized appreciation		(29,193,357)		(5,829,469)		(9,471,278)		(79,173)		(2,804,295)		(10,379,369)		(295,387)		(334,386)
Balance at December 31, 2014	$	6,671,524	$	25,737	$	3,011,249	$	18,907	$	12,381	$	3,507,938	$	67,246	$	28,066
Total gains or losses:
Unrealized appreciation		(1,920,837)		(25,737)		(25,737)		(15,362)		(12,381)		(1,753,969)		(59,585)		(28,066)
Balance at December 31, 2015	$	4,750,687	$	-	$	2,985,512	$	3,545	$	-	$	1,753,969	$	7,661	$	-

Value per Warrant	$	0.202	$	-	$	0.232	$	0.054	$	-	$	0.170	$	0.027	$	-

Significant assumptions used at December 31, 2015 and 2014 for the warrants and embedded conversion discount derivative liability of the Debentures are as follows:

	December 31, 2015			December 31, 2014

Volatility		162	%		173	%
Risk-free interest rate		1.38	%		1.65	%

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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