19. FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

19. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1 — Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.

Level 2 — Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data.

Level 3 — Unobservable inputs supported by little or no market activity for 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; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market data.

The Company has various processes and controls in place to attempt to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. The Company performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are evaluated through a management review process.

While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The following is a description of the valuation methodologies used for complex financial instruments measured at fair value:

Warrant liability

The Company utilizes a binomial model to derive the estimated fair value of warrants that are classified as liabilities. Key inputs into the model include a discount for lack of marketability on the stock price, expected share price volatility, and a risk-free interest rate.

In order to calculate the fair value of our warrants, certain underlying assumptions are made regarding components of the model. As of December 31, 2014, significant assumptions include the estimated $3.66 fair value of the underlying common stock, the risk-free interest rate ranging from 1.53% to 1.74% and share price volatility of 37%. Changes to the assumptions could cause significant adjustments to the valuation.

The fair value of the underlying common stock was determined based on the traded price of the Company’s stock with a marketability discount of 25%. The risk-free interest rate is based on the yield of U.S. treasury bonds over the expected term. The expected share price volatility is based on historical common stock prices for comparable publicly traded companies over a period commensurate with the expected term of the instrument.

Derivatives

Derivatives consisting of complex embedded features pursuant in our debt financings, are valued using a binomial option pricing model. Key inputs into the model include a discount for lack of marketability on the stock price, expected share price volatility, and a risk-free interest rate. Any significant changes to these inputs illegible or other assumptions would have a significant impact on estimated fair value.

Assets and liabilities measured at fair value as of December 31, 2014 and 2013 are summarized as follows:

	December 31, 2014
Recurring fair value measurements	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant Liability	$	123,897,915	$	-	$	-	$	123,897,915
Derivative Liability	$	40,090,977	$	-	$	-	$	40,090,977
Total Liabilities	$	163,988,892	$	-	$	-	$	163,988,892

	December 31, 2013
Recurring fair value measurements	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant Liability	$	-	$	-	$	-	$	16,600,500

	Fair Value Measurements Using Significant  Unobservable Inputs (Level 3)
	Total		Warrant  Liability		Derivatives
Balance, January 1, 2014	$	16,600,500	$	16,600,500	$	-
Current activity and issuances		147,388,392		107,297,415		40,090,977
Balance, December 31, 2014	$	163,988,892	$	123,897,915	$	40,090,977

	Fair Value Measurements Using Significant  Unobservable Inputs (Level 3)
	Total		Warrant Liability		Derivatives
Balance, January 1, 2013	$	-	$	-	$	-
Current activity and issuances		16,600,500		16,600,500		-
Balance, December 31, 2013	$	16,600,500	$	16,600,500	$	-