FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value as of March 31, 2016 and December 31, 2015, because of the relatively short maturities of these instruments. The estimated fair values for financial instruments presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values. The carrying values of certain borrowings approximate fair value because the underlying instruments are fixed-rate notes based on current market rates and current maturities.

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 Valuation Methodologies

The Black Scholes model was used to compute the fair value of outstanding warrants as of March 31, 2016 and December 31, 2015. Key inputs into the valuation models include expected stock price volatility and a risk-free interest rate. As of March 31, 2016, significant assumptions include the risk-free interest rate ranging from 0.87% to 1.54% and historical volatility of the Company’s common stock price ranging from 87.2% to 121.9%. As of December 31, 2015, significant assumptions include the risk-free interest rate ranging from 0.01% to 1.75% and historical volatility of the Company’s common stock price ranging from 90.4% to 129.7%. As these assumptions are revised in the future, it can cause significant adjustments to future valuation results. 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 the Company and comparable publicly traded companies over a period commensurate with the expected term of the warrant. Changes to these assumptions could cause significant adjustments to the valuation results.

Derivative Valuation Methodologies

Derivatives consisting of complex embedded conversion features pursuant to certain of 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 or other assumptions would have a significant impact on estimated fair value.

Recurring Fair Value Measurements

The Company does not have any recurring measurements of the fair value of assets. Recurring measurements of the fair value of liabilities as of March 31, 2016 and December 31, 2015 are summarized as follows:

	As of March 31, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Warrant liability	$	-	$	-	$	67,199	$	67,199	$	-	$	-	$	54,412	$	54,412
Derivative liability		-		-		155		155		-		-		496		496
Total	$	-	$	-	$	67,354	$	67,354	$	-	$	-	$	54,908	$	54,908

The Company did not make any transfers in or out of level 3 for the three months ended March 31, 2016. The following table presents a reconciliation of changes in liabilities measured at fair value on a recurring basis for the three months ended March 31, 2016:

	Warrants		Derivatives			Total
Fair value of liability, beginning of period	$	54,412	$	496		$	54,908
Issuances of new instruments		8,571		-			8,571
Total net losses (gains) included in:
Fair value adjustments included in net loss		4,216		(255	)		3,961
Extinguishments through cancellations		-		(86	)		(86	)
Fair value of liability, end of period	$	67,199	$	155		$	67,354