FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2014

Schedule of assumptions used to determine the fair value

The following assumptions were used in the Monte Carlo option-valuation model to determine the fair value of the Financing Warrant and Senior Convertible Note derivative liability during the period from June 17, 2013 to June 30, 2013:

	Expected Life (Years)	Risk Free Rate	Volatility	Probability of a Capital Raise
Financing Warrant	6.5 - 7	1.57 - 2.28%	65.3 - 68.6%	—
Senior Convertible Note Derivative Liability	0.75 - 1.75	0.19 - 0.24%	81.0 - 102.1%	75 - 90%

The following assumptions were used in the Black-Scholes option-pricing model to determine the fair value of the warrant liabilities:

	December 31, 2013	June 30, 2014

Assumptions:
Risk-free interest rate	0.8% - 2.45%	1.25% - 2.31%
Expected dividend yield	0%	0%
Expected volatility	60.0% - 65.6%	64.0% - 69.7%
Expected term (in years)	4.08 - 7.0	3.58 – 5.95

Schedule of liabilities measured at fair value on a recurring basis

			Fair Value Measurements Using
	Balance as of December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Senior convertible note derivative	$	5,056,502	$	—	$	—	$	5,056,502
Bridge loan warrants	1,338,071		—		—		1,338,071
Consulting warrant	1,228,616		—		—		1,228,616
Financing warrant	709,397		—		—		709,397
Total	$	8,332,586	$	—	$	—	$	8,332,586

			Fair Value Measurements Using
	Balance as of June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Liabilities:
Bridge loan warrants	$	1,882,353	$	—	$	—	$	1,882,353
Consulting warrant	1,713,567		—		—		1,713,567
Financing warrant	1,242,279		—		—		1,242,279
Total	$	4,838,199	$	—	$	—	$	4,838,199

Schedule of reconciliation of all liabilities measured at fair value using Level 3 significant unobservable inputs

	Warrant Liabilities(1)		Senior Convertible Note Derivative Liability(2)
Balance at December 31, 2013	$	3,276,084	$	5,056,502
Issuance of warrant and derivative liabilities	—		—
Change in fair value	1,562,115		1,633,272
Write-off due to conversion	—		(6,689,774		)
Balance at June 30, 2014	$	4,838,199	$	—

(1) The change in the fair value of the warrants was recorded as a reduction of $928,021 and $1.6 million to other income in the condensed consolidated statement of operations for the three and six months ended June 30, 2014, respectively.

(2) The extinguishment of the senior convertible note derivative liability was recorded as an increase of $5.5 million to additional paid-in capital and a gain of $1.2 million to other income in the condensed consolidated statement of operations for both the three and six months ended June 30, 2014, respectively.

- Definition

Tabular disclosure of liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

+ References+ Details

- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

+ References+ Details