Derivative Liability

3 Months Ended

Mar. 31, 2016

Derivative liability [Abstract]

Derivative Liability

6. Derivative Liability

The Company has determined that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company's own stock and (b) classified in stockholders' deficit in the statement of financial position would not be considered a derivative financial instrument. The Company applies a two-step model in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock and thus able to qualify for the scope exception.

In November and December 2015, the Company entered into unsecured convertible promissory note purchase agreements with investors and affiliates of the Company. The accounting for the unsecured convertible notes, which are convertible into shares of our common stock, requires us to bifurcate the conversion feature and account for it as a derivative liability at the estimated fair value upon issuance. The Company used a Monte Carlo simulation to value the conversion feature with the following assumptions:

	As of March 31, 2016
Common Stock price	$ 2.81
Convertible debt principal amount	$ 1,268,000
Term (years)	0.08 to 0.40
Expected volatility	111%
Convertible debt interest rate	24%
Trials (each trial equals 150,000 iterations)	10
Discount to IPO/next round	30%

The fair value framework requires a categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

There were no financial assets or liabilities measured at fair value, with the exception of cash and cash equivalents (level 1) and the above mentioned derivative liability (level 3) as of March 31, 2016 and December 31, 2015, respectively.

The fair value of the conversion feature (on the unsecured convertible promissory notes) derivative liability at March 31, 2016 and December 31, 2015 was $305 and $330, respectively.

Changes in the fair value of the level 3 derivative liability for the three month period ended March 31, 2016 are as follows:

	Derivative Liability
Balance at January 1, 2016	$ 330
Gain on derivative liability	(25)
Balance at March 31, 2016	$ 305