Fair Value Measurements

9 Months Ended

Sep. 30, 2015

Fair Value Measurements [Text Block]

7. Fair Value Measurements

Accounting standards require the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The various levels of the fair value hierarchy are described as follows:

• Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that we have the ability to access.

• Level 2 — Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.

• Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Accounting standards require the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

We review the valuation techniques used to determine if the fair value measurements are still appropriate on an annual basis, and evaluate and adjust the unobservable inputs used in the fair value measurements based on current market conditions and third party information.

The fair value of the warrant liabilities at September 30, 2015 were valued using the Black-Scholes Merton method as an estimate for the Monte Carlos Simulation method which was the method used at the year ended December 31, 2014. The following assumptions were incorporated:

	Black Scholes	Monte Carlo
	September 30,	December 31,
	2015	2014
Risk-free interest rate	0.64%	1.040%
Expected volatility	70%	70%
Expected term (years)	1.92	2.67
Expected dividend yield	0%	0%

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014, respectively:

		September 30, 2015
		Fair Value Measurements
		Level 1		Level 2		Level 3		Total Fair Value
Liabilities
Warrant liabilities (see Note 10)	$	-	$	-	$	459,686	$	459,686

		December 31, 2014
		Fair Value Measurements
		Level 1		Level 2		Level 3		Total Fair Value
Liabilities
Warrant liabilities (see Note 10)	$	-	$	-	$	585,050	$	585,050

The table below reflects the components effecting the change in fair value for the nine months ended September 30, 2015:

		Level 3 Assets and Liabilities
		For the Nine Months Ended September 30, 2015
						Change in
		January 1,				Fair Value			September 30,
		2015		Settlements		gain			2015
Liabilities:
Warrant liabilities (see Note 10)	$	585,050	$	-	$	(125,364	)	$	459,686

The significant unobservable inputs used in the fair value measurement of the Company’s warrant liability includes the risk free interest rate, expected volatility, expected term and expected dividend yield. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.

The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other payables and convertible promissory note as of September 30, 2015 and December 31, 2014, approximate fair value because of the short maturity of these instruments.