Quarterly report pursuant to sections 13 or 15(d)

Derivative Warrant Liability

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Derivative Warrant Liability
 3 Months Ended
Mar. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE WARRANT LIABILITY
10. 
DERIVATIVE WARRANT LIABILITY
 
Warrants issued in connection with several private placements contain provisions that protect holders from a decline in the issue price of the Company’s common stock (or “down-round”) or that contain net settlement provisions.  The Company accounts for these warrants as liabilities instead of equity.  Down-round provisions reduce the exercise price or conversion price of a warrant if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or equity that have a lower exercise price or at a lower price.  Net settlement provisions allow the holder of the warrant to surrender shares underlying the warrant equal to the exercise price as payment of its exercise price, instead of physically exercising the warrant by paying cash.  The Company evaluates whether warrants to acquire its common stock contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price and/or shares to be issued under the respective warrant agreements based on a variable that is not an input to the fair value of “fixed for fixed” option.
 
The Company recognizes these warrants at their fair value and remeasures them at fair value on each reporting date.
 
The assumptions used in connection with the valuation of warrants and units were as follows:
 
   
March 31,
2014
    
December 31,
2013
  
Number of shares underlying the warrants
     19,873,714       19,873,714  
Exercise price
   $ 1.00 - $1.05     $ 1.00 - $1.05  
Volatility
     89.23 %     90.11 %
Risk free interest rate
     0.90 %     0.78 %
Expected dividend yield
     0.00 %     0.00 %
Expected warrant life (years)
     4.53 – 4.69       4.78 – 4.94  
Stock price
   $ 0.78     $ 1.25  
 
Recurring Level 3 Activity and Reconciliation
 
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3).  The table reflects gains and losses for the three months ended March 31, 2014 for all financial liabilities categorized as Level 3.  There were no financial liabilities categorized as Level 3 for the three months ended March 31, 2013.
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
   
 
December 31,
2013
    
 
Initial
Measurements
    
Increase
(Decrease)
To
Fair Value
    
 
Reclassed
To Equity
    
 
March 31,
2014
  
Unit Offering
   $ 8,518,330     $ --     $ 188,661     $ --     $ 8,706,991  
Unit Offering- Placement Agent
     993,034       --       20,374       --       1,013,408  
    $ 9,511,364     $ --     $ 209,035     $ --     $ 9,720,399  
 
Number of Warrants Subject to Remeasurement
 
   
December 31,
2013
    
Additions
    
Reductions
    
March 31,
2014
  
Unit Offering
     17,785,714       --       --       17,785,714  
Unit Offering- Placement Agent
     2,088,000       --       --       2,088,000  
      19,873,714       --       --       19,873,714