Quarterly report pursuant to Section 13 or 15(d)

14. Fair Value Disclosures

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14. Fair Value Disclosures
6 Months Ended
Jun. 30, 2014
Notes to Financial Statements  
14. Fair Value Disclosures

Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:

 

Level 1—Quoted prices in active markets for identical assets or liabilities

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3—No observable pricing inputs in the market


The following table represents the fair value of the liability measured at fair value on a recurring basis:

 

    Level 1     Level 2     Level 3     Total  
As of June 30, 2014                        
Non-current liabilities:                        
Derivative liability (see notes 6 and 8 )   $ -     $ -     $ 7,082,401     $ 7,082,401  
                                 
As of December 31, 2013                                
Non-current liabilities:                                
Derivative liability   $ -     $ 10,515,472     $ -     $ 10,515,472  
                                 

 

The following table reconciles the changes in the derivative liability categorized within Level 3 of the fair value hierarchy.

 

Balance at December 31, 2013   $ -  
Transfer of Level 2 balance (a)     10,515,472  
Issuance of additional warrants     1,301,607  
Gains for the period:        
Included in earnings (loss)     (1,919,069 )
Included in other comprehensive income (loss)     -  
Modification of warrant contracts (see note 8)     (2,815,609 )
Balance at June 30, 2014   $ 7,082,401  

 

(a) In the course of preparing its financial statements as of June 30, 2014, the Company determined that all of its derivative liabilities contained unobsoverable inputs and should therefore be reported in the Level 3 fair value hierarchy.