Derivative liability - warrants (restated)

9 Months Ended

Sep. 30, 2012

Derivative Liability - Warrants [Abstract]

Derivative liability - warrants [Text Block]

Note 8: Derivative liability – warrants (restated)

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level I Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level II Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level III Pricing inputs that are generally observable inputs and not corroborated by market data.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses approximate their fair value because of the short maturity of those instruments.

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative warrant liability at every reporting period and recognizes gains or losses in the consolidated statements of operations and comprehensive income (loss) that are attributable to the change in the fair value of the derivative warrant liability.

Fair value of financial assets and liabilities measured on a recurring basis

 Level 3 Financial Liabilities – Derivative conversion features and warrant liabilities

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheets as of September 30, 2012:

	Fair value measurement using
	Carrying value		Level I		Level II		Level III		Total
Derivative warrant - liability	$	935	$	–	$	–	$	935	$	935

The warrants were re-measured at fair-value as of September 30, 2012 based upon the following BLPM to value its warrants containing anti-dilution provision: risk free rate 0.310%; expected term four (4) years; annual volatility 75.0%; exercise price $4.00, stock price $4.28.

	Fair value measurement Using Level III inputs
	Derivatives			Total
Balance, July 1, 2012	$	1,461		$	1,461
Change in fair value of warrant liability		(623	)		(623	)
Issuance of additional warrants due to anti-dilution provision		97			97
Transfers in and/or out of Level III		–			–
Balance, September 30, 2012	$	935		$	935