Derivative Financial Instruments (Notes)

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

DERIVATIVE FINANCIAL INSTRUMENTS

The Company evaluates its warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations as other income or expense. Upon registration of the shares, changes in price-based anti-dilution adjustments, conversion or exercise, as applicable, of a derivative instrument, the instrument is marked to fair value at the date of the occurrence of the event and then that fair value is reclassified to equity.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Instruments that are initially classified as equity that become subject to reclassification are reclassified to a liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months after the balance sheet date.

The following table summarizes the Company's activity and fair value calculations of its derivative warrants for the year ended December 31, 2015 and nine months ended September 30, 2016:

	Linked Common Shares to Derivative Warrants		Warrant Liability
Balance, December 31, 2014	1,795,564		$	3,203,465
Exercise of warrants for common stock	(1,392,832	)	(5,348,408		)
Loss on exchange of warrants	—		1,197,821
Reclassification of fair value of 2014 Private Placement warrants to equity	(396,536	)	(1,181,638		)
Change in fair value of derivatives	—		2,133,820
Balance, December 31, 2015	6,196		5,060
Expiration of warrants	(694	)	—
Change in fair value of derivatives	—		(4,960		)
Balance, September 30, 2016	5,502		$	100

During the three months ended September 30, 2016 and 2015, the Company recorded a gain of $1,231 and $115,904, respectively, due to the change in the fair value of its warrant liability. During the nine months ended September 30, 2016 and 2015, the Company recorded a gain of $4,960 and a loss of $2,139,540, respectively, due to the change in the fair value of its warrant liability.

The Company's warrants were valued on the applicable dates using a Binomial Lattice Option Valuation Technique (“Binomial”). Significant inputs into this technique as of December 31, 2015 and September 30, 2016 were as follows:

Binomial Assumptions	December 31, 2015	September 30, 2016
Fair market value of asset (1)	$7.66	$5.87
Exercise price	$25.00	$25.00
Term (2)	1.7 years	0.9 years
Implied expected life (3)	1.7 years	0.9 years
Volatility range of inputs (4)	83.00%	63.20%
Equivalent volatility (3)	83.00%	63.20%
Risk-free interest rate range of inputs (5)	1.06%	0.59%
Equivalent risk-free interest rate (3)	1.06%	0.59%

(1)  The fair market value of the asset was determined by using the Company's closing stock price as reflected in the OTCQB for the period ended December 31, 2015 and the Nasdaq Capital Market for the period ended September 30, 2016.

(2)  The term is the contractual remaining term, allocated among twelve equal intervals for purposes of calculating other inputs, such as volatility and risk-free rate.

(3)  The implied expected life, and equivalent volatility and risk-free interest rate amounts are derived from the Binomial.

(4)  The Company does not have a market trading history upon which to base its forward-looking volatility. Accordingly, the Company selected peer companies that provided a reasonable basis upon which to calculate volatility for each of the intervals described in (2), above.

(5)  The risk-free rates used for inputs represent the yields on zero coupon U.S. Government Securities with periods to maturity consistent with the intervals described in (2), above.