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Derivative Liabilities (Tables)
 9 Months Ended
Sep. 30, 2014
Derivative Liabilities [Abstract]  
Schedule of Assumptions Used
The estimated fair values of the derivative liabilities associated with the 8% Notes and the 12% Notes, for the conversion options and warrants issued through and as of September 30, 2014 were computed by a third party using Monte Carlo simulations based on the following ranges for each assumption:
 
 
 
 
 
 
 
September 30,
 
 
 
At Issuances
 
 
2014
 
 
 
 
 
 
 
 
 
 
Volatility
 
 
40.0% to 45.0
%
 
 
40.0
%
Risk-free interest rate
 
 
0.11% to 0.3
%
 
 
0.3% to 0.07
%
Dividend yield
 
 
0.0
%
 
 
0.0
%
Expected life
 
 
1.1 to 1.6 years
 
 
 
0.5 to 0.9 years
 
Financial Liabilities Measured at Fair Value on Recurring Basis
The following table summarizes the financial liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
 
 
 
As of September 30, 2014
 
 
 
 
 
 
 
 
 
Derivative
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
at
 
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
8% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
$
-
 
$
-
 
$
3,872,000
 
$
3,872,000
 
Warrants
 
 
-
 
 
-
 
 
-
 
 
-
 
12% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
 
-
 
 
-
 
 
111,000
 
 
111,000
 
Derivative liabilities - Current
 
 
-
 
 
-
 
 
3,983,000
 
 
3,983,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Placement agent warrants - Non-current
 
 
-
 
 
-
 
 
52,720
 
 
52,720
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities - Total
 
$
-
 
$
-
 
$
4,035,720
 
$
4,035,720
 
 
 
 
As of December 31, 2013
 
 
 
 
 
 
 
 
 
Derivative
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
at
 
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
8% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
$
-
 
$
-
 
$
12,400,000
 
$
12,400,000
 
Warrants
 
 
-
 
 
-
 
 
4,790,000
 
 
4,790,000
 
Derivative liabilities - Current
 
 
-
 
 
-
 
 
17,190,000
 
 
17,190,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Placement agent warrants - Non-current
 
 
-
 
 
-
 
 
296,194
 
 
296,194
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities - Total
 
$
-
 
$
-
 
$
17,486,194
 
$
17,486,194
 
Reconciliation of Derivative Liability Used in Determining Fair Value
The following table is a reconciliation of the derivative liabilities for which Level 3 inputs were used in determining fair value during the three and nine months ended September 30, 2014 and 2013: 
 
 
 
For the Three Months Ended September 30, 2014
 
 
 
 
 
Fair Value
 
 
 
 
 
 
 
Balance -
 
of
 
 
 
Balance -
 
 
 
July 1,
 
Derivative
 
Change in
 
September 30,
 
 
 
2014
 
Liability
 
Fair Value
 
2014
 
 
 
 
 
 
 
 
 
 
 
8% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
$
10,695,000
 
$
402,000
 
$
(7,225,000)
 
$
3,872,000
 
Warrants
 
 
-
 
 
-
 
 
-
 
 
-
 
12% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
 
-
 
 
157,000
 
 
(46,000)
 
 
111,000
 
Derivative liabilities - Current
 
 
10,695,000
 
 
559,000
 
 
(7,271,000)
 
 
3,983,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Placement agent warrants - Non-current
 
 
119,703
 
 
-
 
 
(66,983)
 
 
52,720
 
Derivative liabilities - Total
 
$
10,814,703
 
$
559,000
 
$
(7,337,983)
 
$
4,035,720
 
  
 
 
For the Nine Months Ended September 30, 2014
 
 
 
 
 
Fair Value
 
 
 
 
 
 
 
Balance -
 
of
 
 
 
Balance -
 
 
 
January 1,
 
Derivative
 
Change in
 
September 30,
 
 
 
2014
 
Liability
 
Fair Value
 
2014
 
 
 
 
 
 
 
 
 
 
 
8% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
$
12,400,000
 
$
4,387,139
 
$
(12,915,139)
 
$
3,872,000
 
Warrants
 
 
4,790,000
 
 
391,365
 
 
(5,181,365)
 
 
-
 
12% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
 
 
 
 
157,000
 
 
(46,000)
 
 
111,000
 
Derivative liabilities - Current
 
 
17,190,000
 
 
4,935,504
 
 
(18,142,504)
 
 
3,983,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Placement agent warrants - Non-current
 
 
296,194
 
 
-
 
 
(243,474)
 
 
52,720
 
Derivative liabilities - Total
 
$
17,486,194
 
$
4,935,504
 
$
(18,385,978)
 
$
4,035,720
 
  
 
 
For the Three Months Ended September 30, 2013
 
 
 
 
 
Fair Value
 
 
 
 
 
 
 
Balance -
 
of
 
 
 
Balance -
 
 
 
July 1,
 
Derivative
 
Change in
 
September 30,
 
 
 
2013
 
Liability
 
Fair Value
 
2013
 
 
 
 
 
 
 
 
 
 
 
8% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
$
1,520,000
 
$
-
 
$
(460,000)
 
$
1,060,000
 
Warrants
 
 
540,000
 
 
-
 
 
(270,000)
 
 
270,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities - Current
 
 
2,060,000
 
 
-
 
 
(730,000)
 
 
1,330,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Placement agent warrants - Non-current
 
 
122,357
 
 
-
 
 
-
 
 
122,357
 
Derivative liabilities - Total
 
$
2,182,357
 
$
-
 
$
(730,000)
 
$
1,452,357
 
   
 
 
For the Nine Months Ended September 30, 2013
 
 
 
 
 
Fair Value
 
 
 
 
 
 
 
Balance -
 
of
 
 
 
Balance -
 
 
 
January 1,
 
Derivative
 
Change in
 
September 30,
 
 
 
2013
 
Liability
 
Fair Value
 
2013
 
 
 
 
 
 
 
 
 
 
 
8% Convertible promissory notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion option
 
$
610,000
 
$
545,426
 
$
(95,426)
 
$
1,060,000
 
Warrants
 
 
220,000
 
 
249,151
 
 
(199,151)
 
 
270,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities - Current
 
 
830,000
 
 
794,577
 
 
(294,577)
 
 
1,330,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Placement agent warrants - Non-current
 
 
81,716
 
 
-
 
 
40,641
 
 
122,357
 
Derivative liabilities - Total
 
$
911,716
 
$
794,577
 
$
(253,936)
 
$
1,452,357