Derivative Liability

12 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liability

7. DERIVATIVE LIABILITY

The conversion feature of the Loan Agreement was initially determined to be an embedded derivative under ASC 815 as the exercise price was subject to downward adjustment as discussed in Note 6 above and, therefore, did not meet the “fixed-for-fixed” criteria. As a result, the conversion feature of the convertible Loan Agreement was initially bifurcated and classified as a derivative liability which was recorded at an initial fair value and subsequently marked-to-market each period with the changes in fair value reported in the Company’s results of operations. The initial fair value measurement of the derivative liability as determined on the date of each advance has been recognized as a debt discount and is amortized over the life of the Loan Agreement.

As discussed in Note 6 above, the downward adjustment of the exercise price expired on November 13, 2014 and the exercise price remains fixed at $2.60 for the remainder of the term of the Loan Agreement. As a result, the conversion feature no longer qualifies as an embedded derivative instrument and the fair value of the derivative as of November 13, 2014 was reclassified to equity and will no longer require further mark-to-market adjustments.

The fair value of the derivative liability as of November 13, 2014 has been calculated using the Black-Scholes option pricing model with the following assumptions:

Risk-free interest rate	0.53%
Expected life of derivative liability	2.13 years
Expected volatility	85.76%
Dividend rate	N/A

The change in the derivative liability related to the conversion feature is as follows:

	December 31,
	2014			2013
Fair value of derivative liability at beginning of period	$	2,169		$	-
Fair value of $2,000 drawdown		1,556			-
Fair value of $3,000 drawdown		1,691			2,061
Change in fair value of derivative liability		(2,919	)		108
Reclassification to equity		(2,497	)		-
Fair value of derivative liability at end of period		-		$	2,169