Quarterly report pursuant to sections 13 or 15(d)

Fair Value Measurements

v2.3.0.11
Fair Value Measurements
6 Months Ended
Jun. 30, 2011
Notes to Financial Statements  
Fair Value Measurements

Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of these assets or liabilities are as follows:

 

Level 1 — Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2 — Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

 

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2010 and June 30, 2011, by level within the fair value hierarchy, are as follows:

 

Fair Value Measurements at June 30, 2011 (Unaudited)
    Level 1    Level 2    Level 3    Total 
Warrant Liability            $7,512   $7,152 
Derivative Liability             360,792    360,792 
Total  $—     $—     $367,944   $367,944 

   

 

Fair Value Measurements at December 31, 2010
    Level 1    Level 2    Level 3    Total 
Warrant Liability            $4,416   $4,416 
Derivative Liability             280,547   280,547 
Total  $—     $—     $291,963   $291,963 

   

The following table provides a summary of changes in the fair value of the Company’s Level 3 financial liability mentioned above for the year ended December 31, 2010, for the period ended June 30, 2011 and for the period from January 14, 2008 (date of inception) to June 30, 2011:

 

   Warrant  Derivative   
   Liability  Liability  Total
January 14, 2008 (date of inception)  $—     $—     $—   
Issuance of warrants   52,665         52,665 
Issuance of convertible notes        9,377    9,377 
Changes in fair value   (15,960)   (4,402)   (20,362)
                
December 31, 2008   36,705    4,975    41,680 
Changes in fair value   (1,692)   (4,975)   (6,667)
                
December 31, 2009   35,013        35,013 
Issuance of warrants   3,680         3,680 
Issuance of convertibles notes        281,466    281,466 
Reclassification of warrants to equity   (37,110)        (37,110)
Cancellation of warrants   (65,082)        (65,082)
Changes in fair value   67,915    6,081    73,996 
                
December 31, 2010  $4,416   $287,547   $291,963 
Issuance of warrants   2,567         2,567 
Issuance of convertible notes        233,698    233,698 
Changes in fair value   169    (160,453)   (160,284)
                
June 30, 2011 (Unaudited)  $7,152   $360,792   $367,944 

 

The valuation of the convertible stock warrant liability is discussed in Note 7.