On May 31, 2011, the Company amended the Series PA and PC Warrants issued in February 2011 to extend
the initial exercise date of such warrants to the date that is one year and one day from the effective date of the Company’s Post-Effective Amendment No. 2 to the Registration Statement on Form S-1. As a result, the initial exercise
date of the Series PA and PC Warrants was amended from February 14, 2012 to June 8, 2012. Since the Series PA and PC Warrants are exercisable for a period of five years from the initial exercise date, the expiration date of the Series PA
and PC Warrants automatically adjusted to June 8, 2017 in connection with such amendment. The accounting impact associated with this modification was evaluated in accordance with ASC 815 – Derivatives and Hedges and it was
determined that no accounting charge was needed.
The Company utilizes the Black-Scholes option pricing model to estimate the fair value of
these derivative instruments. The Company considers them to be Level 2 type instruments in accordance with ASC 820-10 – Fair Value Measurements and Disclosures as the inputs used to estimate their value are observable either directly or
indirectly. The risk-free interest rate assumptions were based upon the observed interest rates appropriate for the remaining contractual term of the instruments. The expected volatility assumptions were based upon the historical volatility of the
Company’s common stock. The expected dividend yield was assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future. The expected term assumptions were
based upon the remaining contractual terms of these instruments.
The Company values its financial assets and liabilities on a recurring basis
and effective January 1, 2009 certain nonfinancial assets and nonfinancial liabilities on a nonrecurring basis based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs is used to measure fair value into three broad levels,
which are described below:
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| Level 1: |
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Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority
to Level 1 inputs. |
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| Level 2: |
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Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all
significant inputs are observable or can be derived principally from or corroborated with observable market data. |
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| Level 3: |
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Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
Financial liabilities carried at fair value on a recurring basis at September 30, 2011 and December 31, 2010 are classified in the tables below
in one of the three categories described above:
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September 30, 2011 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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| Derivative liability |
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— |
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$ |
1,744,000 |
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— |
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$ |
1,744,000 |
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December 31, 2010 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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| Derivative liability |
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— |
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$ |
611,000 |
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— |
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$ |
611,000 |
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10
F 888.329.6696