Fair Value of Financial Instruments | 3 Months Ended |
Mar. 31, 2015 |
Notes to Financial Statements | |
Note 12 - Fair Value of Financial Instruments | Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of March 31, 2014, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses, derivative liability, and notes payable approximate the fair value because of their short maturities. |
|
We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements. |
|
Fair value is defined as 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. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include: |
|
| · | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| · | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. | | | | | | | | | | | | | | |
|
We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at March 31, 2015: |
|
Fair Value of Financial Instruments |
|
| | Total | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| | | | | | | | | | | | |
Assets | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | |
Total assets measured at fair value | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Derivative Liability | | $ | 258,965 | | | $ | - | | | $ | - | | | $ | 258,965 | |
Total liabilities measured at fair value | | $ | 258,965 | | | $ | - | | | $ | - | | | $ | 258,965 | |
|
For purpose of determining the fair market value of the derivative liability for the warrants, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows: |
|
Risk free interest rate | | 0.56 | % | | | | | | | | | | | | |
Stock volatility factor | | | 26.08 | % | | | | | | | | | | | | |
Months to Maturity | | | 20 Months | | | | | | | | | | | | | |
Expected dividend yield | | | None | | | | | | | | | | | | | |
|
For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, a reconciliation from the opening balances to the closing balances, disclosing separately changes during the period attributable to the following: Total gains or losses for the period recognized in earnings, and the line item(s) in the income statement in which those gains or losses are recognized.: |
|
Beginning balance as of January 1, 2014 | | $ | 268,403 | | | | | | | | | | | | | |
Fair value of derivative liabilities issued | | | 0 | | | | | | | | | | | | | |
Net Loss/Gain on change in derivative liability | | | (9,438 | ) | | | | | | | | | | | | |
Ending balance as of March 31, 2015 | | $ | 258,965 | | | | | | | | | | | | | |