Quarterly report pursuant to Section 13 or 15(d)

Warrant Liability

v2.4.0.6
Warrant Liability
 3 Months Ended
Mar. 31, 2013
Warrant Liability [Abstract]  
Warrant Liability
10. Warrant Liability

The common stock purchase warrants issued to the underwriters in the Company's IPO in March 2013 have certain cash settlement features that require them to be recorded as liability instruments. At issuance, a portion of the proceeds from the IPO were allocated to the value of the warrant and recorded as an offering cost, reducing the proceeds from the IPO. Accordingly, as a liability the warrant obligations are adjusted to fair value at the end of each reporting period with the change in value reported in the statement of operations. Such fair values were estimated using the Black-Scholes valuation model. The Company will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise, at which time the liability will be reclassified to stockholders' equity, or expiration of the warrants.

The warrant liability was valued using the Black-Scholes option valuation model and the following assumptions on the following dates:

   
March
31,
2013
    
March
4,
2013
  
Expected life
  
5.88 years
    
6.00 years
  
Risk-free interest rate
    
0.86
%
    
0.86
%
Dividend yield
    
0.00
%
    
0.00
%
Volatility
    
48
%
    
48
%
Warrants outstanding
    
131,250
      
131,250
  
Fair value of warrants
  
$
304,560
    
$
415,368
  

The fair value of the warrant liability decreased to $304,560 at March 31, 2013 from $415,368 at March 4, 2013. Accordingly, the Company decreased the warrant liability by $110,808 to reflect the change in fair value at March 31, 2013. This amount is included as a change in the fair value of warrant instruments in the accompanying condensed statement of operations for the three months ended March 31, 2013. The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

Beginning balance
   $ --  
Initial warrant valuation
     (415,368 )
 
Net unrealized gain
     110,808  
Ending balance
   $ (304,560 )