Quarterly report pursuant to Section 13 or 15(d)

Warrant Liability

v2.4.0.8
Warrant Liability
 9 Months Ended
Sep. 30, 2013
Warrant Liability [Abstract]  
Warrant Liability
11. 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:
 
   
September 30,
2013
      
March 4,
2013
    
Strike price
   $ 10.00       $ 10.00    
Market price
   $ 4.61       $ 8.00    
Expected life
     5.42  
years
     6.00  
years
Risk-free interest rate
     0.86%         0.86%     
Dividend yield
     0.00%            0.00%    
Volatility
     41%         48%    
Warrants outstanding
     131,250         131,250    
Fair value of warrants
   $ 99,609       $ 415,368    

 
The fair value of the warrant liability decreased to $99,609 at September 30, 2013 from $415,368 at March 4, 2013. Accordingly, the Company decreased the warrant liability by $4,456 and $315,759 to reflect the change in the fair value of the warrant instruments for the respective three and nine month periods ended September 30, 2013, which is included in the accompanying condensed statement of operations for the three and nine months ended September 30, 2013, respectively. 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
    
          315,759
  
Ending balance
   $
(99,609
 )