Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE

v2.4.1.9
FAIR VALUE
9 Months Ended
Sep. 30, 2014
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
2. FAIR VALUE
 
In accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC 820, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
 
 
·
Level 1: Input prices quoted in an active market for identical financial assets or liabilities.
 
·
Level 2: Inputs other than prices quoted in Level 1, such as prices quoted for similar financial assets and liabilities in active markets, prices for identical assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
 
·
Level 3: Input prices quoted that are significant to the fair value of the financial assets or liabilities which are not observable or supported by an active market.
 
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
 
The Company had issued warrants to purchase 1,365 shares of common stock prior to the Acquisition (“Legacy Warrants”) that are classified within the Level 2 hierarchy. Additionally, the Company issued warrants to purchase an aggregate of 825,000 common shares in a February 2013 public offering (“February 2013 Public Offering Warrants”). On February 20, 2014, warrants to purchase 275,000 shares of common stock issued in the February 2013 offering expired. The remaining 550,000 warrants are classified within the Level 3 hierarchy. The 4,943,023 August 2014 Warrants are listed on the NASDAQ Capital Market under the symbol “CLRBW”, however, there are certain periods where trading volume is low; therefore, they are classified within the Level 2 hierarchy.
 
The following tables set forth the Company’s financial instruments carried at fair value using the lowest level of input applicable to each financial instrument as of September 30, 2014 and December 31, 2013:
 
 
 
September 30, 2014 (Restated)
 
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy Warrants
 
$
 
$
624
 
$
 
$
624
 
February 2013 Public Offering Warrants
 
 
 
 
 
 
819,500
 
 
819,500
 
August 2014 Warrants
 
 
 
 
3,272,971
 
 
 
 
3,272,971
 
Total
 
$
 
$
3,273,595
 
$
819,500
 
$
4,093,095
 
 
 
 
December 31, 2013
 
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy Warrants
 
$
 
$
4,363
 
$
 
$
4,363
 
February 2013 Public Offering Warrants
 
 
 
 
 
 
3,355,000
 
 
3,355,000
 
Total
 
$
 
$
4,363
 
$
3,355,000
 
$
3,359,363
 
 
In order to estimate the fair value of the Legacy Warrants considered to be derivative instruments, the Company uses the Black-Scholes option pricing model and assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates. Assumptions used are generally consistent with those disclosed for stock-based compensation (see Note 7).
 
In order to estimate the value of the February 2013 Public Offering Warrants considered to be derivative instruments as of September 30, 2014, the Company uses a modified option-pricing model together with assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rate of 1.07% (compared with risk-free interest rate of 0.92% as of December 31, 2013), volatility of 110% (compared with 109% as of December 31, 2013), remaining contractual term of 3.64 years (4.14 years as of December 31, 2013), future financing requirements and dividend rates.
 
The assumptions used to estimate the value of the February 2013 Public Offering Warrants as of December 31, 2013 include the fair value of the underlying stock, risk free interest rates ranging from 0.07% to 1.27%, volatility ranging from 75% to 115%, the contractual term of the warrants ranging from 0.14 to 4.14 years, future financing requirements and dividend rates. The future financing estimates are based on the Company’s estimates of anticipated cash requirements over the term of the warrants as well as the frequency of required financings based on its assessment of its historical financing trends and anticipated future events. Due to the nature of these inputs and the valuation technique utilized, these warrants are classified within the Level 3 hierarchy.
 
The following table summarizes the changes in the fair market value of the Company’s warrants which are classified within the Level 3 fair value hierarchy.
 
 
 
September 30,
2014
 
December 31, 2013
 
Beginning balance – Fair value
 
$
3,355,000
 
$
 
Fair value of warrants issued in connection with February 2013 public offering
 
 
 
 
5,720,000
 
Gain on derivatives resulting from change in fair value
 
 
(2,535,500)
 
 
(2,365,000)
 
Ending balance – Fair value
 
$
819,500
 
$
3,355,000
 
 
To estimate the fair value of the August 2014 Warrants, the Company calculated the weighted average closing price for the trailing 10 trading day period that ended on the balance sheet date.