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5. DERIVATIVE LIABILITIES
 6 Months Ended
Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITIES

As of December 31, 2013, the Company did not have a sufficient number of common shares authorized to fulfill the possible exercise of all outstanding warrants and the conversion of all convertible notes payable. As a result, the Company determined that the warrants and the embedded conversion features of the outstanding debt instruments did not qualify for equity classification. Accordingly, the warrants and conversion features were treated as derivative liabilities and were carried at fair value. During the year ended December 31, 2015, all of the outstanding convertible notes that qualified as derivative liabilities were paid in full or converted to common stock. As of June 30, 2016, only 10,000 warrants remained as derivative liabilities due to the existence of reset provisions that qualify the instruments as derivative liabilities under FASB ASC 815.

 

The following table sets forth the fair value hierarchy within our financial assets and liabilities by level that they were accounted for at fair value on a recurring basis as of June 30, 2016 and December 31, 2015.

 

        Fair Value Measurement at June 30, 2016  
Liabilities:  

Carrying Value at

June 30, 2016

     Level 1     Level 2     Level 3        
  Warrant derivative liabilities   $ 223     $ -     $ -     $ 223        
Total   $ 223     $ -     $ -     $ 223        

 

        Fair Value Measurement at December 31, 2015  
Liabilities:  

Carrying Value at

December 31, 2015

     Level 1     Level 2     Level 3        
  Warrant derivative liabilities   $ 310     $ -     $ -     $ 310        
Total   $ 310     $ -     $ -     $ 310        

 

The Company estimates the fair value of the derivative warrant liabilities by using the Black-Scholes Option Pricing Model and the derivative liabilities related to the conversion features in the outstanding convertible notes using the lack-Scholes Option Pricing Model assuming maximum value, Level 3 inputs, with the following assumptions used:

 

Dividend yield: 0%
Expected volatility 0% to 131%
Risk free interest rate 0.13% to 0.25%
Expected life (years) 0.58 to 1.07

 

The following table sets forth the changes in the fair value of derivative liabilities for the six months ended June 30, 2016:

 

Balance, December 31, 2015   $ (310 )
  Gain on change in fair value of derivative liabilities     87  
Balance, June 30, 2016   $ (223 )

 

The aggregate gain on derivative liabilities for the six months ended June 30, 2016 was $87.