Annual report pursuant to Section 13 and 15(d)

Derivative liability

v3.3.1.900
Derivative liability
 12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative liability
Derivative liability:
On October 16, 2013, the Merger provided for up to an additional $14,100,000 of payments to the former holders of ONE Group membership interests ("TOG Members") and to a liquidating trust ("Liquidating Trust"), established for the benefit of TOG Members and holders of warrants to acquire membership interests of ONE Group ("TOG Warrant Holders"), based on a formula as described in the Merger Agreement and which is contingent upon the exercise of outstanding Company warrants to purchase 5,750,000 shares of Common Stock at an exercise price of $5.00 per share (the “Parent Warrants”). The Company is required to make any payments on a monthly basis. Additionally, certain ONE Group employees are entitled to receive a contingent sign-on bonus of an aggregate of approximately $900,000 upon the exercise of the Parent Warrants. Any Parent Warrants that were unexercised would have expired on the date that is the earlier of (i) February 27, 2016 or (ii) the forty-fifth (45th) day following the date that the Company’s Common Stock closes at or above $6.25 per share for 20 out of 30 trading days commencing on February 27, 2014. See footnote 22 for discussion of Warrant expiration.
 
The Company estimated the fair value of the derivative liability based on the period of time between the balance sheet date and the exercise date and the remote possibility of exercise. The warrants expired on February 27, 2016 and the remaining balance will be written off in the first quarter of 2016.
 
The following tables summarize the components of derivative liabilities:
 
 
December 31, 2015
 
December 31, 2014
Fair value of derivative liability (3)
$
100,000

 
$
6,241,000

Significant assumptions (or ranges):
 

 
 

Trading market values  (1)
$
3.55

 
$
4.85

Term (years) (2)
58 days

 
1 year, 58 days

Expected volatility   (2)
67.0
%
 
26.8
%
Risk-free rate   (2)
0.05
%
 
0.32
%
Discount rate (3)
0.91
%
 
1.18
%
Effective Exercise price (2)
$
5.00

 
$
5.00

Trigger price (2)
$
6.25

 
$
6.25

Expected months until effective registration (3)
0

 
0

 
Fair value hierarchy:
 
(1)
Level 1 inputs are quoted prices in active markets for identical assets and liabilities, or derived therefrom.

(2)
Level 2 inputs are inputs other than quoted prices that are observable.

(3)
Level 3 inputs are unobservable inputs. Inputs for which any parts are level 3 inputs are classified as level 3 in their entirety.

The Company recorded $6,141,000 and $3,854,000 of derivative income for the years ended December 31, 2015 and 2014, respectively.