Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

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Fair Value Measurements
12 Months Ended
Dec. 31, 2015
Fair Value Measurements [Text Block]

Note 13. Fair Value Measurements

We adopted the accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

 

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

 

 
 

Level 2

Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

 

 
 

Level 3

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Annually, the board of directors assess and approve the fair value measurement policies and procedures. At least annually, the finance department determines if the current valuation techniques used in the fair value measurements are still appropriate and evaluates and adjusts the unobservable inputs used in the fair value measurements based on current market conditions and third-party information. The following fair value hierarchy table presents information about each major category of the Company’s financial liability measured at fair value on a recurring basis as of December 31, 2015 and 2014:

($ rounded to nearest thousand)     Fair value measurement using  
      Quoted prices     Significant     Significant        
      in     other     unobservable        
      active markets     observable     inputs        
      (Level 1)     inputs (Level 2)     (Level 3)     Total  
Balance at December 31, 2015                          
Liabilities:                          
Warrant liability   $   -   $   -   $ 2,327,000   $ 2,327,000  

($ rounded to nearest thousand)     Fair value measurement using  
      Quoted prices     Significant     Significant        
      in     other     unobservable        
      active markets     observable     inputs        
      (Level 1)     inputs (Level 2)     (Level 3)     Total  
Balance at December 31, 2014                          
Liabilities:                          
Warrant liability   $   -   $   -   $ 4,633,000   $ 4,633,000  

The reconciliation of warrant liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

($ rounded to nearest thousand)   Warrant Liability  
       
Balance at December 31, 2013 $ 1,711,000  
Issuance of additional warrants   4,416,000  
Exercise of warrants   (331,000 )
Change in fair value of warrant liability   (1,163,000 )
Balance at December 31, 2014 $ 4,633,000  
Issuance of additional warrants   -  
Exercise of warrants   -  
Change in fair value of warrant liability   (2,306,000 )
Balance at December 31, 2015 $ 2,327,000  

The fair value of the warrant liability is based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. See Note 10 for further discussion of the warrant liability. Significant increases (decreases) in any of those Level 3 inputs in isolation would result in a significantly lower (higher) fair value measurement.

We believe that the fair values of its current assets and current liabilities approximate their reported carrying amounts. There were no transfers between Level 1, 2 and 3.