Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.5.0.2
Fair Value Measurements
 9 Months Ended
Sep. 30, 2016
Notes to Financial Statements  
Note 12. 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 assesses and approves 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 September 30, 2016 and December 31, 2015:

 

    Fair value measurement using  
 
 
 
($ rounded to nearest thousand) 		 
 
 
  		Quoted prices
in active markets
(Level 1) 		 
 
 
  		 
 
 
 

Significant
other

observable

inputs

(Level 2)

  
 
 
  		 
 
 
 

Significant

unobservable

inputs

(Level 3)

  
 
 
  		 
 
 
  		 
 
 
Total 		 
 
 
 
                           
Balance at September 30, 2016                          
Liabilities:                          
Warrant liability   $ -     $ -     $ 121,000     $ 121,000  

 

    Fair value measurement using  
 
 
 
($ rounded to nearest thousand) 		 
 
 
 

Quoted

prices

in active

markets
(Level 1)

  
 
 
  		 
 
 
 

Significant

other

observable

inputs

(Level 2)

  
 
 
  		 
 
 
 

Significant

unobservable

inputs

(Level 3)

  
 
 
  		 
 
 
  		 
 
 
Total 		 
 
 
 
                           
Balance at December 31, 2015                          
Liabilities:                          
Warrant liability   $ -     $ -     $ 2,327,000     $ 2,327,000  

 

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, 2014   $ 4,633,000  
Change in fair value of warrant liability     (2,306,000 )
Balance at December 31, 2015   $ 2,327,000  
Reclassification to equity     (692,000 )
Change in fair value of warrant liability     (1,643,000 )
Warrant modification expense     129,000  
Balance at September 30, 2016   $ 121,000  

 

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 9 – Warrant Liability 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 our current assets and current liabilities approximate their reported carrying amounts. There were no transfers between Level 1, 2 and 3 at September 30, 2016 and December 31, 2015.