Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.6.0.2
Fair Value Measurements
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
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 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. There were no warrant liabilities on the accompanying consolidated balance sheet at December 31, 2016. 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:

 

    Fair value measurement using  
    Quoted prices     Significant     Significant        
    in     other     unobservable        
    active markets     observable Inputs     inputs        
($ rounded to nearest thousand)   (Level 1)     (Level 2)     (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, 2015   $ 2,327,000  
Reclassification to equity     (817,000 )
Warrant modification expense     162,000  
Change in fair value of warrant liability     (1,672,000 )
Balance at December 31, 2016   $ -  

 

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 – 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 December 31, 2016 and 2015.