Annual report pursuant to Section 13 and 15(d) 12-31-2014

Fair Value Measurements and Marketable Securities

v2.4.1.9
Fair Value Measurements and Marketable Securities
12 Months Ended
Dec. 31, 2014
Fair Value Measurements And Marketable Securities [Abstract]  
Fair Value Measurements and Marketable Securities

5. Fair Value Measurements and Marketable Securities

Financial Instruments Measured and Recorded at Fair Value on a Recurring Basis

The Company measures and records certain financial instruments at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 - quoted market prices for identical assets or liabilities in active markets.

Level 2 - observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3 - unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The Company classifies assets and liabilities measured at fair value in their entirety based on the lowest level of input that is significant to their fair value measurement. No financial assets were measured on a recurring basis at December 31, 2014 and December 31, 2013. The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy at December 31, 2014 and 2013:

 

 

 

Fair Value Measurements at December 31, 2014

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Derivative liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock warrants

 

$

-

 

 

$

-

 

 

$

11,358

 

 

$

11,358

 

Conversion feature of notes

 

 

-

 

 

 

-

 

 

 

2,612

 

 

 

2,612

 

Total derivative liability

 

$

-

 

 

$

-

 

 

$

13,970

 

 

$

13,970

 

 

 

 

Fair Value Measurements at December 31, 2013

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Derivative liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock warrants

 

$

-

 

 

$

-

 

 

$

11

 

 

$

11

 

Common stock warrants

 

 

-

 

 

 

-

 

 

 

199

 

 

 

199

 

Total derivative liability

 

$

-

 

 

$

-

 

 

$

210

 

 

$

210

 

The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the years ended December 31, 2014 and 2013. The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2014 and 2013:

 

 

 

Common Stock

Warrants

 

 

Preferred

Stock

Warrants

 

 

Conversion

Feature of

Notes

 

 

Total

Derivative

Liability

 

Balance at December 31, 2012

 

$

(2,783

)

 

$

(526

)

 

$

-

 

 

$

(3,309

)

Issuances of derivatives

 

 

(871

)

 

 

-

 

 

 

-

 

 

 

(871

)

Modification of terms

 

 

(424

)

 

 

-

 

 

 

-

 

 

 

(424

)

Change in fair value

 

 

3,879

 

 

 

515

 

 

 

-

 

 

 

4,394

 

Balance at December 31, 2013

 

$

(199

)

 

$

(11

)

 

$

-

 

 

$

(210

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

$

(199

)

 

$

(11

)

 

$

-

 

 

$

(210

)

Issuances of derivatives

 

 

(12,617

)

 

 

-

 

 

 

(1,930

)

 

 

(14,547

)

Reclassification from liability to equity

 

 

-

 

 

 

5

 

 

 

-

 

 

 

5

 

Extinguishment of derivative liabilities

 

 

24

 

 

 

-

 

 

 

1,008

 

 

 

1,032

 

Change in fair value

 

 

1,434

 

 

 

6

 

 

 

(1,690

)

 

 

(250

)

Balance at December 31, 2014

 

$

(11,358

)

 

$

-

 

 

$

(2,612

)

 

$

(13,970

)

Common Stock Warrants

The Company has issued certain warrants to purchase shares of common stock, which are considered mark-to-market liabilities and are re-measured to fair value at each reporting period in accordance with accounting guidance.

The assumptions used in estimating the common stock warrant liability at December 31, 2014 and December 31, 2013 were as follows:

 

 

 

December 31,

2014

 

 

December 31,

2013

 

Estimated fair value of common share

 

$

0.80

 

 

$

5.75

 

Weighted-average risk free interest rate

 

 

1.53

%

 

 

1.26

%

Weighted-average expected life (in years)

 

 

4.7

 

 

 

4.1

 

Expected dividend yield

 

 

0

%

 

 

0

%

Weighted average expected volatility

 

 

116

%

 

 

47

%

Preferred Stock Warrants

The Company had issued warrants to purchase shares of convertible preferred stock in prior periods. The Company accounted for these warrants under the provisions of ASC Topic 480, Distinguishing Liabilities from Equity. Accordingly, the Company initially recorded a liability for the fair value of these warrants and then re-measured the liability at the end of each reporting period.

Upon completion of the IPO in February 2014, all 2,344,731 outstanding warrants exercisable for shares of preferred stock were converted into 159,834 warrants exercisable for shares of common stock and the convertible preferred stock warrant liability was reclassified to stockholders’ equity. There were no warrants exercisable for shares of preferred stock outstanding at December 31, 2014.

The assumptions used in estimating the preferred stock warrant liability at December 31, 2013 were as follows:

 

 

 

December 31,

2013

 

 

 

 

 

 

Estimated fair value of common share

 

$

5.75

 

Weighted-average risk free interest rate

 

 

1.11

%

Weighted-average expected life (in years)

 

 

3.6

 

Expected dividend yield

 

 

0

%

Weighted average expected volatility

 

 

44

%

Conversion Feature of Notes

The Company entered into convertible notes in 2014. The conversion features of the notes were evaluated and determined to be derivatives and are re-measured to fair value at each reporting period.

The assumptions used in estimating the conversion feature of the notes at December 31, 2014 were as follows:

 

 

 

December 31,

2014

 

Estimated fair value of common share

 

$

0.80

 

Weighted-average risk free interest rate

 

 

0.67

%

Weighted-average expected life (in years)

 

 

1.6

 

Expected dividend yield

 

 

0

%

Weighted average expected volatility

 

 

32

%

Fair Value of Other Financial Instruments

The Company’s recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The recorded value of notes payable approximates the fair value as the interest rate approximates market interest rates.

Marketable Securities

There were no marketable securities at December 31, 2014 and 2013. The Company received proceeds of $2.7 million from the maturities and sales of marketable securities and realized gains from these sales of $2,000 during the year ended December 31, 2013.