Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.8
Fair Value Measurements
 3 Months Ended
Mar. 31, 2014
Fair Value Measurements

5. Fair Value Measurements

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 March 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 March 31, 2014 and December 31, 2013:

 

 

 

Fair Value Measurements at March 31, 2014

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Warrant liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock warrants

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Common stock warrants

 

 

-

 

 

 

-

 

 

 

319

 

 

 

319

 

Total warrant liability

 

$

-

 

 

$

-

 

 

$

319

 

 

$

319

 

 

 

 

Fair Value Measurements at December 31, 2013

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Warrant liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Preferred stock warrants

 

$

-

 

 

$

-

 

 

$

11

 

 

$

11

 

  Common stock warrants

 

 

-

 

 

 

-

 

 

 

199

 

 

 

199

 

Total warrant 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 three months ended March 31, 2014 and 2013. The following table presents a reconciliation of the warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the periods ended March 31, 2014 and 2013:

 

 

Common Stock

Warrants

 

 

Preferred Stock

Warrants

 

 

Total Warrant

Liability

 

Balance at December 31, 2012

$

(2,783

)

 

$

(526

)

 

$

(3,309

)

Issuance of warrants

 

-

 

 

 

-

 

 

 

-

 

Modification of warrant terms

 

(424

)

 

 

-

 

 

 

(424

)

Change in fair value included in earnings, as other income

 

85

 

 

 

20

 

 

 

105

 

Balance at March 31, 2013

$

(3,122

)

 

$

(506

)

 

$

(3,628

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

$

(199

)

 

$

(11

)

 

$

(210

)

Issuance of warrants

 

-

 

 

 

-

 

 

 

-

 

Reclassification from liability to equity

 

-

 

 

 

5

 

 

 

5

 

Change in fair value included in earnings, as other income

 

(120

)

 

 

6

 

 

 

(114

)

Balance at March 31, 2014

$

(319

)

 

$

-

 

 

$

(319

)

 

 

 

 

 

 

 

 

 

 

 

 

 

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 due to a round down provision whereby the exercise price of the warrants would change, if subsequent equity instruments were issued with a lower exercise price.

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

 

 

March 31,

2014

 

 

December 31,

2013

 

 

 

 

 

 

 

 

 

Estimated fair value of common share

$

7.52

 

 

$

5.75

 

Weighted-average risk free interest rate

 

0.98

%

 

 

1.26

%

Weighted-average expected life (in years)

 

3.2

 

 

 

4.1

 

Expected dividend yield

 

0

%

 

 

0

%

Weighted average expected volatility

 

33

%

 

 

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 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 outstanding warrants exercisable for 2,344,731 warrants representing all 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 March 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

%

 

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.