Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.3.0.814
Fair Value Measurements
 9 Months Ended
Sep. 30, 2015
Fair Value Disclosures [Abstract]  
Fair Value Measurements
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 September 30, 2015 and December 31, 2014. The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy at September 30, 2015 and December 31, 2014:
 
Fair Value Measurements at September 30, 2015
Description
Level 1
 
Level 2
 
Level 3
 
Total
Derivative liabilities
 
 
 
 
 
 
 
Common stock warrants
$
—

 
$
—

 
14,283

 
$
14,283

 
 
Fair Value Measurements at December 31, 2014
Description
Level 1
 
Level 2
 
Level 3
 
Total
Derivative liabilities
 
 
 
 
 
 
 
Common stock warrants
$
—

 
$
—

 
$
11,358

 
$
11,358

Conversion feature of notes
—

 
—

 
2,612

 
2,612

Total derivative liabilities
$
—

 
$
—

 
$
13,970

 
$
13,970


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 nine months ended September 30, 2015 and 2014. 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 nine months ended September 30, 2015 and 2014:
 
Common Stock
Warrants
 
Preferred Stock
Warrants
 
Conversion Feature of Notes
 
Total Derivative
Liability
Balance at December 31, 2013
$
(199
)
 
$
(11
)
 
$
—

 
$
(210
)
Issuances of derivatives
(1,235
)
 
—

 
(1,930
)
 
(3,165
)
Reclassification from liability to equity
—

 
5

 
—

 
5

Change in fair value
1,307

 
6

 
12

 
1,325

Balance at September 30, 2014
$
(127
)
 
$
—

 
$
(1,918
)
 
$
(2,045
)
Balance at


 


 


 


Balance at December 31, 2014
$
(11,358
)
 
$
—

 
$
(2,612
)
 
$
(13,970
)
Issuances of derivatives
(14,556
)
 
—

 
—

 
(14,556
)
Modification of terms
(382
)
 
—

 
—

 
(382
)
Decrease in liability due to debt conversions
—

 
—

 
179

 
179

Decrease in liability due to warrants being exercised
10,326

 
—

 
—

 
10,326

Extinguishment of derivatives
—

 
—

 
3,468

 
3,468

Change in fair value
1,687

 
—

 
(1,035
)
 
652

Balance at September 30, 2015
$
(14,283
)
 
$
—

 
$
—

 
$
(14,283
)

$9.5 million of the warrant derivatives issued during September 2015 were recorded as a loss and included in the change in fair value of derivative liabilities per the Condensed Consolidated Statements of Operations and Comprehensive Loss since the value of the derivative liabilities issued exceeded the proceeds received from the issuance of common stock and warrants. See Footnote 8 for additional information.
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 September 30, 2015 and December 31, 2014 were as follows:
 
September 30, 2015
 
December 31, 2014
Fair value of common share
$
0.31

 
$
0.80

Weighted-average risk free interest rate
1.58
%
 
1.53
%
Weighted-average expected life
2 years, 2 months

 
4 years, 8 months

Expected dividend yield
—
%
 
—
%
Weighted average expected volatility
80
%
 
116
%
 
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 were re-measured to fair value at each reporting period. During September 2015, the conversion features of the notes were terminated.
The assumptions used in estimating the conversion features 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 year, 7 months

Expected dividend yield
—
%
Weighted average expected volatility
32
%


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.