Note 3 - Financial Instruments

9 Months Ended

Sep. 30, 2014

3.	Financial Instruments

Below is a summary of assets and liabilities measured at fair value as of September 30, 2014 and December 31, 2013:

	As of September 30, 2014
	Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets
Cash equivalents	$	3,233	$	-	$	-	$	3,233
Government securities		18,447		-		-		18,447
Total	$	21,680	$	-	$	-	$	21,680

Financial liabilities
Derivative liability	$	-	$	-	$	11,903	$	11,903
Total	$	-	$	-	$	11,903	$	11,903

	As of December 31, 2013
	Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets
Cash equivalents	$	2,781	$	-	$	-	$	2,781
Government securities		2,359		-		-		2,359
Total	$	5,140	$	-	$	-	$	5,140

Financial liabilities
Derivative liability		-		-		1,443		1,443
Total	$	-	$	-	$	1,443	$	1,443

The Company's cash equivalents consist principally of money market funds. Government securities consist principally of government debt securities and money market funds which are classified as available-for-sale. Cash equivalents and government securities are stated at fair value and consist of Level 1 financial instruments in the fair value hierarchy. The Company determines the fair value of its debt security holdings based on pricing from a service provider. The service provider values the securities based on market prices from a variety of industry-standard independent data providers. Such market prices are quoted prices in active markets for identical assets (Level 1 inputs).

The derivative liability and investors rights and obligations are considered Level 3 inputs because their fair value measurement is based, in part, on significant inputs not observed in the market. Any reasonable changes in the assumptions used in the valuation could materially affect the financial results of the Company. The derivative liability was extinguished upon the conversion of the convertible promissory notes (the “Convertible Notes”) into Series D Preferred Stock in May 2014. The Series D investors’ rights and obligations were either exercised or extinguished upon the completion of the Company’s IPO.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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