Note 3 - Fair Value Measurements

9 Months Ended

Sep. 30, 2016

NOTE 3. FAIR VALUE MEASUREMENTS

The Company measures the fair value of financial assets and liabilities based on authoritative guidance which defines fair value, establishes a framework consisting of three levels for measuring fair value, and requires disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company’s warrant liability is classified within Level 3 of the fair value hierarchy because the value is calculated using significant judgment based on the Company’s own assumptions in the valuation of this liability.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2016:

	Fair Value Measurements Using

(in thousands)	Balance at September 30, 2016		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents	$	100	$	100	$	—	$	—
Total assets	$	100	$	100	$	—	$	—

Liabilities
Warrant liability	$	2,336	$	—	$	—	$	2,336
Total liabilities	$	2,336	$	—	$	—	$	2,336

For the three and nine month periods ended September 30, 2016, as a result of the fair value adjustment of the warrant liability, the Company recorded a non-cash expense on an increase in the fair value of the warrants of $1,671 thousand and $2,480 thousand, respectively, in its consolidated statement of operations and comprehensive loss. See Note 10 for further discussion of the calculation of the fair value of the warrant liability.

(in thousands)	Warrant liability
Fair value of warrant liability at December 31, 2015	$	1,450
Increase in fair value at March 31, 2016		385
Fair value of warrant liability at March 31, 2016		1,835
Increase in fair value at June 30, 2016		424
Fair value of warrant liability at June 30, 2016		2,259
Increase in fair value on exercise date and at September 30, 2016		1,671
Fair market value of warrants transferred to equity upon exercise		(1,594	)
Fair value of warrant liability at September 30, 2016	$	2,336

- 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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