Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2015

The carrying value of the Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term nature of these items. Based on the borrowing rates available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the line of credit approximates fair value.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:


•	Level I Unadjusted quoted prices in active markets for identical assets or liabilities;


•	Level II Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and


•	Level III Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):



	Fair Value Measurements at December 31, 2015
	Total		Level 1		Level 2		Level 3
Assets
Money market fund	$	3,803,929	$	3,803,929	—		—

Liabilities
Series A warrant liability	1,212,803		1,212,803		—		—
Series B warrant liability	865,000		—		—		865,000
Series C warrant liability	462,437		—		—		462,437
Total common stock warrant liability	$	2,540,240	$	1,212,803	—		$	1,327,437

	Fair Value Measurements at December 31, 2014
	Total		Level 1		Level 2		Level 3
Assets
Money market fund	$	7,891,888	$	7,891,888	$	—	$	—

Liabilities
Series A warrant liability	857,362		857,362		—		—
Series B warrant liability	17,438,731		—		—		17,438,731
Total common stock warrant liability	$	18,296,093	$	857,362	—		$	17,438,731

The Series A Warrant is a registered security that trades on the open market. The fair value of the Series A Warrant liability is based on the publicly quoted trading price of the warrants which is listed on and obtained from NASDAQ. Accordingly, the fair value of Series A Warrants is a Level 1 measurement. The fair value measurements of the Series B and Series C Warrants are based on significant inputs that are unobservable and thus represent Level 3 measurements. The Company’s estimated fair value of the Series B Warrant liability is calculated using a Monte Carlo simulation. Key assumptions include the volatility of the Company’s stock, the expected warrant term, expected dividend yield and risk-free interest rates (see Note 6). The Company’s estimated fair value of the Series C Warrant liability is calculated using the Black-Scholes valuation model. Key assumptions include the volatility of the Company’s stock, the expected warrant term, expected dividend yield and risk-free interest rates (see Note 6). The Level 3 estimates are based, in part, on subjective assumptions.

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the periods presented.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 1 and Level 3 financial instruments, which are treated as liabilities, as follows:



	Series A Warrant					Series B Warrant					Series C Warrant
	Number of Warrants		Liability			Number of Warrants		Liability			Number of Warrants	Liability
Balance at December 31, 2014	2,449,605		$	857,362		2,449,605		$	17,438,731		—	$	—
Change in value of Series A Warrants	—		397,441			—		—			—	—
De-recognition of Series A Warrant liability upon exercise	(24,000	)	(42,000		)	—		—			—	—
De-recognition of Series B Warrant liability upon cash exercise of 619,512 warrants in Private Transaction (619,512 shares issued)	—		—			(619,512	)	(6,747,765		)	—	—
De-recognition of Series B Warrant liability upon cashless exercise of 1,713,045 warrants (5,879,560 shares issued)	—		—			(1,713,045	)	(12,527,991		)	—	—
De-recognition of Series B Warrant liability upon contribution of 468 warrants back to the Company	—		—			(468	)	(3,332		)	—	—
Change in value of Series B Warrants	—		—			—		2,705,357			—	—
Record Series C Warrant Liability as inducement charge (589,510 warrants in Private Transaction, 905 warrants in tender offer )	—		—			—		—			590,415	3,049,375
Change in value of Series C Warrants	—		—			—		—			—	(2,586,938		)
Balance at December 31, 2015	2,425,605		$	1,212,803		116,580		$	865,000		590,415	$	462,437

- 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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