4. Fair Value

The Company holds certain assets and liabilities that are required to be measured at fair value on a recurring basis. These assets and liabilities include available for sale securities classified as cash and cash equivalents, restricted cash, contingent consideration, and warrant liabilities. ASC 820-10 (“Fair Value Measurement Disclosure”) requires the valuation using a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. The Company did not have any transfers of assets and liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy during the six or three months ended June 30, 2017.

4. Fair Value (Continued)

For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data and therefore, are based primarily upon estimates, are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

As prescribed by U.S. GAAP, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures and based on various factors, it is possible that an asset or liability may be classified differently from period to period. However, the Company expects changes in classifications between levels will be rare.

The following are the major categories of assets measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

	June 30, 2017
	(In thousands)
	(unaudited)
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets measured at fair value
Cash and cash equivalents	$	29,741	$	—	$	—	$	29,741
Restricted cash		6,419		—		—		6,419
Total Assets measured at fair value	$	36,160	$	—	$	—	$	36,160
Liabilities measured at fair value
Contingent consideration	$	—	$	—	$	18,026	$	18,026
Warrant liabilities		—		—		11,041	$	11,041
Total liabilities measured at fair value	$	—	$	—	$	29,067	$	29,067

	December 31, 2016
	(In thousands)
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets measured at fair value
Cash and cash equivalents	$	24,165	$	—	$	—	$	24,165
Restricted cash		10,425		—		—		10,425
Total Assets measured at fair value	$	34,590	$	—	$	—	$	34,590
Liabilities measured at fair value
Contingent consideration	$	—	$	—	$	22,800	$	22,800
Total liabilities measured at fair value	$	—	$	—	$	22,800	$	22,800

4. Fair Value (Continued)

The Company’s financial liabilities include contingent consideration potentially payable to Sofar related to the Senhance Acquisition in September 2015 (Note 3). This liability is reported as Level 3 as estimated fair value of the contingent consideration related to the acquisition requires significant management judgment or estimation and is calculated using the income approach, using various revenue and cost assumptions and applying a probability to each outcome. The change in fair value of the contingent consideration of $453,000 and $1,800,000 for the six months ended June 30, 2017 and 2016, respectively, was primarily due to the effect of the change in discount rate, passage of time on the fair value measurement and the impact of foreign currency exchange rates. Adjustments associated with the change in fair value of contingent consideration are included in the Company’s consolidated statements of operations and comprehensive loss.

On April 28, 2017, the Company sold 24.9 million units (the “Units”), each consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), a Series A warrant to purchase one share of Common Stock with an exercise price of $1.00 per share (the “Series A Warrants”), and a Series B warrant to purchase 0.75 shares of Common Stock with an exercise price of $1.00 per share (the “Series B Warrants,” together with the Series A Warrants, the “Warrants”), at an offering price of $1.00 per Unit. Each Series A Warrant may be exercised at any time beginning on the date of issuance, and from time to time thereafter, through and including the first anniversary of the issuance date, unless terminated earlier as provided in the Series A Warrant. Each Series B Warrant may be exercised at any time beginning on the date of issuance and from time to time thereafter through and including the fifth anniversary of the issuance date.

The fair value of the Series A Warrants of $2.5 million at the date of issuance was estimated using the Black-Scholes Merton model which used the following inputs: term of 1 year, risk free rate of 1.07%, no dividends, volatility of 73.14%, and share price of $0.65 per share based on the trading price of the Company’s common stock. The fair value of the Series B Warrants of $6.2 million at the date of issuance was estimated using the Black-Scholes Merton model which used the following inputs: term of 5 years, risk free rate of 1.81%, no dividends, volatility of 73.14%, and share price of $0.65 per share based on the trading price of the Company’s common stock. The fair value of the Series A Warrants of $3.1 million at June 30, 2017 was estimated using the Black-Scholes Merton model which used the following inputs: term of 10 months, risk free rate of 1.86%, no dividends, volatility of 80.0%, and share price of $0.71 per share based on the trading price of the Company’s common stock. The fair value of the Series B Warrants of $7.9 million at June 30, 2017 was estimated using the Monte Carlo valuation model which used the following inputs: term of 4.83 years, risk free rate of 1.86%, volatility of 80.0%, initial share price of $0.71 per share based on the trading price of the Company’s common stock, and probability of additional financing in 2018 and 2019 of 100%. The change in fair value of warrants for the six months ended June 30, 2017 of $2.3 million was included in the Company’s consolidated statements of operations and comprehensive loss.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements of Contingent consideration classified in Level 3 as of December 31, 2016 and June 30, 2017:

Valuation

Methodology

Significant

Unobservable Input

Weighted Average

(range, if

applicable)

Contingent consideration

Probability weighted

income approach

Milestone dates

2016 to 2017

Discount rate

Probability of occurrence

7.5% to 9.0%

100%

4. Fair Value (Continued)

The following table summarizes the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the six months ended June 30, 2017:

	Fair Value Measurement at Reporting Date (Level 3)
	(In thousands)
	(unaudited)
	Common stock warrants		Contingent consideration
Balance at December 31, 2016	$	—	$	22,800
Issuance of common stock in exchange for contingent consideration		—		(5,227	)
Issuance of warrants		8,715		—
Change in fair value		2,326		453
Balance at June 30, 2017		11,041		18,026
Current portion		—		6,918
Long-term portion		11,041		11,108
Balance at June 30, 2017	$	11,041	$	18,026