Fair Value Measurements

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value in accordance with a hierarchy which requires an entity to maximize the use of observable inputs which reflect market data obtained from independent sources and minimize the use of unobservable inputs. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable including quoted prices for similar instruments in active markets and quoted prices for identical or similar instruments in markets that are not active; and

Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Assets and liabilities measured at fair value on the Company’s balance sheet on a recurring basis include the following at December 31, 2017 and December 31, 2016 (in thousands):

Warrant Liability	Level 1	Level 2	Level 3
December 31, 2017	—	—	$	669
December 31, 2016	—	—	$	1,226

There were no transfers in and out of Level 1 and Level 2 fair value measurements during the year ended December 31, 2017.

The following is a reconciliation of the warrant liability, included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets, measured at fair value using Level 3 inputs (in thousands):

	Years Ended December 31,
	2017			2016
Balance at beginning of period	$	1,226		$	3,072
Issuance of common stock warrants	—			858
Exercise of common stock warrants	(34		)	(1,150		)
Remeasurement of common stock warrants	(523		)	(1,554		)
Balance at end of period	$	669		$	1,226

The following is a reconciliation of the embedded bifurcated derivative liability measured at fair value using significant unobservable inputs, Level 3 (in thousands):

	Years Ended
	December 31,
	2017		2016
Balance at beginning of period	$	—	$	—
Transfers in and/or out of Level 3	—		—
Initial valuation of bifurcated derivative liability	—		3,936
Extinguishment of bifurcated derivative liability	—		(3,936		)
Balance at end of period	$	—	$	—

Upon amendment of the Kanis debt on April 1, 2016, the convertible debt required bifurcation and accounting at fair value. The resulting embedded derivative was composed of a conversion option, the exercise of which would require shareholder approval, as well as a call option the Company could exercise in the event of a Liquidity Event.  The call option would be at a 25% discount to the Liquidity Event price. The company used a Monte Carlo simulation model to estimate the fair value of the embedded derivative portion of the Kanis debt. The assumptions used in the Monte Carlo simulation model to estimate the fair value of the derivative liability included volatility of 109%, a risk free rate of 0.8% and an expected term of 2.5 years. On August 30, 2016, the Kanis debt was extinguished eliminating the embedded derivative.

The fair values of the Company’s cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximate carrying values due to the short maturity of these instruments. The fair value of the line of credit approximates its carrying value due to the variable interest rates. Using a net present value model, the fair value of the Company’s current notes payable was $1.8 million at December 31, 2016.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.