Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v3.7.0.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
3. Fair Value of Financial Instruments
 
Fair Value of Financial Instruments
 
The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:
 
·
Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
 
·
Level 2 inputs: Inputs, other than quoted prices, included in Level 1 that are observable either directly or indirectly; and
 
·
Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
 
In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy described above. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.
 
The carrying amounts of the Company’s short-term financial instruments, including cash and cash equivalents, other current assets, accounts payable and accrued liabilities approximate fair value due to the relatively short period to maturity for these instruments.
 
Cash and cash equivalents include money market accounts of $1.1 million and $1.7 million as of March 31, 2017 and December 31, 2016, respectively, that are measured using Level 1 inputs.
 
The warrants issued in conjunction with the registered direct offering in October 2014 include a provision that if the Company were to enter into a certain transaction, as defined in the warrant agreement, the warrants would be purchased from the holder at a premium. The warrants issued in conjunction with the public offering of the Company’s securities in November 2016 include a provision, that if the Company were to enter into a certain transaction, as defined in the warrant agreement, the warrants would be purchased from the holder for cash. Accordingly, the Company recorded the warrants as liabilities at their fair value upon issuance and re-measures the fair value at each period end with the change in fair value recorded in the condensed consolidated statement of operations. The Company uses a Monte Carlo simulation to estimate the fair value of the warrants. In using this model, the fair value is determined by applying Level 3 inputs for which there is little or no observable market data, requiring the Company to develop its own assumptions. The assumptions used in calculating the estimated fair value of the warrants represent the Company’s best estimates; however, these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and different assumptions are used, the warrant liability and the change in estimated fair value could be materially different.