Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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Fair Value Measurements
 3 Months Ended
Mar. 31, 2015
Notes to Financial Statements  
Fair Value Measurements

ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 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. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

 

Level 1 — quoted prices in active markets for identical assets or liabilities.

Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.

Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

 

The Company categorized its cash equivalents as Level 1 fair value measurements. As further discussed in Note 7 below, certain of the Company’s marketable securities were subject to restrictions on sale as of March 31, 2015 because they are held in escrow pending resolution of the lease dispute discussion in Note 7. They are considered to be a Level 2 fair value measurement.  The valuation for the 260,000 marketable securities categorized as Level 2 was based on applying a discount for lack of marketability to the quoted market price of the issuer’s unrestricted securities.  The Company categorized its warrants potentially settleable in cash as Level 3 fair value measurements. The warrants potentially settleable in cash are measured at fair value on a recurring basis and are being marked to fair value at each reporting date until they are completely settled or meet the requirements to be accounted for as component of stockholders’ equity. The warrants are valued using the Black-Scholes option-pricing model as discussed in Note 4 below.

 

 

The following table presents a summary of fair values of assets and liabilities that are remeasured at fair value at each balance sheet date as of March 31, 2015 and December 31, 2014, and their placement within the fair value hierarchy as discussed above (in thousands):

 

   

March 31,

2015

     Quoted Prices in Active Markets   Significant Other Observable Inputs   Unobservable Inputs  
 Description       (Level 1)     (Level 2)     (Level 3)  
 Assets:                        
 Marketable securities     993       -       993       -  
 Total assets   $ 993     $ -     $ 993     $ -  
                                 
 Liabilities:                                
 Warrants potentially settleable in cash   $ 13,456     $ -     $ -     $ 13,456  
 Total liabilities   $ 13,456     $ -     $ -     $ 13,456  
                                 
   

December 31,

2014

     Quoted Prices in Active Markets   Significant Other Observable Inputs   Unobservable Inputs  
 Description       (Level 1)     (Level 2)     (Level 3)  
 Assets:                                
 Marketable securities     1,975       -       1,975       -  
 Total assets   $ 1,975     $ -     $ 1,975     $ -  
                                 
 Liabilities:                                
 Warrants potentially settleable in cash   $ 8,464     $ -     $ -     $ 8,464  
 Total liabilities   $ 8,464     $ -     $ -     $ 8,464  

 

The Company has not transferred any financial instruments into or out of Level 3 classification during the three months ended March 31, 2015 or 2014. A reconciliation of the beginning and ending Level 3 liabilities for the three months ended March 31, 2015 and 2014 is as follows:

 

   

Fair Value Measurements Using Significant Unobservable Inputs

(Level 3)

  
    2015     2014  
 Balance , January 1,   $ 8,464     $ 23  
 Change in fair value of Teva option     -       (23 )
 Estimated fair value of warrants assumed in merger on January 2, 2014     -       10,475  
 Estimated fair value of warrants issued in January 2014 common stock sale     -       3,696  
 Estimated fair value of warrants exchanged for common shares     (9,426 )     -  
 Change in fair value of warrants     14,418       (2,082 )
 Balance at March 31, 2015 and 2014   $ 13,456     $ 12,089