Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

9 Months Ended

Sep. 30, 2016

FASB Accounting Standards codification (“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. 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 re-measured at fair value at each balance sheet date as of September 30, 2016 and December 31, 2015, and their placement within the fair value hierarchy as discussed above (in thousands):

	September 30,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Unobservable Inputs
Description	2016		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	5,906	$	5,906	$	—	$	—
Total assets	$	5,906	$	5,906	$	—	$	—

Liabilities:
Warrants potentially settleable in cash	$	1,907	$	—	$	—	$	1,907
Total liabilities	$	1,907	$	—	$	—	$	1,907

	December 31,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Unobservable Inputs
Description	2015		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	9,276	$	9,276	$	—	$	—
Total assets	$	9,276	$	9,276	$	—	$	—

Liabilities:
Warrants potentially settleable in cash	$	4,115	$	—	$	—	$	4,115
Total liabilities	$	4,115	$	—	$	—	$	4,115

The Company has not transferred any financial instruments into or out of Level 3 classification during the nine months ended September 30, 2016 or 2015. A reconciliation of the beginning and ending Level 3 liabilities for the nine months ended September 30, 2016 and 2015 is as follows:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	September 30, 2016			September 30, 2015
Balance , January 1,	$	4,115		$	8,464
Estimated fair value of warrants exchanged for common shares		(35	)		(13,862	)
Change in fair value of warrants		(2,173	)		8,494
Balance at September 30, 2016 and 2015	$	1,907		$	3,096

- 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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