Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.10.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Fair Value Measurements and Disclosures Topic of the FASB ASC requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the Topic establishes a fair value hierarchy for valuation inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect our own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following table summarizes the financial liabilities measured at fair value on a recurring basis segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
 
September 30, 2018
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Warrant liability
$
1,122

 
$

 
$

 
$
1,122

Note payable
88

 

 

 
88

 
$
1,210

 
$

 
$

 
$
1,210

 
 
 
 
 
 
 
 
 
December 31, 2017
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Warrant liability
$
4,403

 
$

 
$

 
$
4,403

Note payable
156

 

 

 
156

 
$
4,559

 
$

 
$

 
$
4,559

 
 
 
 
 
 
 
 
At September 30, 2018 and December 31, 2017, the Company had a liability payable to VenturEast from a prior acquisition. The ultimate payment to VenturEast will be the fair value of 84,278 shares of our common stock at the time of payment. During the three months ended September 30, 2018 and 2017, we recognized a loss of approximately $13,000 and a gain of approximately $105,000, respectively, due to the change in value of the note. During the nine months ended September 30, 2018 and 2017, we recognized a gain of approximately $68,000 and a loss of approximately $114,000, respectively, due to changes in our stock price.

At September 30, 2018, the warrant liability consists of stock warrants issued as part of the 2016 Offerings and 2017 Offering that contain contingent redemption features. In accordance with derivative accounting for warrants, we calculated the fair value of warrants and the assumptions used are described in Note 9, “Fair Value of Warrants.” During the three months ended September 30, 2018 and 2017, we recognized gains of approximately $12,000 and $2,790,000, respectively, on the derivative warrants due to changes in our stock price and expected volatility. During the nine months ended September 30, 2018, we recognized a gain of approximately $2,858,000 on the derivative warrants due to changes in our stock price. During the nine months ended September 30, 2017, we recorded a loss of approximately $3,927,000 on the derivative warrants due to changes in our stock price.

Realized and unrealized gains and losses related to the change in fair value of the VenturEast note and warrant liability are included in other income (expense) on the Consolidated Statements of Operations and Other Comprehensive Loss.

The following table summarizes the activity of the note payable to VenturEast and of our derivative warrants, which was measured at fair value using Level 3 inputs (in thousands):
 
Note Payable
 
Warrant
 
to VenturEast
 
Liability
Fair value at December 31, 2017
$
156

 
$
4,403

Fair value of warrants reclassified to equity

 
(423
)
Change in fair value
(68
)
 
(2,858
)
Fair value at September 30, 2018
$
88

 
$
1,122