Recurring Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Recurring Fair Value Measurements

10. Recurring Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value for applicable assets and liabilities, we consider the principal or most advantageous market in which we would transact and we consider assumptions market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:

• Level 1: Observable inputs such as quoted prices in active markets;

• Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s financial instruments are cash and cash equivalents, accounts receivable, accounts payable, senior secured convertible debentures and derivative warrant liabilities. The recorded values of cash equivalents, accounts receivable and accounts payable approximate their fair values based on their short-term nature. The fair value of derivative warrant liabilities is estimated using option pricing models that are based on the individual characteristics of our warrants, preferred and common stock, the derivative warrant liability on the valuation date as well as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread. The derivative warrant liabilities are the only recurring Level 3 fair value measures.

A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy as of December 31, 2014 and December 31, 2013 is as follows:

Black-Scholes Warrant Pricing	December 31, 2014			December 31, 2013
Stock Price	$	1.20		$	6.40
Risk-free Rate (5-year U.S. Treasury Yield)		1.65	%		1.75	%
Volatility (Annual)		72.90-88.10	%		93.43	%
Time to Maturity (Years)		4.10-4.33			5.33

At December 31, 2014 and December 31, 2013, the estimated fair values of the liabilities measured on a recurring basis are as follows:

	Fair Value Measurements at December 31, 2014
	Balance at December 31, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Warrant derivative liabilities	$	499	$	—	$	—	$	499
Total	$	499	$	—	$	—	$	499

	Fair Value Measurements at December 31, 2013
	Balance at December 31, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Warrant derivative liabilities	$	3,017	$	—	$	—	$	3,017
Total	$	3,017	$	—	$	—	$	3,017

The following tables present the activity for liabilities measured at estimated fair value using unobservable inputs for the years ended December 31, 2014 and 2013:

	Fair Value
	Measurements Using
	Significant
	Unobservable Inputs
	(Level 3)
	Warrant Derivative
	Liabilities
Beginning Balance at January 1, 2013	$	-
Issuance of warrants classified as derivative liabilities		3,373
Changes in estimated fair value		296
Reclassification of derivative liability to additional paid-in capital		(652)
Ending balance at December 31, 2013	$	3,017
Issuance of warrants classified as derivative liabilities		5,585
Changes in estimated fair value		(8,103)
Ending balance at December 31, 2014	$	499

Reclassification of derivative liability to additional paid-in capital relates to the warrants issued in connection with the debt financing that occurred on March 15, 2013. These warrants were accounted for as a liability until such time as the stockholders of the Company approved an increase in the number of authorized shares of the Company’s common stock.