FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2017

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 9. FAIR VALUE MEASUREMENTS

The fair value of cash and cash equivalents, accounts and other receivables and accounts payable approximates their carrying value due to their shorter maturities.  As of September 30, 2017, the fair value of our debt (Level 3 measurement) approximated its carrying value, based on current market rates for similar debt with similar maturities.

Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Certain assets and liabilities are presented in the financial statements at fair value.  Assets and liabilities measured at fair value on a recurring basis include derivative warrant and conversion liabilities.  Assets and liabilities measured at fair value on a non-recurring basis may include property.

We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

● Level 1 – inputs include quoted prices for identical instruments and are the most observable.

● Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.

● Level 3 – inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

For instruments measured using Level 3 inputs, a reconciliation of the beginning and ending balances is disclosed.

The following tables summarize the fair values by input hierarchy of items measured at fair value on a recurring basis on our condensed consolidated balance sheets (in thousands).

	Level 1		Level 2		Level 3		Total
Total liabilities at fair value, as of September 30, 2017 - derivative warrant liabilities	$	-	$	-	$	769	$	769
Total liabilities at fair value, as of December 31, 2016 - derivative warrant liabilities	$	-	$	-	$	1,527	$	1,527

Warrants accounted for as derivative liabilities are valued using the lattice model each reporting period and the resultant change in fair value is recorded in the consolidated statements of operations.  The lattice model requires us to assess the probability of future issuance of equity instruments at a price lower than the current exercise price of the warrants.  The risk-free interest rate is determined by reference to the treasury yield curve rate of instruments with the same term as the warrant.  Additional assumptions that were used to calculate fair value follow.

	September 30, 2017		December 31, 2016
Risk-free interest rate		1.2%		0.6% -1.9%
	(1.2% weighted average)		(1.6% weighted average)
Expected volatility		67%-72%		64%
	(71% weighted average)		(64% weighted average)

The following tables summarize the changes in Level 3 items measured at fair value on a recurring basis (in thousands):

Total Level 3 Fair Value	Fair Value as of Beginning of Period			Total Realized and Unrealized Gains (Losses)		Issuance of New Instruments			Reclassify to (Deficit) Equity		Conversion to Common Stock		Fair Value, at End of Period
				(1)
Nine Months Ended September 30, 2017, derivative warrant liabilities	$	(1,527	)	$	808	$	(7,917	)	$	7,851	$	16	$	(769	)
Nine Months Ended September 30, 2016, derivative warrant liabilities	$	(678	)	$	314	$	(2,474	)	$	-	$	-	$	(2,838	)

(1) Included in change in fair value of derivative warrant liabilities in our consolidated statements of operations.