Fair Value Measurements

9 Months Ended

Sep. 30, 2016

Fair Value Measurements

Fair Value Measurements

Note 4.  Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The following tables present information about the Company's financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

			At September 30, 2016
	September 30,		Quoted prices inactive markets for identical assets		Significant other observable inputs		Significant unobservable inputs
	2016		(Level1)		(Level2)		(Level 3)
Assets
Money market funds (i)	$	149	$	149	$	-	$	-
U.S. government bonds		1,498		-		1,498		-
U.S. government agency bonds		7,273		-		7,273		-
Bank certificates of deposit		12,255		-		12,255		-
Commercial paper (ii)		15,094		-		15,094		-
Corporate notes		46,341		-		46,341		-
Asset-backed securities		6,654		-		6,654		-
Total assets	$	89,264	$	149	$	89,115	$	-
Liabilities
Stock warrant liability	$	-	$	-	$	-	$	-
Total liabilities	$	-	$	-	$	-	$	-
			At December 31, 2015
	December 31,		Quoted prices inactive markets for identical assets		Significant other observable inputs		Significant unobservable inputs
	2015		(Level1)		(Level2)		(Level 3)
Assets
Money market funds (i)	$	13,922	$	13,922	$	-	$	-
U.S. government agency bonds		5,523		-		5,523		-
Commercial paper (ii)		15,340		-		15,340		-
Corporate notes (ii)		45,159		-		45,159		-
Asset-backed securities (ii)		6,775		-		6,775		-
Total assets	$	86,719	$	13,922	$	72,797	$	-
Liabilities
Stock warrant liability	$	105	$	-	$	-	$	105
Total liabilities	$	105	$	-	$	-	$	105

⁽ⁱ⁾ Included in cash and cash equivalents with a maturity of three months or less from date of purchase on the condensed consolidated balance sheets.

⁽ⁱⁱ⁾ Included in cash and cash equivalents or short-term investments on the condensed consolidated balance sheets.

Money market funds are liquid investments and are actively traded. The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

U.S. government bonds, U.S. government agency bonds, bank certificates of deposit, commercial paper, corporate notes and asset-backed securities are measured at fair value using Level 2 inputs. The Company reviews trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

The stock warrant liability is recorded at fair value using the Black Scholes option pricing model, which requires inputs such as the expected term of the warrant, volatility and risk free interest rate. These inputs are subjective and generally require significant analysis and judgment to develop, and are therefore considered Level 3 inputs.

In conjunction with the Company’s February 2015 Amended and Restated Revolving Credit and Term Loan Agreement as more fully described in Note 5, the Company issued warrants to the lenders to purchase 11,298 shares of common stock at an exercise price of $8.85 per share. The fair value of the warrants as of the issuance date was estimated to be $53,000 using an option pricing framework considering multiple exit scenarios and the probability of a down‑round financing. The following assumptions were deemed by the Company to be significant unobservable inputs: risk‑free interest rate of 1.9%; dividend yield of 0.0%; expected volatility of 70.0%; and an expected life of 7 years. One warrant to purchase 5,649 shares of common stock was exercised by one of the lenders in September 2015. The fair value of the warrants to purchase the remaining 5,649 shares of common stock as of December 31, 2015 was estimated to be $0.1 million using the Black‑Scholes valuation model with the following assumptions deemed by the Company to be significant unobservable inputs: risk‑free interest rate of 1.9%; dividend yield of 0.0%; expected volatility of 54.8%; and an expected life of 6.2 years. In February 2016, the other lender exercised the remaining warrant to purchase 5,649 shares of common stock.  For the three months ended September 30, 2015 and the nine months ended September 30, 2016 and 2015, the Company recorded other income (expense) of $31,000,  $43,000 and $(1.1 million), respectively, related to changes in the fair value of the warrants.  For the three months ended September 30, 2016, due to the exercise in full of the warrants as of February 2016, the Company did not record any change in the fair value of the warrants.

The following table provides a reconciliation of liabilities measured at fair value using Level 3 significant unobservable inputs on a recurring basis (in thousands):

	Warrant Liability
Balance at December 31, 2015	$	105
Change in the fair value of stock warrants		(43)
Issuance of common stock in connection with exercise of common stock warrant		(62)
Balance at September 30, 2016	$	-

There were no transfers between levels within the fair value hierarchy during the periods presented.