Fair Value Measurements

9 Months Ended

Sep. 30, 2015

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, describes the 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.

Fair value is defined 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 at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

· Level 1 — Quotes prices in active markets for identical assets and liabilities. The Company’s Level 1 assets and liabilities consist of cash and cash equivalents.

· Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities. The Company has no Level 2 assets or liabilities.

· Level 3 — Unobservable inputs that are supported by little or no market data and which require internal development of assumptions about how market participant price the fair value of the assets or liabilities. The Company’s Level 3 liabilities consist of the warrant liability.

The Company is required to mark the value of its warrant liability to market and recognize the change in valuation in its statements of operations each reporting period.

The following table sets forth the Company’s financial instruments measured at fair value by level within the fair value hierarchy as of September 30, 2015 and December 31, 2014.

	Level 1		Level 2		Level 3
September 30, 2015
Assets:
Cash and cash equivalents	$	39,359,262	$	—	$	—
Total assets at fair value	$	39,359,262	$	—	$	—
Liabilities:
Common stock warrants	$	—	$	—	$	251,247
Total liabilities at fair value	$	—	$	—	$	251,247

The significant assumptions used in preparing the option pricing model for valuing the Company’s warrants as of September 30, 2015 include (i) volatility (75.0%), (ii) risk free interest rate of 1.15% (estimated using treasury bonds with a 4.25 year life), (iii) strike price ($6.00) for the common stock warrants, (iv) fair value of common stock ($6.74) and (v) expected life (4.25 years).

The following is a rollforward of the fair value of Level 3 warrants:

Beginning balance at December 31, 2014	$	296,048
Change in fair value	(44,801		)
Ending balance at September 30, 2015	$	251,247

	Level 1		Level 2		Level 3
December 31, 2014
Assets:
Cash and cash equivalents	$	40,135,102	$	—	$	—
Total assets at fair value	$	40,135,102	$	—	$	—
Liabilities:
Common stock warrants	—		—		296,048
Total liabilities at fair value	$	—	$	—	$	296,048

The significant assumptions used in preparing the option pricing model for valuing the Company’s warrants as of December 31, 2014 include (i) volatility (104.8%), (ii) risk free interest rate of 1.68% (estimated using treasury bonds with a 5 year life), (iii) strike price ($6.00) for the common stock warrants, (iv) fair value of common stock ($6.14) and (v) expected life (five years).

There were no transfers between Level 1, 2 or 3 during 2014 or 2015. If the Company’s estimates regarding the fair value of its warrants are inaccurate, a future adjustment to these estimated fair values may be required. Additionally, these estimated fair values could change significantly.