Fair Value Measurements

9 Months Ended

Oct. 01, 2017

The Company determines fair value measurements used in its consolidated financial statements based upon 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. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:


Level 1:	Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


Level 2:	Valuations based on 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 data for substantially the full term of the assets or liabilities.


Level 3:	Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We obtain the fair value of our Level 1 investments in money market funds, at the expected market price. These investments are expected to maintain a net asset value of $1 per share.

We determine the fair value of our Level 2 financial instruments from third-party asset managers, custodian banks, and the accounting service providers.

We classify financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. There were no assets or liabilities in Level 3 of the fair value hierarchy and there were no transfers between Level 1 and Level 2 categories during any of the periods presented.

We utilize the market approach to measure the fair value of our fixed income securities. The market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The fair value of our fixed income securities is obtained using readily-available market prices from a variety of industry standard data providers, large financial institutions and other third-party sources for the identical underlying securities.

Assets Measured at Fair Value on a Recurring Basis

We measure and report certain assets at fair value at October 1, 2017 on a recurring basis as follows:



	Fair Value as of October 1, 2017
	Level 1		Level 2		Level 3		Total
Assets:	(in thousands)
Cash equivalents:
Money market funds	$	4,173	$	—	$	—	$	4,173
Corporate debt securities	—		5,989		—		5,989
Government debt securities	—		2,299		—		2,299
Total cash equivalents	4,173		8,288		—		12,461
Marketable Securities:							—
Corporate debt securities	—		81,421		—		81,421
Government debt securities	—		6,601		—		6,601
Total marketable securities	—		88,022		—		88,022

Total cash equivalents and marketable securities	$	4,173	$	96,310	$	—	$	100,483

The Level 1 assets consist of money market funds. The Level 2 assets consist of available-for-sale investment portfolio, which are valued utilizing a market approach. At January 1, 2017, highly liquid money market funds of $100.9 million, respectively, were valued using Level 1 of the fair value hierarchy, quoted prices in active markets for identical assets and were included in cash equivalents.

Common Stock Warrants

As of October 1, 2017, warrants issued and outstanding were as follows:



	Date of Issuance	Number of Warrants	Exercise Price		Expiration Date

Common stock warrants	September 2015	83,006	$	2.50	February 2019

As of January 1, 2017, warrants issued and outstanding were as follows:



	Date of Issuance	Number of Warrants	Exercise Price		Expiration Date
	Date of Issuance	Number of Warrants	Exercise Price		Expiration Date

Common stock warrants	October 2013	38,748	$	7.74	October 2023
Common stock warrants	September 2015	283,005	$	2.50	February 2019
Common stock warrants	February 2016	20,251	$	4.00	February 2019
Common stock warrants	February 2016	9,000	$	0.05	January 2018
Common stock warrants	May 2016	126,400	$	4.00	May 2026

During the nine months ended October 1, 2017, common stock warrants issued in a) October 2013 to a lender of the Company at $7.74 per share was exercised, b) September 2015 to an investor of the Company was partially exercised at $2.50 per share, c) February 2016 at $4.00 per share was exercised, d) February 2016 to a service provider of the Company were exercised at $0.05 per share, and e) May 2016 to a lender of the Company at $4.00 per share were partially exercised and the remainder were canceled.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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