Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2015

Accounting Policies [Abstract]

Principles of Consolidation and Basis of Presentation

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company’s management in accordance with GAAP for interim financial information and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, these unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the expected results for the year ending December 31, 2015. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014. Intercompany balances and transactions have been eliminated.

Use of Estimates and Reclassifications

Use of Estimates and Reclassifications

The preparation of the condensed consolidated financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

Certain amounts in the 2014 financial statements have been reclassified to conform to the current year presentation.

Common Stock Warrant Liability

Common Stock Warrant Liability

The Company accounts for common stock warrants and put options in accordance with applicable accounting guidance provided in Financial Accounting Standards Board (“FASB”) ASC 480, Liabilities – Distinguishing Liabilities from Equity, as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. Certain of the Company’s warrants are accounted for as liabilities due to provisions either allowing the warrant holder to request redemption, at the intrinsic value of the warrant, upon a change of control and/or providing for an adjustment to the number of shares of the Company’s Class A common stock underlying the warrants and the exercise price in connection with dilutive future funding transactions. The Company classifies these derivative liabilities on the Condensed Consolidated Balance Sheet as long term liabilities, which are revalued at each balance sheet date subsequent to their initial issuance. The Company used a Monte Carlo pricing model to value these derivative liabilities. The Monte Carlo pricing model, which is based, in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions.

The following table reflects original assumptions for common stock warrant liability issued in the first quarter of 2015.

Date of issuance	Exercise Price		Closing Market Price		Risk-free Rate			Market Price Volatility			Remaining Term (years)		Expected dividend yield			Probability of change in control
February 26, 2015	$	0.50	$	0.45		1.62	%		102.5	%		5.50		0.0	%		15.0	%
March 17-31, 2015		variable	$	0.45		0.03	%		190.0	%		0.21		0.0	%		NA

The following table reflects assumptions for common stock warrants liability outstanding as of September 30, 2015:

Date of issuance	Exercise Price		Closing Market Price		Risk-free Rate			Market Price Volatility			Remaining Term (years)		Expected dividend yield			Probability of change in control
June 3, 2013	$	11.20	$	1.18		0.78	%		130.0	%		2.68		0.0	%		15.0	%
November 15, 2013	$	68.20	$	1.18		1.03	%		130.0	%		3.63		0.0	%		15.0	%
July 9, 2014	$	63.80	$	1.18		1.15	%		120.0	%		4.28		0.0	%		15.0	%
November 18, 2014	$	16.20	$	1.18		1.56	%		107.0	%		6.14		0.0	%		NA
February 26, 2015	$	1.24	$	1.18		1.35	%		113.7	%		4.90		0.0	%		15.0	%
March 17-31, 2015		variable	$	1.18		0.14	%		138.4	%		0.6		0.0	%		NA

Warrants issued in connection with the June 2015 Offering did not have the attributes which would require them to be recorded as derivative liabilities.

To reflect changes in the fair values of its outstanding warrants the Company recorded to its common stock warrant liability, net noncash decreases of $0.5 million and $6.8 million during the three months ended September 30, 2015 and 2014, respectively and noncash decreases of $6.7 million and $8.2 million during the nine months ended September 30, 2015 and 2014, respectively. In the event warrants are exercised or expire without being exercised, the fair value is reduced by the number of warrants exercised or expired multiplied by the fair value of each warrant at the time of exercise or expiration, with a credit to additional paid-in capital.

The table below summarizes the Company’s derivative warrant activity, adjusted to reflect the one-for-twenty reverse stock split on May 18, 2015 for the nine months ended September 30, 2015:

	2013 & 2014 Issuances			2015 Issuances			Total
Warrants outstanding at December 31, 2014		406,736			-			406,736
Issuances		-			4,174,681			4,174,681
Anti-dilution adjustments		256,452			-			256,452
Exchanged for common stock		-			(1,147,805	)		(1,147,805	)
Exercised/extinguished		(17,298	)		(2,789,709	)		(2,807,007	)
Warrants outstanding at September 30, 2015		645,890			237,167			883,057

	2013 & 2014 Issuances			2015 Issuances			Total
Value of warrants at December 31, 2014	$	2,491		$	-		$	2,491
Value of warrants issued		-			12,246			12,246
Adjustment for warrants exercised/extinguished		(3	)		(7,259	)		(7,262	)
Changes in fair value, net		(2,153	)		(4,771	)		(6,924	)
Value of warrants at September 30, 2015	$	335		$	216		$	551

Certain of the warrants also give the holder the right to require the Company to redeem the warrant for the then fair value of the warrant in the event of a change in control (the “Put Option Component”). The Company used 10,000 simulations in the Monte Carlo pricing model to value the warrants and the Put Option Component. If factors change and different assumptions are used, the warrant liability and the change in estimated fair value could be materially different. Changes in the fair value of the warrants are reflected in the consolidated statement of operations as change in fair value of warrant liability, with an offsetting non-cash entry recorded as an adjustment to the warrant liability.

Fair Value Measurement

Fair Value Measurement

ASC 820, Fair Value Measurements, clarifies that 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 a liability.

ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:

• Level 1 — Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

• Level 2 — Observable inputs other than Level 1 prices, such as 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 market data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

When determining the fair value measurements for assets or liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.

The following tables summarize the basis used to measure certain financial assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheets:

Balance at September 30, 2015 (in thousands)	Total		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Common stock warrant liability	$	551	$	—	$	—	$	551

For the Company’s Level 3 measures, which represent common stock warrants, fair value is based on a Monte Carlo pricing model that is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own. The Company used a market approach to valuing these derivative liabilities.

The following table shows the reconciliation from the beginning to the ending balance for the Company’s common stock warrant liability measured at fair value on a recurring basis using significant unobservable inputs (i.e. Level 3) for the nine months ended September 30, 2015:

(in thousands)	Fair Value Measurements Using Significant Unobservable Inputs
Fair value of common stock warrant liability at December 31, 2014	$	2,491
Issuance of common stock warrants		12,246
Change in the fair value of common stock warrant liability, net		(6,924	)
Adjustment for warrants exercised/extinguished		(7,262	)
Fair value of common stock warrant liability at September 30, 2015	$	551

Recently Issued Accounting Standards

Recently Issued Accounting Standards

ASU 2015-11

On July 22, 2015, the FASB issued Accounting Standards Update No. 2015-11 (“ASU 2015-11”), Simplifying the Measurement of Inventory, which requires the Company to measure most inventory “at the lower of cost or net realizable value,” which is the ordinary selling price less any completion, transportation and disposal costs. The ASU will not apply to inventories that are measured by using either the last-in, first-out (LIFO) method or the retail inventory method (RIM). The Company is assessing the impact of ASU 2015-11 on its consolidated financial statements.

ASU 2015-03

On April 7, 2015, the FASB issued Accounting Standards Update No. 2015-03 (“ASU 2015-03”), Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. For public business entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. The Company is assessing the impact of ASU 2015-03 on its consolidated financial statements.

ASU 2015-01

On February 18, 2015, the FASB issued Accounting Standards Update No. 2015-01 (“ASU 2014-01”), Income Statement-Extraordinary and Unusual Items (Subtopic 225-20). The standard eliminates the concept of extraordinary item. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, however early adoption is permitted. The Company is assessing the impact of ASU 2015-01 on its consolidated financial statements.

ASU 2014-15

On August 27, 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.

Under GAAP, financial statements are prepared with the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.

Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. ASU 2014-15 provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.

The amendments in ASU 2014-15 are effective for the Company on January 1, 2017, with early application permitted for unissued financial statements. The Company is assessing the impact of ASU 2014-15 on its consolidated financial statements.

ASU 2014-09

On May 28, 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), which created Topic 606, Revenue From Contracts With Customers (“Topic 606”) and superseded the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. In addition, ASU 2014-09 superseded the cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts, and created new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The amendments in ASU 2014-09 are effective for the Company on January 1, 2017. The Company is assessing the impact of ASU 2014-09 on its consolidated financial statements.