Fair Value Measurements

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 10. Fair value measurements

The Company’s convertible notes, derivatives and warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income/expense in the condensedconsolidated statements of operations.

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of March 31, 2019 and December 31,2018 (in thousands):

	Fair Value measured at March 31, 2019
		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Derivative liability - convertible notes	$	-	$	-	$	321
Derivative liability - related party convertible notes		-		-		569
Total Derivative Liability	$	-	$	-	$	890
Profits interest sold		-		-		212
Warrant Liability		-		-		2,051
Total Fair Value	$	-	$	-	$	3,153

	Fair Value measured at December 31, 2018
	Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Derivative liability - convertible notes	$	-	$	-	$	469
Derivative liability - related party convertible notes		-		-		549
Total Derivative Liability	$	-	$	-	$	1,018
Warrant Liability		-		-		4,528
Total Fair Value	$	-	$	-	$	5,546

Derivative Financial Instruments

The following table presents changes in Level 3 liabilities measured at fair value for the three months ended March 31, 2019. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.

	Derivative			Warrants (assumed from subsidiary)			Profits interest sold
Fair value at December 31, 2018	$	1,018		$	4,528		$	-
Change in fair value		(128	)		(2,477	)		-
Additions		-			-			212
Fair value at March 31, 2019	$	890		$	2,051		$	212

The Company assumed liability for a warrant issued by PEC that expires on January 28, 2023. The fair value of the warrant liability, amounted to $2.1 million on March 31, 2019 and $4.5 million on December 31, 2018, resulting in a change in fair value of $2.5 million that is reported as a component of other income/(expense) in the condensed consolidated statement of operations for the three months ended March 31, 2019.

The Company used a Monte Carlo simulation model to estimate the fair value of the warrant liability with the following assumptions at March 31, 2019 and December 31, 2018:

	March 31, 2019			December 31, 2018
Exercise price	$	0.75		$	0.75
Stock price - subsidiary	$	0.15		$	0.22
Discount applied		50	%		50	%
Fair value of stock price	$	0.04		$	0.09
Risk free rate		2.22	%		2.49	%
Contractual term (years)		3.83			4.08
Expected dividend yield		0	%		0	%
Expected volatility		85.8	%		86.5	%
Number of subsidiary warrants outstanding		48,904,037			48,904,037
Term (years)	$	2,051		$	4,528

In arriving at the fair value of stock price, a 50% discount was applied to the trading price of the PEC stock, as a result of illiquidity in the volumes being traded on the OTC markets. Risk-free interest rate was based on rates established by the Federal Reserve Bank. The volatility rate was based on stock prices of comparable companies.

The fair value of the profits interest sold was determined using an expected cash flow analysis.