3. FAIR VALUE

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

3. FAIR VALUE

The Company records its financial assets and liabilities in accordance with the FASB Accounting Standards Codification (“ASC”) 820 Fair Value Measurements. The Company's balance sheet includes the following financial instruments: cash and cash equivalents, investments in marketable securities, short-term notes payable, and warrant liabilities. The Company considers the carrying amount of its cash and cash equivalents and short-term notes payable to approximate fair value due to the short-term nature of these instruments.

Accounting for fair value measurements involves a single definition of fair value, along with a conceptual framework to measure fair value, with a fair value defined as “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 measurement hierarchy consists of three levels:

Level one	Quoted market prices in active markets for identical assets or liabilities;
Level two	Inputs other than level one inputs that are either directly or indirectly observable, and
Level three	Unobservable inputs developed using estimates and assumptions; which are developed by the reporting entity and reflect those assumptions that a market participant would use.

The Company applies valuation techniques that (1) place greater reliance on observable inputs and less reliance on unobservable inputs and (2) are consistent with the market approach, the income approach and/or the cost approach, and include enhanced disclosures of fair value measurements in the Company’s condensed consolidated financial statements.

Investments in Marketable Securities

The Company classifies all of its investments as available-for-sale. Unrealized gains and losses on investments are recognized in comprehensive income/(loss), unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are reflected in interest and other income in the Condensed Consolidated Statements of Comprehensive Loss and are determined using the specific identification method with transactions recorded on a settlement date basis. Investments with original maturities at date of purchase beyond three months and which mature at or less than 12 months from the balance sheet date are classified as current. Investments with a maturity beyond 12 months from the balance sheet date are classified as long-term. At March 31, 2016, the Company believes that the costs of its investments are recoverable in all material respects.

The following tables summarize the fair value of the Company’s investments by type. The estimated fair value of the Company’s fixed income investments are classified as Level 2 in the fair value hierarchy as defined in U.S. GAAP. These fair values are obtained from independent pricing services which utilize Level 2 inputs:

	March 31, 2016
	Amortized Cost		Accrued Interest		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate debt securities	$	31,286,754	$	248,070	$	42,587	$	(31,792	)	$	31,545,619

The following table summarizes the scheduled maturity for the Company’s investments at March 31, 2016 and December 31, 2015.

	March 31, 2016		December 31, 2015
Maturing in one year or less	$	12,511,010	$	16,528,494
Maturing after one year through three years		19,034,609		18,019,054
Total investments	$	31,545,619	$	34,547,548

Warrant liability

On July 23, 2013, the Company issued common stock warrants in connection with the issuance of Series C 8% Preferred Stock (the “Series C Warrants”). These Series C Warrants contain certain “down-round” price protection clauses and in accordance with ASC 815-40-35-9, the Company classifies these warrants as a current liability and the subsequent changes in fair value are recorded as a component of other expense.

Financial assets or liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The Series C Warrants are measured using the Monte Carlo valuation model which is based, in part, upon inputs for which there is little or no observable market data, requiring the Company to develop its own assumptions.  The assumptions used in calculating the estimated fair value of the warrants represent the Company’s best estimates; however, these estimates involve inherent uncertainties and the application of management judgment.  As a result, if factors change and different assumptions are used, the warrant liabilities and the change in estimated fair value of the warrants could be materially different.

Inherent in the Monte Carlo valuation model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield.  The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants.  The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants.  The expected life of the warrants is assumed to be equivalent to their remaining contractual term.  The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The Monte Carlo model is used for the Series C Warrants to appropriately value the potential future exercise price adjustments triggered by the anti-dilution provisions. This requires Level 3 inputs which are based on the Company’s estimates of the probability and timing of potential future financings and fundamental transactions.  The other assumptions used by the Company are summarized in the following table for the Series C Warrants that were outstanding as of March 31, 2016 and December 31, 2015.

Series C Warrants	March 31, 2016			December 31, 2015
Closing stock price	$	2.05		$	3.28
Expected dividend rate		0	%		0	%
Expected stock price volatility		88.68	%		84.08	%
Risk-free interest rate		0.92	%		1.44	%
Expected life (years)		3.31			3.56

As of March 31, 2016, the fair value of the warrant liability was $293,438. The Company recorded a gain of $230,902 for the change in fair value as a component of other income on the condensed consolidated statement of comprehensive loss for the three months ended March 31, 2016.

As of March 31, 2016, there were 240,523 Series C Warrants outstanding.

The following tables summarize information regarding assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015:

			Fair Value Measurements at Reporting Date Using
	Balance as of March 31, 2016		Quoted prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Current Assets
Cash and cash equivalents	$	3,262,518	$	3,262,518	$	-	$	-
Marketable securities	$	12,511,010	$	-	$	12,511,010	$	-
Long-term Assets
Marketable securities	$	19,034,609	$	-	$	19,034,609	$	-
Current Liabilities
Warrant liabilities	$	293,438	$	-	$	-	$	293,438

			Fair Value Measurements at Reporting Date Using
	Balance as of December 31, 2015		Quoted prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Current Assets
Cash and cash equivalents	$	3,660,453	$	3,660,453	$	-	$	-
Marketable securities	$	16,528,494	$	-	$	16,528,494	$	-
Long-term Assets
Marketable securities	$	18,019,054	$	-	$	18,019,054	$	-
Current Liabilities
Warrant liabilities	$	524,340	$	-	$	-	$	524,340

There were no significant transfers between levels in the three months ended March 31, 2016.