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Fair Value of Financial Assets and Liabilities - Derivative Instruments | 9 Months Ended
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Sep. 30, 2016
Fair Value of Financial Assets and Liabilities - Derivative Instruments [Abstract] |
Fair Value of Financial Assets and Liabilities - Derivative Instruments | 4. Fair Value of Financial Assets and Liabilities — Derivative Instruments ﻿ ASC Topic 820, Fair Value Measurement (ASC 820), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. ﻿ ASC 820 identifies fair value as the exchange price, or 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 a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a three-tier fair value hierarchy that distinguishes among the following: ﻿
﻿ |  | Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
﻿ |  | Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
﻿ |  | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
﻿ To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is the greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. ﻿ Items measured at fair value on a recurring basis include common stock warrants, embedded derivatives related to the Company’s redeemable convertible preferred stock, and a dilutive financing derivative liability established on April 8, 2016 (see Note 6). During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. The following fair value hierarchy table presents information about each major category of the Company's financial liabilities measured at fair value on a recurring basis: ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Quoted Prices in |  |  |  |  |  |  |  |  |
﻿ |  | Active Markets |  | Significant Other |  | Significant |  |  |
﻿ |  | for Identical |  | Observable Inputs |  | Unobservable |  |  |
﻿ |  | Items (Level 1) |  | (Level 2) |  | Inputs (Level 3) |  | Total
﻿September 30, 2016 |  |  |  |  |  |  |  |  |  |  |  |
﻿Liabilities |  |  |  |  |  |  |  |  |  |  |  |
﻿June 2016 offering warrant liability |  | $ | - |  | $ | - |  | $ | 1,267,000 |  | $ | 1,267,000
﻿Dilutive financing derivative liability |  |  | - |  |  | - |  |  | 382,000 |  |  | 382,000
﻿Total liabilities |  | $ | - |  | $ | - |  | $ | 1,649,000 |  | $ | 1,649,000
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |
﻿Liabilities |  |  |  |  |  |  |  |  |  |  |  |
﻿Series B preferred stock derivative liability |  | $ | - |  | $ | - |  | $ | 1,493,000 |  | $ | 1,493,000
﻿2011 Warrant liability |  |  | - |  |  | - |  |  | 6,000 |  |  | 6,000
﻿Total liabilities |  | $ | - |  | $ | - |  | $ | 1,499,000 |  | $ | 1,499,000
﻿ There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy for the three and nine months ended September 30, 2016 or the year ended December 31, 2015. ﻿ The following table sets forth a summary of changes in the fair value of the Company's derivative and warrant liabilities, which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs: ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  | Series B Preferred |  | Dilutive Financing
﻿ |  | Warrant |  | June 2016 Offering |  |  | Stock Derivative |  | Derivative
﻿ |  | Liability |  | Warrant Liability |  |  | Liability |  | Liability
﻿Balance, December 31, 2015 |  | $ | 6,000 |  | $ | - |  |  | $ | 1,493,000 |  | $ | -
﻿Creation of dilutive financing derivative |  |  | - |  |  | 1,816,000 |  |  |  | - |  |  | 2,282,000
﻿Changes in estimated fair value |  |  | (6,000) |  |  | (549,000) |  |  |  | (1,493,000) |  |  | (355,000)
﻿Payout from liability |  |  | - |  |  | - |  |  |  | - |  |  | (1,545,000)
﻿Balance, September 30, 2016 |  | $ | - |  | $ | 1,267,000 |  |  | $ | - |  | $ | 382,000
﻿ The fair value of warrant liability related to warrants issued in 2011 on each re-measurement date classified as liabilities is estimated using the Monte Carlo valuation model. For this liability, the Company develops its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the contractual term of the warrants, risk–free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement. The fair value of this warrant was estimated to be $0 as of September 30, 2016. The following assumptions were used at September 30, 2016 and December 31, 2015: ﻿ ﻿ ﻿
﻿ |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |
﻿ |  | September 30, 2016 |  | December 31, 2015
﻿ |  | Series |  | Series
﻿ |  | 2011 |  | 2011
﻿Volatility |  |  | 118 | % |  |  | 112 | %
﻿Expected term (years) |  |  | 0.23 |  |  |  | 0.98 |
﻿Risk-free interest rate |  |  | 0.35 | % |  |  | 0.64 | %
﻿Dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
﻿Exercise price |  |  | $23.00 |  |  |  | $23.00 |
﻿Common stock closing price |  |  | $1.52 |  |  |  | $3.98 |
﻿ The fair value of the June 2016 offering warrants derivative liability on the date of issuance and on each re-measurement date classified as liabilities is estimated using the Black-Scholes valuation model. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, risk–free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement. The following assumptions were used at the June 3, 2016 issuance date and September 30, 2016: ﻿ ﻿
﻿ |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |
﻿ |  | September 30, 2016 |  | June 3, 2016
﻿Volatility |  |  | 123 | % |  |  | 123 | %
﻿Expected term (years) |  |  | 4.7 |  |  |  | 5.00 |
﻿Risk-free interest rate |  |  | 1.10 | % |  |  | 1.23 | %
﻿Dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
﻿Exercise price |  |  | $2.25 |  |  |  | $2.25 |
﻿Common stock closing price |  |  | $1.52 |  |  |  | $2.06 |
﻿ The fair value of the Series B preferred stock derivative liability on each measurement date is estimated using the Monte Carlo valuation model. For this liability, the Company develops its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the expected term of the Series B redeemable convertible preferred stock, risk–free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the Series B redeemable convertible preferred stock conversion liability is considered a Level 3 measurement. On April 8, 2016, all outstanding Series B preferred stock was converted into common stock, and the remaining Series B preferred stock derivative liability balance of $91,000 was reversed and recorded as a gain in derivative liability on the Company’s statements of operations in the second quarter of 2016. The following assumptions were used at December 31, 2015: ﻿ ﻿
﻿ |  |  |  |
﻿ |  |  |  |
﻿ |  | December 31, 2015
﻿Volatility |  |  | 108 to 117 | %
﻿Expected term (years), weighted average |  |  | 0.50 to 2.50 |
﻿Risk-free interest rate |  |  | 0.49 to 1.19 | %
﻿Dividend yield |  |  | 0.00 | %
﻿Exercise price |  |  | $7.00 |
﻿Common stock closing price |  |  | $3.98 |
﻿ The fair value of the dilutive financing derivative liability on each measurement date is estimated using the Monte Carlo valuation model (see Note 6). For this liability, the Company develops its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, expected future financings, risk–free interest rates and dividend yields. Due to the nature of these inputs, the valuation of future potential dilutive financings is considered a Level 3 measurement. The following assumptions were used to value the dilutive financing derivative liability from the inception date of April 8, 2016 through September 30, 2016: ﻿ ﻿
﻿ |  |  |  |  |
﻿ |  |  |  |  |
﻿Volatility |  |  |  | 108 to 121 | %
﻿Expected term (years), weighted average |  |  |  | 1.75 to 2.23 |
﻿Risk-free interest rate |  |  |  | 0.58 to 0.79 | %
﻿Dividend yield |  |  |  | 0.00 | %
﻿Stock price dilutive limit |  |  |  | $2.35 to $4.05 |
﻿Common stock closing price |  |  |  | $1.52 to $3.68 |
﻿ The dilutive financing derivative liability was recorded on the accompanying consolidated balance sheet at its initial value on April 8, 2016 and is marked-to-market at each balance sheet date until the liability is relieved (see Note 6). ﻿ As of September 30, 2016, all of the Company’s derivative liabilities were marked-to-market with the changes in fair value recorded as a component of change in fair value of derivative liabilities on the Company’s consolidated s tate ments of o perations.

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