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FAIR VALUE | 9 Months Ended
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Sep. 30, 2016
Fair Value Disclosures [Abstract] |
FAIR VALUE | FAIR VALUE FASB guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements for our financial assets and liabilities, as well as for other assets and liabilities that are carried at fair value on a recurring basis in our consolidated financial statements. FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets; and Level 3—Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability. Debt. Our long term debt book value approximates fair market value due to the variable interest rate it bears. Common Stock Warrant Liabilities. Certain of our issued and outstanding warrants to purchase shares of common stock do not qualify to be treated as equity and, accordingly, are recorded as a liability. 2012 Warrant Liability The 2012 Warrant Liability represents the fair value of the 1.2 million warrants issued in February 2012, which, through a series of changes in exercise price since February 2012, are now exercisable for 3.4 million shares of common stock. We are required to record these instruments at fair value at each reporting date and changes are recorded as a non-cash adjustment to earnings. The gains or losses included in earnings are reported in other income (expense) in our Statement of Operations. Management does not believe that this liability will be settled by a use of cash. The 2012 Warrant Liability is considered a Level 3 financial instrument and is valued using a Monte Carlo simulation model. This method is well suited to valuing options with non-standard features, such as anti-dilution protection. A Monte Carlo simulation model uses repeated random sampling to simulate significant uncertainty in inputs. Assumptions and inputs used in the valuation of the common stock warrants are broken down into four sections: Static Business Inputs; Static Technical Inputs; Simulated Business Inputs; and Simulated Technical Inputs. Static Business Inputs include: our equity value, which was estimated using our stock price of $0.28 as of September 30, 2016; the amount of the down-round financing; the timing of the down-round financing; and the expected exercise period of 0.41 years from the valuation date. Static Technical Inputs include: volatility of 67% and the risk-free interest rate of 0.42% based on the 1-year U.S. Treasury yield interpolated from the six-month and one-year U.S. Treasury bonds. Simulated Business Inputs include: the probability of down-round financing, which was estimated to be 100% for simulated equity values below the down-round financing cut-off point. Simulated Technical Inputs include: our equity value follows a geometric Brownian motion and is simulated over weekly periods; and a down-round financing event that was randomly simulated in an iteration based on the 100% discrete probability of a down-round financing for those iterations where our simulated equity value at the expected timing of a down-round financing event was below the down-round financing cut-off point. During the three and nine months ended September 30, 2016 and 2015, the changes in the fair value of the liability measured using significant unobservable inputs (Level 3) were comprised of the following:
|  | Dollars in Thousands
|  | For the Three Months Ended
|  | September 30, 2016 |  | September 30, 2015
Beginning balance at July 1 |  | $ | — |  |  | $ | 560 |
Total (gains) or losses: |  |  |  |
Recognized in earnings |  | — |  |  | (385 | )
Balance at September 30 |  | $ | — |  |  | $ | 175 |
|  | Dollars in Thousands
|  | For the Nine Months Ended
|  | September 30, 2016 |  | September 30, 2015
Beginning balance at January 1 |  | $ | 350 |  |  | $ | 145 |
Total (gains) or losses: |  |  |  |
Recognized in earnings |  | (350 | ) |  | 30 |
Balance at September 30 |  | $ | — |  |  | $ | 175 |
2016 Warrant Liability The 2016 Warrant Liability represents the fair value of the 1.8 million warrants issued in January 2016. We are required to record these instruments at fair value at each reporting date and changes are recorded as a non-cash adjustment to earnings. The gains or losses included in earnings are reported in other income (expense) in our Statement of Operations. The Common Stock Warrant Liability is considered a Level 3 financial instrument and is valued using a binomial lattice simulation model. This method is well suited to valuing options with non-standard features. Assumptions and inputs used in the valuation of the common stock warrants include; our equity value, which was estimated using our stock price of $0.28 as of September 30, 2016; volatility of 86%; and a risk-free interest rate of 1.04%. During the three and nine months ended September 30, 2016, the changes in the fair value of the liability measured using significant unobservable inputs (Level 3) were comprised of the following:
|  | Dollars in Thousands |
|  | For the Three Months Ended |
|  | September 30, 2016 |
Beginning balance at July 1 |  | $ | 1,442 |  |
Total (gains) or losses: |  |  |
Recognized in earnings |  | (12 | ) |
Balance at September 30 |  | $ | 1,430 |  |
|  | Dollars in Thousands |
|  | For the Nine Months Ended |
|  | September 30, 2016 |
Beginning balance at January 1 |  | $ | — |  |
Additions |  | 1,437 |  |
Total (gains) or losses: |  |  |
Recognized in earnings |  | (7 | ) |
Balance at September 30 |  | $ | 1,430 |  |
The change in unrealized gains or losses of Level 3 liabilities was included in earnings and was reported in other income (expense) in our Statement of Operations.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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