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Fair Value Measurements
 12 Months Ended
Dec. 31, 2016
Fair Value Measurements  
Fair Value Measurements

11. Fair Value Measurements

The Company follows accounting guidance that emphasizes that fair value is a market‑based measurement, not an entity specific measurement. Fair value is 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.” Fair value measurements are defined on a three level hierarchy:

Level 1 inputs:  Unadjusted quoted prices for identical assets or liabilities in active markets;

Level 2 inputs:  Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, weather directly or indirectly, for substantially the full term of the asset or liability;

Level 3 inputs:  Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

As of December 31, 2016 and 2015, the fair values of cash and cash equivalents, other assets, accounts payable and accrued liabilities approximated their carrying values because of the short‑term nature of these assets or liabilities. The estimated fair value of the Company’s Interim Notes was based on amortized cost which was deemed to approximate fair value. The derivative liability associated with the conversion premium on the Interim Notes was based on cash flow models discounted at current implied market rates evidenced in recent arms‑length transactions representing expected returns by market participants for similar instruments which were based on Level 3 inputs. There were no transfers between fair value hierarchy levels during the years ended December 31, 2016 and 2015.

The fair value of financial instruments measured on a recurring basis is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

Description

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium conversion derivative

 

$
345

 

$

—

 

$

—

 

$
345

 

Total liabilities at Fair Value

 

$
345

 

$

 —

 

$

 —

 

$
345

 

 

The following table provides a roll‑forward of the Company’s premium conversion derivative liabilities measured at fair value on a recurring basis using unobservable level 3 inputs (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31, 

 

 

    

2016

    

2015

 

2014

 

Balance as of beginning of period

 

$
345

 

$
73

 

$

—

 

Issuance of underlying convertible notes

 

 
505

 

 
842

 

 
55

 

Change in fair value of premium conversion derivative

 

 
(850)

 

 
297

 

 
18

 

Reversal of premium conversion derivative associated with note extinguishment

 

 

—

 

 
(182)

 

 

—

 

Redemption of underlying convertible notes

 

 

—

 

 
(685)

 

 

—

 

Balance as of end of period

 

$

 —

 

$
345

 

$
73

 

 

There were no financial instruments measured on a recurring basis as of December 31, 2016 and on a non‑recurring basis for any of the periods presented.