Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurement

v3.7.0.1
Fair Value Measurement
3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
11.
Fair Value Measurement
 
Fair value is defined as the price that would be received upon selling an asset or the price paid to transfer a liability on the measurement date. It focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
 
Level 1:
Observable prices in active markets for identical assets and liabilities.
 
Level 2:
Observable inputs other than quoted prices in active markets for identical assets and liabilities.
 
Level 3:
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
 
Warrant Liabilities
 
In connection with the entry into the January 26, 2017 forbearance agreement, as amended on March 7, 2017, the Company also amended and restated the warrant issued to Perceptive in connection with the closing of the Credit Agreement on May 29, 2015. The amended and restated warrant is exercisable for 2,000,000 shares of the Company’s common stock. The amended and restated warrant is exercisable at an exercise price of $0.50. See Note 7 – Debt for additional details. In connection with this amendment, the Company recomputed the fair value of the original warrant and modified warrant as $789,000 and $19,000, respectively, using the Binomial option pricing model (Level 3 inputs) using the following assumptions: expected volatility of 65.33%-78.98%, risk-free rate of 1.49%-1.95%, expected term of 3.34-5.00 years, and expected dividends of 0.00%. As a result, the Company recorded warrant modification expense of $770,000 during the three months ended March 31, 2017, which represents the incremental value of the modified warrant as compared to the original warrant, both valued as of the January 26, 2017 modification date. The modification expense was recognized from the date of modification through March 31, 2017, which was the period under which the forbearance was in effect.
 
On March 31, 2017, the Company recomputed the fair value of its warrant liability of outstanding warrants to purchase an aggregate of 2,290,338 shares of common stock as $672,000 using the Binomial option pricing model (Level 3 inputs) using the following assumptions: expected volatility of 79.19%-94.41%, risk-free rate of 0.91%-1.93%, expected term of 0.61-4.83 years, and expected dividends of 0.00%. The Company recorded a gain on the change in fair value of these warrant liabilities of $118,000 during the three months ended March 31, 2017. The issuance of common stock in connection with the February 27, 2017 Private Placement triggered an adjustment to the exercise price of certain warrants originally issued in November 2012 from $5.51 per share to $0.50 per share with a corresponding adjustment to the number of shares underlying such warrants from 66,287 shares to 290,338 shares. The impact of such adjustment is included in the change in fair value of the warrant liabilities during the three months ended March 31, 2017.
 
Warrants that contain exercise reset provisions and contingent consideration liabilities are Level 3 derivative liabilities measured at fair value on a recurring basis using pricing models for which at least one significant assumption is unobservable as defined in ASC 820. The fair value of contingent consideration liabilities that are classified as Level 3 were estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s Chief Financial Officer and are approved by the Chief Executive Officer.
 
The following table sets forth a summary of the changes in the fair value of Level 3 warrant liabilities that are measured at fair value on a recurring basis (in thousands):
 
 
 
March 31,
 
 
 
2017
 
2016
 
Warrant Liabilities
 
 
 
 
 
 
 
Beginning balance as of January 1,
 
$
20
 
$
861
 
Change in fair value of warrant liability
 
 
(118)
 
 
(737)
 
Warrant modification expense
 
 
770
 
 
-
 
Ending balance as of March 31,
 
$
672
 
$
124
 
 
 
 
March 31,
 
 
 
2017
 
2016
 
Contingent Consideration
 
 
 
 
 
 
 
Beginning balance as of January 1,
 
$
1,816
 
$
17,028
 
Payments of contingent consideration
 
 
(1,350)
 
 
(5,147)
 
Change in fair value of contingent consideration
 
 
34
 
 
362
 
Ending balance as of March 31,
 
$
500
 
$
12,243
 
 
Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):
 
 
 
March 31, 2017
 
 
 
Level 1
 
Level 2
 
Level 3
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Warrant liabilities
 
$
-
 
$
-
 
$
672
 
Contingent consideration
 
 
-
 
 
-
 
 
500
 
Total liabilities
 
$
-
 
$
-
 
$
1,172
 
 
 
 
December 31, 2016
 
 
 
Level 1
 
Level 2
 
Level 3
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Warrant liabilities
 
$
-
 
$
-
 
$
20
 
Contingent consideration
 
 
-
 
 
-
 
 
1,816
 
Total liabilities
 
$
-
 
$
-
 
$
1,836