Financial Instruments Fair Value Measurements
|9 Months Ended|
Sep. 30, 2017
|Fair Value Disclosures [Abstract]|
|Financial Instruments Fair Value Measurements||
Note 3 — Financial Instruments Fair Value Measurements
Recurring Fair Value Measurements
The following fair value hierarchy table presents information about each major category of the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2017. There were no such financial instruments as of December 31, 2016.
The Series A Preferred Stock Units were issued in three closings in the three months ended March 31, 2017, with each such unit comprised of one share of Series A Convertible Preferred Stock and one Series A Warrant - with each, at the option of the holder, convertible into and exercisable for, respectively, a share of the Company’s common stock. See Note 13, Series A Convertible Preferred Stock, Stockholders’ Deficit, and Warrants for further discussion of the Series A Preferred Stock Units private placement, the Series A Convertible Preferred Stock, and the Series A Warrant.
The Series A Warrant and the Series A Convertible Preferred Stock conversion option, which is accounted for as an embedded derivative and bifurcated from its host financial instrument, were determined to be derivatives under FASB ASC 815, as, along with other provisions, their conversion price and exercise price, respectively, are subject to potential adjustment resulting from future financing transactions, under certain conditions.
The Series A Warrants and the Series A Convertible Preferred Stock conversion option embedded derivative are each classified as a current liability on the unaudited condensed consolidated balance sheet, and were initially measured at fair value at the time of issuance and are subsequently remeasured at fair value at each reporting period, with changes in fair value recognized as other income or expense in the unaudited condensed consolidated statement of operations.
A reconciliation of the Series A Warrants liability and the Series A Convertible Preferred Stock conversion option embedded derivative liability for the nine months ended September 30, 2017 is a follows:
In the nine months ended September 30, 2017, the change in fair values resulted in the recognition of: an expense of $680,851 with respect to the Series A Warrants liability; and, an expense of $76,150 with respect to the Series A Convertible Preferred Stock conversion option embedded derivative liability. As the Series A Preferred Stock Units were issued in the three months ended March 31, 2017, there was no comparable amount in the prior year period.
The fair value of the Series A Warrants liability and the Series A Convertible Preferred Stock conversion option embedded derivative liability was determined using a Monte Carlo simulation valuation model - using the Company’s common stock price and certain other Level-3 inputs to take into account the probabilities of certain events occurring over the life of the respective financial instrument. The resulting estimated fair value is subjective and is affected by changes in inputs to the valuation model including the Company’s common stock price, and the assumptions regarding the estimated volatility in the value of the Company’s common stock price; the Company’s dividend yield; the likelihood and timing of dilutive transactions; and, the risk-free rates based on U.S. Treasury security yields. Changes in these assumptions can materially affect the estimated fair value of each financial instrument. The Series A Warrants liability and the Series A Convertible Preferred Stock conversion option embedded derivative liability estimated fair value and the underlying assumptions as of the dates indicated, are as follows:
Non-recurring Fair Value Measurements
The non-recurring issue-date fair values of the Senior Secured Note and Series S Warrants issued in connection with the Note and Security Purchase Agreement between the Company and Scopia Holdings LLC, are presented in Note 12, Note and Securities Purchase Agreement, Senior Secured Note, and Series S Warrants.
The non-recurring issue-date fair values of the Series A-1 Convertible Preferred Stock and Series A-1 Warrants issued in the Series A-1 Preferred Stock Units private placement are presented in Note 13, Series A Convertible Preferred Stock, Stockholders’ Deficit, and Warrants.
The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef