Current report filing

Note 4 - Fair Value

Note 4 - Fair Value

12 Months Ended

Dec. 31, 2016

4 .	Fair Value

Platinum ha

s the right to convert into common stock all or any portion of the unpaid principal or unpaid interest accrued on all draws under the Platinum credit facility, under certain circumstances. The Platinum embedded option to convert such debt into common stock is recorded at fair value on the consolidated balance sheets and deemed to be a derivative instrument as the amount of shares to be issued upon conversion is indeterminable. The estimated fair value of the conversion option of the Platinum Note is approximately

$153,000

and

$3.0

million at

December

31,

2016

and

2015,

respectively. See Note

13.

MT issued warrants to purchase MT Common Stock with certain characteristics including a net settlement provision that require the warrants to be accounted for as a derivative liability at fair value on the consolidated balance sheets. The estimated fair value of the MT warrants is

$63,000

both

December 31, 2016

and

2015,

and will continue to be measured on a recurring basis. See Notes

(m) and

10.

The following tables set forth, by level, financial liabilities measured at fair value on a recurring basis:

Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2016
	Quoted Prices in Active Markets for Identical Assets and Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs (a)(b)		Balance as of December 31,
Description	(Level 1)		(Level 2)		(Level 3)		2016
Platinum conversion option	$	—	$	—	$	153,357	$	153,357
Liability related to MT warrants		—		—		63,000		63,000

Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2015
	Quoted Prices in Active Markets for Identical Assets and Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs (a)(b)		Balance as of December 31,
Description	(Level 1)		(Level 2)		(Level 3)		2015
Platinum conversion option	$	—	$	—	$	3,011,880	$	3,011,880
Liability related to MT warrants		—		—		63,000		63,000

	a.	Valuation Processes-Level 3 Measurements: The Company utilizes third -party valuation services that use complex models such as Monte Carlo simulation to estimate the value of our financial liabilities. Each reporting period, the Company provides significant unobservable inputs to the third -party valuation experts based on current internal estimates and forecasts.

		The assumptions used in the Monte Carlo simulation as of December 31, 2016 and 2015 are summarized in the following table:

	2016			2015
Estimated volatility		76	%		58	%
Expected term (in years)		4.75			5.75
Debt rate		8.125	%		14.125	%
Beginning stock price	$	0.64		$	1.33

		In addition, as of December 31, 2016 the Company estimated a 95% chance that the majority of the Platinum debt would be repaid in connection with the closing of the Asset Sale to Cardinal Health 414 during the first quarter of 2017.

	b.	Sensitivity Analysis-Level 3 Measurements: Changes in the Company’s current internal estimates and forecasts are likely to cause material changes in the fair value of the Platinum conversion option. The significant unobservable inputs used in the fair value measurement of the conversion option include the amount and timing of future draws expected to be taken under the Platinum Loan Agreement based on current internal forecasts, management’s estimate of the likelihood of actually making those draws as opposed to obtaining other sources of financing, and management’s estimate of the likelihood of paying off the debt prior to maturity. Significant increases (decreases) in any of the significant unobservable inputs would result in a higher (lower) fair value measurement. A change in one of the inputs would not necessarily result in a directionally similar change in the others.

There were

Level

or Level

liabilities outstanding at any time during the years ended

December 31, 2016

and

2015.

There were

transfers in or out of our Level

or Level

liabilities during the years ended

December 31, 2016

and

2015.

Changes in the estimated fair value of our Level

liabilities relating to unrealized gains (losses) are recorded as changes in fair value of financial instruments in the consolidated statements of operations. The change in the estimated fair value of our Level

liabilities during the years ended

December 31, 2016,

2015

and

2014

was a decrease of

$2.9

million and increases of

$615,000

and

$1.3

million, respectively.

- Definition

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.

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