Quarterly report pursuant to Section 13 or 15(d)

Fair Value

v3.5.0.2
Fair Value
9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value

3.

Fair Value

Platinum has the right to convert all or any portion of the unpaid principal or unpaid interest accrued on all draws under the Platinum credit facility, under certain circumstances.  Platinum’s debt instrument, including the embedded option to convert such debt into common stock, is recorded at fair value on the consolidated balance sheets.  The estimated fair value of the Platinum notes payable is $10.5 million at September 30, 2016.

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 at September 30, 2016, and will continue to be measured on a recurring basis.  See Note 1(b)(3).

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 September 30, 2016

 

Description

 

Quoted Prices in

Active Markets

for Identical Liabilities

(Level 1)

 

 

Significant

Other

Observable

Inputs (Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

 

Total

 

Platinum notes payable conversion option

 

$

 

 

$

 

 

$

1,255,891

 

 

$

1,255,891

 

Liability related to MT warrants

 

 

 

 

 

 

 

 

63,000

 

 

 

63,000

 

 

Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2015

 

Description

 

Quoted Prices in

Active Markets for Identical

Liabilities

(Level 1)

 

 

Significant

Other

Observable

Inputs (Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

 

Total

 

Platinum notes payable 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.

 

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 certain liabilities.  The significant unobservable inputs used in the fair value measurement of the liabilities include the amount and timing of future draws expected to be taken under the Platinum Loan Agreement based on current internal forecasts and management’s estimate of the likelihood of actually making those draws as opposed to obtaining other sources of financing.  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 no Level 1 or Level 2 liabilities outstanding at any time during the nine-month periods ended September 30, 2016 and 2015.  There were no transfers in or out of Level 1 or Level 2 liabilities during the nine-month periods ended September 30, 2016 and 2015.  Changes in the estimated fair value of our Level 3 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 3 liabilities during the three-month periods ended September 30, 2016 and 2015 was increases of $839,000 and $1.6 million, respectively.  The change in the estimated fair value of our Level 3 liabilities during the nine-month periods ended September 30, 2016 and 2015 was a decrease of $1.8 million and an increase of $1.7 million, respectively.