5. Fair Value Measurements

The Company records its financial assets and liabilities at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, trade receivable and accounts payable, approximate their fair value due to their short maturities. Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance for fair value establishes a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs used in valuation techniques. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 – Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs, either directly or indirectly, other than quoted prices in active markets for similar assets or liabilities, that are not active or other inputs that are not observable or can be corroborated by observable market data for substantially the full term of the assets or 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 or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.

The following tables set forth the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as follows (in thousands):

(1) Included in cash and cash equivalents

During the years ended December 31, 2017 and 2016, there were no transfers between Level 1, Level 2, or Level 3 and the valuation techniques used did not change compared to the Company’s established practice.

The estimated fair value of the contingent warrant liabilities was determined using the Black-Scholes Model, which required inputs such as the expected term of the warrants, volatility and risk-free interest rate. These inputs were subjective and generally required significant analysis and judgment to develop. The Company’s common stock price represented a significant input that affected the valuation of the warrants. The change in the fair value was recorded as a gain or loss in the revaluation of contingent warrant liabilities line of the consolidated statements of comprehensive income (loss). As of December 31, 2017, all the warrants accounted for as liability expired.

The estimated fair value of the contingent warrant liabilities was estimated using the following range of assumptions at December 31, 2016:

The following table provides a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the year ended December 31, 2016 (in thousands):

The fair value of the Company’s outstanding interest-bearing obligations is estimated using the net present value of the payments, discounted at an interest rate that is consistent with market interest rates, which is a Level 2 input. The carrying amount and the estimated fair value of the Company’s outstanding interest-bearing obligations at December 31, 2017 and 2016 are as follows (in thousands):