Fair Value Measurements
|12 Months Ended|
Dec. 31, 2018
|Fair Value Disclosures [Abstract]|
|Fair Value Measurements||
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Three levels of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value which are the following:
The Company’s fair value hierarchies for its financial assets and liabilities which require fair value measurement on a recurring basis are as follows:
During the years ended December 31, 2018 and 2017, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and the valuation techniques used did not change compared to the Company’s established practice.
The following table sets forth a summary of the changes in the fair value of Company’s Level 3 financial liabilities during the year ended December 31, 2018, which were measured at fair value on a recurring basis:
See Note 13 in the notes to our consolidated financial statements under the caption Capitalization and Equity Structure – Warrants – 2015 Warrants for a description of the warrants accounted for as a liability, including the method and inputs used to estimate their fair value.
The contingent consideration liability was valued using the Probability Weighted Value Analysis which considered performance based contingent payments for both the supply and sales functions of the Company, and both buyer and seller options. Any changes in the fair value of this contingent consideration liability are recognized in loss from operations in the period of the change. For the year ended December 31, 2017, we reclassified $38 from the contingent consideration liability to accrued liabilities as of December 31, 2017, to be paid in shares of common stock in the first quarter of 2018. Due to a decrease in our stock price between December 31, 2017 and the final payment calculation, we recorded a gain of $10 on the difference between the value of the consideration paid on March 20, 2018 of $28 and the value of the accrued liability at December 31, 2017 of $38, which was reclassified from the accrued liability. For the year ended December 31, 2018, we reclassified $12 from the contingent consideration liability to accrued liabilities, to be paid in shares of common stock in the first quarter of 2018. The Company also recorded a non-cash gain on the change in fair value of the remaining contingent consideration liability of $20 in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2018.
The contingent consideration liability is measured at fair value at each reporting period using significant unobservable inputs classified within Level 3 of the fair value hierarchy. We use a probability weighted value analysis as a valuation technique to convert future estimated cash flows to a single present value amount. The significant unobservable inputs used in the fair value measurements are sales projections over the earn-out period, and the probability outcome percentages assigned to each scenario. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount settled, and the difference between the fair value estimate and amount settled will be recorded in earnings. The amount settled that is less than or equal to the liability on the acquisition date is reflected as non-cash financing activities in our consolidated statements of cash flows. Any amount settled in excess of the liability on the acquisition date is reflected as non-cash operating activities. Any changes in the estimated fair value of our contingent consideration liabilities related to the time component of the present value calculation are reported in interest expense. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in our statements of operations and comprehensive loss.
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://fasb.org/us-gaap/role/ref/legacyRef