Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.8.0.1
Fair Value Measurements
 12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurements
5. 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:
 
 
•
Level 1—Quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
 
•
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are 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. The valuation of Level 3 investments requires the use of significant management judgments or estimation.
 
The Company’s fair value hierarchies for its financial assets and liabilities which require fair value measurement on a recurring basis are as follows:
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrant liability
 
$
1,648
 
$
-
 
$
-
 
$
1,648
 
Contingent consideration liability
 
$
42
 
$
-
 
$
-
 
$
42
 
Contingent success fee liability
 
$
39
 
$
-
 
$
-
 
$
39
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrant liability
 
$
3,546
 
$
-
 
$
-
 
$
3,546
 
Contingent consideration liability
 
$
217
 
$
-
 
$
-
 
$
217
 
Contingent success fee liability
 
$
116
 
$
-
 
$
-
 
$
116
 
 
During the years ended December 31, 2017 and 2016, 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, 2017, which were measured at fair value on a recurring basis: 
 
 
 
Warrant
Liability
 
Contingent
Consideration
Liability
 
Contingent
Success Fee
Liability
 
Balance at December 31, 2016
 
$
3,546
 
$
217
 
$
116
 
Initial fair value of April 2017 Warrants
 
 
3,301
 
 
-
 
 
-
 
Repurchase of April 2017 Warrants
 
 
(2,296)
 
 
-
 
 
-
 
Loss on repurchase of April 2017 Warrants
 
 
1,067
 
 
-
 
 
-
 
Gain on revaluation of 2015 and April 2017 Warrants
 
 
(3,909)
 
 
 
 
 
 
 
Reclassification of warrant liability to equity upon exercise of warrants
 
 
(61)
 
 
 
 
 
 
 
Gain on revaluation
 
 
-
 
 
(255)
 
 
(77)
 
Reclassification to accrued liabilities
 
 
-
 
 
80
 
 
-
 
Balance at December 31, 2017
 
$
1,648
 
$
42
 
$
39
 
 
The 2015 Warrants were valued at $3,546 at December 31, 2016, and the initial value of the April 2017 Warrants was $3,301. Due to a decrease in the Company’s common stock price from December 31, 2016 to December 31, 2017 the fair value of the 2015 Warrants decreased by $1,837 and the fair value of the April 2017 Warrants decreased by $2,072 from the issuance date to the repurchase date, which resulted in a total non-cash gain of $3,909 recorded in the Company’s consolidated statements of operations and comprehensive loss for the year. See Note 13 in the notes to our consolidated financial statements under the caption Capitalization and Equity Structure – 2015 Warrants for a description of the warrants, including the method and inputs used to estimate their fair value.
 
We measure our contingent consideration liability 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.