Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.10.0.1
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:
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, 2018
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Warrant liability
$
585

 
$

 
$

 
$
585

Contingent success fee liability
$
34

 
$

 
$

 
$
34

 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Warrant liability
$
1,648

 
$

 
$

 
$
1,648

Contingent consideration liability
$
42

 
$

 
$

 
$
42

Contingent success fee liability
$
39

 
$

 
$

 
$
39



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:
 
Warrant
Liability
 
Contingent
Consideration
Liability
 
Contingent
Success Fee
Liability
Balance at December 31, 2017
$
1,648

 
$
42

 
$
39

Gain on revaluation of 2015 warrants
(1,063
)
 
 
 
 
Gain on revaluation

 
(30
)
 
(5
)
Reclassification to accrued liabilities

 
(12
)
 

Balance at December 31, 2018
$
585

 
$

 
$
34



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.