Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurement

v3.10.0.1
Fair Value Measurement
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
11.
Fair Value Measurement
 
Fair value is defined as the price that would be received upon selling an asset or the price paid to transfer a liability on the measurement date. It focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
 
Level 1: Observable prices in active markets for identical assets and liabilities.
 
Level 2: Observable inputs other than quoted prices in active markets for identical assets and 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 and liabilities.
 
 
Warrant Liabilities
 
On September 30, 2018, the Company recomputed the fair value of its warrant liability of outstanding warrants to purchase an aggregate of 210,000 shares of common stock as $186,000 using the Binomial option pricing model (Level 3 inputs) using the following assumptions: expected volatility of 80.17% risk-free rate of 2.88%, expected term of 3.33 years, and expected dividends of 0.00%. The Company recorded a loss on the change in fair value of these warrant liabilities of $
22
,000 and $
56
,000 during the three and nine months ended September 30, 2018, respectively. During the three and nine months ended September 30, 2017, the Company recorded a gain on the change in fair value of its warrant liabilities of $
35
,000 and $
403
,000, respectively.
 
Warrants that contain exercise reset provisions and contingent consideration liabilities are Level 3 derivative liabilities measured at fair value on a recurring basis using pricing models for which at least one significant assumption is unobservable as defined in ASC 820. The fair value of contingent consideration liabilities that are classified as Level 3 were estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s Chief Financial Officer and are approved by the Chief Executive Officer.
 
The following table sets forth a summary of the changes in the fair value of Level 3 warrant liabilities that are measured at fair value on a recurring basis (in thousands):
 
 
 
Nine Months Ended September 30,
 
 
 
2018
 
 
2017
 
Warrant Liabilities
 
 
 
 
 
 
 
 
Beginning balance as of January 1,
 
$
130
 
 
$
20
 
Change in fair value of warrant liability
 
 
56
 
 
 
(403
)
Warrant modification expense
 
 
-
 
 
 
803
 
Ending balance as of September 30,
 
$
186
 
 
$
420
 
 
 
 
Nine Months Ended September 30,
 
 
 
2018
 
 
2017
 
Contingent Consideration
 
 
 
 
 
 
 
 
Beginning balance as of January 1,
 
$
-
 
 
$
1,816
 
Payments of contingent consideration
 
 
-
 
 
 
(1,851
)
Change in fair value of contingent consideration
 
 
-
 
 
 
35
 
Ending balance as of September 30,
 
$
-
 
 
$
-
 
 
Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):
 
 
 
September 30, 2018
 
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Liabilities:
 
 
 
 
 
 
 
 
 
Warrant liabilities
 
$
-
 
 
$
-
 
 
$
186
 
Total liabilities
 
$
-
 
 
$
-
 
 
$
186
 
 
 
 
December 31, 2017
 
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Liabilities:
 
 
 
 
 
 
 
 
 
Warrant liabilities
 
$
-
 
 
$
-
 
 
$
130
 
Total liabilities
 
$
-
 
 
$
-
 
 
$
130