Interpace Biosciences®, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Note 5 - Fair Value Measurements

Note 5 - Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Fair Value Measurements

The Company's financial assets and liabilities reflected at fair value in the consolidated financial statements include: cash and cash equivalents; short-term investments; accounts receivable; other current assets; accounts payable; and contingent consideration. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into

three

broad levels as follows:

Level

Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level

Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from

third

-party pricing services for identical or similar assets or liabilities.

Level

Valuations for assets and liabilities include certain unobservable inputs in the assumptions and projections used in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The valuation methodologies used for the Company's financial instruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth in the tables below.

	As of December 31, 2016				Fair Value Measurements
	Carrying		Fair		As of December 31, 2016
	Amount		Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents:
Cash	$	602	$	602	$	602	$	-	$	-
Money market funds		-		-		-		-		-
	$	602	$	602	$	602	$	-	$	-
Liabilities:
Contingent consideration:
Asuragen	$	1,545	$	1,545	$	-	$	-	$	1,545
RedPath		5,969		5,969		-		-		5,969
	$	7,514	$	7,514	$	-	$	-	$	7,514

	As of December 31, 2015				Fair Value Measurements
	Carrying		Fair		As of December 31, 2015
	Amount		Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents:
Cash	$	7,534	$	7,534	$	7,534	$	—	$	—
Money market funds		776		776		776		—		—
	$	8,310	$	8,310	$	8,310	$	—	$	—
Marketable securities:
Money market funds	$	48	$	48	$	48	$	—	$	—
Mutual funds		58		58		58		—		—
U.S. Treasury securities		1,115		1,115		1,115		—		—
Government agency securities		131		131		131		—		—
	$	1,352	$	1,352	$	1,352	$	—	$	—
Liabilities:
Contingent consideration:
Asuragen	$	4,628	$	4,628	$	—	$	—	$	4,628
RedPath		13,921		13,921		—		—		13,921
	$	18,549	$	18,549	$	—	$	—	$	18,549

The fair value of marketable securities is valued using market prices in active markets (level

1).

As of

December

31,

2016

and

2015,

the Company did not have any marketable securities in less active markets (level

or without observable market values that would require a high level of judgment to determine fair value (level

3).

In connection with the acquisition of the Acquired Property from Asuragen and acquisition of RedPath, the Company recorded

$4.5

million and

$22.1

million of contingent cash consideration related to deferred payments and revenue based payments, respectively. The Company determined the fair value of the contingent consideration based on a probability-weighted income approach derived from revenue estimates. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level

measurement. There was an

$11.9

million net reduction in the fair value of the contingent consideration during the period ended

December

31,

2016.

There was an

$8.0

million net reduction in the fair value of the contingent consideration during the period ended

December

31,

2015.

The contingent consideration currently consists of

$0.3

million in current liabilities and

$7.2

million in long-term liabilities. A rollforward of the carrying value of the contingent consideration from continuing operations for the years ended

December

31,

2015

and

2016

is as follows:

	Asuragen			RedPath			Total
Balance as of January 1, 2015	$	4,476		$	22,066		$	26,542
Accretion		-			-			-
Payments		-			-			-
Adjustment to fair value		152			(8,145	)		(7,993	)
Balance as of December 31, 2015		4,628			13,921			18,549
Accretion		325			975			1,300
Payments		(475	)		-			(475	)
Adjustment to fair value		(2,933	)		(8,927	)		(11,860	)
Balance as of December 31, 2016	$	1,545		$	5,969		$	7,514

The Company considers carrying amounts of accounts receivable, accounts payable and accrued expenses to approximate fair value due to the short-term nature of these financial instruments. There is no fair value ascribed to the letters of credit as management does not expect any material losses to result from these instruments because performance is not expected to be required.

Long-term debt with an aggregate principal amount of approximately

$9.34

million has an approximate fair value of

$8.9

million based upon the

March

23,

2017

Exchange Agreement.

Certain of the Company's non-financial assets, such as other intangible assets and goodwill are measured at fair value on a nonrecurring basis when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.

Fair Value Measurements as of

Carrying Amount as of

December 31, 2016

Level 1

Level 2

Level 3

Pancreas

Biobank

Total

			Fair Value Measurements as of
	Carrying Amount as of		December 31, 2015
	December 31, 2015		Level 1		Level 2		Level 3

Pancreas	$	2,625	$	-	$	-	$	2,625
Biobank		1,034		-		-		1,034
Total	$	3,659	$	-	$	-	$	3,659

Fair Value Measurements as of

Carrying Amount as of

December 31, 2015

Level 1

Level 2

Level 3

Goodwill

- Definition

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.

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