Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.8.0.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements

5. FAIR VALUE MEASUREMENTS

 

Cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their relative short-term nature. The Company’s financial liabilities reflected at fair value in the condensed consolidated financial statements include contingent consideration and warrant liability. 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 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
     
  Level 2: 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 3: Valuations incorporate certain assumptions and projections 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 March 31, 2018     Fair Value Measurements  
    Carrying     Fair     As of March 31, 2018  
    Amount     Value     Level 1     Level 2     Level 3  
    (unaudited)  
Liabilities:                                        
Contingent consideration:                                        
Asuragen (1)   $ 1,504     $ 1,504     $ -     $ -     $ 1,504  
Other long-term liabilities:                                        
Warrant liability (2)   $ 402     $ 402     $ -     $ -     $ 402  
    $ 1,906     $ 1,906     $ -     $ -     $ 1,906  

 

    As of December 31, 2017     Fair Value Measurements  
    Carrying     Fair     As of December 31, 2017  
    Amount     Value     Level 1     Level 2     Level 3  
Liabilities:                                        
Contingent consideration:                                        
Asuragen (1)   $ 1,581     $ 1,581     $ -     $ -     $ 1,581  
Other long-term liabilities:                                        
Warrant liability (2)     473       473       -       -       473  
    $ 2,054     $ 2,054     $ -     $ -     $ 2,054  

 

(1)(2) See Note 7, Accrued Expenses and Long-Term Liabilities.

 

In connection with the acquisition of certain assets from Asuragen the Company recorded contingent consideration related to contingent payments and other revenue-based payments. 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 3 measurement.

 

On June 21, 2017, the Company closed on a public offering issuing both Pre-Funded Warrants and Underwriters Warrants to purchase 2,600,000 shares and 575,000 shares of the Company’s common stock, respectively. Both the Pre-Funded and Underwriters Warrants include a cash settlement feature in the event of certain circumstances. Accordingly, both the Pre-Funded and Underwriters Warrants are classified as liabilities and were fair valued using the Black Scholes Option-Pricing Model, the inputs for which include exercise price of the respective warrants, market price of the underlying common shares, expected term, volatility based on the Company’s historical market price, and the risk-free rate corresponding to the expected term of the Exchange Agreement. Changes to the fair value of the warrant liabilities were recorded in Other income (expense), net. The Pre-Funded Warrants were fully exercised in 2017 and therefore the Company has no remaining liability associated with those warrants.

 

A roll forward of the carrying value of the Contingent Consideration Liability and the Underwriters’ Warrant from January 1, 2018 to March 31, 2018 is as follows:

 

    2018  
    January 1,     Payments     Accretion    

Cancellation

of Obligation/

Conversions

   

Mark to

Market

    March 31,  
    (unaudited)  
                                     
Asuragen   $ 1,581     $ (77 )   $ -     $ -     $ -     $ 1,504  
                                                 
Underwriters Warrant     473       -               -       (71 )     402  
    $ 2,054     $ (77 )   $ -     $ -     $ (71 )   $ 1,906  

 

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.