Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.6.0.2
Fair Value Measurements
12 Months Ended
Dec. 31, 2016
Fair Value Measurements [Abstract]  
FAIR VALUE MEASUREMENTS
9. FAIR VALUE MEASUREMENTS

 

Certain assets and liabilities of the Company are required to be recorded at fair value either on a recurring or non-recurring basis. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction based on market participants. The following section describes the valuation methodologies that the Company used to measure, for disclosure purposes, its financial instruments at fair value.

 

Debt

 

The fair value of the Company’s debt, which approximated the carrying value of the Company's debt, as of December 31, 2016 and December 31, 2015 was estimated at $43,729 and $58,613, respectively. Factors that the Company considered when estimating the fair value of its debt included market conditions, liquidity levels in the private placement market, variability in pricing from multiple lenders and term of debt. The level of the debt would be considered as Level 2. 

 

Contingent Consideration

 

The fair value of the Company’s contingent consideration is classified as Level 3 and is based on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity. The Company utilizes a third-party valuation firm to assist in the calculation of the contingent consideration at the acquisition date. The Company evaluates the forecast of the acquired entity and the probability of earn-out provisions being achieved when it evaluates the contingent consideration at initial acquisition date and at each subsequent reporting period. The fair value of contingent consideration is measured at each reporting period and adjusted as necessary. The Company evaluates the terms in contingent consideration arrangements provided to former owners of acquired companies who become employees of the Company to determine if such amounts are part of the purchase price of the acquired entity or compensation.

 

Additional Disclosures Regarding Fair Value Measurements

 

The carrying value of cash, accounts receivable and accounts payable approximate their fair value due to the short-term maturity of those items.

 

Fair Value of Derivatives

 

The Company has historically utilized a Black-Scholes option pricing model to determine the fair value of the derivative liability related to the warrants and the put and effective price of future equity offerings of equity-linked financial instruments. During the quarter ended September 30, 2015, the Company determined that it would utilize a binomial lattice pricing model to determine the fair value of the derivative liability related to the warrants and the put and effective price of future equity offerings of equity-linked financial instruments. The Company has evaluated its derivative instruments and determined that the value of those derivative instruments, using a binomial lattice pricing model instead of a Black-Scholes pricing model, would be immaterial on its historical consolidated statements of operations for the years ended December 31, 2016 and 2015. 

 

Derivative Warrant Liabilities and Convertible Features

 

The fair value of the derivative liabilities is classified as Level 3 within the Company’s fair value hierarchy. Please refer to Footnote 12, Derivative Instruments, for a further discussion of the measurement of fair value of the derivatives and their underlying assumptions.

 

The fair value of the Company’s financial instruments carried at fair value at December 31, 2016 and 2015 were as follows:

 

    Fair Value Measurements at Reporting Date Using  
    Quoted Prices in Active Markets for Identical Assets
(Level 1)
    Significant Other Observable Inputs
(Level 2)
    Significant Unobservable Inputs
(Level 3)
 
    December 31, 2016  
Liabilities:                  
Current derivative features related to convertible debentures   $ -     $ -     $ 1,749  
Contingent consideration     -       -       515  
Long-term derivative features related to convertible debentures     -       -       1,316  
                         
Total liabilities at fair value   $           -     $          -     $ 3,580  
                         
    December 31, 2015  
Liabilities:                  
Current derivative features related to convertible debentures   $      -     $ -     $ 408  
Long-term warrant derivatives     -       -       22  
Long-term derivative features related to convertible debentures     -       -       17,108  
                         
Total liabilities at fair value   $ -     $ -     $ 17,538  

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial instruments for the years ended December 31, 2016 and 2015.

 

    Amount  
Balance as of January 1, 2015   $ 5,957  
         
Change in fair value of warrant derivative     (348 )
Change in fair value of derivative features related to convertible debentures     9,748  
Settlement of contingent consideration     (1,307 )
Change in fair value of contingent consideration     (2,243 )
Fair value of conversion feature on date of issuance     4,727  
Fair value of net settlement of accounts payable     721  
Reclassification of options to equity     (536 )
Reclassification of derivative warrants to equity     (546 )
Adjustment of derivative liability pursuant to exchange agreement     23  
Fair value of lender default premium derivative on date of issuance     724  
Adjustment of net settlement of accounts payable derivative due to cancellation of shares and warrants     80  
Payment of accounts payable related to net settlement of accounts payable derivative liability     (225 )
Fair value of net settlement of accounts payable     (594 )
Adjustment of derivative liability upon extinguishment of debt     109  
Fair value of derivative features related to Promissory Note tranche 1     164  
Fair value of derivative features related to Promissory Note tranche 2     205  
Fair value of derivative features related to Promissory Note tranche 3     109  
Fair value of derivative features related to Promissory Note     148  
Fair value of option to pay in stock     622  
         
Balance December 31, 2015     17,538  
         
Change in fair value of derivative features related to convertible debentures     (19,660 )
Change in fair value of warrant derivative     130  
Fair value of contingent consideration     515  
Fair value of derivative features related to JGB (Cayman) Concord Ltd. Term loan     1,350  
Adjustment of derivative liability upon extinguishment of debt     4,778  
Fair value of make whole provision     280  
Adjustment of derivative liability upon conversion of debt     (41 )
Adjustment of derivative liability upon modification of debt     (1,552 )
Fair value of derivative features related to Dominion term loan     242  
         
Balance December 31, 2016   $ 3,580  

 

Treasury Stock

 

The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of stockholders’ deficit.