Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.19.3
Fair Value Measurements
9 Months Ended
Sep. 30, 2019
Fair Value Measurements  
Fair Value Measurements

Note 10 – Fair Value Measurements

The Company measures the fair value of financial assets and liabilities in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

·

Level 1 — inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date;

·

Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities 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 assets or liabilities; and

·

Level 3 — unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company believes that the carrying amounts of its financial instruments, including cash and cash equivalents, trade accounts receivable and accounts payable consist primarily of instruments without extended maturities, which approximate fair value primarily due to their short-term maturities and low risk of counterparty default. We also believe that the face value of the 2019 Refinancing Term Loan approximates its fair value due to the variable rate on such debt. As of September 30, 2019, the Company determined the fair value of its 2019 Refinancing Term Loan at $40.0 million. The fair value was determined using discounted estimated future cash flows using level 3 inputs.

To determine the fair value of the warrants issued in connection with the Business Combination, the Company utilized the Black-Scholes-Merton option pricing model.

The fair value of the Company’s warrant liabilities recorded in the Company’s financial statements (refer to Note 7) is determined using the Black-Scholes-Merton option pricing model and the quoted price of the Company’s common stock in an active market, volatility and expected life, is a Level 3 measurement. Volatility is based on the actual market activity of the Company’s stock. The expected life is based on the remaining contractual term of the warrants and the risk-free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ expected life.

The table below sets forth the assumptions used within the Black-Scholes-Merton option pricing model to value the Company’s warrant liabilities during the three and nine months ended September 30, 2019:

 

 

 

 

Stock price

    

$4.93 - $8.13

Exercise price

 

$
7.63

Time until expiration (years)

 

4.5 - 5.0

Expected volatility

 

54% - 65%

Risk-free interest rate

 

1.5% - 2.4%

Expected dividend yield

 

0.0%

 

The fair value of the Company’s embedded derivative liability recorded in the Company’s financial statements is determined using a probability-weighted discounted cash flow approach utilizing inputs including the imposed 2019 Refinancing Agreement Lender material weakness fee of 1.00% of the Total Term Loan Commitment as in effect on the Effective Date as well as the applicable margin increase of 1.00 % per annum as outlined in Note 7.

Level 3 rollforward table:

 

 

 

 

 

 

 

 

 

    

 

 

    

Embedded

 

 

CB Warrants 

 

Derivative

(in thousands)

 

Liability

 

Liability

Fair value, December 31, 2018

 

$

 —

 

$

 —

Issuances

 

 

 —

 

 

 —

Transfers

 

 

 —

 

 

 —

Change in fair value

 

 

 —

 

 

 —

Fair value,March 31, 2019

 

 

 —

 

 

 —

Issuances

 

 

969

 

 

388

Transfers

 

 

 —

 

 

 —

Change in fair value

 

 

103

 

 

 —

Fair value, June 30, 2019

 

$

1,072

 

$

388

Issuances

 

 

 —

 

 

 —

Transfers

 

 

 —

 

 

 —

Change in fair value

 

 

(525)

 

 

 —

Fair value, September 30, 2019

 

$

547

 

$

388