Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v3.19.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

3. Fair Value of Financial Instruments


The carrying amount of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and other payables approximate fair value due to their short maturities.


As a basis for determining the fair value of certain of the Company’s financial instruments, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


Level I – Observable inputs such as quoted prices in active markets for identical assets or liabilities.


Level II – Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices 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 the assets or liabilities.


Level III – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.


This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The Company's cash equivalents are classified within Level I of the fair value hierarchy.


As of March 31, 2019 and December 31, 2018, the fair values of cash, accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities. The Company’s short-term investments consist of Level I securities which are comprised of highly liquid money market funds. The estimated fair value of the short-term investments was based on quoted market prices. There were no transfers between fair value hierarchy levels during the quarters ended March 31, 2019 or 2018.


The fair value of financial instruments measured on a recurring basis is as follows:


 

 

As of March 31, 2019

 

Description

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

5,611,538

 

 

$

5,611,538

 

 

 

—

 

 

 

—

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

3,219,515

 

 

 

—

 

 

 

—

 

 

$

3,219,515

 


 

 

As of December 31, 2018

 

Description

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

5,570,027

 

 

$

5,750,027

 

 

 

—

 

 

 

—

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

3,105,225

 

 

 

—

 

 

 

—

 

 

$

3,105,225

 


The following table summarizes the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the year ended March 31, 2019:


 

 

Contingent Consideration

 

Balance at December 31, 2018

 

$

3,105,225

 

Change in fair value

 

 

114,290

 

Balance at March 31, 2019

 

$

3,219,515

 


The change in the fair value of the contingent consideration for the quarters ended March 31, 2019 and 2018 was primarily due to the effect of the change in discount rate, probability of achieving milestones, and passage of time on the fair value measurement. Adjustments associated with the change in fair value of contingent consideration are included in the Company’s consolidated statement of operations and comprehensive loss.


The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements of contingent consideration classified as Level 3 as of March 31, 2019:


 

 

Valuation
Methodology

 

Significant
Unobservable Input

 

Weighted Average
(range, if applicable)

 

 

 

 

 

 

 

Contingent Consideration

 

Probability weighted
income approach

 

Milestone dates

 

2019-2026

 

 

 

 

Discount rate

 

5.96%

 

 

 

 

Probability of occurrence

 

23% to 86%