Note 4 - Fair Value Measurements

12 Months Ended

Dec. 31, 2017

(

)

FAIR VALUE MEASUREMENTS

ASC Topic

820

(Fair Value Measurement) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC

820

identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC

820

establishes a

three

-tier fair value hierarchy that distinguishes among the following:

	Level 1	Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.

	Level 2	Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

	Level 3	Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The contingent consideration liability on our balance sheet is measured at fair value on a recurring basis using Level

inputs. Our contingent consideration liability is a result of our acquisition of Ambrell on

May 24, 2017,

and it represents the estimated fair value of the additional cash consideration payable that is contingent upon the achievement of certain financial results by Ambrell in

2018,

as discussed more fully in Note

We use an option based income approach using a Monte Carlo simulation model to estimate the fair value of the contingent consideration as of the end of each quarter which involves generating various scenarios for projected adjusted EBITDA over a specified time period, calculating the associated contingent consideration payments and discounting the average payments to present value. Significant variation in the amount of the estimated fair value of contingent consideration from period to period is possible as the fair value is affected by our then current estimation of future events including future net revenues and other items that affect future projected adjusted EBITDA.

During the

second

half of

2017,

we recorded a

$6,976

increase in the fair value of our contingent consideration liability. These increases primarily reflect higher actual adjusted EBITDA for the year ended

December 31, 2017

as a result of significantly higher than expected levels of net revenues and EBITDA in the

fourth

quarter of

2017

and an increase in the projected adjusted EBITDA for the year ended

December 31, 2018,

also as a result of current forecasts for net revenues and EBITDA in

2018

which exceed the amounts projected as of the acquisition date.

The following fair value hierarchy table presents information about liabilities measured at fair value on a recurring basis:

	Amounts at		Fair Value Measurement Using
	Fair Value		Level 1		Level 2		Level 3
As of December 31, 2017
Contingent consideration liability	$	5,744	$	-	$	-	$	5,744

Changes in the fair value of our Level

contingent consideration liability for the year ended

December

31,

2017

were as follows:

	Year Ended December 31, 2017
Balance at beginning of period	$	-
Contingent consideration liability established in connection with the acquisition of Ambrell		4,123
Fair value adjustment		6,976
Transfer of contingent consideration liability to 2017 earnout payable		(5,355	)

Balance at end of period	$	5,744

- 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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