rtk-10q_20170331.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the Registrant’s common stock outstanding as of April 30, 2017 was 23,208,456.

	As of
	March 31, 2017			December 31, 2016
	(Unaudited)
ASSETS
Current assets
Cash	$	23,699		$	28,319
Accounts receivable, including unbilled revenue		6,241			12,490
Inventories		26,936			28,131
Prepaid expenses and other current assets		4,028			3,744
Other receivables		3,807			4,495
Total current assets		64,711			77,179
Property, plant and equipment, net		106,617			117,565
Construction in progress		1,024			905
Other assets
Equity investment		52,429			53,335
Goodwill		15,451			28,576
Intangible assets		26,717			31,227
Deposits and other assets		2,039			3,930
Property held for sale		5,471			—
Total other assets		102,107			117,068
Total assets	$	274,459		$	312,717
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	10,731		$	12,389
Accrued payroll and benefits		3,422			4,529
Accrued liabilities		15,120			16,836
Deferred revenue		2,120			1,730
Current portion of long term debt		13,250			11,237
Accrued interest		434			301
Other		1,367			1,628
Liabilities of discontinued operations		—			150
Total current liabilities		46,444			48,800
Long-term liabilities
Debt		102,190			103,733
Earn-out consideration		110			234
Asset retirement obligation		246			245
Deferred income taxes		7,786			7,826
Other		1,601			1,761
Total long-term liabilities		111,933			113,799
Total liabilities		158,377			162,599
Commitments and contingencies (Note 11)
Stockholders' equity
Preferred stock: $10 par value; 1,000 shares authorized; 90 series A convertible preferred shares authorized and issued; no shares outstanding and $0 liquidation preference		—			—
Series C participating cumulative preferred stock: $10 par value; 500 shares authorized; no shares issued and outstanding		—			—
Common stock: $.01 par value; 45,000 shares authorized; 23,208 and 23,200 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively		232			232
Additional paid-in capital		533,811			533,575
Accumulated deficit		(396,974	)		(362,696	)
Accumulated other comprehensive loss		(23,600	)		(23,533	)
Total Rentech stockholders' equity		113,469			147,578
Noncontrolling interests		2,613			2,540
Total equity		116,082			150,118
Total liabilities and stockholders' equity	$	274,459		$	312,717

	For the Three Months Ended March 31,
	2017			2016
	(Unaudited)
Revenues
Product sales	$	16,235		$	23,316
Service revenues		15,986			16,621
Total revenues		32,221			39,937
Cost of sales
Product		19,200			26,503
Service		13,766			13,303
Total cost of sales		32,966			39,806
Gross profit (loss)		(745	)		131
Operating expenses
Selling, general and administrative expense		8,684			9,114
Depreciation and amortization		624			1,008
Asset impairment		7,759			—
Goodwill impairment		13,125			—
Other expense, net		13			13
Total operating expenses		30,205			10,135
Operating loss		(30,950	)		(10,004	)
Other expense, net
Interest expense		(2,397	)		(3,572	)
Other income (expense)		(1,344	)		146
Total other expenses, net		(3,741	)		(3,426	)
Loss from continuing operations before income taxes and equity in loss of investee		(34,691	)		(13,430	)
Income tax benefit		(1,224	)		(2,402	)
Loss from continuing operations before equity in loss of investee		(33,467	)		(11,028	)
Equity in loss of investee		918			—
Loss from continuing operations		(34,385	)		(11,028	)
Income from discontinued operations, net of tax		96			5,574
Net loss		(34,289	)		(5,454	)
Net (income) loss attributable to noncontrolling interests		11			(3,406	)
Preferred stock dividends		—			(1,320	)
Net loss attributable to Rentech common shareholders	$	(34,278	)	$	(10,180	)
Net income (loss) per common share allocated to Rentech common shareholders:
Basic:
Continuing operations	$	(1.48	)	$	(0.54	)
Discontinued operations	$	0.00		$	0.10
Net loss	$	(1.48	)	$	(0.44	)
Diluted:
Continuing operations	$	(1.48	)	$	(0.54	)
Discontinued operations	$	0.00		$	0.10
Net loss	$	(1.48	)	$	(0.44	)
Weighted-average shares used to compute net income (loss) per common share:
Basic		23,202			23,036
Diluted		23,202			23,036

											Accumulated			Total
					Additional						Other			Rentech						Total
	Common Stock				Paid-in			Accumulated			Comprehensive			Stockholders'			Noncontrolling			Stockholders'
	Shares		Amount		Capital			Deficit			Income (Loss)			Equity (Deficit)			Interests			Equity (Deficit)
	(Unaudited)
Balance, December 31, 2015		23,033	$	230	$	543,724		$	(531,971	)	$	(27,204	)	$	(15,221	)	$	(65,199	)	$	(80,420	)
Dividends - preferred stock		—		—		(1,320	)		—			—			(1,320	)		—			(1,320	)
Distributions to noncontrolling interests		—		—		—			—			—			—			(3,345	)		(3,345	)
Equity-based compensation expense		—		—		619			—			—			619			—			619
Restricted stock units		10		—		(15	)		—			—			(15	)		—			(15	)
Net income (loss)		—		—		—			(8,860	)		—			(8,860	)		3,406			(5,454	)
Other comprehensive income		—		—		—			—			7,484			7,484			—			7,484
Other		—		—		16			—			—			16			(10	)		6
Balance, March 31, 2016		23,043	$	230	$	543,024		$	(540,831	)	$	(19,720	)	$	(17,297	)	$	(65,148	)	$	(82,445	)

Balance, December 31, 2016		23,200	$	232	$	533,575		$	(362,696	)	$	(23,533	)	$	147,578		$	2,540		$	150,118
Common stock issued for services		6		—		—			—			—			—			—			—
Equity-based compensation expense		—		—		322			—			—			322			—			322
Restricted stock units		2		—		(1	)		—			—			(1	)		—			(1	)
Net loss		—		—		—			(34,278	)		—			(34,278	)		(11	)		(34,289	)
Other comprehensive loss		—		—		—			—			(67	)		(67	)		—			(67	)
Other		—		—		(85	)		—			—			(85	)		84			(1	)
Balance, March 31, 2017		23,208	$	232	$	533,811		$	(396,974	)	$	(23,600	)	$	113,469		$	2,613		$	116,082

	For the Three Months Ended March 31,
	2017			2016
	(Unaudited)
Cash flows from operating activities
Net loss	$	(34,289	)	$	(5,454	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Income from discontinued operations		(96	)		(5,574	)
Non-cash equity in loss of investee		906			—
Depreciation and amortization		4,010			6,111
Asset impairment		7,759			—
Goodwill impairment		13,125			—
Deferred income tax (benefit) expense		—			230
Utilization of spare parts		133			202
Write-down of inventory		2,429			5,062
Change in deferred taxes		(40	)		—
Non-cash interest expense		191			120
Equity-based compensation		322			469
Other		(422	)		(323	)
Changes in operating assets and liabilities:
Accounts receivable		6,264			(4,145	)
Other receivables		708			(3,803	)
Inventories		(1,702	)		(7,396	)
Prepaid expenses and other current assets		1,617			539
Accounts payable		(1,646	)		858
Deferred revenue		385			501
Accrued interest		133			2
Accrued liabilities, accrued payroll and other		(2,212	)		(2,228	)
Cash used in operating activities of continuing operations		(2,425	)		(14,829	)
Cash provided by operating activities of discontinued operations		—			19,594
Net cash provided by (used in) operating activities		(2,425	)		4,765
Cash flows from investing activities
Capital expenditures		(2,357	)		(5,799	)
Other items		15			2
Cash used in investing activities of continuing operations		(2,342	)		(5,797	)
Cash used in investing activities of discontinued operations		—			(8,184	)
Net cash used in investing activities		(2,342	)		(13,981	)
Cash flows from financing activities
Proceeds from debt and credit facilities		3,872			17,971
Payments and retirement of debt		(3,730	)		(3,826	)
Distributions to noncontrolling interests		—			(3,345	)
Other		(2	)		—
Net cash provided by financing activities		140			10,800
Effect of exchange rate on cash		7			473
Increase (decrease) in cash		(4,620	)		2,057
Cash, beginning of period - continuing operations		28,319			33,119
Cash, beginning of period - discontinued operations		—			15,823
Cash, end of period		23,699			50,999
Cash from discontinued operations, end of period		—			33,772
Cash from continuing operations, end of period	$	23,699		$	17,227

Excluded from the consolidated statements of cash flows were the effects of certain non-cash investing and financing activities as follows:

The accompanying unaudited consolidated financial statements of Rentech, Inc. (“Rentech”) and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Neither authority requires all of the information and footnotes required by GAAP for complete financial statements. Accordingly, the accompanying financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial position as of March 31, 2017, and the results of operations and cash flows for the periods presented. The accompanying consolidated financial statements include the accounts of Rentech, its wholly owned subsidiaries and all subsidiaries in which Rentech directly or indirectly owns a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any other reporting period. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”) on April 7, 2017 (the “Annual Report”).

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

We have a history of operating losses and an accumulated deficit of $397.0 million as of March 31, 2017. We believe we have sufficient liquidity from cash on hand, expected working capital and other expected sources to fund operations and corporate activities through calendar year 2017, but we may have costs associated with idling the wood pellet production facility located in Wawa, Ontario (the “Wawa Facility”), pursuing strategic alternatives and other events that could arise that could increase our liquidity needs in 2017. We may also need additional liquidity to fund corporate activities through the first quarter of 2018. As a result of the above, there exists substantial doubt about our ability to continue as a going concern for one year from the date of the issuance of our financial statements for the three months ended March 31, 2017. Management’s plans to address these concerns are discussed below.

We have implemented plans to address our liquidity needs through a combination of cost reductions and pursuing strategic alternatives. In February 2017, we announced that we have idled the Wawa Facility to conserve liquidity as we explore strategic alternatives for the facility. We also announced our plan to address potential liquidity needs by considering strategic alternatives for the Company as a whole that may include, but are not limited to, a sale of us, a merger or other business combination, a sale of all or a material portion of our assets or a recapitalization. We have retained Wells Fargo Securities, LLC to assist in the strategic alternatives review process.

Over the past 18 months, we have been reorganizing our businesses to lower our cost structure.

We expect our New England Wood Pellet, LLC (“NEWP”) and Fulghum Fibres, Inc. (“Fulghum”) businesses to generate positive cash flow and be self-sufficient from a liquidity perspective in 2017; however, there can be no assurance that either business will perform in line with our expectations. We expect the wood pellet production facility located in Atikokan, Ontario (the “Atikokan Facility”) to generate cash flow in the range of break-even to slightly positive under the revised operating plan to produce 45,000 metric tons of wood pellets per year. We expect that NEWP will need to renew its $6 million revolving credit facility in May of 2017 to address seasonal working capital needs, but there can be no assurance the revolving credit facility will be renewed on acceptable terms. We announced in February of 2017 that a customer of Fulghum has indicated its intent to exercise its option to purchase two wood chipping mills that Fulghum is operating for the customer under a processing agreement. The Company expects the loss of the contract to negatively impact Fulghum’s cash flow in the second half of 2017 and going forward. On May 5, 2017, Fulghum consummated the sale of the two chip mills resulting in net proceeds of between $5.0 million and $5.5 million that will be paid by Fulghum to Rentech in satisfaction of intercompany balances. The Company is required to offer the net proceeds of the sale as prepayment of its debt under the GSO Credit Agreement.

Our subsidiaries can distribute cash to us, although restrictions in our debt agreements may restrict such distributions. Under the GSO Credit Agreement we are required to maintain at least $5 million of cash on hand, including cash available for distribution from our subsidiaries. Under the NEWP credit facility, NEWP must receive the lender’s prior approval before making any cash distributions to Rentech, and the lender may not provide such approval. NEWP is also required to comply with financial performance covenants in its debt agreements. These covenants include maintaining: (i) a minimum debt service coverage ratio of at least 1.4 to 1.0 on a trailing four quarter basis, (ii) a senior debt coverage ratio of less than 3.0 to 1.0 on a trailing four quarter basis and (iii) a fixed charge coverage ratio of at least 1.2 to 1.0 calculated at the end of each calendar year. As of March 31, 2017, NEWP was in compliance with its financial covenants. Fulghum is required to comply with the financial performance covenants in its debt agreements. These covenants include maintaining (i) a minimum cash flow coverage ratio of at least 1.1 to 1.0, measured on a consolidated basis for Fulghum and its domestic subsidiaries and collectively for selected projects and (ii) a minimum tangible net worth of no less than $11.28 million plus 50% of the net income of Fulghum from and after December 31, 2010. As of March 31, 2017, Fulghum was in compliance with its financial covenants. In the event that Fulghum does not comply with these covenants, the debt agreements do not permit it to make cash distributions to Rentech. In the event that NEWP or Fulghum is not permitted to make cash distributions to Rentech, these restrictions would limit Rentech’s ability to access and use cash from its operating subsidiaries to fund its corporate activities and operations. A failure to comply with the debt agreements described above also could constitute an event of default, which would give rise to the right of the applicable lenders to seek remedies against NEWP or Fulghum, as applicable.

There is no assurance that the strategic review process will result in a transaction, that we will achieve the cost savings we expect or that we will not require an additional source of funds. If we require additional capital and are unable to obtain it, there would be a material adverse effect on our business, results of operations, and financial condition.

In July 2015, the FASB issued guidance that replaces the current lower of cost or market method of measurement for inventory with a lower of cost and net realizable value measurement. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this guidance did not have an impact on the Company’s consolidated financial position, results of operations and disclosures.

In March 2016, the FASB issued guidance on how to assess whether contingent call (put) options that accelerate the payment on debt instruments are clearly and closely related to their debt hosts. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The adoption of this guidance did not have an impact on the Company’s consolidated financial position, results of operations and disclosures.

In March 2016, the FASB issued guidance on stock-based compensation, which modifies certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards, and classification on the statements of cash flows. This guidance will require recognizing excess tax benefits and deficiencies (that result from an increase or decrease in the value of an award from grant date to the vesting date or exercise date) on share-based compensation arrangements in the tax provision, instead of in equity as under the current guidance. In addition, these amounts will be classified as an operating activity in the statement of cash flows, instead of as a financing activity. The Company does not have any material unrecorded excess tax benefits. In addition, cash paid for shares withheld to satisfy employee taxes will be classified as a financing activity, instead of as an operating activity. Cash paid for employee taxes was $1,400 and $15,000 for the three months ended March 31, 2017 and 2016, respectively. The Company adopted the new guidance in the first quarter of 2017 as follows:

In January 2017, the FASB issued guidance that eliminates the requirement to determine implied goodwill in measuring an impairment loss, making this guidance preferable to the former guidance, which required a two-step goodwill impairment test. Upon adoption, a goodwill impairment will be measured as the excess of the reporting unit’s carrying value over fair value, limited to the amount of goodwill. This guidance is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. As early adoption of the

guidance is permitted, the Company has elected to implement the guidance in this report. The adoption of this guidance did not have an impact on the Company’s consolidated financial position, results of operations and disclosures.

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB approved a one-year deferral of the effective date making the guidance effective for interim and annual reporting periods beginning after December 15, 2017. In addition, the FASB will continue to permit entities to early adopt the guidance for annual periods beginning on or after December 15, 2016. The Company currently expects to adopt the guidance as of January 1, 2018, under the modified retrospective method where the cumulative effect is recognized at the date of initial application. The Company’s evaluation of the guidance is ongoing and not complete. The FASB has issued and may issue in the future, interpretative guidance, which may cause our evaluation to change. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosures. To date, the Company has not identified any material differences in its existing revenue recognition methods that would require modification under the new guidance.

In February 2016, the FASB issued an update to its guidance on lease accounting. This update revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The distinction between finance and operating leases has not significantly changed and the update does not significantly change the effect of finance and operating leases on the statement of operations. The new guidance is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. The Company is currently assessing the impact of adoption of this standard on our consolidated financial statements.

In August 2016, the FASB issued guidance on eight specific cash flow issues. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosure.

In October 2016, the FASB issued guidance that requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be recognized when the transfer occurs instead of when the asset is sold to an outside party. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The guidance is required to be adopted retrospectively by recording a cumulative-effect adjustment to retained earnings as of the beginning of the adoption period. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosure.

The Company owns approximately 7.2 million common units of CVR Partners, L.P. (“CVR”) (“CVR Common Units”). The 7.2 million CVR Common Units were valued at $60.1 million, based on CVR’s closing price of $8.36 per Common Unit as of March 31, 2016. The 7.2 million CVR Common Units had a market value of $33.4 million, based on CVR’s closing price of $4.65 per Common Unit as of March 31, 2017. The investment in CVR is shown on the consolidated balance sheets under equity investment.

The investment in CVR is accounted for under the equity method of accounting. The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses 3% to 5% or more ownership of a limited partnership. The Company’s ownership in CVR represents approximately 6% of the total CVR Common Units outstanding, which is based on total CVR Common Units outstanding at March 31, 2017 of 113,282,973.

In applying the equity method, the Company recorded the investment at fair value and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses and other comprehensive income of the investee. The Company records dividends or other equity distributions as reductions in the carrying value of the investment. The investment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge would only be recognized in earnings for a decline in value that is determined to be other than temporary. As of March 31, 2017, the carrying value and fair value of the Company’s investment in CVR Common Units were $52.4 million and $33.4 million, respectively. Given this differential, the Company is closely monitoring the performance of CVR to determine whether the investment is other-than-temporarily impaired. The Company considered a variety of factors in its impairment analysis, including the historical volatility in the price of CVR units, the seasonality of the fertilizer industry in which CVR operates and recent public statements made by CVR’s management regarding CVR’s results for the three months ended March 31, 2017 and

their expectations for the upcoming spring fertilizer season. The Company concluded that the decline in value of the CVR Common Units is not other than temporary and no other-than-temporary impairment is required as of March 31, 2017. Over the upcoming quarters, particularly the spring planting season, we will continue to monitor the fair value of the Company’s CVR Common Units as well as all publicly available information on CVR and the fertilizer industry to determine if an other-than-temporary impairment is necessary. For the three months ended March 31, 2017, the Company recorded its proportionate share of loss from its investment in CVR of $0.7 million, which is shown on the consolidated statement of operations under equity in loss of investee. In addition, as of the date of the Company’s investment in CVR, basis differences between the book value of equity on CVR’s balance sheet and the amount recorded on the Company’s books was ascribed to an asset and amortized over its useful life, which resulted in an additional expense of $0.2 million for the three months ended March 31, 2017 .

The Company has classified its consolidated balance sheets and consolidated statements of operations for all periods presented in this report to reflect Rentech Nitrogen Partners, L.P. (“RNP”), excluding certain corporate expenses that the Company expects to continue on an on-going basis, which were previously allocated to RNP, and the Energy Technologies segment as discontinued operations.

On March 14, 2016, RNP completed the sale of Rentech Nitrogen Pasadena Holdings, LLC to Interoceanic Corporation. The estimated loss on sale of $0.8 million was recorded in discontinued operations. On March 18, 2016, the Company completed the sale of the property that housed its product demonstration unit in Colorado. The preliminary loss recorded for the three months ended March 31, 2016 was $0.4 million.

In the consolidated statements of cash flows, the cash flows of discontinued operations are separately classified or aggregated under operating and investing activities.

All discussions and amounts in the consolidated financial statements and related notes for all periods presented relate to continuing operations only, unless otherwise noted.

At December 31, 2016, the only item relating to discontinued operations on the balance sheet was a current liability for the Energy Technologies segment of $0.1 million, which was written off during the three months ended March 31, 2017, and is recorded in income from discontinued operations, net of tax on the consolidated statements of operations.

The following table summarizes the results of discontinued operations for the three months ended March 31, 2016.

	For the Three Months Ended March 31, 2016
	RNP			Energy Technologies			Total
	(in thousands)
Revenues	$	54,347		$	—		$	54,347
Cost of sales		34,696			—			34,696
Gross profit		19,651			—			19,651
Operating income		14,242			163			14,405
Other expenses, net		(5,549	)		(50	)		(5,599	)
Income before income taxes		8,693			113			8,806
Income tax expense		3,191			41			3,232
Net income		5,502			72			5,574
Net income attributable to noncontrolling interests		3,222			—			3,222
Net income attributable to Rentech common shareholders	$	2,280		$	72		$	2,352

Net income attributable to Rentech common shareholders	$	2,280		$	72		$	2,352
Net income attributable to noncontrolling interests		3,222			—			3,222
Income from discontinued operations, net of tax	$	5,502		$	72		$	5,574

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is classified in one of the following three categories:

Fair values of cash, receivables, deposits, other current assets, accounts payable, accrued liabilities and other current liabilities were assumed to approximate carrying value since they are short term and can be settled on demand.

The following table presents the financial instruments that were accounted for at fair value by level as of March 31, 2017 and December 31, 2016.

The following table presents the fair value and carrying value of the Company’s borrowings as of March 31, 2017.

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Emerging growth company	☐

Part I — Financial Information
Item 1.	Financial Statements (unaudited):	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Statements of Stockholders’ Equity (Deficit)	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42

Part II — Other Information
Item 1.	Legal Proceedings	44
Item 6.	Exhibits	44
Signatures		45

	Level 1		Level 2		Level 3
	(in thousands)
Liabilities
Earn-out consideration - March 31, 2017	$	—	$	—	$	110
Earn-out consideration - December 31, 2016		—		—		234