FAIR VALUE ACCOUNTING

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE ACCOUNTING

The Company accounts for fair value measurements in accordance with ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. 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 unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Fair Value at June 30, 2019
($ in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Pension assets	$	1,721	$	—	$	—	$	1,721
Totals	$	1,721	$	—	$	—	$	1,721
Liabilities:
Derivative liabilities	$	1,008	$	—	$	—	$	1,008
Totals	$	1,008	$	—	$	—	$	1,008

	Fair Value at December 31, 2018
($ in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Pension assets	$	1,733	$	—	$	—	$	1,733
Totals	$	1,733	$	—	$	—	$	1,733
Liabilities:
Derivative liabilities	$	1,065	$	—	$	—	$	1,065
Totals	$	1,065	$	—	$	—	$	1,065

The Company’s German pension plan is funded by insurance contract policies whereby the insurance company guarantees a fixed minimum return. The Company has determined that the pension assets are more appropriately classified within Level 3 of the fair value hierarchy because they are valued using actuarial valuation methodologies which approximate cash surrender value that cannot be corroborated with observable market data. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The investment manager is responsible for the investment strategy of the insurance premiums that Company submits and does not hold individual assets per participating employer. The German Federal Financial Supervisory oversees and supervises the insurance contracts.

The Series C Preferred host instrument (issued in September 2018) had embedded features contained in the host instrument that qualified for derivative liability treatment.  The recorded fair market value of these features at June 30, 2019 and December 31, 2018 was approximately $1,008,000 and $1,065,000, respectively which is reflected as a current liability in the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018. The fair value of the Company’s derivative liabilities is classified within Level 3 of the fair value hierarchy because they are valued using pricing models that incorporate management assumptions that cannot be corroborated with observable market data.  The Company uses the lattice framework, Monte-Carlo simulations and other fair value methodologies in the determination of the fair value of derivative liabilities.  

Some of the aforementioned fair value methodologies are affected by the Company’s stock price as well as assumptions regarding the expected stock price volatility over the term of the derivative liabilities in addition to the probability of future events.

The Company monitors the activity within each level and any changes with the underlying valuation techniques or inputs utilized to recognize if any transfers between levels are necessary.  That determination is made, in part, by working with outside valuation experts for Level 3 instruments and monitoring market related data and other valuation inputs for Level 1 and Level 2 instruments.

A reconciliation of the Company’s pension assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the three months ended June 30, 2019:

($ in thousands)	Pension   Assets
Balance at March 31, 2019	$	1,699
Return on plan assets		15
Company contributions and benefits paid, net		(19	)
Effect of rate changes		26
Balance at June 30, 2019	$	1,721

A reconciliation of the Company’s pension assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the six months ended June 30, 2019:

($ in thousands)	Pension   Assets
Balance at December 31, 2018	$	1,733
Return on plan assets		30
Company contributions and benefits paid, net		(30	)
Effect of rate changes		(12	)
Balance at June 30, 2019	$	1,721

A reconciliation of the Company’s pension assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the three months ended June 30, 2018:

($ in thousands)	Pension   Assets
Balance at March 31, 2018	$	1,852
Return on plan assets		21
Company contributions and benefits paid, net		(3	)
Effect of rate changes		(116	)
Balance at June 30, 2018	$	1,754

A reconciliation of the Company’s pension assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the six months ended June 30, 2018:

($ in thousands)	Pension   Assets
Balance at December 31, 2017	$	1,806
Return on plan assets		32
Company contributions and benefits paid, net		(24	)
Effect of rate changes		(60	)
Balance at June 30, 2018	$	1,754

A reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the three months ended June 30, 2019:

($ in thousands)	Derivative  Liabilities
Balance at March 31, 2019	$	1,489
Change in fair value included in earnings		(481	)
Balance at June 30, 2019	$	1,008

A reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the six months ended June 30, 2019:

($ in thousands)	Derivative  Liabilities
Balance at December 31, 2018	$	1,065
Change in fair value included in earnings		(57	)
Balance at June 30, 2019	$	1,008

There were no derivative liabilities at either December 31, 2017 or at any time during the six months ended June 30, 2018. The Company is not a party to any hedge arrangements, commodity swap agreement or any other derivative financial instruments.