Investments at Fair Value
|9 Months Ended|
Sep. 30, 2015
|Fair Value Disclosures [Abstract]|
|Investments at Fair Value||
11. Investments at Fair Value
From time to time, the Company invests in marketable securities, which are classified as trading securities and are stated at fair value as determined by quoted market prices. As of both September 30, 2015 and December 31, 2014, the Company held approximately $40.0 million and $20.0 million in marketable securities, which consisted of a U.S. treasury bill and mutual funds.
The fair value of the Company’s investment of $250,000 in a third-party company developing a laser device to treat migraine headaches, as of September 30, 2015 and December 31, 2014 was $0.2 million. During the nine months ended September 30, 2015, the Company evaluated operating results and other qualitative and quantitative factors pertaining to this investment to arrive at this determination.
As of September 30, 2015, the Company valued its investment in CB Pharma, a publicly traded company, utilizing the following assumptions: volatility of 25.4%, no dividend rate, yielding an underlying value of $8.99 per ordinary share for the insider shares, and $9.49 per ordinary share for the private placement shares. The rights and warrants were valued utilizing a binomial-lattice model which assumes a volatility of 25.4%, a risk free rate of return of 1.37% and a strike price of $11.50 per share arriving at a value of $0.95 for each right and $0.84 for a warrant. A 31.69% probability of a successful business combination was applied to the values above arriving at an estimated value of $2.84 for the insider shares, $3.00 for the private placement shares, $0.27 for each warrant and $0.30 for each right. Based upon the valuation, the Company recorded a decrease in fair-value of investment of $1.4 million. At September 30, 2015 the fair value of the Company’s investment in CB Pharma was, $3.8 million. Additionally, as of August 31, 2015, CB Pharma had net assets of approximately $42.6 million. Operations since inception have been insignificant. The Company has a working capital commitment of up to $0.5 million to fund CB Pharma operations, of which $0.1 million has been paid, with an additional $50,000 paid in October 2015. As of September 30, 2015, the fair value of this commitment was insignificant.
Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.
The following tables classify into the fair value hierarchy financial instruments measured at fair value on a recurring basis in the accompanying condensed consolidated balance sheets as of September 30, 2015 (unaudited) and December 31, 2014:
The fair value of marketable securities are determined using quoted market prices from daily exchange-traded markets based on the closing price as of the balance sheet date.
The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments, as of September 30, 2015:
For the three and nine months ended September 30, 2015, no transfers occurred between Level 1, Level 2 and Level 3 instruments.
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef