Quarterly report pursuant to Section 13 or 15(d)

Investments at Fair Value

v2.4.0.8
Investments at Fair Value
 9 Months Ended
Sep. 30, 2014
Fair Value Disclosures [Abstract]  
Fair Value Measurement
8. Investments at Fair Value
 
On March 17, 2014, the Company invested $250,000 for a 35% ownership position in a third-party company developing a laser device to treat migraine headaches. The Company elected the fair value option for recording this investment. In conjunction with this investment, the Company entered into a Purchase Agreement with the third-party company, in which the Company received 13,409,962 Class A Preferred Units, representing 83% of a total 16,091,954 Class A Preferred Units. Concurrently with the Purchase Agreement, the third-party entered into a Revenue Sharing Agreement (“Revenue Agreement”) with the Company. Under the terms of this Revenue Agreement, the Company will be paid an amount equal to 5% of all the third party’s Intellectual Property Revenue, which includes fees, royalties, sub-licensing, licensing, grant of rights, milestone payments or any payment for any Intellectual Property (“Revenue Share Amount”). This Revenue Share Amount is payable to the Company.
 
On April 18, 2014, the Company paid $243,000 for the Option to purchase the exclusive rights to a pharmaceutical product from a third-party and paid an additional $50,000 in August 2014 to extend the term of the Option for a total purchase price of $293,000. On September 30, 2014, the Company recognized a loss of $293,000 in connection with the expiration of the Option in the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014.
 
The following table classifies into the fair value hierarchy, financial instruments measured at fair value on a recurring basis in the accompanying Unaudited Condensed Consolidated Balance Sheets as of September 30, 2014; at December 31, 2013, the Company had no investments at fair value:
 
 
 
Fair Value Measurement as of September 30, 2014
 
($ in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-Term Investment, at fair value
 
 
—
 
 
—
 
$
250
 
$
250
 
  
The table below provides a rollforward of the changes in fair value of Level 3 financial instruments for the three-months ended September 30, 2014:
 
 
 
Fair Value of Investment
 
($ in thousands)
 
Short-term
 
Long-term
 
Balance at June 30, 2014
 
$
243
 
$
250
 
Purchases
 
 
50
 
 
—
 
Change in fair value of investment
 
 
(293)
 
 
—
 
Balance at September 30, 2014
 
$
—
 
$
250
 
 
The table below provides a rollforward of the changes in fair value of Level 3 financial instruments for the nine-months ended September 30, 2014:
 
 
 
Fair Value of Investment
 
($ in thousands)
 
Short-term
 
Long-term
 
Balance at December 31, 2013
 
$
—
 
$
—
 
Purchases
 
 
293
 
 
250
 
Change in fair value of investment
 
 
(293)
 
 
—
 
Balance at September 30, 2014
 
$
—
 
$
250
 
 
The value of the Company’s investment in the third party developing a laser treatment for migraine headaches and the Option were determined based on a valuation which takes into consideration, when applicable, cash received, cost of the investment, market participant inputs, estimated cash flows based on entity specific criteria, purchase multiples paid in other comparable third-party transactions, market conditions, liquidity, operating results and other qualitative and quantitative factors. The values at which the Company’s investments are carried on its books are adjusted to estimated fair value at the end of each quarter taking into account general economic and stock market conditions and those characteristics specific to the underlying investments. Based upon these inputs at September 30, 2014, the fair values approximated cost.