Fair Value Measurements

9 Months Ended

Jul. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

11. FAIR VALUE MEASUREMENTS

In accordance with ASC 820, Fair Value Measurements, financial instruments were measured at fair value using a three-level hierarchy which maximizes use of observable inputs and minimizes use of unobservable inputs:

● Level 1: Observable inputs such as quoted prices in active markets for identical instruments

● Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the market

● Level 3: Significant unobservable inputs supported by little or no market activity. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, for which determination of fair value requires significant judgment or estimation.

In connection with the offering of Units in September 2017, the Company issued warrants to purchase an aggregate of 322,727 shares of common stock. These warrants were exercisable at $30.00 per share and expire in two years. The warrants were liabilities pursuant to ASC 815. The warrant agreement provided for an adjustment to the number of common shares issuable under the warrant and/or adjustment to the exercise price, including but not limited to, if: (a) the Company issues shares of common stock as a dividend or distribution to holders of its common stock; (b) the Company subdivides or combines its common stock (i.e., stock split); (c) adjustment of exercise price upon issuance of new securities at less than the exercise price. Under ASC 815, warrants that provide for down-round exercise price protection are recognized as derivative liabilities.

The Series F Preferred Shares contained an embedded conversion feature that was not clearly and closely related to the identified host instrument and, as such, was recognized as a derivative liability measured at fair value. The Company classified these derivatives on the consolidated balance sheet as a current liability.

As noted in Note 10. above, both the warrants and the Series F Preferred Shares were exchanged for common stock on March 6, 2018.

The fair value of the bifurcated embedded conversion feature was estimated to be approximately $7.2 million and $9.2 million, respectively, at March 5, 2018 and October 31, 2017 as calculated using a Monte Carlo simulation with the following assumptions:

	Series F Conversion Feature
		March 5, 2018			October 31, 2017
Stock price	$	20.05		$	25.87
Exercise price	$	27.50		$	27.50
Risk-free rate		2.158	%		1.581	%
Volatility		88.2	%		96.0	%
Term		1.54			1.89

The fair value of the warrant liability was estimated to be approximately $2.5 million and $4.3 million, respectively, at March 5, 2018 and October 31, 2017 as calculated using the Monte Carlo simulation with the following assumptions:

		Warrant Liability
		March 5, 2018			October 31, 2017
Stock price	$	20.05		$	25.87
Exercise price	$	30.00		$	30.00
Risk-free rate		2.158	%		1.581	%
Volatility		88.2	%		96.0	%
Term		1.54			1.89

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The fair value hierarchy of financial instruments, measured at fair value on a recurring basis on the consolidated balance sheets as of July 31, 2018 is as follows (in thousands):

	Fair Value Measurement as of July 31, 2018
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	-	$	-	$	268	$	268
Total	$	-	$	-	$	268	$	268

The fair value hierarchy of financial instruments, measured at fair value on a recurring basis on the consolidated balance sheets as of October 31, 2017 is as follows (in thousands):

	Fair Value Measurement as of October 31, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Warrant liability	$	-	$	-	$	4,256	$	4,256
Derivative liability		-		-		9,246		9,246
Total	$	-	$	-	$	13,502	$	13,502

The following table sets forth the changes in the estimated fair value for our Level 3 classified contingent consideration (in thousands):

	Contingent Consideration
Fair value – October 31, 2017	$	-
IBEX acquisition – May 3, 2018	$	278
Change in fair value		20
Earned and moved to accounts payable		(30	)
Fair value - July 31, 2018	$	268

The following table sets forth the changes in the estimated fair value for our Level 3 classified derivative liabilities (in thousands):

	2017 Series F Preferred Stock - Warrant Liability			2017 Series F Preferred Stock - Embedded Derivative			Total Warrant and Derivative Liability
Fair value - October 31, 2017	$	4,256		$	9,246		$	13,502
Change in fair value		(1,731	)		(2,083	)		(3,814	)
Exchange / conversion to common shares		(2,525	)		(7,163	)		(9,688	)
Fair value - July 31, 2018	$	-		$	-		$	-

The carrying value of the long-term promissory note approximates fair value, due to the imputation of interest on the note to an estimated market rate of interest. The carrying amounts of accounts payable, accrued expenses, and accounts receivable approximate fair value as these accounts are largely current and short term in nature.