Fair Value Measurements

9 Months Ended

Dec. 31, 2018

17.	Fair Value Measurements

The following summarizes the Company’s financial assets and liabilities measured at fair value, by level within the fair value hierarchy:

	December 31, 2018								March 31, 2018
			Fair Value Measurements Using Inputs Considered as								Fair Value Measurements Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets
Short-term investments
Mutual funds	$	2,868,000	$	2,868,000		-		-	$	2,828,000	$	2,828,000		-		-
Prepaid expenses and other current assets
Forward foreign currency exchange contracts		-		-		-		-		1,179,000		-	$	1,179,000		-

Liabilities
Accrued liabilities
Short-term contingent consideration		1,830,000		-		-	$	1,830,000		-		-		-		-
Other current liabilities
Deferred compensation		2,868,000		2,868,000		-		-		2,828,000		2,828,000		-		-
Forward foreign currency exchange contracts		449,000		-	$	449,000		-		-		-		-		-
Other liabilities
Long-term contingent consideration		1,730,000		-		-		1,730,000		-		-		-		-

Short-term Investments and Deferred Compensation

The Company’s short-term investments, which fund its deferred compensation liabilities, consist of investments in mutual funds. These investments are classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

Forward Foreign Currency Exchange Contracts

The forward foreign currency exchange contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. During the three months ended December 31, 2018 and 2017, losses of $860,000 and $1,784,000, respectively, were recorded in general and administrative expenses due to the change in the value of the forward foreign currency exchange contracts. During the nine months ended December 31, 2018 and 2017, losses of $1,628,000 and $1,062,000, respectively, were recorded in general and administrative expenses due to the change in the value of the forward foreign currency exchange contracts.

Contingent Consideration

The preliminary estimate of the fair value of the contingent consideration associated with the E&M acquisition discussed in Note 5 was $3,560,000. The contingent consideration was recorded in accrued expenses and other liabilities in the Company’s consolidated balance sheet at December 31, 2018, and was a Level 3 liability that was measured at fair value.

Research and Development (“R&D”) Event Milestone

The preliminary fair value of the two-year R&D event milestone based on technology development and transfer was $2,080,000 as of the acquisition date determined using a probability weighted method with the following assumptions commensurate with the term of the contingent consideration: (i) counter party risk discount rate ranging from 8.62% to 8.63%, and (ii) total probability of 90% to 100%. Any subsequent changes from the initial recognition of the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

Gross Profit Earn-out Consideration

The preliminary fair value of the three-year gross profit earn-out consideration was $1,480,000 as of the acquisition date determined using a Monte Carlo Simulation Model.

The assumptions used to determine the fair value of the contingent consideration were:

	December 31, 2018
Risk free interest rate		2.61	%
Counter party rate		8.61	%
Expected volatility		30.00	%
Weighted average cost of capital		17.00	%

Any subsequent changes from the initial recognition of the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:

	Three Months Ended December 31,				Nine Months Ended December 31,
	2018		2017		2018		2017
	Contingent Consideration		Contingent Consideration		Contingent Consideration		Contingent Consideration
Beginning balance	$	-	$	-	$	-	$	-
Newly issued		3,560,000		-		3,560,000		-
Total (gain) loss included in net income (loss)		-		-		-		-
Exercises/settlements		-		-		-		-
Net transfers in (out) of Level 3		-		-		-		-
Ending balance	$	3,560,000	$	-	$	3,560,000	$	-

During the nine months ended December 31, 2018, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments. The carrying amounts of the revolving loan, term loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and current rates for instruments with similar characteristics.

- Definition

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.

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