14. Fair Value Measurements

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

	December 31, 2019								March 31, 2019
			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	$	2,382,000	$	2,382,000		-		-	$	3,273,000	$	3,273,000		-		-
Prepaid expenses and other current assets
Forward foreign currency exchange contracts		1,223,000		-	$	1,223,000		-		207,000		-	$	207,000		-

Liabilities
Accrued liabilities
Short-term contingent consideration		4,659,000		-		-	$	4,659,000		2,816,000		-		-	$	2,816,000
Other current liabilities
Deferred compensation		2,382,000		2,382,000		-		-		3,273,000		3,273,000		-		-
Other liabilities
Long-term contingent consideration		502,000		-		-		502,000		1,905,000		-		-		1,905,000

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 (See Note 13).

Contingent Consideration

In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC (“E&M”). In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $5,200,000 over the next three years.

In January 2019, the Company completed the acquisition of all the equity interests of Dixie. In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of Dixie up to $1,130,000 over the next two years.

The Company’s contingent consideration is recorded in accrued expenses and other liabilities in its condensed consolidated balance sheets at December 31, 2019 and March 31, 2019, and is a Level 3 liability measured at fair value.

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

The fair value of the two-year R&D event milestone based on technology development and transfer was $2,430,000 at December 31, 2019 determined using a probability weighted method with the following assumptions commensurate with the term of the contingent consideration: Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

The assumptions used to determine the fair value is as follows:

	December 31, 2019
Risk free interest rate		1.59	%
Counter party rate		5.59	%
Probability		100.00	%

E&M Gross Profit Earn-out Consideration

The fair value of the three-year gross profit earn-out consideration was $1,980,000 at December 31, 2019 determined using a Monte Carlo Simulation Model. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

The assumptions used to determine the fair value is as follows:

	December 31, 2019
Risk free interest rate		1.58	%
Counter party rate		5.58	%
Expected volatility		30.00	%
Weighted average cost of capital		15.75	%

Dixie Revenue Earn-out Consideration

The fair value of the two-year revenue earn-out consideration was $751,000 at December 31, 2019 determined using a Monte Carlo Simulation Model.

The assumptions used to determine the fair value is as follows:

	Dixie Revenue Earnout December 31, 2019
Risk free interest rate		1.59	%
Counter party rate		4.00	%
Revenue volatility		9.50	%
Revenue discount rate		5.50	%
Weighted average cost of capital		14.20	%

Any subsequent changes in 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,
	2019		2018		2019		2018
	Contingent Consideration		Contingent Consideration		Contingent Consideration		Contingent Consideration
Beginning balance	$	4,851,000	$	-	$	4,721,000	$	-
Newly issued		-		3,560,000		-		3,560,000
Changes in revaluations of contingent consideration included in earnings		310,000		-		440,000		-
Ending balance	$	5,161,000	$	3,560,000	$	5,161,000	$	3,560,000

During the three and nine months ended December 31, 2019, the Company had no other 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.