Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.19.1
Fair Value Measurements
 3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
6. Fair Value Measurements 
 
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.
 
Fair Value of Caelum
 
The Company valued its investment in Caelum in accordance with ASC Topic 820,
Fair Value Measurements and Disclosures
, and estimated the fair value to be $11.1 million based on a per share value of $1.549.
The following inputs were utilized to derive the value: risk free rate of return of 2.24%, volatility of 70% and a discount for lack of marketability of 27.9%.
 
In connection with the DOSPA Caelum’s convertible notes automatically converted into common shares of Caelum and the warrant liability payable to the placement agent in connection with the placement of the convertible notes was also issued.
 
Caelum Warrant liability
 
The Caelum warrant liability and convertible notes did not exist as of March 31, 2019. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Caelum’s warrant liability that are categorized within Level 3 of the fair value hierarchy as of December 31, 2018 is as follows:
  
 
December 31, 2018
 
Risk-free interest rate
 
 
2.905
% –
2.909
%
Expected dividend yield
 
–
 %
Expected term in years
 
 
3.84
–
3.96
 
 
Expected volatility
 
70
%
 
($ in thousands)
 
Fair Value of

Derivative

Warrant

Liability
 
Beginning balance at January 1, 2019
 
$
991
 
Issuance of warrant due to conversion of note
 
 
(991
)
Ending balance at March 31, 2019
 
$
–
 
 
Caelum Convertible Notes
 
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Caelum’s convertible notes that are categorized within Level 3 of the fair value hierarchy as of December 31, 2018 is as follows:
 
 
December

31, 2018
 
Risk-free interest rate
 
2.302
%
Expected dividend yield
 
–
%
Expected term in years
 
0.32
 
Expected volatility
 
67
%
 
($ in thousands)
 
Caelum
Convertible
Notes, at fair
value
 
Beginning balance at January 1, 2019
 
$
9,914
 
Conversion of the convertible notes
 
 
(9,914
)
Ending balance at March 31, 2019
 
$
–
 
 
The following tables classify into the fair value hierarchy of Fortress’ financial instruments, measured at fair value as of March 31, 2019 and December 31, 2018:
 
 
 
Fair Value Measurement as of March 31, 2019
 
($ in thousands)
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of investment in Caelum
 
$
–
 
 
$
–
 
 
$
11,056
 
 
$
11,056
 
Total
 
$
–
 
 
$
–
 
 
$
11,056
 
 
$
11,056
 
 
 
 
Fair Value Measurement as of December 31, 2018
 
($ in thousands)
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Caelum warrant liability
 
$
–
 
 
$
–
 
 
$
991
 
 
$
991
 
Caelum convertible notes, at fair value
 
 
–
 
 
 
–
 
 
 
9,914
 
 
 
9,914
 
Total
 
$
–
 
 
$
–
 
 
$
10,905
 
 
$
10,905
 
 
The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments as of March 31, 2019:
 
 
 
Caelum
 
 
 
 
($ in thousands)
 
Convertible Note
 
 
Warrant liability
 
 
Total
 
Balance at December 31, 2018
 
$
9,914
 
 
$
991
 
 
$
10,905
 
Conversion of convertible notes
 
 
(9,914
)
 
 
–
 
 
 
(9,914
)
Issuance of warrant
 
 
–
 
 
 
(991
)
 
 
(991
)
Balance at March 31, 2019
 
$
–
 
 
$
–
 
 
$
–
 
 
As of March 31, 2019, no transfers occurred between Level 1, Level 2 and Level 3 instruments.