Note 3 - Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

(3) FAIR VALUE MEASUREMENTS

ASC Topic 820 (Fair Value Measurement) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

Level 1 Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.

Level 2 Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The interest rate swap agreement we entered into in connection with our Term Note, as discussed further in Notes 2 and 9 is measured at fair value on a recurring basis using Level 2 inputs. The contingent consideration liability on our balance sheets is measured at fair value on a recurring basis using Level 3 inputs. Our contingent consideration liability is a result of our acquisition of Acculogic on December 21, 2021, and represents the estimated fair value of the additional cash consideration payable that is contingent upon sales to Electric Vehicle (“EV”) or battery customers. Our acquisition of Acculogic and this liability are both discussed further in Note 3 to our consolidated financial statements in our 2022 Form 10-K. As of September 30, 2023, this liability was classified as long-term. As of December 31, 2022, $324 of this liability was classified as current and was included in Other Current Liabilities on our balance sheet. During the quarter ended September 30, 2023, the total amount of this liability was adjusted down by $358 as a result of a reduction in our forecast for sales to EV and battery customers in the five-year period following the acquisition. The decrease in the amount of the liability during the third quarter of 2023 was included in General and Administrative Expenses on our statement of operations.

The following fair value hierarchy table presents information about assets and (liabilities) measured at fair value on a recurring basis:

	Amounts at			Fair Value Measurement Using
	Fair Value			Level 1		Level 2		Level 3
As of September 30, 2023
Contingent consideration liability – Acculogic	$	(1,002	)	$	-	$	-	$	(1,002	)
Interest rate swap	$	413		$	-	$	413	$	-

	Amounts at			Fair Value Measurement Using
	Fair Value			Level 1		Level 2		Level 3
As of December 31, 2022
Contingent consideration liability – Acculogic	$	(1,363	)	$	-	$	-	$	(1,363	)
Interest rate swap	$	528		$	-	$	528	$	-

Changes in the fair value of our Level 3 contingent consideration liabilities for the nine months ended September 30, 2023 were as follows:

	Nine Months Ended September 30, 2023
Balance at beginning of period	$	1,363
Impact of foreign currency translation adjustments		(3	)
Adjustment to contingent consideration liability as a result of reduction in expected payout		(358	)
Balance at end of period	$	1,002