Note 4 - Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Notes to Financial Statements

Fair Value Disclosures [Text Block]

(4) 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 10, is measured at fair value on a recurring basis using Level 2 inputs. The contingent consideration liability on our balance sheet 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. We may pay the seller up to an additional CAD $5,000 in the five-year period from 2022 through 2026. The additional payments will be based on a percent of net invoices for which payments have been received on systems sold to EV or battery customers in excess of CAD $2,500 per year in each of the five years. The maximum payment is capped at CAD $5,000, which equates to approximately $3,655 at June 30, 2024. There were no payments due to the seller for the years ended December 31, 2022 or 2023. To estimate the fair value of the contingent consideration at the acquisition date, an option-based income approach using a Monte Carlo simulation model was utilized due to the non-linear payout structure. As of the acquisition date, this resulted in an estimated fair value of $1,430. This amount was recorded as a contingent consideration liability and included in the purchase price as of the acquisition date. We reassess the estimated fair value of this liability annually using this same approach, or more frequently, if we determine that there have been material changes to the assumptions used in the calculation of the probable payout. Changes in the amount of the estimated fair value of the earnouts since the acquisition date are recorded as operating expenses in our consolidated statement of operations in the quarter in which they occur. During the quarter ended June 30, 2024 we further reduced the contingent consideration liability by $50. At June 30, 2024, the contingent consideration had an estimated fair value of $1,008. The current portion of our contingent consideration liability was $194 and $0 at June 30, 2024 and December 31, 2023, respectively, and was included in Other Current Liabilities on our consolidated balance sheets. Ther non-current portion of the liability is included in Other Liabilities on our consolidated balance sheets.

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 June 30, 2024
Contingent consideration liability – Acculogic	$	(1,008	)	$	-	$	-	$	(1,008	)
Interest rate swap	$	227		$	-	$	227	$	-

	Amounts at			Fair Value Measurement Using
	Fair Value			Level 1		Level 2		Level 3
As of December 31, 2023
Contingent consideration liability – Acculogic	$	(1,093	)	$	-	$	-	$	(1,093	)
Interest rate swap	$	285		$	-	$	285	$	-

Changes in the fair value of our Level 3 contingent consideration liabilities for the six months ended June 30, 2024 were as follows:

	Six Months Ended June 30, 2024
Balance at beginning of period	$	1,093
Reduction in estimated fair value		(50	)
Impact of foreign currency translation adjustments		(35	)
Balance at end of period	$	1,008