Note 2 - Fair Value Measurement

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

2. Fair Value Measurement

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” (“ASC Topic 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an 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 such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The availability of observable inputs can vary among the various types of financial assets and liabilities. 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. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

As of June 30, 2020 and December 31, 2019, the Company valued the Astero and CBS contingent consideration, investment in convertible debt, and warrant liability at fair value, which require Level 3 inputs

For the Astero and CBS contingent consideration, the significant Level 3 inputs are the future projected revenue and revenue volatility from the acquired businesses. The company used best estimates in developing revenue forecasts.

For the investment in convertible debt, the significant Level 3 inputs are the expected term of the instrument, the underlying credit worthiness of the issuer and the valuation of various embedded features in the note, which are based on future financings of the issuer. The expected term the range of our estimate is 3 to 5 years, with equal weighting over this term. There is currently no quantitative information concerning the creditworthiness of the issuer.

For the warrant liability, the significant Level 3 inputs include the estimated term of the warrants and the volatility of the Company’s common stock. For the estimated term of the warrants, we used the actual terms of the warrants, which are all currently less than one year.  For the volatility off the Company’s stock we used historical volatility for the remaining term of each warrant.  These amounts ranged from 73.9% to 77.7%. We did not make any adjustments to the historical volatility.

There were no remeasurements to fair value during the six months ended June 30, 2020 of financial assets and liabilities that are not measured at fair value on a recurring basis.

The following tables set forth the Company’s financial assets measured at fair value on a recurring basis as of  June 30, 2020 and  December 31, 2019, based on the three-tier fair value hierarchy:

(In thousands)

As of June 30, 2020	Level 1		Level 2		Level 3		Total
Assets:
Money market accounts	$	29,879	$	—	$	—	$	29,879
Convertible debt held at fair value		—		—		1,000		1,000
Total		29,879		—		1,000		30,879
Liabilities:
Contingent consideration - business combinations		—		—		387		387
Warrant liability		—		—		963		963
Total	$	—	$	—	$	1,350	$	1,350

As of December 31, 2019	Level 1		Level 2		Level 3		Total
Assets:
Money market accounts	$	6,448	$	—	$	—	$	6,448
Convertible debt held at fair value		—		—		1,000		1,000
Total		6,448		—		1,000		7,448
Liabilities:
Contingent consideration - business combinations		—		—		1,914		1,914
Warrant liability		—		—		39,602		39,602
Total	$	—	$	—	$	41,516	$	41,516

The fair values of money market funds classified as Level 1 were derived from quoted market prices as active markets for these instruments exist. The fair values of investments, warrant liability and contingent consideration classified as Level 3 were derived from management assumptions. There have been no transfers of assets or liabilities between the fair value measurement levels. The following table presents the changes in investments held at fair value which are measured using Level 3 inputs:

	June 30,		December 31,
(In thousands)	2020		2019
Beginning balance	$	1,000	$	1,000
Purchases		—		—
Change in fair value recognized in net income		—		—
Total	$	1,000	$	1,000

The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs:

	June 30,			December 31,
(In thousands)	2020			2019
Beginning balance	$	1,914		$	—
Additions		—			2,347
Change in fair value recognized in net income		(1,526	)		50
Payments earned, reclassified to accrued liabilities		—			(483	)
Total	$	388		$	1,914

The following table presents the changes in fair value of warrant liabilities which are measured using Level 3 inputs:

	June 30,			December 31,
(In thousands)	2020			2019
Beginning balance	$	39,602		$	28,516
Exercised warrants		(33,167	)		(1,749	)
Change in fair value recognized in net income		(5,472	)		12,835
Ending balance	$	963		$	39,602