Note 5 - Fair Value

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

5.         Fair Value

The Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These assets and liabilities include cash and cash equivalents, restricted cash, contingent consideration and warrant liabilities. ASC 820-10 (“Fair Value Measurement Disclosure”) requires the valuation using a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. The Company did not have any transfers of assets and liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy during the years ended December 31, 2020 and 2019.

For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data and therefore, are based primarily upon estimates, are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

As prescribed by U.S. GAAP, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures and based on various factors, it is possible that an asset or liability may be classified differently from period to period. However, the Company expects changes in classifications between levels will be rare.

The carrying values of accounts receivable, other current assets, accounts payable, and certain accrued expenses at December 31, 2020 and 2019, approximate their fair values due to the short-term nature of these items. The Company’s notes payable balance also approximates fair value as of December 31, 2020, as the interest rate on the notes payable approximates the rates available to the Company as of this date.

The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

	December 31, 2020
	(In thousands)
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets measured at fair value
Cash and cash equivalents	$	16,363	$	—	$	—	$	16,363
Restricted cash		1,166		—		—		1,166
Total Assets measured at fair value	$	17,529	$	—	$	—	$	17,529
Liabilities measured at fair value
Contingent consideration	$	—	$	—	$	3,936	$	3,936
Warrant liabilities		—		—		255		255
Total liabilities measured at fair value	$	—	$	—	$	4,191	$	4,191

	December 31, 2019
	(In thousands)
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets measured at fair value
Cash and cash equivalents	$	9,598	$	—	$	—	$	9,598
Restricted cash		969		—		—		969
Total Assets measured at fair value	$	10,567	$	—	$	—	$	10,567
Liabilities measured at fair value
Contingent consideration	$	—	$	—	$	1,084	$	1,084
Warrant liabilities		—		—		2,388		2,388
Total liabilities measured at fair value	$	—	$	—	$	3,472	$	3,472

The Company’s financial liabilities consisted of contingent consideration payable to Sofar related to the Senhance Acquisition in September 2015 (Note 3). This liability is reported as Level 3 as estimated fair value of the contingent consideration related to the acquisition requires significant management judgment or estimation and is calculated using the income approach, using various revenue and cost assumptions and applying a probability to each outcome. The increase in fair value of the contingent consideration of $2.9 million for the year ended December 31, 2020 was primarily due to a lower discount rate, stronger Euro versus the U.S. dollar, and the passage of time. The decrease in fair value of the contingent consideration of $9.6 million for the year ended December 31, 2019 was primarily due to changes in the Company's long-range forecast. Adjustments associated with the change in fair value of contingent consideration are included in the Company’s consolidated statements of operations and comprehensive loss. The Company uses a probability-weighted income approach for estimating the fair value of the contingent consideration. The significant unobservable inputs used in this approach include estimates of amounts and timing of stated milestones and the discount rate.

On April 28, 2017, the Company sold 24.9 million units (the “Units”), each consisting of approximately 0.077 shares of the Company's Common Stock, a Series A warrant to purchase approximately 0.077 shares of Common Stock with an exercise price of $13.00 per share (the “Series A Warrants”), and a Series B warrant to purchase approximately 0.058 shares of Common Stock with an exercise price of $13.00 per share (the “Series B Warrants,” together with the Series A Warrants, the “Warrants”), at an offering price of $1.00 per Unit. All of the Series A Warrants were exercised prior to the expiration date of October 31, 2017. Each Series B Warrant may be exercised at any time beginning on the date of issuance and from time to time thereafter through and including the fifth anniversary of the issuance date.

The exercise prices and the number of shares issuable upon exercise of each of the Series B Warrants are subject to adjustment upon the occurrence of certain events, including, but not limited to, stock splits or dividends, business combinations, sale of assets, similar recapitalization transactions, or other similar transactions. The Series B warrants contain provisions, often referred to as “down-round protection,” that leads to adjustment of the exercise price and number of underlying warrant shares if the Company issues securities, including its common stock or convertible securities or debt securities, in the future at sale prices below the then-current exercise price. As a result of this adjustment feature and after giving effect to the Company’s reverse stock split at a ratio of one-for-thirteen shares effective December 11, 2019, or the Reverse Stock Split, the exercise price of all outstanding Series B Warrants has been adjusted to $0.35 per share and the number of shares of common stock reserved for and issuable upon the exercise of outstanding Series B Warrants has been adjusted to 567,660 warrant shares as of December 31, 2020.

The change in fair value of all outstanding Series B warrants for the years ended December 31, 2020 and 2019 of an increase of $0.3 million and a decrease of $2.2 million, respectively, was included in the Company’s consolidated statements of operations and comprehensive loss. The increase in fair value of the Series B warrants of $0.3 million for the year ended December 31, 2020 was primarily due to a lower discount rate, increased volatility, and the passage of time. The increase in fair value of the Series B warrants of $2.2 million for the year ended December 31, 2019 was primarily due to a lower discount rate, increased volatility, and the passage of time. The following table presents the inputs and valuation methodologies used for the Company’s fair value of the Series B warrants:

Series B	December 31, 2020			December 31, 2019
Fair value (million)	$	0.3		$	2.4
Valuation methodology	Black-Scholes-Merton			Monte Carlo
Term (years)		1.32			2.32
Risk free rate		0.10	%		1.59	%
Dividends		—			—
Volatility		150.97	%		109.80	%
Share price	$	0.63		$	1.47
Probability of additional financing		N/A		100% in 2020

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements for contingent consideration as of December 31, 2020 and 2019:

	Valuation Methodology	Significant Unobservable Input	Weighted Average (range, if applicable)
			December 31, 2020				December 31, 2019
Contingent consideration	Probability weighted income approach	Milestone dates		2024	to	2029		2020	to	2024
		Discount rate		9.5%	to	15.75%		10%	to	11%

The following table summarizes the change in fair value, as determined by Level 3 inputs for the warrants and the contingent consideration for the years ended December 31, 2020 and 2019:

	Fair Value Measurement at Reporting Date (Level 3)
	(In thousands)
	Common stock warrants			Contingent consideration
Balance at December 31, 2018	$	4,636		$	10,637
Change in fair value		(2,248	)		(9,553	)
Balance at December 31, 2019		2,388			1,084
Exchange of warrants for common stock		(2,469	)		—
Payment for contingent consideration		—			(74	)
Change in fair value		336			2,924
Balance at December 31, 2020		255			3,936
Current portion		—			—
Long-term portion		255			3,936
Balance at December 31, 2020	$	255		$	3,936