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Note 6 - Fair Value

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

6. 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, 2021 and 2020.

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 revenue volatility, 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.

The carrying values of accounts receivable, other current assets, accounts payable, and certain accrued expenses as of December 31, 2021 and 2020 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, 2021 and 2020, 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, 2021
		(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⁽¹⁾		$	18,129			$	-			$	-			$	18,129
Restricted cash			1,154				-				-			$	1,154
Short-term investments			-				80,262				-			$	80,262
Long-term investments			-				37,435				-			$	37,435
Total assets measured at fair value		$	19,283			$	117,697			$	-			$	136,980
Liabilities measured at fair value
Contingent consideration		$	-			$	-			$	2,371			$	2,371
Total liabilities measured at fair value		$	-			$	-			$	2,371			$	2,371

⁽¹⁾Includes investments that are readily convertible to cash with original maturities of 90 days or less.

		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

The Company’s financial liabilities consisted of contingent consideration payable to Sofar related to the Senhance Acquisition (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 a Monte-Carlo simulation utilizing significant unobservable inputs including the probability of achieving each of the potential milestones, future Euro-to-USD exchange rates, revenue volatility and an estimated discount rate associated with the risks of the expected cash flows attributable to the various milestones. The decrease in fair value of the contingent consideration of $1.6 million for the year ended December 31, 2021 was primarily due to changes in the Company's forecast of future revenue. The increase in fair value of the contingent consideration of $2.9 million for the year ended December 31, 2020 was primarily due to lower discount rate, stronger Euro versus the U.S. dollar, and the passage of time. The decrease in the fair value of the contingent consideration of $9.6 million for the year ended December 31, 2019 was primarily due to the change in the Company’s forecast of future revenue. 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 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, 2021 and 2020:

					December 31,
	Valuation Methodology		Significant Unobservable Input		2021				2020

Contingent consideration	Probability weighted income approach		Milestone dates			2031				2025
			Discount rate			9.5%				9.5%
			Revenue volatility			39.0%				71.0%

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 and a Series B warrant to purchase approximately 0.058 shares of Common Stock with an exercise price of $13.00 per share 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. On February 24, 2020, the Company entered into a Series B Warrants Exchange Agreement (the “Exchange Agreement”) with certain holders of its unexercised Series B Warrants. Under the terms of the Exchange Agreement, each Series B Warrant was canceled in exchange for 0.61 shares of common stock. The Warrant holders participating in the exchange held 3,373,900 of the 3,638,780 Series B Warrants then outstanding and received an aggregate of 2,040,757 shares of common stock. As a result, the warrant liability decreased by $2.5 million and the additional paid in capital increased by the same amount. As a result of the March 2020 Public Offering and adjustment feature, 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 underlying warrant shares as of December 31, 2020. The final remeasurement upon exercise of the Series B warrants was recorded during the first quarter of 2021 and all outstanding Series B Warrants were exercised.

The change in fair value of all outstanding Series B warrants for the years ended December 31, 2021 and 2020 was an increase of $2.0 million and $0.3 million, respectively, was included in the Company’s consolidated statements of operations and comprehensive loss and was primarily due to an increase in share price, a lower risk free rate, increased volatility, and the passage of time. The change in the fair value of all outstanding Series B warrants for the year ended December 31, 2019, was a decrease of $2.2 million.

The following table presents the inputs and valuation methodologies used for the Company’s fair value of the Series B warrants:

		December 31,				December 31,				December 31,
Series B Warrants		2021				2020				2019

Valuation methodology		Black-Scholes-Merton				Black-Scholes-Merton				Monte Carlo
Term (years)			1.22				1.32				2.32
Risk free rate			0.07	%			0.10	%			1.59	%
Dividends			-				-				-
Volatility			174.00	%			150.97	%			109.80	%
Share price		$	4.21			$	0.63			$	1.47

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, 2021, 2020 and 2019:

		Fair Value Measurement at Reporting Date (Level 3)
		(in thousands)
		Series B 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
Exercise of warrants		$	(2,236	)		$	-
Change in fair value			1,981			$	(1,565	)
Balanceat December 31, 2021		$	-			$	2,371

Current portion		$	-			$	-
Long-term portion			-				2,371
Balance at December 31, 2021		$	-			$	2,371

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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