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Note 4 - Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

4.	Fair Value Measurements

The Company records certain assets and liabilities at fair value. Accounting Standards Codification (“ASC”) 820 – Fair Value Measurement states that fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. As such, the fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy that prioritizes the inputs used in measuring fair value, is comprised of:

Level 1 - Quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than Level 1, that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities;

Level 3 - Unobservable inputs that are supported by little or no market data, and that are significant to the fair value of the assets and liabilities.

As of September 30, 2023 and December 31, 2022, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

		September 30, 2023
(In thousands)		Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents ⁽¹⁾		$	21,669			$	-			$	-			$	21,669
Restricted cash			1,615				-				-				1,615
Short-term investments			-				11,420				-				11,420
Total assets		$	23,284			$	11,420			$	-			$	34,704
Liabilities:
Contingent consideration		$	-			$	-			$	1,930			$	1,930
Warrant liabilities			-				-				4,842				4,842
Total liabilities		$	-			$	-			$	6,772			$	6,772

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

		December 31, 2022
(In thousands)		Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents ⁽¹⁾		$	6,329			$	-			$	-			$	6,329
Restricted cash			1,141				-				-				1,141
Short-term investments			-				64,195				-				64,195
Long-term investments			-				3,865				-				3,865
Total assets		$	7,470			$	68,060			$	-			$	75,530
Liabilities:
Contingent consideration		$	-			$	-			$	1,256			$	1,256
Total liabilities		$	-			$	-			$	1,256			$	1,256

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

As of September 30, 2023 and December 31, 2022, carrying amounts reported on the Company’s balance sheet for cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses, employee retention tax credit receivable, other current assets, accounts payable, accrued employee compensation and benefits, accrued expenses and other current liabilities, and deferred revenue approximate their respective fair value due to liquidity and short-term nature of these items.

At September 30, 2023, the Company’s financial liabilities consisted of contingent consideration and warrant liability:

Contingent Consideration

Contingent consideration represents a liability related to the Company’s 2015 acquisition of the Senhance System (the “Senhance Acquisition”). Adjustments associated with changes in fair value of contingent consideration are included in the Company’s condensed consolidated statements of operations and comprehensive loss. The following table summarizes changes in estimated fair value of the contingent consideration for the nine months ended September 30, 2023:

(In thousands)		Fair Value
Balance at December 31, 2022		$	1,256
Change in fair value			105
Balance at March 31, 2023			1,361
Change in fair value			203
Balance at June 30, 2023			1,564
Change in fair value			366
Balance at September 30, 2023		$	1,930

The following table presents quantitative information about the inputs and valuation methodologies used for fair value measurement of contingent consideration liability utilizing a Monte-Carlo simulation method as of September 30, 2023 and December 31, 2022:

		Valuation Methodology		Significant Unobservable Inputs		September 30, 2023				December 31, 2022

Contingent consideration		Probability weighted income approach		Milestone date		2032				2032
				Revenue discount rate			11.0%				16.5%
				Revenue volatility			37.5%				45.0%
				EUR-to-USD exchange rate			1.06				1.07

Warrant Liabilities

During the three months ended September 30, 2023, the Company recorded warrant liabilities related to common stock warrants issued in the registered direct offering in July 2023 (for additional information about the offering, please refer to Note 12 -Equity Offerings).

Warrant liabilities were recorded at their initial estimated fair value. Adjustments associated with changes in fair value of the warrant liabilities are included in the Company’s condensed consolidated statements of operations and comprehensive loss. The following table summarizes changes in estimated fair value of the warrant liabilities for the warrants issued in July 2023 as of September 30, 2023:

(In thousands)		Fair Value
Balance at June 30, 2023		$	-
Issuance of warrants			7,120
Change in fair value			(2,278	)
Balance at September 30, 2023		$	4,842

The fair value of the warrant liabilities were estimated using the Black-Scholes option pricing model, which is based on unobservable inputs and is designated as Level 3 in the fair value hierarchy. The following table summarizes the assumptions used in determining fair value of warrant liabilities:

		As of July 31, 2023				As of September 30, 2023
Expected volatility			115	%			115	%
Risk-free interest rate			4.2	%			4.6	%
Expected life (in years)			5.0				4.8
Expected dividend yield			0	%			0	%

During the nine months ended September 30, 2023, there were no transfers of assets or liabilities between Level 1, Level 2, or Level 3 fair value categories.

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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