SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the revenue recognition guidance for contracts in which control is transferred to the customer over time affect the amounts of revenues, expenses, contract assets and contract liabilities. Numerous internal and external factors can affect estimates. Estimates are also used for but not limited to: allowance for doubtful accounts, useful lives of furniture, fixtures and equipment and definite lived intangible assets, depreciation expense, fair value assumptions in evaluating goodwill for impairment, income taxes and deferred tax asset valuation, and the valuation of stock-based compensation.

Restricted Cash

Restricted Cash

Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits and are not available for general corporate purposes.

Fair Value

Fair Value

The carrying value of the Company’s cash and cash equivalents, receivables, accounts payable, other current liabilities, and accrued interest approximated their fair values at June 30, 2021 and December 31, 2020 due to the short-term nature of these accounts.

Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would consist of measurements primarily to contingent consideration in a business combination.

Fair value is the price that would be received upon a sale of an asset or paid upon a transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). Market participants can use market data or assumptions in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. Under the fair-value hierarchy:

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Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market;

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Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and

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Level 3 measurements include those that are unobservable and of a highly subjective measure.

The following tables summarize the assets measured at fair value on a recurring basis at the dates indicated:


	Basis of Fair Value Measurements
	June 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	5,017	$	—	$	—	$	5,017
Total	$	5,017	$	—	$	—	$	5,017

Liabilities:
Contingent consideration ⁽¹⁾	$	—	$	—	$	5,385	$	5,385
Total	$	—	$	—	$	5,385	$	5,385


	Basis of Fair Value Measurements
	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	17	$	—	$	—	$	17
Total	$	17	$	—	$	—	$	17

Liabilities:
Contingent consideration ⁽²⁾	$	—	$	—	$	5,319	$	5,319
Total	$	—	$	—	$	5,319	$	5,319

⁽¹⁾Contingent consideration is included in “Accrued expenses and other current liabilities” as of June 30, 2021.

⁽²⁾ The current and noncurrent Contingent consideration is included in “Accrued expenses and other current liabilities” and “Other liabilities,” respectively, as of December 31, 2020.

The fair value measurement of the contingent consideration is classified within Level 3 of the fair value hierarchy and reflects the Company’s own assumptions in measuring fair values using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and industry trends. This amount was estimated through a valuation model that incorporated probability-weighted assumptions related to the achievement of these milestones and the likelihood of the Company making payments. These cash outflow projections have then been discounted using a rate of 2.50%.

The following table represents the change in the contingent consideration liability during the six months ended June 30, 2021:


	Six Months Ended
	June 30,
	2021
Beginning Balance	$	5,319
Neuralify contingent consideration accrued		—
Payment of contingent consideration		—
Accretion of contingent consideration		66
Unrealized gain (loss) related to currency translation		—
Ending Balance	$	5,385

The Company’s financial instruments include outstanding borrowings of $76.6 million at June 30, 2021 and $78.8 million at December 31, 2020, which are carried at amortized cost. The fair value of debt is classified within Level 3 of the fair value hierarchy. The fair value of the Company's outstanding borrowings is approximately $75.8 million and $77.7 million at June 30, 2021 and December 31, 2020, respectively. The fair values of debt have been estimated using a discounted cash flow analysis based on the Company's incremental borrowing rate for similar borrowing arrangements. The incremental borrowing rate used to discount future cash flows is 1.9% and 2.5% at June 30, 2021 and December 31, 2020, respectively. The Company also considered recent transactions of peer group companies for similar instruments with comparable terms and maturities as well as an analysis of current market conditions.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable, and available-for-sale debt securities. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses and additional disclosures. As a smaller reporting company, this guidance is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.