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FAIR VALUE DISCLOSURES

9 Months Ended

Jun. 30, 2024

FAIR VALUE DISCLOSURES

FAIR VALUE DISCLOSURES

9. FAIR VALUE DISCLOSURES

Mandatorily Redeemable Non-Controlling Interest

Mandatorily redeemable non-controlling interest (“MRNCI”) recorded on the Company’s condensed consolidated balance sheets represents the fair value of the non-controlling interest in the Company’s strategic investment in Team Sledd. During April 2024, Team Sledd redeemed certain membership interests from its non-controlling interest, which increased the Company’s ownership interest to approximately 76% as of June 2024. The Company owned approximately 64% of Team Sledd as of September 2023. The Company has elected to present the MRNCI liability at fair value under ASC 825 – Financial Instruments as it believes this best represents the potential future liability and cash flows. As such, the MRNCI balance at June 2024 represents the fair value of the remaining future membership interest redemptions and other amounts due to noncontrolling interest holders through April 2026. The Company calculates the estimated fair value of the MRNCI based on a discounted cash flow valuation technique using the best information available at the reporting date, and records changes in the fair value of the MRNCI as a component of other expense (income) in the condensed consolidated statements of operations. The Company estimates the probability and timing of future redemptions and earnings of Team Sledd based on management’s knowledge and assumptions of certain events as of each reporting date, including the timing of any future redemptions and an appropriate discount rate. At June 2024, the difference between the contractual amount due under the MRNCI and the fair value was approximately $0.7 million. The MRNCI is classified as Level 3 because of the Company’s reliance on unobservable assumptions.

The following table presents changes in the fair value of the MRNCI since September 2023:


Fair value of MRNCI as of September 2023		$	9,490,831
Redemption of non-controlling interests			(1,812,558)
Distributions to non-controlling interest			(256,599)
Change in fair value			727,457
Fair value of MRNCI as of June 2024		$	8,149,131
Less current portion at fair value			(1,651,608)
		$	6,497,523

Contingent Consideration

As described in Note 2, a portion of the consideration paid in the acquisition of Burklund was in the form of contingent consideration of up to $3.0 million in cash that could be payable in two installments on the one-year and two-year anniversaries of the acquisition date based on certain sales thresholds. In accordance with ASC 805, the Company recorded the contingent consideration at fair value as of the acquisition date and re-measures the liability at each reporting period. The Company calculates the estimated fair value of the contingent consideration based on a discounted cash flow valuation technique using the best information available at the reporting date, and records changes in the fair value of the contingent consideration in selling, general and administrative expenses in the condensed consolidated statements of operations. The short-term and long-term portions of the contingent consideration are recorded in accrued expenses and other long-term liabilities, respectively, on the condensed consolidated balance sheets. At each reporting date, the Company reviews certain inputs, including sales thresholds and an appropriate discount rate, based on management’s knowledge and assumptions of certain events. At June 2024, the difference between the estimated amount due under the contingent consideration arrangement and the fair value was approximately $0.3 million. The contingent consideration liability is classified as Level 3 because of the Company’s reliance on unobservable assumptions.

The following table presents changes in the fair value of the contingent consideration:


Fair value of contingent consideration at acquisition		$	1,578,444
Change in fair value			45,362
Fair value of contingent consideration as of June 2024		$	1,623,806
Less current portion at fair value			(803,702)
		$	820,104

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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