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Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 4 – Fair Value Measurements

The Company measures and records certain financial assets and liabilities at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The following three levels of inputs are used to measure the fair value of financial assets and liabilities:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and December 31, 2020, by level within the fair value hierarchy:

		December 31, 2021
		(Level 1)				(Level 2)				(Level 3)				Total
Assets:
Marketable securities (certificates of deposit)		$	-			$	1,255,266			$	-			$	1,255,266
Total assets measured at fair value		$	-			$	1,255,266			$	-			$	1,255,266
Liabilities:
Contingent consideration - common stock		$	-			$	-			$	8,684,669			$	8,684,669
Contingent consideration - warrants			-				-				1,747,972				1,747,972
Total liabilities measured at fair value		$	-			$	-			$	10,432,641			$	10,432,641

		December 31, 2020
		(Level 1)				(Level 2)				(Level 3)				Total
Assets:
Marketable securities (certificates of deposit)		$	-			$	4,335,446			$	-			$	4,335,446
Total assets measured at fair value		$	-			$	4,335,446			$	-			$	4,335,446

The Company’s financial instruments that are measured at fair value on a recurring basis consist of certificates of deposit.

In connection with the acquisitions of Idaho Molecular, Inc and Advanced Conceptions, Inc. on December 31, 2021, the Company recorded a liability for contingent consideration in the form of shares of common stock and warrants to purchase common stock. The fair value of contingent consideration is calculated using a discounted probability weighted valuation model. Discount rates used in such calculation are a significant assumption that are not observed in the market, and therefore, the resulting fair value represents a Level 3 measurement.

The changes for Level 3 items measured at fair value on a recurring basis are as follows:

Fair value as of December 31, 2020		$	-
Contingent considered issued for business acquisitions			10,432,641
Fair value as of December 31, 2021		$	10,432,641

The fair value of the contingent consideration is based on the fair value of the contingent consideration-common stock and contingent consideration-warrants. The fair value of the contingent consideration-common stock is equal to the probability-adjusted value of the Company’s common stock as of December 31, 2021. The fair value of the contingent consideration-warrants is equal to the probability adjusted value of a call option with terms consistent with the terms of the warrants as of December 31, 2021. Prior to the probability adjustments, the warrants were valued based on the following inputs:

		December 31, 2021
Stock price		$	8.93
Strike price		$	9.13
Volatility			80.00	%
Risk-free rate			1.30	%
Expected term			5.0

In order to calculate the probability-adjusted value of the contingent consideration-common stock and contingent consideration-warrants, the Company estimated the probability of achieving certain milestones, which include regulatory approval for identified products, as well as production and net revenue targets. The probability of achieving the milestone related to net revenues was estimated using a Monte Carlo simulation valuation model. The unobservable significant inputs to the valuation model were as follows:

		December 31, 2021
Stock price		$	8.93
Risk-free rate			1.30	%
Expected term			5.0
Weighted-average cost of capital			27.00	%
Revenue discount rate			9.50	%
Equity volatility			80.00	%
Asset volatility			80.00	%
Revenue volatility			30.00	%

Fair Value of Other Financial Instruments

The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, notes receivable, accounts payable, accrued liabilities, and other liabilities approximate fair value due to their short-term maturities and are excluded from the fair value tables above.

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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