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FAIR VALUE OF FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS

6) FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between willing market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

 

● Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

● Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

 

 

● Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions.

 

The carrying amounts reported on the balance sheet for cash and cash equivalents, other receivable, prepaid assets and other current assets, accounts payable and accrued expenses, other current liabilities and other liabilities approximate fair value based due to their short maturities.

 

The Company issued approximately 343,000 warrants in connection with a private placement during the first quarter of 2022 (the “Q1-22 warrants”), which were determined to be classified as a liability. The Company also recorded the Market Cap Contingent Consideration liability related to the Exacis Acquisition. See Note 3 for more information related to the Exacis Acquisition. Both of these liabilities are remeasured at each reporting period, with changes in their fair values recognized in earnings.

 

The Company uses a Black-Scholes option pricing model to estimate the fair value of its warrant liabilities and a Monte Carlo simulation model to estimate the fair value of the contingent consideration related to the Market Cap Contingent Consideration, both of which are considered a Level 3 fair value measurement. The Company remeasures the fair value of the warrant liabilities and the Market Cap Contingent Consideration at each reporting period and changes in the fair values are recognized in the statement of operations.

 

The following tables summarize the liabilities that are measured at fair value as of June 30, 2024 and December 31, 2023 (in thousands):

 

Description  Level   June 30, 2024   December 31, 2023 
Liabilities:               
Warrant liabilities - Q1-22 warrants   3   $50   $116 
Market Cap Contingent Consideration   3   $41   $107 

 

Certain inputs used in Black-Scholes and Monte Carlo models may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities or contingent consideration liabilities, which could also result in material non-cash gains or losses being reported in the Company’s condensed consolidated statement of operations.

 

The following table presents the changes in the liabilities measured at fair value from January 1, 2024 through June 30, 2024 (in thousands):

 

   Warrant
Liabilities		   Contingent
Consideration		 
         
Fair value at January 1, 2024  $116   $107 
Change in fair value   (66)   (66)
Fair value at June 30, 2024  $50   $41 

 

The table below is provided for comparative purposes only and presents information about the fair value of the Company’s convertible notes relative to the carrying values recognized in the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 (in thousands).

 

       June 30, 2024   December 31, 2023 
   Level   Carrying Value   Fair Value   Carrying Value   Fair Value 
Convertible notes   3   $18,605   $22,470   $16,616   $17,594 

 

The carrying value in the table above is shown before the allocation of the proceeds to the note warrants. The Company assesses the fair value of the convertible notes as of June 30, 2024 using a Monte Carlo simulation model and as of December 31, 2023 using a binomial model, both of which are considered a Level 3 measurement.