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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2020

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

15. FAIR VALUE MEASUREMENTS

Assets and liabilities measured or disclosed at fair value

The Company measures its financial assets and liabilities, including contingent consideration and warrant liability at fair value on a recurring basis as of December 31, 2019 and 2020. The Company measured its accounts receivable, accounts payable, short-term debt, amounts due to related parties at amortized cost. Cash is classified within Level 1 of the fair value hierarchy because they are valued based on the quoted market price in an active market. The carrying value of the short-term debt obligations approximate fair value, considering the borrowing rates are at the same level of the current market yield for the comparable debts. The carrying value of accounts receivable, accounts payable, and amounts due to related parties approximate fair value due to the relatively short maturity.

15. FAIR VALUE MEASUREMENTS (cont.)

The following table presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:

As of December 31, 2019

As of December 31, 2020

Fair Value Measurement at the Reporting Date using

Fair Value Measurement at the Reporting Date using

Quoted

Quoted

price in

price in

active

active

markets

markets

for

Significant

Significant

for

Significant

Significant

identical

other

unobservable

identical

other

unobservable

assets

observable

inputs

assets

observable

inputs

Level 1

inputs

Level 3

Total

Level 1

inputs

Level 3

Total

Warrant liability

—

—

—

—

—

—

(1,690)

(1,690)

The Company did not transfer any assets or liabilities in or out of Level 3 during the years ended December 31, 2018, 2019 and 2020.

In January 2019, the Company modified acquisition agreement with all of the dealerships and after sales service centers, under the modified terms, the fair value of contingent consideration is also affected by the operating results and the share price of KAH and the obligation to pay the contingent consideration would be transferred to Renren upon the closing of the SPAC Transaction.

15. FAIR VALUE MEASUREMENTS (cont.)

On April 30, 2019, upon the closing of the SPAC Transaction, the contingency of a successful reverse recapitalization transaction was resolved. The Company determined the fair value of the contingent consideration on April 30, 2019 and recorded the changes in fair value from January 1, 2019 to April 30, 2019 in earnings, then the contingent consideration was assumed by Renren. As KAH’s share price becomes a significant input in the valuation, the Company adopted Monte Carlo simulation method. A Monte Carlo simulation uses random scenarios, together with the assumption of volatility, risk-free rate, expected dividend rate, to generate individual stock price paths. This approach for valuing a contingent consideration with a market condition is appropriate because each individual stock price path that is generated can be monitored to identify paths where the market condition is met. The simulation process is repeated numerous times to generate numerous different stock price paths. The major assumptions used in the Monte Carlo simulation are as follows:


		As of April 30, 2019

Volatility		40	%
Risk-free rate		3.2	%
Expected dividend rate		—	%
Simulation steps		10,000

The following is a reconciliation of the beginning and ending balances for contingent consideration measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended December 31, 2019:


		Amount
Balance at January 1, 2019		$	105,670
Fair value change for the four months ended April 30, 2019			(65,594)
Exchange difference			2,466
Contingent liability assumed by Renren on April 30, 2019			(42,542)
Balance at December 31, 2019		$	—

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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