Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

The consolidated financial statements include financial instruments for which the fair value may differ from amounts reflected on a historical basis. 

Financial Assets and Financial Liabilities Carried at Other Than Fair Value

The Company’s financial instruments include cash equivalents, accounts receivable, short and long-term debt (except for contingent promissory notes) and other financial instruments associated with the issuance of the common stock.  The carrying values of cash equivalents and accounts receivable approximate their fair value because of the short maturity of these instruments and past evidence indicates that these instruments settle for their carrying value. The carrying amounts of the Company’s bank borrowings under its credit facility approximate fair value because the interest rates reflect current market rates.

The following table present information about the Company's liabilities measured at fair value on a recurring basis in the consolidated balance sheets:

			Quoted Prices in		Significant Other
	DECEMBER 31,		Active Markets		Observable Inputs		Unobservable Inputs
Description	2021		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Contingent consideration - cash	$	250,000	$	-	$	-	$	250,000
Contingent consideration - warrants		108,000		-		-		108,000
Contingent consideration - cash, net of current portion		1,095,000		-		-		1,095,000
Contingent consideration - warrants, net of current portion		252,000		-		-		252,000
Total liabilities measured and recorded at fair value	$	1,705,000	$	-	$	-	$	1,705,000

The Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. The contingent consideration has been recorded at their fair value using a Monte Carlo simulation model.  This model incorporates probability of achievement of certain milestones, risk-free rates and volatility.  The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

Management estimates the fair value of the contingent consideration liability based on financial projections of ITA’s business and forecasted results, including revenue growth rates, costs and expenses, volatility, and discount rates. The Company evaluates, on a routine, periodic basis, the estimated fair value of the contingent consideration and quarterly changes in estimated fair value are reflected in  other income in the consolidated statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in changes of any of the key assumptions that are used. Changes in the estimated fair value of contingent consideration liability may have a material impact on the Company’s operating results.

The following table presents a reconciliation of the change in fair value of contingent consideration for the year ended December 31, 2021:

Beginning fair value balance on the acquisition date (October 1, 2021)	$	2,295,000
Change in fair value (gain) reported in the consolidated statement of operations		(590,000	)
Beginning fair value balance reported in the consolidated balance sheet at December 31, 2021	$	1,705,000