FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2022

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 5 – FAIR VALUE MEASUREMENTS

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-level fair value hierarchy prioritizing the inputs to valuation techniques is used to measure fair value. The levels are as follows: (Level 1) observable inputs such as quoted prices in active markets for identical assets or liabilities; (Level 2) observable inputs for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable either directly or indirectly from market data; and (Level 3) unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The following table illustrates the financial instruments measured at fair value on a non-recurring basis segregated by hierarchy fair value levels as of December 31, 2022 (in thousands):

					Significant		Significant
			Quoted Prices		Other		Other
			in Active		Observable		Unobservable
			Markets		Inputs		Inputs		Remeasurement
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Gain		Impairment
Contingent consideration liability - Contingent Value Rights (1)	$	10,900	$	—	$	10,900	$	—	$	1,100	$	—
	$	10,900	$	—	$	10,900	$	—	$	1,100	$	—

(1) During the year ended December 31, 2022, the Company changed the valuation approach from the use of other unobservable inputs to other observable inputs based on information obtained through the active marketing and sale of the underlying assets.

The following table illustrates the financial instruments measured at fair value on a non-recurring basis segregated by hierarchy fair value levels as of December 31, 2021 (in thousands):

					Significant		Significant
			Quoted Prices		Other		Other
			in Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Impairment
Contingent consideration liability - Contingent Value Rights (1)	$	12,000	$	—	$	—	$	12,000	$	—
	$	12,000	$	—	$	—	$	12,000	$	—
Goodwill	$	—	$	—	$	—	$	—	$	48,338
Long-lived assets held for sale - intangible assets (2)		3,304		—		—		3,304		136
	$	3,304	$	—	$	—	$	3,304	$	48,474

(1) At December 31, 2021, the significant unobservable inputs used to estimate fair value include (1) a business enterprise value of $15.9 million, (2) an implied probability of sale of 90% and (3) estimated transaction and other deductible costs of $1.6 million. The significant unobservable inputs used in applying the income approach include a discount rate of 11.5% and a long-term growth rate of 2.5%.

(2) At December 31, 2021, the significant unobservable inputs used to estimate fair value include an attrition rate of 4% to 10% (with a weighted average of 8%) and a discount rate of 27% for customer relationships, twelve months’ time to recreate for developed technology and a royalty rate of 0.5% and a discount rate of 27% for trade names.

The Company has determined the long-term debt fair value as of December 31, 2022 is approximately $124.1 million (see Note 9). The Company has determined the Convertible Notes (as defined in note 10) fair value as of December 31, 2022 approximates its book value due to the short duration between the issuance of the convertible promissory notes and December 31, 2022. The carrying values of cash and cash equivalents, restricted cash, prepaid expenses, amounts due from related parties, other current assets, accounts payable, accrued construction liabilities, other accrued liabilities and other amounts due to related parties are considered to be representative of their respective fair values principally due to their short-term maturities. There were no additional material non-recurring fair value measurements as of December 31, 2022 and 2021, except for the calculation of fair value of Common Stock warrants issued in connection with an amendment to the Company’s long-term debt agreement (see Note 9) or in connection with the issuance of Common Stock (see Note 15), the change in fair value of embedded derivatives in certain of the Company’s convertible promissory notes (see Note 14), the calculation of fair value of nonmonetary assets distributed from the Company’s joint venture (see Note 11), the calculation of the allocation of the RM 101 purchase price to the fair values of the assets acquired and liabilities assumed and the impairment loss upon RM 101’s classification as held for sale.

The Company utilized a Black-Scholes option pricing model and the application of a discount for lack of marketability (“DLOM”) to value its Common Stock warrants issued in connection with the New Term Facility (as defined in Note 9). The estimated fair value of the warrants is determined using Level 3 inputs. Inherent in the model and fair value estimate are assumptions related to expected share-price volatility, expected life, risk-free interest rate, dividend yield and DLOM. The Company estimates volatility based on public company peer group volatility over the contractual term of the warrants. The risk-free interest rate is based on the U.S. Treasury rate on the grant date for a maturity similar to the expected life of the warrants, which is assumed to be equivalent to their contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. The Company applied a DLOM of 20%.