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Fair Value Measurements

6 Months Ended

Jun. 30, 2022

4. Fair Value Measurements

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements), and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 – unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

As of June 30, 2022, the Company had three items, cash equivalents, contingent consideration and an embedded derivative, measured at fair value on a recurring basis. The Company’s cash equivalents primarily consist of money market deposits which totaled approximately $34.9 million at June 30, 2022 and are valued based on Level 1 of the fair value hierarchy. The Company’s contingent consideration which totaled $0.2 million at June 30, 2022 relates to the 2020 acquisition of HGE and is valued based on Level 3 of the fair value hierarchy. The Company’s embedded derivative relates to the Company’s financing arrangement described in Note 9 “Debt.” Its fair value is deemed to be immaterial at June 30, 2022 and is valued based on Level 3 of the fair value hierarchy. There were no transfers in or out of Level 1, 2 or 3 during the three and six months ended June 30, 2022.

The following table summarizes changes to the contingent consideration payable, a recurring Level 3 measurement, for the six months ended June 30, 2022:


Balance at December 31, 2021	$	9,116
Change in fair value of contingent consideration		(3,113	)
Payments		(5,765	)
Balance at June 30, 2022	$	238

The change in fair value of contingent consideration was a reduction of $2.9 million and $3.1 million for the three and six months ended June 30, 2022, respectively, and is included in general and administrative expenses in the accompanying condensed consolidated statement of comprehensive loss. The reduction in fair value of contingent consideration during the three and six months ended June 30, 2022, was a result of a decrease in forecasted future revenues of HGE.

There were no payments of contingent consideration for the three months ended June 30, 2022. Payments of contingent consideration included $0.2 million paid in cash and $5.6 million paid in 368,168 shares of the Company’s common stock for the six months ended June 30, 2022.

During the first quarter of 2022, the Company granted warrants to purchase 107,373 shares of common stock in connection with its financing arrangement described in Note 9 “Debt.” These equity-classified warrants were valued using the Black-Scholes pricing model, which falls within Level 3 of the fair value hierarchy.

The assumptions used in the Black-Scholes pricing model were as follows at the date of grant:


Expected dividend yield	0.0	%
Risk free interest rate	1.9	%
Expected stock price volatility	79.3	%
Expected term (years)	10.0

- Definition

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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