Fair value measurements

9 Months Ended

Sep. 30, 2022

Fair value measurements

Note 3 Fair value measurements

Note 3 Fair value measurements

Fair value is defined as the price that would be required to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the principal or, in the absence of a principal, most advantageous market for the specific asset or liability. We have certain assets and liabilities that are measured at fair value according to a fair value hierarchy that prioritizes the inputs, assumptions, and valuation techniques used to measure fair value.

GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3: Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

Recurring Fair Value Measurements

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis:

	September 30, 2022						December 31, 2021
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Marketable securities (Note 4)	$	6,404,567					$	9,618,743
Liabilities:
Derivative liabilities (Note 12)			$	11,773,452					$	-
Contingent consideration					$	3,513,132					$	-

A reconciliation of changes in Level 3 items measured at fair value on a recurring basis is as follows:

Contingent consideration liability:
Balance at December 31, 2021	$	-
Initial estimate upon acquisition		79,575
Remeasurement		3,433,557
Balance at September 30, 2022	$	3,513,132

The contingent consideration liability is related to the Company's acquisition of EV Group Holdings LLC (see “Note 5 Business acquisitions”), and its settlement is expected to occur in the first quarter of 2023. The Company has determined the fair value of the contingent consideration liability using a Monte Carlo simulation, which includes assumptions around the probability of various future stock price outcomes, and is considered Level 3 of the GAAP fair value hierarchy. The primary significant unobservable input is stock price volatility. Based on this simulation, the Company estimates that the average share price for the month ending December 31, 2022 will result in the Company issuing additional shares of common stock to the sellers.  The contingent consideration liability is reflected in accrued liabilities on the consolidated balance sheet, and the remeasurement is reflected in other income (expense), net on the consolidated statement of operations.

Nonrecurring Fair Value Measurements

We also have investments in non-marketable securities, which are equity securities in a non-public company and do not have readily determinable fair values. Such investments are initially recorded at cost and adjusted to fair value on a nonrecurring basis through earnings for observable price changes in orderly transactions for identical or similar transactions of the same company (Level 2 of GAAP fair value hierarchy). In September 2022, the non-public company issued similar securities to another investor. Based on the per-share price from that issuance, we calculated and recorded an unrealized gain of $75,416 in the three and nine months ended September 30, 2022. This unrealized gain is included in net income under the caption of income (loss) from investments, net on the consolidated statement of operations. The carrying amount of these equity securities is $175,416 and $100,000 as of September 30, 2022 and December 31, 2021, respectively, and is included in non-marketable securities on the consolidated balance sheet.