FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2022

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 6: -   FAIR VALUE MEASUREMENTS

Under U.S. GAAP, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:

Level 1-	Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at measurement date.
Level 2-	Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3	Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The carrying amounts of cash and cash equivalents, short-term and restricted bank deposits, trade receivables, trade payables, other receivables and prepaid expenses and other payables and accrued expenses approximate their fair value due to the short-term maturity of such instruments.

NOTE 6: -   FAIR VALUE MEASUREMENTS (Cont.)

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:

	June 30, 2022
	Unaudited
	Fair Value		Level 1		Level 2		Level 3
			(in thousands)
Financial Assets:
Financial commitment asset (“FCA”)	$	607	$	—	$	—	$	607
Total Financial Assets	$	607	$	—	$	—	$	607
Financial Liabilities:
Earn out liability	$	1,764	$	—	$	—	$	1,764
Long Term Loan		23,061		—		—		23,061
Warrant liability		1,588		—		—		1,588
Total Financial Liabilities	$	26,413	$	—	$	—	$	26,413

	December 31, 2021
	Fair Value		Level 1		Level 2		Level 3
			(in thousands)
Financial Liabilities:
Earn out liability	$	825	$	—	$	—	$	825
Total Financial Liabilities	$	825	$	—	$	—	$	825

FCA

On June 9, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”), by and between the Company, as borrower, and OrbiMed Royalty and Credit Opportunities III, LP, as the lender (the “Lender”). The Credit Agreement provides for a five-year senior secured credit facility in an aggregate principal amount of up to $50 million (the “Loan Facility” or “Loan”), of which $25 million was made available on the Closing Date (the “Initial Commitment Amount” or "First Tranche") and up to $25 million may be made available on or prior to June 30, 2023, subject to certain revenue requirements (the “Delayed Draw Commitment Amount” or "Second Tranche"). On June 9, 2022, the Company closed on the Initial Commitment Amount, less certain fees and expenses payable to or on behalf of the Lender.

The FCA instrument was recognized in connection with the Delayed Draw Commitment Amount (Note 7). The fair value of the FCA is estimated by the Company at each reporting date based, in part, on the results of third-party valuations, which are prepared based on significant inputs that are generally determined based on relative value analyses. The FCA fair value was estimated using a discount rate of 15.6% which reflects the internal rate of return of the Loan at closing of the transactions contemplated by the Credit Agreement as of June 9, 2022 and represents the $25 million Delayed Draw Commitment Amount that may be made available on or prior to June 30, 2023 on similar terms to the Initial Commitment Amount. Therefore, the value of the FCA for the Delayed Draw Commitment Amount of the Loan was estimated as 50% of the sum of the commitment fee paid upfront and the lender expenses in relation to the Loan origination. The total amount was estimated at $607.

NOTE 6: -   FAIR VALUE MEASUREMENTS (Cont.)

Earn out Liability

As part of the acquisition of Wayforward on June 7, 2021, the consideration transferred included earn-out payable in up to 237,076 restricted shares of Common Stock. The earn-out arrangement is not indexed to the Company's own stock, and was accounted as a liability and subsequently measured at fair value through earnings until settlement on December 31, 2022.

On July 7, 2022, the Company entered into an Amendment to Agreement and Plan of Merger (the “Amendment”) with representatives of the former equity holders of PsyInnovations, Inc. Pursuant to the terms of the Amendment, the Company agreed to reduce the earn-out threshold of revenue derived from Wayforward products from $5 million to $3 million.

In determining the earn-out fair value, the Company used the Monte-Carlo simulation valuation technique, in order to predict the probability of different outcomes that rely on repeated random variables.

The significant inputs into the models were:

	June 30,	December 31,
	2022	2021
Expected Term (in years)	0.59		1.08
Expected Volatility	32.1%		32.1%
Beta	45%		45%
Debt Rate	3.18%		0.82%

For the six months ended June 30, 2022, the Company recorded expenses from remeasurement of the earn-out in the amount of $939.

Loan Facility

The fair value of the Loan Facility is recognized in connection with the Company’s Credit Agreement with with respect to the Initial Commitment Amount only (Note 7). The fair value of the Loan Facility was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the Loan, which is reported within non-current liabilities (Maturity Date - June 9, 2027) on the consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third-party valuations, which are prepared based on Significant inputs that are generally determined based on relative value analyses.

The Loan incorporates comparisons to instruments with similar covenants, collateral, and risk profiles and was obtained using a discounted cash flow technique. On the date of Loan origination, or June 9, 2022, the discount rate was arrived at by calibrating the loan amount of $25 million with the fair value of the warrants of  $1,930 and the loan terms interest rate of secured overnight financing rate (“SOFR”) + 9.5%. The implied internal rate of return of the loan was 15.6%. Due to the short time passed between the origination date and June 30, 2022, the fair value of the Loan as of June 30, 2022 was estimated using a discount rate of 15.6% which reflects the internal rate of return of the Loan at closing, as of June 9, 2022. The change in the fair value of the loan was recorded in earnings since the Company has concluded that no adjustment related to instrument specific credit risk was required.

NOTE 6: -   FAIR VALUE MEASUREMENTS (Cont.)

Warrant Liability

The fair value of the warrant liability is recognized in connection with the Company’s Loan agreement with the Lender and with respect to the Initial Commitment Amount only (Note 7). The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the warrant liability, which is reported within non-current liabilities on the consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third-party valuations, which are prepared based on significant inputs that are generally determined based on relative value analyses. The warrant liability is measured based on the Monte-Carlo simulation valuation technique, in order to predict the probability of different outcomes that rely on repeated random variables.

The fair value of the warrant liability was estimated using a Monte-Carlo simulation valuation technique, with the following significant unobservable inputs (Level 3):

		June 9,		June 30,
		2022		2022
Stock price	$	7.45	$	6.14
Exercise price		6.62		6.62
Expected term (in years)		7.00		6.94
Volatility		148.8%		148.5%
Dividend rate		-		-
Risk-free interest rate		3.13%		3.16%

The following tables present the summary of the changes in the fair value of our Level 3 financial instruments:

	Long-Term Loan
Balance as of January 1, 2022	$	—
Issuance of Loan		23,070
Change in fair value		(9)
Balance as of June 30, 2022	$	23,061

	Warrant Liability
Balance as of January 1, 2022	$	—
Issuance of warrant liability		1,930
Change in fair value		(342)
Balance as of June 30, 2022	$	1,588

	FCA
Balance as of January 1, 2022	$	—
FCA		607
Change in fair value		—
Balance as of June 30, 2022	$	607