Fair value measurements

9 Months Ended

Sep. 30, 2022

Fair value measurements

Fair value measurements

5. Fair value measurements

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. The company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting.

ASC Topic 820 clarifies that 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, ASC Topic 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3: Unobservable data points for the assets or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuations based on inputs that are unobservable and involve management judgement and the reporting entity’s own assumptions about market participants and pricing.

Cash and cash equivalents, accounts receivable, and accounts payable: The carrying amount of these assets approximate fair value due to the short maturity of these instruments. Cash and cash equivalents include marketable securities that are maturing within 90 days.

Available-for-sale securities: The Company classifies marketable securities and other highly liquid investments, with a maturity of greater than three months and that can be readily purchased or sold using established markets, as available-for-sale. These investments are reported at fair value on the Company’s consolidated balance sheets and unrealized gains and losses are reported as a component of stockholders’ equity.

Included within these available-for-sale securities is our $1M convertible note associated with Structured Monitoring Products, Inc.’s (“SMP”) VetGuardian line. There were no unrealized gains or losses recorded and no other than temporary impairments recognized as of September 30, 2022.

In accordance with the fair value hierarchy described above, the following table shows the fair value of our investments as of September 30, 2022:

		Level 1		Level 2		Level 3		Estimated Fair Value
Commercial paper	$		$	51,219	$	-	$	51,219
Corporate notes / bonds				38,703		-		38,703
Debt security		-		-		1,000		1,000
Money market funds		2,020		-		-		2,020
U.S. govt. agencies		33,944		-		-		33,944
U.S. treasuries		24,697		-				24,697
Total investment securities	$	60,661	$	89,922	$	1,000	$	151,583

The following table shows these same investments and their respective balance sheet classifications:

		Cash & Cash Equiv.		Available- For-Sale (Current)		Available- For-Sale (Non-Current)		Estimated Fair Value
Commercial paper	$	8,993	$	42,226	$	-	$	51,219
Corporate notes / bonds		-		17,256		21,447		38,703
Debt security		-		-		1,000		1,000
Money market funds		2,020		-		-		2,020
U.S. govt. agencies		15,192		7,881		10,871		33,944
U.S. treasuries		11,981		6,837		5,879		24,697
Total investment securities	$	38,186	$	74,200	$	39,197	$	151,583

Unrealized losses on our investments have not been recorded into income as we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis. The decline in fair value of our debt securities is largely due to the rising interest rate environment driven by current market conditions that have resulted in higher credit spreads. The credit ratings associated with our debt securities are mostly unchanged, are highly rated, and the debtors continue to make timely principal and interest payments. As a result, there were no credit or non-credit impairment charges recorded through September 30, 2022.