FAIR VALUE MEASUREMENTS

12 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 6         FAIR VALUE MEASUREMENTS

The earnout consideration of $70,000 and $90,000 at September 30, 2021 and 2020, respectively, represents the fair value of the contingent earnout consideration related to the acquisition of Kablooe. The current and non-current portions of this liability are shown in the corresponding categories on the consolidated balance sheets at September 30, 2021 and 2020. During Fiscal 2021, the Company reduced this liability from $90,000 to $70,000 based on changes in the expected likelihood of Kablooe reaching the specified earnings targets. The IPS earnout consideration was adjusted down to $0 in Fiscal 2020 due to the low likelihood of IPS reaching the underlying earnings targets.

The following table presents the placement in the fair value hierarchy and summarizes the change in fair value of the earn-out consideration for Fiscal 2021 and Fiscal 2020: 

				Fair value measurement at reporting date using
				Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
	Balance			(Level 1)		(Level 2)		(Level 3)
Balance at September 30, 2019	$	834,000		$	–	$	–	$	834,000
Increase in fair value of IPS deferred cash consideration		16,000			–		–		16,000
Decrease in the fair value of IPS earnout consideration		(350,000	)		–		–		(350,000	)
Payout of IPS deferred cash consideration		(500,000	)		–		–		(500,000	)
Fair value of Kablooe earnout consideration		90,000			–		–		90,000
Balance at September 30, 2020		90,000			–		–		90,000
Decrease in fair value of Kablooe earnout consideration		(20,000	)		–		–		(20,000	)
Balance at September 30, 2021	$	70,000		$	–	$	–	$	70,000

The fair value of the Kablooe contingent earn-out consideration is measured on a recurring basis at each reporting date. The following inputs and assumptions were used in the Black-Scholes valuation model to estimate the fair value of the Kablooe earn-out consideration at September 30, 2021 and 2020: 

	September 30,
	2021	2020
Volatility	40%	40%
Risk-free interest rate	0.3%	1%
Expected term in years	0.5-3.4	0.5-4.5
Dividend yield	–	–

During Fiscal 2019, the Company received common stock from a customer as compensation for services provided, which was recorded as a cost-method investment with an estimated fair value of $327,000. This initial fair value was based on a private placement round of common stock issued to third party private investors of the customer at a time close to the valuation date. Management determined that the inputs used to value the investment were observable, either directly or indirectly, and therefore classified as a level 2 valuation measurement.

In Fiscal 2019, the Company recorded bad debt expense of $1,626,000 to fully reserve accounts receivable deemed uncollectible from the same customer in which it is invested. In Fiscal 2020, the Company converted the amount outstanding from this customer into a non-negotiable secured promissory note with interest that accrues at a rate of 8% per annum and reclassified the related allowance for doubtful accounts to an allowance on the note receivable. The Company received $101,000 and $134,000 from this customer in Fiscal 2021 and Fiscal 2020, respectively, of which $89,000 and $61,000, respectively, was applied to past due interest and penalties and recorded as interest income, and $12,000 and $73,000, respectively, was applied to principal and recorded as a recovery of bad debt expense as a reduction of general and administrative expense.

During Fiscal 2020, as a result of the customer’s default on the promissory note, the impact of COVID-19, and performance of the business in which the Company is invested, including its inability to generate revenue, management concluded the investment was also impaired and it recorded an impairment charge of $327,000 to fully reserve the investment on the Company’s consolidated balance sheet at September 30, 2020. The impairment charge is included in general and administrative expenses on the consolidated statement of operations for Fiscal 2020.

The following table presents the placement in the fair value hierarchy and summarizes the change in fair value of the cost method investment during Fiscal 2020: 

				Fair value measurement at reporting date using
				Quoted prices in active markets for identical assets		Significant other observable inputs			Significant unobservable inputs
	Balance			(Level 1)		(Level 2)			(Level 3)
September 30, 2019	$	327,000		$	–	$	327,000		$	–
Impairment of cost method investment		(327,000	)		–		(327,000	)		–
September 30, 2020	$	–		$	–	$	–		$	–