Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Fair Value Measurements

v3.23.1
Note 5 - Fair Value Measurements
 3 Months Ended
Mar. 31, 2023
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

Note 5.

Fair Value Measurements

 

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

 

 

•

Level 1—Quoted prices in active markets for identical assets or liabilities;
 

•

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices 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 assets or liabilities; and
 

•

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The following table presents the fair value hierarchy for the Company’s financial instruments measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

 

   

March 31, 2023

  
   

Level 1

    

Level 2

    

Level 3

    

Total

  

Cash equivalents:

                                

Money market funds

   $ 3,295     $ -     $ -     $ 3,295  
Contingent consideration receivable   $ -     $ -     $ 682,000     $ 682,000  

 

   

December 31, 2022

  
   

Level 1

    

Level 2

    

Level 3

    

Total

  

Cash equivalents:

                                

Money market funds

   $ 58,242     $ -     $ -     $ 58,242  

 

As discussed in Note 2 above, in connection with its sale of GMI, the Company received contingent consideration that requires to GMDC to make annual payments equal to five percent (5%) of the purchaser’s GAAP based revenue through December 31, 2029, up to a cumulative maximum of $4,000,000, attributable to the purchaser’s blockchain-enabled digital supply chain management platform and associated technologies. The fair value of the contingent consideration was estimated based on GMDC’s forecast of revenue, the estimated after-tax payments to the Company, and the present value of the after-tax payments based on discount rate that reflects the risk of achieving the timing and amount of forecasted payments. The significant inputs utilized in estimating the fair value of contingent consideration include the forecast of revenues, the income tax rate of 27.0 percent, and the discount rate of 40.75 percent.

 

The following table is a roll-forward of the Level 3 fair value measurements.

 

Fair value of contingent consideration:        
December 31, 2022   $ -  
Additions during quarter     682,000  
March 31, 2023   $ 682,000  

 

There were no unrealized gains or losses recognized in income for the three months ended March 31, 2023.