Fair Value Measurements
 6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 5 – Fair Value Measurements

 

The Company measures and records certain financial assets and liabilities at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

The following three levels of inputs are used to measure the fair value of financial assets and liabilities:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

 

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

 

Level 3: Unobservable inputs that are not corroborated by market data.

 

 

The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022, by level within the fair value hierarchy:

 

   June 30, 2023 
   (Level 1)   (Level 2)   (Level 3)   Total 
Assets:                
Cash equivalents  $12,408,492   $-   $-   $12,408,492 
Marketable securities (U.S. treasury bills and notes)   -    55,307,146    -    55,307,146 
Total assets measured at fair value  $12,408,492   $55,307,146   $-   $67,715,638 
Liabilities:                    
Contingent consideration - common stock  $-   $-   $1,100,815   $1,100,815 
Contingent consideration - warrants   -    -    234,464    234,464 
Total liabilities measured at fair value  $-   $-   $1,335,279   $1,335,279 

 

   December 31, 2022 
   (Level 1)   (Level 2)   (Level 3)   Total 
Assets:                
Cash equivalents  $186,667   $9,993,000   $-   $10,179,667 
Marketable securities (U.S. treasury bills and notes)   -    58,289,066    -    58,289,066 
Total assets measured at fair value  $186,667   $68,282,066   $-   $68,468,733 
Liabilities:                    
Contingent consideration - common stock  $-   $-   $2,499,147   $2,499,147 
Contingent consideration - warrants   -    -    233,209    233,209 
Total liabilities measured at fair value  $-   $-   $2,732,356   $2,732,356 

 

The Company’s financial instruments that are measured at fair value on a recurring basis consist of U.S. treasury bills and notes as of June 30, 2023 and December 31, 2022.

 

In connection with the acquisitions of Idaho Molecular, Inc. (IdMo) and Advanced Conceptions, Inc. (ACI) on December 31, 2021, the Company recorded a liability for contingent consideration in the form of shares of common stock and warrants to purchase common stock. The fair value of contingent consideration is calculated using a discounted probability weighted valuation model. Discount rates used in such calculations are a significant assumption that are not observed in the market, and therefore, the resulting fair value represents a Level 3 measurement.

 

The changes for Level 3 items measured at fair value on a recurring basis are as follows:

 

Fair value as of December 31, 2022  $2,732,356 
Change in fair value of contingent consideration issued for business acquisitions   (1,397,077)
Fair value as of June 30, 2023  $1,335,279 

 

 

The fair value of the contingent consideration is based on the fair value of the contingent consideration-common stock and contingent consideration-warrants. The fair value of the contingent consideration-common stock is equal to the probability-adjusted value of the Company’s common stock as of the valuation date. The fair value of the contingent consideration-warrants is equal to the probability adjusted value of a call option with terms consistent with the terms of the warrants as of the valuation date. Prior to the probability adjustments, the warrants were valued based on the following inputs:

 

   June 30, 2023   December 31, 2022 
Stock price  $1.11   $2.52 
Strike price  $9.13   $9.13 
Volatility   157.00%   75.00%
Risk-free rate   4.30%   4.10%
Expected term (years)   3.5    4.0 

 

Fair Value of Other Financial Instruments

 

The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, notes receivable, accounts payable, accrued liabilities, and other liabilities approximate fair value due to their short-term maturities and are excluded from the fair value tables above.