NOTE 7 - FINANCIAL INSTRUMENTS |
NOTE 7—FINANCIAL INSTRUMENTS Fair value measurements Authoritative accounting guidance for fair value measurements provides a framework for measuring fair value and related disclosures. The guidance applies to all financial assets and financial liabilities that are measured on a recurring basis. The guidance requires fair value measurement to be classified and disclosed in one of the following three categories: Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value of available-for-sale securities included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market. As of June 30, 2023, the Level 1 category included money market funds of $10.4 million, which were included in cash and cash equivalents on the Condensed Consolidated Balance Sheets. Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of available-for-sale securities included in the Level 2 category is based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers. As of June 30, 2023, the Level 2 category included short-term investments of $891,000, which were comprised of certificates of deposit and government securities. Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing. As of June 30, 2023, the Company’s Level 3 financial instruments measured at fair value on the Condensed Consolidated Balance Sheets consisted of the contingent consideration liability related to the acquisition of MikaMonu. The fair value of the contingent consideration liability was initially determined as of the acquisition date using unobservable inputs. These inputs included the estimated amount and timing of future cash flows, the probability achievement of the forecast and a risk-adjusted discount rate of approximately 14.8% used to adjust the probability-weighted cash flows to their present value. Significant increases (decreases) to the estimated amount and timing of future cash flows or the probability of achievement of the forecast would result in a significantly higher (lower) fair value measurement. Conversely, a significant increase or (decrease) in the risk-adjusted discount rate would result in a significantly (lower) higher fair value measurement. Generally, changes used in the assumptions for future cash flows and probability of achievement of the forecast would be accompanied by a directionally similar change in the fair value measurement and expense. Conversely, changes in the risk-adjusted discount rate would be accompanied by a directionally opposite change in the related fair value measurement and expense. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is re-measured to fair value with changes recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. During the most recent re-measurement of the contingent consideration liability as of June 30, 2023, the Company used a risk-adjusted discount rate of approximately 15.1% to adjust the probability-weighted cash flows to their present value using probabilities ranging from 15% to 90% for the remaining contingent events. The contingent consideration liability is included in contingent consideration, non-current on the Condensed Consolidated Balance Sheets at June 30, 2023 and March 31, 2023 in the amount of $1.0 million and $1.1 million, respectively. The fair value of financial assets measured on a recurring basis is as follows (in thousands): | | | | | | | | | | | | | | | | | | | Fair Value Measurements at Reporting Date Using | | | | | | | Quoted Prices | | | | | | | | | | | in Active | | Significant | | | | | | | | | Markets for | | Other | | Significant | | | | | | | Identical Assets | | Observable | | Unobservable | | | | | | | and Liabilities | | Inputs | | Inputs | | | | June 30, 2023 | | (Level 1) | | (Level 2) | | (Level 3) | | Assets: | | | | | | | | | | | | | | Money market funds | | $ | 10,399 | | $ | 10,399 | | $ | — | | $ | — | | Marketable securities | | | 891 | | | — | | | 891 | | | — | | Total | | $ | 11,290 | | $ | 10,399 | | $ | 891 | | $ | — | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | Contingent consideration | | $ | 1,007 | | $ | — | | $ | — | | $ | 1,007 | |
| | | | | | | | | | | | | | | | | | | Fair Value Measurements at Reporting Date Using | | | | | | | Quoted Prices | | | | | | | | | | | in Active | | Significant | | | | | | | | | Markets for | | Other | | Significant | | | | | | | Identical Assets | | Observable | | Unobservable | | | | | | | and Liabilities | | Inputs | | Inputs | | | | March 31, 2023 | | (Level 1) | | (Level 2) | | (Level 3) | | Assets: | | | | | | | | | | | | | | Money market funds | | $ | 7,796 | | $ | 7,796 | | $ | — | | $ | — | | Marketable securities | | | 3,363 | | | — | | | 3,363 | | | — | | Total | | $ | 11,159 | | $ | 7,796 | | $ | 3,363 | | $ | — | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | Contingent consideration | | $ | 1,052 | | $ | — | | $ | — | | $ | 1,052 | |
The following table sets forth the changes in fair value of contingent consideration for the three months ended June 30, 2023 and 2022, respectively: | | | | | | | | | | Three Months Ended June 30, | | | | 2023 | | 2022 | | | | | (In thousands) | | Contingent consideration, beginning of period | | $ | 1,052 | | $ | 2,738 | | Change due to accretion | | | 38 | | | 33 | | Re-measurement of contingent consideration | | | (83) | | | (450) | | Contingent consideration, end of period | | $ | 1,007 | | $ | 2,321 | |
Short-term and long-term investments All of the Company’s short-term investments are classified as available-for-sale. Available-for-sale debt securities with maturities greater than twelve months are classified as long-term investments when they are not intended for use in current operations. Investments in available-for-sale securities are reported at fair value with unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. The Company had money market funds of $10.4 million and $7.8 million at June 30, 2023 and March 31, 2023, respectively, included in cash and cash equivalents on the Condensed Consolidated Balance Sheets. The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when declines are determined to be other-than-temporary. The following table summarizes the Company’s available-for-sale investments: | | | | | | | | | | | | | | | | June 30, 2023 | | | | | | | Gross | | Gross | | | | | | | | | | Unrealized | | Unrealized | | Fair | | | | Cost | | Gains | | Losses | | Value | | | | | (In thousands) | | Short-term investments: | | | | | | | | | | | | | | Certificates of deposit | | $ | 250 | | $ | — | | $ | (2) | | $ | 248 | | Supranational obligations | | | 654 | | | — | | | (11) | | | 643 | | Total short-term investments | | $ | 904 | | $ | — | | $ | (13) | | $ | 891 | |
| | | | | | | | | | | | | | | | March 31, 2023 | | | | | | | Gross | | Gross | | | | | | | | | | Unrealized | | Unrealized | | Fair | | | | Cost | | Gains | | Losses | | Value | | | | | (In thousands) | | Short-term investments: | | | | | | | | | | | | | | Certificates of deposit | | $ | 1,750 | | $ | — | | $ | (13) | | $ | 1,737 | | Supranational obligations | | | 654 | | | — | | | (17) | | | 637 | | Agency bonds | | | 999 | | | — | | | (10) | | | 989 | | Total short-term investments | | $ | 3,403 | | $ | — | | $ | (40) | | $ | 3,363 | |
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that do not have an allowance for credit losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position as of June 30, 2023 and March 31, 2023, respectively. | | | | | | | | | | | | | | | | | | | | | | June 30, 2023 | | | | Less Than 12 Months | | 12 Months or Greater | | Total | | | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | | | Value | | | Loss | | | Value | | | Loss | | | Value | | | Loss | | | | | (In thousands) | | Certificates of deposit | | $ | — | | $ | — | | $ | 248 | | $ | (2) | | $ | 248 | | $ | (2) | | Supranational obligations | | | — | | | — | | | 643 | | | (11) | | | 643 | | | (11) | | | | $ | — | | $ | — | | $ | 891 | | $ | (13) | | $ | 891 | | $ | (13) | |
| | | | | | | | | | | | | | | | | | | | | | March 31, 2023 | | | | Less Than 12 Months | | 12 Months or Greater | | Total | | | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | | | Value | | | Loss | | | Value | | | Loss | | | Value | | | Loss | | | | | (In thousands) | | Certificates of deposit | | $ | — | | $ | — | | $ | 1,737 | | $ | (13) | | $ | 1,737 | | $ | (13) | | Agency bonds | | | — | | | — | | | 990 | | | (10) | | | 990 | | | (10) | | Supranational obligations | | | — | | | — | | | 636 | | | (17) | | | 636 | | | (17) | | | | $ | - | | $ | - | | $ | 3,363 | | $ | (40) | | $ | 3,363 | | $ | (40) | |
The Company’s investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years. All unrealized gains and losses are due to changes in interest rates and bond yields. Subject to normal credit risks, the Company has the ability to realize the full value of all these investments upon maturity. All available-for-sale investment securities are either fully insured or contractual terms of the investment do not permit the issuer to settle the security at a price less than the amortized cost of the investment. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis. The deferred tax asset related to unrecognized gains and losses on short-term investments was $3,000 and $10,000 at June 30, 2023 and March 31, 2023, respectively. As of June 30, 2023, contractual maturities of the Company’s available-for-sale investments were as follows: | | | | | | | | | | | | Fair | | | Cost | | Value | | | | (In thousands) | Maturing within one year | | $ | 904 | | $ | 891 | Maturing in one to three years | | | — | | | — | | | $ | 904 | | $ | 891 |
The Company classifies its short-term investments as “available-for-sale” as they are intended to be available for use in current operations.
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