Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS

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FAIR VALUE OF FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2022
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The table below reflects the level of the inputs used in the Company’s fair value calculations:

                                 
(in thousands)   Quoted Prices in Active Markets (Level 1)     Significant Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)     Total Fair
Value		  
June 30, 2022                                
Assets (Note 6)                                
Common stock of Sonnet   $ 34     $ —     $ —     $ 34  
Liabilities (Note 9)                                
Convertible note payable   $ —     $ —     $ 928     $ 928  

 

                                 
(in thousands)   Quoted Prices in Active Markets
(Level 1)		     Significant Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)     Total Fair
Value		  
December 31, 2021                                
Assets (Note 6)                                
Common stock of Sonnet   $ 50     $ —     $ —     $ 50  
Liabilities (Note 9)                                
Convertible note payable   $ —     $ —     $ 1,099     $ 1,099  

 

The Company is required to disclose fair value information about financial instruments when it is practicable to estimate that value. The carrying amounts of the Company’s cash, restricted cash, accounts receivable, other receivables, accounts payable, other current liabilities, convertible notes payable (other than the convertible note payable discussed below) and notes payable approximate fair value due to the short-term maturities of these financial instruments and/or because related interest rates offered to the Company approximate current rates.

 

 

The Company evaluated the convertible note payable issued in connection with the acquisition of Pie Squared Holdings (see Note 9) in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion price discount creates a derivative. This derivative was not clearly and closely related to the debt host and was required to be separated and accounted for as a derivative instrument. The Company elected to initially and subsequently measure the convertible note payable at fair value, with changes in fair value recognized in operations.

 

The estimated fair value of the convertible note payable was determined using a Monte Carlo simulation and the following assumptions as of June 30, 2022:

Volatility     105.00 %
Risk free rate     1.5% - 2.82 %
Stock price   $ 0.26  
Credit spread     26.28 %

 

The reconciliation of the convertible note payable measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:

(in thousands)  

Six months ended

June 30, 2022

  
Balance at January 1, 2022   $ 1,099  
Change in fair value     (171 )
Balance at June 30, 2022   $ 928