Annual report pursuant to Section 13 and 15(d)

Fair Value of Financial Instruments

Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments we have including cash, accounts receivable, accounts payable and certain accrued expenses and other assets and liabilities approximate fair value due to the short-term nature of these instruments. Our financial liabilities measured at fair value on a recurring basis were as follows at December 31, 2020 and 2019:
Balance Sheet Caption
Fair Value at December 31, 2020
(in thousands) Level 1 Level 2 Level 3 Total
Interest rate swap contract Other long-term liabilities $ —  $ 665  $ —  $ 665 
Total Liabilities $ —  $ 665  $ —  $ 665 

Balance Sheet Caption
Fair Value at December 31, 2019
(in thousands) Level 1 Level 2 Level 3 Total
Interest rate swap contract Other long-term liabilities $ —  $ 206  $ —  $ 206 
Contingent consideration Accrued expenses and other current liabilities —  —  1,568  1,568 
Total Liabilities $ —  $ 206  $ 1,568  $ 1,774 

There have been no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy.

Derivative Instrument and Hedging Activity

On July 11, 2019, we entered into an interest rate swap contract to manage our risk associated with the interest rate fluctuations on the Company's floating rate Real Estate Note. The counterparty to this instrument is a reputable financial institution. The interest rate swap contract is entered into for periods consistent with the related underlying exposure and does not constitute a position independent of this exposure. Our interest rate swap contract was designated as a cash flow hedge at the inception date, and is reflected at its fair value in our consolidated balance sheet.
The fair value of our interest rate swap liability is determined based on the present value of expected future cash flows. Since our interest rate swap value is based on the LIBOR forward curve and credit default swap rates, which are observable at commonly quoted intervals for the full term of the swap, it is considered a Level 2 measurement.

Details of the outstanding swap contract as of December 31, 2020, which is a pay fixed and receive floating contract, is as follows:
Swap Maturity Notional Value
(in thousands)
Pay Fixed Rate Receive Floating Rate Floating Rate
Reset Terms
October 1, 2025 $ 8,125  2.0775  % One-Month LIBOR Monthly

We performed an initial qualitative assessment of hedge effectiveness using the hypothetical derivative method in the period in which the hedging transaction was entered, as the critical terms of the hypothetical derivative and the hedging instrument were the same. On a quarterly basis, we perform a qualitative analysis for quarterly prospective and retrospective assessments of hedge effectiveness. The unrealized loss on the derivative instrument is included within "Other comprehensive income (loss)" in our consolidated statement of operations and comprehensive loss for the years ended December 31, 2020 and 2019. There was no measure of hedge ineffectiveness and no reclassifications from other comprehensive loss into interest expense for the years ended December 31, 2020 and 2019.

Contingent Consideration

Each period we revalue our contingent consideration obligations associated with business acquisitions to their fair value. The estimate of the fair value of contingent consideration is determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs not observable in the market, such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of the acquired business over the earn-out period, and therefore represents a Level 3 measurement. Significant increases or decreases in these inputs could result in a significantly lower (higher) fair value measurement of the contingent consideration liability. During the year ended December 31, 2020, we recognized a gain from the fair value adjustment of contingent consideration of approximately $0.7 million. The fair value adjustment was largely attributed to changes in forecasted revenues and gross profits for our European operating segment over
the remainder of 2020 driven primarily by the impacts of the COVID-19 pandemic. Changes in the fair value of our contingent consideration from business combinations are included within "Other income, net" in our consolidated statements of operations and comprehensive loss. As of December 31, 2020, we did not have any contingent consideration obligations outstanding.

A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2020 and 2019 is as follows:
(in thousands) Conscious Wholesale Contingent Consideration Convertible Notes
Balance at December 31, 2018 $ —  $ 40,200 
Convertible notes issued in January 2019 —  8,050 
Contingent consideration issued in September 2019 1,609  — 
Total (gains) losses in fair value included in results of operations (41) 12,063 
Conversion of convertible debt to Class A common stock —  (60,313)
Balance at December 31, 2019 1,568  — 
Foreign currency translation adjustments (14) — 
Payment for contingent consideration (835) — 
Total gains in fair value included in results of operations (719) — 
Balance at December 31, 2020 $ —  $ —