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Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 2. Summary of Significant Accounting Policies

Other than policies noted below, there have been no significant changes to the significant accounting policies disclosed in Note 2, Summary of Significant Accounting Policies, of the annual audited financial statements included in the Annual Report.

Accounting Estimates

The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes to the condensed financial statements. The accounting estimates that require management’s most significant, difficult and subjective judgments include, but are not limited to, revenue recognition and allowance for expected credit losses, the valuation of notes receivable and inventory, the assessment of recoverability of intangible assets and their estimated useful lives, the valuation and recognition of stock-based compensation, operating lease right-of-use assets and liabilities, the recognition and measurement of current and deferred income tax assets and liabilities, and the valuation of warrant liabilities. Management evaluates its estimates on an ongoing basis as there are changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from these estimates.

The COVID-19 pandemic and global macroeconomic conditions originating during the pandemic continue to directly and indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, reserves and allowances. The Company continues to monitor developments that are highly uncertain, including supply chain disruptions and price increases, as well as the economic impact on domestic and international suppliers, customers, and markets. The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its current expected credit losses, the carrying value of the Company's intangible assets and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2023 and through the date of this report. As a result of these assessments, there were no impairments or material increases in expected credit losses or valuation allowances that impacted the Company's condensed financial statements as of and for the three and six months ended June 30, 2023 and 2022. However, the Company's future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the condensed financial statements in future reporting periods.

As of the date of issuance of these unaudited condensed interim financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities.

Derivative Financial Instruments

The Company evaluates financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed statements of operations. Warrants issued by the Company that do not

meet the criteria for equity treatment are recorded as liabilities. We do not use financial instruments or derivatives for any trading purposes.

Fair Value Measurement

The fair value of the Company’s financial instruments are estimates of the amounts that would be received if the Company were to sell an asset or the Company paid to transfer a liability in an orderly transaction between market participants at the measurement date or exit price. The assets and liabilities are categorized and disclosed in one of the following three categories:

Level 1—based on quoted market prices in active markets for identical assets and liabilities.
Level 2—based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—based on unobservable inputs using management’s best estimate and assumptions when inputs are unavailable.

Fair value measurements are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

The following table sets forth by level, within the fair value hierarchy, the Company's assets and liabilities at fair value as of June 30, 2023:

 

 

June 30, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

$

 

 

$

 

 

$

 

 

$

 

Total assets

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Warrant derivative liabilities

 

$

 

 

$

 

 

$

11,602

 

 

$

11,602

 

Total liabilities

 

$

 

 

$

 

 

$

11,602

 

 

$

11,602

 

There were no assets or liabilities measured at fair value as of June 30, 2022.

The change in fair value of warrant liabilities measured on a recurring basis using unobservable Level 3 inputs for the quarter ended June 30, 2023 is set forth below:

 

 

Fair Value at May 18, 2023

 

 

Change in Fair Value

 

 

Fair Value at June 30, 2023

 

Series A Warrant

 

$

2,971

 

 

$

3,085

 

 

$

6,056

 

Series B Warrant

 

 

2,634

 

 

 

2,912

 

 

 

5,546

 

Total warrant liabilities

 

$

5,605

 

 

$

5,997

 

 

$

11,602

 

The carrying value of the Company’s cash, cash equivalents, accounts receivable, accounts payable, accrued liabilities, and other current liabilities approximate fair value based on the short-term maturities of these instruments. The carrying value of the Company’s notes receivable also approximates fair value based on the associated credit risk. There have been no transfers between levels.

Income Taxes

Income tax expense/(benefit) from continuing operations for the three and six months ended June 30, 2023 and 2022 was $0 in each period, which resulted primarily from maintaining a full valuation allowance against the Company’s deferred tax assets.

Under the Internal Revenue Code (“IRC”) Sections 382 and 383, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss and tax credit carryforwards that may be used in future years. The Company has not completed an analysis to determine whether any such limitations have been triggered as of June 30, 2023, however, the Company notes that the Securities Purchase Agreement may have an impact on ownership for purposes of this analysis. Until a study is completed and

any limitation known, the Company will not make adjustments to its deferred tax assets. Due to the existence of the valuation allowance, future changes in the Company’s deferred taxes will not impact its effective tax rate or balance sheet.

Recently Issued Accounting Pronouncements Not Yet Adopted

The Company reviewed recent pronouncements issued by the FASB and other authoritative standards groups with future effective dates and concluded the pronouncements are either not applicable to the Company or are not expected to have a material impact on the Company’s financial position or results of operations.