Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Fair Value Measurements

Fair Value Measurements

11. Fair Value Measurements

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the three and nine months ended September 30, 2023 and year ended December 31, 2022. The carrying amount of accounts payable approximated fair value as they are short term in nature. The fair value of warrants issued for services are estimated based on the Black-Scholes model during the three and nine months ended September 30, 2023 and year ended December 31, 2022. The fair value of the Note was estimated utilizing a Monte Carlo simulation during the three and nine months ended September 30, 2023 and the year ended December 31, 2022.

Fair Value on a Recurring Basis

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The estimated fair value of the money market account represents a Level 1 measurement. The estimated fair value of the warrant liabilities and earnout cash contingent consideration represent Level 3 measurements. The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2023 and year ended December 31, 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value (in thousands):

		September 30		December 31
Description	Level	2023		2022
Assets:		(Unaudited)
Money Market Account	1	$	7,034	$	15,249
Liabilities:
Warrant liabilities (Note 11)	3	$	10	$	37
Convertible note payable (Note 7)	3	$	10,069	$	10,525

Convertible Note Payable

The significant inputs used in the Monte Carlo simulation to measure the convertible note liability that is categorized within Level 3 of the fair value hierarchy are as follows:

	September 30, 2023
Stock price on valuation date	$	0.26
Time to expiration		0.59
Note market interest rate		8.4%
Equity volatility		90.0%
Volume volatility		365.0%
Risk-free rate		5.52%
Probability of default		3.2%

The following table sets forth a summary of the changes in the fair value of the Note categorized within Level 3 of the fair value hierarchy (in thousands):

	September 30, 2023		December 31, 2022
	(Unaudited)
Par value of the Note	$	11,020	$	11,020
Debt discount		(497)		(1,000)
Repayment of principal and interest		(3,270)		—
Carrying value of the Note before current period change in fair value		7,253		10,020
Fair value adjustment through earnings		2,794		505
Fair value adjustment through accumulated other comprehensive income		22		—
Total carrying value of Note	$	10,069	$	10,525
Convertible note payable - current portion	$	10,069	$	7,703
Convertible note payable, net of current portion	$	—	$	2,822

Warrant Liabilities

The Company utilizes a Black-Scholes model approach to value the Private Placement Warrants and Substitute Warrants at each reporting period, with changes in fair value recognized in the statement of operations. The estimated fair value of the warrant liabilities is determined using Level 3 inputs. Inherent in a Black Scholes options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The

Company estimates the volatility of its common stock based on historical and peer company volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

The significant inputs used in the Black-Scholes model to measure the warrant liabilities that are categorized within Level 3 of the fair value hierarchy are as follows:

	September 30, 2023
Stock price on valuation date	$	0.26 - 0.66
Exercise price per share	$	3.48 - 11.50
Expected life		0.02 - 3.15
Volatility		55.0 - 175.1%
Risk-free rate		3.79 - 5.40%
Dividend yield		0.00%
Fair value of warrants	$	0.00 - 79.34

A reconciliation of warrant liabilities is included below (in thousands):

	September 30, 2023
Balance as of December 31, 2022	$	37
Gain upon re-measurement		(12)
Balance as of March 31, 2023		25
Gain upon re-measurement		11
Balance as of June 30, 2023		36
Gain upon re-measurement		(26)
Balance as of September 30, 2023	$	10