Fair Value Considerations

9 Months Ended

Sep. 30, 2024

Fair Value Considerations [Abstract]

Fair Value Considerations

Note 13. Fair Value Considerations

GAAP defines “fair value” as the price we would receive to sell an asset or pay to transfer a liability in a timely transaction with an independent buyer. GAAP also sets forth a framework for measuring fair value utilizing a three-tier hierarchy based on the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The three levels of the fair value hierarchy are as follows:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities;

Level 2 - Observable inputs other than quoted prices in active markets, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3 - Unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Level 1

The carrying amounts of our cash and cash equivalents and restricted cash were measured using quoted market prices in active markets and represent Level 1 investments. Our other financial instruments such as accounts receivable, accounts payable and accrued expenses, approximate their fair values due to their short maturities. The September 30, 2024 fair value of our Convertible Notes, based on trades made around that date, was approximately $35.7 million.

We set the values of our restricted stock unit and restricted stock awards without market-based vesting provisions on their respective grant dates at the closing price of a share of our common stock on each grant date.

We re-value our restricted stock unit awards that include a cash settlement feature each month at the closing price of a share of our common stock on the last trading day of the month, or $0.45 at September 30, 2024.

We re-value our dividend warrant liability at the end of each reporting period using the closing price of a share our of Dividend Warrants on the last trading day of the period, or $0.08 at September 30, 2024.

Level 2

We valued our restricted stock awards that contain a market-based vesting provision on the grant date using a Monte Carlo simulation, which takes into account a large number of potential stock price scenarios over time and incorporates varied assumptions about volatility and exercise behavior for those various scenarios. These assumptions are based on market data but cannot be directly observed.

We estimated the fair value of our Senior Secured Term Loan based on an analysis of market activity since loan inception at September 30, 2024 and determined it was approximately $54.9 million.

Level 3

We value our stock options, ESPP instruments, Private Warrants and Common Warrants using the Black-Scholes option pricing model on the respective grant dates. We re-value the Private Warrants, Common Warrants and any stock options with a cash-settlement feature at the end of each period. Since our stock price history as a publicly traded company is shorter in duration than the expected lives of our options (other than ESPP instruments), we use the historical volatility of a group of peer companies in combination with our own historical volatility to assess expected volatility. We have not paid and do not currently anticipate paying a cash dividend on our common stock, so we have set the expected annual dividend yield to zero for all calculations. We used risk-free rates equal to the U.S. Treasury yield curves in effect as of each valuation date for durations equal to the expected lives of each instrument. We use the simplified method under Staff Accounting Bulletin Topic 14, defined as the mid-point between the vesting period and the contractual term for each option, to determine the expected lives of stock-settled stock options and we use the remaining contractual lives of ESPP instruments, Private Warrants, Common Warrants, and stock options with a cash-settlement feature as their expected lives.

The following table sets forth the associated ranges of values we used for period remeasurement and the calculated fair values from our Black-Scholes calculations for stock options, other than ESPP.

	September 30,		Three Months Ended September 30,
	2024		2024		2023
Share prices of our common stock	$	0.45	$	0.45	$	2.07
Expected volatilities	110.28%		104.90% - 117.83%		51.76% - 55.88%
Risk-free rates of return	3.53%		3.52% - 3.55%		4.50% - 4.61%
Expected option terms (years)	3.58		2.81 - 4.41		3.82 - 5.42%
Calculated option values	$	0.13	$0.02 - $0.26		$0.04 - $0.95

The following table sets forth the fair values we calculated and the inputs used in our Black-Scholes model for SARs.

	April 3,
	2024
Fair value at grant date	$	0.61
Number of units	1,732,854
Variables used in determining fair value:
Volatility		57.80	%
Risk-free rate		4.26	%
Expected term (in years)		6.00

The following table sets forth the fair values we calculated and the inputs we used in our Black-Scholes models for Private Warrants.

	September 30,			December 31,
	2024			2023
Share price of our common stock	$	0.45		$	1.02
Expected volatility		100.00	%		56.66	%
Risk-free rate of return		3.86	%		4.31	%
Expected warrant term (years)		1.24			2.00
Fair value determined per warrant	$	0.00		$	0.00

The following table sets forth the fair values we calculated and the inputs we used in our Black-Scholes models for Common Warrants.

	September 30,			March 25,
	2024			2024
Share price of our common stock	$	0.45		$	1.08
Expected volatility		74.70	%		72.80	%
Risk-free rate of return		3.52	%		4.15	%
Expected warrant term (years)		4.99			5.50
Fair value determined per warrant	$	0.18		$	0.65

The following table sets forth the fair values we calculated using a weighted average valuation approach for the initial valuation of our Dividend Warrants. As of September 30, 2024, we have designated these instruments as Level 1 instruments and will remeasure accordingly with the traded share price of the Dividend Warrants at each subsequent period end date.

	July 12
	2024
Fair value at grant date	$	0.05
Number of units		46,756,215
Variables used in determining fair value:
Volatility		99.05	%
Risk-free rate		4.29	%
Expected term (in years)		1.00