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Fair Value Measurements
6 Months Ended
Jun. 30, 2024
Fair Value Measurements  
Fair Value Measurements

4. Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following three levels:

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2: Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The financial assets and liabilities measured and recognized at fair value were as follows as of June 30, 2024 and December 31, 2023 (in thousands):

June 30, 2024

Total

Level 1

Level 2

Level 3

Investments in money market fund – financial assets, included in cash and cash equivalents

$

21,102

$

21,102

$

$

Convertible debt– financial liabilities

48,261

48,261

December 31, 2023

Total

Level 1

Level 2

Level 3

Convertible debt– financial liabilities

$

58,633

$

$

$

58,633

The Company’s convertible debt (Note 7) is measured at fair value and remeasured at each quarter end, with changes in fair value recorded as other income (expense) in the condensed consolidated statement of operations. The Company estimates the fair value of its convertible debt using a weighted probability model of various debt settlement scenarios during its term discounted to the reporting date. Conversion option scenarios are valued using option pricing models with assumptions and estimates such as volatility, expected term and risk-free interest rates. Level 3 fair value inputs include probability and timing of various settlement scenarios and selection of comparable companies.

The Company estimated the fair value of its convertible debt using the following inputs as of June 30, 2024 and December 31, 2023:

June 30, 2024

December 31, 2023

Discount rate

28.28%

21.01%

Probabilities of settlement scenarios

0%-75%

0%-75%

Volatility

111.6%

120.3%

Expected term (in years)

0.26-0.54

0.16-1.04

Risk-free rate

5.18%-5.33%

4.66%-5.36%

The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

Six months ended

June 30, 2024

June 30, 2023

Convertible debt opening balance

$

58,633

$

Issuance of the convertible debt

29,226

Change in fair value

 

(10,372)

(2,874)

Convertible debt closing balance

$

48,261

$

26,352