Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements and Fair Value of Financial Instruments

v3.23.3
Fair Value Measurements and Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Fair Value of Financial Instruments Fair Value Measurements and Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. These levels are:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
Financial instruments consist of cash equivalents, accounts payable, accrued liabilities, debt, Additional Shares, Earn-Out Shares, Public and Private Placement Warrants and Structural Derivative. Cash equivalents, Earn-Out Shares, Public and Private Placement Warrants and Structural Derivative are stated at fair value on a recurring basis. Accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short period time to the expected receipt or payment. The carrying amount of the Company’s outstanding debt approximates the fair value as the debt bears interest at a rate that approximates the prevailing market rate.
The Public Warrants were historically classified as Level 1 due to the use of an observable market quote in an active market. Private Placement Warrants were historically classified as Level 2 as the fair value approximated the fair value of the Public Warrants. The Private Placement Warrants are identical to the Public Warrants, with certain exceptions as defined in Note 7, Common Stock and Warrants. Five Public Warrants or Private Placement Warrants must be bundled together to receive one share of the Company’s Class A common stock. During the nine months ended September 30, 2023, the entire balance of the Public Warrants and Private Placement Warrants was transferred out of Level 1 and Level 2, respectively, into Level 3 due to the warrants being delisted by the NYSE in response to the low trading price of the warrants.
The value of the Public Warrants and Private Placement Warrants was determined by using a Black-Scholes Model with the following assumptions:

September 30,
2023		 December 31,
2022
Fair value of common stock $0.53 —
Exercise Price $11.50 —
Risk-free interest rate 4.70% —
Expected term (in years) 3.79 —
Volatility 69.60% —
Dividend yield — —

The Additional Shares and Earn-Out Shares are classified as Level 3 and their fair values were estimated using a Monte Carlo options pricing model utilizing assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimated the expected volatility assumption using an average of the implied volatility of its common stock and an implied volatility based on its peer companies.
The Structural Derivative Liability is a compound embedded derivative related to features within the Structural Debt Facility, including an increase in interest rate upon an event of default and the contingent issuance of the Structural Subsequent Shares as defined in Note 5, Debt. This liability is classified as Level 3 and is valued using a risk-neutral income approach related to an event of default occurring and expected cash flows in such a scenario and
an income and Black-Scholes pricing model for the contingent issuance of the Structural Subsequent Shares utilizing assumptions related to expected stock price volatility, expected life, risk-free interest rate and dividend yield. The Company estimated the expected volatility assumption using an average of the implied volatility of its common stock and an implied volatility based on its peer companies.
The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 by level within the fair value hierarchy (in thousands):
September 30, 2023
Level 1 Level 2 Level 3 Total
Financial Assets:
Cash equivalents:
Money market funds $ 85,511  $ —  $ —  $ 85,511 
Total $ 85,511  $ —  $ —  $ 85,511 
Financial Liabilities:
Earn-Out Shares $ —  $ —  $ 4,472  $ 4,472 
Public Warrants —  —  113  113 
Private Placement Warrants —  —  100  100 
Structural Derivative Liability —  —  8,340  8,340 
Total $ —  $ —  $ 13,025  $ 13,025 
December 31, 2022
Level 1 Level 2 Level 3 Total
Financial Assets:
Cash equivalents:
Money market funds $ 74,990  $ —  $ —  $ 74,990 
Total $ 74,990  $ —  $ —  $ 74,990 
Financial Liabilities:
Additional Shares $ —  $ —  $ 580  $ 580 
Earn-Out Shares —  —  4,122  4,122 
Public Warrants 805  —  —  805 
Private Placement Warrants —  670  —  670 
Structural Derivative Liability —  —  7,050  7,050 
Total $ 805  $ 670  $ 11,752  $ 13,227 
Additional Shares Liability
At the closing of the HGI Subscription Agreement defined in Note 7, Common Stock and Warrants, the Company recorded a liability related to the potential issuance of Additional Shares. Subsequent changes in fair value of the Additional Shares liability have been recognized in the statements of operations. The Additional Shares liability was settled on August 1, 2023 (refer to Note 7, Common Stock and Warrants).
Earn-Out Shares
At Closing of the Business Combination, certain Earn-Out Shares were accounted for as a liability. Subsequent changes in fair value, until settlement or until equity classification is met, is recognized in the statements of operations.
Public and Private Placement Warrants
As of September 30, 2023, the Company has Public and Private Placement Warrants. Such warrants are accounted for as a liability. Subsequent changes in fair value, until settlement, is recognized in the statement of operations.
Structural Derivative Liability
Upon closing the Structural Debt Facility, the Company recorded a liability related to the features that are required to be bifurcated and accounted for as a compound derivative at fair value. Subsequent changes in fair value of the Structural Derivative Liability until settlement is recognized in the statement of operations.
The following table provides a summary of changes in the estimated fair value of these liabilities (in thousands):
Additional Shares Liability Earn-Out Shares Public Warrants Private Placement Warrants Structural Derivative Liability Total
Balance at December 31, 2022 $ 580  $ 4,122  $ 805  $ 670  $ 7,050  $ 13,227 
Cancellation —  (347) —  —  —  (347)
Change in fair value 920  697  (692) (570) 1,290  1,645 
Settlement (1,500) —  —  —  —  (1,500)
Balance at September 30, 2023 $ —  $ 4,472  $ 113  $ 100  $ 8,340  $ 13,025