Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements and Fair Value of Financial Instruments

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Fair Value Measurements and Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2024
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, 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 of 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.
On June 12, 2023, the NYSE delisted the Public Warrants from trading due to their low price levels. See Note 7, Common Stock and Warrants for additional details. The Private Placement Warrants are identical to the Public Warrants, with certain exceptions as defined in Note 7, Common Stock and Warrants. As the number of outstanding Public Warrants and Private warrants did not change as a result of the reverse split, five Public Warrants or five Private Placement Warrants must be bundled together to receive one share of the Company’s Class A common stock. The Private Placement Warrants and Public Warrants are classified as Level 3 and their value was determined by using a Black-Scholes Model with the following assumptions on a pre-reverse split basis:
September 30,
2024		 December 31,
2023
Fair value of common stock $0.27 $0.35
Exercise Price $11.50 $11.50
Risk-free interest rate 3.58% 3.93%
Expected term (in years) 2.79 3.54
Volatility 80.81% 71.77%
Dividend yield — —

The 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 and mandatory and voluntary prepayment features. 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 the dates indicated by level within the fair value hierarchy (in thousands):
September 30, 2024
Level 1 Level 2 Level 3 Total
Financial Assets:
Cash equivalents:
Money market funds $ 48,514  $ —  $ —  $ 48,514 
Total $ 48,514  $ —  $ —  $ 48,514 
Financial Liabilities:
Earn-Out Shares $ —  $ —  $ 1,767  $ 1,767 
Public Warrants —  —  14  14 
Private Placement Warrants —  —  13  13 
Structural Derivative Liability —  —  1,697  1,697 
Total $ —  $ —  $ 3,491  $ 3,491 
December 31, 2023
Level 1 Level 2 Level 3 Total
Financial Assets:
Cash equivalents:
Money market funds $ 83,431  $ —  $ —  $ 83,431 
Total $ 83,431  $ —  $ —  $ 83,431 
Financial Liabilities:
Earn-Out Shares $ —  $ —  $ 2,973  $ 2,973 
Public Warrants —  —  31  31 
Private Placement Warrants —  —  37  37 
Structural Derivative Liability —  —  8,470  8,470 
Total $ —  $ —  $ 11,511  $ 11,511 
Earn-Out Shares
Certain Earn-Out Shares were accounted for as a liability, refer to Note 7, Common Stock and Warrants. Subsequent changes in fair value, until settlement or until equity classification is met, is recognized in the statements of operations.
Private Placement and Public Warrants Liabilities
As of September 30, 2024, the Company has Private Placement and Public Warrants defined and discussed in Note 7, Common Stock and 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):
Earn-Out Shares Public Warrants Private Placement Warrants Structural Derivative Liability Total
Balance at December 31, 2023 $ 2,973  $ 37  $ 31  $ 8,470  $ 11,511 
Change in fair value (1,206) (23) (18) (6,773) (8,020)
Balances as of September 30, 2024 $ 1,767  $ 14  $ 13  $ 1,697  $ 3,491