Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.23.3
Fair Value Measurements
9 Months Ended
Sep. 30, 2023
Fair Value Measurements  
Fair Value Measurements

5.

Fair Value Measurements

The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.

Level 1 – Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Therefore, determining fair value for Level 1 investments generally does not require significant judgment, and the estimation is not difficult.
Level 2 – Pricing is provided by third-party sources of market information obtained through investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information received from its advisors.
Level 3 – Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 instruments involves the most management judgment and subjectivity.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 by level within the fair value hierarchy, are as follows:

(in thousands)

September 30, 2023

Significant

Quoted prices

other

Significant

in active

observable

unobservable

markets

inputs

inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities:

  

  

  

Warrant liabilities

$

$

$

221

(in thousands)

December 31, 2022

Significant

Quoted prices

other

Significant

in active

observable

unobservable

markets

inputs

inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities:

  

  

  

Derivative liability

$

$

$

333

Warrant liabilities

$

$

$

8,945

There were no transfers between Level 1, 2 or 3 during the three and nine months ended September 30, 2023 or September 30, 2022.

5.

Fair Value Measurements, continued

Derivative Liability

As described previously in Note 4, the conversion provisions embedded in the New Convertible Note require bifurcation and measurement at fair value as a derivative. The fair value was calculated using a Monte Carlo simulation to create a distribution of potential market capitalizations and share prices for the Company on a weekly basis over the assumed period, given the various scenarios. The average value of the New Convertible Note was discounted to the valuation date to determine a calibrated discount rate so that the fair value of the New Convertible Note was $3 million. The value of the New Convertible Note was compared with the value of a hypothetical note with no conversion rights in order to determine the fair value of the conversion feature. The derivative liability was written off upon the repayment of the New Convertible Note.

September 30,

(in thousands)

    

2023

    

2022

Beginning balance

$

333

$

Additions

 

 

286

Change in fair value

 

 

Write off in connection with extinguishment of debt

(333)

Ending balance

$

$

286

Warrant Liabilities

The following table includes a summary of changes in fair value of the Company’s warrant liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2023 and 2022. For September 30, 2023, the fair value of such warrants was determined using the Black-Scholes Model based on the following key inputs and assumptions: common stock price of $0.59; exercise prices of $1.29 – $10.49; expected yield of 0.0%; expected volatility of 115.7%; risk-free interest rate of 4.6% and expected life between 3.9 and 4.4 years.

September 30,

(in thousands)

    

2023

2022

Beginning balance

$

8,945

    

$

8

Additions

 

5,601

 

985

Change in fair value

 

(6,134)

 

(274)

Exercise of warrant liabilities

 

(8,191)

 

Ending balance

$

221

$

719

The changes in fair value of the warrant liabilities are recorded in change in fair value of warrant liabilities in the condensed consolidated statements of operations.