Fair Value Disclosure

9 Months Ended

Sep. 30, 2023

Fair Value Disclosures [Abstract]

Fair Value Disclosure

3. Fair Value Disclosure

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2	Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices 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 supported by little or no market activity for the related assets or liabilities.

The following tables set forth the fair value of the Company’s consolidated financial instruments that were measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (in thousands):

	September 30, 2023
Liabilities measured at fair value on a recurring basis	Level 1		Level 2		Level 3		Total
Notes payable (fair value)		—		—		3,410		3,410
Total liabilities measured at fair value		—		—		3,410		3,410

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Notes payable (fair value)		—		—		3,781		3,781
Total liabilities measured at fair value		—		—		3,781		3,781

The change in the estimated fair value of the Level 3 liability is summarized below:

Year ended December 31, 2022	Streeterville Notes Payable
Beginning fair value of Level 3 liability		5,282
Borrowings on notes payable		5,000
Repayments		(1,800	)
Change in fair value		850
Gain on valuation		(500	)
Change in instrument specific credit risk		(5,051	)
Ending fair value of Level 3 liability		3,781

Nine months ended September 30, 2023	Streeterville Notes Payable
Beginning fair value of Level 3 liability		3,781
Borrowings on notes payable		2,500
Repayments		(1,535	)
Change in fair value		1,400
Change in instrument specific credit risk		(2,736	)
Ending fair value of Level 3 liability		3,410

Streeterville Note

The fair value of the Streeterville Note as of September 30, 2023 amounting to $3.4 million, was based on the weighted average discounted expected future cash flows representing the terms of the note, discounting them to their present value equivalents. This was classified as Level 3 fair value in the fair value hierarchy due to the use of unobservable inputs, including the Company’s own credit risk.

The Company determined and performed the valuations of the Streeterville Note with the assistance of an independent valuation service provider. On a quarterly basis, the Company considers the main Level 3 inputs used as follows:

● Discount rate for the Streeterville notes was determined using a comparison of various effective yields on bonds as of the valuation date.

● Weighted probability of cash outflows was estimated based on the entity’s knowledge of the business and how the current economic environment is likely to impact the timing of the cash outflows, attributed to the different repayment features of the notes.

The following table summarizes the quantitative information about the significant unobservable inputs used in Level 3 fair value measurement for the periods ended September 30, 2023 and December 31, 2022:

	Range of Inputs
	(risk free rate)
Unobservable Inputs	2023			2022
Risk free rate		5.4% - 5.6	%		2.1% - 4.7	%
Option adjusted spread		15.0	%		10.0	%
Illiquidity discount		3.75	%		2.5	%
Concluded discount rate		9.25	%		4.75% - 8.5	%

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company has elected the fair value option for calculating the value of its Notes Payable and are classified as Level 3. The carrying value of the Company’s cash and cash equivalents, restricted cash, prepaid assets and other current assets, other assets, accounts payable, accrued liabilities, and insurance financing note payable approximate fair value due to the short-term nature of these items.