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Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 9 — Fair Value Measurements

Fair value measurements are determined based on assumptions that a market participant would use in pricing an asset or a liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).The following table presents the placement in the fair value hierarchy measured at fair value on a recurring basis as of December 31, 2022 and 2021 (in thousands):

						Fair value measurement at reporting date using
		Balance				Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
As of December 31, 2022: (in thousands)
Recurring fair value measurements
Assets:
Equity investment in Ostendo		$	1,397			$	-			$	-			$	1,397
Derivative liabilities:
Conversion feature derivative liability		$	3,472			$	-			$	-			$	3,472
Common stock derivative liability			273				-				-				273
Total derivative liabilities			3,745				-				-				3,745
As of December 31, 2021: (in thousands)
Recurring fair value measurements
Derivative liabilities:
Conversion feature derivative liability		$	8,355			$	-			$	-			$	8,355
Total derivative liabilities			8,355				-				-				8,355

The conversion feature of the convertible Debentures was separately accounted for at fair value as a derivative liability under guidance in ASC 815 that is remeasured at fair value on a recurring basis using Level 3 inputs. The Company uses a probability weighted expected return model (“PWERM”) valuation technique to measure the fair value of the conversion feature with any changes in the fair value of the conversion feature liability recorded in earnings. Significant inputs to the model include estimated time to conversion events, estimated interest converted at the event, the implied yield, the discount rate for the conversion, and the probability of the conversion events. For the year ended December 31, 2022, the Company recorded a gain of approximately $2.0 million for the change in fair value of debt conversion feature.

The Company evaluated its equity investment in Ostendo of $1.6 million and recorded an impairment of approximately $0.2 million. The Company utilized inputs of market data and trends of peer group companies to determine the fair value of the equity investment.

As discussed in Note 11 – Equity below, the Company exceeded its authorized share limit with respect to potentially issuable shares under the equity contracts described with the Share Derivative Liabilities section. The Company estimates the fair value of the Common stock derivative liability based on the fair value of the potentially issuable shares for the warrants, stock options and RSUs vested but unissued. This liability excludes the fair value of the potentially convertible shares for the convertible Debentures which are accounted for through the carrying value of the debt and the separate conversion feature derivative liability.

The Company recorded the common stock derivative liability at fair value as of December 31, 2022, through a transfer from equity to the common stock derivative liability. Changes in the fair value of the liability in future periods will be included in other income (expense) in the consolidated statements of operations.

The change in Level 3 fair value of the Company’s derivative liabilities is as follows:

Conversion feature derivative liability Common stock derivative liability Total level 3 derivative liability

Balance as of December 31, 2020 $
-
$
-
$
-

Issuance of convertible debentures 2,077
-
2,077

Increase in fair value included in earnings 6,278
-
6,278

Balance as of December 31, 2021 $ 8,355 $
-
$ 8,355

Transferred to equity on debt conversion (2,921 )
-
(2,921 )

Transferred to equity on RSU issuance
-

(5
) (5 )

Transferred from equity on recognition of derivative liability
-
314 314

Fair value of warrants issued
-
534 534

Decrease in fair value included in earnings (1,962 ) (570 ) (2,532 )

Balance as of December 31, 2022 $ 3,472 $ 273 $ 3,745

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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