Fair Value Measurement

3 Months Ended

Mar. 31, 2023

Fair Value Measurements [Abstract]

Fair Value Measurement

Note 9 — Fair Value Measurement

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 March 31, 2023 and December 31, 2022:

			Fair value measurement at reporting date using
			Quoted prices in
			active markets		Significant other		Significant
			for identical		observable		unobservable
	Balance		assets (Level 1)		inputs (Level 2)		inputs (Level 3)
As of March 31, 2023:
Recurring fair value measurements (in thousands):
Assets:
Equity investment in Ostendo	$	1,397	$	-	$	-	$	1,397
Derivative liabilities:
Conversion feature derivative liability	$	1,405	$	-	$	-	$	1,405
Share derivative liability		437		-		-		437
Total derivative liabilities		1,842		-		-		1,842
Total recurring fair value measurements	$	1,842	$	-	$	-	$	1,842
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
Total recurring fair value measurements	$	3,745	$	-	$	-	$	3,745

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 three months ended March 31, 2023, the Company recorded a gain of approximately $2.1 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 in 2022. 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 10 – 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 March 31, 2023, 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.

For the three months ended March 31, 2023, the Company recognized a gain of $2.1 million for the change in fair value of debt conversion feature, and a loss of $0.2 million for change in fair value of the share derivative liability.