Financial Instruments and Financial Risk Management

9 Months Ended

Sep. 30, 2022

Investments, All Other Investments [Abstract]

Financial Instruments and Financial Risk Management

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States of America, and expands disclosures about fair value measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2	Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3	Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the periods ended September 30, 2022, and 2021, and December 31, 2021. The fair value of the Company’s cash, accounts receivable, other receivables, accounts payable and accrued expenses approximates carrying value due to their short-term nature. The Company’s notes receivable, lease receivables, contingent consideration payable, derivative liabilities, lease liabilities, convertible notes payable, construction finance liability and notes payable approximate fair value due to the instruments bearing market rates of interest or their short term nature. As the interest rates utilized to calculate these instruments approximates market

value interest rates, the carrying amounts of the instruments approximate fair value, which are primarily based on Level 1 inputs. The fair value of stock options granted were estimated based on a Black-Scholes model during the periods ended September 30, 2022 and December 31, 2021. The estimated fair value of the derivative liabilities, which represents an embedded put included in the convertible notes payable, represent Level 3 measurements.

The following table details the fair value measurements within the fair value hierarchy of the Company's financial instruments, which includes the Level 3 liabilities:

	Fair value at September 30, 2022
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability	$	8	$	—	$	—	$	8
Total liabilities	$	8	$	—	$	—	$	8

	Fair value at December 31, 2021
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability	$	3,502	$	—	$	—	$	3,502
Total liabilities	$	3,502	$	—	$	—	$	3,502

The table below provides a summary of the changes in fair value of the derivative liabilities measured on a recurring basis using significant unobservable inputs (Level 3):

	For the Nine Months Ended September 30,
Derivative liability:	2022		2021
Balance, beginning of period	$	3,502	$	5,807
(Gain) loss on fair value of derivative liability	(3,494)		(502)
Change in fair value of derivative liability upon exercise of warrants	—		(1,427)
Balance, end of period	$	8	$	3,878

There were no transfers between fair value levels for the nine months ended September 30, 2022 and the year ending December 31, 2021.

(a)    Financial Risk Management

The Company is exposed in varying degrees to a variety of financial instruments related risks. The Company's board of directors mitigate these risks by assessing, monitoring and approving the Company’s risk management processes.

(b)    Credit Risk

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash, accounts receivable, lease receivables, other receivables, and notes receivable. The Company’s maximum credit risk exposure is equivalent to the carrying value of these instruments at the financial statement date. The risk to cash deposits is mitigated by holding these instruments with regulated financial institutions. Lease receivables, notes receivables and other receivables credit risk arises from the

possibility that principal and interest due may become uncollectible. The Company mitigates this risk by managing and monitoring the underlying business relationships.

The Company maintains cash with federally insured financial institutions. As of December 31, 2021, the Company exceeded federally insured limits by approximately $11 million. The Company did not exceed any federally insured limits at any of its financial institutions as of September 30, 2022. The Company has historically not experienced any losses in such accounts. As of September 30, 2022, the Company held an immaterial amount of cash in a Canadian account that is denominated in C$.

As of September 30, 2022 and December 31, 2021, the maximum credit exposure related to the carrying amounts of accounts receivable, other receivable, notes receivable and lease receivables was $18.4 million and $12.7 million, respectively.

(c)    Liquidity Risk

The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to raise sufficient capital to settle obligations and liabilities when due. The Company has raised capital as needed, however there is no guarantee the company will be able to continue to raise funds in the same manor it has historically.

The Company has the following obligations as of September 30, 2022, which are expected to be payable in the following respective periods:

	Less than 1 year		1 to 3 years		3 to 5 years		Greater than 5 years		Total
Accounts payable and accrued liabilities	$	22,923	$	1,200	$	—	$	—	$	24,123
Convertible notes, notes payable and accrued interest	9,299		75,214		—		—		84,513
Construction finance liability	—		16,000		—		—		16,000
Total	$	32,222	$	92,414	$	—	$	—	$	124,636

(d)    Foreign Exchange Risk

The Company is exposed to exchange rate fluctuations between United States and Canadian dollars. The Company’s share price is denominated in Canadian dollars. If the Canadian dollar declines against the United States dollar, the United States dollar amounts available to fund the Company through the exercise of stock options or warrants will be reduced. The Company also has bank accounts with balances in Canadian dollars. The value of these bank balances if converted to U.S. dollars will fluctuate. While the Company maintains a head office in Canada where it incurs expenses primarily denominated in Canadian dollars, such expenses are a small portion of overall expenses incurred by the Company. The Company does not have a practice of trading derivatives and does not engage in “natural hedging” for funds held in Canada.