Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

12.Fair Value Measurements

The Company’s financial instruments consist of its notes held at fair value, derivatives, contingent consideration and warrants.

There were no assets or liabilities measured at fair value on a recurring basis as of June 30, 2024, and no assets measured at fair value on a recurring basis as of December 31, 2023. Liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 were as follows:

	Fair value measurements as of June 30, 2024
	Level 1		Level 2		Level 3		Total
	(in thousands)
Liabilities
Derivatives	$	—	$	—	$	938	$	938
Warrants		—		—		138		138
Total	$	—	$	—	$	1,076	$	1,076

	Fair value measurements as of December 31, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Liabilities
Derivatives	$	—	$	—	$	122	$	122
Bridge Notes		—		—		1,717		1,717
Warrants		—		—		591		591
Total	$	—	$	—	$	2,430	$	2,430

During the six months ended June 30, 2024, there were no transfers between Level 1 and Level 2, nor into and out of Level 3.

The following tables summarize the activity for the Company Level 3 liabilities measured at fair value on a recurring basis for the six months ended June 30, 2024:

December 2023 Derivative

In connection with the Company’s issuance of its December 2023 Note, the Company bifurcated the embedded conversion option and redemption rights and recorded embedded conversion option and redemption rights as a short term derivative liability in the Company’s condensed consolidated balance sheet in accordance with FASB ASC 815, Derivatives and Hedging. The fair value of the embedded derivative was determined using a lattice model.

The Company recognized a gain equal to $0.05 million and $0.1 million for the three and six months ended June 30, 2024, respectively, related to change in fair value of the December 2023 Derivative recorded in the condensed consolidated statements of operations in other expense (income).

Loss Restoration Derivative

In connection with the Company entering into the Loss Restoration Agreement in April 2024, the Company recorded the Loss Restoration Derivative as a short term derivative liability in the Company’s condensed consolidated balance sheet in accordance with FASB ASC 815, Derivatives and Hedging. The fair value of the Loss Restoration Derivative of $0.06 million was determined using a Mote Carlo model.

The Company recognized a loss equal to $0.9 million for the three and six months ended June 30, 2024, respectively, related to change in fair value of the Loss Restoration Derivative recorded in the condensed consolidated statements of operations in other expense (income).

	December 2023			Loss Restoration Agreement
(in thousands)	Derivatives			Derivatives		Total
Fair value at December 31, 2023	$	122		$	—	$	122
Issuance of derivatives		—			61		61
Change in estimated fair value of derivatives		(122	)		877		755
Fair value at June 30, 2024	$	-		$	938	$	938

Accrued Earn Out

As part of the Acquisition of CLMBR, Inc. the Sellers shall be entitled to receive a contingent payment in the form of shares of the Company’s common stock (collectively, the “Earn-Out Shares”) calculated in the manner set forth in the Asset Purchase Agreement based on the 2024 Unit Sales (as defined in the Asset Purchase Agreement) and the volume-weighted average price (“VWAP”) for the Company’s common stock based on the 10 consecutive trading days ending on (and including) December 31, 2024, subject to the VWAP Collar. In addition, in the event the 2024 Unit Sales include at least 2,400 Units sold in the business-to-business channel, the Sellers shall be entitled to an additional number of Earn-Out Shares calculated in the manner set forth in the Asset Purchase Agreement subject to total maximum number of 566,642 Earn-Out Shares. The Company assessed the fair value as of June 30, 2024 and it was determined based on current sales that achieving the projection was deemed remote and as a result the Company marked the contingent liability to $0. The Company recognized a gain equal to $1.3 million for the six months ended June 30, 2024 related to change in fair value of the earn out recorded in the condensed consolidated statements of operations in other expense (income).

November 2023 Bridge Notes

On November 10, 2023, the Company issued the November Bridge Notes. The fair value of the bridge notes was determined using a discounted cash flow analysis at a discount rate of 21.0%. The fair value of the bridge notes of $1.7 million was recorded as a current liability upon issuance.

The Company amended the Bridge notes into convertible notes in January 2024 and subsequently converted the notes into Preferred Stock Series A in February 2024 and March 2024. In February 2024 and March 2024, the Company recognized a loss equal to $0.3 million on the extinguishment of debt and loss on change in fair value of $0.3 million upon conversion to Series A Preferred Stock.

	November 2023
(in thousands)	Bridge Notes
Fair value at December 31, 2023	$	1,717
Loss on extinguishment of debt		275
Change in estimated fair value of convertible notes		316
Conversion to Series A Preferred Stock		(2,308	)
Fair value at June 30, 2024	$	—

Warrants

November 2023 Warrants

On November 10, 2023, the Company issued warrants to two accredited investors to purchase shares of common stock of the Company. The fair value of the warrants was determined using the Monte Carlo Simulation, given the variable number of shares issuable upon exercise of the warrant. For the outstanding warrants as of June 30, 2024, management determined the fair value of the warrants using the following significant unobservable inputs: (1) probability and timing of events, (2) expected future equity value of the underlying shares at the time of conversion, and (3) and risk free rate of 4.3%. The fair value of the warrants was $0.0 million and $0.2 million as of June 30, 2024 and December 31, 2023, respectively. The Company recorded a change in fair value of warrants of $0.1 million and $0.2 million for the three and six months ended June 30, 2024.

December 2023 Warrants

On December 7, 2023, the Company issued warrants in connection with the issuance of the December 2023 Convertible Notes. The fair value of the warrants was determined using a Black-Scholes-Merton model, in which the probability and timing of potential future events is considered in order to estimate the fair value of the warrants as of each valuation date. The fair value of the warrants was $0.0 million and $0.4 million as of June 30, 2024 and December 31, 2023, respectively. The warrants were no longer outstanding at June 30, 2024. The Company recorded a change in fair value of warrants of $0.1 million and $0.3 million for the three and six months ended June 30, 2024.

Pursuant to the warrant agreement entered into with 3i in December 2023, the warrant to purchase shares of common stock increased to 77,020 following dilutive issuances in May 2024 whereas the exercise price was reduced to an amount equal to the new issuance price. In June 2024, the exercise price was reduced to $4.00 and the warrant shares increased to 288,900. In June 2024, 3i exercised 23,112 warrant shares for $0.09 million. The remaining 265,788 warrants were exchanged for 375,000 shares of Series A Preferred Stock in June 2024 and the Company recognized a loss equal to $0.4 million for the three and six months ended June 30, 2024, respectively.

February 2024 Warrants

On February 1, 2024, the Company issued an aggregate 75,000 warrants to purchase shares of common stock to an accredited investor in conjunction with the issuance of its $6.0 million Convertible Note with Treadway Holdings, LLC (the "February 2024 Note"). The fair value of the warrants was determined using a Black-Scholes-Merton model, in which the probability and timing of potential future events is considered in order to estimate the fair value of the warrants as of each valuation date. For the outstanding warrants as June 30, 2024, management determined the fair value of the warrants using the following significant unobservable inputs: (1) probability and timing of events, (2) expected future equity value of the underlying shares at the time of conversion, and (3) a risk free rate of 4.2%. The fair value of the warrants of $1.8 million was recorded as a long-term liability upon issuance. The fair value of the warrants was $0.05 million as of June 30, 2024. The Company recorded a change in fair value of warrants of $0.5 million and $1.7 million for the three and six months ended June 30, 2024.

Woodway Warrants

On February 20, 2024, the Company issued warrants in connection with an Exclusive Distribution Agreement with WOODWAY USA, INC. The fair value of the warrants was determined using a Black-Scholes-Merton model, in which the probability and timing of potential future events is considered in order to estimate the fair value of the warrants as of each valuation date. For the outstanding warrants as June 30, 2024, management determined the fair value of the warrants using the following significant unobservable inputs: (1) probability and timing of events, (2) expected future equity value of the underlying shares at the time of conversion, and (3) a risk free rate of 4.4%. The fair value of the warrants of $0.3 million was recorded as a long-term liability upon issuance. The fair value of the warrants was $0.005 million as of June 30, 2024. The Company recorded a change in fair value of warrants of $0.1 million and $0.4 million for the three and six months ended June 30, 2024.

Registered Offering Warrants

On May 20, 2024, the Company issued warrants in connection with a securities purchase agreement with certain institutional investors. The fair value of the warrants was determined using a Black-Scholes-Merton model, in which the probability and timing of potential future events is considered in order to estimate the fair value of the warrants as of each valuation date. For the outstanding warrants as June 30, 2024, management determined the fair value of the warrants using the following significant unobservable inputs: (1) probability and timing of events, (2) expected future equity value of the underlying shares at the time of conversion, and (3) a risk free rate of 4.3%. The fair value of the warrants of $0.7 million was recorded as a long-term liability upon issuance. The fair value of the warrants was $0.07 million as of June 30, 2024. The Company recorded a change in fair value of warrants of $0.6 million and $0.6 million for the three and six months ended June 30, 2024.

Placement Agent Warrants

On May 8, 2024, the Company issued warrants in connection with an agreement with the Placement Agent, pursuant to which the Placement Agent agreed to act as the exclusive placement agent in connection with the Registered Offering. The fair value of the warrants was determined using a Black-Scholes-Merton model, in which the probability and timing of potential future events is considered in order to estimate the fair value of the warrants as of each valuation date. For the outstanding warrants as June 30, 2024, management determined the fair value of the warrants using the following significant unobservable inputs: (1) probability and timing of events, (2) expected future equity value of the underlying shares at the time of conversion, and (3) a risk free rate of 4.3%. The fair value of the warrants of $0.05 million was recorded as a long-term liability upon issuance. The fair value of the warrants was $0.005 million as of June 30, 2024. The Company recorded a change in fair value of warrants of $0.05 million and $0.05 million for the three and six months ended June 30, 2024.

	November 2023			December 2023			February 2024			Woodway			Registered Direct			Placement Agent			Total
(in thousands)	Warrants			Warrants			Warrants			Warrants			Warrants			Warrants			Warrants
Fair value at December 31, 2023	$	165		$	426		$	—		$	—		$	—		$	—		$	591
Issuance of warrants		—			—			1,800			344			721			50			2,915
Change in estimated fair value of warrants		(163	)		(304	)		(1,749	)		(339	)		(646	)		(45	)		(3,246	)
Loss on cancelation of warrants		—			358			—			—			—			—			358
Conversion to Series A Preferred Stock					(480	)														(480	)
Fair value at June 30, 2024	$	2		$	—		$	51		$	5		$	75		$	5		$	138

The following tables summarize the activity for the Company Level 3 liabilities measured at fair value on a recurring basis for the six months ended June 30, 2023:

Convertible Notes

The Company entered into several convertible note arrangements with certain investors during 2022. The Company recorded the liability related to the convertible notes at fair value and subsequently remeasured the instruments to fair value using level 3 fair value measurements. The Company recorded a change in fair value adjustment of $0.2 million and $0.3 million for the three and six months ended June 30, 2023, respectively.

In May 2023, upon closing of the Company's IPO, the November 2022 Convertible notes were converted into an aggregate of 14,129 shares of common stock.

(in thousands)	Convertible Notes
Fair value at December 31, 2022	$	4,270
Issuance of convertible notes		—
Change in estimated fair value of financial instruments		252
Exercise of stock warrants		(4,521	)
Fair value at June 30, 2023	$	—

Warrants

On November 13, 2022, the Company issued 2,307 common stock warrants in connection with the issuance of the November 2022 Convertible Notes. The Company recorded the liability related to the warrants at fair value and subsequently remeasured the instruments to fair value using level 3 fair value measurements. The Company recorded a change in the fair value of warrants of $0.1 million and $2.3 million for the three and six months ended June 30, 2023, respectively. In May 2023, upon closing of the Company's IPO, the warrants were exercised and converted into shares of common stock.

	November 2022
(in thousands)	Warrants
Fair value at December 31, 2022	$	3,004
Issuance of warrants		—
Change in estimated fair value of financial instruments		(2,266	)
Exercise of stock warrants		(738	)
Fair value at June 30, 2023	$	—