Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 3. FAIR VALUE MEASUREMENTS

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

● Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

● Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The fair value of Level 1 securities is determined using quoted prices in active markets for identical assets. As of December 31, 2022, Level 1 securities consisted of highly liquid money market funds and common stock warrant liability. In addition, restricted cash collateralized by money market funds is a financial asset measured at fair value and is a Level 1 financial instrument under the fair value hierarchy. As of March 31, 2023, Level 1 securities included money market funds. As a result of the warrant liability being reclassified to equity during the three months ended March 31, 2023, the common stock warrants are no longer securities that are measured at fair value at period end (see Note 7).

Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data, such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. The Company had no financial instruments classified at Level 2 as of March 31, 2023 and December 31, 2022.

Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques and at least one significant model assumption or input is unobservable. Level 3 liabilities that are measured at fair value on a recurring basis included the earnout liability, which was recognized in connection with the Business Combination in September 2021.

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at estimated fair value using Level 3 inputs. There were no transfers within the hierarchy during the three months ended March 31, 2023 and 2022.

The following tables set forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):

	March 31, 2023
	Level 1		Level 2		Level 3		Total
Financial assets
Money market funds	$	126,836	$	-	$	-	$	126,836
Total fair value of assets	$	126,836	$	-	$	-	$	126,836
Financial liabilities
Earnout liability	$	-	$	-	$	782	$	782
Total fair value of financial liabilities	$	-	$	-	$	782	$	782

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Financial assets
Money market funds	$	37,250	$	-	$	-	$	37,250
Total fair value of assets	$	37,250	$	-	$	-	$	37,250
Financial liabilities
Common stock warrant liability	$	150	$	-	$	-	$	150
Earnout liability		-		-		18		18
Total fair value of financial liabilities	$	150	$	-	$	18	$	168

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

	Earnout Liability
Fair Value as of January 1, 2022	$	5,743
Change in the fair value included in other income		(4,593	)
Fair Value as of March 31, 2022	$	1,150
Fair Value as of January 1, 2023	$	18
Change in the fair value included in other expense		764
Fair Value as of March 31, 2023	$	782

The estimated fair value of the earnout liability is determined using a Monte Carlo simulation model, which uses a distribution of potential outcomes on a monthly basis over the earnout period prioritizing the most reliable information available. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones, including the Company’s current common stock price, expected volatility, risk-free rate and expected term. The estimates of fair value are uncertain and changes in any of the estimated inputs used as of the date of this report could have resulted in significant adjustments to the fair value.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurement classified in Level 3 of the fair value hierarchy at March 31, 2023:

	Fair value (in thousands)		Valuation methodology	Significant unobservable input
Earnout liability	$	782	Monte Carlo Simulation	Common stock price	$	1.81
				Expected term (in years)		1.49
				Expected volatility		140.0	%
				Risk-free interest rate		4.26	%

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurement classified in Level 3 of the fair value hierarchy at December 31, 2022:

	Fair value (in thousands)		Valuation methodology	Significant unobservable input
Earnout liability	$	18	Monte Carlo Simulation	Common stock price	$	0.48
				Expected term (in years)		1.73
				Expected volatility		105.0	%
				Risk-free interest rate		4.40	%