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Fair Value Measurement

12 Months Ended

Dec. 31, 2023

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, notes receivable, contract assets, accounts payable, warrants, convertible notes payable — related party, contract liabilities and long-term debt.

Accounting standards require financial assets and liabilities to be classified 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 requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, contract assets, contract liabilities and accounts payable are considered to be representative of their fair value due to the short maturity of these instruments.

The table below summarizes the fair values of certain liabilities that are included within the Company's accompanying consolidated balance sheets, and their designations among the three fair value measurement categories:


	December 31, 2023						December 31, 2022
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Liabilities
Warrants	$	—	$	55	$	27,406	$	—	$	78	$	—
Embedded derivatives	$	—	$	—	$	4,423	$	—	$	—	$	1,945

Warrants

The IPO warrants are classified as Level 2 financial instruments in the table above. They are valued on the basis of the quoted price of the Company’s public warrants, adjusted for insignificant difference between the public warrants and the private placement warrants.

The April 2023 warrants, May 2023 warrants, and the December 2023 warrants are classified as Level 3 financial instruments in the table above. The Company estimated the fair value of these warrants using the Black-Scholes model at inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, risk-free interest rate, volatility, and time to expiration. The volatility involves unobservable inputs classified as Level 3 of the fair value hierarchy.

The inputs used to determine the fair value of the April 2023 warrants, May 2023 warrants, and the December 2023 warrants are as follows:


April 2023 warrants	December 31, 2023			April 12, 2023
Time to expiration	4.79 years			5.51 years
Common stock price	$	1.09		$	2.61
Risk-free interest rate	3.8		%	3.4		%
Volatility	70.0		%	70.0		%

May 2023 warrants	December 31, 2023			May 15, 2023
Time to expiration	4.54 years			5.17 years
Common stock price	$	1.09		$	2.31
Risk-free interest rate	3.8		%	3.4		%
Volatility	70.0		%	70.0		%

December 2023 warrants	December 31, 2023			December 14, 2023
Time to expiration	4.96 years			5.00 years
Common stock price	$	1.09		$	1.32
Risk-free interest rate	3.8		%	3.9		%
Volatility	70.0		%	70.0		%

Embedded derivatives

The Company estimated the fair value of the embedded conversion features in the 2021 Convertible Note and AFG Convertible Note using a binomial lattice model at inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, dividend yield, risk-free interest rate, the effective debt yield and expected volatility. The effective debt yield and volatility involve unobservable inputs classified as Level 3 of the fair value hierarchy.

The inputs used to determine the fair value of the embedded derivative liabilities are as follows:


2021 Convertible Note	December 31, 2023		December 31, 2022
Term	2.50 years		3.50 years
Dividend yield	—	%	—	%
Risk-free interest rate	4.1	%	4.1	%
Volatility	70.0	%	80.0	%
Effective debt yield	40.0	%	25.0	%

AFG Convertible Note	December 31, 2023		January 18, 2023
Term	2.50 years		3.45 years
Dividend yield	—	%	—	%
Risk-free interest rate	4.1	%	3.6	%
Volatility	70.0	%	70.0	%
Effective debt yield	40.0	%	40.0	%

Level 3

The following table summarizes the changes in the fair value of liabilities that are included within the Company’s accompanying consolidated balance sheets and are designated as Level 3:


	For the Years Ended December 31,
	2023		2022
Embedded derivatives
Balance at beginning of the period	$	1,945	$	12,359
Additions	30,619		466
Change in fair value of derivatives - related party	(28,141)		(10,880)
Balance at end of the period	$	4,423	$	1,945

Warrants
Balance at beginning of the period	$	—	$	—
Additions	55,330		—
Change in fair value of warrants	(27,924)		—
Balance at end of the period	$	27,406	$	—

The estimated fair value of financial instruments not carried at fair value in the consolidated balance sheets was as follows:


	Level in fair value hierarchy	December 31, 2023				December 31, 2022
		Carrying Value		Fair Value		Carrying Value		Fair Value
Notes receivable	3	$	863	$	719	$	863	$	677
2021 Convertible Notes*	3	94,386		57,998		82,950		62,421
Senior Secured Term Loan	3	85,624		61,360		81,616		77,576
AFG Convertible Notes*	3	18,139		18,352		—		—
Equipment financing facility	3	5,710		4,826		8,577		6,282
Yorkville Convertible Notes*	3	—		—		2,688		2,908
Total		$	204,722	$	143,255	$	176,694	$	149,864

*Includes the embedded derivative liabilities.

- Definition

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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