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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2023

Fair Value Measurements

The Company applies the provisions of ASC 820, Fair Value Measurement, which defines a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurements. The provisions of ASC 820, Fair Value Measurement relate to financial assets and liabilities as well as other

assets and liabilities carried at fair value on a recurring and nonrecurring basis. The standard clarifies that 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 liability. As a basis for considering such assumptions, the standard establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities, or funds.

Level 2Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 instruments typically include U.S. Government and agency debt securities and corporate obligations. Valuations are usually obtained through market data of the investment itself as well as market transactions involving comparable assets, liabilities or funds.

Level 3Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models or similar techniques, and not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial or nonfinancial asset or liability.

Notes Payable

The Company has elected to measure certain notes payable at fair value. Specifically, the Secured SPA Notes and the Unsecured SPA Notes as they contain embedded liquidation premiums with conversion rights that represent embedded derivatives (see Note 8, Notes Payable). The Company used a binomial lattice model and Black Scholes methodology to value various convertible notes payable. The significant assumptions used in the models include the risk-free rate, annual dividend yield, expected life, and volatility of the Company's Class A Common Stock. Fair value measurements associated with the notes payable represent Level 3 valuations under the fair value hierarchy.

The fair value adjustments related to notes payables were recorded in Change in fair value measurements on the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

Secured and Unsecured SPA Warrants

The Company has elected to measure the SPA Warrants at fair value. The Company uses either a Black-Scholes Option Pricing or a Monte Carlo simulation model to measure the fair value of the SPA Warrants, where the significant assumptions used include the volatility of the Company’s Class A Common Stock, the Company’s expectations around the full ratchet trigger, the contractual term of the SPA Warrants, the risk-free rate and annual dividend yield. Fair value measurements associated with the liability-classified warrants represent Level 3 valuations under the fair value hierarchy.

SEPA

During the six months ended June 30, 2023 and as of the date of issuing the unaudited Condensed Consolidated Financial Statements, the Company did not direct Yorkville to buy any shares of Class A Common Stock. The Company determined that SEPA represents a derivative financial instrument under ASC 815, Derivatives and Hedging, which should be recorded at fair value at inception and each reporting date thereafter. The financial instrument was classified as a derivative asset with a fair value of zero as of June 30, 2023 and December 31, 2022.

Liabilities due to Insufficient Authorized Shares

From time to time, certain of the Company’s equity-linked financial instruments may be classified as derivative liabilities under ASC 815, Derivatives and Hedging, due to the Company having insufficient authorized shares to fully settle the equity-linked financial instruments in shares. See Note 11, Stockholders' Equity .

Recurring Fair Value Measurements

Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables present financial assets and liabilities remeasured on a recurring basis by level within the fair value hierarchy:


	June 30, 2023
(in thousands)	Level 1		Level 2		Level 3
Liabilities:
Warrant liabilities1	$	—	$	—	$	21,103
Notes payable1	—		—		69,652
Earnout shares liability	—		—		1,448
Share-based payment liabilities	—		—		2,728

1 Includes both related party and non-related party balances for the Company’s notes payable and warrant liabilities.


	December 31, 2022
(in thousands)	Level 1		Level 2		Level 3
Liabilities:
Warrant liabilities	$	—	$	—	$	92,833
Notes payable	—		—		26,008
Earnout shares liability	—		—		2,250
Share-based payment liabilities	—		—		3,977

There were not any transfers of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy during the six months ended June 30, 2023. The carrying amounts of the Company’s financial assets and liabilities, including cash, restricted cash, deposits, accounts payable and accrued liabilities approximate fair value because of their short-term nature or contractually defined value.

The following table summarizes the activity of Level 3 fair value measurements:


(in thousands)	Warrant Liabilities1		Notes Payable1		Earnout Shares Liability		Liability for Insufficient Authorized Shares Related to Stock Options and RSUs
Balance as of December 31, 2022	$	92,833	$	26,008	$	2,250	$	3,977
Additions	37,159		167,297		—		—
Net disposal pursuant to Warrant Exchange	(16,506)		—		—		—
Exercises	(47,202)		—		—		—
Debt extinguishments	1,317		13,078		—		—
Change in fair value measurements	(46,498)		(29,107)		2,100		—
Payments of notes payable, including periodic interest	—		(1,167)		—		—
Stock-based compensation expense	—		—		—		4,752
Reclassification from liability to equity on February 28, 2023	—		—		(5,014)		(8,979)
Reclassification from equity to liability on April 21, 2023	—				2,112		2,978
Conversions of notes to Class A Common Stock	—		(106,457)		—		—
Balance as of June 30, 2023	$	21,103	$	69,652	$	1,448	$	2,728

1 Includes both related party and non-related party balances for the Company’s notes payable and warrant 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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