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Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial Instruments
The following table summarizes the liabilities measured at fair value on a recurring basis as of June 30, 2024 (in thousands): 
Fair Value Measurements at Reporting Date Using
Balance as of
June 30,
2024 		Level 1Level 2Level 3
PIPE Warrants$16,758 $— $— $16,758 
2024 Convertible Note Warrants5,166 — — 5,166 
Convertible Bridge Loan Warrants840 — — 840 
Private Warrants425 — — 425 
Working Capital Warrants47 — — 47 
Subtotal - Derivative warrant liabilities23,236 — — 23,236 
Forward purchase derivative liabilities10,511 — — 10,511 
Convertible promissory notes (2024 Convertible Notes)7,259 — — 7,259 
Tranche right derivative liabilities (Tranche Rights)4,336 — — 4,336 
Obligation to issue common stock (liability classified Consideration Shares)3,617 3,617 — — 
Total$48,959 $3,617 $— $45,342 
In addition to items that are measured at fair value on a recurring basis, the Company also has liabilities that are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. Liabilities that are measured at fair value on a nonrecurring basis as of June 30, 2024 include the Senior Convertible Notes. The Senior Convertible Notes were determined to be in-scope of ASC 470, Debt. Accordingly, this instrument will not be measured at fair value on a recurring basis as the fair value measurement of this instrument was for purposes of the relative fair value allocation as the Senior Convertible Notes were issued together with the SPA Warrants.
Legacy Convertible Notes
For the three and six months ended June 30, 2023, the Company recognized $1.3 million and $2.8 million of expense associated with the change in fair value of the Legacy Convertible Notes, respectively.
The Legacy Convertible Notes converted at Closing on September 29, 2023. The fair value of the notes immediately prior to their conversion at Closing was based upon the fair value of the 2,278,598 shares of the Company’s common stock issued upon their conversion totaling $18.9 million, at a per share value of $8.30 based upon the fair value of the Company’s common stock at Closing.
2024 Convertible Notes
The following table presents a reconciliation of the 2024 Convertible Notes (in thousands):

Related Party Convertible NotesSecured Convertible NotesUnsecured Convertible NotesTranche Convertible NotesTotal 2024 Convertible Notes
Balance as of December 31, 2023$— $— $— $— $— 
Issuance— — 250 — 250 
Change in fair value— — 478 — 478 
Balance as of March 31, 2024$— $— $728 $— $728 
Issuance543 4,346 1,817 1,160 7,866 
Change in fair value(18)(412)(149)(17)(596)
Repayment— — (739)— (739)
Balance as of June 30, 2024$525 $3,934 $1,657 $1,143 $7,259 
Prior to April 1, 2024, the fair value of the 2024 Convertible Notes was measured using a binomial lattice model. A binomial stock lattice model generates two probable outcomes of stock price -one up and another down -emanating at each point in time or "node", starting from the valuation date until the maturity date. This lattice generates a distribution of stock price. Based on the stock price at each corresponding node, the value of the Notes was determined by evaluating the optimal decision that a holder and/or the issuer would make to maximize its payoff (the "Decision Tree"). At maturity, the value of the notes was calculated as the maximum between the principal amount and the conversion value. At each node prior to maturity, the lattice model determines whether the notes would be (i) converted by the holder, or (ii) held by the holder, based on the payoff related to each decision. Volatility in the model was estimated from historical equity volatility, median asset volatility of comparable companies, and was adjusted using the Company's capital structure. The cost of debt used in discounting the Notes was estimated based on (i) market yield curve corresponding to the estimated synthetic credit rating of the Company, and (ii) observed market spreads of publicly traded comparable debt with similar credit rating and industry as that of the Company.

Commencing on April 1, 2024, the fair value of the 2024 Convertible Notes was measured using a probability weighted scenario model. The possible settlement outcomes were identified and a scenario for each outcome was modeled and probability weighted for the likelihood of each respective event as set forth in tabular format below. The conversion feature was modeled as a call option, where the exercise price is set equal to the stated conversion price, stock price equals the Company’s closing stock price on the Valuation date, volatility uses a re-levered equity volatility estimated from the median historical asset volatility of comparable companies, and a term equal to the expected time to conversion. The Black-Scholes Option Pricing Model, which captures all possible outcomes, was used to value the conversion right, which is added to the present-valued cash flows to calculate the fair value of the 2024 Convertible Notes. The 2024 Convertible Notes' cash flows were present valued using a market yield curves of debt instruments issued by similarly rated issuers, and adjusted based on seniority and securitization of each individual 2024 Convertible Notes. A default scenario was implemented and probability weighted using Bloomberg’s Default Risk function. The Company’s historical financial statements were utilized to estimate a probability of default over a given term and a synthetic credit rating. The default scenario value uses a recovery rate observed in instruments with similar seniority per Moody’s debt data.

As set forth above, the binomial lattice model captures two probable outcomes while the probability weighted scenario model captures additional possible outcomes with the Black-Scholes Option Pricing Model utilized for the conversion scenario captures all possible outcomes for that scenario. The Company changed their methodology for the fair value of the 2024 Convertible Notes as of April 1, 2024 because of changes in entity-specific assumptions and the volume of issuances following this date, which introduced a variety of additional types of 2024 Convertible Notes (Related Party Convertible Notes, Tranche Convertible Notes, Secured Convertible Notes) and holders of 2024 Convertible Notes, which increased the diversity of expected behaviors and potential outcomes.
The following unobservable assumptions were used in determining the fair value of the 2024 Convertible Notes prior to April 1, 2024:
Credit spread27.5 %
Equity volatility45.0 %
The following unobservable assumptions were used in determining the fair value of the 2024 Convertible Notes following April 1, 2024:

June 30, 2024Issuance Dates
Conversion
60.0% - 80.0%
60.0% - 75.0%
Maturity0.0 %0.0 %
Default Feature
20.0% - 40.0%
25.0% - 40.0%
June 30, 2024Issuance Dates
Dividend Yield0.0 %0.0 %
Volatility
105.0% - 144.0%
108.0% - 151.0%
Discount Yield
14.7% - 17.5%
14.1% - 17.8%
Liability Classified Warrants
The following table represent a reconciliation of all liability classified warrants (in thousands):
Private WarrantsWorking Capital WarrantsConvertible Bridge Loan WarrantsConvertible Promissory Note WarrantsPIPE WarrantsTotal
Balance as of December 31, 2023$377 $43 $— $— $25,339 $25,759 
Issuances— — 1,424 323 — 1,747 
Change in fair value in connection with the Q1 2024 PIPE Warrant Amendment— — — — (429)(429)
Change in fair value426 46 398 619 (5,206)(3,717)
Balance as of March 31, 2024$803 $89 $1,822 $942 $19,704 $23,360 
Issuances— — 16 5,247 — 5,263 
Change in fair value in connection with the Q2 2024 PIPE Warrant Amendment— — — — 4,430 4,430 
Reclassification to equity pursuant to sequencing policy— — (297)— — (297)
Change in fair value(378)(42)(701)(1,023)(7,376)(9,520)
Balance as of June 30, 2024$425 $47 $840 $5,166 $16,758 $23,236 
The fair value of the Private Warrants, Working Capital Warrants, Convertible Bridge Loan Warrants, and Convertible 2024 Note Warrants were measured using a Black-Scholes model. The estimated fair value of the liability classified warrants was determined using Level 3 inputs. Inherent in a Black-Scholes model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its liability classified warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of each class of warrants as well as historical volatility of select peer company’s traded options. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of each class of warrants. The expected life of each class of warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.
The fair value of the PIPE Warrants was valued using level 3 inputs and was estimated using a Monte Carlo simulation approach. The Company’s common share price was assumed to follow a Geometric Brownian Motion over a period from the Valuation Date to the Expiration Date. The breadth of all possible scenarios was captured in an estimate of volatility, based on comparable companies’ historical equity volatilities, considering differences in their capital structure. For each simulation path, the test price and Reset Price were calculated based on the daily stock price during the measurement period. On each reset date, the downside protection condition was assessed to see if it was met by comparing the test price with the downside protection threshold price. The value of each tranche of warrants was then computed, factoring in any downside protection shares and downside protection cash, if applicable. The average value across this range of possible scenarios, discounted to present using the risk-free rate, was used as the fair value of the PIPE Warrants. The change in fair value of the PIPE Warrants was primarily attributable to select features of the Warrant Subscription Agreements, including strike price resets and downside protection which results in decreased value as the Company’s stock price volatility increases and the stock price declines.
The following unobservable assumptions were used in determining the fair value of the liability classified warrants as it relates to the PIPE Warrants:
At June 30, 2024At Q2 2024 PIPE Warrant Amendment DateAt Q1 2024 PIPE Warrant Amendment DateAt December 31, 2023
Credit spread13.3 %12.2 %17.8 %12.7 %
Equity volatility101.0 %98.0 %105.0 %100.0 %
The following unobservable assumptions were used in determining the fair value of the liability classified warrants as it relates to the Private Warrants and Working Capital Warrants:
At June 30, 2024At December 31, 2023
Volatility61.7 %35.3 %
Dividend yield (per share)0.0%0.0%
The following unobservable assumptions were used in determining the fair value of the liability classified warrants as it relates to the Convertible Bridge Loan Warrants and Convertible 2024 Note Warrants:
At June 30, 2024At Issuance Dates
Convertible Bridge Loan Warrants
Volatility
98.0% - 122.0%
98.0% - 105.0%
Dividend yield (per share)0.0%0.0%
2024 Convertible Note Warrants
Volatility
98.0% - 99.0%
96.0% - 100.0%
Dividend yield (per share)0.0%0.0%

Forward Purchase Derivative Liabilities
The forward purchase derivative liabilities were initially recognized at Closing on September 29, 2023, and additional forward purchase derivative liabilities were initially recognized at the subsequent subscription date of April 18, 2024. The fair value of forward purchase derivative liabilities as of June 30, 2024 was $10.5 million.
Refer to Note 4, Private Placement, for a reconciliation of the forward purchase derivative liabilities.
The fair value of the forward purchase derivative liabilities, exclusive of the April 2024 FPA, was estimated using a Monte Carlo simulation approach. The Company’s common share price was simulated with daily time steps for a range of various possible scenarios. The breadth of all possible scenarios was captured in an estimate of volatility, based on comparable companies’ historical equity volatilities, considering differences in their capital structure. The simulated prices were compared against the settlement adjustment features of the Forward Purchase Agreements. Under each simulated scenario of future stock price, the Company calculated the value of the forward purchase derivative liability arrangement. The average value across this range of possible scenarios, discounted to present using the risk-free rate, was used as the fair value of the forward purchase derivative liabilities.
The fair value of the April 2024 FPA was estimated using a digital-call option pricing model due to the terms of the April 2024 FPA, which resulted in a binary settlement outcome whereby the Company may receive either zero dollars or an amount equal to the Reset Price (as amended pursuant to the April 2024 FPA). Inputs to the digital call option pricing model include the Company's closing stock price as of the measurement dates, the Reset Price (as amended pursuant to the April 2024 FPA) ceiling of $1.27 as the exercise price, volatility as determined by re-levering the median asset volatility of selected guideline companies calibrated to the Company's capital structure, and the risk-free rate.
The following unobservable assumptions were used in determining the fair value of the forward purchase derivative liabilities, at the respective balance sheet and amendment dates:
June 30, 2024April 2024 FPAAt February Q1 2024 FPA AmendmentAt January Q1 2024 FPA AmendmentDecember 31, 2023
Dividend yield0.0 %0.0 %0.0 %0.0 %0.0 %
Equity volatility116.0 %165.0 %145.0 %105.0 %115.0 %
Consideration Shares
The Consideration Shares are recorded at fair value on a recurring basis. These shares are liability-classified until issuance and relate to the Convertible Bridge Loans and 2024 Convertible Notes. The liability associated with these Consideration Shares is carried at fair value, demonstrating the obligation to the lenders. The estimated fair value of the Consideration Shares is based on quoted market prices that are readily and regularly available in an active market.
The following table presents a reconciliation of the liability classified Consideration Shares (in thousands):

 Consideration Shares
Balance as of December 31, 2023$— 
Additions14 
Change in fair value— 
Balance as of March 31, 2024$14 
Additions3,926 
Reclassification of liability classified stock to equity(12)
Change in fair value(311)
Balance as of June 30, 2024$3,617 
Tranche Rights
The following table presents a reconciliation of the Tranche Rights (in thousands):
Tranche Rights
Balance as of December 31, 2023$— 
Issuance5,045 
Change in fair value(137)
Exercise of tranche rights(572)
Balance as of June 30, 2024$4,336 
The fair value of the Tranche Rights was based upon the fair value of the 2024 Convertible Notes, 2024 Convertible Note Warrants, and Consideration Shares underlying unexercised tranche rights as of the date of measurement, each measured through identical methodologies as set forth in this Note 9 for the respective underlying instruments.
The following unobservable assumptions were used in determining the fair value of the 2024 Convertible Note Warrants underlying the Tranche Rights:
June 30, 2024At Issuance Dates
Dividend yield0.0%0.0%
Equity Volatility98.0 %
97.0 % - 98.0 %
The following unobservable assumptions were used in determining the fair value of the 2024 Convertible Notes underlying the Tranche Rights:
June 30, 2024Issuance Dates
Conversion
76.0 % - 78.0 %
75.0 %
Maturity0.0 %0.0 %
Default Feature
22.0 % - 24.0 %
25.0 %
June 30, 2024Issuance Dates
Dividend Yield0.0 %0.0 %
Volatility
98.0 % - 99.0 %
98.0 %
Discount Yield
17.4 % - 17.5 %
16.9 % - 17.8 %

Residual Fair Values
The Convertible Bridge Loans were issued together with the promise to issue Convertible Bridge Loan Warrants. The Convertible Bridge Loan Warrants were recorded at fair value, under ASC 815, Derivatives and Hedging, and the Convertible Bridge Loans were determined to be in-scope of 470, Debt. Accordingly, the Company recorded the fair value of the Convertible Bridge Loan Warrants at issuance, with the residual amount of the proceeds allocated to the convertible debt instrument.
The fair value of the Convertible Bridge Loan Warrants was treated as a discount to the Convertible Bridge Loans, which will be amortized to interest expense over the term of the Convertible Bridge Loans. The stand-alone fair value at initial recognition for the Convertible Bridge Loan Warrants was $1.4 million. Less than $0.1 million in residual value was allocated to the Convertible Bridge Loans. The Company received total proceeds of $0.7 million from the issuance of the Convertible Bridge Loans. Accordingly, upon issuance, the Company recognized a loss of $0.7 million within Loss on issuance of financial instruments in the unaudited condensed consolidated statements of operations representing the fair value of the Convertible Bridge Loan Warrants over the proceeds received for the issuance of the Convertible Bridge Loans, Convertible Bridge Loan Warrants and Consideration Shares.