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Fair Value Measurements (FaceBank Group, Inc. Pre-Merger) | 3 Months Ended | 9 Months Ended | 12 Months Ended
--- | --- | --- | ---
Mar. 31, 2020 | Sep. 30, 2020 | Dec. 31, 2019
Fair Value Measurements |  |
14. | Fair Value Measurements
The Company holds investments in equity securities and limited partnership interests, which are accounted for at fair value and classified within financial assets at fair value on the condensed consolidated balance sheet, with changes in fair value recognized as investment gain / loss in the condensed consolidated statements of operations. The Company also held an investment in Nexway common stock that was publicly traded on the Frankfurt Exchange. Additionally, the Company’s convertible notes, derivatives and warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income (expense) in the condensed consolidated statements of operations. The following table classifies the Company’s assets and liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2020 and December 31, 2019 (in thousands):
|  | Fair valued measured at September 30, 2020 |
|  | Quoted prices in active markets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
Financial Liabilities at Fair Value: |  |  |  |  |  |  |  |  |  |  |  |
Profits interest sold |  |  | - |  |  |  | - |  |  |  | 2,119 |
Warrant liability - Subsidiary |  |  | - |  |  |  | - |  |  |  | 21 |
Warrant liability |  |  | - |  |  |  | - |  |  |  | 28,065 |
Total Financial Liabilities at Fair Value |  | $ | - |  |  | $ | - |  |  | $ | 30,205 |
|  | December 31, 2019 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets at Fair Value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at fair value |  | $ | 1,965 |  |  | $ | — |  |  | $ | 1,965 |  |  | $ | — |
Total |  | $ | 1,965 |  |  | $ | — |  |  | $ | 1,965 |  |  | $ | — |
Financial Liabilities at Fair Value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Convertible notes |  | $ | 1,203 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,203 |
Profit share liability |  |  | 1,971 |  |  |  | — |  |  |  | — |  |  |  | 1,971 |
Derivative liability |  |  | 376 |  |  |  | — |  |  |  | — |  |  |  | 376 |
Warrant liability - subsidiary |  |  | 24 |  |  |  | — |  |  |  | — |  |  |  | 24 |
Total |  | $ | 3,574 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,574 |
Derivative Financial Instruments The following table presents changes in Level 3 liabilities measured at fair value (in thousands) for the three and nine months ended September 30, 2020. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.
|  | Derivative - Convertible Notes |  |  | Warrants (assumed from subsidiary) |  |  | Profits Interests Sold |  |  | Warrant Liability |  |  | Embedded Put Option |
Fair value at December 31, 2019 |  | $ | 1,203 |  |  | $ | 24 |  |  | $ | 1,971 |  |  | $ | - |  |  | $ | 376 |
Change in fair value |  |  | (206 | ) |  |  | (3 | ) |  |  | 148 |  |  |  | (9,143 | ) |  |  | (220 | )
Additions |  |  | 3,583 |  |  |  | - |  |  |  | - |  |  |  | 50,743 |  |  |  | 172 |
Redemption |  |  | (4,580 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (328 | )
Reclassification of warrant liabilities |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (13,535 | ) |  |  | - |
Fair value at September 30, 2020 |  | $ | - |  |  | $ | 21 |  |  | $ | 2,119 |  |  | $ | 28,065 |  |  | $ | - |
Profit Share Liability - The fair value of the profits interest sold related to the Panda investment was determined using an expected cash flow analysis. The change in fair value of profit share liability of $0.1 million for the nine months ended September 30, 2020 is reported as a component of other income (expense) in the condensed consolidated statement of operations. Warrant Liabilities On September 25, 2020, the Company repaid all of its variable convertible notes. As a result of this repayment, the Company is no longer subject to a sequencing policy and therefore reclassified $13.5 million of warrant liabilities to additional paid in capital. FB Loan Warrant In connection with its Note Purchase Agreement (see Note 13), the Company issued the FB Loan Warrant and utilized the Black-Scholes pricing model. The warrant liability was recorded at the date of grant at fair value. Subsequent changes in fair value for the three and nine months ended September 30, 2020 was $0.1 million and $5.5 million, respectively and was recorded as other expense in the condensed consolidated statement of operations. On September 30, 2020 the Company entered into the first amendment to the warrant which amended the warrant strike price from $5.00 to $2.75. The significant assumptions used in the valuation are as follows:
|  | September 30, 2020 |
Fair value of underlying common shares |  | $ | 9.00 |
Exercise price |  | $ | 2.75 |
Expected dividend yield |  |  | — | %
Expected volatility |  |  | 50.7 | %
Risk free rate |  |  | 0.22 | %
Expected term (years) |  |  | 4.46 |
Purchase Agreements with Investors Between May 11, 2020 and June 8, 2020, the Company entered into Purchase Agreements with certain investors (the “Investors”), pursuant to which the Company sold an aggregate of 3,735,922 shares (the “Purchased Shares”) of the Company’s common stock and issued 3,735,922 warrants to the Investors. See Note 17. Absent the Company’s sequencing policy as disclosed in the Company’s Annual Report on Form 10-K/A filed with the SEC on August 10, 2020, the Company would have recorded these warrants as equity classified. The aggregate warrant liabilities were recorded at the respective date of grant at fair value using a Monte Carlo simulation model. Subsequent changes in fair value for the three and nine months ended September 30, 2020 were $4.4 million and $14.8 million, respectively, and were recorded as change in fair value of warrant liabilities in the condensed consolidated statement of operations. The Company used a Monte Carlo simulation model to estimate the fair value of the warrant liability at September 30, 2020:
|  | September 30, 2020 |
Fair value of underlying common shares |  | $ | 9.00 |
Exercise price |  | $ | 7.00 |
Expected dividend yield |  |  | — | %
Expected volatility |  |  | 73.6 – 74.3 | %
Risk free rate |  |  | 0.12 | %
Expected term (years) |  |  | 1.12 – 1.19 |
As of September 30, 2020, the Company reclassified the fair value of $12.0 million of warrant liabilities to additional paid-in capital. Between August 20, 2020 and September 29, 2020, the Company entered into Purchase Agreements Investors, with certain investors (the “Investors”), pursuant to which the Company sold an aggregate of 1,843,726 shares (the “Purchased Shares”) of the Company’s common stock and issued 1,843,726 warrants to the Investors. See Note 17. The was aggregate warrant liabilities were recorded at the date of grant at fair value of $5.5 million using a Monte Carlo simulation model. Subsequent changes in fair value for the three and nine months ended September 30, 2020 were $1.3 million for each period, respectively, and were recorded as change in fair value of warrant liabilities in the condensed consolidated statement of operations. The Company used a Monte Carlo simulation model to estimate the fair value of the warrant liability at September 30, 2020:
|  | September 30, 2020 |
Fair value of underlying common shares |  | $ | 9.00 |
Exercise price |  | $ | 9.25 |
Expected dividend yield |  |  | — | %
Expected volatility |  |  | 69.7 – 71.2 - | %
Risk free rate |  |  | 0.12 | %
Expected term (years) |  |  | 1.39 – 1.49 |
ARETE Wealth Management On May 25, 2020, the Company issued to ARETE Wealth Management a warrant to purchase 275,000 shares of the Company’s common stock for investment services. Absent the Company’s sequencing policy as disclosed in the Company’s Annual Report on Form 10-K/A filed with the SEC on August 10, 2020, the Company would have recorded these warrants as equity classified. The warrant liability was recorded at the date of grant at fair value. Subsequent changes in fair value for the three and nine months ended September 30, 2020 was $0.4 million and $0.7 million, respectively and was recorded as change in fair value of warrant liabilities in the condensed consolidated statement of operations. The significant assumptions used in the valuation are as follows:
|  | September 30, 2020 |
Fair value of underlying common shares |  | $ | 9.00 |
Exercise price |  | $ | 5.00 |
Expected dividend yield |  |  | — | %
Expected volatility |  |  | 60.0 | %
Risk free rate |  |  | 0.27 | %
Expected term (years) |  |  | 4.6 |
As of September 30, 2020, the Company reclassified the fair value of $1.5 million of warrant liabilities to additional paid-in capital. Convertible Notes On April 1, 2020, the Company issued 142,118 common stock warrants in connection with a $1.1 million convertible note. The warrant was recorded as a warrant liability utilizing the Black-Scholes pricing model. The warrant liability was recorded at the date of grant at fair value. Subsequent changes in fair value for the three and nine months ended September 30, 2020 was $1.5 million and $1.8 million, respectively, and was recorded as change in fair value of warrant liability in the condensed consolidated statement of operations. On September 29, 2020, the Company entered into an amendment related to the common stock warrants and issued an additional 217,357 warrants. |
FaceBank Group, Inc Pre-Merger [Member] |  |  |
Fair Value Measurements | Note 10 – Fair Value Measurements The Company holds investments in equity securities and limited partnership interests, which are accounted for at fair value and classified within financial assets at fair value on the condensed consolidated balance sheet, with changes in fair value recognized as investment gain/ loss in the condensed consolidated statements of operations. The Company also has an investment in Nexway common stock that is publicly traded on the Frankfurt Exchange. Additionally, the Company’s convertible notes, derivatives and warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income/expense in the condensed consolidated statements of operations.
|  | Fair valued measured at March 31, 2020 |
|  | Quoted prices in active markets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
Financial Assets at Fair Value: |  |  |  |  |  |  |  |  |  |  |  |
Investment in Equity/Debt Funds |  | $ | - |  |  | $ | 1,965 |  |  | $ | - |
Investment in Nexway at fair value |  |  | 2,374 |  |  |  | - |  |  |  | - |
Total Financial Assets at Fair Value |  | $ | 2,374 |  |  | $ | 1,965 |  |  | $ | - |
Financial Liabilities at Fair Value: |  |  |  |  |  |  |  |  |  |  |  |
Derivative liability - convertible notes |  | $ | - |  |  | $ | - |  |  | $ | 1,692 |
Profits interest sold |  |  | - |  |  |  | - |  |  |  | 1,971 |
Embedded put option |  |  | - |  |  |  | - |  |  |  | 389 |
Warrant liability - Subsidiary |  |  | - |  |  |  | - |  |  |  | 39 |
Warrant liability |  |  | - |  |  |  | - |  |  |  | 15,987 |
Total Financial Liabilities at Fair Value |  | $ | - |  |  | $ | - |  |  | $ | 20,078 |
|  | Fair Value measured at December 31, 2019 |
|  | Quoted prices in active markets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
Derivative liability – convertible notes |  | $ | - |  |  | $ | - |  |  | $ | 1,203 |
Profits interest |  |  | - |  |  |  | - |  |  |  | 1,971 |
Embedded put option |  |  | - |  |  |  | - |  |  |  | 376 |
Warrant Liability - Subsidiary |  |  | - |  |  |  | - |  |  |  | 24 |
Total Financial Liabilities at Fair Value |  | $ | - |  |  | $ | - |  |  | $ | 3,574 |
Derivative Financial Instruments The following table presents changes in Level 3 liabilities measured at fair value (in thousands) for the year ended December 31, 2019. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.
|  | Derivative - Convertible Notes |  |  | Warrants (assumed from subsidiary) |  |  | Profits Interests Sold |  |  | Warrant Liability |  |  | Embedded Put Option |
Fair value at December 31, 2019 |  | $ | 1,203 |  |  | $ | 24 |  |  | $ | 1,971 |  |  | $ | - |  |  | $ | 376 |
Change in fair value |  |  | (200 | ) |  |  | 15 |  |  |  | - |  |  |  | 366 |  |  |  | (97 | )
Additions |  |  | 689 |  |  |  | - |  |  |  | - |  |  |  | 15,621 |  |  |  | 172 |
Redemption |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (62 | )
Fair value at March 31, 2020 |  | $ | 1,692 |  |  | $ | 39 |  |  | $ | 1,971 |  |  | $ | 15,987 |  |  | $ | 389 |
The Company assumed liability for a warrant issued by PEC that expires on January 28, 2023. The fair value of the warrant liability, totaled $39,000 on March 31, 2020 and $24,000 on December 31, 2019, resulting in a change in fair value of $15,000 that is reported as a component of other income/(expense) in the condensed consolidated statement of operations for the three months ended March 31, 2020. Subsidiary Warrant Liability – The Company used a Monte Carlo simulation model to estimate the fair value of the warrant liability with the following assumptions at March 31, 2020 and December 31, 2019:
|  | March 31, 2020 |  |  | December 31, 2019 |
Exercise price |  | $ | 0.75 |  |  | $ | 0.75 |
Stock price – subsidiary |  | $ | 0.03 |  |  | $ | 0.02 |
Discount applied |  |  | 0 | % |  |  | 0 | %
Fair value of stock price |  | $ | 0.00 |  |  | $ | 0.00 |
Risk free rate |  |  | 0.28 | % |  |  | 1.62 | %
Contractual term (years) |  |  | 2.83 |  |  |  | 3.08 |
Expected dividend yield |  |  | 0 | % |  |  | 0 | %
Expected volatility |  |  | 83.7 | % |  |  | 83.7 | %
Number of subsidiary warrants outstanding |  |  | 48,904,037 |  |  |  | 48,904,037 |
In arriving at the fair value of stock price as of December 31, 2019 and March 31, 2020, no discount was applied to the trading price of the PEC stock, as a result of illiquidity in the volumes being traded on the OTC markets. Risk-free interest rate was based on rates established by the Federal Reserve Bank. The volatility rate was based on stock prices of comparable companies. Profits Interest – The fair value of the profits interest was determined using an expected cash flow analysis. Warrant Liability – In connection with its Note Purchase Agreement (see Note 9), the Company issued the FB Loan Warrant and utilized the Black-Scholes pricing model. Absent the Company’s sequencing policy as disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on May 29, 2020, the Company would have recorded these warrants as equity classified. The warrant liability was recorded at the date of grant at fair value with subsequent changes in fair value recognized in earnings each reporting period. The fair value of the warrant liability at grant date totaled $15.6 million, and on March 31, 2020 the fair value of the warrant liability totaled $16.0 million, resulting in a change in fair value of $0.4 million that is reported as a component of other income/(expense) in the condensed consolidated statement of operations for the three months ended March 31, 2020. The significant assumptions used in the valuation are as follows:
|  | March 31, 2020 |
Fair value of underlying common shares |  | $ | 4.78 - 4.97 |
Exercise price |  | $ | 5.00 |
Dividend yield |  |  | - | %
Historical volatility |  |  | 52.6% - 52.8 | %
Risk free interest rate |  |  | 0.14% – 0.66 | %
Embedded Put Option – The Series D Convertible Preferred Stock (the “Series D Preferred Stock”) contains a contingent put option and, accordingly, the Company considered it to be a liability and accounted for it at fair value using Level 3 inputs. The Company determined the fair value of this liability using the Monte Carlo simulation model with the following inputs:
|  | March 31, 2020 |  |  | December 31, 2019 |
Stock price |  | $ | 8.35 – $9.20 |  |  | $ | 8.91 – $9.03 |
Fixed conversion price |  | $ | 0.25 |  |  | $ | 0.25 |
Risk free rate |  |  | 0.2 – 0.4 | % |  |  | 1.6 | %
Contractual term (years) |  |  | 1.2 – 1.5 |  |  |  | 1.2 – 1.5 |
Expected dividend yield |  |  | 8.0 | % |  |  | 8.0 | %
Expected volatility |  |  | 87.2% - 94.8 | % |  |  | 89.2% - 90.4 | %
|  | Note 11 - Fair Value Measurements The Company holds investments in equity securities and limited partnership interests, which are accounted for at fair value and classified within financial assets at fair value on the consolidated balance sheet, with changes in fair value recognized as investment gain/ loss in the consolidated statements of operations. Additionally, the Company’s convertible notes, derivatives and warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income/expense in the consolidated statements of operations.
|  | Fair Value measured at December 31, 2019 |
|  | Quoted prices in active markets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
Derivative liability - convertible notes |  | $ | - |  |  | $ | - |  |  | $ | 1,203 |
Profits interest |  |  | - |  |  |  | - |  |  |  | 1,971 |
Embedded put option |  |  | - |  |  |  | - |  |  |  | 376 |
Warrant Liability |  |  | - |  |  |  | - |  |  |  | 24 |
Total Financial Liabilities at Fair Value |  | $ | - |  |  | $ | - |  |  | $ | 3,574 |
|  | Fair Value measured at December 31, 2018 |
|  | Quoted prices in active markets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
Derivative liability - convertible notes |  | $ | - |  |  | $ | - |  |  | $ | 469 |
Derivative liability - related party convertible notes |  |  | - |  |  |  | - |  |  |  | 549 |
Total Derivative Liability |  | $ | - |  |  | $ | - |  |  | $ | 1,018 |
Warrant Liability |  |  | - |  |  |  | - |  |  |  | 4,528 |
Total Fair Value |  | $ | - |  |  | $ | - |  |  | $ | 5,546 |
Derivative Financial Instruments The following table presents changes in Level 3 liabilities measured at fair value (in thousands) for the year ended December 31, 2019. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.
|  | Derivative - Convertible Notes |  |  | Warrants (assumed from subsidiary) |  |  | Profits Interests |  |  | Embedded Put Option |
Fair value at December 31, 2018 |  | $ | 1,018 |  |  | $ | 4,528 |  |  | $ | - |  |  | $ | - |
Change in fair value |  |  | (678 | ) |  |  | (4,504 | ) |  |  | 198 |  |  |  | (137 | )
Additions |  |  | 863 |  |  |  | - |  |  |  | 1,773 |  |  |  | 589 |
Redemptions |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (76 | )
Fair value at December 31, 2019 |  | $ | 1,203 |  |  | $ | 24 |  |  | $ | 1,971 |  |  | $ | 376 |
The Company assumed liability for a warrant issued by PEC that expires on January 28, 2023. The fair value of the warrant liability, totaled $24,000 on December 31, 2019 and $4.5 million on December 31, 2018, resulting in a change in fair value of $4.5 million that is reported as a component of other income/(expense) in the consolidated statement of operations for the year ended December 31, 2019. Warrant Liability - The Company used a Monte Carlo simulation model to estimate the fair value of the warrant liability with the following assumptions at December 31, 2019 and 2018:
|  | December 31, 2019 |  |  | December 31, 2018 |
Exercise price |  | $ | 0.75 |  |  | $ | 0.75 |
Stock price - subsidiary |  | $ | 0.02 |  |  | $ | 0.22 |
Discount applied |  |  | 0 | % |  |  | 50 | %
Fair value of stock price |  | $ | 0.00 |  |  | $ | 0.09 |
Risk free rate |  |  | 1.62 | % |  |  | 2.49 | %
Contractual term (years) |  |  | 3.08 |  |  |  | 4.08 |
Expected dividend yield |  |  | 0 | % |  |  | 0 | %
Expected volatility |  |  | 83.7 | % |  |  | 86.5 | %
Number of subsidiary warrants outstanding |  |  | 48,904,037 |  |  |  | 48,904,037 |
In arriving at the fair value of stock price, in 2019 no discount was applied to the trading price of the PEC stock, as a result of illiquidity in the volumes being traded on the OTC markets. Risk-free interest rate was based on rates established by the Federal Reserve Bank. The volatility rate was based on stock prices of comparable companies. Profits Interest - The fair value of the profits interest was determined using an expected cash flow analysis. Embedded Put Option - The Series D Convertible Preferred Stock contains a contingent put option and, accordingly, the Company considered it to be a liability and accounted for it at fair value using Level 3 inputs. The Company determined the fair value of this liability using the Monte Carlo simulation model with the following inputs:
|  | December 31, 2019 |
Stock price |  | $ | 8.91 – $9.03 |
Fixed conversion price |  | $ | 0.25 |
Risk free rate |  |  | 1.6 | %
Contractual term (years) |  |  | 1.2 - 1.5 |
Expected dividend yield |  |  | 8.0 | %
Expected volatility |  |  | 89.2% - 90.4 | %

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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