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Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Note 9 — Fair Value Measurements

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy:

September 30, 2022


Description	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Investments held in trust account	$	150,969,468	$	—	$	—
Liabilities:
Derivative liabilities – public warrants	$	1,050,000	$	—	$	—
Derivative liabilities – private placement warrants	$	—	$	—	$	493,280

December 31, 2021


Description	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Investments held in trust account	$	150,006,015	$	—	$	—
Liabilities:
Derivative liabilities – public warrants	$	3,825,000	$	—	$	—
Derivative liabilities – private placement warrants	$	—	$	—	$	1,785,000

Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period. The estimated fair value of public warrants was transferred from a Level 3 fair value measurement to a Level 1 measurement, when the public warrants were separately listed and traded in September 2021. There were no other transfers between levels in the nine months ended September 30, 2022 and in the period from January 28, 2021 (inception) through December 31, 2021.

Level 1 assets include investments in mutual funds invested in U.S. government securities and derivative warrant liabilities (public warrants). The Company uses inputs such as actual trade data, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.

For periods where no observable traded price is available, the fair value of the public warrants has been estimated using a Monte-Carlo simulation model and the private placement warrants has been estimated using a Black-Scholes option pricing model. For periods subsequent to the detachment of the public warrants from the units, the fair value of the public warrants is based on the observable listed price for such warrants. The estimated fair value of the public and private placement warrants, prior to the public warrants being traded in an active market, was determined using Level 3 inputs. Inherent in a Monte-Carlo simulation and Black-Scholes option pricing model are assumptions related to the unit price, expected volatility, risk-free interest rate, term to expiration, and dividend yield. The unit price is based on the publicly traded price of the units as of the measurement date. The Company estimated the volatility for the public and private placement warrants based on the implied volatility from the traded prices of warrants issued by other special purpose acquisition companies. The risk-free interest rate is based on

interpolated U.S. Treasury rates, commensurate with a similar term to the public and private placement warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. Finally, the Company does not anticipate paying a dividend. Any changes in these assumptions can change the valuation significantly.

For the three months ended September 30, 2022 and 2021, the Company recognized a change to the statement of operations resulting from a decrease (increase) in the fair value of liabilities of approximately $1.4 million and $1.4 million, respectively, presented as change in fair value of derivative warrant liabilities on the accompanying statements of operations. For the nine months ended September 30, 2022 and for the period from January 28, 2021 (inception) through September 30, 2021, the Company recognized a change to the statement of operations resulting from a decrease (increase) in the fair value of liabilities of approximately $4.1 million and $1.4 million, respectively, presented as change in fair value of derivative warrant liabilities on the accompanying statements of operations.

The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:


	As of September 30, 2022			As of December 31, 2021
Exercise price	$	11.50		$	11.50
Volatility	5.8		%	9.6		%
Stock price	$	9.79		$	9.66
Remaining term (years)	5.19			5.75
Risk-free rate	3.97		%	1.32		%

The change in the fair value of the derivative warrant liabilities, measured using Level 3 inputs, for the three and nine months ended September 30, 2022 is summarized as follows:


Derivative warrant liabilities at December 31, 2021	$	1,785,000
Change in fair value of derivative liabilities	245,000
Derivative warrant liabilities at March 31, 2022	2,030,000
Change in fair value of derivative liabilities	(1,085,000)
Derivative warrant liabilities at June 30, 2022	945,000
Change in fair value of derivative liabilities	(451,720)
Derivative warrant liabilities at September 30, 2022	$	493,280

Note 9 — Fair Value Measurement

The following table presents information as of December 31, 2021 about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy:


Description	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Investments held in Trust Account	$	150,006,015	$	—	$	—
Liabilities:
Derivative liabilities – Public Warrants	$	3,825,000	$	—	$	—
Derivative liabilities – Private Placement Warrants	$	—	$	—	$	1,785,000

Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period. The estimated fair value of public warrants was transferred from a Level 3 fair value measurement to a Level 1 measurement, when the public warrants were separately listed and traded in September 2021. There were no other transfers between levels in the period from January 28, 2021 (inception) through December 31, 2021.

The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:


	As of December 31, 2021			As of August 6, 2021
Exercise price	$	11.50		$	11.50
Volatility	9.6		%	11.3		%
Stock price	$	9.66		$	9.66
Remaining term (yrs)	5.75			6.51
Risk-free rate	1.32		%	0.99		%

The change in the fair value of the derivative warrant liabilities, measured using Level 3 inputs, for the period from January 28, 2021 (inception) through December 31, 2021 is summarized as follows:


Derivative warrant liabilities at January 28, 2021 (inception)	$	—
Issuance of Public and Private Warrants	7,515,000
Transfer of Public Warrants to Level 1	(5,100,000)
Change in fair value of derivative liabilities	(630,000)
Derivative warrant liabilities at December 31, 2021	$	1,785,000

Note 6 — Fair Value

The following table presents the Company’s fair value hierarchy for its assets and liabilities measured at fair value as of September 30, 2022 and December 31, 2021 (in thousands):


	Fair Value Measurement as of
	September 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	519	—		—		$	519

Liabilities:
Warrants	$	—	$	—	$	1,572	$	1,572
SAFE warrant	—		—		2,022		2,022
SAFE liability	—		—		27,221		27,221
Total liabilities	$	—	$	—	$	30,815	$	30,815


	Fair Value Measurement as of
	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	516	$	—	$	—	$	516

Liabilities:
Warrants	$	—	$	—	$	1,145	$	1,145
SAFE warrant	—		—		1,729		$	1,729
SAFE liability	—		—		28,271		$	28,271
Total Liabilities	$	—	$	—	$	31,145	$	31,145

Warrants

The Company has warrants to purchase preferred shares outstanding as of September 30, 2022 and December 31, 2021 representing 225,223 and 225,223 preferred shares, respectively, which warrants expire at various dates through December 31, 2027. The exercise prices of the warrants range from $14.69 to $19.93 as of each of September 30, 2022 and December 31, 2021.

The warrants are accounted for as liabilities in accordance with ASC 480, Distinguishing Liability from Equity, and are presented within other accrued liabilities on the condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the condensed consolidated statements of operations and comprehensive loss.

The fair value of the warrants was calculated using the Black-Scholes Option Pricing Model. For the nine months ended September 30, 2022 and 2021, the Company recognized a change in the fair value of liabilities of approximately $(427) and $(699), respectively, on the condensed consolidated statements of operations and comprehensive loss within other (expense) income, net.

The estimated fair value of the warrants is determined using Level 3 inputs. Inherent in the Black-Scholes Option Pricing 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 warrants based on implied volatility from the Company’s warrants and from historical volatility of select peer companies that match the expected remaining life of the warrants. 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 the warrants. The expected life of the 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 following table represents the weighted average inputs used in calculating the fair value of the preferred share warrants outstanding as of September 30, 2022 and December 31, 2021:


	September 30, 2022			December 31, 2021
Stock price	$	15.03		$	13.77
Weighted average exercise price	17.31			17.32
Term (in years)	2.3			2.8
Expected volatility	76.9		%	70.6		%
Risk-free interest rate	2.9		%	0.8		%
Expected dividend yield	—		%	—		%

SAFE Liability and SAFE Warrant

In December 2021, the Company issued a SAFE that allowed an investor to participate in future equity financings through a share-settled redemption of the amount invested (such notional being the “invested amount”). The SAFE had not yet converted as a qualifying financing had not yet occurred as of September 30, 2022. At September 30, 2022, the SAFE had a fair value of $27,221 and was recorded within current liabilities on the condensed consolidated balance sheet.

Further, the warrant related to the SAFE of $2,022 as of September 30, 2022 is accounted for as a liability. This liability is recorded in current liabilities on the Company's condensed consolidated balance sheets at fair value on the date of issuance and will be revalued each subsequent reporting period until such instrument is exercised or expires.

The change in fair value between reporting periods for both the SAFE liability and SAFE warrant is included in other (expense) income, net in the condensed consolidated statements of operations and comprehensive loss.

The Company’s SAFE liability and SAFE warrant are mark-to-market liabilities pursuant to ASC 480 and are classified within Level 3 of the fair value hierarchy as the Company is using a scenario-based approach which allowed the Company to estimate the implied value of the business based on the terms of the SAFE. Significant unobservable inputs included probability and expected term. Probability is based upon the likelihood of the Company closing a transaction with a special purpose acquisition company. The expected term was based on the anticipated time until the SAFE investments would have a conversion event.

Significant inputs for Level 3 SAFE liability fair value measurement at September 30, 2022 are as follows:


	Near Term		Long-Term
Key assumptions:
Probability weighting	41	%	59	%
Time to conversion (in years)	0.3		1.0
Liquidity price	100	%	90	%
Discount rate	26.0	%	26.0	%

Significant inputs for Level 3 SAFE warrant fair value measurement at September 30, 2022 are as follows:


	Near Term		Long-Term
Key assumptions:
Probability weighting	41	%	59	%
Remaining life (in years)	5.0		5.0
Volatility	75	%	75	%
Interest rate	4.06	%	4.06	%
Time to conversion (in years)	0.3		1.0
Risk-free interest rate	3.33	%	4.05	%
Dividend yield	—	%	—	%

The following tables represents a reconciliation of the contingent shares issuance liabilities fair value measurements using the significant unobservable inputs (Level 3) (in thousands):


	Warrants		SAFE liability		SAFE warrant
Balance as of January 1, 2022	$	1,145	$	28,271	$	1,729
Loss / (gain) recognized in condensed statement of operations and comprehensive loss	427		(1,050)		293
Balance as of September 30, 2022	$	1,572	$	27,221	$	2,022


	Warrants		SAFE liability		SAFE warrant
Balance as of January 1, 2021	$	582	$	—	$	—
Issuance of SAFE liability and warrant	—		—		—
Loss recognized in condensed statement of operations and comprehensive loss	699		—		—
Balance as of September 30, 2021	$	1,281	$	—	$	—

Fair Value

The following table presents the Company’s fair value hierarchy for its assets and liabilities measured at fair value as of December 31, 2021 and 2020 (in thousands):


	Fair Value Measurement as of
	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	516	$	—	$	—	$	516

Liabilities:
Warrants	$	—	$	—	$	1,145	$	1,145
SAFE warrant	—		—		1,729		1,729
SAFE liability	—		—		28,271		28,271
Total liabilities	$	—	$	—	$	31,145	$	31,145


	Fair Value Measurement as of
	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	516	$	—	$	—	$	516

Liabilities:
Warrants	$	—	$	—	$	582	$	582

The warrants are accounted for as liabilities in accordance with ASC 480 and are presented within other accrued liabilities on the consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the consolidated statements of operations and comprehensive loss.

The fair value of the warrants was calculated using the Black-Scholes Option Pricing Model. For the years ended December 31, 2021 and 2020, the Company recognized a change in the fair value of liabilities of approximately $(563) and $105, respectively, on the statements of operations and comprehensive loss within other income (expense), net.

The following table represents the weighted average inputs used in calculating the fair value of the preferred share warrants outstanding as of December 31, 2021 and 2020:


	2021			2020
Stock price	$	13.77		$	4.68
Weighted average exercise price	17.32			18.39
Term (in years)	2.8			2.8
Expected volatility	70.6		%	88.9		%
Risk-free interest rate	0.8		%	0.4		%
Expected dividend yield	—		%	—		%

Significant inputs for Level 3 SAFE liability fair value measurement at December 31, 2021 are as follows:


	Near Term		Long-Term
Key assumptions:
Probability weighting	25	%	75	%
Time to conversion (in years)	0.5		1.0
Liquidity price	100	%	90	%
Discount rate	17.1	%	17.1	%

Significant inputs for Level 3 SAFE warrant fair value measurement at December 31, 2021 are as follows:


	Near Term		Long-Term
Key assumptions:
Probability weighting	25	%	75	%
Remaining life (in years)	5.0		5.0
Volatility	60	%	60	%
Interest rate	1.26	%	1.26	%
Time to conversion (in years)	0.5		1.0
Risk-free interest rate	0.19	%	0.39	%
Dividend yield	—	%	—	%

The following table represents a reconciliation of the contingent shares issuance liabilities fair value measurements using the significant unobservable inputs (Level 3) (in thousands):


	Warrants		SAFE liability		SAFE warrant
Balance as of January 1, 2020	$	687	$	—	$	—
Gain recognized in statement of operations and comprehensive loss	(105)		—		—
Balance as of December 31, 2020	$	582	$	—	$	—
Issuance of SAFE liability and warrant	—		28,271		1,729
Loss recognized in statement of operations and comprehensive loss	563		—		—
Balance as of December 31, 2021	$	1,145	$	28,271	$	1,729

In March 2021, a warrant was exercised for a total issuance of 158,058 Series D preferred shares. The fair value of this warrant was $107 as of January 1, 2020 and was remeasured to zero as of December 31, 2020. As a result, the exercise had no impact on the consolidated statement of operations and comprehensive loss as of and for the year ended December 31, 2021.

- 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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