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Fair Value of Financial Assets and Liabilities | 9 Months Ended
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Sep. 30, 2024
Fair Value Disclosures [Abstract] |
Fair Value of Financial Assets and Liabilities | 3. Fair Value of Financial Assets and Liabilities The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
|  | Fair Value Measurements as of September 30, 2024 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Acquisition-related contingent consideration obligations |  | $ | — |  |  | $ | — |  |  | $ | 1,606 |  |  | $ | 1,606 |
Contingent stock consideration |  |  | — |  |  |  | — |  |  |  | 27 |  |  |  | 27 |
Short-term debt - Yorkville convertible note |  |  | — |  |  |  | — |  |  |  | 3,695 |  |  |  | 3,695 |
Warrant liability - July 2023 Registered Direct Warrants |  |  | — |  |  |  | — |  |  |  | 1,748 |  |  |  | 1,748 |
Warrant liability - April 2023 Registered Direct Warrants |  |  | — |  |  |  | — |  |  |  | 1,670 |  |  |  | 1,670 |
Warrant liability - May 2022 PIPE Warrants |  |  | — |  |  |  | — |  |  |  | 809 |  |  |  | 809 |
Warrant liability - Sponsor Warrants |  |  | — |  |  |  | — |  |  |  | 32 |  |  |  | 32 |
Warrant liability - Public Warrants |  |  | 144 |  |  |  | — |  |  |  | — |  |  |  | 144 |
|  | $ | 144 |  |  | $ | — |  |  | $ | 9,587 |  |  | $ | 9,731 |
|  | Fair Value Measurements as of December 31, 2023 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Convertible note receivable |  | $ | — |  |  | $ | — |  |  | $ | 2,072 |  |  | $ | 2,072 |
|  | $ | — |  |  | $ | — |  |  | $ | 2,072 |  |  | $ | 2,072 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Acquisition-related contingent consideration obligations |  | $ | — |  |  | $ | — |  |  | $ | 1,606 |  |  | $ | 1,606 |
Contingent stock consideration |  |  | — |  |  |  | — |  |  |  | 27 |  |  |  | 27 |
Short-term debt - Yorkville |  |  | — |  |  |  | — |  |  |  | 17,223 |  |  |  | 17,223 |
Warrant liability - July 2023 Registered Direct Warrants |  |  | — |  |  |  | — |  |  |  | 1,529 |  |  |  | 1,529 |
Warrant liability - April 2023 Registered Direct Warrants |  |  | — |  |  |  | — |  |  |  | 1,487 |  |  |  | 1,487 |
Warrant liability - May 2022 PIPE Warrants |  |  | — |  |  |  | — |  |  |  | 708 |  |  |  | 708 |
Warrant liability - Sponsor Warrants |  |  | — |  |  |  | — |  |  |  | 60 |  |  |  | 60 |
Warrant liability - Public Warrants |  |  | 575 |  |  |  | — |  |  |  | — |  |  |  | 575 |
|  | $ | 575 |  |  | $ | — |  |  | $ | 22,640 |  |  | $ | 23,215 |
During the nine months ended September 30, 2024 and 2023, there were no transfers between Level 1, Level 2 and Level 3. The carrying values of other current liabilities approximate fair value in the accompanying condensed consolidated financial statements due to the short-term nature of those instruments. Valuation of Convertible Note Receivable The convertible note receivable was received in connection with the disposition of the UltraMIST/MIST business in 2020. At any time on or after January 1, 2021, at the sole discretion of the Company, amounts outstanding under the convertible note receivable (including accrued interest) may be converted into Sanuwave common stock at a defined rate. The convertible note receivable was to be paid on or before August 6, 2021. On December 18, 2023, the Company entered into a forbearance agreement with Sanuwave ("Sanuwave Forbearance Agreement"). Per the Sanuwave Forbearance Agreement, from the period from December 18, 2023 to the earliest of (i) February 28, 2024, (ii) the commencement of bankruptcy proceedings for Sanuwave pursuant to the U.S. Bankruptcy Code, (iii) the occurrence of an event of default other than payment default, or (iv) the failure of Sanuwave to comply with any term, condition or covenant set forth in the forbearance agreement, the Company agrees that it will not exercise any remedy available to it under the convertible note receivable, excluding the right to increase the interest rate. As collateral for payments owed to Palantir Technologies, Inc. ("Palantir"), the Company assigned to Palantir the Sanuwave convertible note receivable in the event of default (see Note 9). On May 10, 2024, the Company entered into a letter agreement with Sanuwave to extend the forbearance period from February 28, 2024 to June 3, 2024. The letter agreement increased the total note payments to $2,175. Upon executing the letter agreement, Sanuwave made an initial note payment of $100 and on June 3, 2024, made a second note payment of $2,075, fully discharging all outstanding indebtedness under the note. The following table presents a reconciliation of the convertible note receivable measured on a recurring basis using Level 3 inputs for the nine months ended September 30, 2024:
|  | Balance as of January 1, 2024 |  |  | Net transfers in to (out of) Level 3 |  |  | Purchases, settlements and other net |  |  | Fair value adjustments |  |  | Balance as of September 30, 2024 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Convertible note receivable |  | $ | 2,072 |  |  | $ | — |  |  | $ | (2,072 | ) |  | $ | — |  |  | $ | — |
At December 31, 2023, the fair value of this note was based on a bond valuation which employs a credit default model. The Company utilized Level 3 inputs on a probability weighted model based on outcomes of a default, repayment and conversion of the note. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions. Significant inputs for the convertible note valuation model were as follows:
|  | December 31, 2023 |
Face value | $ |  | 4,000 |
Coupon rate |  | 12% - 17% |
Stock price | $ |  | 0.23 |
Term (years) |  | 0.51-2.45 |
Risk-free interest rate |  |  | 5.47 | %
Volatility |  | n/a |
Valuation of Contingent Consideration The fair value measurement of the contingent consideration obligations is determined using Level 3 inputs and is based on a probability-weighted income approach. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions. The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using Level 3 inputs for the nine months ended September 30, 2024:
|  | Balance as of January 1, 2024 |  |  | Net transfers in to (out of) Level 3 |  |  | Purchases, settlements and other net |  |  | Fair value adjustments |  |  | Balance as of September 30, 2024 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Acquisition-related contingent consideration obligations |  | $ | 1,606 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,606 |
The fair value of the liability to make potential future milestone and earn-out payments was estimated by the Company at each reporting date based, in part, on the results of a third-party valuation using a discounted cash flow analysis based on various assumptions, including the probability of achieving specified events, discount rates, and the period of time until earn-out payments are payable and the conditions triggering the milestone payments are met. The actual settlement of contingent consideration could differ from current estimates based on the actual occurrence of these specified events. At each reporting date, the Company revalues the contingent consideration obligation to estimated fair value and records changes in fair value as income or expense in the Company’s condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the various contingent consideration obligations. The change in the fair value of the contingent consideration obligations during the nine months ended September 30, 2024 was de minimus. The Company has classified all of the contingent consideration as a long-term liability in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. See Note 9 for more information on contingent consideration. Valuation of Contingent Stock Consideration The contingent stock consideration liability at September 30, 2024, is comprised of the fair value of potential future issuance of Class A common stock to CariCord participating shareholders pursuant to a settlement agreement signed during the year ended December 31, 2021. The fair value measurement of the contingent stock consideration obligation is determined using Level 3 inputs and is based on a probability weighted expected return methodology ("PWERM"). The measurement is largely based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions. The following table presents a reconciliation of the contingent stock consideration obligation measured on a recurring basis using Level 3 inputs for the nine months ended September 30, 2024:
|  | Balance as of January 1, 2024 |  |  | Net transfers in to (out of) Level 3 |  |  | Purchases, settlements and other net |  |  | Fair value adjustments |  |  | Balance as of September 30, 2024 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent stock consideration |  | $ | 27 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 27 |
The fair value of the liability to issue future shares of Class A common stock was estimated by the Company at each reporting date using a PWERM based on various inputs and assumptions, including the Company’s common share price, discount rates, and the probability of achieving specified future operational targets. The actual settlement of contingent stock consideration could differ from current estimates based on the actual achievement of these specified targets and movements in the Company’s common share price. At each reporting date, the Company revalues the contingent stock consideration obligation to estimated fair value and records changes in fair value as income or expense in the Company’s condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent stock consideration obligation may result from changes in discount rates, changes in the Company’s common share price, and changes in probability assumptions with respect to the likelihood of achieving specified operational targets. The change in the fair value of the contingent stock consideration obligation during the nine months ended September 30, 2024 was de minimus. The Company has classified all of the contingent stock consideration as a current liability in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. Valuation of Short-Term Debt - Yorkville The Company elected the fair value option to account for the Yorkville PPA signed on September 15, 2022 (see Note 7). As of December 31, 2023, due to the short-term nature of the debt, the fair value of the Yorkville PPA approximated the settlement amount, which was fully paid on January 17, 2024. The Company also elected the fair value option to account for the Yorkville convertible promissory note signed on March 13, 2024 (see Note 7). The fair value measurement of the debt is determined using Level 3 inputs and assumptions unobservable in the market. Changes in the fair value of debt that is accounted for at fair value, inclusive of related accrued interest expense, are presented as gains or losses in the accompanying condensed consolidated statements of operations and comprehensive loss under change in fair value of debt. The portion of total changes in fair value of debt attributable to changes in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of comprehensive loss in the accompanying condensed consolidated statements of operations and comprehensive loss. The actual settlement of the short-term debt could differ from current estimates based on the timing of when and if Yorkville elects to convert amounts into common shares, potential cash repayment by the Company prior to maturity, and movements in the Company’s common share price. The following table presents a reconciliation of short-term debt obligations measured on a recurring basis using Level 3 inputs for the nine months ended September 30, 2024:
Liabilities: |  |  |
Balance as of January 1, 2024 |  | $ | 17,223 |
Principal repayments |  |  | (17,374 | )
Issuance of convertible promissory note |  |  | 3,150 |
Fair value adjustment through earnings |  |  | 694 |
Fair value adjustment through accumulated other comprehensive income |  |  | 2 |
Balance as of September 30, 2024 |  | $ | 3,695 |
The fair value of the Yorkville convertible promissory note is based on a valuation which employs a Monte Carlo model and a credit default model. The Company utilized Level 3 inputs in a probability weighted model based on outcomes of a default, repayment and conversion of the note. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions. The fair value of the Yorkville convertible promissory note on March 13, 2024, the date of issuance, was $2,993. Significant inputs for the Yorkville convertible promissory note valuation model were as follows:
|  | September 30, 2024 |  |  | March 13, 2024 |
|  |  |  |  | (issuance) |
Common share price | $ |  | 2.97 |  | $ |  | 5.79 |
Credit spread |  |  | 8.00 | % |  |  | 8.50 | %
Dividend yield |  |  | 0 | % |  |  | 0 | %
Term (years) |  |  | 0.45 |  |  |  | 1.00 |
Risk-free interest rate |  |  | 4.30 | % |  |  | 4.90 | %
Volatility |  |  | 50.0 | % |  |  | 50.0 | %
Valuation of Warrant Liability The warrant liability at September 30, 2024 is comprised of the fair value of warrants to purchase shares of Class A common stock. The Public Warrants are recorded at fair value based on the period-end publicly stated close price, which is a Level 1 input. The January 2024 Bridge Loan - Tranche #2 Warrants were recorded at fair value based on a Monte Carlo simulation model and the Registered Direct, PIPE and Sponsor Warrants are recorded at their respective closing date fair values based on a Black-Scholes option pricing model that utilizes inputs for: (i) value of the underlying asset, (ii) the exercise price, (iii) the risk-free rate, (iv) the volatility of the underlying asset, (v) the dividend yield of the underlying asset and (vi) maturity, which are Level 3 inputs. The Black-Scholes option pricing model’s primary unobservable input utilized in determining the fair values of the warrant liabilities is the expected volatility of the Class A common stock. Prior to the merger, Legacy Celularity was a private company and lacked company-specific historical and implied volatility information for its stock. Therefore, the Company estimates its expected stock price volatility using its volatility since the merger and the historical volatility of publicly traded peer companies. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the estimated remaining term of the warrants. Inputs to the Monte Carlo and Black-Scholes option pricing models for the warrants are updated each reporting period to reflect fair value. The following table presents a reconciliation of the warrant liabilities measured on a recurring basis using Level 3 inputs for the nine months ended September 30, 2024:
Balance as of January 1, 2024 |  | $ | 3,784 |
January 2024 Bridge Loan - Tranche #2 warrant issuance |  |  | 1,858 |
Gain recognized in earnings from change in fair value |  |  | 1,587 |
Reclassification of warrants from liability classified to equity classified |  |  | (2,970 | )
Balance as of September 30, 2024 |  | $ | 4,259 |
Significant inputs for the May 2022 PIPE Warrants and the 2023 Registered Direct Warrants were as follows:
|  | September 30, 2024 |  |  | December 31, 2023 |
Common share price | $ | 2.97 |  | $ |  | 2.47 |
Exercise price | $ | 3.50 - 7.50 |  | $ | 3.50 - 7.50 |
Dividend yield |  |  | 0 | % |  |  | 0 | %
Term (years) |  | 4.03 - 4.34 |  |  | 4.78 - 5.09 |
Risk-free interest rate |  |  | 3.58 | % |  |  | 3.84 | %
Volatility |  | 97.1% - 98.1% |  |  | 100.1% - 100.7% |
Significant inputs for the January 2024 Bridge Loan - Tranche #2 Warrants were as follows:
|  | July 15, 2024 |  |  | January 16, 2024 |
|  | (reclassification) |  |  | (issuance) |
Common share price | $ |  | 3.19 |  | $ |  | 2.00 |
Term to initial exercise date (years)(1) |  | N/A |  |  |  | 0.50 |
Dividend yield |  |  | 0 | % |  |  | 0 | %
Term (years) |  |  | 5.0 |  |  |  | 5.0 |
Risk-free interest rate |  |  | 4.00 | % |  |  | 3.90 | %
Volatility |  |  | 112.5 | % |  |  | 107.5 | %
(1) As discussed further in Note 7, the warrants were not exercisable and the exercise price was not set until certain conditions were met. As of July 15, 2024, the warrants became exercisable and no longer contain adjustment provisions to the exercise price that are not indexed to the Company's own stock. As such, the warrants were marked to fair value as of the initial exercise date and then reclassified from liability classified to equity classified. Significant inputs for the Sponsor Warrants were as follows:
|  | September 30, 2024 |  |  | December 31, 2023 |
Common share price | $ |  | 2.97 |  | $ |  | 2.47 |
Exercise price | $ |  | 115.00 |  | $ |  | 115.00 |
Dividend yield |  |  | 0 | % |  |  | 0 | %
Term (years) |  |  | 1.8 |  |  |  | 2.5 |
Risk-free interest rate |  |  | 3.66 | % |  |  | 4.12 | %
Volatility |  |  | 105.9 | % |  |  | 100.7 | %

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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/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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