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Financial Instruments
 3 Months Ended
Mar. 31, 2023
Investments, All Other Investments [Abstract]  
Financial Instruments

Note 19. Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows:

 

○Level 1 – Observable, unadjusted quoted prices in active markets
○Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability
○Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions

 

The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period.

 

Assets and Liabilities Reported at Fair Value on a Recurring Basis

 

Public Warrants:

 

Public warrants are recorded at fair value on a recurring basis. The Company obtains dealer quotes, of Level 1 inputs, based on observable data to value these warrants.

 

Private Placement Warrants

 

Private Placement Warrants are recorded at fair value on a recurring basis. The Company value these derivatives based on third party reports for Level 3 inputs. Level 3 inputs, based on observable data to value these derivatives.

 

PIPE Warrants

 

PIPE Warrants are recorded at fair value on a recurring basis. The Company value these derivatives based on third party reports for Level 3 inputs. Level 3 inputs, based on observable data to value these derivatives.

 

Forward purchase option derivatives:

 

Forward purchase option derivatives are recorded at fair value on a recurring basis. The Company values these derivatives based on third party reports for Level 3 inputs. Level 3 inputs, based on observable data to value these derivatives.

 

The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy on March 31, 2023 and December 31,2022:

 

March 31, 2023:

 

   Total Fair
Value		   Quoted Prices
in Active
Markets
(Level 1)		  

Significant
Other
Unobservable
Inputs

(Level 3)

 
Description               
Liabilities:               
Public warrants  $150,650    150,650    - 
Private placement warrants   7,953    -    7,953 
PIPE Warrants   74,762    -    

74,762

 
Forward purchase option derivative   7,309,580    -    7,309,580 

 

December 31, 2022:

 

   Total Fair Value  

Quoted Prices in Active Markets

(Level 1)

  

Significant Other Unobservable Inputs

(Level 3)

 
Description               
Liabilities:               
Public warrants  $361,100    361,100    - 
Private placement warrants   19,110    -    19,110 
PIPE Warrants   286,300    -    286,300 
Forward purchase option derivative   7,309,580    -    7,309,580 

 

 

Assets Measured at Fair Value on a Nonrecurring Basis

 

There were no assets or liabilities recorded at fair value on a nonrecurring basis for the three months periods ended March 31, 2023 and for the year ended as on December 31, 2022, respectively.

 

Fair Value of Financial Instruments

 

The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. With the exceptions of loans receivable, warrants and forward purchase option derivatives, the Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments.

 

The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:

 

 

           Level 1   Level 2   Level 3 
  

As on March 31, 2023

 
  

Carrying

amount

   Fair value   Fair value measurement using 
           Level 1   Level 2   Level 3 
Assets                     
Cash and cash equivalents  $8,628,752   $8,628,752   $8,628,752    -    - 
Forward purchase receivables   4,584,221    4,584,221    4,584,221    -    - 
Loans   413,292    365,781    -    -    365,781 
Liabilities                         
Deferred consideration   17,272,308    17,272,308    17,272,308    -    - 
Senior Secured Promissory note   14,500,000    14,500,000    14,500,000    -    - 
Indemnity liability   1,147,832    1,147,832    1,147,832    -    - 
Public warrants   150,650    150,650    150,650    -    - 
Private placement warrants   7,953    7,953    -    -    7,953 
PIPE Warrants   74,762    74,762    -    -    74,762 
Forward purchase derivative   7,309,580    7,309,580    -    -    7,309,580 

 

 

           Level 1   Level 2   Level 3 
  

As on December 31, 2022

 
  

Carrying

amount

   Fair value   Fair value measurement using 
           Level 1   Level 2   Level 3 
Assets                    
Cash and cash equivalents  $8,390,195   $8,390,195   $8,390,195    -    - 
Forward purchase receivables   4,584,221    4,584,221    4,584,221         - 
Loans   1,301,991    1,241,761    -    -    1,241,761 
Liabilities                         
Deferred consideration   14,359,822    14,359,822    14,359,822    -    - 
Due to seller - current portion   25,973,017    25,973,017    25,973,017    -    - 
Due to seller - long term position   30,976,783    30,976,783    30,976,783    -    - 
Deferred underwriter fee payable   1,450,500    1,450,500    1,450,500    -    - 
Indemnity liability   499,465    499,465    499,465    -    - 
Public warrants   361,100    361,100    361,100    -    - 
Private placement warrants   19,110    19,110    -    -    19,110 
PIPE Warrants   286,300    286,300    -    -    286,300 
Forward purchase derivative   7,309,580    7,309,580    -    -    7,309,580 

 

The change in the assets measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value are presented in the following table:

 

   PIPE
Warrants		   Private
Placement
Warrants		   Forward
purchase
derivative		 
  

For the three months ended

March 31, 2023

 
   PIPE
Warrants		   Private
Placement
Warrants		   Forward
purchase
derivative		 
Balance at the beginning of the period  $286,300    19,110    7,309,580 
Fair value adjustment   (211,538)   (11,157)   - 
Balance at the end of the period  $74,762    7,953    7,309,580 

 

The private placement warrants and PIPE warrants are measured at fair value using a Black-Scholes model and Black-Scholes-Merton model, respectively. As of March 31, 2023, these warrants were valued based on third party reports for Level 3 inputs. Level 3 inputs, based on observable data to value these derivatives.

 

The fair value of the forward purchase derivative was estimated using a Monte-Carlo Simulation in a risk-neutral framework (a special case of the Income Approach). Specifically, the future stock price is simulated assuming a Geometric Brownian Motion (“GBM”). For each simulated path, the forward purchase value is calculated based on the contractual terms and then discounted at the term-matched risk-free rate. Finally, the value of the forward is calculated as the average present value over all simulated paths. The Company measured the fair value of the forward purchase option derivative upon execution of the Forward Purchase Agreement and as of December 31, 2022, with the respective fair value adjustments recorded within its Statements of Operations. The Company will continue to monitor the fair value of the forward option derivative each reporting period with subsequent revisions to be recorded in the Statements of Operations.

 

The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the private placement warrants and public warrants as of their measurement dates:

 

As on March 31, 2023

  PIPE Warrants   Private placement
warrants		 
Exercise price  $5.00   $11.50 
Share Price  $0.51   $0.51 
Expected term (years)   4.49    4.49 
Volatility   73.2%   73.2%
Risk-free rate   3.62%   3.62%

 

As on December 31,2022  PIPE Warrants   Private placement warrants 
Exercise price  $5.00   $11.50 
Share Price  $1.78   $1.78 
Expected term (years)   4.74    4.74 
Volatility   46.00%   46.00%
Risk-free rate   4.00%   3.98%

 

 

The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase derivatives as of their measurement dates on March 31,2023 and December 31,2022:

 

  

March 31, 2023

 
Reset Price  $5.00 
Expected term (years)   2.74 
Additional maturity consideration per share  $2.00 
Volatility   46%
Risk-free rate   4.2%
Risk-adjusted discount rate   13.4%

 

   December 31, 2022 
Reset Price  $5.00 
Expected term (years)   2.74 
Additional maturity consideration per share  $2.00 
Volatility   46%
Risk-free rate   4.2%
Risk-adjusted discount rate   13.4%