v3.25.2
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial Instruments
Notes Payable & Related Party Notes Payable
The Company has elected to measure certain notes payable and related party notes payable at fair value. Specifically, the SPA Portfolio Notes or notes convertible into SPA Portfolio Notes as they contain embedded liquidation premiums with conversion rights that represent embedded derivatives (see Note 7, Notes Payable and Note 8, Related Party Transactions). The Company uses a binomial lattice model and discounted cash flow methodology to value the notes carried at fair value. The significant assumptions used in the models include the volatility of the Class A Common Stock, the Company’s expectations around the full ratchet anti-dilution and other triggering events, the Company’s debt discount rate based on a CCC rating, annual dividend yield, the risk free rate, and the expected life of the instrument. Fair value measurements associated with the notes payable and related party notes payable represent Level 3 valuations under the fair value hierarchy.
The fair value adjustments related to notes payables and related party notes payable were recorded in Change in fair value of notes payable, warrant liabilities, and derivative call options or Change in fair value of related party notes payable, warrant liabilities, and derivative call options, respectively, in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.
For notes payable and related party notes payable where the Company did not elect the fair value option pursuant to ASC 825, Financial Instruments, the carrying value approximates the fair value of the obligation.
SPA Portfolio Note Warrants
The Company is required to measure certain SPA Portfolio Note warrants at fair value. The Company uses a Monte Carlo simulation model to measure the fair value of the liability classified SPA Warrants, where the significant assumptions used include the volatility of the Company’s Class A Common Stock, the Company’s expectations around the full ratchet anti-dilution and other triggering events, the contractual term of the warrant, the risk-free rate and annual dividend yield. Fair value measurements associated with the liability-classified warrants represent Level 3 valuations under the fair value hierarchy.
The fair value adjustments related to the liability classified warrants were recorded in Change in fair value of notes payable, warrant liabilities, and derivative call options or Change in fair value of related party notes payable, warrant liabilities, and derivative call options, in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
Derivative Call Options
Holders of the Junior Secured SPA Notes, the 2024 Unsecured SPA Notes, and 2025 March Unsecured SPA Notes were issued Incremental Warrants to purchase additional notes on the same terms and conditions up to the amounts originally funded under their commitments. The Company estimates the fair value of the Incremental Warrants using both a binomial lattice model and Monte Carlo simulation to value the Incremental Warrants as the Incremental Warrants entitle the holder to the relevant SPA Portfolio Note and SPA Portfolio Warrant upon exercise. The significant assumptions used include the volatility of the Company’s Class A Common Stock, the Company’s expectations around the full ratchet anti-dilution and other triggering events, the contractual term of the Incremental Warrants, the risk-free rate and annual dividend yield. The underlying convertible notes and the warrants issuable upon the exercise of the Incremental Warrant were assumed to be exercisable up to the maximum allowable amount. Additionally, the terms of these instruments were presumed to be consistent with those of the convertible notes and warrants issued in connection with the Incremental Warrants. Fair value measurements associated with the liability-classified derivatives represent Level 3 valuations under the fair value hierarchy.
The fair value adjustments related to the Incremental Warrants were recorded in Change in fair value of notes payable, warrant liabilities, and derivative call options or Change in fair value of related party notes payable, warrant liabilities, and derivative call options in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
Market-based Awards
In connection with his appointment as Global Co-CEO effective April 23, 2025, the Company entered into an offer letter with Yueting Jia that includes a market-based equity award, as further described in Note 13, Stock-Based Compensation. The award is contingent upon the achievement of specified stock price and market capitalization milestones and was granted outside of the Company’s existing equity incentive plans. See Note 16 for change in Company’s governance related to Mr. Jia’s role.
The fair value of the award was estimated as of April 23, 2025 using a Monte Carlo simulation model based on a Geometric Brownian Motion framework. Significant assumptions used in the valuation included a stock price of $0.90, a market capitalization of $76.4 million, a risk-free rate of 4.45%, a selected equity volatility of 80.0%, and an estimated
contractual term of ten years. The derived service periods for the award tranches range from 3.8 to 7.6 years, with expected milestone achievement dates between 2029 and 2032.
The Company concluded that the award qualifies for equity classification under ASC 718. However, because the Company does not currently have a sufficient number of authorized but unissued shares the award is classified as liability within Accrued Expenses and Other Current Liabilities in the Condensed Consolidated Balance Sheet for the period ended June 30, 2025. Shares based compensation expense is recorded in General and administrative expense in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
Recurring Fair Value Measurements
Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables present financial assets and liabilities remeasured on a recurring basis by level within the fair value hierarchy:
June 30, 2025
 (in thousands)Level 1Level 2Level 3
Liabilities:
Warrant liabilities1
$— $— $54,789 
Derivative call options1
$— $— $40,836 
Notes payable1
$— $— $25,308 
Market-based awards$— $— $655 
1 Includes both related party and non-related party balances for the Company’s notes payable and warrant liabilities.
December 31, 2024
(in thousands)Level 1Level 2Level 3
Liabilities:
Warrant liabilities1
$— $— $28,864 
Derivative call options1
$— $— $29,709 
Notes payable1
$— $— $46,628 
_______________
1 Includes both related party and non-related party balances for the Company’s notes payable and warrant liabilities.
There were not any transfers of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy during the three and six months ended June 30, 2025 and the year ended December 31, 2024. The carrying amounts of the Company’s financial assets and liabilities, including cash, restricted cash, deposits, accounts payable, accrued liabilities and notes payable, other than the SPA Portfolio Notes, approximate fair value because of their short-term nature or contractually defined value.
The following table summarizes the activity of Level 3 fair value measurements:
(in thousands)
Warrant Liabilities1
Derivative Call Option1
Notes Payable1
Market-based award4
Balance as of December 31, 2024
$28,864 $29,709 $46,628 $— 
Additions32,328 
2
33,385 
2
27,524 
3
349 
Change in fair value measurements(6,403)(18,499)(13,273)307 
Conversions of notes to Class A Common Stock— — (35,571)— 
Exercise of derivative call options— (3,759)— — 
Balance as of June 30, 2025
$54,789 $40,836 $25,308 $655 
_______________
1 Includes both related party and non-related party balances for the Company’s notes payable and warrant liabilities.
2 Addition to Warrant Liabilities and Derivative Call Option are included as loss in line items Change in fair value of notes payable, warrant liabilities, and derivative call options and Change in fair value of related party notes payable, warrant liabilities, and derivative call options in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. This information is presented to facilitate reconciliation to the related amounts reported in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.
3 Additions of Notes Payable measured at fair value are presented net of the initial fair value adjustment recorded at issuance. the aggregate fair value adjustment recognized at issuance reduced the principal amount of notes issued during the period by $26,146 thousand. This reduction reflects the allocation of total transaction proceeds between the SPA Notes and the related SPA Warrants and Incremental Warrants issued as part of the bundled transaction. In addition, the line item Change in fair value of notes payable, warrant liabilities, and derivative call options includes a loss of $2,230 thousand, and the line item Change in fair value of related party notes payable, warrant liabilities, and derivative call options includes a loss of $184 thousand, both of which relate to debt issuance costs. These costs are separately identifiable from the fair value adjustments described above and are not included in the Additions of Notes Payable This information is presented to facilitate reconciliation to the related amounts reported in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.
4 As discussed in Note 13, Stock-Based Compensation, the issuance date fair value of the Market-based award is $10.3 million and as of June 30, 2025 the fair value of the Market-based award was $19.5 million. Amounts displayed here represent vesting for the award based on the issuance date fair value and the subsequent remeasurement of amounts vested.