Fair Value

9 Months Ended

Sep. 30, 2023

As of September 30, 2023 and December 31, 2022, the Company had financial instruments which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3). Significant changes in the inputs could result in a significant change in the fair value measurements. See each respective footnote for information on the assumptions used in calculating the fair value of financial instruments. See Notes 5 and 11 for disclosures related to the decline in fair value of SAFE notes and common stock warrant liabilities, respectively, that resulted in unrealized fair value adjustment gains recognized in other expense (income) in the condensed consolidated statements of operations for the nine months ended September 30, 2023.

The initial fair value of the forward purchase contract derivative liability at the Closing Date was $18,596,685, which is reported as a forward purchase contract derivative liability in our condensed consolidated balance sheet. The payment of the $37,261,790 (including $189,684 in transaction costs) to Meteora at the Closing Date was reflected as a charge to additional paid-in-capital in our condensed consolidated balance sheet. The change in the fair value of the forward purchase contract derivative liability of $34,970,682 has been recorded to unrealized fair value adjustments for the three and nine months ended September 30, 2023 in the Company’s condensed consolidated statements of operations. The forward purchase contract derivative liability was classified as a current liability, as its liquidation is reasonably expected to use or require current assets or the creation of current liabilities. See also Notes 1 and 14. The estimated fair value of the forward purchase contract derivative liability was calculated using a Black-Scholes option pricing model and used significant assumptions including the risk free rate and volatility. The

change in fair value of the forward purchase contract derivative liability is primarily driven by a decrease in the common stock price per share of ELIQ.

The valuation of the forward purchase derivative contract was made using the option-pricing method and the following assumptions as of September 30, 2023:



Term			0.33 years
Risk-free interest rate			5.47%
Volatility			89%
Stock price at measurement date			$1.76
Dividend yield			—

The following table sets forth the Company’s financial instruments that were measured at fair value using Level 3 inputs on a recurring basis for the nine months ended September 30, 2023:


	Legacy Common Stock Warrant Liabilities		Derivative Warrants Liability		SAFE Notes		Forward Purchase Contract Derivative Liability		Total





Balance at December 31, 2022	$	(14,114,411)	$	—	$	(51,600,000)	$	—	$	(65,714,411)
Issuance of Private Placement Warrants in Business Combination	—		(1,500,000)		—		0		(1,500,000)

Changes in fair value included in operations	11,929,157		7,120,397		26,812,272		(34,970,682)		10,891,144
Opening balance sheet fair value adjustment for assumed derivative warrants liability in Business Combination	—		(8,660,000)		—		—		(8,660,000)
Conversions into Class A common stock at Close	2,185,254				24,787,728				26,972,982
Balance at September 30, 2023	$	—	$	(3,039,603)	$	—	$	(34,970,682)	$	(38,010,285)

The following table sets forth the Company’s financial instruments that were measured at fair value using Level 3 inputs on a recurring basis for the nine months ended September 30, 2022:


	Preferred Stock Warrant Liabilities		Legacy Common Stock Warrant Liabilities		SAFE Notes		Total
Balance at December 31, 2021	$	(6,417,146)	$	(6,502,538)	$	(30,998,000)	$	(43,917,684)
Changes in fair value included in operations	(3,515,845)		(6,751,769)		(21,861,000)		(32,128,614)
Warrants exercised	9,932,991		—		—		9,932,991
Balance at September 30, 2022	$	—	$	(13,254,307)	$	(52,859,000)	$	(66,113,307)

There were no transfers into or out of Level 3 financial instruments during the nine months ended September 30, 2023 and 2022.

- 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 + Details

Electriq Power Holdings, Inc. 10-Q/A