Fair Value Measurements

6 Months Ended

Jun. 30, 2024

3. Fair Value Measurements

The Company measures the following financial assets at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during any of the periods presented. The following tables set forth the Company’s financial assets and liabilities carried at fair value categorized using the lowest level of input applicable to each financial instrument as of June 30, 2024 and December 31, 2023 (in thousands):


	Balance at June 30, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	2,550	$	2,550	$	—	$	—
	$	2,550	$	2,550	$	—	$	—
Liabilities:
Warrant liabilities	$	387	$	—		387	$	—
Derivative liability related to Term Loan with related party		424		—		—		424
	$	811	$	—	$	387	$	424


	Balance at December 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	8,500	$	8,500	$	—	$	—
	$	8,500	$	8,500	$	—	$	—
Liabilities:
Warrant liabilities	$	235	$	—	$	235	$	—
Derivative liability related to Term Loan with related party		1,554		—		—		1,554
	$	1,789	$	—	$	235	$	1,554

The Company’s cash equivalents are comprised of money market funds and money market accounts as of June 30, 2024 and December 31, 2023. The Company also maintains money market accounts classified as restricted cash, which are Level 1 assets, for $0.6 million on both June 30, 2024 and December 31, 2023 (Note 4).

The Company estimated the fair value of the warrant issued in conjunction with the Series A Redeemable Convertible Preferred Stock in August of 2022 (the “Series A Warrant”) (Note 8) using the Black-Scholes Model, which uses multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant.

The estimated fair value of the Series A Warrant on June 30, 2024 was determined using the following assumptions:


Risk-free interest rate		4.46	%
Expected dividend yield		0.00	%
Expected volatility		146.00	%
Expected term	3.63

The Company estimated the fair value of the Common Stock Warrant issued in February of 2023 (the “Common Stock Warrant”) (Note 8) using the Black-Scholes Model, which uses multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant. Key inputs included the warrant exercise price of $108.00 per share, a risk-free interest rate of 4.57%, expected volatility of 223%, an expected dividend yield of 0.00%, a stock price of $6.41 and an expected term of 3.80 years.

The following table provides a roll-forward of the fair value of the Common Stock Warrants (in thousands):


Balance on December 31, 2023	$	233
Change in fair value		(27	)
Balance on March 31, 2024	$	206
Change in fair value		179
Balance on June 30, 2024	$	385

The Company has a single compound derivative instrument related to its Term Loan Agreement (Note 6) that requires the Company to pay additional interest of 4% per annum upon an event of default or if any obligation other than the unpaid principal amount of the Term Loan is not paid when due. Fair value is determined quarterly. The fair value of the derivative on June 30, 2024 and December 31, 2023 is $0.4 million and $1.6 million, respectively, and is classified as a current liability on the condensed consolidated balance sheets to match the classification of the related Term Loan Agreement (Note 6).

The estimated fair value of the derivative on June 30, 2024 was determined using a probability-weighted discounted cash flow model that includes contingent interest payments under the following scenarios:


	Probability
4% contingent interest beginning in Q3 2024		50	%

Changes in assumptions regarding the probability of the 4% contingent interest feature being triggered and the timing of such a triggering event could significantly affect the estimated fair value of this derivative liability.

The following table provides a roll-forward of the fair value of the derivative liability related to the term loan with related party (in thousands):


Balance on December 31, 2023	$	1,554
Change in fair value of derivative related to Term Loan with related party		108
Balance on March 31, 2024	$	1,662
Change in fair value of derivative related to Term Loan with related party		(1,238	)
Balance on June 30, 2024	$	424

The Company is required to disclose the fair value and the level within the fair value hierarchy for financial instruments that are not measured at fair value on a recurring basis. For certain financial instruments, including accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, the carrying amounts approximate their fair values as of June 30, 2024 and December 31, 2023 because of their short-term nature. Cash and cash equivalents were classified as Level 1 and all other financial instruments were classified as Level 2 within the fair value hierarchy. The Company used Level 3 inputs to measure the fair value of the derivative liability related to the Term Loan Agreement with related party. Based on these measurements, the Company concluded that the carrying value of the Term Loan Agreement approximates its fair value on June 30, 2024.

- 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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