Fair Value of Financial Assets and Liabilities

12 Months Ended

Dec. 31, 2022

Fair Value of Financial Assets and Liabilities

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 December 31, 2022 Using:
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents—money market funds	$	70,170	$	2,858	$	—	$	73,028
	$	70,170	$	2,858	$	—	$	73,028
Liabilities:
Embedded derivative liability	$	—	$	—	$	10	$	10

Class C Warrant Liability (Note 10)					23,131		23,131
	$	—	$	—	$	23,141	$	23,141


	Fair Value Measurements as of December 31, 2021 Using:
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents—money market fund	$	20,000	$	27,793	$	—	$	47,793
	$	20,000	$	27,793	$	—	$	47,793
Liabilities:
Embedded derivative liability	$	—	$	—	$	821	$	821
	$	—	$	—	$	821	$	821

The Company’s cash equivalents consisted of money market funds invested in U.S. Treasury securities. The money market funds were valued based on reported market pricing for the identical asset or by using inputs observable in active markets for similar securities, which represents a Level 2 measurement in the fair value hierarchy.

The following table provides a roll-forward of the aggregate fair values of the Company’s warrant liability and derivative liability, for which fair values are determined using Level 3 inputs:


(in thousands)	Embedded Derivative Liability		PIPE Warrant Liability		Class C Warrant Liability


Balance at December 31, 2020	$	455	$	—	$	—
Change in fair value	366		0		0
Balance at December 31, 2021	821		—		—
Issuance of Class C Warrants			41,249		21,526
Change in fair value	(811)		(2,495)		1,605
Reclassification to permanent equity			(38,754)
Balance at December 31, 2022	$	10	$	—	$	23,131

Valuation of Embedded Derivative Liability— The fair value of the embedded derivative liability recognized in connection with the Company’s loan agreement with Hercules (see Note 7), which is associated with additional fees due to Hercules upon events of default, was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of this embedded derivative liability, which is reported within other non-current liabilities on the consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third-party valuations, which were prepared based on a discounted cash flow model that considered the timing and probability of occurrence of a redemption upon an event of default, the potential amount of prepayment fees or contingent interest upon an event of default and the Company’s risk-adjusted discount rate of 14%. As of December 31, 2022 and December 31, 2021, the fair value of this derivative liability was $10 thousand and $821 thousand, respectively.

Warrant Liabilities— On July 6, 2022, the Company issued Warrants for the purchase of its common stock in a private placement (the “ PIPE Warrants”). Upon issuance, the holder’s exercise of the PIPE Warrants was conditioned on the Company increasing it authorized shares. As there we insufficient authorized shares available at the time of issuance, the PIPE Warrants were classified as a liability and measured at fair value. On September 1, 2022, upon shareholder approval of the increase to the Company’s authorized shares, the PIPE Warrants met all criteria required for permanent equity accounting and, accordingly, the Company remeasured the fair value of the warrant liability through “other income (expense)” and reclassified the fair value of the warrant liability to additional paid-in capital. In December 2022, the Company issued Class C Warrants for the purchase of shares of its common stock in a public offering. The Class C Warrants are accounted for as a liability on the consolidated balance sheet and are adjusted to fair value at period end through “other income (expense)”

The Company calculated the fair value of the PIPE Warrants and the Class C Warrants using the Black-Scholes option pricing model with the following inputs:


	PIPE Warrants				Class C Warrants
	7/6/2022 (issuance)		9/1/2022 (reclassification to permanent equity)		12/9/2022 (issuance)		December 31, 2022
Common stock price	$1.09		$1.04		$0.93		$0.99
Risk-free interest rate	2.96	%	3.29	%	3.75	%	4.00	%
Expected term (in years)	5.00		4.86		5.00		4.92
Expected volatility	97.30	%	97.50	%	101.80	%	101.70	%
Expected dividend yield	—	%	—	%	—	%	—	%

Impairment of Goodwill

Goodwill is tested quantitatively for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. During the fourth quarter of 2021, the Company’s market capitalization, measured as the price of the Company’s common stock multiplied by common shares outstanding, was below the value of the Company’s net assets, including goodwill. As a result of the sustained decline in the market price of the Company’s common stock, the fair value of the Company’s single reporting unit, determined based on Company’s market capitalization on December 31, 2021, was lower than its carrying value and the Company concluded that goodwill was impaired. Accordingly, the Company recorded an impairment charge of $9.8 million to reduce the carrying amount of goodwill to $17.4 million as of December 31, 2021. The Company tested goodwill for impairment as of December 31, 2022 and concluded that goodwill was not further impaired. Should the market value of the Company’s common stock decline, additional impairment charges may be recorded in the future.

The following table provides a rollforward of the Company’s goodwill and accumulated impairment losses.


(in thousands)	Goodwill, Gross		Accumulated Impairment Loss		Goodwill
Goodwill at December 31, 2020	$	27,109	$	—	$	27,109
Impairment losses	—		(9,758)		(9,758)
Goodwill at December 31, 2021	27,109		(9,758)		17,351

Goodwill at December 31, 2022	$	27,109	$	(9,758)	$	17,351

- 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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