Fair Value Measurements

6 Months Ended

Jun. 30, 2022

Fair Value Measurements

Fair Value Measurements

3.  Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value that prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company had no assets or liabilities classified as Level 2 or Level 3 as of June 30, 2022 and no assets or liabilities classified as Level 2 as of December 31, 2021. The Company’s restricted cash consists of a $50,000 cash deposit that serves as collateral for the Company’s credit card program held in a demand money market account and measured at fair value based on quoted prices, which are Level 1 inputs. As of December 31, 2021, the Company classified warrants to purchase common stock that were accounted for as liabilities as Level 3 liabilities, as more fully discussed below.

The following fair value hierarchy tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:

	Fair Value Measurement as of June 30, 2022
	(in thousands)
	Level 1		Level 2		Level 3		Total
Assets:
Restricted cash	$	50	$	—	$	—	$	50
Total	$	50	$	—	$	—	$	50
Liabilities:
Warrant liability	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	—	$	—

	Fair Value Measurement as of December 31, 2021
	(in thousands)
	Level 1		Level 2		Level 3		Total
Assets:
Restricted cash	$	50	$	—	$	—	$	50
Total	$	50	$	—	$	—	$	50
Liabilities:
Warrant liability	$	—	$	—	$	2	$	2
Total	$	—	$	—	$	2	$	2

During 2016 and 2017, the Company closed a sale of shares of the Company’s common stock, the issuance of warrants to purchase shares of common stock, and the issuance of warrants to the placement agent for each transaction. Due to a cash put provision within the warrant agreement, which could be enacted in certain change in control events, a liability associated with those 1,044,396 warrants were initially recorded at fair value and subsequently re-measured each reporting period. The changes in the fair value between issuance and the end of each reporting period is recorded as a component of other income (expense), net, in the consolidated statements of operations.

During 2017, the holders of 952,184 warrants agreed to a modification of the term which removed the cash put provision. The remaining 92,212 warrants were re-measured at each reporting period as long as they are outstanding and un-modified. In February of 2022, the remaining 92,212 warrants expired unexercised resulting in a $2,000 gain on extinguishment recorded in other income (expense), net, for the six months ended June 30, 2022.

The following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2022:

	Warrant liability
	(In thousands)
Balance at December 31, 2021	$	2
Change in fair value upon extinguishment		(2)
Balance at June 30, 2022	$	—

Warrants to purchase common stock activity for the six months ended June 30, 2022 was as follows:

		Weighted-average
	Amount	exercise price
Outstanding at December 31, 2021	2,501,419	$	4.35
Issued	427,390		8.88
Exercised	(1,040,187)		7.59
Outstanding at June 30, 2022	1,888,622	$	3.58

The Company had re-measured the warrant liability to estimated fair value at inception, prior to modification and at December 31, 2021 using the Black-Scholes option pricing model with the following weighted average assumptions:

	December 31,
	2021
Risk-free interest rate		0.05	%
Expected volatility		174.54	%
Expected term (in years)		0.1	years
Expected dividend yield		—
Exercise price	$	8.00
Market value of common stock	$	2.30