Fair Value Measurements

6 Months Ended

Jun. 30, 2023

Apr. 27, 2023

3. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements as of June 30, 2023 Using:
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	20,620	$	—	$	—	$	20,620
Total assets	$	20,620	$	—	$	—	$	20,620

Warrant liabilities	$	—	$	—	$	1,968	$	1,968
Total liabilities	$	—	$	—	$	1,968	$	1,968


	Fair Value Measurements as of December 31, 2022 Using:
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	47,863	$	—	$	—	$	47,863
Commercial paper		—		11,691		—		11,691
Government securities		—		4,966		—		4,966
Investments:
Commercial paper	$	—	$	2,465	$	—	$	2,465
Corporate bonds		—		2,957		—		2,957
Government securities		—		12,889		—		12,889
	$	47,863	$	34,968	$	—	$	82,831

Money market funds are valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. Commercial paper, corporate bonds, and government securities are valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy.

As of both June 30, 2023 and December 31, 2022, the Company held a restricted investment of $1,401, which represents a certificate of deposit that is classified as Level 2 in the fair value hierarchy.

Level 3 financial liabilities consist of the warrant liabilities for which there is no current market such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value

hierarchy are analyzed each period based on changes in estimates or assumptions and recorded through other income (expense). The Company uses a Monte-Carlo simulation model which includes the Black-Scholes option pricing model to value the Level 3 warrant liabilities at inception and on each subsequent reporting date. This model incorporates transaction details such as the Company’s stock price, contractual terms of the underlying warrants, maturity, risk free rates, volatility, as well as the term to achievement of estimated sales targets. The unobservable inputs for all of the Level 3 warrant liabilities are volatility and the term to achievement of estimated sales targets. The Company utilizes its historical and implied volatility, using its closing common stock prices and market data, to reflect future volatility over the expected term of the warrants. The Company estimates the time to achievement of sales targets of VOWST using information and forecasts generated by the Company in consideration of the terms of the 2021 License Agreement.

On the Closing Date (as defined in Note 9, Notes Payable) and as of June 30, 2023, the Level 3 inputs to the warrant liabilities are as follows:



	Closing Date			June 30, 2023
Volatility		83.0	%		82.0	%
Term (in years)		1.7			1.5

A reconciliation of the beginning and ending balances for the three and six months ended June 30, 2023 for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):


	Warrant Liabilities

Balance as of December 31, 2022	$	—
Issuance of warrants		2,100
Adjustment to fair value		(132	)
Balance as of June 30, 2023		1,968

There were no assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2022. There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended June 30, 2023 and 2022.

Derivative Liability Expected Term

1 year 6 months

1 year 8 months 12 days

- 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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