Fair Value Measurements

6 Months Ended

Jun. 30, 2022

4. Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value at June 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):


Description	June 30, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds, included in cash and cash equivalents	$	5,589	$	5,589	$	—	$	—
Total assets	$	5,589	$	5,589	$	—	$	—
Liabilities:
Warrant liability	$	3,645	$	—	$	—	$	3,645
Total liabilities	$	3,645	$	—	$	—	$	3,645


Description	December 31, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds, included in cash and cash equivalents	$	16,523	$	16,523	$	—	$	—
Total assets	$	16,523	$	16,523	$	—	$	—

At June 30, 2022 and December 31, 2021, all of the Company’s cash equivalents were comprised of money market funds.

There were no changes to the valuation methods during the six months ended June 30, 2022 and year ended December 31, 2021. There were no transfers within the fair value hierarchy during the six months ended June 30, 2022 and the year ended December 31, 2021.

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values.

Assumptions Used in Determining Fair Value of Warrants

The Company issued the 2022 Common Warrants and the HCW Warrants to purchase an aggregate of up to 23,695,136 shares of common stock in connection with a registered direct financing on May 4, 2022 (see Note 8). The Company concluded that the warrants are not indexed to its own stock and therefore the 2022 Common Warrants and the HCW Warrants are being accounted for as liabilities. The Company recorded the fair value of the warrants upon issuance using the Black-Scholes valuation model and is required to revalue the warrants at each reporting date with any changes in fair value recorded on the statement of operations. The valuation of the warrants is considered under Level 3 of the fair value hierarchy and influenced by the fair value of the underlying common stock of the Company.

A summary of the Black Scholes pricing model assumptions used to record the fair value of the warrants is as follows:


	June 30, 2022		May 4, 2022
Stock price	$	0.19	$	0.14
Risk-free interest rate	3.01%		2.93%
Expected dividend yield	—%		—%
Expected term (in years)	4.9 - 5.4		5.0 - 5.5
Expected volatility	106%		105%

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

The following table reflects the change in the Company’s Level 3 Warrant liability for the six months ended June 30, 2022 (in thousands):


Fair value of warrant liability as of the beginning of the period	$	—
Issuance of warrants		2,622
Change in fair value		1,023
Fair value of warrant liability as of the end of the period	$	3,645

- 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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