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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2023

We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate. As of September 30, 2023 and December 31, 2022, the fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate their carrying values due to the short-term nature of these instruments. Additionally, the fair values of short-term and long-term debt instruments approximate their carrying values.

The fair value hierarchy is as follows:

Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 - Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:

•Quoted prices for similar assets/liabilities in active markets;

•Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);

•Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and

•Inputs that are derived principally from or corroborated by other observable market data.

Level 3 - Unobservable inputs that cannot be corroborated by observable market data.

The following tables present information about our financial assets and liabilities measured at fair value on are recurring basis:


	September 30, 2023
(In thousands)	Level 1		Level 2		Level 3		Total
Liabilities:
Derivative liability	$	—	$	—	$	59	$	59
Warrant liability	—		17		—		17
	$	—	$	17	$	59	$	76


	December 31, 2022
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents - money market funds	$	1,681	$	—	$	—	$	1,681
	$	1,681	$	—	$	—	$	1,681
Liabilities:
Derivative liability	$	—	$	—	$	56	$	56
Warrant liability	—		9		—		9
	$	—	$	9	$	56	$	65

Money Market Funds

As of September 30, 2023 and December 31, 2022, our cash equivalents consisted of money market funds which were classified as Level 1. We used observable prices in active markets in determining the classification of our money market funds as Level 1. There were no transfers between the hierarchy levels in the three and nine months ended September 30, 2023 and the year ended December 31, 2022.

The fair value and amortized cost of our cash equivalents - money market funds were both zero as of September 30, 2023.

Cash equivalents as of December 31, 2022 were as follows:


	December 31, 2022
(In thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents:
Money market funds	$	1,681	$	—	$	—	$	1,681
	$	1,681	$	—	$	—	$	1,681

Derivative Liability

As of September 30, 2023 and December 31, 2022, the fair value of the derivative was $59 thousand and $56 thousand, respectively, which was included in other liabilities, noncurrent in our unaudited condensed consolidated balance sheets. Other income, net in the three months ended September 30, 2023 and 2022 included a gain on the fair value of the derivative liability of zero and $0.2 million, respectively. Other income, net in the nine months ended September 30, 2023 and 2022 included a loss on the fair value of the derivative liability of $3 thousand and a gain on the fair value of the derivative liability of $6.9 million, respectively

The fair value of the derivative liability is considered a Level 3 valuation and is determined using a Binomial Lattice Option Pricing Model. The significant assumptions used in the model were:


	September 30, 2023	December 31, 2022
Stock price	$1.90	$1.63
Volatility	100.0%	95.0%
Risk free rate	4.51%	4.17%
Exercise price	$106.50	$106.50
Expected life (in years)	2.95	3.44
Conversion periods	5 months-3 years	2-4 years
Future share price	$5.90-$594.30	$0.10-$405.60

2021 Private Placement Warrants and 2021 PIPE Warrants

As of September 30, 2023, the fair value of the 2021 Private Placement Warrants (the “2021 Private Placement Warrants”) and the 2021 PIPE Warrants (the “2021 PIPE Warrants”) was determined to be $0.02 per warrant, totaling $11 thousand and $6 thousand respectively, and are included in other liabilities, noncurrent in our unaudited condensed consolidated balance sheets. As of December 31, 2022, the fair value of the 2021 Private Placement Warrants and the 2021 PIPE Warrants was determined to be $0.01 per warrant, totaling $6 thousand and $3 thousand respectively, and are included in other liabilities, noncurrent in our unaudited condensed consolidated balance sheets.

Gain or loss due to the fair value changes in the 2021 Private Placement Warrants and the 2021 PIPE Warrants, both of which are included in other income, net in our unaudited condensed consolidated statements of operations, consisted of the following:


(In thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Gain (loss) on fair value of Private Placement warrant liabilities	$	—	$	—	$	(5)	$	124
Gain (loss) on fair value of PIPE warrant liabilities	—		—		(3)		66
	$	—	$	—	$	(8)	$	190

There were no transfers between fair value levels in the three and nine months ended September 30, 2023 and 2022.

- 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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