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Fair Value Measurements

9 Months Ended

Sep. 30, 2023

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The Company’s cash equivalents are classified using Level 1 inputs within the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

The Company estimates the fair value of its warrant liabilities at the time of issuance and subsequent remeasurement using the Black-Scholes option pricing model at each reporting date, if required, based on the following inputs: the risk-free interest rates; the expected dividend rates; the remaining contractual life of the warrants; the fair value of the underlying stock; and the expected volatility of the price of the underlying stock. The estimates are based, in part, on subjective assumptions and could differ materially in the future. Changes to these assumptions as well as the fair value of the Company’s stock on the reporting date can have a significant impact on the fair value of the warrant liability.

The following table summarizes the Company’s assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy as of September 30, 2023 and December 31, 2022 (in thousands):


			Fair Value Measurements Using
	September 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	2023		Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market funds	$	5,386	$	5,386	$	—	$	—
Short-term investments:
U.S. Treasury securities		12,393		—		12,393		—
Total assets	$	17,779	$	5,386	$	12,393	$	—
Liabilities
Private placement warrant liability	$	40	$	—	$	—	$	40
Total liabilities	$	40	$	—	$	—	$	40


			Fair Value Measurements Using
	December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	2022		Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market funds	$	8,708	$	8,708	$	—	$	—
Short-term investments:
U.S. Treasury securities		17,602		—		17,602		—
Total assets	$	26,310	$	8,708	$	17,602	$	—
Liabilities
Private placement warrant liability	$	40	$	—	$	—	$	40
Earn-out liability		6		—		—		6
Total liabilities	$	46	$	—	$	—	$	46

Cash Equivalents and Short-Term Investments

Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and short-term investments. Cash equivalents consisted of money market funds and U.S. Treasury securities with an original maturity of less than three months at the date of purchase and short-term investments consisted of U.S. Treasury securities with an original maturity of more than three months at the date of purchase. The Company obtains pricing information from its investment manager and generally

determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers.

Investments are classified as Level 1 within the fair value hierarchy if their quoted prices are available in active markets for identical securities. Investments in money market funds of $5.4 million and $8.7 million as of September 30, 2023 and December 31, 2022, respectively, were classified as Level 1 instruments and were included in cash and cash equivalents.

Investments in marketable securities are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported upon utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. Accrued interest receivable related to short-term investments was $23,000 and $27,000 as of September 30, 2023 and December 31, 2022, respectively, and included as part of prepaid expenses and other current assets in the condensed balance sheets.

The following tables summarize the Company’s short-term investments accounted for as available-for-sale securities as of September 30, 2023 and December 31, 2022 (in thousands):


				September 30, 2023
	Maturity	Amortized		Unrealized		Unrealized			Estimated
	(in years)	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	1 year or less	$	12,394	$	—	$	(1	)	$	12,393
		$	12,394	$	—	$	(1	)	$	12,393


				December 31, 2022
	Maturity	Amortized		Unrealized		Unrealized			Estimated
	(in years)	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	1 year or less	$	17,620	$	1	$	(19	)	$	17,602
		$	17,620	$	1	$	(19	)	$	17,602

Private Placement Warrant Liability

In connection with the Business Combination, the Company assumed the public and private placement warrants described in Note 2. The private placement warrants are precluded from equity treatment and are recorded as liabilities as they are not considered indexed to the Company's common stock. The private placement warrant liability is measured at fair value, using a combination of observable and unobservable inputs. The change in fair value of the private placement warrant liability is recorded in other income (expense) on the statement of operations and comprehensive loss. The following key assumptions were used in determining the fair value of the private placement warrant liability valued using the Black-Scholes option pricing model as of September 30, 2023 and December 31, 2022:


	September 30, 2023			December 31, 2022
Common stock price	$	0.60		$	0.43
Expected volatility		125.0	%		125.0	%
Risk-free interest rate		4.8	%		4.2	%
Expected term (in years)		2.9			3.7
Expected dividend yield		—			—

The following table presents activity for the private placement warrant liability measured at fair value using significant unobservable Level 3 inputs during the nine months ended September 30, 2023 (in thousands):


	Private Placement Warrant Liability
Balance at December 31, 2022	$	40
Change in fair value		—
Balance at September 30, 2023	$	40

- 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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