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Note 3 - Fair Value Measurements

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 3. FAIR VALUE MEASUREMENTS 

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 (in thousands):

						Fair Value Measurements Using
						Quoted
						Prices in
						Active
						Markets				Significant
						for				Other				Significant
		Balance at				Identical				Observable				Unobservable
		March				Items				Inputs				Inputs
		31, 2024				(Level 1)				(Level 2)				(Level 3)
Assets
Restricted cash held as a certificate of deposit		$	476			$	476			$	—			$	—
Liabilities
Warrant liabilities		$	232			$	—			$	232			$	—
Embedded derivative liability			159				—				159				—
Total liabilities		$	391			$	—			$	391			$	—

						Fair Value Measurements Using
						Quoted
						Prices in
						Active
						Markets				Significant
						for				Other				Significant
		Balance at				Identical				Observable				Unobservable
		December				Items				Inputs				Inputs
		31, 2023				(Level 1)				(Level 2)				(Level 3)
Assets
Restricted cash held as a certificate of deposit		$	476			$	476			$	—			$	—
Liabilities
Warrant liabilities		$	334			$	—			$	334			$	—

The Company’s cash equivalents and restricted cash held as certificates of deposit are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The Secured Convertible Notes (see Note 10, “Convertible Notes”) are carried at proceeds, net of discounts, which management believes approximates fair value. As a result of certain call and put options within the Secured Convertible Notes, the Company recorded an embedded derivative liability on its condensed consolidated balance sheet with a corresponding debt discount which is netted against the face value of the Secured Convertible Notes. The fair value of the embedded derivative liability was classified within Level 2 of the fair value hierarchy because the stock price used in the related Black Scholes valuation model (see subheading “Black Scholes Valuation Models and Assumptions” below) was adjusted for the dilutive effect of the 2023 Private Placement. The fair value of the May 2023 Warrants issued in conjunction with the 2023 Private Placement as well as the accounting for the warrant amendment and preferred stock conversion price adjustments that resulted from the 2023 Private Placement used the same stock price and were classified within Level 3.

The Unsecured Convertible Notes (see Note 10, “Convertible Notes”) are carried at proceeds, net of discounts, which management believes approximates fair value. As a result of certain call and put options within the Unsecured Convertible Notes, the Company recorded an embedded derivative liability on its unaudited condensed consolidated balance sheet with a corresponding debt discount which is netted against the face value of the Unsecured Convertible Notes. The fair value of the embedded derivative liability was classified within Level 2 of the fair value hierarchy.

The fair value of the December 2023 Warrants issued in conjunction with the 2023 Warrant Reprice Transaction as well as the accounting for the warrant amendment and preferred stock conversion price adjustments that resulted from the 2023 Warrant Reprice Transaction were classified within Level 2.

See Note 11, “Common Stock Warrants”, subheading “Summary of Common Stock Warrant Liabilities”, for a reconciliation of the beginning and ending balances for the warrant liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 2) during the three months ended March 31, 2024 and 2023.

There were no transfers in or out of Level 1, Level 2 or Level 3 assets and liabilities for the three months ended March 31, 2024 and 2023.

Black Scholes Valuation Models and Assumptions

The Company utilizes a Black Scholes model for various valuations as outlined throughout this report. The following tables summarize the assumptions utilized for valuations impacting results for the periods reported. See also Note 13, “Equity-Based Compensation” for related Black Scholes valuation assumptions.

Warrant Liabilities

Various of the Company’s warrants have been, or are, subject to stockholder approval upon issuance or amendment and prior to exercise. Currently, the Company’s December 2023 Warrants and March 2024 Warrant are subject to stockholder approval prior to exercise. The warrants are recorded as a liability at fair value upon issuance or amendment and continue to be recorded as a liability at fair value at each reporting date until stockholder approval occurs at which time they are transferred to stockholders’ equity at their fair value on the date of approval. Fair value was determined using a Black Scholes model as outlined below. See Note 11, “Common Stock Warrants” for additional information and the definitions of the Company’s warrants.

			May 2023 Warrants						May 2023 Warrants						December 2023 Warrants						December 2023 Warrants
Measurement event			Issuance						Stockholder Approval						Issuance						Reporting Date
Date			May 1, 2023						June 9, 2023						December 21, 2023						December 21, 2023
Total Value			1.6 million						$1.4 million						$0.4 million						$0.3 million
Gain			not applicable						$0.2 million						not applicable						$56 thousand
Assumptions:
Exercise price				1.30					$			1.30			$			0.25			$			0.25
Market price			$	0.72			(a)		$			0.68			$			0.23			$			0.20
Volatility				80.1			%					77.6	%					79.3	%					79.3	%
Risk-free rate				3.60	-	4.04	%			3.92	-	4.59	%					3.88	%					3.85	%
Dividend yield				0.0			%					0	%					0	%					0	%
Term (years)				2.1	-	5.1	%			2.0	-	5.0						5.5						5.5

		December				March				March
		2023				2024				2024
		Warrants				Warrant				Warrant
Measurement event		Reporting Date				Issuance				Reporting Date
Date		March 31, 2024				March 25, 2024				March 31, 2024
Total Value		$0.2 million				$0.1 million				$0.1 million
Gain		$173 thousand				not applicable				$21 thousand
Assumptions:
Exercise price		$	0.25			$	0.14			$	0.14
Market price		$	0.10			$	0.13			$	0.10
Volatility			92.3	%			86.9	%			86.9	%
Risk-free rate			4.21	%			4.24	%			4.21	%
Dividend yield			0	%			0	%			0	%
Term (years)			5.2				5.5				5.5

(a) Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.

Warrant Modifications

Amendments to warrant terms are recorded as a non-cash gain (or loss) on modification of common stock warrants. The gain or loss represents the decrease or increase in the fair value of the amended warrants when comparing the value immediately before and after amendment using the Black-Scholes option pricing model. Fair value was determined using a Black Scholes model as outlined below.

		July 2020, November 2021, September 2022 & November 2022 Warrants
Measurement event		Prior to amendment						After amendment
Date		April 27, 2023						April 27, 2023
Total Value		$0.3 million						$0.5 million
Loss		not applicable						$0.2 million
Assumptions:
Exercise price		$	6.30					$	1.50
Market price		$	0.72			(a)		$	0.72			(a)
Volatility			80.1			%			80.1			%
Risk-free rate			3.59	-	4.73	%			3.59	-	4.73	%
Dividend yield			0.0			%			0.0			%
Term (years)			1.1	-	5.6				1.1	-	5.6

		May 2023 Warrants
Measurement event		Prior to amendment						After amendment
Date		December 21, 2023						December 21, 2023
Total Value		$56 thousand						$0.2 million
Loss		not applicable						$0.1 million
Assumptions:
Exercise price		$	1.30					$	0.25
Market price		$	0.23					$	0.23
Volatility			79.3			%			79.3			%
Risk-free rate			3.92	-	4.62	%			3.92	-	4.62	%
Dividend yield			0.0			%			0.0			%
Term (years)			1.5	-	4.5				1.5	-	4.5

(a) Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.

Preferred Stock Conversion Price Adjustments

Terms of the Company’s outstanding Preferred Stock historically included a Ratchet whereby the applicable conversion price could be adjusted (see Note 12, “Stockholders’ Equity”). The applicable Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended March 31, 2024. When a conversion price was adjusted under the Ratchet, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC 820, the deemed dividend is measured as the difference between (1) the fair value of the Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). Fair value was determined using a Black Scholes model as outlined below.

		Series B & C Preferred Stock
Measurement event		Prior to Ratchet				After Ratchet
Date		April 27, 2023				April 27, 2023
Total value (b)		$9.6 million				$11.6 million
Deemed dividend		not applicable				$2.0 million
Assumptions:
Exercise price		$	6.30			$	1.30
Market price		$	0.72	(a)		$	0.72	(a)
Volatility			80.1	%			80.1	%
Risk-free rate			4.91	%			4.91	%
Dividend yield			0.0	%			0.0	%
Term (in years)			0.8				0.8

		Series B & C Preferred Stock
Measurement event		Prior to Ratchet				After Ratchet
Date		December 21, 2023				December 21, 2023
Total value (b)		$1.7 million				$6.8 million
Deemed dividend		not applicable				$5.1 million
Assumptions:
Exercise price		$	1.30			$	0.25
Market price		$	0.23			$	0.23
Volatility			79.3	%			79.3	%
Risk-free rate			5.43	%			5.43	%
Dividend yield			0.0	%			0.0	%
Term (years)			0.3				0.3

		Series C Preferred Stock
Measurement event		Prior to Ratchet				After Ratchet
Date		March 24, 2024				March 24, 2024
Total value (b)		$0.5 million				$0.9 million
Deemed dividend		not applicable				$0.4 million
Assumptions:
Exercise price		$	0.25			$	0.14
Market price		$	0.13			$	0.13
Volatility			79.9	%			79.9	%
Risk-free rate			5.51	%			5.51	%
Dividend yield			0.0	%			0.0	%
Term (in years)			0.1				0.1

	(a)	Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.
	(b)	Includes value of incremental shares underlying preferred stock and adjusted for probability of occurrence.

Bifurcatable Derivatives

Upon issuance in March 2024, the Unsecured Convertible Notes contained a lender’s conversion option which represented an embedded call option requiring bifurcation as an embedded derivative liability at fair value (see Note 10, “Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.

		Unsecured Convertible Notes derivative				Unsecured Convertible Notes derivative
Measurement event		Issuance				Reporting Date
Date		March 25, 2024				March 31, 2024
Total value		$0.2 million				$0.2 million
Gain		not applicable				$65 thousand
Assumptions:
Exercise price		$	0.14			$	0.14
Market price		$	0.13			$	0.10
Volatility			86.9	%			86.9	%
Risk-free rate			4.54	%			4.59	%
Dividend yield			0.0	%			0.0	%
Term (years)			2.0				2.0

Upon issuance in May 2023, the Secured Convertible Notes contained a lender’s conversion option which represented an embedded call option requiring bifurcation as an embedded derivative liability at fair value (see Note 10, “Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.

		Secured Convertible Notes derivative				Secured Convertible Notes derivative
Measurement event		Issuance				Shareholder approval
Date		April 27, 2023				June 9, 2023
Total value (b)		$0.2 million				$0.2 million
Gain		not applicable				$40 thousand
Assumptions:
Exercise price		$	1.30			$	1.30
Market price		$	0.72	(a)		$	0.75
Volatility			80.1	%			76.9	%
Risk-free rate			4.88	%			5.41	%
Dividend yield			0.0	%			0.0	%
Term (years)			0.8				0.7

	(a)	Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.
	(b)	Adjusted for probability of occurrence.

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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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