Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2022

Fair Value of Financial Instruments [Abstract]

5)	Fair Value of Financial Instruments

There were no liabilities measured at fair value as of December 31, 2021. The following tables summarize the liabilities that are measured at fair value as of December 31, 2022 (in thousands):

	As of December 31, 2022
Description	Level 1		Level 2		Level 3
Liabilities:
Warrant liabilities - Q1-22 Common Warrants	$	-	$	-	$	331
Total	$	-	$	-	$	331

On March 9, 2022, upon closing the Q1-22 PIPE Transaction, the Company issued to the Q1-22 PIPE Investor the Q1-22 Pre-Funded Warrants, exercisable for approximately 68,000 shares of common stock, and the Q1-22 Common Warrants, exercisable for approximately 343,000 shares of common stock. On July 12, 2022, the Q1-22 PIPE Investor exercised all of the Q1-22 Pre-Funded Warrants at an exercise price of $0.10 per share for an aggregate exercise price of approximately $7,000 in cash, and the Company issued 68,000 shares of common stock to the Q1-22 PIPE Investor upon receipt of the cash proceeds. Following the exercise, no Q1-22 Pre-Funded Warrants remained outstanding. See Note 15 for more information related to the Q1-22 PIPE Transaction.

The Q1-22 Common Warrants and Q1-22 Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC 815-40”), as these warrants provide for a cashless settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40. These warrant liabilities were measured at fair value at inception and are then subsequently measured on a recurring basis, with changes in fair value presented within the Company’s statements of operations.

The Company uses a Black-Scholes option pricing model to estimate the fair value of the Q1-22 Common Warrants, which is considered a Level 3 fair value measurement. Certain inputs used in this Black-Scholes pricing model may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.

The estimated fair value of the Q1-22 Pre-Funded Warrants was deemed a Level 2 measurement as all significant inputs to the valuation model used to estimate the fair value of the Q1-22 Pre-Funded Warrants were directly observable from the Company’s publicly-traded common stock. Upon exercise of the Q1-22 Pre-Funded Warrants on July 12, 2022, the Company reclassified the approximately $0.9 million fair value of the Pre-Funded Warrants to equity.

The fair values of the Q1-22 Common Warrants and the Q1-22 Pre-Funded Warrants at the issuance date totaled $12.6 million in the aggregate, which was $0.6 million more than the $12.0 million proceeds received in the Q1-22 PIPE Transaction. The excess $0.6 million represents an inducement to the purchaser to enter into the Q1-22 PIPE Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations.

The Company remeasured the fair value of the Q1-22 Common Warrants as of December 31, 2022. The following table presents the changes in the warrant liabilities from the issuance date (in thousands):

	Q1-22 Pre-Funded Warrants (Level 2)			Q1-22 Common Warrants (Level 3)			Total Warrant Liabilities
Fair value at January 1, 2022	$	-		$	-		$	-
Fair value at March 9, 2022 (issuance date)		2,646			9,943			12,589
Change in fair value of warrant liabilities		(1,779	)		(9,612	)		(11,391	)
Exercise of Q1-22 Pre-Funded Warrants		(867	)		-			(867	)
Fair value at December 31, 2022	$	-		$	331		$	331

- 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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