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Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2023
Fair Value of Financial Instruments [Abstract]  
Fair Value of Financial Instruments

Note 2: Fair Value of Financial Instruments

 

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):

 

   March 31, 2023 
   Fair Value   Level 1   Level 2   Level 3 
Assets:                
Money market funds (1)  $81   $—   $—   $— 
Corporate notes and commercial paper  $587   $—   $587   $— 
                     
Liabilities:                    
Warrant  $1,421   $—   $—   $1,421 

 

   December 31, 2022 
   Fair Value   Level 1   Level 2   Level 3 
Assets:                
Money market funds (1)  $73   $—   $—   $— 
Corporate notes and commercial paper  $1,078   $—   $1,078   $— 
                     
Liabilities:                    
Warrant  $2,079   $—   $—   $2,079 

 

(1)

Amounts are included in cash and cash equivalents on the condensed consolidated balance sheets.

 

The following tables represents the Company’s determination of fair value for its financial assets (cash equivalents and investments) (in thousands):

 

   March 31, 2023 
       Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Cash and cash equivalents  $805   $    —   $     —   $805 
Short-term investments   573    14    —    587 
   $1,378   $14   $—   $1,392 

 

   December 31, 2022 
       Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Cash and cash equivalents  $1,828   $    —   $       —   $1,828 
Short-term investments   1,103    —    (25)   1,078 
   $2,931   $—   $(25)  $2,906 

 

Warrant Classified as Liability

 

A warrant to purchase shares of our common stock at an exercise price of $1.00 per share (the Purchase Warrant) was issued on November 30, 2022 in conjunction with a registered direct offering to an institutional investor. The stock purchase agreement governing the Purchase Warrant provides for a value calculation for the Purchase Warrant using the Black Scholes model in the event of certain fundamental transactions (as defined in the stock purchase agreement). The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the holder of the Purchase Warrant that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrant as a liability in its condensed consolidated balance sheets. The classification of the Purchase Warrant, including whether the Purchase Warrant should be recorded as liability or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

 

The fair value of the Purchase Warrant at March 31, 2023 was determined using the Black Scholes model with the following assumptions: (i) expected term based on the contractual term of 5.4 years, (ii) risk-free interest rate of 4.00%, which was based on a comparable US Treasury 5-year bond, (iii) expected volatility of 114% and (iv) an expected dividend of zero.

 

As of March 31, 2023, the Company had the following liability-classified warrant outstanding (amounts in thousands):

 

   Number of
warrants on 		     
   common shares   Amount 
Balance as of December 31, 2021   —   $— 
Recognition of warrant liability   3,675    3,674 
Change in fair value of warrant   —    (1,595)
Balance as of December 31, 2022   3,675    2,079 
Change in fair value of warrant   —    (658)
Balance as of March 31, 2023   3,675   $1,421