Investments and Fair Value Instruments

3 Months Ended

Mar. 31, 2023

Investments And Fair Value Instruments [Abstract]

5. Investments and Fair Value Instruments

Investments

The investments are carried at fair value, based on quoted market prices or other readily available market information. Unrealized and realized gains and losses are recognized as other income in the condensed consolidated statements of operations and comprehensive loss.

The following tables summarize the amortized cost and fair value of the investment securities portfolio at March 31, 2023 and December 31, 2022.


(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
March 31, 2023
Cash equivalents:
Money market funds	$	20,501	$	—	$	—	$	20,501
Total Assets at Fair Value	$	20,501	$	—	$	—	$	20,501


(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
December 31, 2022
Cash equivalents:
Money market funds	$	18,620	$	—	$	—	$	18,620
Total Assets at Fair Value	$	18,620	$	—	$	—	$	18,620

The Company did not have any investment categories that were in a continuous unrealized loss position for more than twelve months as of March 31, 2023.

Fair Value Measurement

The fair value of the investment securities at March 31, 2023 were as follows:


	Fair Value Measurements at March 31, 2023
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at Fair Value
Cash equivalents:
Money market funds	$	20,501	$	—	$	—	$	20,501
Total Assets at Fair Value	$	20,501	$	—	$	—	$	20,501

The fair value of the investment securities at December 31, 2022 were as follows:


	Fair Value Measurements at December 31, 2022
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at Fair Value
Cash equivalents:
Money market funds	$	18,620	$	—	$	—	$	18,620
Total Assets at Fair Value	$	18,620	$	—	$	—	$	18,620

The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2023 or 2022. The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable and other receivables, accounts payable and accrued liabilities. For accounts receivable and other receivables, accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of March 31, 2023 and December 31, 2022 were considered representative of their fair values due to their short term to maturity or repayment. Cash equivalents are carried at cost, which approximates their fair value.

The Company’s Level 3 liabilities consist of a contingent liability resulting from the Anawah, Inc. ("Anawah") acquisition as described in Note 13, as well as preferred investment options related to the March 2023 Private Placement and August 2022 Registered Direct offerings described in Note 9.

The contingent liability related to the Anawah acquisition was measured and recorded on a recurring basis as of March 31, 2023 and December 31, 2022, using unobservable inputs, namely the Company’s ability and intent to pursue certain specific products developed using technology acquired in the purchase. A significant deviation in the Company’s ability and/or intent to pursue the technology acquired in the purchase could result in a significantly lower (higher) fair value measurement.

The preferred investment option liabilities were measured and recorded on a recurring basis using the Black-Scholes Model with the following assumptions as of March 31, 2023 and December 31, 2022:


	March 2023 Options - Series A & March 2023 Placement Agent Options					March 2023 Options - Series B					August 2022 Options & August 2022 Placement Agent Options
	March 31, 2023			December 31, 2022		March 31, 2023			December 31, 2022		March 31, 2023			December 31, 2022
Remaining term (in years)		4.92			—		1.42			—		4.42			4.67
Expected volatility		106.7	%		—		106.8	%		—		108.8	%		106.2	%
Risk-free interest rate		3.6	%		—		4.4	%		—		3.7	%		4.0	%
Expected dividend yield		0	%		—		0	%		—		0	%		0	%

The significant input used in the fair value measurement of the Company’s Level 3 options liabilities is volatility. A significant increase (decrease) in volatility could result in a significantly higher (lower) fair value measurement.

The following table sets forth the establishment of the Company’s Level 3 liabilities, as well as a summary of the changes in the fair value and other adjustments (in thousands):



(Dollars in thousands)	March 2023 Options - Series A			March 2023 Options - Series B			March 2023 Placement Agent Options			August 2022 Options			August 2022 Placement Agent Options			Contingent Liabilities		Total
Balance as of December 31, 2022	$	—		$	—		$	—		$	767		$	39		$	2,000	$	2,806
Initial recognition		4,324			2,274			212			—			—			—		6,810
Change in fair value and other adjustments		(530	)		(69	)		(29	)		(111	)		(16	)		—		(755	)
Balance as of March 31, 2023	$	3,794		$	2,205		$	183		$	656		$	23		$	2,000	$	8,861

Assets classified as held for sale are recorded at fair value as of March 31, 2023. The Company has classified the fair value measurements as a Level 3 measurement in the fair value hierarchy as the fair value has been estimated using publicly available prices for some of the assets, and business partners' estimates for assets with prices not readily available, due to the relatively small size of the industry in which they can be used.