Fair Value Measurements

3 Months Ended

Mar. 31, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

3. Fair Value Measurements

The Company measures the following financial assets at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during any of the periods presented. The following tables set forth the Company’s financial assets and liabilities carried at fair value categorized using the lowest level of input applicable to each financial instrument as of March 31, 2024 and December 31, 2023 (in thousands):

	Balance at March 31, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	3,750	$	3,750	$	—	$	—
	$	3,750	$	3,750	$	—	$	—
Liabilities:
Warrant liabilities	$	207	$	—	$	207	$	—
Derivative liability related to Term Loan with related party		1,662		—		—		1,662
	$	1,869	$	—	$	207	$	1,662

	Balance at December 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	8,500	$	8,500	$	—	$	—
	$	8,500	$	8,500	$	—	$	—
Liabilities:
Warrant liabilities	$	235	$	—	$	235	$	—
Derivative liability related to Term Loan with related party		1,554		—		—		1,554
	$	1,789	$	—	$	235	$	1,554

The Company’s cash equivalents are comprised of money market funds and money market accounts as of March 31, 2024 and December 31, 2023. The Company also maintains money market accounts classified as restricted cash, which are Level 1 assets, for $0.6 million on both March 31, 2024 and December 31, 2023 (Note 4).

The Company estimated the fair value of the warrant issued in conjunction with the Series A Redeemable Convertible Preferred Stock in August of 2022 (the “Series A Warrant”) (Note 8) using the Black-Scholes Model, which uses multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant.

The estimated fair value of the Series A Warrant on March 31, 2024 was determined using the following assumptions:

Risk-free interest rate		4.32	%
Expected dividend yield		0.00	%
Expected volatility		144.00	%
Expected term	3.88

The Company estimated the fair value of the Common Stock Warrant issued in February of 2023 (the “Common Stock Warrant”) (Note 8) using both the Black-Scholes Model and Monte Carlo simulation methods to model different potential settlement outcomes. These models use multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant. Such inputs may vary depending on the model applied and the underlying scenario assumptions. Key inputs included the warrant exercise price of $108.00 per share, a risk-free interest rate of 4.32%, expected volatility ranging from 90% to 219%, an expected dividend yield of 0.00%, a stock price of $3.63 (adjusted to reflect volume weighting) and an expected term ranging from zero years to 3.88 years, depending on the simulation.

The following table provides a roll-forward of the fair value of the Common Stock Warrants (in thousands):

Balance on December 31, 2023	$	233
Change in fair value		(27	)
Balance on March 31, 2024	$	206

The Company has a single compound derivative instrument related to its Term Loan Agreement (Note 6) that requires the Company to pay additional interest of 4% per annum upon an event of default or if any obligation other than the unpaid principal amount of the Term Loan is not paid when due. Fair value is determined quarterly. The fair value of the derivative on March 31, 2024 and December 31, 2023 is $1.7 million and $1.6 million, respectively, and is classified as a current liability on the condensed consolidated balance sheets to match the classification of the related Term Loan Agreement (Note 6).

The estimated fair value of the derivative on March 31, 2024 was determined using a probability-weighted discounted cash flow model that includes contingent interest payments under the following scenarios:

	Probability
4% contingent interest beginning in Q2 2024		50	%

Changes in assumptions regarding the probability of the 4% contingent interest feature being triggered and the timing of such a triggering event could significantly affect the estimated fair value of this derivative liability.

The following table provides a roll-forward of the fair value of the derivative liability (in thousands):

Balance on December 31, 2023	$	1,554
Change in fair value of derivative related to Term Loan with related party		108
Balance on March 31, 2024	$	1,662

The Company is required to disclose the fair value and the level within the fair value hierarchy for financial instruments that are not measured at fair value on a recurring basis. For certain financial instruments, including accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, the carrying amounts approximate their fair values as of March 31, 2024 and December 31, 2023 because of their short-term nature. Cash and cash equivalents were classified as Level 1 and all other financial instruments were classified as Level 2 within the fair value hierarchy. The Company used Level 3 inputs to measure the fair value of its Term Loan Agreement. Based on these measurements, the Company concluded that the carrying value of the Term Loan Agreement approximates its fair value on March 31, 2024.