Note 10 - Fair Value Measurements

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2023 and December 31, 2022:

For the nine months ended September 30, 2023 there was a decrease of approximately $2.6 million in Level 3 liabilities measured at fair value.

2022 Convertible Notes at Fair Value

The fair value of the 2022 Notes on the issuance dates, and as of September 30, 2023 were estimated using a Monte Carlo simulation to capture the path dependencies intrinsic to their terms. The significant unobservable inputs used in the fair value measurement of the Company’s convertible notes are the common stock price, volatility, and risk-free interest rates. The Company elected the fair value option when recording its 2022 Notes and the 2022 Notes were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income (expense) on the statements of operations and disclosed in the condensed consolidated financial statements.

During the nine months ended September 30, 2023, seven noteholders converted a portion of their 2022 Notes into 248,981 shares of the Company’s commons stock (See Note 9). The fair value of the converted notes totaled $2.2 million.

In February 2023, the Company entered into waiver agreements with holders of the 2022 Notes (See Note 9). In connection with the waiver agreement, the 2022 Notes were revalued as of the amendment date.

In March 2023, the Company entered into the second waiver agreements with holders of the 2022 Notes (See Note 9). A number of holders elected to increase the principal balance of their notes. The Company revalued the respective notes on the date prior to the amendment date and again on the amendment date. The change in fair value related to the amendment of these 2022 Notes was approximately $0.4 million.

In June 2023, the Company entered into an exchange agreement and $0.2 million fair value of the 2022 Notes was exchanged for 206 shares of Series F Preferred stock. As of September 30, 2023, there was no outstanding balance related to the 2022 Notes.

Line of Credit

In February 2023, the Company drew down $2.0 million from the line of credit and issued the 2023 Notes of $2.0 million. The 2023 Note had fair value at issuance of $1.9 million and the Company recorded a gain on issuance of approximately $0.1 million, which is included in other income (expense) on the condensed consolidated statement of operations.

In May 2023, the Company drew down $0.4 million from the line of credit and in accordance with the terms of the agreement issued the 2^nd 2023 Notes and 3^rd 2023 Notes. During July 2023, the Company repaid the outstanding balance of $0.4 million in cash.

As of September 30, 2023, there was no outstanding balance related to the 2023 Notes.

The following table provides the changes in fair value of the 2022 Notes and warrant liability (in thousands):

Warrants

2022 Notes

In connection with the 2022 Notes, the Company issued 362,657 warrants to purchase shares of the Company’s common stock. During the nine months ended September 30, 2023, the Company entered into a warrant inducement and exercise agreement with certain holders. Under the terms of the agreement, the holders exercised 106,764 warrants with a fair value of approximately $0.8 million and the Company issued 106,764 new warrants to purchase shares of its common stock with a fair value of $1.3 million. The Company recognized a loss on extinguishment of the warrants of approximately $0.5 million which is included in other income (expense) on the condensed consolidated statement of operations.

February Waiver Agreement

In connection with the February waiver agreement, the Company issued 96,890 warrants to purchase shares of the Company’s common stock with a fair value of $0.7 million on the issuance date.

As of September 30, 2023, there were 96,980 warrants outstanding with nominal fair value.

Series F Preferred Stock Exchange Agreements

In connection with the Series F preferred stock exchange agreements, the Company issued 592,137 warrants to purchase shares of the Company’s common stock. The Company concluded that the exchange warrants are liability classified with a fair value of $1.3 million as of the issuance date. As of September 30, 2023, the exchange warrants had a nominal fair value.

Senior Secured Notes

In connection with the issuance of the Senior Secured Notes in January 2023 (See Note 9), the Company issued 41,667 warrants to purchase shares of the Company’s common stock. The Company estimated the aggregate fair value of the warrants on the issuance date to be approximately $0.2 million, and nominal value as of September 30, 2023.

Line of Credit

In February 2023, in connection with the issuance of its line of credit, the Company issued 45,000 warrants to purchase shares of its Series E preferred stock (See Note 11). The Company estimated the aggregate fair value of the warrants on the issuance date to be approximately $5.6 million, and nominal value as of September 30, 2023.

Series F-1 and F-2 Issuances

As part of the Series F-1 and F-2 preferred stock issuances, the Company issued 523,323 warrants to purchase shares of the Company’s common stock. The Company concluded that the Series F-1 and Series F-2 warrants are liability classified with a fair value of $1.2 million as of the issuance date. As of September 30, 2023, the fair value of the Series F-1 and Series F-2 warrants were nominal.

The warrants were classified as liabilities and measured at fair value on the grant date, with changes in fair value recognized as other income (expense) on the condensed consolidated statements of operations.

A summary of significant unobservable inputs (Level 3 inputs) used in measuring warrants on the issuance dates and as of September 30, 2023 and December 31, 2022 is as follows: