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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

NOTE 4 – FAIR VALUE MEASUREMENTS

 

The Company calculates the fair value of the Company’s assets and liabilities that qualify as financial instruments and includes additional information in the notes to the consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of other receivables, prepaid expenses and other current assets, other assets, accounts payable, accrued expenses, and payables to licensor approximate their carrying amounts due to the relatively short maturity of these instruments.

 

U.S. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

  ● Level 1 - Quoted prices in active markets for identical assets or liabilities.
     
  ● Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
     
  ● Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs.

 

The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.

 

The following table provides a summary of financial assets measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):

 

Description  Fair Value at
September 30,
2024		   Level 1   Level 2   Level 3 
                 
Recurring Assets                    
Cash equivalents                    
Money market funds  $15,193   $15,193   $—   $— 
Short-term investments                    
U.S. treasury securities   43,572    43,572    —    — 
U.S. federal agency securities   36,863    —    36,863    — 
Certificates of deposit   13,540    13,540    —    — 
Total assets measured at fair value  $109,168   $72,305   $36,863   $— 
                     
Liabilities                    
Payable to licensor  $4,921   $—   $—   $4,921 
Warrant liabilities   38,789    —    —    38,789 
Total liabilities measured at fair value   43,710   $—   $—    43,710 

 

 

Description  Fair Value at
December 31,
2023		   Level 1   Level 2   Level 3 
                 
Recurring Assets                    
Cash equivalents                    
Money market fund  $1,034   $1,034   $—   $— 
Short-term investments                    
U.S. treasury securities   8,393    8,393    —    — 
U.S. federal agency securities   29,360    —    29,360    — 
Total assets measured at fair value  $38,787   $9,427   $29,360   $— 
                     
Liabilities                    
Payable to licensor  $4,580   $—   $—   $4,580 
Warrant liabilities   31,352    —    —    31,352 
Total liabilities measured at fair value  $35,932   $—   $—   $35,932 

 

Warrant Liabilities

 

As of September 30, 2024 and December 31, 2023, the Company had the following outstanding warrant liabilities:

 

   September 30, 2024   December 31, 2023 
Warrants issued as part of the 2021 public offering, expiration date December 2026, exercise price of $9.75 per share   1,788,000    1,788,000 
Warrants issued as part of the 2022 Private Placement Offering, expiration date November 2027, exercise price $4.75 per share   7,609,879    7,609,879 
Warrants issued as part of the 2024 Loan Agreement, expiration date January 2029, exercise price $4.07 per share   

589,681

    

—

 

 

The common stock warrants related to the 2021 Public Offering and the 2022 Private Placement are not indexed to the Company’s own stock and therefore have been classified as liabilities at their estimated fair value. The common stock warrants issued in connection with the Loan Agreement issuance were determined to be liability classified under ASC 815 as the common stock warrants were not considered indexed to the Company’s stock. Changes in the estimated fair value of the warrant liabilities is recorded as changes in fair value of warrant liabilities in the consolidated statement of operations and comprehensive loss.

 

In January 2024 as part of the Loan and Security Agreement, see Note 8, the Company issued warrants to purchase $2,400,000 worth of shares of the Company’s stock which have an exercise price equal to the lesser of (i) $4.75 and (ii) the price per share of the Company’s next bona fide round of equity financing before September 30, 2024 (the “2024 Loan Agreement Warrants”). In connection with the underwritten common stock offering consummated on May 7, 2024, pursuant to the terms of the 2024 Loan Agreement Warrants, the exercise price of was reduced to $4.07 per share and the shares issuable was calculated at 589,681 shares. On September 30, 2024, per the terms of the 2023 Loan Agreement Warrants, the exercise price and the number of shares became set at $4.07 per share and 589,681 shares, respectively.

 

The following table provides a summary of the activity on the warrant liabilities (in thousands):

 

      
Warrant liabilities as of December 31, 2023  $31,352 
Fair value of warrants issued in connection with the Loan Agreement   220 
Loss recognized in earnings from change in fair value   7,217 
Warrant liabilities as of September 30, 2024  $38,789 

 

 

The warrant liabilities are valued using significant inputs not observable in the market. Accordingly, the warrant liability is measured at fair value on a recurring basis using unobservable inputs and are classified as Level 3 inputs within the fair value hierarchy. Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value. The Company’s valuation of the common stock warrants utilized the Black-Scholes option-pricing model, which incorporated assumptions and estimates to value the common stock warrants. The Company assessed these assumptions and estimates at the end of each reporting period.

 

The following table outlines the key inputs for the Black-Scholes option-pricing model:

 

   September 30, 2024   December 31, 2023 
         
Common share price   $6.32    $5.01 
Expected term (years)   2.21 – 4.27     2.96 – 3.84  
Risk-free interest rate (%)   3.51% – 3.57%    3.84% – 3.92% 
Volatility (%)   96.51% - 100.00%    100.00% 
Expected dividend yield (%)   0%    0% 

 

Derivative Liabilities

 

The Conversion Right embedded within the Loan Agreement (see Note 8 below) required bifurcation as certain adjustments to the conversion price were not indexed to the Company’s own stock and therefore the Conversion Right was recorded as a derivative liability. The derivative liability is remeasured at each reporting period with the change in fair value recorded to changes in fair value of warrants and derivative liabilities in the condensed consolidated statement of operations until the derivative is exercised, expired, reclassified, or otherwise settled.

 

On September 30, 2024, pursuant to the Loan Agreement, the conversion price was fixed at $4.88 and is considered indexed to the Company’s own stock. At September 30, 2024, the Conversion Right no longer met the criteria of a derivative liability and the derivative liability was reclassified to equity.

 

The following table provides a summary of the activity on the derivative liabilities (in thousands):

 

       
Derivative liabilities as of December 31, 2023  $ — 
Fair value of derivatives issued in connection with Loan Agreement   822 
Loss recognized in earnings from change in fair value   313 
Reclassification of derivative liability in connection with the Loan Agreement   (1,135)
Derivative liabilities as of September 30, 2024  $— 

 

The derivative liabilities are valued using significant inputs not observable in the market. Accordingly, the derivative liability is measured at fair value on a recurring basis using unobservable inputs and are classified as Level 3 inputs within the fair value hierarchy. Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value. The Company’s valuation of the derivatives utilized the Monte Carlo simulation model, which incorporated assumptions and estimates to value the derivatives. The Company assessed these assumptions and estimates at the end of each reporting period.

 

 

The following table outlines the key inputs for the Monte Carlo simulation model:

 

   September 30, 2024   December 31, 2023 
         
Common share price   $6.32    — 
Expected term (years)   2.75    — 
Risk-free interest rate (%)   3.53%   — 
Volatility (%)   93.79%   —