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Note 4 - Fair Value of Financial instruments
 6 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

4. Fair Value of Financial Instruments

 

The Company’s financial instruments consist primarily of cash, cash equivalents, marketable securities, accounts payable, previously outstanding convertible notes and accrued liabilities. The Company’s cash, cash equivalents, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. The Company determined the fair value of its previously outstanding convertible notes as described in Note 8.

 

The following table presents the Company’s assets that are measured at fair value on a recurring basis:

 

   

June 30, 2024

  
   

(Level 1)

    

(Level 2)

    

(Level 3)

  
                         

Assets

                        
Cash equivalents:                        

Money market accounts

   $ 4,376,257     $ —     $ —  

Commercial paper

     2,499,630       —       —  

Marketable securities:

                        

Commercial paper

     —       25,808,377     $ —  

U.S. treasury bonds

     —       9,287,385       —  

U.S. government agency bonds

     —       5,793,000       —  

Total assets measured at fair value

   $ 6,875,887     $ 40,888,762     $ —  

 

   

December 31, 2023

  

Assets

                        

Cash equivalents (money market accounts)

   $ 7,792,846     $ —     $ —  

Total assets measured at fair value

   $ 7,792,846     $ —     $ —  

 

The fair values of the Company’s Level 2 marketable securities are estimated primarily based on benchmark yields, reported trades, market-based quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications, which represent a market approach. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. This valuation technique may change from period to period, based on the relevance and availability of market data.

 

The following is a summary of the Company's marketable securities which provides a reconciliation of amortized cost basis to fair value including cumulative unrealized gains and losses as of June 30, 2024:

 

   

Amortized Cost

    

Unrealized

gains

    

Unrealized

losses

    

Fair Value

  

Commercial paper

   $ 25,828,920     $ —     $ (20,543 )   $ 25,808,377  

U.S. treasury bonds

     9,286,150       2,489       (1,254 )     9,287,385  

U.S. government agency bonds

     5,793,394       817       (1,211 )     5,793,000  

Total

   $ 40,908,464     $ 3,306     $ (23,008 )   $ 40,888,762  

 

 

The following table presents a roll-forward of the fair value of the Convertible Notes (Note 8) for which fair value is determined by Level 3 inputs:

 

   

Six Months Ended

June 30,

  
   

2023

  

Balance as of January 1, 2023

   $ 12,414,000  

Fair value adjustment

     (858,000 )

Balance as of March 31, 2023

     11,556,000  

Fair value adjustment

     212,000  

Balance as of June 30, 2023

   $ 11,768,000  

 

These Convertible Notes are no longer outstanding as of June 30, 2024.

 

Valuation techniques used to measure fair value maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The Convertible Notes are classified within Level 3 of the fair value hierarchy because the fair value measurement is based, in part, on significant inputs not observed in the market.

 

There were no transfers among Level 1, Level 2 or Level 3 categories in the three and six months ended June 30, 2024 or June 30, 2023.

 

The fair value of the 2020 Notes and the 2021 Notes, and collectively the Convertible Notes (Note 8) as of June 30, 2023 were estimated as the combination of a zero-coupon bond and a call option. The combined values for each of the 2020 Notes and the 2021 Notes as of June 30, 2023 and December 31, 2022 were then weighted by the probability of completing a financing or reverse merger. This approach resulted in the classification of the 2020 Notes and the 2021 Notes as of June 30, 2023 as Level 3 of the fair value hierarchy. The assumptions utilized to value the 2020 Notes and the 2021 Notes as of June 30, 2023 were an estimated term of 0.13 years, volatility of 69.0% and a market yield of 54.0% and 5.4% for completing a financing or reverse merger, respectively. The measurement of fair value incorporates expected future cash flows associated with interest payments; as such, there was no separate accrual for interest accrued but not yet paid.