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Note 12 - Fair Value | 9 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | Note 12. Fair Value Cash, cash equivalents, and marketable securities are carried at fair value. Financial instruments, including accounts receivable, accounts payable, and accrued expenses are carried at cost, which approximates fair value given their short-term nature. Our remaining fair value measures are discussed below. Financial Instruments with Fair Value Measurements on a Recurring Basis The fair value hierarchy for financial instruments measured at fair value on a recurring basis as of September 30, 2024 is as follows, excluding the Contingent Earn-outs due to their nominal fair value:
|  | September 30, 2024 |
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Cash equivalents: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 3,897 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,897 |
Common stock warrant liabilities |  |  | — |  |  |  | — |  |  |  | 592 |  |  |  | 592 |
The fair value hierarchy for financial instruments measured at fair value on a recurring basis as of December 31, 2023 is as follows:
|  | December 31, 2023 |
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Cash equivalents: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | — |  |  | $ | 19,884 |  |  | $ | — |  |  | $ | 19,884 |
Money market funds |  |  | 5,113 |  |  |  | — |  |  |  | — |  |  |  | 5,113 |
Marketable securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  |  | — |  |  |  | 6,179 |  |  |  | — |  |  |  | 6,179 |
Common stock warrant liabilities |  |  | — |  |  |  | — |  |  |  | 1,481 |  |  |  | 1,481 |
Clene Nanomedicine contingent earn-out liability |  |  | — |  |  |  | — |  |  |  | 75 |  |  |  | 75 |
Initial Stockholders contingent earn-out liability |  |  | — |  |  |  | — |  |  |  | 10 |  |  |  | 10 |
There were no transfers between Level 1, Level 2, or Level 3 during any of the periods above. Changes in the fair value of our Level 3 financial instruments during the nine months ended September 30, 2024 were as follows:
(in thousands) |  | Common Stock Warrant Liabilities |  |  | Clene Nanomedicine Contingent Earn-out |  |  | Initial Stockholders Contingent Earn-out |
Balance – December 31, 2023 |  | $ | 1,481 |  |  | $ | 75 |  |  | $ | 10 |
Change in fair value |  |  | (956 | ) |  |  | (75 | ) |  |  | (10 | )
Change in 2023 Avenue Warrant fair value pursuant to the Third Amendment recorded as a debt discount |  |  | 67 |  |  |  | — |  |  |  | — |
Balance – September 30, 2024 |  | $ | 592 |  |  | $ | — |  |  | $ | — |
Changes in the fair value of our Level 3 financial instruments during the nine months ended September 30, 2023 were as follows:
(in thousands) |  | Common Stock Warrant Liabilities |  |  | Clene Nanomedicine Contingent Earn-out |  |  | Initial Stockholders Contingent Earn-out |
Balance – December 31, 2022 |  | $ | — |  |  | $ | 2,264 |  |  | $ | 291 |
Initial fair value of instruments |  |  | 7,818 |  |  |  | — |  |  |  | — |
Change in fair value |  |  | (5,958 | ) |  |  | (2,114 | ) |  |  | (272 | )
Balance – September 30, 2023 |  | $ | 1,860 |  |  | $ | 150 |  |  | $ | 19 |
Valuation of Notes Payable and Convertible Notes Payable The 2019 MD Loan and the 2019 Cecil Loan are carried at the greater of principal plus accrued interest or the value of the Phantom Shares (see Note 8), which approximates fair value. The 2021 Avenue Loan, the 2022 MD Loan, and the 2022 DHCD Loan are carried at amortized cost, which approximates fair value due to our credit risk and market interest rates. Our notes payable and convertible notes payable are categorized within Level 3 of the fair value hierarchy. Valuation of the Common Stock Warrant Liabilities The 2023 Avenue Warrant, as amended, is classified as a liability and carried at fair value. We estimate the fair value using a Black-Scholes option-pricing model with probability weights for the occurrence of the following events: (i) settlement of the instrument upon a change of control transaction, (ii) dissolution of the Company, or (iii) another outcome outside of (i)-(ii). These estimates require significant judgment. The carrying amount may fluctuate significantly and the actual settlement amount may be materially different from the estimated fair value. The unobservable inputs to the Black-Scholes option pricing model were as follows:
|  | September 30, |  |  | December 31, |
|  | 2024 |  |  | 2023 |
Expected stock price volatility |  |  | 108.40% –114.80 | % |  |  | 105.00% –110.00 | %
Risk-free interest rate |  |  | 3.60% –4.50 | % |  |  | 3.88% –5.03 | %
Expected dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
Expected term (in years) |  |  | 0.41 –3.75 |  |  |  | 0.75 –4.50 |
Probability of change of control |  |  | 10.00 | % |  |  | 25.00 | %
Probability of dissolution |  |  | 55.00 | % |  |  | 50.00 | %
Probability of other outcome |  |  | 35.00 | % |  |  | 25.00 | %
The Tranche A Warrants are classified as a liability and carried at fair value (the Tranche B Warrants qualified for equity classification at issuance). We estimate the fair value using a Black-Scholes option-pricing model with probability weights for the occurrence of the following events: (i) acceptance of an NDA by the FDA for CNM-Au8, (ii) settlement upon a fundamental transaction, (iii) dissolution of the Company, and (iv) another outcome outside of (i)-(iii). These estimates require significant judgment. The carrying amount may fluctuate significantly and the actual settlement amount may be materially different from the estimated fair value. The unobservable inputs to the Black-Scholes option pricing model were as follows:
|  | September 30, |  |  | December 31, |
|  | 2024 |  |  | 2023 |
Expected stock price volatility |  |  | 97.70% –109.50 | % |  |  | 100.00% –110.00 | %
Risk-free interest rate |  |  | 3.80% –4.30 | % |  |  | 4.13% –4.74 | %
Expected dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
Expected term (in years) |  |  | 0.58 –1.71 |  |  |  | 1.08 –2.46 |
Probability of NDA acceptance |  |  | 20.00 | % |  |  | 20.00 | %
Probability of fundamental transaction |  |  | 10.00 | % |  |  | 25.00 | %
Probability of dissolution |  |  | 55.00 | % |  |  | 50.00 | %
Probability of other outcome |  |  | 15.00 | % |  |  | 5.00 | %
Valuation of the Contingent Earn-Out Liabilities The Contingent Earn-outs are carried at fair value, which is nominal, as determined using a Monte Carlo valuation model in order to simulate the future path of our stock price over the earn-out periods. The carrying amount of the liabilities may fluctuate significantly and actual amounts paid may be materially different from the liabilities’ estimated value. The unobservable inputs to the Monte Carlo valuation model were as follows:
|  | September 30, |  |  | December 31, |
|  | 2024 |  |  | 2023 |
Expected stock price volatility |  |  | 104.00 | % |  |  | 115.00 | %
Risk-free interest rate |  |  | 3.90 | % |  |  | 4.20 | %
Expected dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
Expected term (in years) |  |  | 1.25 |  |  |  | 2.00 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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