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FAIR VALUE OF FINANCIAL INSTRUMENTS | 3 Months Ended
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Mar. 31, 2024
FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract] |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
5) | FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between willing market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
• | Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
• | Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
• | Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions.
The carrying amounts reported on the balance sheet for cash and cash equivalents, other receivable, prepaid assets and other current assets, accounts payable and accrued expenses, other current liabilities and other liabilities approximate fair value based due to their short maturities. The Company issued approximately 343,000 warrants in connection with a private placement during the first quarter of 2022 (the “Q1-22 warrants”), which were determined to be classified as a liability. The Company completed an asset acquisition on April 26, 2023 with Exacis Biotherapeutics, Inc. (Exacis”), which consisted of primarily acquiring an exclusive license agreement by and between Exacis and Factor Limited. See Note 9 for additional information. As part of the consideration paid to Exacis for the acquisition, the Company agreed to make certain contingent payments to Exacis related to reaching two separate targets of the Company’s market capitalization ($100.0 million and $200.0 million). Such payments would be in the form of issuing $2 million worth of shares of the Company’s common stock to Exacis for each target achieved (the “market cap contingent consideration.”). The market cap contingent consideration is indexed to or settled in the Company’s own shares. As a result, the Company classified the market cap contingent consideration as a liability measured at fair value because the financial instrument embodies a conditional obligation (the Company would only issue the shares on the condition that the applicable market capitalization threshold is met), and at inception, the monetary value of the obligation is based solely on a fixed monetary amount ($2.0 million worth of shares for each market capitalization threshold), which will be settleable with a variable number of the Company’s shares. The Company uses a Black-Scholes option pricing model to estimate the fair value of its warrant liabilities and a Monte Carlo simulation model to estimate the fair value of the contingent consideration related to the market cap contingent consideration, both of which are considered a Level 3 fair value measurement. The Company remeasures the fair value of the warrant liabilities and the market cap contingent consideration at each reporting period and changes in the fair values are recognized in the statement of operations. The following tables summarize the liabilities that are measured at fair value as of March 31, 2024 and December 31,2023 (in thousands):
Description |  | Level |  |  | March 31, 2024 |  |  | December 31, 2023 |
Liabilities: |  |  |  |  |  |  |  |  |
Warrant liabilities - Q1-22 warrants |  |  | 3 |  |  | $ | 186 |  |  | $ | 116 |
Market cap contingent consideration |  |  | 3 |  |  | $ | 107 |  |  | $ | 107 |
Certain inputs used in Black-Scholes and Monte Carlo models may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities or contingent consideration liabilities, which could also result in material non-cash gains or losses being reported in the Company’s condensed consolidated statement of operations. The following table presents the changes in the liabilities measured at fair value from January 1, 2024 through March 31, 2024 (in thousands):
|  | Warrant Liabilities |  |  | Contingent Consideration |
Fair value at January 1, 2024 |  | $ | 116 |  |  | $ | 107 |
Change in fair value |  |  | 70 |  |  |  | - |
Fair value at March 31, 2024 |  | $ | 186 |  |  | $ | 107 |
With the assistance of a third-party specialist, the Company assessed the fair value of the contingent consideration at March 31, 2024 and determined that fair value did not materially change from the liability recorded at December 31, 2023, and therefore did not recognize a change in the fair value as of March 31, 2024. The table below is provided for comparative purposes only and presents information about the fair value of the Company’s convertible notes relative to the carrying values recognized in the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023 (in thousands).
|  |  |  |  | March 31, 2024 |  |  | December 31, 2023 |
|  | Level |  |  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Convertible notes |  |  | 3 |  |  | $ | 18,198 |  |  | $ | 28,340 |  |  | $ | 16,616 |  |  | $ | 17,594 |
The carrying value in the table above is shown before the allocation of the proceeds to the note warrants. The Company assessed the fair value of the convertible notes as of March 31,2024 using a Monte Carlo simulation model and as of December 31, 2023 using a binomial model, both of which are considered a Level 3 measurement.

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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/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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