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

 

6)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, 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 also recorded the Market Cap Contingent Consideration liability related to the Exacis Acquisition. See Note 3 for more information related to the Exacis Acquisition.

 

In connection with the Bridge Notes, the Company recorded a derivative liability as of September 24, 2024. In connection with the Exchange Transactions, on September 24, 2024, the Company reclassified the warrants included in the Exchange Transactions from equity to a liability. See Note 5 for more information related to the Bridge Notes and Exchange Transactions.

 

The Company uses a Black-Scholes option pricing model to estimate the fair value of the Q1-22 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 determined the fair value of the derivative liability by taking the difference between the fair value of the Bridge Notes with the conversion feature and without the conversion feature.

 

With respect to the warrants in the Exchange Transactions, the Company determined the fair value of the warrants as of September 24, 2024 by taking the number of shares of common stock issuable from the exchanged warrants multiplied by the closing stock price of $1.13 and reclassified approximately $11.2 million from equity to warrant liabilities.

 

The Company remeasures the fair value of the warrant liabilities, the Bridge Notes derivative liability 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 September 30, 2024 and December 31, 2023 (in thousands):

 

Description  Level   September 30,
2024		   December 31,
2023		 
Liabilities:               
Warrant liabilities - Q1-22 warrants   3   $15   $116 
Warrant liabilities – Exchange Transactions   3   $

10,448

   $

-		 
Bridge Notes derivative liability   3   $

4,926

   $- 
Market Cap Contingent Consideration        -    - 

 

 

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 September 30, 2024 (in thousands):

 

   Warrant
Liabilities		    Derivative
Liability		    Contingent
Consideration		 
               
Fair value at January 1, 2024  $116    $ -    $107 
Reclassification of warrants from equity to liability   

11,244

      -     -
Initial measurement of Bridge Notes derivative liability   -      5,566     -
Change in fair value   (897)    

(640

 )   (66)
Fair value at September 30, 2024  $10,463    $ 4,926    $41 

 

The Company assessed the fair value of the Market Cap Contingent Consideration at September 30, 2024 and determined that there were no material changes to the inputs used in the June 30, 2024 remeasurement that would have resulted in a material change to the liability at September 30, 2024. Therefore, the Company did not recognize a change in fair value of the Market Cap Contingent Consideration for the three months ended September 30, 2024.

 

The Company remeasured the Bridge Notes derivative liability by taking the difference between the fair value of the Bridge Notes with the conversion feature and without the conversion feature as of September 30, 2024 and recorded a $0.6 million credit for the change in fair value during the three months ended September 30, 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 September 30, 2024 and December 31, 2023 (in thousands).

 

       September 30, 2024   December 31, 2023 
   Level   Carrying
Value		   Fair
Value		   Carrying
Value		   Fair
Value		 
Convertible Notes   3   $32,037   $29,768   $16,616   $17,594 
Bridge Notes   3   $3,887   $8,409   $-   $- 

 

The carrying value of the Convertible Notes in the table above is reflective of the reacquisition price of the Convertible Notes as a result of the Exchange Agreements entered into on September 24, 2024, which was recorded at its fair value as of September 24, 2024. The Company determined the fair value of the Convertible Notes by multiplying the 28.4 million shares expected to be issued in common stock on October 29, 2024 by the closing stock price of $1.05 per share on September 30, 2024.

 

The carrying value of the Bridge Notes in the table above is shown before the bifurcation of the Bridge Notes derivative liability. The Company determined the fair value of the Bridge Notes by multiplying the 8.0 million shares expected to be issued in common stock (or in pre-funded warrants) on October 29, 2024 by the closing stock price of $1.05 per share on September 30, 2024.

 

See Note 5 for more information on the Convertible Notes and the Bridge Notes.

 

The Company assessed the fair value of the 2023 convertible notes as of December 31, 2023 using a binomial model, which is considered a Level 3 measurement.