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FAIR VALUE OF FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS

4) 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 receivables, prepaid expenses 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 23,000 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 has also recorded a three year contingent consideration liability related to an asset acquisition in April 2023, which was moved to current liabilities as of June 30, 2025 due to the Company’s obligation for this liability terminating in April 2026.

 

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 liability, both of which are considered a Level 3 fair value measurement. The Company remeasures these liabilities at each reporting period and recognizes changes in their respective fair value in the accompanying condensed consolidated statement of operations.

 

In connection with the SPA (as defined in Note 12) that the Company entered into on March 31, 2025, the Company recorded a forward sales contract liability at fair value and recognized $5.3 million of expense because the fair value of the expected shares to be purchased by the investors exceeds the proceeds under the SPA.

 

 

The Company determined the expense related to the forward sales contract as of March 31, 2025 by taking the difference between (i) the fair value of the expected shares to be purchased by the investors as of the March 31, 2025 date the Company entered into the SPA and (ii) the discounted purchase price of the shares. The Company remeasures the fair value of the forward sales contract liability at each reporting period or immediately prior to the settlement of the shares purchased under the SPA and recognizes changes in the fair value in the accompanying condensed consolidated statement of operations. Upon settlement of the shares, the corresponding forward sales contract liability is then reclassified to additional paid-in capital.

 

During the three months ended June 30, 2025, the Company completed the sale of the shares under the SPA, and as a result, the forward sales contract liability was reclassified to additional paid-in capital. There was no remaining forward sales contract liability balance as of June 30, 2025.

 

The following table summarizes the liabilities that are measured at fair value as of June 30, 2025 and December 31, 2024 (in thousands):

 

Description  Level  

June 30, 2025

  

December 31, 2024

 
Liabilities:               
Warrant liabilities - Q1-22 warrants   3   $-   $1 
Contingent consideration   3   $41   $41 

 

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, 2025 through June 30, 2025 (in thousands):

 

  

Warrant

Liabilities

  

Contingent

Consideration

   Forward Sales Contract 
             
Fair value at January 1, 2025  $1   $41   $- 
Initial measurement   -    -    5,335 
Change in fair value   (1)   -    512 
Reclassification of forward sales contract liability to equity   -    -    (5,847)
Fair value at June 30, 2025  $-   $41   $- 

 

The Company remeasured the fair value of the Q1-22 warrants at June 30, 2025, and the result of the remeasurement was de minimis. The Company assessed the fair value of the contingent consideration liability at each reporting period through June 30, 2025 and determined that there were no material changes to the inputs used in the December 31, 2024 remeasurement that would have resulted in a material change to the liability at June 30, 2025. Therefore, the Company did not recognize a change in fair value of the contingent consideration liability for the three and six months ended June 30, 2025.