Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
3 Months Ended
Mar. 31, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS

 

Fair value measurements affect the Company’s accounting for certain of its financial assets. 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 market participants at the measurement date and is measured according to a hierarchy that includes:

 

  Level 1: Observable inputs, such as quoted prices in active markets.

 

  Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. Level 2 assets and liabilities include debt securities with quoted market prices that are traded less frequently than exchange-traded instruments. This category includes U.S. government agency-backed debt securities and corporate-debt securities.

 

  Level 3: Unobservable inputs in which there is little or no market data.

 

As of March 31, 2024, and December 31, 2023, the Company used Level 1 quoted prices in active markets to value cash equivalents which were deminimis for both periods presented. The Company did not have any Level 2 or Level 3 assets or liabilities as of March 31, 2024. As of December 31, 2023, Level 3 liabilities included a portion of the Series D Warrants and all Series C Warrants issued in December 2023, which did not meet the criteria for equity classification due to insufficient authorized shares to settle the instruments and were therefore accounted for as liabilities at fair value. After the Company received stockholder approval to increase the number of authorized shares on January 25, 2024, the liability classified Series D Warrants and the Series C Warrants met all requirements for equity classification and, as a result, the Company reclassified them to equity as of January 25, 2024.

 

The Company used the Black-Scholes option pricing model to estimate the fair value of the Series D Warrants and the Series C Warrants using significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. For periods prior to the receipt of stockholder approval, the fair value was then adjusted by applying a discount for lack of marketability (“DLOM”) based on the expected timing of receipt of stockholder approval to increase the number of authorized shares and to allow the Warrants to become exercisable in accordance with Nasdaq Listing Rule 5635.

 

The significant unobservable inputs used in the valuation models as of January 25, 2024, the reclassification date, and as of December 31, 2023, to measure the fair value of the Series D Warrants and the Series C Warrants are as follows:

 

                                 
    Series C Warrants     Series D Warrants  
Valuation Date:   January 25,
2024
    December 31,
2023
    January 25,
2024
    December 31,
2023
 
Common stock price   $ 0.309     $ 0.403     $ 0.309     $ 0.403  
Risk-free rate     4.52 %     4.23 %     4.01 %     3.84 %
Expected term (in years)     1.71       1.78       5.00       5.15  
Expected volatility     106.00 %     108.0 %     106.00 %     108.0 %
Dividend yield     0.0 %     0.0 %     0.0 %     0.0 %
Discount for lack of marketability     N/A       5.0 %     N/A       5.0 %

 

From December 31, 2023 to the reclassification date, the Company recognized a change in fair value resulting in a gain of $7.0 million related to the liability-classified warrants prior to meeting the criteria for equity classification. Changes in the fair value of the liability-classified warrants are recognized as a separate component in the consolidated statement of operations.