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:

As of December 31, 2023, and December 31, 2022, the Company used Level 1 quoted prices in active markets to value cash equivalents of $0.1 million and $116.3 million, respectively. The Company did not have any Level 2 or Level 3 assets or liabilities as of December 31, 2022. As of December 31, 2023, Level 3 liabilities include a portion of the Series D Warrants and all Series C Warrants issued on December 22, 2023, which did not meet the criteria for equity classification due to insufficient authorized shares to settle the instruments and are therefore accounted for as liabilities at fair value.

The Company estimates 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. The Company estimated the fair value of these instruments using the Black-Scholes option pricing model, which 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 at issuance and as of December 31, 2023, to measure the fair value of the Series D Warrants and the Series C Warrants are as follows:

The liability-classified Series D Warrants and the Series C Warrants were recognized at their aggregate issuance date fair values totaling $22.5 million. From the date of issuance to December 31, 2023, the Company recognized a change in fair value resulting in a loss of $0.3 million related to the liability-classified warrants. Changes in the fair value of the liability-classified warrants are recognized as a component of other income, net in the consolidated statement of operations.