FAIR VALUE MEASUREMENTS |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS | 2. FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, and accounts payable are considered Level 1 due to their short-term nature and their market interest rates.
The Company recorded warrants in connection with a public offering in 2022 (the “2022 Warrants”) in warrant liabilities. As discussed in Note 6 to the unaudited condensed consolidated financial statements, in connection with a registered direct offering in 2024, the Company amended certain of the 2022 Warrants to purchase up to an aggregate of 366,664 shares of common stock (the “2022 Modified Warrants”). The terms of the remaining 433,321 of the 2022 Warrants were unchanged (the “2022 Unmodified Warrants”). In August 2024, 311,111 of the 2022 Modified Warrants were further modified as part of a warrant inducement agreement. These warrants were exercised at a reduced price of $1.25.
The fair value of the 2022 Warrants as of June 30, 2025 and December 31, 2024 were approximately $10,000 and $60,000, respectively. The fair value of the 2022 Warrants was estimated using Black-Scholes pricing model based on the following assumptions:
The 2022 Warrants were deemed to be derivative instruments due to certain contingent put features. The fair value of the 2022 Warrants was determined using the Black-Scholes option pricing model, deemed to be an appropriate model due to the terms of the 2022 Warrants issued, including a fixed term and exercise price.
The fair value of the 2022 Warrants was affected by changes in inputs to the Black-Scholes option pricing model including the Company’s stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. This model uses Level 2 inputs, including stock price volatility, in the fair value hierarchy established by ASC 820, Fair Value Measurement. The 2022 Warrants are classified in warrant liabilities on the Company’s unaudited condensed consolidated balance sheets.
The following is a reconciliation of the fair values from December 31, 2024 to June 30, 2025.
The Company recorded warrants in connection with the March conversion of Senior Secured Convertible Promissory Notes (the “Convertible Notes”) in 2025 (the “March 2025 Warrants”) in warrant liabilities. The March 2025 Warrants were deemed to be derivative instruments due to certain contingent put features. As discussed in Note 4 to the unaudited condensed consolidated financial statements, in connection with the conversion of convertible notes in March 2025, the Company issued warrants to purchase up to an aggregate of 12,298,177 shares of common stock. The March 2025 Warrants have an exercise price of $0.25 per share for the first 24 months after issuance, and $0.50 per share thereafter.
The fair value of the March 2025 Warrants as of June 30, 2025 and March 12, 2025 was approximately $1,230,000 and $1,477,000, respectively. The fair value of the March 2025 Warrants was estimated using a Monte Carlo simulation pricing model, which uses Level 3 inputs due to its incorporation of significant inputs that are not observable in the market. The mean present value across multiple simulation iterations was used to estimate the fair value of the March 2025 Warrants.
The Company used the following key inputs to the Monte Carlo simulation pricing model to determine the fair value of the March 2025 Warrants.
The Company recorded the Convertible Notes on its books at fair value. The fair value of the Convertible Notes was calculated by backing out the fair value of the March 2025 Warrants, which was estimated using a Monte Carlo simulation pricing model. The Monte Carlo simulation pricing model uses Level 3 inputs due to its incorporation of significant inputs that are not observable in the market. The fair value of the convertible notes at issuance was approximately $2,563,000. Accordingly, on the date of issuance, the Company recorded a loss of $1,198,000, which is the difference between the fair value and the proceeds received. The Convertible Notes were marked to market through the date of conversion, March 12, 2025. The change in fair value from the date of issuance through the date of conversion was a gain of $170,000 which was recorded as change in fair value of Convertible Notes in the accompanying condensed consolidated financial statements.
The carrying value of the Company’s insurance promissory note approximates fair value as of June 30, 2025 and December 31, 2024, due to the short-term nature of the insurance note and is classified as Level 2 within the fair value hierarchy.
The DECD loan is classified within Level 3 of the fair value hierarchy. The following table presents the carrying value and fair value of the DECD loan. The fair value of the DECD loan is estimated based on discounted cash flows using the prevailing market interest rates.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||