FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2024

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 4 — FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s financial assets (cash equivalents) at fair value on a recurring basis (in thousands):

			Basis of Fair Value Measurements
	June 30, 2024		Level 1		Level 2		Level 3
Money market funds	$	9,173	$	9,173	$	—	$	—
Total	$	9,173	$	9,173	$	—	$	—
Amounts included in:
Cash and cash equivalents	$	9,173
Total cash equivalents	$	9,173

			Basis of Fair Value Measurements
	December 31, 2023		Level 1		Level 2		Level 3
Money market funds	$	11,395	$	11,395	$	—	$	—
Total	$	11,395	$	11,395	$	—	$	—
Amounts included in:
Cash and cash equivalents	$	11,395
Total cash equivalents	$	11,395

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities (in thousands):

	June 30, 2024
	Cost Basis		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents - money market funds	$	9,173	$	—	$	—	$	9,173

	December 31, 2023
	Cost Basis		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents - money market funds	$	11,395	$	—	$	—	$	11,395

As of both June 30, 2024 and December 31, 2023, all of the Company’s available-for-sale investments were due in one year or less.

The Company received no proceeds from the sale of available-for-sale securities for the three and six months ended June 30, 2024 and 2023, and no realized gain for the three and six months ended June 30, 2024 and 2023.

Contingent Value Right and Common Stock Warrant Valuation

On June 16, 2023, the Company entered into a Convertible Secured Contingent Value Right Agreement (the “CVR Agreement”) with K2 HealthVentures LLC (“K2HV”), as further described in Note 7 “Borrowing Arrangements and Debt Extinguishment.” ASC 815 “Derivatives and Hedging” requires the Conversion Right, as defined in the CVR Agreement, and Contingent Value Right, as defined in the CVR Agreement, to be accounted for as liabilities and changes to their fair value recognized in the condensed consolidated statement of operations. The Conversion Right and Contingent Value Right liability will be remeasured each reporting period. The Company utilized a probability weighted expected return method to value the Conversion Right and Contingent Value Right liability (collectively, the “CVR”). The CVR was split into two components: (a) the Conversion Right of the holder to convert $3.0 million of the Remaining Value, as defined below, into shares and (b) the Contingent Value Right liability, as defined in the CVR Agreement. Various payoff scenarios were projected and weighted to determine the payoff of the CVR. Within each scenario, the stock price at each event was forecasted to determine if K2VH would convert $3.0 million of the Remaining Value into shares of the Company’s common stock. If K2HV elected to convert any amount up to $3.0 million into shares of the Company’s common stock, then the value of the Conversion Right was the expected stock

price times the number of conversion shares; otherwise, the value was determined to be zero. The Contingent Value Right liability component was calculated as the Remaining Value less $3.0 million conversion amount if converted at the time of the event, discounted back to present value. As of June 16, 2023, the value of the Conversion Right and Contingent Value Right liability were calculated within each scenario and probability weighted to derive the total fair value of the Conversion Right and the Contingent Value Right liability was $3.3 million and $1.9 million, respectively. As of June 30, 2024, the fair value of the Conversion Right and the Contingent Value Right liability was $0.6 million and $1.5 million, respectively. As of December 31, 2023, the fair value of the Conversion Right and the Contingent Value Right liability was $1.5 million and $1.2 million, respectively. For the three months ended June 30, 2024 and 2023, the total change in fair value of the Conversion Value Right and the Contingent Value Right liability was $0.1 million and $0.3 million, respectively. For the six months ended June 30, 2024 and 2023, the total change in fair value of the Conversion Value Right and the Contingent Value Right liability was $0.7 million and $0.3 million, respectively.

The following table sets forth the Company’s financial liabilities (convertible secured contingent value right) at fair value on a recurring basis (in thousands):

			Basis of Fair Value Measurements
	June 30, 2024		Level 1		Level 2		Level 3
Conversion right and contingent value right	$	2,051	$	—	$	—	$	2,051
Total	$	2,051	$	—	$	—	$	2,051

			Basis of Fair Value Measurements
	December 31, 2023		Level 1		Level 2		Level 3
Conversion right and contingent value right	$	2,702	$	—	$	—	$	2,702
Total	$	2,702	$	—	$	—	$	2,702

The following table is a reconciliation of the change in fair value of the Conversion Right and Contingent Value Right liability for the six months ended June 30, 2024 (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Conversion right and contingent value right liability
Balance as of December 31, 2023	$	2,702
Change in valuation included in net income		(651)
Balance as of June 30, 2024	$	2,051

In satisfaction of its obligations to issue the warrant to K2HV’s affiliated holder pursuant to the CVR Agreement, the Company issued a warrant to purchase up to 340,222 shares of the Company’s common stock at an exercise price of $5.8785 per share. The warrant has a term of 10 years. The Company accounted for its common stock warrants under the guidance in ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging,” that clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock. The warrants were classified as equity and were fair valued as the date of the transaction. The fair value of these warrants was determined using a Black-Scholes option-pricing model with the following key inputs:

		June 16, 2023
Risk-free interest rate		3.77	%
Expected term (in years)		10.0
Dividend yield		—
Volatility		80.00	%
Stock price	$	0.53

On June 16, 2023, the Company determined the fair value of the warrants to be $2.3 million and classified that amount to additional paid in capital.