Note L - Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

L. Fair Value of Financial Instruments 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. 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, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:

● Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; 

● Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and

● Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts and other receivables, accounts payable and accrued expenses, the Nantahala Note, and the margin account approximate their respective fair values due to the short-term nature of such instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reached regarding fair value measurements as of December 31, 2023 and 2022 (in thousands):

			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2023		(Level 1)		(Level 2)		(Level 3)
CVR liability (Note R)	$	7,262	$	—	$	—	$	7,262
Warrant liabilities	$	16,100		—		—	$	16,100
Total liabilities	$	23,362	$	—	$	—	$	23,362
Securities:
U.S. Treasury securities	$	24,688	$	24,688	$	—	$	—
Total assets	$	24,688	$	24,688	$	—	$	—

			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2022		(Level 1)		(Level 2)		(Level 3)
Warrant liabilities (As Restated)	$	10,202	$	—	$	—	$	10,202
Total liabilities	$	10,202	$	—	$	—	$	10,202
Securities:
U.S. government-sponsored agency securities	$	7,189	$	—	$	7,189	$	—
U.S. Treasury securities		9,711		9,711		—		—
Total assets	$	16,900	$	9,711	$	7,189	$	—

The common stock warrant liabilities were recorded at fair value using the Black-Scholes option pricing model. The following assumptions were used in determining the fair value of the warrant liabilities valued using the Black-Scholes option pricing model as of December 31, 2023, and 2022:

	December 31, 2023				December 31, 2022
Risk-free interest rate		3.76%	-	4.12%		4.01%	-	4.12%
Volatility		62.01%	-	92.42%		98.33%	-	103.01%
Dividend yield		—%				—%
Expected term (years)		2.0	-	4.9		3.0	-	4.0
Weighted average fair value		2.94				2.94

The following table is a reconciliation for the common stock warrant liabilities measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 31, 2021 (As Restated)	$	25,032
Change in fair value measurement (As Restated)		(14,830	)
Balance at December 31, 2022 (As Restated)	$	10,202
Fair value of warrants issued		4,500
Change in fair value measurement		1,398
Balance at December 31, 2023	$	16,100

For the years ended December 31, 2023, and 2022, the changes in fair value of the warrant liabilities primarily resulted from the volatility of the Company's common stock and the change in the risk-free interest rates.