Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2024

Fair Value of Financial Instruments

Fair Value of Financial Instruments

5.        Fair Value of Financial Instruments

As a basis for determining the fair value of certain of the Company’s financial instruments, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level I – Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level II – Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level III – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The Company’s cash equivalents are classified within Level I of the fair value hierarchy.

As of December 31, 2024 and 2023, the fair values of cash and cash equivalents, accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities. The Company’s short-term investments consist of Level I securities which are comprised of highly liquid mutual funds. The estimated fair value of the short-term investments was based on quoted market prices. There were no transfers between fair value hierarchy levels during the years ended December 31, 2024 or 2023.

The fair value of financial instruments measured on a recurring basis is as follows:

	As of December 31, 2024
Description	Total		Level 1			Level 2	Level 3
Assets:
Short-term investments	$	135,143	$	135,143	$	—	$	—
Related party receivable	$	1,100,000	$	—	$	—	$	1,100,000
Liabilities:
Convertible promissory notes, related party	$	16,015,400	$	—	$	—	$	16,015,400
Warrant liability	$	2,098,000	$	—	$	—	$	2,098,000

	As of December 31, 2023
Description	Total			Level 1		Level 2	Level 3
Assets:
Short-term investments	$	2,206,555	$	2,206,555	$	—	$	—
Contingent consideration receivable, related party	$	268,000	$	—	$	—	$	268,000
Contingent earn-out receivable, related party	$	1,720,000	$	—	$	—	$	1,720,000

The following tables summarize the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the year ended December 31, 2024:

	Contingent		Contingent		Related
	Consideration Receivable,		Earn-out Receivable,		Party
	Related Party		Related Party		Receivable
Balance at December 31, 2022	$	—	$	—	$	—
Sale of Elusys Therapeutics, Inc.		268,000		1,720,000		—
Balance at December 31, 2023		268,000		1,720,000		—
Settlement of contingent consideration receivable, related party, in connection with issuance of
convertible promissory note, related party		(268,000)		—		—
Reclassification of contingent earn-out receivable, related party to related party receivable		—		(1,430,000)		1,430,000
Change in fair value		—		1,190,000		(330,000)
Loss on extinguishment of contingent earn-out receivable, related party		—		(1,480,000)		—
Balance at December 31, 2024	$	—	$	—	$	1,100,000
	Elusys Contingent		Promissory Notes,		Warrant
	Consideration		Related Party		Liability
Balance at December 31, 2022 (in liabilities from discontinued operations)	$	(12,224,614)	$	—	$	—
Payment of contingent consideration		7,507,260		—		—
Change in fair value		107,354		—		—
Divestiture of Elusys Therapeutics, Inc.		4,610,000		—		—
Balance at December 31, 2023		—		—		—
Issuance of convertible promissory note, related party		—		(1,985,750)		—
Issuance of non-convertible promissory notes, related party		—		(975,000)		—
Extinguishment of non-convertible promissory note, related party, in connection with December 2024 Offering		—		224,000		—
Issuance of convertible promissory notes, related party, with warrants in connection with December 2024 Offering		—		(14,460,600)		(2,567,800)
Change in fair value		—		261,950		469,800
Gain on extinguishment of debt		—		920,000		—
Balance at December 31, 2024	$	—	$	(16,015,400)	$	(2,098,000)

As further described in Note 2, the $4.6 million of contingent consideration was derecognized in connection with the Divestiture of Elusys Therapeutics. The financial results of Elusys Therapeutics for the year ended December, 31, 2023, are presented as discontinued operations in the Company’s consolidated statements of operations and comprehensive loss.

Adjustments associated with changes in fair value are the result of changes to both observable and unobservable inputs used in the measurement of fair value, which are reassessed at each reporting period. The unobservable inputs are reflected in the table below.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements classified as Level 3 as of December 31, 2024 and December 31, 2023:

	As of December 31, 2024
	Valuation Methodology		Significant Input		Weighted Average (range, if applicable)
Related party receivable		Discounted Cash Flow Analysis		Timing of expected payment		2028
				Risk free interest rate		4.3%
				Option-adjusted spread (1)		18.4%
				Principal amount	$	2.5 million
Convertible promissory note, related party		Discounted Cash Flow Analysis		Maturity term		8 months
(Restated Elusys Convertible Note)				Risk free interest rate		4.2%
				Option-adjusted spread (1)		18.6%
				Principal amount	$	2.25 million
Convertible promissory note, related party		Monte Carlo Simulation Model		Risk free interest rate		4.3%
(December 2024 Secured Convertible Notes)				Credit spread (1)		18.6%
				Volatility of common stock (1)		85.0%
				Expected term		2.93 years
Warrant liability		Black-Scholes Option Pricing Model		Risk free interest rate		4.4%
				Volatility of common stock (1)		64.0%
				Expected term		4.93 years
	As of December 31, 2023
	Valuation Methodology		Significant Input		Weighted Average (range, if applicable)
Contingent consideration receivable, related party		Discounted Cash Flow Analysis		Maturity Term		1 year
				Market interest rate (1)		14.7%
				Principal amount	$	2.25 million
Contingent earn-out receivable, related party		Discounted Cash Flow Analysis		Timing of expected payments (1)		2026-2029
				Discount rate (1)		15.0%
				Future revenue projections (1)	$	141.4 million
				Minimum earn-out payment		3% or $5.0 million
				Earn-out term through		December 31, 2028

(1) Represents significant unobservable input

The estimated fair value of the December 2024 Secured Convertible Notes uses monte carlo simulation trials through a lattice model incorporating Geometric Brownian Motion. The simulations are weighted based on projected future stock prices, the volatility of a set of guideline companies, and significant unobservable inputs. Each simulation is based on the range of inputs in a scenario with the mean of the output on each simulation calculated as an average. In addition to the significant unobservable inputs in the preceding table, the monte carlo simulations include assumptions related to the timing and probability of i) a fundamental transaction and ii) an eligible subsequent placement, both as defined by the December 2024 Secured Convertible Notes.

The Company records certain non-financial assets on a non-recurring basis, including goodwill and in-process R&D. This analysis requires significant judgments, including primarily the estimation of future development costs, the probability of success in various phases of its development programs, potential post-launch cash flows and a risk-adjusted weighted average cost of capital.