Fair Value Measurements

3 Months Ended

Dec. 31, 2024

Fair Value Measurements

Fair Value Measurements

4.     Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

● Level 1 – Quoted prices in active markets for identical assets or liabilities.

● Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table presents the Company’s liabilities that are measured at fair value on a recurring basis:

	December 31, 2024
	(Level 1)		(Level 2)		(Level 3)
Liabilities
Unsecured convertible promissory note	$	—	$	—	$	30,744,000
Warrant liability		—		—		18,826,133
Total	$	—	$	—	$	49,570,133
	September 30, 2024
	(Level 1)		(Level 2)		(Level 3)
Liabilities
Unsecured convertible promissory note	$	—	$	—	$	29,440,000
Warrant liability		—		—		59,099,013
Total	$	—	$	—	$	88,539,013

The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrant liability and unsecured convertible promissory note for the three months ended  December 31, 2024:

	Unsecured Convertible
	Promissory Note		Warrants
Balance at October 1, 2024	$	29,440,000	$	59,099,013
Change in fair value		1,304,000		(40,272,880)
Balance at December 31, 2024	$	30,744,000	$	18,826,133

As further described in Note 7, the Company elected the fair value option to account for the December 2022 Note. The fair value of the December 2022 Note is estimated using a binomial lattice model, which evaluates the payouts under hold, convert or call decisions. Significant estimates in the binomial lattice model include the Company’s stock price, volatility, risk-free rate of return, and credit-adjusted discount rate.

The fair value of the December 2022 Note was estimated using a binomial lattice model with the following assumptions:

	December 31, 2024			September 30, 2024
Term (years)		0.5			0.8
Volatility		134.0	%		91.0	%
Risk-free rate		4.2	%		4.2	%
Dividend yield		—	%		—	%
Credit-adjusted discount rate		20.5	%		20.4	%
Stock price	$	1.89		$	5.34

The warrants issued in connection with the convertible senior secured notes originally issued pursuant to that certain Note and Warrant Purchase Agreement dated December 22, 2017 and warrants issued in connection with private placements that closed on March 18, 2024 and April 15, 2024, are classified as liabilities on the accompanying unaudited interim consolidated balance sheets. The warrants related to the  Note and Warrant Purchase Agreement dated December 22, 2017 are classified as liabilities as the warrants include cash settlement features at the option of the holders under certain circumstances. The warrants issued in connection with private placements that closed on March 18, 2024 and April 15, 2024 are classified as liabilities as the Company assessed that they are not indexed to the Company’s own stock and must be classified as liabilities.

The above warrant liabilities are revalued each reporting period with the change in fair values recorded in the accompanying consolidated statements of operations until the warrants are exercised or expire. The fair values of the

warrant liabilities are estimated using the Black-Scholes option pricing model using the following weighted average assumptions:

	December 31, 2024			September 30, 2024
Risk-free interest rate		4.34	%		3.58	%
Remaining contractual term of warrants (years)		4.2			4.5
Expected volatility		135.5	%		125.0	%
Annual dividend yield		—	%		—	%
Stock price	$	1.89		$	5.34