Ernexa Therapeutics Inc. Fair Value Disclosure
| 9. | Fair Value of Financial Instruments |
In connection with the Bridge Notes (as defined in Note 11) on September 24, 2024, the Company recorded a derivative liability of approximately $5.5 million, with a corresponding $3.9 million reduction in the carrying value of the Bridge Notes recorded as a debt discount and a $1.6 million charge to expense for the incremental fair value of the derivative liability. The Company determined the fair value of the derivative liability by taking the difference between the fair value of the Bridge Notes with the conversion feature and without the conversion feature. The Company remeasured the fair value of the Bridge Notes at each reporting period or immediately prior to converting the Bridge Notes to shares of common stock and recorded changes in fair value of approximately $0.2 million. Pursuant to the approval of the September 2024 Transactions by the Company’s stockholders at the 2024 Annual Meeting, the Bridge Notes were converted to shares of the Company’s common stock, and the outstanding principal and interest of the Bridge Notes, as well as the derivative liability of approximately $5.3 million, were reclassified to equity. As of December 31, 2024, there was no derivative liability balance.
In connection with the Exchanged Warrants (as defined in Note 15), the Company reclassified the fair value of the Exchanged Warrants of approximately $11.2 million from equity to a liability. The Company determined the fair value of the Exchanged Warrants as of September 24, 2024 by taking the number of shares of common stock issuable from the Exchanged Warrants multiplied by the closing stock price of $ and reclassified approximately $11.2 million from equity to warrant liabilities. The Company remeasured the fair value of the Exchanged Warrants at each reporting period or immediately prior to exchanging the Exchanged Warrants to shares of common stock and recorded a change in fair value of approximately $0.3 million. Upon approval of the September 2024 Transactions at the 2024 Annual Meeting, the Company exchanged the Exchanged Warrants for shares of common stock and reclassified the $10.4 million fair value of the Exchanged Warrants from liabilities to equity. There was no remaining Exchanged Warrants liability as of December 31, 2024.
The Company issued approximately warrants in connection with a private placement during the first quarter of 2022 (the “Q1-22 warrants”), which were determined to be classified as a liability. The Company has also recorded a three-year contingent consideration liability related to an asset acquisition in April 2023, which is recorded in current liabilities at December 31, 2025 due to the Company’s obligation for this liability terminating in April 2026.
The Company uses a Black-Scholes option pricing model to estimate the fair value of the Q1-22 warrant liabilities and a Monte Carlo simulation model to estimate the fair value of the contingent consideration liability, both of which are considered a Level 3 fair value measurement. The Company remeasures these liabilities at each reporting period and recognizes changes in their respective fair value in the accompanying consolidated statements of operations.
In connection with the 2025 Private Placement, the Company recorded a forward sales contract liability at fair value and recognized $5.3 million of expense because the fair value of the expected shares to be purchased by the investors exceeded the proceeds under the 2025 Private Placement. The Company determined the expense related to the forward sales contract by taking the difference between (I) the fair value of the expected shares to be purchased by the investors as of the March 31, 2025 date the Company entered into the 2025 Private Placement and (ii) the discounted purchase price of the shares. The Company remeasured the fair value of the forward sales contract liability at each reporting period or immediately prior to the settlement of the shares purchased under the 2025 Private Placement and recognized approximately $ million for the changes in the fair value in the accompanying consolidated statement of operations. During the year ended December 31, 2025, the Company completed the sale of the shares under the 2025 Private Placement, and as a result, the forward sales contract liability was reclassified to equity. There was no remaining forward sales contract liability balance as of December 31, 2025.
The following table summarizes the liabilities that are measured at fair value as of December 31, 2025 and 2024 (in thousands):
| Description | Level | December
31, 2025 | December
31, 2024 | ||||||||
| Liabilities: | |||||||||||
| Warrant liabilities - Q1-22 warrants | 3 | $ | $ | 1 | |||||||
| Contingent consideration | 3 | $ | 41 | $ | 41 | ||||||
Certain inputs used in Black-Scholes and Monte Carlo models may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities or contingent consideration liabilities, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statements of operations.
The following table presents the changes in the liabilities measured at fair value from January 1, 2025 through December 31, 2025 (in thousands):
| Warrant Liabilities | Contingent Consideration | Forward Sales Contract | ||||||||||
| Fair value at January 1, 2025 | $ | 1 | $ | 41 | $ | |||||||
| Initial measurement | 5,335 | |||||||||||
| Change in fair value | (1 | ) | 512 | |||||||||
| Reclassification of forward sales contract liability to equity | (5,847 | ) | ||||||||||
| Fair value at December 31, 2025 | $ | $ | 41 | $ | ||||||||
The Company remeasured the fair value of the Q1-22 warrants at December 31, 2025, and the result of the remeasurement was de minimis. The Company assessed the fair value of the contingent consideration liability at each reporting period through December 31, 2025 and determined that there were no material changes to the inputs used in the December 31, 2024 remeasurement that would have resulted in a material change to the liability at December 31, 2025. Therefore, the Company did not recognize a change in fair value of the contingent consideration liability for the year ended December 31, 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 14, 2024 | |
| 2022 | Mar 20, 2023 | |
| 2021 | Apr 15, 2022 | |
| 2020 | Mar 11, 2021 | |
| 2019 | Mar 19, 2020 | |
| 2018 | Mar 22, 2019 | |
| 2017 | Mar 9, 2018 | |
| 2016 | Mar 9, 2017 | |
| 2015 | Mar 15, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.