Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2023

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

4. Fair Value of Financial Instruments

The Company has certain financial assets and liabilities recorded at fair value. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions. The carrying amounts reflected in the consolidated balance sheets for cash equivalents, accounts payable and accrued expenses approximate their carrying value due to their short-term nature. There were no level 1 or 2 assets or liabilities at March 31, 2023 or December 31, 2022. See below for Fair Value of Derivatives related to Convertible Notes Payable at March 31, 2023 and December 31, 2022, which are level 3 liabilities.

Level 3 assets and liabilities measured and recorded at fair value on a recurring basis at March 31, 2023 and December 31, 2022 were as follows:

	March 31, 2023		December 31, 2022
Derivative Liability – Contingent Interest April Note	$	587,000	$	249,000
Derivative Liability – Contingent Interest September Note	$	276,000	$	109,000
Derivative Liability – Contingent Interest December Note	$	479,000	$	215,000

The April Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at March 31, 2023 and December 31, 2022 are as follows:

	March 31, 2023			December 31, 2022
Stock Price	$	2.10		$	1.13
Conversion Price of conversion feature	$	5.00		$	5.00
Term	2.04 years			2.29 years
Risk Free Interest Rate		4.06	%		4.41	%
Credit Adjusted Discount Rate		14.04	%		14.76	%
Volatility		85	%		81	%
Dividend Rate		0	%		0	%

The roll forward of the April Note derivative liability – contingent interest is as follows for the three months ended March 31, 2023 and 2022:

Balance – December 31, 2022	$	249,000
Fair Value Adjustment		338,000
Balance – March 31, 2023	$	587,000
Balance – December 31, 2021	$	495,000
Fair Value Adjustment		(104,000	)
Balance – March 31, 2022	$	391,000

The September Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at March 31, 2023 and December 31, 2022 are as follows:

	March 31, 2023			December 31, 2022
Stock Price	$	2.10		$	1.13
Conversion Price of conversion feature	$	8.64		$	8.64
Term	2.47 years			2.72 years
Risk Free Interest Rate		3.94	%		4.22	%
Credit Adjusted Discount Rate		14.04	%		14.76	%
Volatility		80	%		81	%
Dividend Rate		0	%		0	%

The roll forward of the September Note derivative liability – contingent interest is as follows:

Balance – December 31, 2022	$	109,000
Fair Value Adjustment		167,000
Balance – March 31, 2023	$	276,000
Balance – December 31, 2021		250,000
Fair Value Adjustment		(62,000	)
Balance – March 31, 2022	$	188,000

The December Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at March 31, 2023 and December 31, 2022 are as follows:

	March 31, 2023			December 31, 2022
Stock Price	$	2.10		$	1.13
Conversion Price of conversion feature	$	5.43		$	5.43
Term	2.73 years			2.97 years
Risk Free Interest Rate		3.81	%		4.22	%
Credit Adjusted Discount Rate		14.04	%		14.76	%
Volatility		80	%		83	%
Dividend Rate		0	%		0	%

The roll forward of the December Note derivative liability – contingent interest is as follows:

Balance – December 31, 2022	$	215,000
Fair Value Adjustment		264,000
Balance – March 31, 2023	$	479,000
Balance – December 31, 2021	$	109,000
Fair Value Adjustment		167,000
Balance – March 31, 2022	$	276,000