Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2021

Fair Value of Financial Instruments

7. 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 2 or level 3 assets or liabilities at December 31, 2020.

Assets and liabilities measured and recorded at fair value on a recurring basis at the end of June 30, 2021 were as follows:

	Level 1	Level 2	Level 3		Total
Derivative Liability – Contingent Interest			$	592,000	$	592,000

The derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at inception, and at June 30, 2021 are as follows:

	Inception			June 30, 2021
Stock Price	$	2.19		$	3.20
Conversion Price of conversion feature	$	5.00		$	5.00
Term		4 years			3.8 years
Risk Free Interest Rate		0.59	%		0.67	%
Credit Adjusted Discount Rate		7.60	%		7.11	%
Volatility		88	%		91	%
Dividend Rate		0	%		0

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

Balance – December 31, 2020	$	—
Issuance of convertible note payable – related party		420,000
Fair Value Adjustment		172,000
Balance – June 30, 2021	$	592,000