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Fair Value Measurements

12 Months Ended

Dec. 31, 2022

13. Fair Value Measurements

The Company uses various inputs to measure the outstanding warrants and certain embedded conversion features associated with convertible debt on a recurring basis to determine the fair value of the liabilities. The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy:

	Fair value measurement at December 31, 2022
(in thousands)	Fair value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Warrant liability	$	1,416		-		-	$	1,416
Conversion option		2,340		-		-		2,340
Total Fair Value	$	3,756	$	-	$	-	$	3,756

	Fair value measurement at December 31, 2021
(in thousands)	Fair value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Warrant liability	$	9,614		-		-	$	9,614
Conversion option		6,255		-		-		6,255
Total Fair Value	$	15,869	$	-	$	-	$	15,869

There were no transfers between Level 1, 2, or 3, during the years ended December 31, 2022, and 2021. Both observable and unobservable in puts were used to determine fair value of the positions that the Company classified within the Level 3 category. Unrealized gains and losses associated with the liabilities within the Level 3 category include changes in fair value that were attributable to both observable and unobservable inputs.

Warrant Liability

Significant Black Scholes valuation model inputs related to the Company’s warrants are listed below:

	December 31, 2022			December 31, 2021
Weighted average expected life in years		4.68			4.67
Weighted average volatility		92	%		116	%
Value of underlying shares	$	0.005		$	0.17
Weighted average risk free interest rate		4.00	%		1.20	%
Expected dividend yield		-			-

A summary of the Level 3 warrant activity is as follows:

(in thousands, except per share data)	Warrants Outstanding			Fair Value per Share		Warrant Liability Fair Value
Balance December 31, 2020		48,091		$	0.18	$	8,856
Cashless exercise		(11,400	)		0.18		(2,030	)
Issuance of warrants classified as liabilities		25,926			0.10		2,282
Change in fair value		-					506
Balance December 31, 2021		62,617		$	0.15	$	9,614
Warrants exercised		(27,037	)		0.09		(3,130	)
Issuance of warrants classified as liabilities		1,031,277			0.06		4,873
Change in fair value		-					(9,941	)
Balance December 31, 2022		1,066,857		$	0.06	$	1,416

Embedded Conversion Option

Certain convertible notes include a Conversion Option that meets the definition of a derivative liability and, accordingly, is required to be bifurcated. The fair value of the conversion option was valued using the Black-Scholes model as of December 31, 2022, and the binomial pricing model as of December 31, 2021. Significant inputs related to the Level 3 fair value determination are as follows:

	Initial Valuation Assumptions						Year End Valuation Assumptions
	August 2022 Convertible Notes			November 2022 Convertible Notes			December 31, 2022			December 31, 2021
Conversion price ⁽¹⁾	$	0.04		$	0.04		$	0.04		$	0.11
Value of underlying shares	$	0.006		$	0.005		$	0.005		$	0.17
Interest Rate (annual)⁽²⁾		3.24	%		4.48	%		4.64	%		0.18	%
Volatility (annual)⁽³⁾		349	%		438	%		503	%		290	%
Time to maturity		1.00			0.73			0.60			0.50

(1)

Based on the terms provided in the convertible promissory note agreements to convert to common stock of the Company

(2)

Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.

(3)

Based on the historical daily volatility of the Company as of each presented period ending date. As of December 31, 2022 the Company applied a discount rate to the historical volatility.

A summary of the conversion option liability activity is as follows:

(in thousands)	Conversion Liability
Balance December 31, 2020	$	-
Convertible feature		4,139
Change in fair value		2,116
Balance December 31, 2021	$	6,255
Issuance of Convertible Notes		2,760
Settlement of convertible notes		(218	)
Change in fair value		(6,457	)
Balance December 31, 2022	$	2,340

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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