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Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 4 – Fair Value Measurements

The following table presents information about the Company’s financial liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:


		Level 1				Level 2				Level 3				Fair Value at December 31, 2020
Current liabilities:
Derivative liability		$	-			$	-			$	575,000			$	575,000
Total liabilities measured at fair value		$	-			$	-			$	575,000			$	575,000

The fair value of the embedded derivative instrument identified in the Notes has been estimated using a two-step approach to valuation, employing a probability-weighted scenario valuation method and then comparing the instrument’s value with-and-without the derivative features in order to estimate their combined fair value, using unobservable inputs, which are classified as Level 3 within the fair value hierarchy. In order to estimate the fair value of the Notes, the Company estimated the future payoff in each scenario, discounted them to a present value and then probability weighted them based upon the Company’s best likelihood of each event occurring. The primary inputs for the valuation approach included the probability of achieving various settlement scenarios that provide the noteholders the rights or the obligations to receive cash or a variable number of shares upon the completion of a Qualified Financing. At December 31, 2020, the Company estimated a 5% probability of a Qualified Financing occurring, a de minimis probability of a change of control occurring and a 20% probability of bankruptcy or dissolution of the Company. As of December 31, 2020, the embedded derivative was remeasured to $575,000. As such, an expense of $575,000 was recorded in the fourth quarter of 2020. Immediately prior to the conversion of the Notes in connection with the Company’s IPO, the Company estimated a 100% probability of a Qualified Financing occurring, a de minimis probability of a change of control occurring and a 0% probability of bankruptcy or dissolution of the Company. Accordingly, the estimated fair value of the embedded derivative was remeasured at $23,414,829. A loss of $22,759,829 related to the change in fair value of the derivative liability was recorded during the year ended December 31, 2021. There were no transfers among Level 1, Level 2 or Level 3 categories in the years ended December 31, 2021 and 2020.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the years ended December 31, 2021 and 2020:

		Debt Derivative
Balance, January 1, 2020		$	-
Loss from change in fair value included in earnings			575,000
Balance, December 31, 2020			575,000
Additions - initial issuance of 2021A Notes recognized as debt discount			80,000
Loss from change in fair value included in earnings			22,759,829
Reclassification to additional paid-in capital upon conversion of convertible notes payable			(23,414,829	)
Balance, December 31, 2021		$	-

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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