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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2024

NOTE 13. FAIR VALUE MEASUREMENTS

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the three months ended March 31, 2024. The carrying amounts of cash equivalents, accounts receivable, other current assets, other assets, accounts payable, and accrued expenses approximated their fair values as of the three months ended March 31, 2024, due to their short-term nature. The fair value of the bifurcated embedded derivative related to the convertible preferred stock was estimated using a Monte Carlo simulation model, which uses as inputs the fair value of the Company’s common stock and estimates for the equity volatility and traded volume volatility of the Company’s common stock, the time to maturity of the convertible preferred stock, the risk-free interest rate for a period that approximates the time to maturity, dividend rate, a penalty dividend rate, and the Company’s probability of default. The fair value of the warrant liability was estimated using the Black Scholes Model which uses as inputs the following weighted average assumptions, as noted above: dividend yield, expected term in years, equity volatility, and risk-free interest rate.

Fair Value on a Recurring Basis

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The estimated fair value of marketable securities and money market accounts represents a Level 1 measurement. The estimated fair value of the warrant liability and bifurcated embedded derivatives represent Level 3 measurements. The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis for the three months ended March 31, 2024, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

The following table sets forth a summary of the Company’s assets and liabilities that are measured at fair value on a recurring basis:

			March 31,		December 31,
Description	Level		2024		2023
Assets:
Marketable securities		1	$	23,640,637	$	-
Money market accounts		1	$	54,067	$	1,805,597
Liabilities:
Warrant liability		3	$	12,247,000	$	13,319,800
Derivative liability		3	$	9,391,000	$	9,400,000

The following table sets forth a summary of the change in the fair value of the warrant liability that is measured at fair value on a recurring basis:

	March 31, 2024
Balance on December 31, 2023	$	13,319,800
Change in fair value of warrant liability		(1,072,800	)
Balance on March 31, 2024	$	12,247,000

During the three months ended March 31, 2024, the Company recorded income of $1,072,800 related to the change in fair value of the H-7 Warrant liability which is recorded in other income (expense) on the Statements of Operations. The fair value of the H-7 Warrants of $12,247,000 was estimated at March 31, 2024, utilizing the Black Scholes Model using a stock price of $1.67, an exercise price of $2.00, and the following weighted average assumptions: (i) dividend yield 0%; (ii) remaining term of 4.36 years; (iii) equity volatility of 90.00%; and (iv) a risk-free interest rate of 4.27%.

The following table sets forth a summary of the change in the fair value of the derivative liability that is measured at fair value on a recurring basis:

	March 31, 2024
Balance on December 31, 2023	$	9,400,000
Issuance of warrants		-
Change in fair value of derivative liability		(9,000	)
Balance on March 31, 2024	$	9,391,000

During the three months ended March 31, 2024, the Company recorded income of approximately $9,000 related to the change in fair value of the derivative liability which is recorded in other income (expense) on the Statements of Operations. The Company estimated the $9,391,000 fair value of the bifurcated embedded derivative at March 31, 2024, using a Monte Carlo simulation model, with the following inputs: (i) estimated equity volatility of 80.0%, (ii) the time to maturity of 1.08 years, (iii) a discounted market interest rate of 6.6%, (iv) dividend rate of 8.0%, (v) a penalty dividend rate of 15.0%, and (vi) probability of default of 6.4%. As of March 31, 2024, the Series H-7 Preferred Shares are convertible into 12,638,734 shares of the Company’s common stock.