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Fair Value Measurements

6 Months Ended

Jun. 30, 2023

10.	Fair Value Measurements

The Company uses various inputs to measure the outstanding warrants and certain embedded conversion features associated with a convertible debt on a recurring basis to determine the fair value of the liabilities.

The following tables classify the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy:

	Fair value measured at June 30, 2023
	Fair value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
(in thousands)	June 30, 2023		(Level 1)		(Level 2)		(Level 3)
Warrant liability	$	14,410	$	-	$	-	$	14,410
Embedded conversion option		693		-		-		693
Total fair value	$	15,103	$	-	$	-	$	15,103

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

There were no transfers among Levels 1, 2 or 3 during the three and six months ended June 30, 2023, and 2022. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g. changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Warrant Liability

Significant inputs related to the Company’s liability classified warrants are listed below.

	June 30,			Initial Valuation			December 31,
	2023			May 2023			2022
Weighted average remaining life in years		4.22			5.00			4.68
Weighted average volatility		103	%		84	%		92	%
Value of underlying shares	$	0.022		$	0.019		$	0.005
Weighted average risk free interest rate		4.0	%		3.5	%		4.0	%
Expected dividend yield		0.00	%		0.00	%		0.00	%

A summary of the warrant liability activity for the six months ended June 30, 2023, is as follows:

	Warrants		Fair Value		Fair Value
(in thousands, except per share data)	Outstanding		per Share		(in thousands)
Balance at December 31, 2022		1,066,857	$	0.06	$	1,416
Issuance		61,389		0.01		570
Loss on remeasurement of warrant liability		-				12,424
Balance at June 30, 2023		1,128,246	$	0.01	$	14,410

Embedded Conversion Option Liability

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 for the conversion option liability was determined using the Black Scholes method.

The fair value of conversion option liability assumptions for the periods ended below:

	June 30, 2023			Initial valuation May 2023			December 31, 2022

Conversion Price⁽¹⁾	$	0.04		$	0.04		$	0.04
Value of underlying shares	$	0.022		$	0.019		$	0.005
Interest Rate (annual) ⁽²⁾		5.28	%		4.70	%		4.64	%
Volatility (annual) ⁽³⁾		141.3	%		114.1	%		503.0	%
Time to Maturity (Years)		0.39			1.00			0.60

(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 a discounted historical daily volatility of the Company as of each presented period ending date.

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

(in thousands)	Conversion Liability
Balance December 31, 2022	$	2,340
Initial value of new issuance		157
Change in fair value		(1,804	)
Balance June 30, 2023	$	693

- 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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