Derivative Liabilities

12 Months Ended

Dec. 31, 2023

Derivative Liabilities

Derivative Liabilities

13. Derivative Liabilities

The Company has identified derivative instruments arising from the conversion shares discussed in the Convertible Notes section of Note 7 as of December 31, 2023 and 2022.

The Company utilizes a Monte Carlo simulation model for commitment shares that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Monte Carlo model included a starting stock price of $7.91 per share, an expected remaining term of each warrant as of the valuation date, estimated volatility of 70%, drift, and a risk-free rate ranging from 3.46% to 5.47%.

Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note adjusted to be on a continuous return basis to align with the Black-Scholes option-pricing model.

Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.

Volatility: The Company calculates the expected volatility based on comparable company’s historical stock prices with a look back period commensurate with the period to maturity.

Expected term: The Company’s remaining term is based on the remaining contractual maturity of the warrants.

The following are the changes in the warrant liabilities during the years ended December 31, 2023 and 2022.

	Level 1		Level 2		Level 3
Derivative liabilities as of January 1, 2022	$	—	$	—	$	—
Addition		—		—		2,449,689
Changes in fair value of Derivative liabilities		—		—		(713,989	)
Derivative liabilities as of December 31, 2022		—		—		1,735,700
Addition		—		—		2,375,378
Changes in fair value of Derivative liabilities		—		—		(198,551	)
Extinguishment of Derivative liabilities		—		—		(3,912,527	)
Derivative liabilities as of December 31, 2023	$	—	$	—	$	—

Neuraxis, Inc.

Notes to Financial Statements