Warrant Liability

6 Months Ended

Jun. 30, 2023

Warrant Liability [Abstract]

WARRANT LIABILITY

4. WARRANT LIABILITY

On February 22, 2021 the Company issued warrants to purchase 962,463 shares of common stock to QFL (see Note 3) in connection with its funding agreement. If on the date of initial exercise the aggregate number of warrant shares purchasable upon exercise of the warrant would yield less than an amount equal to 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis), then the number of warrant shares shall be increased to an amount equal to 10% of the aggregate number of outstanding shares of capital stock of the Company (determined on a fully diluted basis), and therefore the number of shares underlying the warrants is not fixed until the date of the initial exercise. As such, the warrant issued to QFL requires classification as a liability pursuant to ASC Topic 480, Distinguishing Liabilities from Equity and is valued at its fair value as of the grant date and re-measured at each balance sheet date with the period-to-period change in the fair market value of the warrant liability reflected as a gain or loss in warrant liability and included under other income (expense).

As of June 30, 2023 and December 31, 2022, the aggregate fair value of the outstanding warrant liability was approximately $359,000 and $145,000, respectively.

The Company estimated the fair value of the warrant liability using the Black-Scholes option pricing model using the following key assumptions as of June 30, 2023 and December 31, 2022:

	As of
	June 30,			December 31,
	2023			2022
Volatility		394	%		374	%
Exercise price	$	0.54		$	0.54
Risk-free interest rate		1.37	%		1.37	%
Expected dividends		—	%		—	%
Expected term		7.7			8.1

The following schedule summarizes the valuation of financial instruments at fair value in the balance sheets as of June 30, 2023 and December 31, 2022:

	Fair Value Measurements as of
	June 30, 2023						December 31, 2022
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Liabilities
Warrant liability		—		—		359,480		—		—		145,428
Total liabilities	$	—	$	—	$	359,480	$	—	$	—	$	145,428

The following table sets forth a reconciliation of changes in the fair value of warrant liabilities classified as Level 3 in the fair value hierarchy:

	Fair Value
Balance at December 31, 2022	$	145,428
Loss on subsequent measurement		8,566
Balance at March 31, 2023		153,994
Loss on subsequent measurement		205,486
Balance at June 30, 2023	$	359,480

	Fair Value
Balance at December 31, 2021	$	1,636,187
Gain on subsequent measurement		(471,607	)
Balance at March 31, 2022		1,164,580
Gain on subsequent measurement		(394,610	)
Balance at June 30, 2022	$	769,970

See Notes 3 and 5 for information on the warrant issuance.