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Redemption Liability

9 Months Ended

Sep. 30, 2022

Note 4 – Redemption Liability

The fair value of the redemption liability is calculated under Level 3 of the fair value hierarchy, determined based upon a probability-weighted expected returns method (“PWERM”). This PWERM was determined to be the most appropriate method of estimating the value of possible redemption or conversion outcomes over time, since the Company had not entered into a priced equity round through December 31, 2021. The significant assumptions utilized in these calculations are the possible exit scenarios (either a conversion of the principal and accrued interest of the Notes in the event of a Next Equity Financing (see Note 3 to the condensed consolidated financial statements), a repayment of the Notes and accrued interest in the event of a corporate transaction (as defined in the Notes) or a repayment of the Notes and accrued interest at maturity), the pre-money valuation of the Company’s common stock, the probabilities of such exit events occurring, and discounts/premiums available to the Holders at such measurement dates. The calculation of the redemption liability at December 31, 2021 was based upon the actual incremental value derived by the Holders at the IPO date. The fair value of the redemption liability is re-measured at each period and is summarized as of December 31, 2021 as follows:


December 31, 2020	$	1,325,288
Beginning balance as of December 31, 2020	$	1,325,288
Initial embedded redemption value		1,487,596
Change in fair value		(1,832,651	)
December 31, 2021	$	980,233
Ending balance as of December 31, 2021	$	980,233

The change in fair value of a loss of approximately $76,000 and approximately $980,000 for the three and nine months ended September 30, 2021, respectively, was recorded as a component of other expense in the accompanying condensed consolidated statements of operations. The balance of approximately $980,000 as of December 31, 2021 and as of the date of the IPO was converted into common stock in connection with the related-party convertible debt to which it related.