XML 35 R15.htm IDEA: XBRL DOCUMENT v3.24.1
Derivative Liabilities
 12 Months Ended
Dec. 31, 2023
Fair Value Disclosures [Abstract]  
Derivative Liabilities

Note 7 – Derivative Liabilities

 

Fair Value Assumptions Used in Accounting for Derivative Liabilities

 

ASC 815 requires us to assess the fair market value of derivative liabilities at the end of each reporting period and recognize any change in the fair market value as other income or expense.

 

In January 2023, in connection with the Alto Convertible Note, the Company issued warrants to purchase 1,018,079 shares of common stock, with an exercise price of $2.35 per share, valued at inception at $1,189,000 and as of December 31, 2023, at $410,660. The Company determined our derivative liabilities from the warrants issued in relation to the Alto Convertible Note do not satisfy the classification as equity instruments due to the existence of a certain net cash settlement provision that is not within the sole control of the Company. In addition, there are certain down round provisions that could reduce the exercise price if the Company issues securities at lower prices in the future.

 

The Company determined our derivative liability from the noteholder’s Acceleration Option for the Alto Convertible Note is not clearly and closely related to the host and should be thus accounted for as a bifurcated derivative liability.

 

We classified these derivative liabilities as a Level 3 fair value measurement and used the Monte Carlo pricing model to calculate the fair value as of January 11, 2023, and for each reporting period. Key inputs for the simulation are summarized below. The Monte Carlo simulation uses an implied VWAP for each valuation date. The implied VWAP was backsolved by setting the summation of the parts (e.g., derivatives and debt without derivatives) equal to the cash proceeds. The simulation was then iterated and manipulated to solve for the implied share price, which was approximately $1.58 per share (or an approximate 14% discount to the quoted market VWAP on January 11, 2023). Additionally, the Company estimates probability for various specific scenarios impacting the warrant valuation.

 

The range of key inputs for the Monte Carlo simulation for the year ended December 31, 2023, were as follows:

 

Net cash settlement and down round key valuation inputs – warrants*    
Annualized volatility   77.51% - 92.33% 
Risk-free interest rate   4.01% - 5.23% 
Quoted VWAP*  $0.59 
Exercise price  $2.35 
Probability assessment   5% - 25% 
Illiquidity discount   -17% 
Time period (years)   0.53 - 3.03 

 

  * Based on a Monte Carlo simulation analysis of 50,000 iterations

 

 

Acceleration option key valuation inputs*     
Annualized volatility   34.23% - 59.15% 
Risk-free interest rate   4.68% - 5.60% 
Quoted VWAP*   $0.59 
Illiquidity discount   -17% 
Time period (years)   0 - 1.2 

 

  * Based on a Monte Carlo simulation analysis of 50,000 iterations

 

The following table summarizes the changes in the derivative liabilities:

 

 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
   Warrants   Accelerated Feature 
Balance - December 31, 2021  $94,025   $- 
Gain on change in fair value   (94,025)   - 
Balance - December 31, 2022   -    - 
Addition of new derivatives   1,189,000    1,442,000 
Gain on change in fair value   (778,340)   (1,438,148)
Balance - December 31, 2023  $410,660   $3,852