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Derivative Liabilities | 12 Months Ended
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Dec. 31, 2023
Fair Value Disclosures [Abstract] |
Derivative Liabilities | Note 8 – 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. Alto Opportunity Master Fund, SPC In January 2023, in connection with the Alto Convertible Note, the Company issued warrants to purchase 127,260 shares of common stock, with an exercise price of $18.80 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 $12.64 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: Schedule of Monte Carlo Simulation Assumption
Net cash settlement and down round key valuation inputs – Alto Warrants* |  |  |
Annualized volatility |  |  | 77.51% - 92.33 | %
Risk-free interest rate |  |  | 4.01% - 5.23 | %
Quoted VWAP* |  | $ | 4.72 |
Exercise price |  | $ | 18.80 |
Probability assessment |  |  | 5% - 25 | %
Illiquidity discount |  |  | (17 | )%
Time period (years) |  |  | 0.53 - 3.03 |
Estimated fair value (issuance) |  | $ | 1,189,000 |
Estimated fair value (December 31, 2023) |  | $ | 410,660 |
| * | Based on a Monte Carlo simulation analysis of 50,000 iterations
Alto Acceleration Option key valuation inputs* |  |  |  |
Annualized volatility |  |  | 34.23% - 59.15 | %
Risk-free interest rate |  |  | 4.68% - 5.60 | %
Quoted VWAP* |  | $ | 4.72 |
Illiquidity discount |  |  | (17 | )%
Time period (years) |  |  | 0 - 1.2 |
Estimated fair value (issuance) |  | $ | 1,442,000 |
Estimated fair value (December 31, 2023) |  | $ | 3,852 |
| * | Based on a Monte Carlo simulation analysis of 50,000 iterations
December 2021 Notes In connection with the issuance of the December 2021 Notes, the Company identified an accelerated repayment upon IPO feature that required bifurcation. We classified this derivative liability as a Level 3 fair value measurement and used a probability weighted scenario model to estimate the fair value of the derivative just prior to the settlement of the December 2021 Notes. Key inputs for this valuation model are summarized below. Schedule of Derivative Liability Valuation
December 2021 Notes derivative key valuation inputs |  | Issuance Date |  |  | Settlement Date |
Amount due upon acceleration |  | $ | 533,699 |  |  | $ | 533,973 |
Carrying value of December 2021 Notes at measurement date |  | $ | — |  |  |  | 337,398 |
IPO date |  |  | 8/31/2022 |  |  |  | 9/2/2022 |
Probability of IPO acceleration |  |  | 90 | % |  |  | 100 | %
Probability of maturity |  |  | 10 | % |  |  | — | %
Time period to maturity (years) |  |  | 1.00 years |  |  |  | 0.32 years |
Discount rate |  |  | 50.0 | % |  |  | 50.0 | %
Estimated fair value |  | $ | 367,000 |  |  |  | 162,000 |
2022 Convertible Bridge Notes In connection with the issuance of the 2022 Convertible Notes in February and March 2022, the Company identified certain embedded features that required bifurcation as a combined derivative liability, including the share-settled redemption of the 2022 Convertible Notes at a 50% discount and the automatic increase in principal of 10% if conversion does not occur within 12 months. We classified this derivative liability as a Level 3 fair value measurement and used the a with and without probability weighted scenario model to estimate the fair value as of each issuance date of the 2022 Convertible Notes, as well as just prior to their settlement upon the initial public offering. Key inputs for this valuation model are summarized below. Schedule of Derivative Key Valuation Inputs
2022 Convertible Notes derivative key valuation inputs* |  | Issuance Dates |  | Settlement Date
Annualized volatility |  | 75.0% - 82.0% |  | —
Risk-free interest rate |  | 0.6% - 1.2% |  | —
Exercise price (implied) |  | $45.52 - $85.92 |  | —
Estimated IPO date |  | 8/31/2022 |  | 9/2/2022
Probability of default |  | 50% |  | —%
Probability of IPO or Alternative Liquidity Event |  | 45% |  | 100%
Probability of Maturity |  | 5% |  | —%
Time period (years) |  | 0.47 - 1.00 years |  | 0.00 years
Estimated fair value |  | $221,000 |  | $571,000
August 2022 Notes In connection with the issuance of the August 2022 Promissory Note, the Company identified an accelerated repayment upon IPO feature that required bifurcation. We classified this derivative liability as a Level 3 fair value measurement and used a probability weighted scenario model to estimate the fair value of the derivative just prior to the settlement of the August 2022 Promissory Notes. Key inputs for this valuation model are summarized below. Schedule of Derivative Issuance Valuation Inputs
August 2022 Promissory Notes derivative key valuation inputs |  | Issuance Dates |  | Settlement Date
Amount due upon acceleration (estimated at issuance) |  | $50,411 |  | $50,438
Carrying value of August 2022 Promissory Notes at measurement date |  | $0 |  | $4,521
IPO date |  | 8/31/2022 |  | 9/2/2022
Probability of IPO acceleration |  | 90% |  | 100%
Probability of maturity |  | 10% |  | —%
Time period to maturity (years) |  | 1.00 years |  | 0.91 years
Discount rate |  | 16.03% |  | 18.81%
Estimated fair value |  | $45,000 |  | $45,000
In connection with the issuance of the August 2022 Convertible Notes, the Company identified certain embedded features that required bifurcation as a combined derivative liability, including the share-settled redemption of the 2022 Convertible Notes at a 50% discount and the automatic increase in principal of 10% if conversion does not occur within 12 months. Key inputs for this valuation model are summarized below: Schedule of Derivative Key Valuation Inputs
2022 Convertible Notes derivative key valuation inputs* |  | Issuance Dates |  |  | Settlement Date |
Estimated IPO date |  |  | 8/31/2022 |  |  |  | 9/2/2022 |
Probability of default |  |  | 50 | % |  |  | — | %
Probability of IPO or Alternative Liquidity Event |  |  | 45 | % |  |  | 100 | %
Probability of Maturity |  |  | 5 | % |  |  | — | %
Time period (years) |  |  | 1.00 years |  |  |  | 0.00 years |
Estimated fair value |  | $ | 31,000 |  |  | $ | 75,000 |
The following table summarizes the changes in the derivative liabilities: Schedule of Derivative Liabilities
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|  | Alto Warrants |  |  | Alto Acceleration Option |
Balance - December 31, 2021 |  | $ | — |  |  | $ | — |
Addition of new derivative |  |  | — |  |  |  |  |
Loss on change in fair value |  |  | — |  |  |  | — |
Settlements |  |  | — |  |  |  |  |
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 |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|  | December 2021 Notes Derivative |  |  | August 2022 Notes Derivative |  |  | 2022 Convertible Notes Derivative |
Balance - December 31, 2021 |  | $ | 367,000 |  |  |  | — |  |  |  | — |
Addition of new derivative |  |  | — |  |  |  | 76,000 |  |  |  | 221,000 |
Loss (gain) on change in fair value |  |  | (205,000 | ) |  |  | 44,000 |  |  |  | 350,000 |
Settlements |  |  | (162,000 | ) |  |  | (120,000 | ) |  |  | (571,000 | )
Balance - December 31, 2022 |  |  | — |  |  |  | — |  |  |  | — |
Addition of new derivatives |  |  | — |  |  |  | — |  |  |  | — |
Gain on change in fair value |  |  | — |  |  |  | — |  |  |  | — |
Balance - December 31, 2023 |  |  | — |  |  | $ | — |  |  | $ | — |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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