Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

Note 8. FAIR VALUE MEASUREMENTS

 

The Company analyzes all financial instruments with features of both liabilities and equity under the FASB accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, prepaid and other expenses, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The table below summarizes the Company’s assets and liabilities that are measured at fair value at September 30, 2022 and December 31, 2021, respectively:

 

    Fair value measured at September 30, 2022  
    Total at
September 30,
2022		     Using Quoted
Prices in active
markets
(Level 1)		     Using
Significant
other
observable
inputs
(Level 2)		     Using
Significant
unobservable
inputs
(Level 3)		  
                                 
Convertible notes payable   $ 325,000     $ —     $ 325,000     $ —  

 

    Fair value measured at December 31, 2021  
    Total at
December 31,
2021		     Using Quoted
Prices in active
markets
(Level 1)		     Using
Significant
other
observable
inputs
(Level 2)		     Using
Significant
unobservable
inputs
(Level 3)		  
                                 
Convertible notes payable   $ 11,152,151     $ —     $ —     $ 11,152,151  

 

A description of the valuation techniques and the values used for significant unobservable inputs to derive fair value measurements for those assets and liabilities measured at fair value at and December 31, 2021:

 

    Fair Value     Valuation Technique   Unobservable Input   Range (Weighted Average)  
Convertible notes payable at December 31, 2021   $ 11,152,151     Risky Put + Stock Payoff   Probability weighting assigned to automatic and optional conversion scenarios     90%/10 %
                Applied discount rate     79.1 %
                Common share class volatility     46.1 %
                Preferred stock class volatility     3.9 %
                Negotiation discount     1.6 %

 

The Company transferred $325,000 of convertible notes payable from level 3 to level 2 during the nine months ended September 30, 2022, to account for notes that were not converted at the time of the Company’s IPO. See Note 7. There were no transfers into or out of level 3 during the nine months ended September 30, 2021. The Company issued a total of $0.7 million and $0.5 million in convertible notes during for the nine months ended September 30, 2022, and 2021, respectively, which are included in the level 3 liabilities. The following table summarizes the fair values of convertible note payables and the change in fair value at each measurement date:

 

Fair value of convertible notes payable at December 31, 2021   $ 11,152,151  
Additional convertible notes payable issued     724,000  
Repayment of convertible notes payable     (100,000 )
Debt discount for warrants issued     (787,566 )
Accretion of debt issuance costs     1,972,948  
Change in fair value of convertible notes payable     1,866,922  
Transfer from level 3 to level 2     (325,000 )
Conversion of convertible notes payable     (14,503,455 )
Fair value of convertible notes payable at September 30, 2022 (Unaudited)   $ —  

 

 

Fair value of convertible notes payable at December 31, 2020   $ 9,767,461  
Additional convertible notes payable issued     3,295,000  
Debt discount for warrants issued     (1,665,956 )
Accretion of debt issuance costs     480,574  
Change in fair value of convertible notes payable     (724,928 )
Fair value of convertible notes payable at December 31, 2021   $ 11,152,151