Note 5 – Fair Value Measurements

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2022:

For the year ended December 31, 2022 there was a change of approximately $0.9 million in Level 3 liabilities measured at fair value. There were no Level 3 liabilities measured at fair value for the nine months ended December 31, 3021.

The fair value of the convertible notes may change significantly as additional data is obtained, impacting the Company’s assumptions used to estimate the fair value of the liabilities. In evaluating this information, considerable judgment is required to interpret the data used to develop the assumptions and estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts, and such changes could materially impact the Company’s results of operations in future periods.

The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2022. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Convertible Notes

During the year ended December 31, 2022, the Company issued its Notes. The fair value of the Notes on the issuance dates and as of December 31, 2022 were estimated using a Monte Carlo simulation to capture the path dependencies intrinsic to their terms. The significant unobservable inputs used in the fair value measurement of the Company’s convertible notes are the common stock price, volatility, and risk-free interest rates. Significant changes in these inputs may result in significantly lower or higher fair value measurement. The Company elected the fair value option when recording its Notes (See Note 3) and the Notes were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income (expense) on the statements of operations and disclosed in the consolidated financial statements.

A summary of significant unobservable inputs (Level 3 inputs) used in measuring the Notes upon the issuance date and as of December 31, 2022 is as follows:

Warrants

During the year ended December 31, 2022, in connection with its convertible notes, the Company issued 21,759,402 warrants to purchase shares of the Company’s common stock. The warrants were classified as liabilities and measured at fair value on the grant date, with changes in fair value recognized as other income (expense) on the statements of operations and disclosed in the consolidated financial statements.

A summary of significant unobservable inputs (Level 3 inputs) used in measuring warrants on issuance date and as of December 31, 2022 is as follows:

Significant changes in the expected price volatility and expected term would result in significantly lower or higher fair value measurement of the warrants, respectively.