Fair Value of Financial Assets and Liabilities

6 Months Ended

Jun. 30, 2024

Fair Value of Financial Assets and Liabilities [Abstract]

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

NOTE 7 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The carrying value of cash and cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature. The Augmenta Note was held at fair value until the Conversion Date. After the conversion, there are no assets and liabilities measured at fair value.

The following table presents the Company’s assets and liabilities that are measured at fair value as of December 31, 2023:

	Fair value measured as of December 31, 2023
			Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets
Augmenta Note at fair value	$	2,310,000	$	-	$	-	$	2,310,000

Level 3 Measurement

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis:

	Fair Value of Level 3 Augmenta Note
Beginning balance, January 1, 2023	$	1,812,975
Accrued interest receivable		111,782
Change in fair value		385,243
Ending balance, December 31, 2023		2,310,000
Accrued interest receivable		27,219
Change in fair value		(560,473	)
Conversion of note receivable		(1,776,746	)
Ending balance, June 30, 2024	$	-

The fair value of the Augmenta Note was measured using Level 3 (unobservable) inputs. The Company determined the fair value for the Augmenta Note using a probability weighted-scenario valuation model with the assistance of a third-party valuation specialist. The unobservable inputs included estimates of the equity value of Augmenta and the timing and probability of future financing events, optional conversion to common stock, and repayment at maturity. The conversion upon a qualified financing scenario valued the Augmenta Note based on a bond plus call option model. The optional conversion to common stock valued the Augmenta Note based on the present value of common stock, determined using an adjusted net assets method and option-pricing model, and implied number of common shares upon conversion. The repayment upon maturity was based on the total principal and accrued interest through the maturity date. At the Conversion Date, the fair value of the Augmenta Note was determined by the derived equity value of Augmenta, based on the ownership percentage obtained by all notes that were converted on the Conversion Date.

- 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

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+ Details

TFF Pharmaceuticals, Inc. 10-Q