FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2023

2. FAIR VALUE MEASUREMENTS

Certain assets and liabilities that are measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022 are measured in accordance with FASB ASC Topic 820-10-05, Fair Value Measurements. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the condensed consolidated financial statements.

The statement requires fair value measurement be classified and disclosed in one of the following three categories:

Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;
Level 2:	Quoted prices in markets that are not active or inputs which are observable either directly or indirectly for substantially the full term of the asset or liability; and
Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The following table summarizes our financial instruments measured at fair value at June 30, 2023 and December 31, 2022:

	Total		Level 1		Level 2		Level 3
	Fair Value Measurements at June 30, 2023
	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant liability	$	-	$	-	$	-	$	-
Derivative liabilities	$	636,458	$	-	$	636,458	$	-
Convertible notes at fair value	$	1,809,491	$	-	$	-	$	1,809,491

	Total		Level 1		Level 2		Level 3
	Fair Value Measurements at December 31, 2022
	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant liability	$	6,072	$	-	$	-	$	6,072
Derivative liabilities	$	623,507	$	-	$	623,507	$	-
Convertible notes at fair value	$	1,729,183	$	-	$	-	$	1,729,183

The following table shows the changes in fair value measurements for the warrant liability using significant unobservable inputs (Level 3) during the six months ended June 30, 2023 and the year ended December 31, 2022:

Description	June 30, 2023			December 31, 2022
Beginning balance	$	6,072		$	710,585
Purchases, issuances, and settlements		-			324,379
Total gain included in earnings (1)		(6,072	)		(1,028,892	)
Repayments in cash
Conversion to common stock
Ending balance	$	-		$	6,072

(1)	The gain related to the revaluation of our warrant liability is included in “Change in fair value of convertible notes and derivatives” in the accompanying unaudited condensed consolidated statements of operations.

We valued our warrants using a Dilution-Adjusted Black-Scholes Model. Assumptions used include (1) 4.76% to 4.85% risk-free rate, (2) warrant life is the remaining contractual life of the warrants, (3) expected volatility of 580%-620%, (4) zero expected dividends, (5) exercise price set forth in the agreements, (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.

We valued derivative liabilities using the number of potential convertible shares for warrants in equity and convertible notes with fixed conversion price that are recorded at amortized cost times the closing stock price of our restricted common stock at June 30, 2023 and December 31, 2022. These derivative liabilities are recorded due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit and the equity environment is tainted, and therefore all convertible debt and options and warrants should be accounted for as liabilities.

The following table summarizes assumptions and the significant terms of the convertible notes for which the entire hybrid instrument is recorded at fair value at June 30, 2023 and December 31, 2022:

						Conversion Price - Lower of Fixed Price or Percentage of VWAP for Look-back Period
Debenture	Face Amount		Interest Rate	Default Interest Rate	Discount Rate	Anti-Dilution Adjusted Price	% of stock price for look-back period	Look-back Period
June 30, 2023	$	678,446	8%-10%	19%-24%	N/A	$0.00005-$0.00006	50%-60%	3 to 25 Days
December 31, 2022	$	681,446	8%-10%	19%-24%	N/A	$0.00005-$0.00006	50%-60%	3 to 25 Days

Using the stated assumptions summarized in the table above, we calculated the inception date and reporting period fair values of each note issued. The following table shows the changes in fair value measurements for the convertible notes at fair value using significant unobservable inputs (Level 3) during the six months ended June 30, 2023 and the year ended December 31, 2022:

Description	June 30, 2023			December 31, 2022
Beginning balance	$	1,729,183		$	2,855,709
Loss (gain) from change in fair value (1)		83,308			(1,015,526	)
Loss (gain) from change in fair value		83,308			(1,015,526	)
Repayments in cash		(3,000	)		(75,000	)
Conversion to common stock		-			(36,000	)
Ending balance	$	1,809,491		$	1,729,183

(1)	The losses (gains) related to the valuation of the convertible notes are included in “Change in fair value of convertible notes and derivatives” in the accompanying unaudited condensed consolidated statement of operations.

- 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
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-Name Accounting Standards Codification
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-URI https://asc.fasb.org/1943274/2147482106/820-10-50-2

Reference 2: http://www.xbrl.org/2003/role/exampleRef
-Topic 820
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-URI https://asc.fasb.org/1943274/2147482078/820-10-55-107

Reference 3: http://www.xbrl.org/2003/role/exampleRef
-Topic 820
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-URI https://asc.fasb.org/1943274/2147482078/820-10-55-100

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Paragraph 6A
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-URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Section 50
-Paragraph 6A
-Subparagraph (e)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Name Accounting Standards Codification
-Section 50
-Paragraph 6A
-Subparagraph (d)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Name Accounting Standards Codification
-Section 50
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-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482106/820-10-50-2

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482106/820-10-50-2

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Topic 940
-SubTopic 820
-Name Accounting Standards Codification
-Section 50
-Paragraph 1
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147478119/940-820-50-1

+ Details

NUTRA PHARMA CORP 10-Q