MAIA Biotechnology, Inc. General form of registration statement for all companies including face-amount certificate companies

General form of registration statement for all companies including face-amount certificate companies

Fair Value of Financial Liabilities

Fair Value of Financial Liabilities

3 Months Ended

12 Months Ended

Mar. 31, 2023

Dec. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value of Financial Liabilities

4.	FAIR VALUE OF FINANCIAL LIABILITIES

Derivative Liability

Financial liabilities consisting of warrant liabilities measured at fair value on a recurring basis are summarized below. The fair value of the warrant liabilities recorded are as follows:


	Fair value at March 31, 2023
	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant liability		224,399		—		—		224,399

Total liabilities	$	224,399	$	—	$	—	$	224,399

The table below provides a summary of the changes in fair value of the warrant liabilities measured on a recurring basis using significant unobservable inputs (Level 3):


	Years Ended March 31,
	2023			2022
Warrant liabilities:
Balance, beginning of period	$	245,341		$	—
Warrant liability					—
Gain on fair value of warrant liability		(20,942	)		—
Reclassification of warrant liability to equity		—			—

Balance, end of period	$	224,399		$	—

7.	FAIR VALUE OF FINANCIAL LIABILITIES

Derivative Liability

The table below provides a summary of the changes in fair value of the derivative liabilities related to Convertible notes using significant unobservable inputs (level 3):


	Year Ended December 31,
	2022		2021
Derivative liabilities:
Balance, beginning of period	$	—	$	127,000
Derivative liability on convertible notes payable		—		2,821,000
Loss (Gain) on fair value of embedded features		—		203,000
Extinguishment of derivative liability in connection with debt conversion		—		(3,151,000	)

Balance, end of period	$	—	$	—

The Embedded Put Features were separately measured at fair value, with changes in fair value recognized in current operations. The scenario-based analysis estimates the fair value of the Convertible Notes based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the holders, including various settlement, equity financing, and corporate transaction and dissolution scenarios. Estimating fair values of Embedded Put Features required the development of significant

and subjective estimates that changed over the duration of the instrument with related changes in internal and external market factors. Because the Embedded Put Features are initially and subsequently carried at fair values, the Company’s income reflected the volatility in these estimate and assumption changes.

Immediately prior to the conversion of the convertible notes, the derivative liability was marked to fair value resulting in a loss of $203,000 for the year ended December 31, 2021. The recurring Level 3 fair value measurements of the embedded derivative liability included the following significant unobservable inputs as of the conversion. The probability of the Convertible Notes outstanding at maturity was estimated to be approximately 0%; the probability of an equity financing was estimated to be approximately 100%; and the probability of default, change in control or dissolution was estimated to be approximately 0%. On September 30, 2021 the embedded derivative liability was extinguished in connection with the conversion of the convertible notes.

Financial liabilities consisting of warrant liabilities measured at fair value on a recurring basis are summarized below. The fair value of the warrant liabilities recorded are as follows:


	Fair value at December 31, 2022
	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant liability		245,341		—		—		245,341

Total liabilities	$	245,341	$	—	$	—	$	245,341

There were no warrant liabilities measured at fair value on a recurring basis at December 31, 2021. The table below provides a summary of the changes in fair value of the warrant liabilities measured on a recurring basis using significant unobservable inputs (Level 3):


	Years Ended December 31,
		2022			2021
Warrant liabilities:
Balance, beginning of period	$	—		$	85,260
Warrant liability		343,735			320,460
(Gain) loss on fair value of warrant liability		(98,394	)		1,546,280
Reclassification of warrant liability to equity		—			(1,952,000	)

Balance, end of period	$	245,341		$	—

- 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.

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