Note 13 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

13. Fair Value of Financial Instruments

The Company has measured and recorded short-term investments and certain warrants as liabilities at fair value in the accompanying financial statements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, includes:

• Level 1 – Observable inputs for identical assets or liabilities such as quoted prices in active markets;

• Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

• Level 3 – Unobservable inputs in which little or no market data exists, which are therefore developed by the Company using estimates and assumptions that reflect those that a market participant would use.

Short-term investments primarily include certificates of deposit at commercial banking institutions, with maturities of three months or more at time of purchase. Certificates of deposit are carried at amortized cost, which approximates fair value and are included as a Level 2 measurement in the table below.

There were no assets and liabilities measured at fair value as of December 31, 2020.  As of September 30, 2021, the following items were measured at fair value: 

	As of September 30, 2021
	Level 1		Level 2		Level 3			Total
Assets:
Cash and cash equivalents	$	—	$	—	$	—		$	—
Short-term investments		—		233,642		—			233,642
Total assets	$	—	$	233,642	$	—		$	233,642
Liabilities:
Accrued warrant liability	$	—	$	—	$	(945,736	)	$	(945,736	)

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 fair value measurements for the periods indicated:

	Three Months Ended			Three Months Ended
	September 30, 2021			September 30, 2020
	Accrued Warrant Liability			Accrued Warrant Liability
Beginning Balance	$	(945,736	)	$	-
Total (gains) or losses, realized and unrealized, included in earnings (1)		—			—
Issuances		—			—
Settlements		—			—
Ending Balance	$	(945,736	)	$	-

(1) Unrealized gains or losses related to the accrued warrant liability were included as change in value of accrued warrant liability. There were no realized gains or losses for the three and nine months ended September 30, 2021 and 2020.

The accrued warrant liability of $0.95 million represented on the Company’s balance sheet for the period ending September 30, 2021 are amounts due to satisfy cash payments in accordance with change in control provisions specified in warrant agreements with the placement agent.  The Company has received notice of intent to receive cash payment by the placement agent in accordance with the change in control provision.  The Company believes the cash payment due to satisfy the 2020 warrant agreements are approximately $0.45 million and the cash payment due to satisfy the 2021 warrant agreements are approximately $0.5 million.  While the amount paid may differ from the accrual the Company believes the accrual fairly represents the amounts due to the placement agent.

As of September 30, 2021 and December 31, 2020, the Company had no assets or liabilities that were measured at fair value on a nonrecurring basis.

The carrying amounts of the Company’s short-term financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values due to their short maturities.