Note 8 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

The fair value hierarchy is broken down into the three input levels summarized below:

● Level 1 —Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. Treasuries and trading securities with quoted prices on active markets.

● Level 2 —Valuations based on inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets and liabilities utilizing Level 2 inputs are U.S. government agency bonds, corporate bonds, commercial paper, certificates of deposit and over-the-counter derivatives.

● Level 3 —Valuations based on unobservable inputs in which there are little or no market data, which require the Company to develop its own assumptions.

Warrants issued in the financing transaction that closed on December 11, 2020 and December 28, 2020 contained provisions that may require the Company to settle the warrants in cash in an event outside the Company’s control and are therefore accounted for as liabilities, with changes in the fair values included in net loss for the respective periods. Because some of the inputs to the valuation model were either not observable or were not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability was classified as Level 3 in the fair value hierarchy as of December 31, 2020.

The following tables present the Company’s fair value hierarchy for all its financial assets and liabilities, by major security type measured at fair value on a recurring basis:

September 30, 2021	Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Money market account	$	51,794,857	$	51,794,857	$	-	$	-

December 31, 2020	Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Money market account	$	1,789,401	$	1,789,401	$	-	$	-
Liabilities:
Common stock warrant liability	$	13,003,075	$	-	$	-	$	13,003,075

The following table summarizes the changes in the Company’s Level 3 warrant liability for the nine months ended September 30, 2021:

Warrant Liability
Beginning balance	$	13,003,075
Reclassification to equity upon adoption of accounting standard		(13,003,075	)
Issuance of warrants		-
Change in fair value		-
Ending balance	$	-

The carrying amounts of our cash and cash equivalents, restricted cash, research and development tax rebate receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, payroll liabilities and other current liabilities approximate their fair values due to their short-term maturities at September 30, 2021 and December 31, 2020.