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Fair Value Measurements

9 Months Ended

Dec. 31, 2020

6. Fair Value Measurements

The carrying amounts reported in the Company’s condensed consolidated financial statements for cash, accounts payable, and other current liabilities approximate their respective fair values because of the short-term nature of these accounts. The fair value of the severance payable approximates the carrying value, which represents the present value of future severance payments. The fair value of the derivative liability is discussed below.

Fair value is defined as the price that would be received if selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1), and the lowest priority to unobservable inputs (Level 3). The Company’s financial assets are classified within the fair value hierarchy based on the lowest level of inputs that is significant to the fair value measurement. The three levels of the fair value hierarchy, and their applicability to the Company’s financial assets, are described below.

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date of identical, unrestricted assets.

Level 2: Quoted prices for similar assets, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to the security.

Level 3: Pricing inputs are unobservable for the assets. Level 3 assets include private investments that are supported by little or no market activity. Level 3 valuations are for instruments that are not traded in active markets or are subject to transfer restrictions and may be adjusted to reflect illiquidity and/or non-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. The Company had no material re-measurements of fair value with respect to financial assets and liabilities, during the periods presented, other than those assets and liabilities that are measured at fair value on a recurring basis.

The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The fair value measurement for the warrants issued in connection with the registered offering that closed on April 2, 2019 (the “April 2019 Warrants”) and the warrant issued in conjunction with the Exchange Agreements (see Note 8 for transaction details) (the “May 2020 Warrant”) are based on significant inputs not observable in the market and are classified as Level 3 liability as of March 31, 2020 and December 31, 2020, respectively.

The fair value of the April 2019 Warrants was determined using a Monte Carlo simulation model and included significant unobservable inputs including volatility and the probability of fundamental transactions occurring (see Note 8 for further discussion of the issuance of common stock from an underwritten registered offering). The fair value of the May 2020 Warrant was determined using the Black Scholes model and included significant unobservable inputs such as volatility. Both models incorporated several observable assumptions at each valuation date including: the price of the Company’s common stock on the date of valuation, the remaining contractual term of the warrant and the risk free interest rate over the term. Transfers are calculated on values as of the transfer date. There were no transfers between Levels 1, 2 and 3 during the nine months ended December 31, 2020.

The following table details key inputs and assumptions used to estimate the fair value of the May 2020 Warrant as of December 31, 2020 using a Black Scholes model and April 2019 Warrants liability as of March 31, 2020 using the Monte Carlo simulation models:

	May 2020 Warrant			April 2019 Warrants
	December 31, 2020			March 31, 2020
Stock price	$	1.22		$	1.10
Volatility		72	%		60	%
Remaining term (years)	3.25				4.01
Expected dividend yield		—			—
Risk-free rate		0.19	%		0.33	%

The Company’s financial instruments measured at fair value on a recurring basis are as follows:

Description	Total		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
			(Level 1)		(Level 2)		(Level 3)
December 31, 2020
Warrant liability	$	1,018,977		—		—	$	1,018,977
March 31, 2020
Warrant liability	$	3,639,000		—		—	$	3,639,000

The following table summarizes activity for liabilities measured at fair value using Level 3 significant unobservable inputs:

	December 31, 2020
Beginning balance, March 31, 2020	$	3,639,000
Change in fair value of April 2019 Warrants liability before May 20, 2020 Warrant Exchange		3,661,000
Less: fair value of April 2019 Warrants as of May 20, 2020		(7,300,000	)
Plus: fair value of May 2020 Warrant as of May 20, 2020		1,677,528
Change in fair value of May 2020 Warrant liability from May 20, 2020 to December 31, 2020		(658,551	)
Ending balance, December 31, 2020	$	1,018,977

- 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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