3. Fair Value Measurements

ASC 820 "Fair Value Measurements," defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 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 under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 – Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.

Level 2 – Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model‑derived valuations whose significant inputs are observable.

Level 3 – Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables set forth the fair value of the Company’s consolidated financial instrument that was measured at fair value on a recurring basis as of December 31, 2020 and 2019:


	December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	179	$	179
Total fair value	$	—	$	—	$	179	$	179


	December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	3	$	3
Total fair value	$	—	$	—	$	3	$	3

The change in the estimated fair value of the Level 3 liability is summarized below:


	Year Ended
	December 31, 2020
(in thousands)	Warrant Liability
Beginning fair value of Level 3 liability	$	3
Additions		3,696
Exercises		(6,056)
Change in fair value		2,536
Ending fair value of Level 3 liability	$	179

Warrant Liability

The warrants associated with the Level 3 warrant liability were the November 2016 Series A Warrants, the October 2018 Underwriter Warrants and the May 2020 Series 3 Warrants, which, at December 31, 2020, were valued at zero, $4,000 and $175,000 respectively, in the Company’s consolidated balance sheet. The warrants associated with the Level 3 warrant liability activity for the year ended December 31, 2019 were the November 2016 Series A Warrants, the October 2018 Underwriter Warrants, the March 2019 LOC Warrants and the Bridge Warrants, which at December 31, 2019 were valued at zero, $3,000, zero and zero, respectively in the Company’s consolidated balance sheet.

The November 2016 Series A Warrants

The Series A warrant valuation of zero at December 31, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.82, a strike price of $787.50 per share, an expected term of 1.41 years, volatility of 148% and a risk-free discount rate of 0.13%. The Series A warrant valuation of zero at December 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.65, a strike price of $787.50 per share, an expected term of 2.41 years, volatility of 143.41% and a risk-free discount rate of 1.62%. The net change in the fair value of the warrants is zero for the year ended December 31, 2020.

The October 2018 Underwriter Warrants

The October 2018 Underwriter Warrants valuation of $4,000 at December 31, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.82, a strike price of $52.50 per share, an expected term of 2.76 years, volatility of 156% and a risk-free discount rate of 0.17%. The October 2018 Underwriter Warrants valuation of $3,000 at December 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.65, a strike price of $52.50 per share, an expected term of 3.76 years, volatility of 143% and a risk-free discount rate of 1.69%. The net increase in the fair value of the warrants of $1,000 for the year ended December 31, 2020, was recorded as a loss in the change in fair value of financial instruments in the consolidated statement of operations.

The May 2020 Series 3 Warrants

The May 2020 Series 3 Warrants valuation of $175,000 at December 31, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.82, a strike price of $0.00 per share, an expected term of 4.89 years, volatility of 142% and a risk-free discount rate of 0.36%. The May 2020 Series 3 Warrants valuation of $3.7 million at issuance on May 22, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.44, a strike price of $0.05 per share, an expected term of 5.50 years, volatility of 142% and a risk-free discount rate of 0.34%. As of December 31, 2020, certain holders of the Series 3 Warrants agreed to exercise 8,456,352 shares for a 1-for-1 exchange of common shares in an Alternate Cashless Exercise. The net increase in the fair value of the warrants of $2.5 million for the year ended December 31, 2020 was recorded as a loss in the change in fair value of financial instruments in the consolidated statement of operations.