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Note 8 - Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2022
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

8. Fair Value of Financial Instruments

 

The carrying value of cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, and income tax payable approximates fair value due to the relatively short maturity of these instruments. Common stock warrants, which are classified as a liability, are recorded at their fair market value as of each reporting period.

 

The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

 

 

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Level 1 – Quoted prices for identical instruments in active markets.

 

 

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Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.

 

 

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Level 3 – Instruments where significant value drivers are unobservable to third parties.

 

The Company uses model-derived valuations where certain inputs are unobservable to third parties to determine the fair value of certain common stock warrants on a recurring basis and classifies such liability-classified warrants in Level 3. As described in Note 7, the fair value of the liability classified warrant was $6.2 million at March 31, 2022.

 

There were no transfers between levels of the fair value hierarchy for the three months ended March 31, 2022. As of each of  March 31, 2022 and December 31, 2021, the Company had approximately $0.1 million of cash equivalents classified as Level 1 financial instruments. There were no Level 2 financial instruments as of March 31, 2022. 

 

The following table presents changes in the liability-classified warrant measured at fair value using Level 3 inputs:

 

  

Fair Value Measurements of Level 3 liability-classified warrant

 

Warrant liability at December 31, 2021

 $6,521,441 

Decrease in fair value of warrant liability

  (351,104)

Exercise of warrants

  — 

Warrant liability at March 31, 2022

 $6,170,337