Fair Value Measurements

12 Months Ended

Dec. 31, 2020

(3) Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy that serves to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3—Valuations based on unobservable inputs and models that are supported by little or no market activity.

The following table provides the carrying value and fair value of certain financial assets and liabilities of the Company measured at fair value on a recurring basis as of December 31, 2020 and December 31, 2019:


			Fair Value Measurement at
			December 31, 2020
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	8,074,658	$	8,074,658	$	—	$	—


			Fair Value Measurement at
			December 31, 2019
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,858	$	1,858	$	—	$	—
Derivative liability	$	106,000	$	—	$	—	$	106,000

The derivative liability was associated with the March 2019 issuance of convertible promissory notes (see Note 7). The Company computed the fair value at the date of issuance of $26,500 related to the embedded share settlement feature providing for conversion of the notes at a 20% discount to the price of the shares issued in a Qualified Financing. The Company estimated the fair value using a probability weighted approach. Using the same methodology, the Company determined the fair value of the derivative liability immediately prior to the closing of the IPO was $132,500 and at December 31, 2019 was $106,000. The change in the fair value of the derivative liability is reflected in the statements of operations.

- 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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