Fair Value Measurements

6 Months Ended

Jun. 30, 2021

(3) Fair Value Measurements

ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. The Company follows this guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

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Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

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Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

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Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2021, and December 31, 2020. The carrying amount of cash and accounts payable approximated fair value as they are short term in nature. The guidance in ASC 815, Derivatives and Hedging, requires that we mark the value of our common stock warrant liability to market and recognize the change in valuation in our statements of operations each reporting period. Determining the warrant liability to be recorded requires us to develop estimates to be used in calculating the fair value of the warrant. The fair value of the common stock warrants we issued were estimated based on a Black-Scholes model as of June 30, 2021, and December 31, 2020. The estimated fair value of the warrant liability and the derivative liability (“embedded put features”) included in the convertible promissory notes represent Level 3 measurements. The following table details the fair value measurement within the fair value hierarchy of the Company’s financial instruments, which includes the Level 3 liabilities:


	Fair value measurements as of
	December 31, 2020, using:
	Level 1		Level 2		Level 3		Total
Liabilities
Derivative liabilities	$	—	$	—	$	1,751,000	$	1,751,000
Warrant liability		—		—		29,376		29,376
	$	—	$	—	$	1,780,376	$	1,780,376


	Fair value measurements as of
	June 30, 2021, using:
	Level 1		Level 2		Level 3		Total
Liabilities
Derivative liabilities	$	—	$	—	$	2,618,000	$	2,618,000
Warrant liability		—		—		34,145		34,145
	$	—	$	—	$	2,652,145	$	2,652,145

During the three and six months ended June 30, 2021 and 2020, there were no transfers between Level 1, Level 2 and Level 3.

A summary of the changes in the fair value of Level 3 financial instruments for the six months ended June 30, 2021 is as follows:


	Level 3
Balance, December 31, 2020	$	1,780,376
Changes in fair value of derivative liability		867,000
Changes in fair value of warrant liability		4,769
Balance, June 30, 2021	$	2,652,145

For further discussion of the derivative liabilities, see Note 7. For further discussion of the warrant liability, see Note 9.

- 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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