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Fair Value

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Note 12: Fair Value

The Company is required under U.S. GAAP to disclose information about the fair value of all the Company’s financial instruments, whether or not these instruments are measured at fair value on the Company’s consolidated balance sheets.

The Company estimates that the fair values of cash and cash equivalents, other assets, accounts payable and accrued expenses approximate their carrying values due to the short-term maturities of these items. The Company also has certain warrants with a cash settlement feature in the unlikely occurrence of a Fundamental Transaction, namely (1) a merger or consolidation with another person; (2) sale of substantially all of its assets; (3) holders of common stock sell 50% or more of outstanding shares; (4) the Company effects an exchange of all its securities for other securities, cash or property, and (5) the Company effects a stock purchase agreement or business combination for more than 50% of outstanding shares. The fair value of the redeemable warrants (“Warrants”) related to the Company’s August 2016, February 2017, June 2017, August 2017, April 2018, and March 2019 common stock warrant issuances, are calculated using a Monte Carlo Simulation. While the Monte Carlo Simulation is one of a number of possible pricing models, the Company has determined it to be industry accepted and fairly presented the fair value of the Warrants. As an additional factor to determine the fair value of the Put’s liability, the occurrence probability of a Fundamental Transaction event was factored into the valuation.

The Company recomputes the fair value of the Warrants at the issuance date and the end of each quarterly reporting period. Such value computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different.

The Company utilized the following assumptions to estimate the fair value of the August 2016 Warrants:

		June 30, 2021				December 31, 2020
Underlying price per share		$	2.15			$	1.79
Exercise price per share		$	82.50			$	82.50
Risk-free interest rate			0.02	%			0.09	%
Expected holding period			0.17				0.67
Expected volatility			35	%			75	%
Expected dividend yield			-				-

The Company utilized the following assumptions to estimate the fair value of the February 2017 Warrants:

		June 30, 2021				December 31, 2020
Underlying price per share		$	2.15			$	1.79
Exercise price per share		$	30.25 – 33.00			$	30.25-33.00
Risk-free interest rate			0.08 - 0.10	%			0.12	%
Expected holding period			1.09 – 1.10				1.58 – 1.60
Expected volatility			80	%			130	%
Expected dividend yield			-				-

The Company utilized the following assumptions to estimate the fair value of the June 2017 Warrants:

		June 30, 2021				December 31, 2020
Underlying price per share		$	2.15			$	1.79
Exercise price per share		$	27.50			$	27.50
Risk-free interest rate			0.07	%			0.11	%
Expected holding period			0.92				12.42
Expected volatility			75	%			135	%
Expected dividend yield			-				-

The Company utilized the following assumptions to estimate the fair value of the August 2017 Warrants:

		June 30, 2021				December 31, 2020
Underlying price per share		$	2.15			$	1.79
Exercise price per share			19.80			$	19.80
Risk-free interest rate			0.06	%			0.11	%
Expected holding period			0.68				1.18
Expected volatility			70	%			110	%
Expected dividend yield			-				-

The Company utilized the following assumptions to estimate the fair value of the April 2018 Warrants:

		June 30, 2021				December 31, 2020
Underlying price per share		$	2.15			$	1.79
Exercise price per share		$	17.16			$	17.16
Risk-free interest rate			0.32	%			0.16	%
Expected holding period			2.32				2.81
Expected volatility			140	%			105	%
Expected dividend yield			-				-

The Company utilized the following assumptions to estimate the fair value of the March 2019 Warrants:

		June 30, 2021				December 31, 2020
Underlying price per share		$	2.15			$	1.79
Exercise price per share		$	8.80			$	8.80
Risk-free interest rate			0.29	%			0.19	%
Expected holding period			2.69				3.19
Expected volatility			135	%			105	%
Expected dividend yield			-				-

The significant assumptions using the Monte Carlo Simulation approach for valuation of the Warrants are:

(i)	Risk-Free Interest Rate. The risk-free interest rates for the Warrants are based on U.S. Treasury constant maturities for periods commensurate with the remaining expected holding periods of the warrants.
(ii)	Expected Holding Period. The expected holding period represents the period of time that the Warrants are expected to be outstanding until they are exercised. The Company utilizes the remaining contractual term of the Warrants at each valuation date as the expected holding period.
(iii)	Expected Volatility. Expected stock volatility is based on daily observations of the Company’s historical stock values for a period commensurate with the remaining expected holding period on the last day of the period for which the computation is made.
(iv)	Expected Dividend Yield. Expected dividend yield is based on the Company’s anticipated dividend payments over the remaining expected holding period. As the Company has never issued dividends, the expected dividend yield is $0.00 and this assumption will be continued in future calculations unless the Company changes its dividend policy.
(v)	Expected Probability of a Fundamental Transaction. The possibility of the occurrence of a Fundamental Transaction triggering a Put right is extremely remote. As discussed above, a Put right would only arise if a Fundamental Transaction (1) is an all cash transaction; (2) results in the Company going private; or (3) is a transaction involving a person or entity not traded on a national securities exchange. The Company believes such an occurrence is highly unlikely because:

	a.	The Company only has one product that is FDA approved but which will not be available for commercial sales for 18 months at the earliest;
	b.	The Company flagship product is approved only in Argentina for Severely Debilitated Chronic Fatigue Syndrome patients;
	c.	The Company may have to perform additional clinical trials for FDA approval of its flagship product;
	d.	Industry and global market conditions continue to include uncertainty, adding risk to any transaction;
	e.	Available capital for a potential buyer in a cash transaction continues to be limited;
	f.	The nature of a life science company is heavily dependent on future funding and high costs, including research & development;

	g.	The Company has minimal revenue streams which could be insufficient to meet the funding needs for the cost of operations or construction at their manufacturing facility; and
	h.	The Company’s Rights Agreement and Executive Agreements make it less attractive to a potential buyer.

With the above factors utilized in analysis of the likelihood of the Put’s potential Liability, the Company estimated the range of probabilities related to a Put right being triggered as:

Schedule of Range of Probabilities

Range of Probability			Probability
Low			0.5	%
Medium			1.0	%
High			5.0	%

The Monte Carlo Simulation has incorporated a 5.0% probability of a Fundamental Transaction to date for the life of the securities.

(vi)	Expected Timing of Announcement of a Fundamental Transaction. As the Company has no specific expectation of a Fundamental Transaction, for reasons stated above, the Company used a discrete uniform probability distribution over the Expected Holding Period to model the potential announcement of a Fundamental Transaction occurring during the Expected Holding Period.
(vii)	Expected 100 Day Volatility at Announcement of a Fundamental Transaction. An estimate of future volatility is necessary as there is no mechanism for directly measuring future stock price movements. Daily observations of the Company’s historical stock values for the 100 days immediately prior to the Warrants’ grant dates, with a floor of 100%, were utilized as a proxy for the future volatility.
(viii)	Expected Risk-Free Interest Rate at Announcement of a Fundamental Transaction. The Company utilized a risk-free interest rate corresponding to the forward U.S. Treasury rate for the period equal to the time between the date forecast for the public announcement of a Fundamental Transaction and the Warrant expiration date for each simulation.
(ix)	Expected Time Between Announcement and Consummation of a Fundamental Transaction. The expected time between the announcement and the consummation of a Fundamental Transaction is based on the Company’s experience with the due diligence process performed by acquirers and is estimated to be six months. The Monte Carlo Simulation approach incorporates this additional period to reflect the delay Warrant Holders would experience in receiving the proceeds of the Put.

While the assumptions remain consistent from period to period (e.g., using historical stock prices), the numbers input change from period to period (e.g., the actual historical prices input for the relevant period).

The Company applies FASB ASC 820 that defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. The guidance does not impose any new requirements around which assets and liabilities are to be measured at fair value, and instead applies to asset and liability balances required or permitted to be measured at fair value under existing accounting pronouncements. The Company measures its warrant liability for those warrants with a cash settlement feature at fair value.

FASB ASC 820-10-35-37 establishes a valuation hierarchy based on the transparency of inputs used in the valuation of an asset or liability. Classification is based on the lowest level of inputs that is significant to the fair value measurement. The valuation hierarchy contains three levels:

●	Level 1 – Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally, this includes certain U.S. and government agency debt and equity securities that are traded in an active market.
●	Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an active market.
●	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. As of June 30, 2021, the Company has classified the warrants with cash settlement features as Level 3. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed above, the Company utilized the Monte Carlo Simulation Model in valuing these warrants.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy as:

		(in thousands) As of June 30, 2021
		Total				Level 1				Level 2				Level 3
Assets:
Marketable securities		$	16,135			$	16,135			$	—			$	—
Liabilities:
Redeemable warrants		$	209				—				—				$ 209

		(in thousands) As of December 31, 2020
		Total				Level 1				Level 2				Level 3
Assets:
Marketable securities		$	15,877			$	15,877			$	—			$	—
Liabilities:
Redeemable warrants		$	180				—				—				$ 180

The changes in Level 3 Liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):

Redeemable warrants:
Balance at December 31, 2020		$	180
Fair value adjustment			29
Balance at June 30, 2021		$	209

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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