Note 4 – Fair Value Measurements

Warrants

During the years ended March 31, 2021 and 2020, the Company issued 531,555 and 203,287 warrants related to its convertible notes. During the year ended March 31, 2021, in connection with the Company’s September 11, 2020 financing (see Note 9), the Company issued 265,267 warrants. The warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income (expense) on the statements of operations and disclosed in the financial statements.

The weighted average summary of significant unobservable inputs (Level 3 inputs) used in measuring warrants issued during the years ended March 31, 2021 and 2020 is as follows:

In October and December 2020, the Company issued amendments and new warrant agreements related to 685,351 warrants issued in connection with its convertible notes. The amendments and new warrant agreements reclassified the warrants from liabilities to equity. The warrants were measured at fair value on the amendment and new agreement dates, with the change in fair value recorded as other expense on the statement of operations, and reclassified to additional paid-in capital.

In December 2020, the Company issued amendments related to the 265,267 warrants issued in connection with the Company’s September financing, which reclassified the warrants from liabilities to equity. The warrants were measured at fair value on the amendment date, with the change in fair value recorded as other expense on the statement of operations, and reclassified to additional paid-in capital.

In January and March, 2021, the Company entered into note exchange agreements with certain of its noteholders. The note exchange agreements amended and restated 956,775 existing warrants, issued in connection with its convertible notes and new warrant agreements were issued totaling 2,090,847 warrants. The fair value of the existing 959,775 warrants was approximately $3.4 million on the amendment date, and the change in fair value was recorded as other expense on the statement of operations. As of March 31, 2021, using the Black-Scholes pricing model, the fair value of the restated warrants was approximately $4.9 million and were recorded as equity warrants. During the year ended March 31, 2021, the Company recorded a loss on extinguishment of approximately $1.5 million related to the new warrants.

As of March 31, 2021, all of the Company’s warrants have been reclassified to equity.

Convertible Notes Share Settlement Feature

The derivative liability results from the share settlement provision featured within the convertible notes. The fair value of the Share Settlement Feature was estimated using the Monte Carlo simulation model on the dates the notes were issued and were subsequently revalued at January 28, 2021, the notes conversion date. There were no Share Settlement Features related to the Company’s convertible notes at March 31, 2020.

The following table reflects the assumptions used in the Monte Carlo simulation model at the November 13, 2020 issuance date and at January 28, 2021 the notes conversion date:

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of March 31, 2020:

For the year ended March 31, 2021 there was a change of approximately $2.4 million in Level 3 liabilities measured at fair value. For the year ended March 31, 2020 there was a change of approximately $17,000 in Level 3 liabilities measured at fair value.

The following table presents changes in Level 3 liabilities measured at fair value for the years ended March 31, 2021 and 2020. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to unobservable (e.g., changes in unobservable long-dated volatilities) inputs.