Fair Value Measurements |
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Fair Value Measurements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
6. Fair Value Measurements The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 by level within the fair value hierarchy, are as follows:
There were no transfers between Level 1, 2 or 3 during the three and six months ended June 30, 2019 or June 30, 2018. Warrant Liability The following table includes a summary of changes in fair value of the Company’s warrant liability measured at fair value using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2019 and 2018:
The changes in fair value of the warrant liability are recorded in change in fair value of warrant liability in the condensed consolidated statements of operations. A summary of the weighted average significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liability that is categorized within Level 3 of the fair value hierarchy as of June 30, 2019 and December 31, 2018 is as follows:
Derivative Liability The following table includes a summary of changes in fair value of the Company’s derivative liability measured at fair value using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2019 and June 30, 2018:
As of June 30, 2018, the Company measured the fair value of the derivative by estimating the fair value of the convertible notes payable at certain conversion points. To calculate the fair value of the convertible notes payable with the conversion feature, the Company calculated the present value of the convertible notes payable upon conversion at a qualifying initial public offering in the second quarter of 2018, and the present value of the convertible notes payable at non-qualifying initial public offering in the last quarter of 2018. The Company estimated a probability of 75% for the occurrence of a qualifying initial public offering in the second quarter of 2018 and a probability of 25% in the last quarter of 2018. The Company’s derivative liabilities were measured at fair value using the Probability Weighted Expected Return valuation methodology. As of June 30, 2019, the Company measured the fair value of the derivative by estimating the fair value of the Series A Convertible Preferred Stock as if conversion occurred on June 30, 2019. The Company calculated value of the conversion feature using the Fixed Conversion Price of the Series A Preferred Stock, as adjusted to 95% of the volume weighted average price of the common stock for the previous ten trading days and the specified floor price of $1.50. |