Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.19.1
Fair Value Measurements
 3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
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.
 
 
Level 1 – Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Therefore, determining fair value for Level 1 investments generally does not require significant judgment, and the estimation is not difficult.
 
 
Level 2 – Pricing is provided by third-party sources of market information obtained through investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information received from its advisors.
 
 
Level 3 – Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 instruments involves the most management judgment and subjectivity.
 
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 by level within the fair value hierarchy, are as follows:
 
(in thousands)
 
March 31, 2019
 
 
 
Quoted prices

in active

markets
 
 
Significant

other

observable

inputs
 
 
Significant

unobservable

inputs
 
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Warrant liability
 
$
-
 
 
$
-
 
 
$
103
 
 
(in thousands)
 
December 31, 2018
 
 
 
Quoted prices

in active

markets
 
 
Significant

other

observable

inputs
 
 
Significant

unobservable

inputs
 
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Warrant liability
 
$
-
 
 
$
-
 
 
$
210
 
 
  There were no transfers between Level 1, 2 or 3 during the three months ended March 31, 2019.
 
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 months ended March 31, 2019:
 
(in thousands)
 
For the three months ended
 
 
 
March 31, 2019
 
Beginning balance
 
$
210
 
Additions
 
 
4
 
Change in fair value
 
 
(111
)
Reclass to additional paid-in capital
 
 
-
 
Ending balance
 
$
103
 
 
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 March 31, 2019 and December 31, 2018 is as follows:
 
 
 
March 31, 2019
 
 
December 31, 2018
 
Common Stock Price
 
$
1.99
 
 
$
3.42
 
Term (Years)
 
 
4.02
 
 
 
4.27
 
Volatility
 
 
59
%
 
 
58
%
Risk-free rate of interest
 
 
2.22
%
 
 
2.58
%
Dividend Yield
 
 
0.0
%
 
 
0.0
%
 
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 months ended March 31, 2018: 
 
(in thousands)
 
For the three months ended
 
 
 
March 31, 2018
 
Beginning balance
 
$
20,832
 
Additions
 
 
1,313
 
Change in fair value
 
 
814
 
Ending balance
 
$
22,959
 
 
As of March 31, 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.