Fair Value Measurements

12 Months Ended

Dec. 31, 2019

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present information about the Company’s financial assets and liabilities that are measured and carried at fair value as of December 31, 2019 and December 31, 2018, and indicate the level within the fair value hierarchy where each measurement is classified. Below is a summary of assets and liabilities measured at fair value on a recurring basis (in thousands):



	December 31, 2019
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	50,401	$	50,401	$	—	$	—
Total	$	50,401	$	50,401	$	—	$	—

Liabilities:
Warrant liabilities	$	41,549	$	—	$	—	$	41,549
Total	$	41,549	$	—	$	—	$	41,549



	December 31, 2018
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	10,123	$	10,123	$	—	$	—
Total	$	10,123	$	10,123	$	—	$	—

At each of December 31, 2019 and December 31, 2018, the money market funds were classified as cash and cash equivalent on the accompanying consolidated balance sheet as they mature within 90 days from the date of purchase.

Assumptions Used in Determining Fair Value of Common Warrants

In December 2019, we issued common warrants in connection with our private placement of common shares. Pursuant to the terms of the common warrants, we could be required to settle the common warrants in cash in the event of certain acquisitions of the Company and, as a result, the common warrants are required to be measured at fair value and reported as a liability on the balance sheet. We recorded the fair value of the common warrants upon issuance using the Black-Scholes valuation model and are required to revalue the common warrants at each reporting date with any changes in fair value recorded on our statement of operations. The valuation of the common warrants is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable. The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the volatility rate and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement. The change in the fair value of the Level 3 warrant liability is reflected in the statement of operations for the year ended December 31, 2019.

The estimated fair value of warrants is determined using Level 3 inputs inherent in the Black Scholes simulation valuation.

Estimated fair value of the underlying stock. The Company estimates the fair value of the common stock based on the closing stock price at the end of each reporting period.

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury at the valuation date commensurate with the expected remaining life assumption.

Dividend rate. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.

Expected life. The expected life of the warrants is assumed to be equivalent to their remaining contractual term which expires on December 23, 2024.

Volatility. The Company estimates stock price volatility based on the Company’s historical volatility and the historical volatility of peer companies for a period of time commensurate with the expected remaining life of the warrants.

A summary of the Black Scholes pricing model assumptions used to record the fair value of the warrants is as follows:



	Issued on December 23,		Year Ended December 31,
	2019		2019
Risk-free interest rate	1.75	%	1.69	%
Dividend yield	—		—
Expected life (in years)	5.00		4.98
Expected volatility	87.29	%	87.74	%

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

The following table reflects the change in the Company’s Level 3 warrant liabilities, (see Note 10), for the year ended December 31, 2019 (in thousands):



	Warrant liabilities
Fair value as of December 31, 2018	$	—
Warrants issued in connection with December 2019 private placement	40,692
Change in fair value	857
Fair value as of December 31, 2019	$	41,549

- 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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