Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

ASC 820 “Fair Value Measurements,” defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

· Level 1— Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.

· Level 2— Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model derived valuations whose significant inputs are observable.

· Level 3— Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables set forth the fair value of the Company’s financial instruments that were measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.

	March 31, 2020
	(unaudited)
(in thousands)	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	2	$	2
Total fair value	$	—	$	—	$	2	$	2

	December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	3	$	3
Total fair value	$	—	$	—	$	3	$	3

The change in the estimated fair value of Level 3 liabilities is summarized below:

	Three Months Ended
	March 31, 2020
	Warrant
	Liability
(in thousands)	(unaudited)
Beginning fair value of Level 3 liability	$	3
Change in fair value		(1)
Ending fair value of Level 3 liability	$	2

Warrant Liability

The warrants associated with the Level 3 warrant liability activity for the three months ended March 31, 2020 were the November 2016 Series A warrants and the October 2018 Underwriter warrants, which at March 31, 2020 were valued at $3 and $2,096, respectively, in the Company’s condensed consolidated balance sheet. The warrants associated with the Level 3 warrant liability activity for the year ended December 31, 2019 were the November 2016 Series A warrants, the October 2018 Underwriter warrants, the March 2019 LOC warrants and the Bridge warrants, which at December 31, 2019 were valued at $10,  $3,482,  zero and zero, respectively in the Company’s consolidated balance sheet.

The Series A Warrants

The Series A warrant valuation of $3 at March 31, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.53, a strike price of $787.50 per share, an expected term of 2.20 years, volatility of 141.60% and a risk-free discount rate of 0.29%. The Series A warrant valuation of $10 at December 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.65, a strike price of $787.50 per share, an expected term of 2.41 years, volatility of 143.41% and a risk-free discount rate of 1.62%. The net change in the fair value of the warrants of $7 for the three months ended March 31, 2020 was recorded as a gain in the change in fair value of financial instruments in the condensed statements of operations.

The October 2018 Underwriter Warrants

The October 2018 Underwriter Warrants valuation of $2,096 at March 31, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.53, a strike price of $52.50 per share, an expected term of 3.50 years, volatility of 141.60% and a risk-free discount rate of 0.29%.  The October 2018 Underwriter Warrants valuation of $3,482 at December 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.65, a strike price of $52.50 per share, an expected term of 3.76 years, volatility of 143.41% and a risk-free discount rate of 1.69%. The net change in the fair value of the warrants of $1,386 for the three months ended March 31, 2020 was recorded as a gain in the change in fair value of financial instruments in the condensed statements of operations.