Fair Value Disclosure

12 Months Ended

Dec. 31, 2018

Fair Value Disclosure

Fair Value Disclosure

3. Fair Value Disclosure

The carrying value of the Company’s cash and cash equivalents, prepaid expenses and other current assets, other assets, accounts payable, accrued liabilities, and convertible notes payable approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability 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 must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level I	Unadjusted quoted prices in active markets for identical assets or liabilities;
Level II	Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level III	Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

	Fair Value at December 31, 2018
($in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Deferred charge related to stock option liability	$	455	$	—	$	455	$	—
Totals	$	455	$	—	$	455	$	—
Liabilities:
Stock option liability	$	455	$	—	$	455	$	—
Totals	$	455	$	—	$	455	$	—

	Fair Value at December 31, 2017
($in thousands)	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant liability	$	11,868	$	—	$	—	$	11,868
Totals	$	11,868	$	—	$	—	$	11,868

Financial assets or liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The preferred stock warrants are measured using the Monte Carlo valuation model which is based, in part, upon inputs for which there is little or no observable market data, requiring the Company to develop its own assumptions. The assumptions used in calculating the estimated fair value of the warrants represent the Company’s best estimates; however, these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and different assumptions are used, the warrant liability and the change in estimated fair value of the warrants could be materially different.