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Fair Value of Financial Assets and Liabilities
 9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value of Financial Assets and Liabilities

Note 4 — Fair Value of Financial Assets and Liabilities

 

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

    Fair Value Measurements as of December 31, 2017 Using:  
    Level 1     Level 2     Level 3     Total  
Liabilities:                                
Warrant liability   $ —     $ —     $ 520     $ 520  

 

    Fair Value Measurements as of September 30, 2018 Using:  
    Level 1     Level 2     Level 3     Total  
Liabilities:                                
Warrant liability   $ —     $ —     $ 1,577     $ 1,577  

 

During the periods ended December 31, 2017 and September 30, 2018, there were no transfers between Level 1, Level 2 and Level 3.

 

Valuation of Warrant Liability

 

The warrant liability in the table above is composed of the fair value of a warrant to purchase shares of common stock that were issued to the Company’s placement agent in connection with the Series A Preferred offering (see Note 5). The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used the BSM, which incorporates assumptions and estimates, to value the warrant. Estimates and assumptions impacting the fair value measurement include the fair value per share of the underlying shares of common stock, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying common stock. The Company determined the fair value per share of the underlying common stock by taking into consideration the most recent sales of its preferred stock, results obtained from third-party valuations and additional factors that are deemed relevant. The Company historically has been a private company and lacks company-specific historical and implied volatility information of its common stock. Therefore, the Company estimates its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrant. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrant. The Company estimated a 0% expected dividend yield based on the fact that the Company has never paid or declared dividends and does not intend to do so in the foreseeable future.

 

The following table provides a roll forward of the aggregate fair values of the Company’s warrant liability, for which fair value is determined using Level 3 inputs

 

   

Period from

April 27, 2017 (inception) to December 31, 2017

     Nine months ended September 30, 2018  
Balance as of the beginning of the period   $ —     $ 520  
Initial fair value of warrant liability     479       —  
Change in fair value     41       1,057  
Balance as of the end of the period   $ 520     $ 1,577