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Fair Value of Financial Assets and Liabilities
 12 Months Ended
Dec. 31, 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, 2018 Using:  
    Level 1     Level 2     Level 3     Total  
Liabilities:                                
Warrant liability   $ —     $ —     $ —     $ —  

 

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

 

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

 

Valuation of Warrant Liability

 

The warrant liability in the table above was 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 6). The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represented 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 included 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 were deemed relevant. The Company historically had been a private company and lacked company-specific historical and implied volatility information of its common stock. Therefore, the Company estimated 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 was 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.

 

In November 2018, in connection with the Company’s IPO, the number of shares issuable upon the exercise of the warrant became fixed (see Note 8). The Company remeasured the estimated fair value on the date of the IPO and reclassified this amount to additional paid-in-capital.

 

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:

 

    Year ended
December 31,
2018		     Period from
April 27, 2017 (inception) to
December 31,
2017		  
Balance as of the beginning of the period   $ 520       —  
Initial fair value of warrant liability     —       479  
Change in fair value     2,583       41  
Warrant liability reclassified to additional paid-in-capital     (3,103 )     —  
Balance as of the end of the period   $ —       520