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Fair Value | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value |
4. | Fair Value Measurements
Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:
| • | Level 1: Quoted prices in active markets for identical assets or liabilities.
| • | Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
| • | Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.
Warrants issued by the Company in connection with a rights offering originally filed under a Form S-1 registration statement in April 2018 (“Series T Warrants”) and in an underwritten public offering in September 2019 (“Series U Warrants”) are classified as liability instruments initially upon issuance. Because some of the inputs to the Company’s valuation model are either not observable or are not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability is classified as Level 3 in the fair value hierarchy. The estimated fair value of the Series T Warrants as of September 30, 2020 and December 31, 2019 was determined by using an option pricing model with the following assumptions. The Series T Warrants will be marked to market as of each balance sheet date until they are exercised or upon expiration, with the changes in fair value recorded as non-operating income or loss in the statements of operations and comprehensive loss.
|  | As of September 30, 2020 |  |  | As of December 31, 2019 |
Expected term |  | 0.55 years |  |  | 1.1 years |
Common stock market price |  | $ | 2.56 |  |  | $ | 2.40 |
Risk-free interest rate |  |  | 0.11 | % |  |  | 1.59 | %
Expected volatility |  |  | 128 | % |  |  | 168 | %
Resulting fair value (per warrant) |  | $ | 1.04 |  |  | $ | 1.47 |
The Company estimated the fair value of the Series U Warrants with the Black Scholes model with the following assumptions. The Series U Warrants that have not been amended (Note 11) will be marked to market as of each balance sheet date until they are exercised or upon expiration, with the changes in fair value recorded as non-operating income or loss in the statements of operations and comprehensive loss.
|  | As of September 30, 2020 |  |  | As of December 31, 2019 |
Expected term |  | 4 years |  |  | 4.75 years |
Common stock market price |  | $ | 2.56 |  |  | $ | 2.40 |
Risk-free interest rate |  |  | 0.22 | % |  |  | 1.68 | %
Expected volatility |  |  | 146 | % |  |  | 135 | %
Resulting fair value (per warrant) |  | $ | 2.21 |  |  | $ | 1.94 |
The following table summarizes the change in Level 3 warrant liability value (in thousands):
| Three Months Ended |  |  | Nine Months Ended |
Warrant liability | September 30, 2020 |  | September 30, 2019 |  |  | September 30, 2020 |  | September 30, 2019 |
Beginning balance | $ | 242 |  | $ | 424 |  |  | $ | 6,929 |  | $ | 916 |
Issuance |  | — |  |  | 10,215 |  |  |  | — |  |  | 10,215 |
Exercise/settlement |  | — |  |  | (794 | ) |  |  | — |  |  | (794 | )
Change in fair value |  | 81 |  |  | 561 |  |  |  | (2,342 | ) |  | 69 |
Reclassification to equity |  | (240 | ) |  | — |  |  |  | (4,504 | ) |  | — |
Ending balance | $ | 83 |  | $ | 10,406 |  |  | $ | 83 |  | $ | 10,406 |

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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