NOTE 3. FINANCIAL INSTRUMENTS

Cash, Cash Equivalents and Marketable Securities

The Company’s money market funds and marketable securities are categorized as Level 1 and 2, respectively, within the fair value hierarchy. The following table shows the cost, gross unrealized losses and fair value, with a breakdown by significant investment category, of the Company’s cash, cash equivalents and marketable securities as of December 31, 2017:

As of December 31, 2016, the Company had a cash and cash equivalents balance of $12,078, which comprised of $9,922 in cash and $2,156 in money market funds (Level 1).

As of December 31, 2017, the respective maturities of the Company’s marketable securities were as follows:

The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management. As of December 31, 2017, the Company considered the declines in market value of its marketable securities to be temporary in nature. The Company typically invests in highly-rated securities, and its investment policy generally limits the amounts that may be invested with any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the securities portfolio.

Stock Warrants

The Company’s stock warrants are categorized as Level 3 within the fair value hierarchy. Stock warrants have been recorded at their fair value using a probability weighted expected return model. This model incorporates contractual terms, maturity, risk free rates and volatility. The value of the Company’s stock warrants would increase if a higher risk free interest rate were used, and the value of the Company’s stock warrants would decrease if a lower risk free interest rate were used. Similarly, a higher volatility assumption would increase the value of the stock warrants, and a lower volatility assumption would decrease the value of the stock warrants. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third party valuation specialist.

The following table summarizes quantitative information with respect to the significant unobservable inputs used for the Company’s Primary Warrant that is categorized within the Level 3 fair value hierarchy:

The following table represents a reconciliation of the Level 3 measurement of the Company’s Primary Warrant:

The following table summarizes quantitative information with respect to the significant unobservable inputs used for the Company’s Acacia Note Warrants that are categorized within the Level 3 fair value hierarchy as of December 31, 2016:

The total fair value of the Acacia Note Warrants in 2016 under Level 3 measurement was $507. In March 2017, in connection with the amendment of the Acacia Primary Warrant, each of these warrants was amended to provide that the exercise prices thereof shall be equal to the lower of $13.6088 or the IPO price per share. As a result, the following quantitative information was used to determine the fair value of the Company’s Acacia Note Warrants as of March 31, 2017:

The total fair value of the Acacia Note warrants under Level 3 measurement increased by $334 to $841.

In connection with the funding of the Bridge Loan, in March 2017, April 2017 and May 2017, the Company issued to the Bridge Loan Lenders warrants to purchase shares of common stock. Such warrants were automatically adjusted upon completion of the IPO. The following table summarizes quantitative information with respect to the significant unobservable inputs used for the Company’s Bridge Loan Warrants which were issued to the Bridge Loan Lenders in March 2017, April 2017 and May 2017 that are categorized within the Level 3 fair value hierarchy:

The fair value of the Bridge Loan Warrants under Level 3 measurement was $6,534.

In May 2017, upon exercise of the Primary Warrant, the Company issued the 10% Warrant to Acacia.

The following table summarizes quantitative information with respect to the significant unobservable inputs used for the Company’s 10% Warrant that is also categorized as Level 3 within the fair value hierarchy:

The fair value of the 10% Warrant under Level 3 measurement was $5,790.