4. Fair Value Measurements

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014:

 

		Fair Value Measurement as of June 30, 2015
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	23,372,289			$	—			$	—
Marketable securities			11,621,731				—				—
Warrant liability			—				—				521,400
Total		$	34,994,020			$	—			$	521,400

 

		Fair Value Measurement as of December 31, 2014
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	25,628,918			$	—			$	—
Marketable securities			1,670,606				—				—
Warrant liability			—				—				313,004
Total		$	27,299,524			$	—			$	313,004

 

The Company issued a warrant to the underwriter of its IPO, classified it as a liability and considers it as a Level 3 financial instrument (see also Note 8, “Capital Structure”). The warrant will be re-measured at each subsequent reporting period and changes in fair value will be recognized in the statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

 

		As of June 30, 2015				As of December 31, 2014
Expected volatility			74.0	%			74.8	%
Remaining contractual term (in years)			4.17				4.67
Risk-free interest rate			1.32	%			1.65	%
Expected dividend yield			—	%			—	%

The following tables present a reconciliation of the Company’s financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2015 and 2014:

Warrant liabilities (1)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Balance at beginning of period		$	525,059			$	4,263,124			$	313,004			$	3,088,017
Issuances of convertible notes			—				611,376				—				865,635
Increase (decrease) in fair value (2)			(3,659	)			774,748				208,396				1,695,596
Balance at end of period		$	521,400			$	5,649,248			$	521,400			$	5,649,248
Embedded derivatives liabilities (1)
		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Balance at beginning of period		$	—			$	1,944,103			$	—			$	2,680,780
Issuances of convertible notes			—				278,805				—				537,607
Decrease in fair value (2)			—				(76,166	)			—				(1,071,645	)
Balance at end of period		$	—			$	2,146,742			$	—			$	2,146,742

 

(1)

Prior to the closing of the Company’s IPO on August 1, 2014, the Company considered its convertible note related warrant liabilities and embedded derivatives liabilities as Level 3 financial instruments. The Company determined the fair value of these liabilities immediately prior to the Company’s IPO and then reclassified the balances to additional paid-in capital on the closing of the IPO.

(2)	The change in the fair values of the warrant and embedded derivatives liabilities are recorded in other expenses in the statement of operations.