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 March 31, 2017 and December 31, 2016:

 

		Fair Value Measurement as of March 31, 2017
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	4,006,150			$	—			$	—
Marketable securities			24,172,736				—				—
Warrant liabilities			—				—				12,778,781
Total		$	28,178,886			$	—			$	12,778,781
		Fair Value Measurement as of December 31, 2016
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	3,411,058			$	—			$	—
Marketable securities			31,354,170				—				—
Warrant liabilities			—				—				12,698,980
Total		$	34,765,228			$	—			$	12,698,980

 

The Company issued a warrant to the representative of the underwriter of its initial public offering (the “Representative’s Warrant”). The Company determined that this warrant should be classified as a liability and considers it as a Level 3 financial instrument (see also Note 8, “Capital Structure”). The Representative’s Warrant will be re-measured at each subsequent reporting period and changes in fair value will be recognized in the consolidated 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				As of
		March 31, 2017				December 31, 2016
Expected volatility			79.2	%			73.9	%
Remaining contractual term (in years)			2.42				2.67
Risk-free interest rate			1.37	%			1.47	%
Expected dividend yield			—	%			—	%

The Company issued warrants to the purchasers of its Follow-on Offering (the “CMPO Warrants”), The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 8, “Capital Structure”). The CMPO Warrants will be re-measured at each subsequent reporting period and changes in fair value will be recognized in the consolidated 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				As of
		March 31, 2017				December 31, 2016
Expected volatility			80.0	%			79.9	%
Remaining contractual term (in years)			4.33				4.58
Risk-free interest rate			1.79	%			1.93	%
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 months ended March 31, 2017 and 2016:

Warrant liabilities

 

		Three Months Ended March 31,
		2017				2016
Balance at beginning of period		$	12,698,980			$	444,324
Increase (decrease) in fair value (1)			79,801				(188,270	)
Balance at end of period		$	12,778,781			$	256,054

 

(1)	The change in fair values of the warrant liabilities is recorded in other expenses in the consolidated statement of operations.

The key inputs into the Black-Scholes option pricing model are the current per-share value and the expected volatility of the Company’s common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company’s warrant liabilities.