Fair Value Measurements

Accounting Standards Codification Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

Level 1-Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2-Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3-Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Recurring Fair Value Measurements

Items measured at fair value on a recurring basis include money market mutual funds, restricted cash, warrants to purchase common stock, and contingent consideration. During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs. The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis:



	Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2017
Assets
Money market	$	2,890,770	$	—	$	—	$	2,890,770
Restricted cash	894,305		—		—		894,305
Total assets	$	3,785,075	$	—	$	—	$	3,785,075
Liabilities
Contingent consideration	$	—	$	—	$	2,897,266	$	2,897,266
Total liabilities	$	—	$	—	$	2,897,266	$	2,897,266
December 31, 2016
Assets
Money market	$	7,586,810	$	—	$	—	$	7,586,810
Restricted cash	393,484		—		—		393,484
Total assets	$	7,980,294	$	—	$	—	$	7,980,294
Liabilities
Contingent consideration	$	—	$	—	$	3,000,000	$	3,000,000
Total liabilities	$	—	$	—	$	3,000,000	$	3,000,000

The following table sets forth a summary of changes in the fair value of the Company’s contingent consideration liability, which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs:



	Contingent Consideration
Balance as of December 31, 2016	$	3,000,000
Changes in estimated fair value	(102,734		)
Balance as of September 30, 2017	$	2,897,266

The change in the estimated fair value is recorded in accrued expenses and changes in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheet as of September 30, 2017 and condensed consolidated statement of cash flows for the nine months ended September 30, 2017, respectively.

The following table sets forth a summary of changes in the fair value of the Company’s Common Stock warrant liability, which represents a recurring measurement that was classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs. On June 30, 2016, Venture Lending & Leasing VI and VII provided notification of the surrender of their outstanding 341,838 liability classified warrants, which were net settled into common shares in the third quarter of 2016. As a result of the warrant exercise, no remeasurement of the warrant liability occurred subsequent to the exercise, and no warrants were outstanding as of September 30, 2016.



	Convertible Common Stock Warrant Liability
Balance as of December 31, 2015	$	1,035,137
Changes in estimated fair value	864,596
Warrant exercise	(1,899,733		)
Balance as of September 30, 2016	$	—

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the nine months ended September 30, 2017 and the year ended December 31, 2016.