Fair Value Measurement

12 Months Ended

Dec. 31, 2017

Our cash and any investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy as they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued are based on quoted market prices in active markets and are primarily U.S. government and agency securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

As of December 31, 2017, the carrying value of our long-term debt approximated its fair value due to the variable interest rate. We did not have any transfers in or out of Level 1 and Level 2 in the years ended December 31, 2017 or 2016. We did not hold any significant instruments that are measured at fair value on a recurring basis as of December 31, 2017 or 2016.

The fair value of our instruments measured on a non-recurring basis as of December 31, 2017 is as follows (in thousands):



	Fair Value Measurements Using:
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Warrant	$	2,840	$	—	$	—	$	2,840	$	—

The following is quantitative information about our significant unobservable inputs used in our Level 3 fair value measurements (dollars in thousands):



	Fair Value at December 31, 2017		Valuation Technique	Unobservable Inputs	Quantitative Inputs Used for Original Warrant		Quantitative Inputs Used for Replacement Warrant (1)
Warrant	$	2,840	Monte Carlo	Volatility of underlying	50.0	%	55.0	%
				Risk-free rate	1.78	%	2.02	%
				Dividend yield	—	%	—	%
				Probability of Designated Event (2)	0% - 50%		0% - 50%
				Timing of Designated Event (2)	3-5 years from issuance		3-5 years from issuance

(1)

In connection with the Replacement Warrant, we received an additional payment of $700 thousand from PEAK6 Investments. In accordance with U.S. GAAP, we performed valuations immediately before and after the equity modification and concluded that the additional payment approximately represented the incremental fair value provided by the Replacement Warrant. For additional information, please see Note 15.


(2)	Refers to certain change of control transactions, defined as a "Designated Event" as in the Warrant Agreement.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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