AKAO 2017 Annual Report

113 Impairment of Long-Lived Assets The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If indicators of impairment exist, an impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment charge is determined based upon the excess of the carrying value of the asset over its estimated fair value, with estimated fair value determined based upon an estimate of discounted future cash flows or other appropriate measures of estimated fair value. For the years ended December 31, 2017, 2016 and 2015, the Company did not have any impairment charges. Warrant Liability On June 3, 2016, the Company issued warrants to purchase 1,999,999 shares of its common stock in connection with the Private Placement. Each warrant has an exercise price of $3.66 per share and is exercisable for five years from the date of issuance. The Company accounts for these warrants as a liability instrument measured at estimated fair value. The initial fair value of the warrants was determined using a calibration model that involved the Black-Scholes Pricing Model ("Black-Scholes"), which requires inputs such as the risk-free interest rate, expected share price volatility, underlying price per share of the Company's common stock and remaining term of the warrants. The warrants are subject to remeasurement at each balance sheet date, using Black-Scholes, with any changes in the fair value of the outstanding warrants recognized in the condensed consolidated statements of operations. As of December 31, 2017, warrants to purchase 1,178,782 shares of the Company’s common stock remain outstanding and unexercised. Contingently Redeemable Common Stock In May 2017, the Company agreed to sell 407,331 shares of its contingently redeemable common stock to the Gates Foundation in a private placement at a purchase price per share equal to $24.55 (see Note 1). Common stock with embedded redemption features that are settled at the option of the holder, are considered redeemable common stock. Redeemable common stock is considered to be temporary equity and presented in a section between liabilities and equity on the Company’s consolidated balance sheets. Subsequent adjustment of the amount presented in temporary equity is required only if the Company determines that it is probable that the instrument will become redeemable. Upon termination of the redemption features, the redeemable common stock is reclassified into equity. As of December 31, 2017, 407,331 shares of contingently redeemable common stock remain as temporary. Stock-Based Compensation The Company measures and recognizes the compensation expense for all stock-based awards made to employees and directors, including employee stock options, stock grants and employee stock purchases related to the Employee Stock Purchase Plan (“ESPP”) based on estimated fair values. The Company uses the Black-Scholes option-pricing valuation model to estimate the grant-date fair value of stock option and ESPP awards with time- based vesting terms. The determination of fair value for stock-based awards on the date of grant using an option- pricing model requires management to make certain assumptions regarding a number of complex and subjective variables. The fair value of restricted stock unit (“RSU”) awards with time-based vesting terms is based on the grant date share price. The Company recognizes stock-based compensation cost over the award’s requisite service period on a straight-line basis for time-based awards and on a graded basis for awards that are contingent on the achievement of market-based conditions. The Company records stock-based compensation expense, net of the estimated impact of forfeited awards. As such, the Company recognizes stock-based compensation expense only for those stock-based awards that are expected to vest over their requisite service period, based on the vesting provisions of the individual underlying grants. During 2017 and 2016, the Company issued stock-based option awards with market-based conditions that vest upon achievement of certain market price thresholds of the Company’s common stock. The estimated fair value for market-based stock option awards is determined using a lattice valuation model with a Monte-Carlo simulation. The model takes into consideration the historical volatility of the Company’s stock and the risk-free interest rate at the date of grant. In addition, the model is used to estimate the derived service period for the awards. The derived service period is the estimated period of time that would be required to satisfy the market condition, assuming the market condition will be satisfied. Stock-based compensation expense is recognized over the implicit service period