AKAO 2017 Annual Report

119 As of December 31, 2016: December 31, 2016 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Assets Cash ........................................................................... $ 3,728 $ — $ — $ 3,728 Level 1: Restricted cash ..................................................... 377 — — 377 Money market funds ............................................ 115,236 — — 115,236 Subtotal........................................................... 115,613 — — 115,613 Level 2: Corporate debt securities...................................... 12,969 — (7) 12,962 Commercial paper ................................................ 13,950 — — 13,950 Subtotal........................................................... 26,919 — (7) 26,912 Total................................................................ $ 146,260 $ — $ (7) $ 146,253 Reported as: Cash and cash equivalents .................................... $ 118,964 . Short-term investments......................................... $ 26,912 . Restricted cash...................................................... $ 377 . Liabilities, Level 3 Warrant liability .................................................... $ 13,874 Derivative liability................................................. $ 602 Total...................................................................... $ 14,476 . All available-for-sale securities held as of December 31, 2017 had contractual maturities of less than one year from the date of acquisition. There were no sales of available-for-sale securities in any of the periods presented. There were no securities that were in unrealized loss positions as of December 31, 2017. Pursuant to the loan and security agreement with Solar Capital Ltd. (see Note 8), the Company entered into a Success Fee Agreement under which the Company agreed to pay $1.0 million (the “Success Fee”) if the Company obtains approval to market plazomicin from the FDA. If such approval is obtained, the Success Fee shall be due the later of (i) August 5, 2019 or (ii) the date such FDA approval is obtained. The estimated fair value of the Success Fee is recorded as a derivative liability and included in other long-term liabilities on the accompanying consolidated balance sheet. As of December 31, 2017 the derivative liability increased by $84,000 to $686,000 from December 31, 2016, primarily as a result of the time value of money, which is presented as a component of change in warrant and derivative liabilities in the Company’s condensed consolidated statements of operations for the year ended December 31, 2017. The fair value of the derivative liability was determined using a discounted cash flow analysis, and is classified as a Level 3 measurement within the fair value hierarchy since the Company’s valuation utilized significant unobservable inputs. Specifically, the key assumptions included in the calculation of the estimated fair value of the derivative instrument include: i) the Company’s estimates of both the probability and timing of a potential $1.0 million payment to Solar Capital Ltd. upon FDA approval to market plazomicin, and ii) a discount rate of 13% which was derived from the Company's estimated cost of debt. The estimated fair value of the derivative liability is most sensitive to a change in the discount rate. If the discount rate decreased by 5%, the fair value of the derivative liability as of December 31, 2017 would change by approximately $59,000. For the year ended December 31, 2017, there was no change to the key assumptions used in the calculation of the estimated fair value. Any changes in the estimated fair values are presented as changes in warrant and derivative liabilities in the Company's consolidated statements of operations. Pursuant to the Private Placement (see Note 2), the Company issued warrants to purchase 1,999,999 shares of common stock at an exercise price of $3.66 per share. The Company classified these warrants as a liability measured at fair value using Black-Scholes. Under certain entity conditions, the holder of a warrant may require the Company