Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) 111 Fair Value of Financial Instruments The carrying amounts of the Company’s financial instruments consisting of cash and cash equivalents, accounts payable and accrued liabilities and other current liabilities, approximate fair value due to their relatively short maturities. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation for acquired assets. Depreciation is computed using the straight-line method over the estimated useful lives of assets, which is generally four years for laboratory equipment, three years for computer equipment and office equipment, five years for computer software and five to seven years for furniture and fixtures. Leasehold improvements are stated at cost and amortized over the shorter of the useful life of the assets or the length of the lease. Upon sale or retirement of assets, the costs and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the assets. There have been no such impairments of long-lived assets in the years ended December 31, 2018 and 2017. Redeemable Convertible Preferred Stock The Company recorded the redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The redeemable convertible preferred stock was recorded outside of permanent equity because in the event of certain deemed liquidation events considered not solely within the Company’s control, such as a merger, acquisition and sale of all or substantially all of the Company’s assets, the redeemable convertible preferred stock would become redeemable at the option of the holders. All outstanding shares of the redeemable convertible preferred stock converted into common stock upon effectiveness of the IPO. Redeemable Convertible Preferred Stock Warrants The Company issued redeemable convertible preferred stock warrants as additional consideration for the convertible notes issued in August 2017 (“preferred stock warrants”), which were classified as liabilities. The preferred stock warrants were recorded at fair value upon issuance and remeasured to fair value at each balance sheet date, with any changes in fair value recognized in the consolidated statements of operations and comprehensive loss. All outstanding preferred stock warrants converted into common stock warrants upon effectiveness of the IPO. The common stock warrants were reclassified as equity and the fair value on the date of reclassification was recorded to additional paid-in capital. Derivative Instruments The convertible senior secured promissory notes issued in August 2017 (“2017 convertible notes”) and convertible subordinated unsecured promissory notes issued in February 2018 (“2018 convertible notes”) contained embedded features that provided the lenders with multiple settlement alternatives. Certain of these settlement features provided the lenders a right to a fixed number of the Company’s shares upon conversion of the notes (“conversion option”). Other settlement features provided the lenders the right or the obligation to receive cash or a variable number of shares upon the completion of a capital raising transaction, change of control or default of the Company (“redemption features”). The conversion options of the 2017 convertible notes and 2018 convertible notes did not meet the requirements for separate accounting as an embedded derivative. However, the redemption features of the 2017 convertible notes and 2018 convertible notes met the requirements for separate accounting and are accounted for as a single, compound derivative instrument (“2017 derivative instrument” and “2018 derivative instrument”, respectively). The derivative instruments were recorded at fair value at inception and remeasured to fair value at each balance sheet date, with any changes in fair value recognized in the consolidated statements of operations and comprehensive loss (see Note 13). The fair value of the 2017 derivative instrument was immaterial upon the effectiveness of the IPO. The fair value of the 2018 derivative instrument upon the effectiveness of the IPO was recognized in the consolidated statements of operations and comprehensive loss and the derivative liability was extinguished.