11. DERIVATIVE INSTRUMENTS

The warrants issued in connection with the Company’s 2018 underwritten public offering had provisions that precluded the Company from classifying them as equity instruments (See Note 10). Accordingly, these warrants had been accounted for as derivative warrant liabilities. The Company used the Black-Scholes model and assumptions that considered, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life, and dividend rates in estimating fair value for these warrants.

At inception, the fair value of the Series B pre-funded warrants was estimated at $11.5 million using a Black-Scholes model with the following assumptions: expected volatility of 202.51%, risk free interest rate of 2.95%, expected life of 20 years and no dividends.

At inception, the fair value of the Series A warrants was estimated at $13.7 million using a Black-Scholes model with the following assumptions: expected volatility of 202.51%, risk free interest rate of 2.75%, expected life of 5 years and no dividends.

The Company allocated $13.2 million of the net proceeds to record the relative fair value of the warrant liability, with the remaining amount of $287 thousand recorded to permanent equity. The Company subsequently recorded the fair value of the warrant liability at $25.2 million with the loss of $12 million being recorded as a derivative loss on the Company’s consolidated statement of operations and comprehensive loss during the second quarter of 2018.

In September 2018, the Company entered into the Ladenburg Warrant Amendment. As a result of the amendment, the Company reassessed the warrant classification and concluded that the warrants qualified for equity classification. The fair value of the amended 2018 Warrants was re-measured immediately prior to the date of the Ladenburg Warrant Amendment with changes in fair value recorded as a loss of $764 thousand in the Company’s consolidated statement of operations and $14.7 million was reclassified to equity.

During the year ended December 31, 2018, the Company issued an aggregate of 6,242,811 shares of Common Stock upon the exercise of Series B warrants for aggregate proceeds of $62 thousand. During the year ended December 31, 2018, the Company issued an aggregate of 34,500 shares of Common Stock upon the exercise of Series A warrants for aggregate proceeds of $69 thousand. At the time, the Company reclassified $10.6 million from derivative warrant liability to additional paid-in capital and recorded a derivative loss of $1.2 million in connection with the warrant exercises. There are no outstanding Series B warrants as of March 31, 2019. During the three months ended March 31, 2019, the Company did not issue any shares as a result of warrant exercise activity.

The 2014 Warrants had anti-dilution protection provisions and, under certain conditions, required the Company to automatically reprice the 2014 Warrants. Accordingly, the 2014 Warrants had been accounted for as derivative warrant liabilities. Through the date of the warrant exchange in 2017, the Company used the Binomial Lattice option pricing model and assumptions that considered, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life, and dividend rates in estimating fair value for the 2014 Warrants considered to be derivative instruments.

In May 2018, the Company entered into the Warrant Amendment, which removed provisions that had previously precluded equity classification treatment of the 2014 Warrants on the Company’s balance sheets. The fair value of the amended 2014 Warrants was re-measured immediately prior to the date of amendment with changes in fair value recorded as a loss of $1 thousand in the Company’s consolidated statement of operations and $1 thousand was reclassified to equity.

As of the balance sheet at March 31, 2019 and December 31, 2018, the Company did not have any liability classified warrants.

The table below presents the changes in the derivative warrant liability during the three month period ended March 31, 2018:


(In thousands)	Three Months Ended March 31, 2018
Balance at December 31, 2017	$	4
Repurchase of warrants		(14)
Increase in the fair value of warrants		12
Balance at March 31, 2018	$	2