(13)Warrants

The Company’s grants of warrants to purchase common stock are primarily in connection with equity financings. See Note 12 for additional information about equity financings and the related issuance of warrants. Warrant activity was as follows:





	Shares
Balance December 31, 2017	57
Issued	136,916	(1)
Exercised	(9,432)	(2), (3)
Cancelled	(1)
Balance December 31, 2018	127,540
Issued	16,934,170	(1)
Exercised	(3,451,642)	(2)
Cancelled	(139)
Balance December 31, 2019	13,609,929

(1)

Warrants issued in 2019 and 2018 include 6,467,501 and 61,084, respectively, of pre-funded warrants sold in connection with private placements completed on June 18, 2019 and September 23, 2019 (“June 2019 Pre-funded Warrants” and “September 2019 Pre-funded Warrants”) and November 28, 2018 (“November 2018 Pre-funded Warrants”), respectively. The pre-funded warrants do not expire. In addition, in June 2019 institutional investors purchased 3,333,333 Series A warrants, 3,333,334 Series B warrants, and in September 2019 the institutional investors purchased 3,333,334 Series E warrants. As part of both the June 2019 and September 2019 purchases there were 466,668 of placement agent warrants issued. For further details of the June and September 2019 transactions, see Note 12 equity above. In addition to the November 2018 Pre-funded warrants, the investors acquired 66,667 2018 Series A warrants and there were 4,667 placement agent warrants. Throughout 2018, the Company sold 4,498 warrants to institutional investors.

(2)

Warrants exercised in 2019 and 2018 include 51,667 and 9,417, respectively, of the November 2018 Pre-funded Warrants at their exercise price of $1.20 per share. Warrants exercised in 2019 also include 66,666 of the Series A warrants issued in November 2018 (“November 2018 Series A Warrants”) at their exercise price of $1.20 per share, as adjusted. Warrants exercised in 2019 also include 3,333,334 of Series B warrants issued in June 2019. During August 2018, institutional investors exercised 8 warrants that were issued during August of 2017.

(3)

On May 24, 2018, an institutional investor agreed to exercise an aggregate of 7 warrants to purchase common stock in exchange for a reduction in the warrant exercise price to $97,650.00 per share. The warrant exercise was accounted for as a warrant inducement and the related fair value adjustment to the exercised warrants of $0.1 million was recorded as Warrant expense in the Consolidated Statements of Operations for the year ended December 31, 2018. The value attributable to the exercise price reductions was estimated using the Black Scholes option pricing model using risk-free interest rates ranging from 2.28% to 2.65%; expected lives ranging from less than one year to 3.7 years; expected dividends of zero and expected volatility ranging from 120.44% to 142.78%.

Warrant Liability

The Company had liability warrants related to the June 2019 and September 2019 transactions, due to the variable price feature that was in effect until the reverse stock split occurred on November 12, 2019. The Company analyzed the variable price features and established a warrant liability of $16.0 million and $24.6 million related to the June 2019 transaction and September 2019 transaction, respectively. As the initial fair value of both offering exceeded the cash received the company recorded $8.3 million and $17.2 million as warrant expense for the June 2019 transaction and September 2019 transaction, respectively. The initial fair value and changes to fair value through September 30, 2019 were determined using a Monte Carlo simulation model. The Company re-evaluated the warrants subsequent to reverse stock split and determined that the price becoming fixed, the warrants should be reclassified from liability to equity. In addition, as the price was fixed the Company determined the Monte Carlo simulation model was no longer the appropriate model; therefore the Company used a Black Scholes calculation to determine the fair value of these warrants at November 12, 2019. This resulted in the Company reclassifying $64.0 million of warrant liability to equity. The Company also recognized an additional $23.4 million of warrant expense for the changes in fair value of the liability warrants through November 12, 2019.

Warrant Assumptions

The following table provides the assumptions used to calculate initial fair value using a Monte Carlo simulation model:


		Strike Price	Volatility		Remaining Life
Series A	$	2.64	164.1	%	5.22
Series B	$	2.40	164.1	%	1.22
Series E	$	6.00	93.2	%	5.11
Series F	$	0.12	93.2	%	5.11

The following table provides the assumptions used at November 12, 2019, using a Black-Scholes model:


	Warrants Outstanding		Strike Price	Volatility		Remaining Life	Risk Free Rate
Series A	3,333,333	$	2.64	93.5	%	5.1	1.73	%
Placement Agent - June	233,334	$	3.00	93.5	%	4.7	1.73	%
Series E	3,333,334	$	6.00	93.5	%	5.1	1.73	%
Series F	3,264,167	$	0.12	93.5	%	5.1	1.73	%
Placement Agent - September	233,334	$	6.00	93.5	%	4.9	1.73	%