Note 10. Preferred Stock Warrants

The Company previously issued Series D and Series E preferred stock warrants. On November 1, 2016, the Series D warrants were exercised for 36,971 shares of common stock. During the year ended January 31, 2016, the Series E warrant was exercised for 160,523 shares of Series E convertible preferred stock. The related preferred stock warrant liability was remeasured to fair value through the exercise date, and the remaining liability was reclassified to equity. As of January 31, 2017, no preferred stock warrants were outstanding.

To determine the fair value of the convertible preferred stock warrants, the Company first derived the business enterprise value (“BEV”) of the Company using valuation methods, including a combination of methods, as deemed appropriate under the circumstances applicable at each valuation date. Once the Company determined an estimated BEV, the option pricing method (“OPM”) or a hybrid of the probability weighted expected return method (“PWERM”) and OPM was used to allocate the BEV to the various classes of the Company’s equity, including the Company’s preferred stock. Once the per share value of preferred stock was determined, the concluded per share value was the fair value of the shares input within the Black-Scholes option pricing model that was utilized to determine the fair value of the convertible preferred stock warrants. In addition to the fair value of the shares input, the Black-Scholes option pricing model includes assumptions related to the exercise price, expected volatility, expected term, risk-free interest rate, and the expected dividend yield. The estimated expected volatility was derived from historical volatilities of several unrelated publicly listed peer companies over a period approximately equal to the remaining term of the warrants. When making the selections of the Company’s industry peer companies to be used in the volatility calculation, the Company considered the size and operational and economic similarities to the Company’s principle business operations. The estimated expected term represents either the lesser of (i) the remaining contractual term of the warrants or (ii) the remaining term under probable scenarios used to determine the fair value of the underlying stock. The risk-free interest rate was based on the U.S. Treasury yield for a term consistent with the estimated expected term. The significant unobservable inputs used in the fair value measurement of the convertible preferred stock warrant liability are the fair value of the underlying stock at the valuation date, the expected volatility, and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock, expected volatility and expected term would result in a directionally similar impact to the fair value measurement.

The warrants were valued using the Black-Scholes option pricing model which included the following assumptions:

	October 31,		January 31,
	2016		2016
	(unaudited)
Term in years	0 to 5.45		1.50 to 5.69
Risk-free interest rate	0.05 to 1.35%		0.61 to 1.45%
Volatility		48%		48%
Dividend yield		0%		0%