13.

Warrants

In connection with a 2013 debt financing (see Note 6), the Company issued a warrant to purchase 128,231 shares of Series C convertible preferred stock. The convertible preferred stock warrant was recorded as a liability and is adjusted to fair value at each balance sheet date, with the change in fair value being recorded as a component of other (expense) income, net in the consolidated statements of operations. For the years ended December 31, 2015 and 2014, the Company recognized a gain of $45 thousand and $20 thousand related to the change in fair value of the warrants in the accompanying consolidated statements of operations.

Upon the closing of the Merger on July 23, 2015, all shares of Series C convertible preferred stock were converted into common stock, and the warrant to purchase Series C convertible preferred stock was converted into the warrant to purchase 128,231 shares of the Company’s common stock. As a result, the fair value of the preferred stock warrant liability of $93 thousand was reclassified into additional paid-in capital. At December 31, 2016 and 2015, the warrant had not been exercised and was still outstanding.

The Company used the Black-Scholes option-pricing model to estimate the fair value of the convertible preferred stock warrant with the following assumptions:

	Upon the Closing of the Merger on July 23, 2015
Common Stock Warrants:
Expected term (in years)		5.0
Expected volatility (%)		31.8%
Risk-free interest rate (%)		1.7%
Expected dividend yield (%)		0%

In connection with the Merger and the Private Placement, in July and August 2015, the Company issued 198,760 shares of warrants to purchase common stock at an exercise price of $5.00 per share to private placement agents as payment for services provided. These placement warrants are exercisable at any time at the option of the holder until the five-year anniversary of their date of issuance.

The Company estimated the aggregate fair value of the placement warrants on issuance date to be $316 thousand which was recorded in additional paid-in capital as an offering cost against the total proceeds from the Private Placement. The placement warrants were accounted for as equity awards.

The fair value of the placement warrants was valued at their grant dates using the Black-Scholes pricing model and the following weighted average assumptions:

	Upon Issuance
Common Stock Warrants:
Expected term (in years)		5.0
Expected volatility (%)		31.8%
Risk-free interest rate (%)		1.6%
Expected dividend yield (%)		0%

In September 2016, the Company completed the final closing of a private placement offering, or the 2016 Private Placement, through which it sold an aggregate of 4,602,506 shares of its common stock at a purchase price of $2.95 per share and warrants that provide the option holder the right to purchase 1,380,745 shares of common stock, or the 2016 Placement Warrants, at a price of $0.125 per share, and raised a total of $13.2 million, net of offering costs.

These 2016 Placement Warrants are exercisable at any time at the option of the holder until the seven-year anniversary of their date of issuance. The 2016 Placement Warrants also contain protection whereby the warrants will expire immediately prior to the consummation of a Change of Control and holders have the right to receive cash in the amount equal to the Black-Scholes value of warrants. A Change of Control is defined as (i) a merger or consolidation of the Company with another corporation, (ii) the sale, transfer or other disposal of substantially all of the assets or a majority of the Company’s outstanding shares of capital stock, (iii) a purchase or exchange offer accepted by the holders of a majority of the outstanding voting shares of the Company’s capital stock, or (iv) a “person” or “group,” as defined by Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, is or will become the beneficial owner, directly or indirectly, of at least a majority of the voting power of the Company’s capital stock. The 2016 Placement Warrants were accounted for as a liability at the date of issuance and are adjusted to fair value at each balance sheet date, with the change in fair value recorded as a component of other (expense) income, net in the consolidated statements of operations.

As separate classes of securities were issued in a bundled transaction, the gross proceeds from the 2016 Private Placement of $13.8 million was allocated first to the 2016 Placement Warrants based on their fair value upon issuance, and the residual was allocated to the common stock. The fair value upon issuance of $2.7 million for the 2016 Placement Warrants was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected term of seven years, expected volatility of 61.6%, risk-free interest rate of 1.4% and expected dividend yield of 0%.

During the year ended December 31, 2016 the Company recorded a gain of $3 thousand related to the change in fair value of the 2016 Placement Warrants. The fair value of the 2016 Placement Warrants of $2.7 million was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:

	December 31, 2016
2016 Placement Warrants:
Expected term (in years)		6.7
Expected volatility (%)		63.6%
Risk-free interest rate (%)		2.3%
Expected dividend yield (%)		0%