13.

Warrants

Preferred Stock 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. These warrants have an exercise price of $5.84 per share, and are exercisable any time at the option of the holder until December 16, 2023. 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, net in the consolidated statements of operations and comprehensive loss. For the year ended December 31, 2015, the Company recognized a gain of $45 thousand related to the change in fair value of the warrant in the accompanying consolidated statements of operations and comprehensive loss.

Upon the consummation of the Merger in July 2015, 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.

The Company used the Black-Scholes option-pricing model to estimate the fair value of the convertible preferred stock warrant upon conversion 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%

Equity Classified Common Stock Warrants

In connection with the Merger and the Private Placement, in July and August 2015, the Company issued warrants, or 2015 Placement Warrants, that provide the warrant holder the right to purchase 198,760 shares of common stock at an exercise price of $5.00 per share. These warrants were issued to private placement agents as payment for services provided. The 2015 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 2015 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 fair value of the placement warrants was measured 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%

At December 31, 2017 and 2016, all of these equity classified warrants had not been exercised and remain outstanding.

Liability Classified Common Stock Warrants

In connection with the 2016 Private Placement, in August and September 2016, the Company issued warrants, the 2016 Placement Warrants, that provide the warrant holder the right to purchase 1,380,745 shares of common stock at an exercise price of $2.95 per share.

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, as defined in the agreement, and holders have the right to receive cash in the amount equal to the Black-Scholes value of warrants. 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, net in the consolidated statements of operations and comprehensive loss.

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, 2017 and 2016, the Company recorded loss of $7.4 million and a gain of $3 thousand, respectively, related to the change in fair value of the 2016 Placement Warrants. The fair value of the 2016 Placement Warrants of $9.9 million and $2.7 million at December 31, 2017 and 2016, respectively, was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:

	December 31,
	2017		2016
2016 Placement Warrants:
Expected term (in years)		5.7		6.7
Expected volatility (%)	62.1%		63.6%
Risk-free interest rate (%)	2.2%		2.3%
Expected dividend yield (%)	0%		0%

In connection with the January 2017 Private Placement, the Company issued warrants, the 2017 Placement Warrants, that provide the warrant holder the right to purchase 1,720,512 shares of common stock at an exercise price of $3.17 per share. These 2017 Placement Warrants became exercisable in July 2017 and expire in January 2024. The 2017 Placement Warrants also contain protection whereby warrants will expire immediately prior to the consummation of a change of control, as defined in the agreement, and holders have the right to receive cash in the amount equal to the Black-Scholes value of the warrants. The 2017 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, net in the consolidated statements of operations and comprehensive loss.

As separate classes of securities were issued in a bundled transaction, the gross proceeds from the January 2017 Private Placement of $26.1 million was allocated first to the 2017 Placement Warrants based on its fair value upon issuance, and the residual was allocated to the common stock. The fair value upon issuance of $3.4 million for the 2017 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 62.9%, risk-free interest rate of 2.2% and expected dividend yield of 0%.

During the year ended December 31, 2017, the Company recorded a loss of $9.2 million related to the change in fair value of the 2017 Placement Warrants. The fair value of the 2017 Placement Warrants of $12.5 million at December 31, 2017 was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:

	December 31, 2017
2017 Placement Warrants:
Expected term (in years)		6.1
Expected volatility (%)	62.3%
Risk-free interest rate (%)	2.3%
Expected dividend yield (%)	0%

In December 2017, 25,104 shares of 2016 Placement Warrant and 9,389 shares of 2017 Placement Warrant were exercised and the related warrant liability of $274 thousand was reclassified into additional paid-in capital upon exercise. At December 31, 2017, 1,355,641 shares of the 2016 Placement Warrant and 1,711,123 shares of the 2017 Placement Warrant were outstanding.