Warrants

The Company accounts for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. Stock warrants are accounted for as a derivative in accordance with Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”) if the stock warrants contain “down-round protection” or other terms that could potentially require “net cash settlement” and therefore, do not meet the scope exception for treatment as a derivative. Since “down-round protection” is not an input into the calculation of the fair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined under ASC 815. Warrant instruments that could potentially require “net cash settlement” in the absence of express language precluding such settlement and those which include “down-round provisions” are initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. The Company will continue to classify the fair value of the warrants that contain “down-round protection” and “net cash settlement” as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability.

The following table summarizes outstanding liability classified warrants to purchase common stock as of:



	Number of Warrants
	December 31, 2014	December 31, 2013	Exercise Price		Expiration Dates
Issued in Series A, B and D Preferred Stock offering	2,247,118	2,247,118	$	6.25	Oct 2015 - Dec 2016
Issued in March 2010 financing	393,416	393,416	$	6.25	Mar 1, 2016
Issued in June 2011 financing	6,113	6,113	$	22.50	Jun 1, 2016
Issued in August 2011 financing	565,759	565,759	$	18.75	Aug 1, 2016
Issued to placement agents in August 2011 financing	50,123	50,123	$	13.635	Aug 1, 2016
Issued in Series B, D and E Preferred Stock offerings	76,120	76,120	$	2.50	Nov 2015 - Dec 2017
Issued with Convertible Notes	1,125,578	1,125,578	$	2.50	Jun 1, 2018
Issued in Series E Preferred Stock offering	1,568,823	1,568,823	$	7.50	Dec 1, 2018
Total	6,033,050	6,033,050

There were no exercises of warrants during the year ended December 31, 2014. There were 85,000 warrants exercised on a cashless basis resulting in the issuance of 46,837 shares of common stock for the year ended December 31, 2013.

Liability-classified Warrants

The foregoing warrants are recorded as liabilities at their estimated fair value at the date of issuance, with the subsequent changes in estimated fair value recorded in other income (expense) in the Company’s statement of operations in each subsequent period. The change in the estimated fair value of our warrant liability for the years ended December 31, 2014, 2013 and 2012 resulted in non-cash income of $3.9 million, non-cash expense of $1.1 million, and non-cash income of $20.4 million, respectively. The Company utilizes the Monte Carlo simulation valuation method to value the liability classified warrants.

The estimated fair value of these warrants is determined using Level 3 inputs. Inherent in the Monte Carlo valuation model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The following table summarizes the calculated aggregate fair values, along with the assumptions utilized in each calculation:



($ in thousands, except per share data)	December 31, 2014			December 31, 2013			December 31, 2012
Calculated aggregate value	11,281			15,216			14,515
Weighted average exercise price per share of warrant	7.08			7.08			7.04
Closing price per share of common stock	$	2.59		$	4.06		$	3.75
Volatility	68		%	70		%	65		%
Weighted average remaining expected life (years)	2 years, 7 months			3 years, 6 months			4 years, 6 months
Risk-free interest rate	0.86		%	1.20		%	0.60		%
Dividend yield	—		%	—		%	—		%