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 ASC 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 an equity instrument. 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 or 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” or “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
Liability-classified warrants	June 30, 2015	December 31, 2014	Exercise Price		Expiration Dates
Issued in Series A, B and D Preferred Stock offerings	2,247,118	2,247,118	$	6.25	Oct 2015 - Dec 2016
Issued in March 2010 financing	393,416	393,416	$	6.25	Mar 2016
Issued in June 2011 financing	6,113	6,113	$	22.50	Jun 2016
Issued in August 2011 financing	565,759	565,759	$	18.75	Aug 2016
Issued to placement agents in August 2011 financing	50,123	50,123	$	13.635	Aug 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 2018
Issued in Series E Preferred Stock offering	1,568,823	1,568,823	$	7.50	Dec 2018
Total	6,033,050	6,033,050

There were no warrants exercised or canceled during the six months ended June 30, 2015.

Liability-classified Warrants

The foregoing warrants were recorded as derivative 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 consolidated statement of operations in each subsequent period. The change in the estimated fair value of the warrant liability for the three and six months ended June 30, 2015 resulted in non-cash income of approximately $0.6 million and expense of $1.1 million, respectively. The change in the estimated fair value of the warrant liability for the three and six months ended June 30, 2014 resulted in non-cash income of approximately $4.0 million and $1.0 million, respectively. The Company utilizes a Monte Carlo simulation valuation method to value its liability-classified warrants.

The estimated fair value of these warrants is determined using Level 3 inputs. Inherent in the Monte Carlo valuation method 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 of a peer group 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 will remain at zero.

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



($ in thousands)	June 30, 2015			December 31, 2014
Calculated aggregate value	$	12,347		$	11,286
Weighted average exercise price per share	$	7.08		$	7.08
Closing price per share of common stock	$	5.27		$	2.59
Volatility	84.2		%	67.6		%
Weighted average remaining expected life	2 years, 1 month			2 years, 7 months
Risk-free interest rate	0.67		%	0.86		%
Dividend yield	—			—