Warrants

The Company accounts for common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. As of March 31, 2016 and December 31, 2015, all of the Company’s outstanding common stock warrants were classified as derivative liabilities and accounted for based on the guidance in ASC 815, Derivatives and Hedging as the warrants contain “down-round protection” or other terms that could potentially require “net cash settlement” and hence were determined not to be indexed to the Company’s own stock. The warrants will continue to be classified as a liability, regardless of the likelihood that such instruments will ever be settled in cash, until they 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:



	Number of Warrants
Liability-classified warrants	March 31, 2016	December 31, 2015	Exercise Price		Expiration Dates
Issued in Series B and D Preferred Stock offerings	1,970,594	1,970,594	$	6.25	Jul 2016 - Dec 2016
Issued in March 2010 financing	—	319,789	$	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 E Preferred Stock offering	60,000	60,000	$	2.50	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	5,346,990	5,666,779

The table below is a summary of the Company’s warrant activity during the three months ended March 31, 2016:



	Number of warrants		Weighted- average exercise price
Outstanding at December 31, 2015	5,666,779		$	7.14
Granted	—		—
Exercised	—		—
Expired	(319,789	)	6.25
Outstanding at March 31, 2016	5,346,990		$	7.20

Accounting for 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 or expense in the Company’s Condensed Consolidated Statements of Operations in each subsequent period. The change in the estimated fair value of the warrant liability for the three months ended March 31, 2016 and 2015 resulted in non-cash income of approximately $5.3 million and non-cash expense of approximately $1.7 million, respectively. The Company utilizes a Monte Carlo simulation valuation method to value its liability-classified warrants.

Assumptions Used In Determining Fair Value of Warrants

The estimated fair value of warrants is determined using Level 2 and Level 3 inputs. Inherent in the Monte Carlo simulation valuation method are the following assumptions:

Volatility. The Company estimates volatility based on the Company’s historical volatility over a period that matches the expected remaining life of the warrants.

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the valuation date commensurate with the expected remaining life assumption.

Expected remaining life. The expected life of the warrants is assumed to be equivalent to their remaining contractual term.

Dividend rate. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.

Scenarios. The probability of complex features of the warrants being triggered is subjective (no observable inputs or available market data) and based on internal and external information known to management at the valuation date.

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



($ in thousands except per share data)	March 31, 2016			December 31, 2015
Calculated aggregate value	$	3,018		$	8,275
Weighted average exercise price per share	$	7.20		$	7.14
Closing price per share of common stock	$	2.50		$	4.55
Volatility	93.3		%	85.2		%
Weighted average remaining expected life	1 year, 6 months			1 year, 8 months
Risk-free interest rate	0.66		%	0.98		%
Dividend yield	—			—