Warrants

The Company accounts for common stock warrants as either equity instruments, derivative liabilities or liabilities depending on the specific terms of the warrant agreement. See Note 3 for further details on accounting policies related to the Company’s convertible instruments, including common stock warrants.

In connection with various financing transactions, the Company has issued warrants to purchase the Company’s common stock. In March 2017, the Company issued warrants to purchase 3,437,334 shares of its common stock in connection with the Company’s public offering of convertible preferred stock and warrants (each a Series A Warrant and collectively, the Series A Warrants), more fully described in Note 10. Each Series A Warrant has an exercise price of $2.54, will be exercisable six months after the date of issuance and will expire five years from the date of issuance.

The Company’s outstanding warrants consist of both liability-classified warrants and equity-classified warrants. The following table summarizes outstanding warrants to purchase common stock:



	Number of warrants
	June 30, 2017	December 31, 2016	Exercise Price		Expiration Dates
Liability-classified Warrants
Issued in Series E Preferred Stock offering	46,430	71,430	$	2.10	Dec 2017
Issued with June 2012 Convertible Notes	375,194	375,194	$	7.50	Jun 2018
Issued in Series E Preferred Stock offering	523,045	523,045	$	22.50	Dec 2018
Issued with September 2016 Convertible Notes	6,029,174	6,029,174	$	4.50	Sep 2021
	6,973,843	6,998,843
Equity-classified Warrants
Issued in 2017 Series A Preferred Stock Offering	3,437,334	—	$	2.54	Mar 2022
	3,437,334	—

Total outstanding warrants	10,411,177	6,998,843

The table below is a summary of the Company’s warrant activity during the six months ended June 30, 2017:



	Number of warrants					Weighted- average exercise price
	Liability-classified		Equity-classified	Total		Weighted- average exercise price
Outstanding at December 31, 2016	6,998,843		—	6,998,843		$	5.98
Granted	—		3,437,334	3,437,334		2.54
Exercised	(25,000	)	—	(25,000	)	2.10
Expired	—		—	—		—
Outstanding at June 30, 2017	6,973,843		3,437,334	10,411,177		$	4.85

Accounting for Liability-Classified Warrants

The Company’s liability-classified warrants were recorded as liabilities at their estimated fair value at the date of issuance, with the subsequent changes in estimated fair value recorded in warrant revaluation income (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 and six months ended June 30, 2017 resulted in non-cash expense of approximately $9.7 million for both periods as presented. The change in the estimated fair value of the warrant liability for the three and six months ended June 30, 2016 resulted in non-cash income of approximately $2.3 million and $7.5 million, respectively.

Additionally, the liability-classified warrants are classified as either current or non-current on the Company’s Condensed Consolidated Balance Sheets based on their contractual expiration date. The Company utilizes a Monte Carlo simulation valuation method to value its liability-classified warrants.

Assumptions Used In Determining Fair Value of Liability-Classified Warrants

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

Volatility. The Company estimates stock price volatility based on the Company’s historical stock price performance over a period of time that matches the volume-weighted average expected remaining life of the warrants.

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury zero-coupon 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)	June 30, 2017			December 31, 2016
Calculated aggregate value	$	15,716		$	6,034
Weighted average exercise price per share	$	6.00		$	5.98
Closing price per share of common stock	$	4.01		$	1.89
Volatility	85.5		%	85.6		%
Weighted average remaining expected life	3 years, 9 months			4 years, 3 months
Risk-free interest rate	1.68		%	1.75		%
Dividend yield	—			—

Accounting for Equity-Classified Warrants

The Company’s equity-classified warrants were issued in connection with the Company’s 2017 Series A Preferred Stock Offering (as defined below) as more fully described in Note 10. The proceeds from the 2017 Series A Preferred Stock Offering (as defined below) (including offering costs) were allocated between the Series A Warrants and Series A Preferred Stock issued in the transaction based upon their respective fair values using the relative fair value (proportional) method. The fair value of the Series A Warrants issued was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, expected volatility of 89.69%, risk free interest rate of 2.08%, and an expected life equal to the five year contractual term. The application of the relative fair value method resulted in an allocation of $3.0 million, before deducting offering costs, to the warrants which is included as a component of net proceeds of $7.6 million recorded in “Additional paid-in capital” within the stockholders’ equity section of the Company’s Condensed Consolidated Balance Sheets as of June 30, 2017.