Warrants

The Company accounts for common stock warrants as 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 stock warrants.

In connection with various financing transactions, the Company has issued warrants to purchase the Company’s common stock. In December 2017, the Company issued (i) pre-funded warrants to purchase an aggregate of 5,922,208 shares of the Company’s common stock and (ii) common stock purchase warrants to purchase up to an aggregate of 14,046,950 shares of the Company’s common stock including warrants to purchase up to 410,586 shares, issued pursuant to the partial exercise of the underwriters option to purchase additional common stock purchase warrants. Each pre-funded warrant was sold together with a common stock purchase warrant to purchase one share of the Company’s common stock at a combined effective price of $0.77 per share and accompanying warrant. Each common stock purchase warrant has an exercise price of $0.77 per share, was exercisable upon the date of issuance and expires five years from the date of issuance. As additional compensation, the Company issued warrants to the underwriter to purchase 436,364 shares of the Company’s common stock. Each such warrant has an exercise price of $0.9625 per share, and was exercisable as of the date of the underwriting agreement, and will expire five years after the date of the underwriting agreement, all as more fully described in Note 9.

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 warrant has an exercise price of $2.54, was exercisable six months after the date of issuance and will expire five years from the date of issuance.

In September 2016, the Company issued warrants to purchase 6,029,174 shares of its common stock for an exercise price of $4.50 per share to investors in connection with a private placement of convertible debt securities as more fully discussed in Note 7. The warrants are exercisable at any time beginning six months after issuance through five years after issuance. The Company classified these warrants as liabilities based on the guidance in ASC 480, as the warrants contain a provision that could result in the Company’s redemption of the warrants outside its control for cash equal to the value of the warrants calculated using a Black-Scholes option pricing model.

The following table summarizes the Company’s outstanding warrants to purchase common stock as of:



	Number of Warrants
	December 31, 2017	December 31, 2016	Exercise Price		Expiration Dates
Liability-classified Warrants
Issued in Series E Preferred Stock offering (1)	—	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
	6,927,413	6,998,843
Equity-classified Warrants

Issued in 2017 Series A Preferred Stock Offering	3,437,334	—	$	2.54	Mar 2022
Issued in 2017 Common Stock Offering - common warrants	14,046,950	—	$	0.77	Dec 2022
Issued in 2017 Common Stock Offering - underwriter warrants	436,364	—	$	0.9625	Dec 2022
Issued in 2017 Common Stock Offering - pre-funded warrants	2,416,104	—	$	0.01	No exp
	20,336,752	—

Total outstanding warrants	27,264,165	6,998,843


(1)	As a result of the anti-dilution provisions contained in the warrants, the exercise price for warrants issued in connection with the Company’s Series E Preferred Stock offering was decreased from $2.50 per warrant share to $2.10 and from $2.10 per warrant share to $0.77 and the number of warrant shares was increased by 154,288 and 80,197 during 2016 and 2017, respectively.

The table below is a summary of the Company’s warrant activity for the year ended December 31, 2017.



	Number of warrants
	Liability-classified		Equity-classified		Total		Weighted-average exercise price
Outstanding at December 31, 2016	6,998,843		—		6,998,843		$	5.98
Granted	—		23,842,856		23,842,856		0.84
Adjustments (1)	80,197				80,197		0.77
Exercised	(25,000	)	(3,506,104	)	(3,531,104	)	0.02
Expired	(126,627	)	—		(126,627	)	0.77
Outstanding at December 31, 2017	6,927,413		20,336,752		27,264,165		$	2.26

(1) See footnote 1 above.

Accounting for Liability-classified Warrants

The foregoing warrants are recorded as liabilities at their estimated fair value at the date of issuance, with subsequent changes in estimated fair value recorded in warrant revaluation income in the Company’s Consolidated Statement of Operations in each subsequent period. The change in estimated fair value of the Company’s warrant liability for the years ended December 31, 2017 and 2016 resulted in non-cash income of $4.9 million and $11.9 million, respectively. Additionally, the warrants are classified as either current or non-current on the Company’s Consolidated Balance Sheet based on their contractual expiration date. The Company utilizes the 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 which is further discussed in Note 10. 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. Such assumptions include, among other inputs, probabilities related to a change of control and when it might occur as well as probabilities related to a default under the provisions of the Notes and when it might occur.

Changes to the key assumptions or to the scenarios used in the valuation model, including the probability of key events, such as a change of control transaction, could have a material impact to the overall valuation of the warrant liability.

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, 2017			December 31, 2016
Calculated aggregate value	$	1,073		$	6,034
Weighted average exercise price per share	$	6.02		$	5.98
Closing price per share of common stock	$	0.64		$	1.89
Volatility	92.2		%	85.6		%
Weighted average remaining expected life	3 years, 4 months			4 years, 3 months
Risk-free interest rate	2.00		%	1.75		%
Dividend yield	—			—