Warrants and Derivative Liabilities

Senior Convertible Note Warrant

On April 4, 2012, the Company entered into a Purchase Agreement with Capital Ventures International ("CVI"). The Purchase Agreement included a warrant to purchase 309,406 shares of the Company’s common stock (the “Original Warrant”). Pursuant to an exchange in October 2013, the Original Warrant was exchanged for a new warrant (the “Exchanged Warrant”). The Exchanged Warrant is exercisable at any time on or after the date that is six months after the issuance of the Original Warrant until its expiration on October 4, 2017. The Exchanged Warrant entitles CVI to purchase shares of the Company’s common stock for a period of five years from the date the Original Warrant becomes exercisable at an exercise price equal to $12.83 per share, subject to certain price-based and other anti-dilution adjustments. The Exchanged Warrant may not be exercised if, after giving effect to the conversion, CVI together with its affiliates, would beneficially own in excess of 4.99% of the Company’s common stock. This percentage may be raised to any other percentage not in excess of 9.99% at the option of CVI, upon at least 61-days prior notice to the Company, or lowered to any other percentage, at the option of CVI, at any time.

The Company calculated the fair value of the Exchanged Warrant, utilizing an integrated lattice model. The lattice model is an option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option’s life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. See Note 4, "Fair Value Measurements", for further discussion.

The Company accounts for the Exchanged Warrant as a liability due to certain adjustment provisions within the warrant, which requires that it be recorded at fair value. The Exchanged Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise at which time the warrant liability will be reclassified to equity.

Following is a summary of the key assumptions used to calculate the fair value of the Exchanged Warrant:



Fiscal Year 17	June 30, 2017
Risk-free interest rate	1.05%
Expected annual dividend yield	—
Expected volatility	78.25%
Term (years)	0.26
Fair value	$—



Fiscal Year 16	March 31, 2017	December 31, 2016	September 30, 2016	June 30, 2016	March 31, 2016
Risk-free interest rate	0.91%	0.56%	0.59%	0.48%	0.66%
Expected annual dividend yield	—	—	—	—	—
Expected volatility	44.12%	58.04%	70.50%	76.30%	76.76%
Term (years)	0.51	0.76	1.01	1.26	1.51
Fair value	$—	$0.1 million	$0.2 million	$0.4 million	$0.4 million

The Company recorded no change in the fair value of the Exchanged Warrant during the three months ended June 30, 2017 and 2016, respectively.

Hercules Warrant

On December 19, 2014, the Company entered into the Hercules Second Amendment. See Note 10, “Debt” for additional information. In conjunction with the agreement, the Company issued the Hercules Warrant to purchase 58,823 shares of the Company’s common stock. The Hercules Warrant is exercisable at any time after its issuance at an exercise price of $8.02 per share, subject to certain price-based and other anti-dilution adjustments, and expires on June 30, 2020. The Company accounts for the Hercules Warrant as a liability due to certain provisions within the warrant. The Hercules Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise, at which time the warrant liability will be reclassified to equity.

Following is a summary of the key assumptions used to calculate the fair value of the Hercules Warrant:



Fiscal Year 17	June 30, 2017
Risk-free interest rate	1.58%
Expected annual dividend yield	—
Expected volatility	67.76%
Term (years)	2.97
Fair value	$0.1 million



Fiscal Year 16	March 31, 2017	December 31, 2016	September 30, 2016	June 30, 2016	March 31, 2016
Risk-free interest rate	1.55%	1.57%	0.97%	0.86%	1.08%
Expected annual dividend yield	—	—	—	—	—
Expected volatility	66.51%	67.28%	67.98%	68.34%	70.25%
Term (years)	3.25	3.50	3.75	4.00	4.25
Fair value	$0.2 million	$0.2 million	$0.2 million	$0.3 million	$0.2 million

The Company recorded a net gain, resulting from a decrease of less than $0.1 million in fair value of derivatives and warrants during the three months ended June 30, 2017 and a net loss, resulting from an increase in the fair value of the Hercules Warrant of less than $0.1 million during the three months ended June 30, 2016.

November 2014 Warrant

On November 13, 2014, the Company completed an offering of 909,090 units of the Company’s common stock with Hudson Bay Capital. Each unit consisted of one share of the Company’s common stock and 0.9 of a warrant to purchase one share of common stock, or a warrant to purchase in the aggregate 818,181 shares (the “November 2014 Warrant”). The November 2014 Warrant is exercisable at any time, at an exercise price equal to $7.98 per share, subject to certain price-based and other anti-dilution adjustments, and expires on November 13, 2019. The Company accounts for the November 2014 Warrant as a liability due to certain provisions within the warrant. The November 2014 Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise, at which time the warrant liability will be reclassified to equity.

Following is a summary of the key assumptions used to calculate the fair value of the November 2014 Warrant:



Fiscal Year 17	June 30, 2017
Risk-free interest rate	1.44%
Expected annual dividend yield	—
Expected volatility	67.21%
Term (years)	2.37
Fair value	$0.9 million



Fiscal Year 16	March 31, 2017	December 31, 2016	September 30, 2016	June 30, 2016	March 31, 2016
Risk-free interest rate	1.41%	1.43%	0.93%	0.77%	0.98%
Expected annual dividend yield	—	—	—	—	—
Expected volatility	66.53%	69.31%	68.96%	70.01%	69.88%
Term (years)	2.62	2.87	3.12	3.37	3.62
Fair value	$1.8 million	$2.3 million	$2.3 million	$3.2 million	$2.6 million

The Company recorded a net gain of $0.9 million resulting from a decrease in the fair value of the November 2014 Warrant in the three months ended June 30, 2017 and a net loss, resulting from an increase in the fair value of the November 2014 Warrant of $0.6 million in the three months ended June 30, 2016.