2. Stockholders’ Equity

April 2018 Private Placement

In April 2018, the Company entered into a private placement transaction, raising net proceeds of approximately $2.4 million from the sale of 14,875,000 shares of common stock and warrants to purchase 14,875,000 shares of common stock. The purchase price of the common stock was $0.20 per share and the exercise price of the warrants is $0.40 per share. The warrants expire two years from the date they initially became exercisable. In connection with the private placement transaction, the Company also issued 1,487,500 warrants to the placement agent. The placement agent warrants have an exercise price of $0.20 per share and expire five years from the date of issuance.

The warrants consist of 7,437,500 Series A warrants (the “Series A Warrants”) and 7,437,500 Series B warrants (the “Series B Warrants”). The exercise price of all warrants is payable in cash and there are no cashless exercise provisions.

The Series A Warrants were immediately exercisable upon issuance and expire on April 12, 2020. The Company has accounted for the Series A Warrants as an equity instrument from the date of issuance.

When the Company completed the private placement transaction, the exercisability and expiration of the Series B Warrants were dependent on the Company’s receipt of stockholder approval for an increase in the number of authorized shares of the Company’s common stock. Accordingly, on the date of issuance, the Company accounted for the Series B Warrants as a liability, utilizing the Black-Scholes option pricing model to determine the fair value of these derivative financial instruments based on the following key measurements and assumptions: $0.26 per share stock price; $0.40 per share exercise price; 2.2 year term to maturity; 2.37% risk-free interest rate and 100.9% annualized volatility, resulting in an estimated fair value of the warrant liability of $886,000.

On June 20, 2018, the Company’s stockholders approved an increase in the number of authorized shares of common stock, satisfying the conditional obligation of the Series B Warrants. The Series B Warrants became exercisable on June 20, 2018 and expire on June 20, 2020. Following the stockholder approval, the Company determined that liability accounting was no longer appropriate and that equity accounting was appropriate for the Series B Warrants. The Company utilized the Black-Scholes option pricing model to determine the Series B Warrants’ fair value as of June 20, 2018, based on the following key measurements and assumptions: $0.22 per share stock price; $0.40 per share exercise price; 2.0 year term to maturity; 2.56% risk-free interest rate and 100.0% annualized volatility, resulting in an estimated fair value of the warrant liability of $636,000.

The decrease in the fair value of the Series B Warrants from the date of issuance through the satisfaction of the conditional criteria has been classified as a “Gain on change in fair value of warrants” in the Statement of Comprehensive Loss.

Outstanding Warrants to Purchase Common Stock

The following is a summary of the Company’s outstanding common stock warrants:


	Exercise Price	September 30, 2018		December 31, 2017
Expiration Date	Exercise Price	(in thousands)
04/16/18	$ 3.40		—		1,460
09/23/18	$ 2.80		—		147
02/11/19	$ 2.56		293		293
02/18/19	$ 2.75		1,872		1,872
08/28/19	$ 2.90		2,700		2,700
03/20/20	$ 2.13		234		234
03/25/20	$ 1.71		2,920		2,920
04/12/20	$ 0.40		7,437		—
06/20/20	$ 0.40		7,437		—
04/30/23	$ 0.20		1,488		—

Total Warrants Outstanding			24,381		9,626

Equity Incentive Plans

The following is a summary of the Company’s stock option activity under its equity incentive plans:


	Options Available for Grant			Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(in thousands)								(years)		(in thousands)
Balance at December 31, 2017		1,846			4,880		$	1.05		7.6	$	—
Options authorized		2,524			—
Options granted		(3,033	)		3,033		$	0.22
Options forfeited		1,127			(1,127	)	$	0.61

Balance at September 30, 2018		2,464			6,786		$	0.75		7.3	$	—

Vested and exercisable at September 30, 2018					3,080		$	0.88		6.8	$	—
Vested and expected to vest at September 30, 2018					6,099		$	0.61		7.3	$	—
Unvested at September 30, 2018					3,706		$	0.64

As of September 30, 2018, there was approximately $0.7 million of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of approximately 1.2 years.

The fair value for stock options granted is estimated at the date of grant using the Black-Scholes option pricing model. The Company used the following weighted average assumptions to estimate the fair value of the stock options.


	Nine months ended September 30,
	2018			2017
Risk-free interest rate		2.8	%		2.0	%
Expected life (years)		5.2			6.0
Expected volatility		88	%		88	%
Dividend yield		0	%		0	%