Note 13.

Warrants

12.5% Senior Secured Notes

The Warrants issued in conjunction with the 12.5% Senior Secured Notes expire on June 30, 2025 and entitle the Lenders to purchase two million shares of the Company’s common stock at $4.25 per share and include specified registration rights. Management estimated the fair value of the warrants to be approximately $6,800, assisted by an independent third-party appraiser. The fair value of these warrants is treated as a debt discount, amortizable over the term of the warrants, with the unamortized loan portion applied to reduce the face amount of the loan in the Company’s balance sheet. Additionally, since the Warrants issued do not provide warrant redemption or put rights within the control of the holders that could require the Company to make a payment of cash or other assets to satisfy the obligations under the Warrants, except in the case of a “cash change in control”, the fair value attributed to the Warrants is presented in additional-paid in capital in the accompanying Condensed Consolidated Balance Sheets.

Perceptive Loan

The warrants issued to Perceptive in connection with the Perceptive Loan Agreement was, by its terms, set to expire on August 16, 2023 and provided certain rights and preferences including anti-dilution adjustments so that, upon exercise, they would represent 4.5% of the Company’s fully diluted common stock on an as converted basis, subject to dilution for certain financing including the issuance of shares upon termination of our PUPs. The warrants also provided Perceptive with a put right which, if exercised under certain circumstances, would require the Company to purchase the warrants for $3,000 within the first year of the loan or $5,000 thereafter. Because these re-purchase terms could have required net-cash settlement, the appraised value of these warrants at the time of issuance of $5,800 was classified as a liability, rather than as a component of equity, and was treated as a debt discount, with the unamortized portion applied to reduce the face amount of the loan in the accompanying Condensed Consolidated Balance Sheet.

Immediately prior to pricing of the Company’s IPO, Perceptive received 863,400 shares of the Company’s common stock $.001 par value per share issuable pursuant to the automatic exercise of warrants at a total price of $116 that was collected subsequently. As a result, the warrant liability of $12,951 was reclassified to Additional paid-in capital during the third quarter of 2018. A Level 1 market price of $15.00, the initial price at which the Company’s common stock was publicly offered, was used in determining fair value as of the warrants’ conversion date.

A roll-forward of warrant liability is as follows:

	Warrant Liability

Balance at December 31, 2017	$	7,673
Changes in fair value recognized		5,278
Exercise of warrants		(12,951	)
Balance at September 30, 2018	$	-