CONVERTIBLE PREFERRED STOCK AND WARRANTS (Tables)

12 Months Ended

Dec. 31, 2016

Fair value of the warrants issued to the investors

The aggregate costs of the offering of $1.1 million, including the cash fees paid of $622,145 and the fair value of the placement agent warrants of $438,375, were allocated between the Series A Preferred Stock and the warrants based on the gross proceeds allocated to each instrument, as follows:



	Proceeds Allocated		Expenses Allocated
Series A Preferred Stock	$	2,616,250	$	396,369
Investor Warrants	4,383,750		664,151
	$	7,000,000	$	1,060,520

Reconciliation of changes in fair value

The following represents a reconciliation of the changes in fair value of warrants measured at fair value using Level 3 inputs during the year ended December 31, 2016:



(in thousands)	2013 Placement Agent Warrants
Balance, December 31, 2015	$	267
Exercise of warrants	(698		)
Change in fair value	634
Balance December 31, 2016 ⁽¹⁾	$	203

(1)

The warrants are valued using a trinomial lattice valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in the model at December 31, 2016 included the market price of our common stock, an expected dividend yield of zero, the remaining period to the expiration date of the warrants, expected volatility of our common stock over the remaining life of the warrants of 2.5 years, estimated based on a review of our historical volatility of 82.470% and risk-free rates of return of 1.470% for the 2013 warrants based on constant maturity rates published by the U.S. Federal Reserve, applicable to the remaining life of the warrants. We also take into consideration a probability assumption for anti-dilution.