Warrants and Derivative Liabilities

The Company accounts for its warrants and contingent consideration as liabilities due to certain adjustment provisions within the instruments, which require that they be recorded at fair value. The warrants are subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of warrants until the earlier of its expiration or its exercise at which time the warrant liability will be reclassified to equity. The Company calculated the fair value of the warrants utilizing an integrated lattice model. The contingent consideration is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of contingent consideration until the earlier of its settlement or expiration. The Company determined the fair value of the contingent consideration utilizing a Black Scholes option pricing method upon acquisition and as of September 30, 2017. As of December 31, 2017, the actual amount due for the contingent consideration was determined according to the stated formula in the agreement. See Note 5, "Fair Value Measurements", for further discussion.

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 expired on October 4, 2017.

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



Fiscal Year 17	September 30, 2017	June 30, 2017
Risk-free interest rate	1.05%	1.05%
Expected annual dividend yield	—	—
Expected volatility	77.95%	78.25%
Term (years)	0.01	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 and nine months ended December 31, 2017. The Company recorded net gains of $0.1 million and $0.3 million resulting from a decrease in the fair value of the Exchanged Warrant in each of the three and nine months ended December 31, 2016, respectively.

Hercules Warrant

On December 19, 2014, the Company entered into the Hercules Second Amendment. See Note 11, “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 $7.85 per share, subject to certain price-based and other anti-dilution adjustments, and expires on June 30, 2020.

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



Fiscal Year 17	December 31, 2017	September 30, 2017	June 30, 2017
Risk-free interest rate	1.98%	1.56%	1.58%
Expected annual dividend yield	—	—	—
Expected volatility	69.11%	63.97%	67.76%
Term (years)	2.46	2.72	2.97
Fair value	$0.1 million	$0.1 million	$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 no change and a net gain of $0.1 million, resulting from decreases in the fair value of the Hercules Warrant during the three and nine months ended December 31, 2017, respectively. The Company recorded no change in the fair value of the Hercules Warrant during the three and nine months ended December 31, 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 $7.81 per share, subject to certain price-based and other anti-dilution adjustments, and expires on November 13, 2019.

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



Fiscal Year 17	December 31, 2017	September 30, 2017	June 30, 2017
Risk-free interest rate	1.87%	1.49%	1.44%
Expected annual dividend yield	—	—	—
Expected volatility	65.86%	65.64%	67.21%
Term (years)	1.87	2.12	2.37
Fair value	$0.4 million	$0.8 million	$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 net gains of $0.4 million and $1.4 million, resulting from decreases in the fair value of the November 2014 Warrant during the three and nine months ended December 31, 2017, respectively. The Company recorded no change and a net gain of $0.3 million, resulting from the decrease in the fair value of the November 2014 Warrant in the three and nine months ended December 31, 2016, respectively.

Contingent Consideration

The Company evaluated the ITC acquisition Make Whole Payment set forth in the SPA (see Note 5, "Fair Value Measurements" for further details), which ultimately required net settlement cash, and determined the contingent consideration qualified for liability classification and derivative treatment under ASC 815. As a result, for each period the fair value of the contingent consideration was remeasured and the resulting gain or loss was recognized in operating expenses.

Following is a summary of the key assumptions used to calculate the fair value of the contingent consideration related to the ITC acquisition:



Fiscal Year 17	September 30, 2017	September 25, 2017
Risk-free interest rate	1.09%	1.09%
Expected annual dividend yield	—	—
Expected volatility	66.54%	65.71%
Term (years)	0.31	0.32
Fair value	$0.4 million	$0.6 million

All of the stock related to this liability was sold as of December 5, 2017 and the amount of the Make Whole Payment was calculated to be $0.7 million, and subsequently paid on January 5, 2018. As such, no fair value estimate using a Black Scholes model was needed as the liability was recorded at the known settlement value for the period ending December 31, 2017. The Company recorded net losses of $0.3 million and $0.1 million resulting from increases in the fair value of the contingent consideration in the three and nine months ended December 31, 2017, respectively.