6. Stock Purchase Warrants

On November 18, 2016, the Company completed a public offering of 25 million shares of common stock with accompanying warrants to purchase an aggregate of 50 million shares of common stock. The stock and warrants were sold in combination, with two warrants for each share of common stock sold, a Series A warrant and a Series B warrant, each representing the right to purchase one share of common stock. The purchase price for each share of common stock and accompanying warrants was $1.00. The shares of common stock were immediately separable from the warrants and were issued separately. The initial per share exercise price of the Series A warrants was $1.43 and the per share exercise price of the Series B warrants was $1.72, each subject to adjustment as specified in the warrant agreements. The Series A and Series B warrants may be exercised at any time on or after the date of issuance. The Series A warrants are exercisable until the four year anniversary of the issuance date. The Series B warrants expired on December 31, 2017 and none were exercised prior to expiration. The warrants include a provision that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from the holder for cash. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance date, which was $15.7 million, and changes in estimated fair value will be recorded as non-cash income or expense in the Company’s Condensed Consolidated Statements of Operations at each subsequent period. At March 31, 2018, the fair value of the warrant liability was $1.3 million, which resulted in non-cash income of $2.3 million for the three months ended March 31, 2018. At March 31, 2017, the fair value of the warrant liability was $8.6 million, which resulted in non-cash income of $4.1 million for the three months ended March 31, 2017. The warrants were valued Monte Carlo simulations.

The assumptions used by the Company are summarized in the following table:

	Series A
	March 31, 2018			December 31, 2017			Issuance Date
Closing stock price	$	0.32		$	0.51		$	0.89
Expected dividends		0	%		0	%		0	%
Expected volatility		80	%		80	%		85	%
Risk free interest rate		2.35	%		1.97	%		1.58	%
Expected life of warrant (years)		2.6			2.9			4.0

On October 10, 2014, the Company raised net proceeds of $19.1 million through the sale of 14,059,616 units at a price of $1.47 per unit to certain institutional investors in a registered direct offering. Each unit consisted of one share of the Company’s common stock and a warrant to purchase 0.5 shares of common stock. The warrants, exercisable for an aggregate of 7,029,808 shares of common stock, have an exercise price of $1.75 per share and a life of five years. The warrants vested immediately and expire on October 10, 2019.

The warrants issued in conjunction with the registered direct offering in October 2014 include a provision that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from the holder at a premium. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance date, which was $7.4 million, and changes in estimated fair value are being recorded as non-cash income or expense in the Company’s Condensed Consolidated Statement of Operations at each subsequent period. At March 31, 2018, the fair value of the warrant liability was $90,000, which resulted in non-cash income of $326,000 for the three months ended March 31, 2018. At March 31, 2017, the fair value of the warrant liability was $1.1 million, which resulted in non-cash income of $1.0 million for the three months ended March 31, 2017. In accordance with U.S. GAAP, the warrants were valued on the date of grant using the Black-Scholes valuation model which approximates the value derived using a Monte Carlo simulation. The assumptions used by the Company are summarized in the following table:

	March 31, 2018			December 31, 2017			Issuance Date
Closing stock price	$	0.32		$	0.51		$	1.75
Expected dividends		0	%		0	%		0	%
Expected volatility		80	%		80	%		95	%
Risk free interest rate		2.19	%		1.86	%		1.39	%
Expected life of warrant (years)		1.55			1.79			5.00

The following table summarizes the estimated fair value of the warrant liability (in thousands):

Balance at December 31, 2017	$	4,083
Change in fair value of warrant liability		(2,655)
Balance at March 31, 2018	$	1,428

On December 26, 2017 the Company entered into a consulting agreement for advisory services for a period of six months. As compensation for such services, the consultant was paid an upfront payment, is paid a monthly fee and on January 24, 2018, was issued a warrant exercisable for 25,000 shares of the Company common stock on the date of issue. The fair value of the warrant approximated $9,000 and was measured using the Black-Scholes option pricing model. This entire expense was recorded in the quarter ended March 31, 2018. The assumptions used by the Company are summarized in the following table:

	Issuance Date
Closing stock price	$	0.53
Expected dividends		0	%
Expected volatility		85	%
Risk free interest rate		2.42	%
Expected life of warrant (years)		4.92

A summary of warrant activity for the Company for the three months ended March 31, 2018 is as follows:

	Number of Warrants		Weighted Average Exercise Price

Balance at December 31, 2017		32,029,809	$	1.50
Granted		25,000		0.52
Exercised		-		-
Forfeited		-		-
Balance at March 31, 2018		32,054,809	$	1.50

A summary of all outstanding and exercisable warrants as of March 31, 2018 is as follows:

Exercise Price		Warrants Outstanding		Warrants Exercisable		Weighted Average Remaining Contractual Life (years)
$	0.52		25,000		25,000		4.74
$	1.43		25,000,000		25,000,000		2.64
$	1.75		7,029,808		7,029,809		1.53
$	1.60		32,054,808		32,054,809		2.40