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Derivative Warrant Liabilities

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

NOTE 7 -	DERIVATIVE WARRANT LIABILITIES

	As part of StemCell’s obligations under the Merger Agreement, in August 2016, StemCells negotiated with certain institutional holders of its 2016 Series A and Series B Warrants, issued by prior to the Merger, to have such holders surrender their 2016 Series B Warrants in exchange for a reduced exercise price of $0.30 per share on their existing 2016 Series A Warrants and the elimination of the anti-dilution price protection in the 2016 Series A Warrants. As a result, the exercise price for all outstanding 2011 Series A Warrants and 2016 Series A and Series B Warrants was reset to $0.30 per share. Upon exercise of these warrants, StemCells issued 531,814 shares of its common stock prior to the Merger.

	The remaining outstanding warrants as of March 31, 2017 are as follows:

Issuance Date	Outstanding as of December 31, 2016		Outstanding as of March 31, 2017		Exercise Price		Exercisable as of March 31, 2017		Exercisable Through

Series A (2011)		64,230		-	$	151.20		-		December 2016
Series A (2013)		57,814		57,814	$	194.40		57,814		October 2018
Series A (2013)		2,718		2,718	$	183.60		2,718		April 2023
Series A (2015)		10,139		10,139	$	91.80		10,139		April 2020
Series A (2016) (a)(b)		10,047		9,279	$	2.70		10,047		March 2018
Series B (2016) (a)		41,116		41,116	$	2.70		41,116		March 2022

	(a)	These warrants contain a full ratchet anti-dilution price protection so that, in most situations upon the issuance of any common stock or securities convertible into common stock at a price below the then-existing exercise price of the outstanding warrants, the warrant exercise price will be reset to the lower common stock sales price.

	(b)	On March 2017, an institutional holder executed a cashless exercise of 768 warrants and 359 shares of common stock were issued in connection therewith.

	As such anti-dilution price protection, does not meet the specific conditions for equity classification, the Company is required to classify the fair value of these warrants as a liability, with changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The estimated fair value of the Company’s warrant liability at March 31, 2017 and December 31, 2016, was approximately $313 and $225, respectively.

	As quoted prices in active markets for identical or similar warrants are not available, the Company uses directly observable inputs in the valuation of its derivative warrant liabilities (level 2 measurement).

	The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on the Company’s historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of the Company’s common stock as traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.

	The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of December 31, 2016 and March 31, 2017:

	As of March 31, 2017						As of December 31, 2016
	Series A (2016)			Series B (2016)			Series A (2016)			Series B (2016)

Share price	$	5.81		$	5.81		$	6.10		$	6.10
Exercise price	$	2.70		$	2.70		$	2.70		$	2.70
Expected volatility		90	%		90	%		380	%		380	%
Risk-free interest		1.03	%		1.93	%		0.85	%		1.93	%
Dividend yield		—			—			—			—
Expected life of up to (years)		1			5			1.2			5.2

Activity in such liabilities measured on a recurring basis is as follows:

	Derivative warrant liabilities
As of December 31, 2016	$	313
Revaluation of warrants		(88	)
Exercise warrants (see note 7(b))		(*)
As of March 31, 2017	$	225

In accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of the Company which are classified as level 3 financial instruments. The Company recalculated the value of warrants by applying a +/- 5% changes to the input variables in the Black-Scholes model that vary over time, namely, the volatility and the risk-free rate. A 5.0% decrease in volatility would decrease the value of the warrants to $221; a 5.0% increase in volatility would increase the value of the warrants to $229. A 5.0% decrease or increase in the risk-free rate would not have materially changed the value of the warrants; the value of the warrants is not strongly correlated with small changes in interest rates.