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Derivative Warrant Liabilities

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

NOTE 4 - 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. Subsequent to the reset of the exercise price, an aggregate of 531,814 (from an outstanding aggregate of 578,081) 2011 Series A Warrants were exercised. For the exercise of these warrants, the Company issued 531,814 shares of its common stock prior to the Merger.

The remaining outstanding warrants and terms as of March 31, 2018 and December 31, 2017 is as follows:

Issuance date	Outstanding as of December 31, 2017		Outstanding as of March 31, 2018		Exercise Price		Exercisable as of March 31, 2018		Exercisable Through

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)		9,279		-	$	-		-	March 2018
Series B (2016) (a)		41,116		41,116	$	2.70		41,116	March 2022

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. 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 our warrant liability at March 31, 2018 and December 31, 2017, was approximately $15 and $28, 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 our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our 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.

In March 2017, an institutional holder executed a cashless exercise of 768 warrants and 359 shares of Common Stock were issued in connection therewith.

The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of March 31, 2018 and December 31, 2017:

	Series A (2011)		Series A (2013)		Series A (2013)		Series A (2015)		Series A (2016)		Series B (2016)			Total
Balances at December 31, 2017	$	-	$	-	$	-	$	-		$ (*)	$	28		$	28
Exercised		-		-		-		-		-		-			-
Cancelled		-		-		-		-		-		-			-
Changes in fair value		-		-		-		-		(*)		(13	)		(13	)
Balances at March 31, 2018	$	-	$	-	$	-	$	-	$	-	$	15		$	15

(*) Less than 1

The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of March 31, 2018 and December 31, 2017:

	As of March 31, 2018					As of December 31, 2017
	Series A (2016)		Series B (2016)			Series A (2016)			Series B (2016)
Share price		—	$	0.69		$	1.02		$	1.02
Exercise price		—	$	2.70		$	2.70		$	2.70
Expected volatility		—		109	%		60	%		119	%
Risk-free interest		—		2.39	%		1.24	%		1.89	%
Dividend yield		—		—			—			—
Expected life of up to (years)		—		4.00			0.25			4.25

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

	Derivative Warrant Liabilities
As of December 31, 2017	$	28
Revaluation of warrants		(13	)
As of March 31, 2018	$	15

	Derivative Warrant Liabilities
As of December 31, 2016	$	313
Revaluation of warrants		(285	)
Exercise warrants		(*	)
As of December 31, 2017	$	28

(*) Less than 1

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 overtime, namely, the volatility and the risk-free rate. A 5.0% decrease in volatility would decrease the value of the warrants to $1; a 5.0% increase in volatility would increase the value of the warrants to $1. 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.