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Warrants

6 Months Ended

Jun. 30, 2015

Note 11

Warrants:

The Company accounts for warrants that have provisions that protect holders from a decline in the issue price of its common stock (or “down-round” provisions) as liabilities instead of equity. Down-round provisions reduce the exercise or conversion price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise or conversion price of those instruments or issues new warrants or convertible instruments that have a lower exercise or conversion price. Net settlement provisions allow the holder of the warrant to surrender shares underlying the warrant equal to the exercise price as payment of its exercise price, instead of physically exercising the warrant by paying cash. The Company evaluated whether warrants to acquire its common stock contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price and/or shares to be issued under the respective warrant agreements based on a variable that is not an input to the fair value of a “fixed-for-fixed” option.

The Company recognizes these warrants as liabilities at the fair value on each reporting date. The Company measured the fair value of these warrants as of June 30, 2015, and recorded other income of $1,985 resulting from the decrease of the liability associated with the fair value of the warrants for the three month period and recorded other income of $651 resulting from the decrease of the liability associated with the fair value of the warrants for the six months ended June 30, 2015, respectively. The Company measured the fair value of these warrants as of June 30, 2014, and recorded other income of $4,906 resulting from the decrease of the liability associated with the fair value of the warrants for the three month period and recorded other income of $5,043 resulting from the decrease of the liability associated with the fair value of the warrants for the six months ended June 30, 2014, respectively. The Company has accounted for the Investor’s warrants as a liability due to the “down-round” price protection provision. See Note 1, Fair Value Measurements. The Company computed the value of the warrants using the binomial method. A summary of quantitative information with respect to the valuation methodology and significant unobservable inputs used for the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy as of June 30, 2015 and December 31, 2014 is as follows:

		June 30, 2015				December 31, 2014
		(unaudited)
Stock price		$	1.15			$	1.20
Volatility			80.70 – 90.00	%			72.90 – 88.10	%
Risk-free interest rate			1.63	%			1.65	%
Expected dividend yield			0	%			0	%
Expected warrant life			3.60 – 4.98 years				4.10 – 4.33 years

Recurring Level 3 Activity and Reconciliation

The table below provides a reconciliation of the beginning and ending balances for the liability measured at fair value using significant unobservable inputs (Level 3). The table reflects gains and losses for the six months for all financial liabilities categorized as Level 3 as of June 30, 2015.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3):

Warrant liability:
Balance as of December 31, 2014		$	499
Issuance of warrants with derivative liabilities			2,958
Decrease in fair value of warrants			(651	)
Balance as of June 30, 2015		$	2,806

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

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