11. WARRANTS

4 Months Ended

Dec. 31, 2012

Notes to Financial Statements

WARRANTS

The table reflects the number of common stock warrants outstanding as of December 31, 2012: 

	Number of  shares  exercisable		Exercise  price			Expiration date
Issued in connection with Encode merger		233	$	2.87		12/13/2015
Issued to placement agents in May / June 2008		433	$	2.36		5/21/2013
Issued to placement agents in August 2009		65	$	1.50		8/21/2014
TorreyPines warrants assumed in 2009 Merger		8	$	80.86	*	6/11/2013-9/26/2015
Issued to registered direct investors in Dec. 2009		631	$	2.45		12/22/2014
Issued to private placement investors in Aug. 2010		3,095	$	3.075		8/12/2015
Issued to placement agent in Aug. 2010		98	$	3.075		8/12/2015
Total warrants outstanding		4,563	$	3.03	*

* Weighted-average exercise price

The warrants issued by the Company in the August 2010 private placement and the December 2009 equity financing contain a conditional obligation that may require the Company to transfer assets to repurchase the warrants upon the occurrence of potential future events. Under ASC 480, a financial instrument that may require the issuer to settle the obligation by transferring assets is classified as a liability. Therefore, the Company has classified the warrants from both financings as liabilities and will mark them to fair value at each period end.

A Black-Scholes option-pricing model was used to obtain the fair value of the warrants issued in the December 2009 and August 2010 equity financings using the following assumptions at December 31, 2012, August 31, 2012 and 2011:

										August 2010 private placement
	December 2009 equity financing									Investors and placement agent
				August 31,									August 31,
	December 31, 2012			2012			2011			December 31, 2012			2012			2011
Fair value ($ millions)	$	2.6		$	2.9		$	5.9		$	13.8		$	14.4		$	17.7
Black-Scholes inputs:
Stock price	$	5.85		$	4.97		$	4.73		$	5.85		$	4.97		$	4.73
Exercise price	$	2.45		$	2.45		$	2.45		$	3.075		$	3.075		$	3.075
Risk free interest rate		0.25	%		0.22	%		0.38	%		0.31	%		0.3	%		0.7	%
Volatility		100	%		125	%		116	%		112	%		125	%		116	%
Expected term (years)		2.00			2.25			3.25			2.5			3			4
Dividend		0			0			0			0			0			0

For the four months ended December 31, 2012 and the years ended August 31, 2012, 2011 and 2010, and for the cumulative period from September 8, 2005 (inception) to December 31, 2012, as a result of the marking-to-market of the warrant liability at quarter-end and the day prior to the exercise of warrants subject to warrant liability accounting, the Company recorded losses of approximately $1.5 million, $3.2 million, $16.3 million, $5.9 million and $26.9 million, respectively, in the line item adjustment to fair value of common stock warrants in its consolidated statements of comprehensive loss. See Note 5 for further discussion on the marking-to-market of the warrant liability.