(11)

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 December 2009		631	$	2.45		12/22/2014
Issued to private placement investors in August 2010		3,095	$	3.075		8/12/2015
Issued to placement agent in August 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. 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 marks them to fair value at each period end.

A Black-Scholes option-pricing model was used to estimate 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:

	December 2009 equity financing									August 2010 private placement 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	%		0.30	%		0.70	%
Volatility		100	%		125	%		116	%		112	%		125	%		116	%
Expected term (years)		2.00			2.25			3.25			2.50			3.00			4.00
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, the Company recorded losses of approximately $1.5 million, $3.2 million, $16.3 million, $5.9 million and $26.9 million, respectively, in its consolidated statements of operations and comprehensive loss from changes in the fair values of warrants.