8. Warrants

The Company has issued both warrants that are accounted for as liabilities and warrants that are accounted for as equity instruments.

The Company follows accounting standards that provide guidance in assessing whether an equity-issued financial instrument is indexed to an entity’s own stock for purposes of determining whether a financial instrument should be treated as a derivative and classified as a liability. Accounting standards require that liability classified warrants be recorded at their fair value at each financial reporting period and the resulting gain or loss be recorded as other income (expense) in the Statements of Operations. Fair value is measured using the binomial valuation model.

There were no warrants outstanding at March 31, 2015 or December 31, 2014.

Liability-Classified Warrants

In connection with the December 2009 public offering, the Company issued warrants to purchase an aggregate of 8,206,520 shares of common stock (including the investor warrants and 464,520 warrants issued to the Underwriters). The investor warrants were exercisable immediately and the underwriter warrants exercisable six months after the date of issuance. The warrants had a 5 year term. Subject to certain exceptions, these warrants provided anti-dilution protection should common stock or common stock equivalents be subsequently issued at a price less than the exercise price of the warrants then in effect.

The Company assessed whether the 2009 Warrants require accounting as derivatives. The Company determined that these warrants were not indexed to the Company’s own stock in accordance with accounting standards codification Topic 815, Derivatives and Hedging. As such, the Company has concluded these warrants did not meet the scope exception for determining whether the instruments require accounting as derivatives and were classified as liabilities.

The Company used the Binomial/Monte Carlo pricing model to estimate the value of the liability-classified warrants. The following assumptions were used in the Binomial/Monte Carlo valuation model at March 31, 2014 (no warrants were outstanding during the three months ended March 31, 2015):


	2014
Risk-free interest rate		0.11	%
Expected life in years		0.69
Expected volatility		80	%
Expected dividend yield		0
Steps per year		13

The change in the fair value of the warrant liability resulted in a gain of $82 thousand for the three months ended March 31, 2014. The change in the fair value of the warrant liability was charged to other income (expense) in the Statements of Operations.

There were no warrant exercises during the three months ended March 31, 2014 and no warrants were outstanding during the three months ended March 31, 2015.