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 statement of operations. Fair value is measured using the Binomial/Monte Carlo valuation model.

There were no warrants outstanding at September 30, 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 warrants had a 5 year term and expired in December 2014. Subject to certain exceptions, these warrants provided anti-dilution protection in the event the Company should subsequently issue common stock or common stock equivalents at a price less than the exercise price of the warrants then in effect.

The Company assessed whether the 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 valuation model to estimate the value of the liability-classified warrants. The following assumptions were used in the Binomial/Monte Carlo valuation model at September 30, 2014:


		2014
Risk-free interest rate		0.02%
Expected life in years		0.19
Expected volatility		65%
Expected dividend yield		0
Steps per year		125

The change in the fair value of the warrant liability resulted in a gain of $5.8 million and $11.5 million for the three and nine months ended September 30, 2014, respectively. The change in the fair value of the warrant liability was charged to other income (expense) in the statement of operations.

During the nine months ended September 30, 2014, there were 2,292,362 warrants exercised for 1,991,409 shares of common stock.