7.	Warrants and Warrant Liabilities

Warrants

Warrant activity is summarized as follows:


Outstanding at January 1, 2010	8,398,383
Issued	1,845,334
Cancelled	(21,834	)
Exercised	(1,636,011	)

Outstanding at December 31, 2010	8,585,872

Issued	—
Cancelled	(141,084	)
Exercised	(1,771,383	)

Outstanding at December 31, 2011	6,673,405

The following table summarizes information with regard to outstanding warrants issued in connection with equity and debt financings and consultants as of December 31, 2011.


Issued in Connection With	Number Issued		Exercise Price		Exercisable Date		Expiration Date
2001 Placement Agents		18,334	$	21.00		February 1, 2002		February 1, 2012
February 4, 2008 Series A Transaction
$1.50 Investor Warrants		290,417	$	9.00		August 3, 2008		February 4, 2012
$2.00 Investor Warrants		290,417	$	12.00		August 3, 2008		February 4, 2012
$1.50 Placement Agent Warrants		1,400	$	9.00		August 3, 2008		February 4, 2012
February 25, 2008 Common Stock Transaction
$0.70 Investor Warrants		710,834	$	4.20		August 25, 2008		August 25, 2013
February 12, 2009 Series B-1 Transaction
$0.50 Investor Warrants—Class A-2		300,000	$	3.00		February 12, 2009		February 12, 2014
$0.50 Investor Warrants—Class B		1,200,000	$	3.00		February 12, 2009		February 12, 2014
May 13, 2009 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		150,000	$	3.00		May 13, 2009		May 13, 2014
$0.50 Investor Warrants—Class B		600,000	$	3.00		May 13, 2009		May 13, 2014
June 30, 2009 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		83,333	$	3.00		June 30, 2009		June 30, 2014
$0.50 Investor Warrants—Class B		333,333	$	3.00		June 30, 2009		June 30, 2014
April 15, 2009 Consultant Warrants		55,001	$	3.00		April 15, 2009		April 15, 2013
May 1, 2009 Consultant Warrants		74,000	$	3.00		May 1, 2009		May 1, 2014
June 30, 2009 Consultant Warrants		40,000	$	3.00		June 30, 2009		June 30, 2014
July 26, 2009 Consultant Warrants		16,667	$	3.00		July 26, 2009		July 26, 2014
August 12, 2009 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		50,000	$	3.00		August 12, 2009		August 12, 2014
$0.50 Investor Warrants—Class B		200,000	$	3.00		August 12, 2009		August 12, 2014
September 30, 2009 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		54,166	$	3.00		September 30, 2009		September 30, 2014
$0.50 Investor Warrants—Class B		216,666	$	3.00		September 30, 2009		September 30, 2014
November 4, 2009 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		51,666	$	3.00		November 4, 2009		November 4, 2014
$0.50 Investor Warrants—Class B		206,666	$	3.00		November 4, 2009		November 4, 2014
December 8, 2009 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		54,167	$	3.00		December 8, 2009		December 8, 2014
$0.50 Investor Warrants—Class B		216,667	$	3.00		December 8, 2009		December 8, 2014
January 29, 2010 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		54,167	$	3.00		January 29, 2010		January 29, 2015
$0.50 Investor Warrants—Class B		216,667	$	3.00		January 29, 2010		January 29, 2015
March 8, 2010 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		55,834	$	3.00		March 8, 2010		March 8, 2015
$0.50 Investor Warrants—Class B		223,334	$	3.00		March 8, 2010		March 8, 2015
April 30, 2010 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		51,667	$	3.00		April 30, 2010		April 30, 2015
$0.50 Investor Warrants—Class B		206,667	$	3.00		April 30, 2010		April 30, 2015
May 10, 2010 Series B-2 Transaction
$0.50 Investor Warrants—Class A-2		95,000	$	3.00		May 10, 2010		May 10, 2015
$0.50 Investor Warrants—Class B		380,000	$	3.00		May 10, 2010		May 10, 2015
May 25, 2010 Consultant Warrants		35.001	$	4.50		May 25, 2010		May 25, 2014
May 25, 2010 Consultant Warrants		7,500	$	15.00		May 25, 2010		May 25, 2014
June 15, 2010 Consultant Warrants		100,000	$	4.26		June 15, 2010		June 15, 2015
December 9, 2010 Consultant Warrants		33,334	$	3.90		December 9, 2010		December 9, 2015
December 30, 2010 Placement Agent Warrants		500	$	7.20		December 30, 2010		December 30, 2015

Total outstanding warrants		6,673,405

Consultant Warrants

In May 2008 the Company entered into an agreement with Investor Relations Group (“IRG”) for IRG to provide investor relations services to the Company in exchange for cash and warrants on a monthly basis. On September 30, 2008 the Company terminated the agreement under the provisions of the agreement. During the effective contract period IRG earned 6,500 warrants valued at $3,000. The expense associated with these warrants was calculated using the Black-Scholes option-pricing model and charged to stock compensation expense. The warrants are exercisable at $3.00 per share for a period of three years.

In April 2009, the Company entered into agreements with consultants that provided for the grant of warrants for the purchase of 55,000 shares of common stock at an exercise price of $3.00 per share. Of the 55,000 warrants, 13,334 vested immediately and 41,666 will vest upon the achievement of certain milestones. The initial 13,334 warrants were valued at $32,000 on issuance based on the following assumptions: an expected life of 4 years, volatility of 134%, risk free interest rate of 1.76% and zero dividends and the expense recognized upon issuance. During the year ended December 31, 2010, 8,334 warrants vested (valued at $16,000 on the vesting date using the following assumptions: expected life of 3.06 years, volatility of 140%, risk free interest rates of 1.69% and zero dividends). When it became probable that the remaining 33,332 warrants would vest, the Company valued the warrants at $124,000 as of December 31, 2010 using the following assumptions: expected life of 2.29 years, volatility of 141%, risk free interest rates of 0.61% and zero dividends. The Company valued the warrants at $104,000 as of December 31, 2011 using the following assumptions: expected life of 1.29 years, volatility of 70%, risk free interest rates of 0.12% and zero dividends. The Company recognized expense related to the 33,332 warrants of $111,000 for the year ended December 31, 2010 and a reversal of expense of $13,000 for the year ended December 31, 2011.

In May 2009, the Company entered into agreements with consultants that provided for the grant of warrants to purchase 95,834 shares of common stock at an exercise price of $3.00 per share. The warrants were valued at $232,000 on issuance based on the following assumptions: an expected life of 5 years, volatility of 124%, risk free interest rate of 2.16% and zero dividends. The Company recognized expense related to these warrants of $53,000 during the year ended December 31, 2010. As of December 31, 2010, 74,000 of these warrants were vested and 21,834 shares were forfeited.

In May 2010, the Company granted warrants to consultants for the purchase of 35,001 shares of common stock at an exercise price of $4.50 per share. The warrants were valued at $134,000 on issuance based on the following assumptions: an expected life of 4 years, volatility of 143%, risk free interest rate of 1.610% and zero dividends. The warrants vested immediately and the company recognized an expense of $134,000 related to these warrants during the year ended December 31, 2010.

In May 2010, the Company entered into an agreement with a consultant that provided for the grant of warrants for the purchase of 12,000 shares of common stock at an exercise price of $15.00 per share. The warrants were initially valued at $40,000 on issuance based on the following assumptions: an expected life of 4 years, volatility of 143%, risk free interest rate of 1.610% and zero dividends. The warrants vest at a rate of 500 per month and the unvested warrants will be revalued as they vest. At December 31, 2011, 7,500 warrants were vested and 4,500 were forfeited upon cancellation of the agreement. The following assumptions were used to value the warrants for the year ended December 31, 2011: an expected life of 2.99 to 3.32 years, volatility of 128% to 130%, risk free interest rate of 0.79% to 1.29% and zero dividends. The following assumptions were used to value the warrants for the year ended December 31, 2010: an expected life of 3.40 to 3.99 years, volatility of 130% to 144%, risk free interest rate of 0.51% to 1.68% and zero dividends. The company recognized an expense of $12,000 and $15,000 related to these warrants during the years ended December 31, 2011 and 2010, respectively.

In August 2010, the Company entered into an agreement with a consultant, who was also a board member, which provided for the grant of warrants for 100,000 shares of common stock at an exercise price of $4.26 per share. Of the 100,000 warrants, 25,000 vested immediately on signing of the agreement, 25,000 were to vest at the end of one year and the remaining 50,000 warrants were to vest based on the achievement of certain milestones. The following assumptions were used to value the remaining unvested warrants on March 7, 2011 at the date the consultant effectively became an employee of the Company: an expected life of 4.28 years, volatility of 135%, risk free interest rate of 1.705% and zero dividends. Pursuant to an employment agreement entered into in May 2011, all remaining unvested warrants were immediately vested. The Company recognized expense of $340,000 and $219,000 related to these warrants during the years ended December 31, 2011 and 2010, respectively.

In December 2010, the Company granted warrants to a consultant for the purchase of 33,334 shares of common stock at an exercise price of $3.90 per share. The warrants were valued at $112,000 on issuance based on the following assumptions: an expected life of 5 years, volatility of 130%, risk free interest rate of 1.9% and zero dividends. The warrants vested immediately and the company recognized an expense of $112,000 related to these warrants during the year ended December 31, 2010.

In December 2010, the Company issued warrants to a placement agent for the purchase of 500 shares of common stock at an exercise price of $7.20 per share. These warrants were valued at $2,000 using the following assumptions: an expected life of 5 years, volatility of 130%, risk free interest rate of 2.06% and zero dividends.

Impact of Adopting Provisions Regarding Warrant Liabilities

In June 2008, the Financial Accounting Standards Board (“FASB”) ratified standards related to determining whether an instrument (or an embedded feature) is indexed to an entity’s own stock. The standards provide that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The standard is effective for fiscal years beginning after December 15, 2008. The Company adopted the standard on January 1, 2009 and determined that the 1,164,929 warrants issued in connection with the February 2006 Transaction that had been classified as equity and included in additional paid-in capital at December 31, 2008, should be classified as liabilities due to repricing and anti-dilution provisions contained in the warrant agreements. The impact of adopting new accounting provisions on January 1, 2009, which required the treatment of warrants with certain features as liabilities rather than equity, was a decrease in additional paid-in-capital by $458,000, which was the fair value recorded at the time the warrants were transferred from a liability to equity during the year ended December 31, 2008, an increase of warrant liabilities by $204,000, the fair value of the warrants as of January 1, 2009 and a credit to accumulated deficit for the difference.

During the years ended December 31, 2011 and 2010, the Company recognized a loss of $524,000 and $1,241,000, respectively in its consolidated statements of operations related to the change in fair value of warrant liabilities.