Common Stock Warrants

9 Months Ended

Sep. 30, 2015

Stock-Based Compensation and Common Stock Warrants [Abstract]

Common Stock Warrants

12. Common Stock Warrants 

Warrant Liability

In January 2011, the Company completed an equity financing that raised gross proceeds of $8,500,000 from the issuance of 4,250,000 shares of common stock at a price of $2.00 per share and warrants to purchase an aggregate of 2,125,000 shares of common stock. The warrants are exercisable any time on or before January 19, 2016 and have an exercise price of $2.50 per share. The Company received $7,915,700 in net proceeds from the equity financing after deducting offering expenses of $584,300. The exercise price of the warrants and number of shares of common stock to be received upon the exercise of the warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions.

The Company also issued warrants to purchase an aggregate of 255,000 shares of its common stock to the Company’s placement agent and advisors in January 2011 in connection with the equity financing as consideration for their services. These warrants have the same terms, including exercise price, registration rights and expiration, as the warrants issued to the investors in the equity financing.

The Company has recorded a derivative liability on its Condensed Consolidated Balance Sheet at the end of each reporting period based on the estimated fair value of the warrants. The warrants are valued at the end of each reporting period with changes recorded as marked-to-market adjustment on derivative liability on the Company’s Condensed Consolidated Statements of Operations. The fair value of these warrants was $23,425 on September 30, 2015 and December 31, 2014, based on a model developed with the assistance of an independent third-party valuation expert. The gain (loss) on change in fair value of these warrants was $0 and $(23,425) for the three months ended September 30, 2015 and 2014, respectively, and $0 and $46,850 for the nine months ended September 30, 2015 and 2014, respectively, and was not presented within loss from operations.

On February 13, 2015, the Company issued a warrant to each of Sigma II and Sigma to purchase up to 10,500,000 shares and 4,500,000 shares, respectively, of the Company’s common stock in connection with the issuance of the Note and the execution of the Advisory Agreement as previously disclosed in Note 10. The warrants were immediately exercisable on February 13, 2015 and expire on the earlier of (a) February 13, 2020 or (b) a change in control. The warrants have an exercise price of $0.35 per share, subject to certain adjustments, including reset adjustments to the exercise price if the Company issues securities at lower prices in the future, as disclosed in Note 5.

The Company has recorded a derivative liability on its Condensed Consolidated Balance Sheet at the end of each reporting period based on the estimated fair value of the warrants. The warrants are valued at the end of each reporting period with changes recorded as marked-to-market adjustment on derivative liability on the Company’s Condensed Consolidated Statements of Operations. The fair value of these warrants was $470,000 on September 30, 2015, based on a model developed with the assistance of an independent third-party valuation expert. The gain (loss) on change in fair value of these warrants was $440,000 for the three months ended September 30, 2015 and $470,000 for the nine months ended September 30, 2015, and was not presented within loss from operations. 

Warrant Equity

On May 20, 2014, the Company issued a warrant to purchase 25,000 shares of its common stock to Thomas Carrella in connection with the issuance of a promissory note.  The warrant has an exercise price equal to $0.32 per share and, if unexercised, expires on May 20, 2019. The Company calculated the fair value of the warrant issued to Mr. Carrella using Black-Scholes option pricing model and recorded $4,750 of deferred financing costs related to the issuance of the warrant that was amortized over the term of the promissory note.

The following table summarizes warrant activity for the nine months ended September 30, 2015: 

	Number of Warrants		Weighted Average Exercise Price
Stock Warrants:
Outstanding on December 31, 2014		2,367,500	$	2.48
Granted		15,000,000		0.35
Exercised		-		-
Forfeited		-		-
Outstanding on September 30, 2015		17,367,500		0.64
Warrants exercisable on September 30, 2015		17,367,500	$	0.64