STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2016

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

NOTE 3 – STOCKHOLDERS’ EQUITY

Warrants to Purchase Common Stock of the Company

We use the Black-Scholes-Merton option pricing model (the “Black-Scholes Model”) to determine the fair value of warrants to purchase Common Stock of the Company (“Warrants”) (except certain Warrants issued to HealthCor in 2011 as discussed in NOTE 11 and the warrants issued in connection with a private placement completed in April 2013 (the “Private Placement Warrants”). The Private Placement Warrants contain provisions that protect the holders from a decline in the issue price of our common stock or “down round” provisions. In accordance with the accounting standards, we determined that these instruments qualify as derivative liabilities and should be recorded at their fair value on the date of issuance and re-measured at fair value each reporting period with the change reported in earnings). The Black-Scholes Model is an acceptable model in accordance with the GAAP. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the Warrant. The fair value of the Warrants issued to HealthCor and the Private Placement Warrants was computed using the Binomial Lattice model, incorporating transaction details such as the price of our Common Stock, contractual terms, maturity and risk free rates, as well as assumptions about future financings, volatility, and holder behavior. Due to the down round provisions associated with the exercise price of these Warrants, we determined that the Binomial Lattice model was the most appropriate model for valuing these instruments. As discussed in NOTE 11, the Warrants issued to HealthCor in 2011 were substantially amended and no longer contain down round provisions. The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the Warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the award. Our estimated volatility is an average of the historical volatility of our stock prices (and that of peer entities whose stock prices were publicly available). Our calculation of estimated volatility is based on historical stock prices over a period equal to the expected life of the awards. Where appropriate we used the historical volatility of peer entities due to the lack of sufficient historical data of our stock price during 2007-2009.

Warrant Activity during the Six Months Ended June 30, 2016

During the six months ended June 30, 2016, no Warrants were issued and none were exercised or expired.

As of December 31, 2015, we recorded a warrant liability of $168,805 in our consolidated financial statements. At June 30, 2016, the Private Placement Warrants were re-valued with a fair value determination of $11,785, resulting in a difference of $157,020, which was included as change in fair value of warrant liability in other income and expense in the accompanying condensed consolidated financial statements.

Warrant Activity during the Six Months Ended June 30, 2015

On June 26, 2015, in conjunction with the PLD Credit Agreement, we issued a warrant to purchase 4,444,445 shares of our Common Stock, subject to adjustment as described therein (the “PDL Warrant”). The PDL Warrant has an exercise price of $0.45, a fair value of $1,257,778, and expires on June 26, 2025 (see NOTE 12 for further details).

On February 17, 2015, we entered into a Fifth Amendment to the Note and Warrant Purchase Agreement with HealthCor and certain other investors and agreed to sell and issue (i) additional notes in the initial aggregate principal amount of $6,000,000, with a conversion price per share equal to $0.52 (subject to adjustment for standard anti-dilution provisions) and (ii) additional Warrants for an aggregate of up to 3,692,307 shares of our Common Stock at an exercise price per share equal to $0.52 (subject to adjustment for standard anti-dilution provisions) (the “Fifth Amendment Warrants”). The fair value of the convertible debt and the Fifth Amendment Warrants was determined to be $7,336,615, resulting in a relative fair value of $1,093,105 for the Fifth Amendment Warrants on the date of grant (see NOTE 11 for further details).

On March 31, 2015, we issued HealthCor a Warrant for up to an aggregate of 1,000,000 shares of our Common Stock in consideration for certain prior waivers of the minimum cash balance requirement in the Purchase Agreement. This Warrant has an exercise price of $0.53 per share and an expiration date of March 31, 2025 (see NOTE 11 for further details).

During the six months ended June 30, 2015, warrants to purchase an aggregate of 2,892,686 shares of our Common Stock expired.

Options to Purchase Common Stock of the Company

During the six months ended June 30, 2016, we granted options to purchase 20,000 shares of our Common Stock (the ‘‘Option(s)’’) to an employee. During the six months ended June 30, 2015, we granted 1,815,000 Options to certain employees and members of our board of directors. During those same six month periods, 118,336 and 77,837 Options, respectively, were canceled and 126,665 and 6,261,308 Options, respectively, expired.

A summary of our stock option activity and related information follows:

	Number of Shares Under Options			Weighted Average Exercise Price		Weighted Average   Remaining Contractual   Life		Aggregate Intrinsic Value
Balance at December 31, 2015		9,350,667		$	0.58		7.6	$	15,705
Granted		20,000		$	0.30			$	—
Expired		(126,665	)
Canceled		(118,336	)
Balance at June 30, 2016		9,125,666		$	0.57		7.1	$	—
Vested and Exercisable at June 30, 2016		5,694,496		$	0.63		6.5	$	—

The valuation methodology used to determine the fair value of the Options issued was the Black-Scholes Model.

The assumptions used in the Black-Scholes Model are set forth in the table below.

	Six Months Ended June 30, 2016			Year Ended December 31, 2015
Risk-free interest rate		1.39	%		1.41-1.74	%
Volatility		63.49	%		71.30-71.86	%
Expected life in years		6			6
Dividend yield		0.00	%		0.00	%

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the expected term of the Option and is calculated by using the average daily historical stock prices through the day preceding the grant date. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the award. Our estimated volatility is an average of the historical volatility of our stock prices. Our calculation of estimated volatility is based on historical stock prices over a period equal to the expected life of the awards.

Share-based compensation expense for Options charged to our operating results for the six months ended June 30, 2016 and 2015 ($380,467 and $410,034, respectively) is based on awards vested. The estimate of forfeitures are to be recorded at the time of grant and revised in subsequent periods if actual forfeitures differ from the estimates. We have not included an adjustment to our stock based compensation expense based on the nominal amount of the historical forfeiture rate. We do, however, revise our stock based compensation expense based on actual forfeitures during each reporting period.

At June 30, 2016, total unrecognized estimated compensation expense related to non-vested Options granted prior to that date was approximately $642,200, which is expected to be recognized over a weighted-average period of 1.3 years. No tax benefit was realized due to a continued pattern of operating losses.