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Note 13 - Warrants

12 Months Ended

Dec. 31, 2015

13. WARRANTS

As more fully described in Note 10, the Company completed a series of equity financing transactions in 2015, 2014 and 2013 that included the issuance of warrants to purchase 1,950,000, 1,801,802 and 1,341,382 shares, respectively, of the Company’s common stock. In connection with the Hercules Credit Agreement and the Horizon & Oxford Credit Agreement the Company entered into in November 2013 and June 2012 as more fully described in Note 8, the Company issued warrants to purchase 194,986 and 11,415 shares, respectively, of the Company’s common stock. During 2013, the Company received gross proceeds of approximately $0.3 million from the exercise of warrants to purchase 15,833 shares of common stock, respectively. No warrants were exercised during 2015 or 2014.

Following is a summary of all warrant activity for the three years ended December 31, 2015:

Warrants	Number of Warrants Issued			Weighted Average Exercise Price
Warrants outstanding at January 1, 2013		1,747,478		$	15.17

Warrants issued in connection with 2013 equity transactions		1,341,382			5.31
Warrants issued in connection with the Hercules Credit Agreement (November 2013 tranche) as more fully described in Note 8		97,493			3.59
Warrants exercised for common stock in 2013		(15,833	)		14.63
Warrants outstanding at December 31, 2013		3,170,520		$	10.65

Warrants issued in connection with the January 2014 equity transaction		1,801,802			4.10
Warrants issued in connection with the Hercules Credit Agreement (June 2014 tranche) as more fully described in Note 8		97,493			3.59
Warrants outstanding at December 31, 2014		5,069,815		$	8.18

Warrants issued in connection with the May 2015 equity transaction		1,950,000		$	2.60

Warrants expired during 2015		(1,125,140	)	$	7.98
Warrants outstanding at December 31, 2015		5,894,675		$	6.37

Aggregate intrinsic value of outstanding warrants at December 31, 2015	$	–

Weighted average remaining contractual terms (years)		2.4

Common Stock Warrant Liability

In September 2009, the Company closed a registered direct offering with a select group of institutional investors that raised gross proceeds of $7.1 million and net proceeds of $6.3 million. In connection with this registered direct offering, the Company issued 484,478 shares of its common stock and warrants to purchase 224,239 shares of common stock. The warrants have an exercise price of $23.58 per share and are exercisable at any time on or after the six month anniversary of the date of issuance and on or prior to 66 months after the date of issuance. Under the terms of the warrants, upon certain transactions, including a merger, tender offer or sale of all or substantially all of the assets of the Company, each warrant holder may elect to receive a cash payment in exchange for the warrant, in an amount determined by application of the Black-Scholes option valuation model. Accordingly, pursuant to ASC 815.40, Derivative Instruments and Hedging - Contracts in Entity’s Own Equity, the warrants are recorded as a liability and then marked to market each period through the Statement of Operations in other income or expense. At the end of each subsequent quarter, the Company will revalue the fair value of the warrants and the change in fair value will be recorded as a change to the warrant liability and the difference will be recorded through the Statement of Operations in other income or expense.

As more fully described in Note 10, concurrent with the closing of the Common Stock Offering, the investors in this offering agreed to waive their rights to exercise the Waived Warrants to purchase 1,398,816 shares of common stock of the Company until the Company has obtained stockholders’ approval of increasing the number of its authorized shares of common stock in conjunction with the proposed reverse stock split of its outstanding shares of common stock. In accordance with ASC 815-40, Derivative Instruments and Hedging - Contracts in Entity’s Own Equity, the Waived Warrants were required to be classified as liabilities immediately after the closing of the Common Stock Offering on June 3, 2013 because there were an insufficient number of common shares authorized to permit the full exercise of the Waived Warrants if they were exercised. Therefore, the Company had reclassified the fair value of the Waived Warrants totaling approximately $9.1 million from equity to a liability as of June 3, 2013. The Waived Warrants were required to be recorded at fair value at each balance sheet date with changes in fair value recorded in earnings until such time as there are a sufficient number of common shares authorized to permit the full exercise of the warrants. In connection with the Reverse Stock Split, these warrants were valued as of October 28, 2013 and the Company reclassified the fair value of the Waived Warrants totaling approximately $5.3 million from a liability to equity.

As discussed in Note 8, the Company concluded in the second quarter of 2015 the warrant provision which required the exercise price of the warrant to be adjusted downward to a lower price at which the Company would sell and issue shares in a financing for cash during the one-year anniversary of the warrant had expired. Therefore, the Company valued the warrant at $336,254 immediately prior to this event using a risk-free interest rate of 1.98%, expected volatility of 99.71%, an expected remaining life of 4 years and no forfeiture nor dividends expected. The Company recorded non-cash charges to net income of $18,018 and $61,246 in the second quarter and year to date periods of 2015, respectively, and reduced the liability to zero and increased equity by $336,254 at this time.

As of December 31, 2014 and 2013, the Company recorded a common stock warrant liability of $275,008 and $3,026 respectively. No common stock warrants were required to be recognized as a liability at December 31, 2015. The fair value of the warrants associated with the September 2009 registered direct offering at December 31, 2013 and the warrants associated with the Hercules loan as more fully described in Note 8 at December 31, 2014 and 2013 was calculated using the Black-Scholes option-pricing model with the following assumptions:

	December 31,
	2014			2013
Risk-free interest rate	0.04	-	1.66%		0.13	%
Expected volatility	40.9	-	98.35%		64.74	%
Expected life (in years)	0.25	-	3.9		1.25
Expected forfeiture rate		0.0%			0.0	%
Expected dividend yield		0.00%			0.00	%

See Note 10 for the assumptions used at June 3, 2013 and October 28, 2013 for the Black-Scholes option-pricing model calculation for the Waived Warrants associated with the Common Stock Offering on the dates they were waived and when there became a sufficient number of common shares authorized to permit their full exercise.

As a result of this change in the warrant liability in 2014, the Company recorded a non-cash benefit of $204,279 in 2014. As a result of this change in the warrant liability in 2013, which included the change in the warrant liability associated with the Waived Warrants as discussed above, the Company recorded a non-cash benefit of $8.1 million during 2013.

The following is a summary of the changes in the common stock warrant liability for 2015, 2014 and 2013:

Balance at January 1, 2013	$	4,283,932
Fair value of warrants classified as liability (see Note 10)		9,110,302
Fair value of warrants classified as equity (see Note 10)		(5,300,572	)
Gain from the adjustment for the change in fair value included in net loss		(8,090,636	)
Ending balance, December 31, 2013	$	3,026
Fair value of warrants classified as liability (see Note 8)		476,261
Gain from the adjustment for the change in fair value included in net income		(204,279	)
Ending balance, December 31, 2014	$	275,008
Loss from the adjustment for the change in fair value included in net loss		61,246
Fair value of warrants reclassified as equity (Note 9)		(336,254	)
Ending balance as of December 31, 2015	$	–