15. Equity

Sentient Note conversion

On February 11, 2016, Sentient converted approximately $3.9 million of principal and $0.1 million of accrued interest (representing the total amount of accrued interest at the conversion date) pursuant to the Sentient Note into 23,355,000 shares of the Company's common stock at an exercise price of approximately $0.172 per share, reflecting 90% of the 15-day VWAP immediately preceding the conversion date (see Note 11).

Equity Incentive Plans

In May 2014, the Company’s stockholders approved amendments to the Company’s 2009 Equity Incentive Plan, adopting the Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”) pursuant to which awards of the Company’s common stock may be made to officers, directors, employees, consultants and agents of the Company and its subsidiaries. The Company recognizes stock-based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award.

The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at March 31, 2016 and the changes during the three months then ended:


		Weighted
		Average Grant
		Date Fair
	Number of	Value Per
Restricted Stock Grants	Shares	Share
Outstanding at December 31, 2015	84,170	$	0.46
Granted during the period	—		—
Restrictions lifted during the period	(834)		2.89
Forfeited during the period	—		—
Outstanding at March 31, 2016	83,336	$	0.44

Restrictions were lifted on 834 shares during the three months ended March 31, 2016 according to the terms of grants made to an employee in prior years.

For the three months ended March 31, 2016 the Company recognized approximately $2,000 of compensation expense related to the restricted stock grants. The Company expects to recognize additional compensation expense related to these awards of approximately $5,000 over the next nine months.

The following table summarizes the status of the Company’s stock option grants issued under the Equity Plan at March 31, 2016 and the changes during the three months then ended:


		Weighted
		Average Grant
		Date Fair
	Number of	Value Per
Equity Plan Options	Shares	Share
Outstanding at December 31, 2015	245,810	$	3.47
Granted during the period	—		—
Restrictions lifted during the year	—		—
Forfeited or expired during period	—		—
Exercised during period	—		—
Outstanding at March 31, 2016	245,810	$	3.47
Exercisable at end of period	245,810	$	3.47
Granted and vested	245,810	$	3.47

Also, pursuant to the Equity Plan, the Company’s Board of Directors adopted the Non-Employee Director’s Deferred Compensation and Equity Award Plan (the “Deferred Compensation Plan”). Pursuant to the Deferred Compensation Plan the non-employee directors receive a portion of their compensation in the form of Restricted Stock Units (“RSUs”) issued under the Equity Plan. The RSUs vest on the first anniversary of the grant and each vested RSU entitles the director to receive one unrestricted share of common stock upon the termination of the director’s board service.

The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at March 31, 2016 and the changes during the three months then ended:



		Weighted
		Average Grant
	Number of	Date Fair
	Underlying	Value Per
Restricted Stock Units	Shares	Share
Outstanding at December 31, 2015	1,245,285	$	1.66
Granted during the period	—		—
Restrictions lifted during the period	—		—
Forfeited during the period	—		—
Outstanding at March 31, 2016	1,245,285	$	1.66

For the three months ended March 31, 2016 the Company recognized approximately $31,000 of compensation expense related to the RSU grants. The Company expects to recognize additional compensation expense related to the RSU grants of approximately $10,000 over the next 3 months.

Key Employee Long-Term Incentive Plan

In December 2013, the Board of Directors of the Company approved and the Company adopted the 2013 Key Employee Long-Term Incentive Plan (the “KELTIP”), which became effective immediately. The KELTIP provides for the grant of units (“KELTIP Units”) to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount, in cash or in Company common stock issued pursuant to the Company’s Amended and Restated 2009 Equity Incentive Plan, measured generally by the price of the Company’s common stock on the settlement date. KELTIP Units are not an actual equity interest in the Company and are solely unfunded and unsecured obligations of the Company that are not transferable and do not provide the holder with any stockholder rights. Payment of the settlement amount of vested KELTIP Units is deferred generally until the earlier of a change of control of the Company or the date the grantee ceases to serve as an officer or employee of the Company. The KELTIP Units are recorded as a liability. At March 31, 2016 and December 31, 2015 there were no KELTIP Units outstanding.

Common stock warrants

The following table summarizes the status of the Company’s common stock warrants at March 31, 2016 and the changes during the three months then ended:



		Weighted
	Number of	Average Exercise
	Underlying	Price Per
Common Stock Warrants	Shares	Share
Outstanding at December 31, 2015	8,777,409	$	3.95
Granted during period	—
Dilution adjustment	2,266,331
Expired during period	—
Exercised during period	—
Outstanding at March 31, 2016	11,043,740	$	3.06

The warrants relate to prior registered offerings and private placements of the Company’s stock. In September 2012, the Company closed on a registered offering and concurrent private placement with Sentient in which it sold units, consisting of one share of common stock and a five-year warrant to acquire one half of a share of common stock at an exercise price of $8.42 per share. Pursuant to certain dilution adjustment provisions in the warrant agreement governing the September 2012 warrants, the number of shares of common stock issuable upon exercise of the September 2012 warrants was increased from 3,431,649 shares to 4,031,409 shares (599,760 share increase) and the exercise price was reduced from $8.42 per share to $7.17 per share pursuant to a weighted average dilution calculation based on the pricing of the September 2014 Offering and the Private Placement.

In September 2014 the Company closed on a registered public offering and concurrent private placement with Sentient in which it sold units, consisting of one share of common stock and a five-year warrant to acquire one half of a share of common stock at an exercise price of $1.21 per share. A total of 4,746,000 warrants were issued that became exercisable on March 11, 2015 and will expire on September 10, 2019, five years from the date of issuance.

The warrants issued in September 2012 and September 2014 are being recorded as a liability on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at an offering price lower than the current exercise price of the warrants.

Pursuant to the anti-dilution clauses in the September 2012 and 2014 warrant agreements, the exercise price of the warrants was adjusted downward as a result of stockholder approval of the convertibility of the Sentient Note. At January 19, 2016, the date of the stockholders’ approval, the conversion price determinable for the Sentient Note, pursuant to the terms of the Sentient Note, was $0.29, a price equal to 90 percent of the 15-day VWAP for the period immediately preceding the loan closing date of October 27, 2015. As a result, effective January 19, 2016, the number of shares of common stock issuable upon exercise of the September 2012 Warrants was increased from 4,031,409 shares to 5,084,193 shares (1,052,784 share increase) and the exercise price was reduced from $7.17 per share to $5.68 per share. The number of shares of common stock issuable upon exercise of the September 2014 Warrants was increased from 4,746,000 shares to 5,108,347 shares (362,347 share increase) and the exercise price was reduced from $1.21 per share to $1.01 per share.

As a result of the Sentient Note conversion on February 11, 2016, the number of shares of common stock issuable upon exercise of the September 2012 Warrants was increased pursuant to applicable anti-dilution provisions from 5,084,193 shares to 5,677,757 shares (593,564 share increase) and the exercise price was reduced from $5.68 per share to $5.09 per share. The number of shares of common stock issuable upon exercise of the September 2014 Warrants was increased from 5,108,347 shares to 5,365,983 shares (257,636 share increase) and the exercise price was reduced from $1.01 per share to $0.91 per share.

At March 31, 2016 the total liability recorded for the warrants was $1.4 million, consisting of $1.2 million for the 2014 warrants and $0.2 million for the 2012 warrants. The warrant liability has been recorded at fair value as of March 31, 2016 based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy (see Note 13).