15. Equity

Offering and Private Placement

On May 6, 2016, the Company issued 8.0 million registered shares of common stock at a purchase price of $0.50 per share in a registered direct offering (the “Offering”) resulting in gross proceeds of $4.0 million. The Company incurred costs and fees of approximately $0.4 million related to the Offering, resulting in net proceeds of approximately $3.6 million. In connection with the Offering, for each share of common stock purchased by an investor, the investor received in a private placement an unregistered warrant to purchase three‐quarters of a share of common stock. The 6.0 million warrants have an exercise price of $0.75 per share and are exercisable six months after the date of issuance and will expire five years from the initial exercise date.

The net proceeds of the Offering were recorded in equity and appear as a separate line item in the Condensed Consolidated Statements of Changes in Equity. Using the Black Scholes model, the fair value of the warrants issued was $3.6 million, considering the closing stock price on April 29, 2016 (the first business day preceding May 2, 2016, the date the Company entered into a definitive agreement to issue the shares), the exercise price and exercise period of the warrants, the Company’s volatility rate of 105%, and the applicable risk free rate of 0.74%.

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. On June 10, 2016, Sentient converted the remaining approximately $1.1 million of principal and approximately $34,000 of accrued interest (representing the total amount of accrued interest at the conversion date) pursuant to the Sentient Note into 4,011,740 shares of the Company's common stock at an exercise price of approximately $0.289 per share, equal to 90% of the 15‐day VWAP immediately preceding the loan’s original issue date (see Note 11). At September 30, 2016 the Sentient Note had been fully converted and the Company had no further debt outstanding. After conversion, Sentient holds approximately 47% of the Company’s 88.9 million shares of issued and outstanding common stock.

Equity Incentive Plans

Under the Company’s Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”) 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 September 30, 2016 and the changes during the nine 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	(836)		2.89
Forfeited during the period	—		—
Outstanding at September 30, 2016	83,334	$	0.44

Restrictions were lifted on 836 shares during the nine months ended September 30, 2016 according to the terms of grants made to an employee in prior years.

For the nine months ended September 30, 2016 the Company recognized approximately $4,700 of compensation expense related to the restricted stock grants. The Company expects to recognize additional compensation expense related to these awards of approximately $1,500 over the next three months.

In addition to the restricted stock grants in the table above, on May 19, 2016, the Company granted a consultant 50,000 shares of fully vested stock. The Company recognized stock compensation expense of $21,000 related to the grant.

The following table summarizes the status of the Company’s stock option grants issued under the Equity Plan at September 30, 2016 and the changes during the nine months then ended:


		Weighted
		Average
		Exercise
	Number of	Price Per
Equity Plan Options	Shares	Share
Outstanding at December 31, 2015	245,810	$	3.47
Granted during the period	—		—
Forfeited or expired during period	(150,000)	$	0.56
Exercised during period	—		—
Outstanding at September 30, 2016	95,810	$	8.02
Exercisable at end of period	95,810	$	8.02
Granted and vested	95,810	$	8.02

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 September 30, 2016 and the changes during the nine 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	530,000		0.42
Restrictions lifted during the period	(167,968)		1.40
Forfeited during the period	—		—
Outstanding at September 30, 2016	1,607,317	$	1.28

Included in the RSUs granted during the period are 250,000 RSUs granted to the Chairman of the Board that vested immediately. The restrictions lifted during the period relate to a director who retired during the period.

For the nine months ended September 30, 2016 the Company recognized approximately $0.2 million of compensation expense related to the RSU grants. The Company expects to recognize additional compensation expense related to the RSU grants of approximately $38,000 over the next 8 months.

Key Employee Long-Term Incentive Plan

The Company’s 2013 Key Employee Long-Term Incentive Plan (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, included in “Accounts payable and other accrued liabilities” in the Condensed Consolidated Balance Sheets. On May 19, 2016 the Company awarded 585,000 KELTIP Units to two officers of the Company and recorded approximately $0.3 million of compensation expense, included in “Stock based compensation” in the Condensed Consolidated Statement of Operations and Comprehensive Loss. At September 30, 2016 the KELTIP Units were marked-to-market and the Company recognized approximately $0.1 million of additional compensation expense in the third quarter 2016. At September 30, 2016 the 585,000 KELTIP Units were outstanding. At 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 September 30, 2016 and the changes during the nine 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	6,000,000	$	0.75
Dilution adjustment	2,801,541
Expired during period	—
Exercised during period	—
Outstanding at September 30, 2016	17,578,950	$	2.17

The warrants relate to prior and current 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. A total of 3,431,649 warrant shares were issued and became exercisable on March 20, 2013 and will expire on September 19, 2017, five years from the date of issuance.

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 warrant shares were issued that became exercisable on March 11, 2015 and will expire on September 10, 2019, five years from the date of issuance.

On May 6, 2016 the Company closed on the Offering (discussed above) under which the investors received in a separate private placement an unregistered warrant to purchase three‐quarters of a share of common stock for each share of common stock purchased. The resulting 6,000,000 warrants have an exercise price of $0.75 per share, become exercisable six months after the date of issuance and will expire on November 6, 2021, five years from the initial exercise date.

The warrants issued in September 2012 and September 2014 are 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. The May 2, 2016 warrant agreement has no an anti-dilution clause and the warrants are recorded as equity.

Pursuant to the anti-dilution clauses in the September 2012 and 2014 warrant agreements, the exercise price of the warrants has been adjusted downward as a result of the subsequent issuance of the Company’s common stock in separate transactions, including the September 2014 registered public offering and private placement, the conversion of the Sentient Note, and the recent Offering (discussed above). As a result of these transactions, the number of shares of common stock issuable upon exercise of the September 2012 Warrants has increased from the original 3,431,649 shares to 6,120,573 shares (2,688,924 share increase) and the exercise price has been reduced from the original $8.42 per share to $4.72 per share. The number of shares of common stock issuable upon exercise of the September 2014 Warrants has increased from the original 4,746,000 shares to 5,458,377 shares (712,377 share increase) and the exercise price has been reduced from the original $1.21 per share to $0.87 per share.

At September 30, 2016 the total liability recorded for the 2012 and 2014 warrants was $3.0 million, consisting of $2.7 million for the 2014 warrants and $0.3 million for the 2012 warrants. The warrant liability has been recorded at fair value as of September 30, 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).