4. Warrants Liability

The exercise price of the warrants we issued in September 2011 in conjunction with the private placement of our common stock (the "2011 Private Placement") and the warrants we issued in October 2011 in connection with our engagement of an intellectual property firm (ipCapital Group) could, in certain circumstances, be reset to below-market value. Accordingly, we have concluded that such warrants are not indexed to our common stock; therefore, the fair value of the warrants was recorded as a liability upon their issuance. Changes in fair value of the 2011 Private Placement warrants liability are recognized in other expense and changes in the fair value of the warrants issued to ipCapital are recognized as a component of general and administrative expense in the condensed consolidated statement of operations.

We used a binomial pricing model to determine the fair value of our warrants as of September 30, 2012, the balance sheet date, using the following assumptions:

	Estimated Volatility			Annualized Forfeiture Rate		Expected Option Term (Years)		Estimated Exercise Factor		Risk-Free Interest Rate			Dividends
2011 Private Placement		193	%		—		3.917		10		0.47	%		—
ipCapital		199	%		—		4.042		10		0.47	%		—

The following table is a reconciliation of the warrants liability measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2012:

Warrants liability – December 31, 2011 fair value	$	3,696,600
Change in fair value of warrant liability recorded in other income		2,417,800
Accretion of warrant liability recorded in general and administrative expense		52,700
Warrants liability – September 30, 2012 fair value	$	6,167,100

The Company used a binomial pricing model to determine the fair value of its warrants as of September 1, 2011, their issuance date, and September 30, 2011, the balance sheet date, using the following assumptions:

	Estimated Volatility			Annualized Forfeiture Rate		Expected Option Term (Years)		Estimated Exercise Factor		Risk-Free Interest Rate			Dividends
September 1, 2011		198	%		—		5.00		10		0.90	%		—
September 30, 2011		198	%		—		4.92		10		0.96	%		—

The following table is a reconciliation of the warrants liability measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2011:

September 1, 2011 fair value of the warrants liability at issuance	$	3,900,700
Change in fair value of warrant liability recorded in other expense		826,500
September 30, 2011 fair value of the warrants liability	$	4,727,200