WARRANTS

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Note 12. WARRANTS

The Company uses valuation methods and assumptions that consider among other factors the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments.  The following assumptions were utilized by the Company:

	2012			2011
Risk-free interest rate		0.70% - 2.23	%		3.36% - 3.75	%
Expected dividend yield		—			—
Expected term (contractual term)	0.06 - 5 years			2 years
Forfeiture rate		—			—
Expected volatility		123% - 144	%		142	%

Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the warrant. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the warrant.

In the years ended December 31, 2012 and 2011, the Company issued warrants with a fair value of approximately $8,655,000 and $11,191,000, respectively.  Included in this warrant fair value are warrants with a fair value of approximately $4,840,000 and $41,000 recorded as a debit to deferred financing costs and credit to additional paid-in capital for stock issuance costs related to the Montaur Credit Facility (see Note 6) and 2011 financings (see Note 9), respectively. The warrants issued in the years ended December 31, 2012 and 2011 generally have a term of 2 to 5 years, a non-redeemable feature, and a cashless exercise provision. Certain of these warrants have a standard weighted average anti-dilution protection and piggy back registration rights.

At December 31, 2012, the Company had the following outstanding warrants:

	Number of
	Shares		Exercise		Date of
	Exercisable		Price		Expiration
Outstanding warrants in derivative warrant liability:
Granted to financial investment advisor		7,500	$	1.26	2/11/2013
Granted to investors in private placement		154,990	$	0.50	2/11/2013
Granted to investors in private placement		197,663	$	1.44	3/24/2013
Granted to debtor as a Commitment warrant		4,000,000	$	2.00	8/31/2017
Granted to debtor as a Draw warrant		1,000,000	$	2.13	9/20/2017
Granted to debtor as a Draw warrant		500,000	$	2.27	10/17/2017
Granted to debtor as a Draw warrant		1,500,000	$	2.11	11/6/2017
Total outstanding warrants accounted for as derivative warrant liability		7,360,153
Weighted average exercise price			$	2.01
Weighted average time to expiration in years					4.50 years
Outstanding warrants in equity:
Granted to investors in private placement of preferred stock		32,249	$	1.00	9/30/2013
Granted to investors in private placement of preferred stock		198,333	$	1.50	10/28/2013
Granted to investors in private placement of preferred stock		390,000	$	0.75	2/28/2014
Granted to vendor		60,000	$	0.60	3/15/2014
Granted to investors in private placement		400,000	$	1.59	6/30/2014
Granted to investors in private placement		768,000	$	2.00	11/13/2014
Granted to placement agent in private placement		256,906	$	1.50	11/13/2014
Granted to investors in private placement		63,000	$	2.00	12/3/2014
Granted to investors in private placement		341,325	$	2.25	2/9/2015
Granted to placement agents in private placement		28,500	$	2.25	2/9/2015
Granted to investor in private placement		6,375	$	2.25	3/18/2015
Granted to financial investment advisor		100,000	$	1.50	2/10/2013
Granted to financial investment advisor		10,367	$	2.00	3/3/2013
Granted to investors in private placement		245,750	$	1.50	1/4/2013
Granted to investors in private placement		245,750	$	2.50	1/4/2013
Granted to placement agent in private placement		18,125	$	1.50	1/4/2013
Granted to placement agent in private placement		18,125	$	2.50	1/4/2013
Granted to investors in private placement		255,000	$	1.50	2/3/2013
Granted to investors in private placement		280,000	$	2.50	2/3/2013
Granted to placement agent in private placement		1,250	$	1.50	2/3/2013
Granted to placement agent in private placement		1,250	$	2.50	2/3/2013
Granted to investors in private placement		250,000	$	1.50	2/8/2013
Granted to investors in private placement		250,000	$	2.50	2/8/2013
Granted to investors in private placement		959,582	$	3.00	12/7/2014
Total outstanding warrants accounted for as equity		5,179,887
Weighted average exercise price			$	2.00
Weighted average time to expiration in years					1.18 years
Totals for all warrants outstanding:
Total		12,540,040
Weighted average exercise price			$	2.01
Weighted average time to expiration in years					3.13 years

A summary of warrant activity in the year ended December 31, 2012 is as follows:

Warrants:	Shares			Weighted- Average Exercise Price
Outstanding at January 1, 2012		7,527,529		$	1.92
Granted		7,020,339		$	1.44
Exercised		(165,451	)	$	1.28
Forfeited or expired		(1,842,377	)	$	1.90
Outstanding at December 31, 2012		12,540,040		$	2.01

Exercise of Common Stock Warrants

During 2012, warrants to purchase 165,451 shares of Common Stock were voluntarily exercised, resulting in cash proceeds to the Company of approximately $212,000. 

During 2011, warrants to purchase 1,419,470 shares of Common Stock were voluntarily exercised through cashless exercises provisions, resulting in the issuance of 744,243 shares of Common Stock.

During 2011, warrants to purchase 6,615,298 shares of Common Stock were voluntarily exercised, resulting in cash proceeds to the Company of approximately $6,628,000. No such warrant exercises in exchange for cash occurred in 2010. Also during 2011, the Company encouraged certain holders of its warrants to exercise their warrants by reducing the exercise prices provided they elected to simultaneously exercise for cash proceeds. Of the 6,615,298 warrant exercises, warrants to purchase an aggregate of 4,548,928 shares of Common Stock were exercised under this arrangement during the year ended December 31, 2011 and cash proceeds of $4,471,631 from these transactions were received.  As a result of the reductions in exercise price, the Company recorded $4,559,761 in deemed dividends for the year ended December 31, 2011 in the Consolidated Statement of Operations.