WARRANTS

12 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Note 13. 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:

	2013			2012
Risk-free interest rate		0.65% - 1.85	%		0.70% - 2.23	%
Expected dividend yield		—			—
Expected term (contractual term)	0.33 - 5 years			0.06 - 5 years
Forfeiture rate		—			—
Expected volatility		122% - 123	%		123% - 144	%

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 year ended December 31, 2012, the Company issued warrants with a fair value of approximately $8,655,000.  Included in this warrant fair value are warrants with a fair value of approximately $4,840,000 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. The warrants issued in the years ended December 31, 2012 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.

In the year ended December 31, 2013, the Company issued warrants with a relative fair value of $371,140 in connection with a private placement of the Company’s Common Stock and Series E Preferred Stock with Montaur-related entities (See Note 9).

At December 31, 2013, the Company had the following outstanding warrants:

	Number of Shares Exercisable		Exercise Price		Date of Expiration
Outstanding warrants accounted for as derivative warrant liability:
Granted to debt holder		400,000	$	20.00	8/31/2017
Granted to debt holder		100,000		21.30	9/20/2017
Granted to debt holder		50,000		22.70	10/17/2017
Granted to debt holder		150,000		21.10	11/6/2017
Total outstanding warrants accounted for as derivative warrant liability		700,000
Weighted average exercise price			$	20.61
Weighted average time to expiration in years					3.72 years
Outstanding warrants accounted for as equity:
Granted to investors in private placement of preferred stock		39,000	$	7.50	2/28/2014
Granted to vendor		6,000		6.00	3/15/2014
Granted to investors in private placement		40,000		15.90	6/30/2014
Granted to investors in private placement		76,800		20.00	11/13/2014
Granted to placement agent in private placement		25,695		15.00	11/13/2014
Granted to investors in private placement		6,300		20.00	12/3/2014
Granted to investors in private placement		34,146		22.50	2/9/2015
Granted to placement agents in private placement		2,853		22.50	2/9/2015
Granted to investor in private placement		638		22.50	3/18/2015
Granted to investors in private placement		95,960		30.00	12/7/2014
Granted to investors in private placement of common and preferred stock		181,818		2.75	12/10/18
Total outstanding warrants accounted for as equity		509,211
Weighted average exercise price			$	14.21
Weighted average time to expiration in years					2.26 years
Totals for all warrants outstanding:
Total		1,209,211
Weighted average exercise price			$	17.92
Weighted average time to expiration in years					3.11 years

A summary of warrant activity in the year ended December 31, 2013 is as follows:

Warrants	Shares			Weighted- Average Exercise Price
Outstanding at January 1, 2013		1,254,004		$	20.08
Granted		190,993		$	3.22
Exercised		—		$	—
Forfeited or expired		(235,786	)	$	17.36
Outstanding at December 31, 2013		1,209,211		$	17.92

Exercise of Common Stock Warrants

During 2013, there were no warrants exercised.  During 2012, warrants to purchase 16,545 shares of Common Stock were exercised, resulting in cash proceeds to the Company of approximately $212,000.  During 2011, warrants to purchase 141,947 shares of Common Stock were exercised through cashless exercises provisions, resulting in the issuance of 74,424 shares of Common Stock.  During 2011, warrants to purchase 661,530 shares of Common Stock were 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 661,530 warrant exercises, warrants to purchase an aggregate of 454,893 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.