WARRANTS

3 Months Ended

Mar. 31, 2014

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:

	2014			2013
Risk-free interest rate		1.53% - 1.73	%		0.70% - 2.23	%
Expected dividend yield		—			—
Expected term (contractual term)	3.42 – 5 years			0.06 - 5 years
Forfeiture rate		—			—
Expected volatility		121% - 122	%		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 three months ended March 31, 2014, the Company issued 18,182 warrants in connection with a partial closing related to the private placement of the Company’s Common Stock with MTIA (See Note 8).

At March 31, 2014, 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					3.48 years
Outstanding warrants accounted for as equity:
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		34,147		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	12/10/2018
Granted to investors in private placement of common stock		18,182		2.75	2/20/2019
Total outstanding warrants accounted for as equity		482,393
Weighted average exercise price			$	14.43
Weighted average time to expiration					2.14 years
Totals for all warrants outstanding:
Total		1,182,393
Weighted average exercise price			$	18.09
Weighted average time to expiration					3.01 years

A summary of warrant activity for the three months ended March 31, 2014 is as follows:

Warrants	Shares			Weighted- Average Exercise Price
Outstanding warrants at January 1, 2014		1,209,211		$	17.92
Granted		18,182		$	2.75
Exercised		—		$	—
Forfeited or expired		(45,000	)	$	7.30
Outstanding warrants at March 31, 2014		1,182,393		$	18.09