WARRANTS FOR COMMON STOCK

9 Months Ended

Sep. 30, 2016

Warrants For Common Stock [Abstract]

WARRANTS FOR COMMON STOCK

NOTE 11. - WARRANTS FOR COMMON STOCK

At September 30, 2016, the Company had outstanding warrants to purchase 9,531,921 shares of common stock of the Company, of which only 94,721 warrants contain an anti-dilution feature. The Crede Tranche 2 and Tranche 3 warrants are excluded from the outstanding warrant total of 9,531,921 (see Note 5 – Joint Venture, Consulting Agreement and Associated Warrants for additional information).

On January 25, 2016, warrants to purchase 67,042 shares of common stock were exercised, primarily on a cashless basis, resulting in the issuance of 2,618 shares of the Company’s common stock. On January 25, 2016, warrants to purchase 6,831,115 shares of common stock expired without being exercised.

Pursuant to the registered direct offering that closed on July 27, 2016, and discussed in Note 2, the Company issued warrants to purchase 7,043,211 shares of common stock. The warrants provide for an exercise price of $1.00 per share and 1,543,210 of the warrants were exercisable immediately and had a fair value of approximately $858,000 at issuance and 5,500,001 of the warrants were exercisable six months from the date of issuance and had a fair value of approximately $3,058,000 at issuance. All the warrants have a term of 5.5 years and do not contain an anti-dilution feature. In addition, on July 27, 2016, the Company terminated an aggregate of 5.5 million warrants with exercise prices of $1.21 and $1.25 per share (see also Note 3 – February 2016 Registered Direct Offering and Note 4 – June 2015 Registered Direct Offering for additional information).

Pursuant to the registered direct offering that closed on February 5, 2016, and discussed in Note 3, the Company issued warrants to purchase 2,500,000 shares of common stock with an exercise price of $1.21 per share. These warrants had a term of sixty-six (66) months, were not exercisable for six months immediately following the date of issuance, did not contain an anti-dilution feature, and had a fair value of approximately $1,940,000 at issuance. The warrants associated with this transaction were terminated on July 27, 2016 (see Note 2 – July 2016 Registered Direct Offering for additional information).

Pursuant to the registered direct offering that closed on June 2, 2015, and discussed in Note 4, the Company issued warrants to purchase 3,000,000 shares of common stock with an exercise price of $1.25 per share. These warrants had a term of sixty-six (66) months, were not exercisable for six months immediately following the date of issuance, did not contain an anti-dilution feature, and had a fair value of approximately $2,067,000 at issuance. The warrants associated with this transaction were terminated on July 27, 2016 (see Note 2 – July 2016 Registered Direct Offering for additional information).

Outstanding warrants at September 30, 2016 consisted of the following:

	Number of		Exercise
Warrant Description	Warrants		Price		Expiration
December 2011 convertible NP warrants		172,730	$	1.1984	February 8, 2017
December 2011 convertible NP warrants		802,215	$	1.3816	February 6, 2018
May 2012 PPO warrants		401,700	$	0.6000	May 15, 2017
November 2012 PPO warrants		925,100	$	0.6000	November 9, 2017
August 2012 convertible NP warrants(1)		94,721	$	0.9310	August 8, 2018
August 2012 convertible NP warrants		92,244	$	0.9060	August 8, 2018
July 2016 registered direct offering warrants		7,043,211	$	1.0000	January 27, 2021
Total warrants outstanding(2),(3)		9,531,921

(1)	Includes anti-dilution features.
(2)	Includes warrants to purchase 533,000 shares of common stock (5.6%) held by officers and directors that have had the anti-dilution feature removed.
(3)	Includes warrants to purchase 312,730 shares of common stock (3.3%) held by a former officer and director that have had the anti-dilution feature removed.

The Company estimates the value of warrant liability upon issuance of the warrants and at each balance sheet date using the binomial lattice model to allocate total enterprise value to the warrants and other securities in the Company’s capital structure. Volatility was estimated based on historical observed equity volatilities and implied (forward) or expected volatilities for a sample group of guideline companies and consideration of recent market trends.

As a result of the previously exercisable exchange rights contained in the Tranche 1A warrants, the financial instrument was previously considered a liability in accordance with FASB Accounting Standards Codification Topic 480 - “Distinguishing Liabilities from Equity” (“ASC 480”). More specifically, ASC 480 requires a financial instrument to be classified as a liability if such financial instrument contains a conditional obligation that the issuer must or may settle by issuing a variable number of its equity securities if, at inception, the monetary value of the obligation is based on a known fixed monetary amount. As a result of the actions by Crede that caused the exchange rights feature to be voided (see Note 5 - Joint Venture, Consulting Agreement and Associated Warrants for additional information), the Company reclassified the Tranche 1A warrant liability to Capital in excess of par.

The following table is a roll-forward summary of the warrant liability:

Fair value at December 31, 2013	$	3,779,522
Reclassification of warrant liability to equity resulting from Warrant Amendments - Q1 2014		(7,367,915)
Cost of inducement from Warrant Amendments - Q1 2014		144,548
Fair value of warrant liability resulting from issuance of Crede Tranche 1A Warrants - Q3 2014		2,810,000
Loss as a result of change in fair value		3,676,691
Fair value at December 31, 2014	$	3,042,846
Gain as a result of change in fair value		(144,550)
Fair value at December 31, 2015	$	2,898,296
Reclassification of warrant liability to capital in excess of par		(2,810,000)
Gain as a result of change in fair value		(14,602)
Fair value at September 30, 2016	$	73,694

The aggregate net (loss) gain as a result of the Company’s warrant liability for the three and nine months ended September 30, 2016 amounted to ($46,995) and $14,602, respectively (the aggregate net gain for the three and nine months ended September 30, 2015 amounted to $27,723 and $199,556, respectively), which are included in Other income (expense) under Warrant liability (loss) gain - net in the accompanying Consolidated Statements of Operations.

FASB ASC 820 - “Fair Value Measurements and Disclosures” establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;  

· Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and

· Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.

A financial asset’s or a financial liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The warrant liability is measured at fair value using certain estimated factors such as volatility and probability which are classified within Level 3 of the valuation hierarchy. Significant unobservable inputs that are used in the fair value measurement of the Company’s derivative warrant liabilities include volatility. Significant increases (decreases) in the volatility input would result in a significantly higher (lower) fair value measurement. 

The following table summarizes the Company’s warrant activity since December 31, 2013:

	Number of  Warrants
Warrants outstanding at December 31, 2013		10,653,469
Warrants issued in conjunction with consulting agreement		4,250,000
Warrants exercised during 2014		(1,247,443)
Additional warrants due to anti-dilution provisions		18,383
Warrants outstanding at December 31, 2014		13,674,409
Warrants issued in conjunction with registered direct offering		3,000,000
Warrants exercised during 2015		(40,000)
Additional warrants due to anti-dilution provisions		369
Warrants outstanding at December 31, 2015		16,634,778
Warrants issued in conjunction with registered direct offering		2,500,000
Unexercisable warrants(1)		(2,000,000)
Warrants exercised during January 2016		(67,042)
Warrants expired during January 2016		(6,831,115)
June 2015 registered direct offering warrants cancelled		(3,000,000)
February 2016 registered direct offering warrants cancelled		(2,500,000)
Warrants issued in conjunction with July 2016 registered direct offering		7,043,211
Additional warrants due to anti-dilution provisions		2,089
Warrants expired during September 2016(2)		(2,250,000)
Warrants outstanding at September 30, 2016		9,531,921
Composition of outstanding warrants:
Warrants containing anti-dilution feature		94,721
Warrants without anti-dilution feature		9,437,200
		9,531,921

(1)	Crede Tranche 2 Warrants and Tranche 3 Warrants are not exercisable (see Note 5 for additional information).
(2)	Crede Tranche 1A Warrants and Crede Tranche 1B Warrants expired unexercised on September 29, 2016.