5. WARRANTS

The Company has periodically issued warrants in connection with certain common stock offerings. The warrants issued in January and August 2009 are classified as liabilities as opposed to equity because their settlement terms require settlement in registered shares, which is outside of the Company’s control. These warrants are non-cash liabilities and the Company is not required to expend any cash to settle these liabilities. All other warrants issued by the Company were recorded as additional paid-in-capital and no further adjustments are made.

The outstanding warrants classified as liabilities are recorded at fair value on the condensed consolidated balance sheet and are adjusted to fair value at each financial reporting period, with changes in the fair value being recorded as “Loss on change in warrant valuation” in the condensed consolidated statement of operations and comprehensive income (loss). The fair value is determined using the Black-Scholes-Merton option-pricing model, which requires the use of significant judgment and estimates for the inputs used in the model. The following reflects the weighted-average assumptions for each of the periods indicated:


	September 30, 2013			December 31, 2012
Risk-free interest rate		0.1	%		0.2%-0.3	%
Expected dividend yield		0	%		0	%
Expected lives		0.8-0.9 years			1.1-1.6 years
Expected volatility (1)		67.8%-72.7	%%		139.2%-164.1	%
Shares underlying warrants classified as liabilities		959,283			3,127,618
Market value of stock at beginning of year	$	25.80		$	4.50
Market value of stock at end of period	$	47.23		$	25.80

(1)

For the three and nine months ended September 30, 2013, expected volatility was estimated using a blend of calculated volatility of the Company’s common stock over a historical period and implied volatility in exchange-traded options associated with the Company’s common stock. Prior to January 1, 2013, expected volatility was estimated using calculated volatility of the Company’s common stock over a historical period commensurate with the expected term of the option.

A reconciliation of the change in value of the Company’s warrants recorded as liabilities for the three and nine months ended September 30, 2013 is as follows:


	Three months ended September 30, 2013			Nine months ended September 30, 2013
	(in thousands)			(in thousands)
Balance at beginning of period	$	79,116		$	65,193
Increase in value of warrants		17,160			46,011

Reclassification to stockholders’ equity upon exercise of warrants		(60,282	)		(75,210	)

Balance at end of period	$	35,994		$	35,994

For the nine months ended September 30, 2013, 2,168,335 warrants were exercised at a weighted average exercise price of $7.91, generating proceeds of $17.1 million. For the nine months ended September 30, 2012, 80,014 warrants were exercised at a weighted average exercise price of $4.08, generating proceeds of $0.3 million.

The following table summarizes the outstanding warrants at September 30, 2013.


Issue Date	Exercise Price		Outstanding Warrants at September 30, 2013		Expiration Date	Weighted Average Remaining Contractual Life (Years)		Exercisable Warrants
1/30/2009	$	6.96		232,103	7/30/2014		0.8		232,103
8/25/2009	$	10.68		727,180	8/31/2014		0.9		727,180

				959,283					959,283