4. Stock Purchase Warrants

The Company has historically issued warrants to purchase shares of the Company’s common stock in connection with certain of its common stock offerings. The following warrants were outstanding at March 31, 2013, and include provisions that could require cash settlement of the warrants or have anti-dilution price protection provisions requiring each to be recorded as liabilities of the Company at the estimated fair value at the date of issuance, with changes in estimated fair value recorded as non-cash income or expense in the Company’s statement of operations in each subsequent period:

	January 21, 2010 Class A Warrants		December 15, 2010 Warrants
Exercise price	$	2.44	$	1.25
Expiration date	July 21, 2015		December 15, 2015
Warrants outstanding	6,034,637		308,100
Total shares issuable on exercise	4,525,978		308,100

The 740,131 warrants issued on October 17, 2007 in connection with the Company’s registered direct offering, at an exercise price of $12.72 per share expired unexercised as of April 17, 2013. The exercise price per share for the January 15, 2010 and December 15, 2010 warrants were adjusted for the anti-dilution provision triggered by usage of the Company’s ATM during the first quarter, which raised gross proceeds of $2,451,000.

The fair value of the Class A warrants and the December 2010 warrants are measured using the Monte Carlo valuation model, while the October 2007 warrants are measured using the Black-Scholes valuation model. Both of the methodologies are based, in part, upon inputs for which there is little or no observable market data, requiring the Company to develop its own assumptions. The assumptions used in calculating the estimated fair value of the warrants represent the Company’s best estimates, however; these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and different assumptions are used, the warrant liabilities and the change in estimated fair value of the warrants could be materially different.

Inherent in both the Monte Carlo and Black-Scholes valuation models are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The Monte Carlo model is used for the Class A warrants and the December 2010 warrants to value the potential future exercise price adjustments triggered by the anti-dilution provisions as well as the value of the put feature of the December 2010 warrants. These both require Level 3 inputs which are based on the Company’s estimates of the probability and timing of potential future financings and fundamental transactions. The other assumptions used by the Company are summarized in the following tables:

	December 31, 2012			March 31, 2013
January 2010 Class A Warrants
Closing stock price	$	1.26		$	0.70
Expected dividend rate	0		%	0		%
Expected stock price volatility	74.0		%	59.3		%
Risk-free interest rate	0.4		%	0.3		%
Expected life (years)	2.50			2.25

	December 31, 2012			March 31, 2013
December 2010 Warrants
Closing stock price	$	1.26		$	0.70
Expected dividend rate	0		%	0		%
Expected stock price volatility	70.1		%	77.9		%
Risk-free interest rate	0.4		%	0.3		%
Expected life (years)	2.96			2.71

The following table summarizes the change in the estimated fair value of the Company’s warrant liabilities (in thousands):

Warrant Liabilities
Balance at December 31, 2012	$	1,995
Decrease in fair value	(1,619		)
Balance at March 31, 2013	$	376