Stock Purchase Warrants

On October 10, 2014, the Company raised net proceeds of $19.1 million through the sale of 14,059,616 units at a price of $1.47 per unit to certain institutional investors in a registered direct offering. Each unit consisted of one share of the Company’s common stock and a warrant to purchase 0.5 shares of common stock. The warrants, exercisable for an aggregate of 7,029,808 shares of common stock, have an exercise price of $1.75 per share and a life of five years. The warrants vested immediately and expire October 10, 2019.

The warrants issued in conjunction with the registered direct offering in October 2014 include a provision, that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from the holder at a premium. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance date and changes in estimated fair value will be recorded as non-cash income or expense in the Company’s statement of operations at each subsequent period. At September 30, 2015, the fair value of the warrant liability was $10.7 million, which represented non-cash income of $4.1 million for the three months ended September 30, 2015 and non-cash expense of $3.9 million for the nine months ended September 30, 2015. In accordance with authoritative accounting guidance, the warrant was valued on the date of grant and in subsequent periods using the Black-Scholes valuation model. The assumptions used by the Company are summarized in the following table:

	September 30, 2015			June 30, 2015			March 31, 2015			December 31, 2014			Issuance Date
Closing stock price	$	2.27		$	2.85		$	2.19		$	1.46		$	1.75
Expected dividends		0	%		0	%		0	%		0	%		0	%
Expected volatility		85	%		90	%		90	%		90	%		95	%
Risk free interest rate		1.15	%		1.41	%		1.26	%		1.59	%		1.39	%
Expected life of warrant		4.04 years			4.30 years			4.55 years			4.79 years			5 years

The following table summarizes the estimated fair value of the warrant liability (in thousands):

Balance at December 31, 2014	$	6,756
Change in fair value of warrant liability		3,906
Balance at September 30, 2015	$	10,662

As of September 30, 2015, all of the warrants remained outstanding.

On October 25, 2012, the Company entered into a Common Stock Purchase Agreement with certain accredited investors. As part of this agreement, the Company issued warrants to purchase 635,855 shares of common stock to the placement agent, or its permitted assigns. The warrants have an exercise price of $1.60 and a life of five years. The warrants vested immediately and expire October 25, 2017. Since these warrants were granted as part of an equity raise, the Company has treated them as a direct offering cost. The result of the transaction has no affect to equity. Warrants outstanding as of September 30, 2015 were 311,834.

A summary of warrant activity for the Company for the nine months ended September 30, 2015 and for the year ended December 31, 2014 is as follows:

			Weighted Average
	Number of Warrants		Exercise Price
Balance at December 31, 2013		1,632,501	$	1.99
Granted		7,029,808	$	1.75
Exercised		(232,619)	$	1.47
Forfeited		(454,896)	$	1.88
Balance at December 31, 2014		7,974,794	$	1.80
Granted		-	$	-
Exercised		(2,448)	$	-
Forfeited		(63,447)	$	3.24
Balance at September 30, 2015		7,908,899	$	1.79

A summary of all outstanding and exercisable warrants as of September 30, 2015 is as follows:

						Weighted Average
Exercise		Warrants		Warrants		Remaining	Aggregate
Price		Outstanding		Exercisable		Contractual Life	Intrinsic Value
$	1.60		311,834		311,834	2.07 years	$	212,000
$	1.75		7,029.808		7,029,808	4.04 years	$	3,656,000
$	2.22		517,257		517,257	1.16 years	$	26,000
$	3.75		50,000		50,000	0.38 years	$	-
$	1.79		7,908,899		7,908,899	3.74 years	$	3,894,000