3. Warrants and Warrants Liability

The Company follows ASC 815-40, Contracts in an Entity’s Own Equity, as it relates to outstanding warrants.

In connection with the December 2013 private placement of 72,007,000 shares of the Company's common stock at a price per share of $0.25, the Company issued an aggregate of warrants to purchase 4,320,420 shares of common stock at an exercise price of $0.25 per share to the placement agents. These warrants expire December 2018. These warrants contain provisions that protect holders from a decline in the issue price of the Company’s common stock (“down-round” provision) and contain net settlement provisions. Due to these provisions, the Company accounted for these warrants as liabilities instead of equity.

In connection with the private placement of Series B redeemable convertible preferred stock, which occurred through two closings on June 26, 2013 and July 15, 2013, respectively, the Company issued an aggregate of warrants to purchase 30,040,195 shares of common stock at an exercise price of $0.14 per share. These warrants expire June 2018. These warrants contain provisions that protect holders from a decline in the issue price of the Company’s common stock (“down-round” provision) and contain net settlement provisions. Due to these provisions, the Company accounted for these warrants as liabilities instead of equity. The Company measured the fair value of these warrants on June 26, 2013 and July 15, 2013 and recorded the initial liability as part of the private placement proceeds and expensed $1.4 million for the warrants issued to the placement agent.

We estimate the fair values of these securities using a Monte Carlo valuation model. The following warrants were issued in 2013 using the Monte Carlo valuation method with the key inputs as follows:

	June 26, 2013			July 15, 2013			December 23, 2013
Warrants issued		28,394,834			1,645,361			4,320,420
Risk free interest rate		.0109			.0109			0.0167
Volatility		160.94	%		163.08	%		155.24	%
Expected term		5 years			5 years			5 years
Exercise price	$	0.14		$	0.14		$	0.25

From February through May 2013, in connection with the issuance of new convertible promissory notes, the Company issued warrants to purchase up to 7,030,387 shares of its common stock. These warrants expire February through May 2018 and are exercisable at a price of $0.14 per share. These warrants are considered to be equity.

In 2011, in connection with the Biocontrol business combination, the Company issued warrants to purchase up to 1,355,164 shares of its common stock. These warrants expire in December 2016 and are exercisable at a price of $0.46 per share. These warrants are considered to be equity.

On June 26, 2014, 3,855,714 warrants, issued on June 26, 2013, were exercised. Due to this exercise, 2,734,151 shares of common stock were issued and $1,594,000 was classified out of the derivative liability account and into equity.

The Company re-measured the fair value of the liability warrants at September 30, 2014 and recorded a $7.1 million gain on derivative liabilities during the third quarter to adjust the liabilities associated with the warrants to their estimated fair values totaling $6.0 million. The change in fair value and the resulting gain was attributable to a decline in the market value of our common stock as of September 30, 2014.