Warrants [Text Block] | 13. Warrants We had outstanding warrants to purchase 13,167,396 shares and 1,782,222 shares of our common stock as of December 31, 2015 and December 31, 2014, respectively. 6,142,560 and 1,486,222 warrants to purchase common stock held by related parties of our Company as of December 31, 2015 and December 31, 2014, respectively. Warrants to purchase 11,085,174 shares of common stock were issued in the 2015 Offering. Warrants to purchase 2,060,000 shares of common stock were issued in 2014 and 2015 to individuals who provided guarantees in connection with our lines of credit. The remaining warrants to purchase 22,222 shares of common stock were issued in 2012 and expire on February 1, 2017 and have an exercise price of $1.50 per share. Warrants Issued in 2015 Offering In the 2015 Offering, we issued warrants to purchase 9,642,857 shares of common stock to investors who purchased Class A Units. Warrants to purchase 1,071,750 shares of common stock were issued to investors who purchased Class B Units. In addition, warrants to purchase 370,567 shares of common stock were sold to the underwriter of the 2015 Offering. All of these warrants have a fixed exercise price of $0.875 per share and expire on December 9, 2020. As of December 31, 2015, none of these warrants had been exercised. August 12, 2015 Warrants On August 12, 2015, we issued warrants to individuals who provided guarantees in connection with a $1,000,000 increase to our December 2014 line of credit that was obtained by us on that same date. The warrants allow the warrant holders to purchase a total of 300,000 shares of our common stock. The warrants vested immediately and are exercisable any time prior to their expiration on August 12, 2020. The warrants initially had anti-dilution provisions, under which the warrants' strike price could change if certain future events occurred. Some of the anti-dilution provisions of warrants issued to our officers and directors do not become effective unless and until they are approved by our stockholders. When the warrants were issued, they allowed warrant holders to purchase shares of our common stock for $1.70 per share, which was equal to the closing market price of our common stock on August 12, 2015. On August 28, 2015, restricted stock was awarded to our directors pursuant to our director compensation plan. In accordance with the anti-dilution provisions of the warrant contracts, the warrants’ strike price was reduced to $1.46 per share, which was equal to the closing market price of our common stock on August 28, 2015. On December 8, 2015, the warrants’ strike price with respect to 50,010 shares of common stock was further reduced to $0.70 per share, which was equal to the price at which Class A units were sold in the 2015 Offering. Adjustments to the strike price of warrants to purchase 249,990 shares of our common stock issued to our officers and directors do not become effective unless and until they are approved by our stockholders. All warrant holders have waived their rights to any further adjustments to the warrants’ strike price after December 8, 2015. Because the warrants’ strike price was subject to adjustment, the warrants were initially reported as liabilities on our balance sheet. On the date the warrants were issued, we recognized a warrant liability that was equal to the warrants' fair value of $347,000. A corresponding entry was made to deferred loan fees. Deferred loan fees, an asset on our balance sheet, are being amortized over the life of the line of credit agreement, which expires on October 1, 2016. During the year ended December 31, 2015, we recognized $124,000 of amortization expense on this asset. Prior to December 8, 2015, the warrant liability was adjusted to the warrants' fair value at the end of each reporting period. Increases (decreases) in the warrant liability were reported as unrealized losses (gains) and reported as a component of interest expense on the Company's statements of operations. On December 8, 2015, the warrants were adjusted to their estimated fair value of $126,000. The Company's statements of operations for the year ended December 31, 2015 includes an unrealized (gain) of ($221,000). The unrealized gain corresponds with the decrease in the warrant liability between August 12, 2015 and December 8, 2015. On December 8, 2015, the warrants’ strike price was fixed at $0.70 per share. At that time, the warrants were reclassified as equity and reported as additional paid-in capital. The warrants will not be adjusted to fair value in any reporting period after December 8, 2015. Prior to December 8, 2015, the warrants' fair value was calculated using the binomial options-pricing model. Pursuant to the terms of the relevant warrant agreements, the anti-dilution provisions were applicable if our common stock was issued in certain transactions at a price below the warrants’ exercise price. On August 12, 2015, we assumed that there was a 95% probability that the Company would issue common stock in at least one of those transactions in the remainder of 2015. If the market price of the Company's stock was less than the warrants' exercise price on the date of such issuance, we assumed that the warrants' exercise price would be reduced, in accordance with the terms of the warrant agreements. On December 8, 2015, we assumed that the warrants’ strike price was fixed for the remainder of the warrants’ term. Additional assumptions we used in our valuation calculations were as follows: December 8, 2015 August 12, 2015 Stock price $ 0.63 $ 1.70 Volatility 90.0 % 82.5 % Risk-free interest rate 1.68 % 1.52 % Exercise price $ 0.70 $ 1.70 Expected life (years) 4.68 5 Dividend yield 0 % 0 % December 4, 2014 Warrants On December 4, 2014, we issued warrants to individuals who provided guarantees in connection with a $6,000,000 line of credit that was obtained by us on that same date. The warrants allow the warrant holders to purchase a total of 960,000 shares of our common stock. The warrants vested immediately and are exercisable any time prior to their expiration on December 4, 2019. The warrants initially had anti-dilution provisions, under which the warrants' strike price could change if certain future events occurred. When the warrants were issued, they allowed warrant holders to purchase shares of our common stock for $2.71 per share, which was equal to the closing market price of our common stock on December 4, 2014. On August 28, 2015, restricted stock was awarded to our directors pursuant to our director compensation plan. In accordance with the anti-dilution provisions of the warrant contracts, the warrants’ strike price was reduced to $1.46 per share, which was equal to the closing market price of our common stock on August 28, 2015. On December 8, 2015, the warrants’ strike price was further reduced to $0.70 per share, which was equal to the price at which Class A units were sold in the 2015 Offering. All warrant holders have waived their rights to any further adjustments to the warrants’ strike price after December 8, 2015. Because the warrants’ strike price was subject to adjustment, the warrants were initially reported as liabilities on our balance sheet. On the date the warrants were issued, we recognized a warrant liability that was equal to the warrants' fair value of $1,660,000. A corresponding entry was made to deferred loan fees. Deferred loan fees, an asset on our balance sheet, are being amortized over the life of the line of credit agreement, which expires on October 1, 2016. During the years ended December 31, 2015 and December 31, 2014, we recognized $960,000 and $92,000 of amortization expense, respectively, on this asset. Prior to December 8, 2015, the warrant liability was adjusted to the warrants' fair value at the end of each reporting period. Increases (decreases) in the warrant liability were reported as unrealized losses (gains) and reported as a component of interest expense on the Company's statements of operations. On December 31, 2014 and December 8, 2015, the warrants were adjusted to their estimated fair value of $1,790,000 and $376,000, respectively. The Company's statements of operations for the years ended December 31, 2015 and December 31, 2014 include an unrealized gain of $1,414,000 and an unrealized loss of $130,000, respectively. The unrealized gain and unrealized loss correspond with the changes in the warrant liability over the respective periods. On December 8, 2015, the warrants’ strike price was fixed at $0.70 per share. At that time, the warrants were reclassified as equity and reported as additional paid-in capital. The warrants will not be adjusted to fair value in any reporting period after December 8, 2015. Prior to December 8, 2015, the warrants' fair value was calculated using the binomial options-pricing model. Pursuant to the terms of the relevant warrant agreements, the anti-dilution provisions were applicable if our common stock was issued in certain transactions at a price below the warrants’ exercise price. On December 4, 2014 and December 31, 2014, we assumed that there was a 100% probability that the Company would issue common stock in at least one of those transactions in the second half of 2015. If the market price of the Company's stock was less than the warrants' exercise price on the date of such issuance, we assumed that the warrants' exercise price would be reduced, in accordance with the terms of the warrant agreements. On December 8, 2015, we assumed that the warrants’ strike price was fixed for the remainder of the warrants’ term. Additional assumptions we used in our valuation calculations were as follows: December 8, 2015 December 31, 2014 December 4, 2014 Stock price $ 0.63 $ 2.90 $ 2.71 Volatility 90.0 % 72.5 % 72.5 % Risk-free interest rate 1.47 % 1.65 % 1.59 % Exercise price $ 0.70 $ 2.71 $ 2.71 Expected life (years) 3.99 4.93 5 Dividend yield 0 % 0 % 0 % July 30, 2014 Warrants On July 30, 2014, we issued warrants to individuals who provided guarantees in connection with a $5,000,000 line of credit that was obtained by us on that same date. The warrants allow the warrant holders to purchase a total of 800,000 shares of our common stock. The warrants vested immediately and are exercisable any time prior to their expiration on October 30, 2019. The warrants initially had anti-dilution provisions, under which the warrants' strike price could change if certain future events occurred. When the warrants were issued, they allowed warrant holders to purchase shares of our common stock for $3.15 per share, which was $0.01 per share higher than the closing market price of our common stock on July 30, 2014. On August 28, 2015, restricted stock was awarded to our directors pursuant to our director compensation plan. In accordance with the anti-dilution provisions of the warrant contracts, the warrants’ strike price was reduced to $1.46 per share, which was equal to the closing market price of our common stock on August 28, 2015. On December 8, 2015, the warrants’ strike price was further reduced to $0.70 per share, which was equal to the price at which Class A units were sold in the 2015 Offering. All warrant holders have waived their rights to any further adjustments to the warrants’ strike price after December 8, 2015. Because the warrants’ strike price was subject to adjustment, the warrants were initially reported as liabilities on our balance sheet. On the date the warrants were issued, we recognized a warrant liability that was equal to the warrants' fair value of $1,420,000. A corresponding entry was made to deferred loan fees. Deferred loan fees, an asset on our balance sheet, are being amortized over the life of the line of credit agreement, which expires on June 1, 2016. During the years ended December 31, 2015 and December 31, 2014, we recognized $775,000 and $322,000, of amortization expense, respectively, on this asset. Prior to December 8, 2015, the warrant liability was adjusted to the warrants' fair value at the end of each reporting period. Increases (decreases) in the warrant liability are reported as unrealized losses (gains) and reported as a component of interest expense on the Company's statements of operations. On December 31, 2014 and December 8, 2015, the warrants were adjusted to their estimated fair value of $1,410,000 and $310,000, respectively. The Company's statement of operations for the years ended December 31, 2015 and December 31, 2014 include unrealized gains of $1,100,000 and $10,000, respectively. The unrealized gains correspond with the changes in the warrant liability over the respective periods. On December 8, 2015, the warrants’ strike price was fixed at $0.70 per share. At that time, the warrants were reclassified as equity and reported as additional paid-in capital. The warrants will not be adjusted to fair value in any reporting period after December 8, 2015. Prior to December 8, 2015, the warrants' fair value was calculated using the binomial options-pricing model. Pursuant to the terms of the relevant warrant agreements, the anti-dilution provisions were applicable if our common stock was issued in certain transactions at a price below the warrants’ exercise price before a public offering was closed for at least $10,000,000. On July 30, 2014 and December 31, 2014, we assumed that there was a 15% probability that the Company would issue common stock in at least one of those transactions in the second half of 2015. If the market price of the Company's stock was less than the warrants' exercise price on the date of such issuance, we assumed that the warrants' exercise price would be reduced, in accordance with the terms of the warrant agreements. On December 8, 2015, we assumed that the warrants’ strike price was fixed for the remainder of the warrants’ term. Additional assumptions we used in our valuation calculations were as follows: December 8, 2015 December 31, 2014 July 30, 2014 Stock price $ 0.63 $ 2.90 $ 3.14 Volatility 90.0 % 72.5 % 61.5 % Risk-free interest rate 1.47 % 1.65 % 1.83 % Exercise price $ 0.70 $ 3.15 $ 3.15 Expected life (years) 3.89 4.83 5.25 Dividend yield 0 % 0 % 0 % The following information is provided as to our warrants outstanding at December 31, 2014 and 2015: Weighted- Warrants Warrants Warrants Warrants issued before 2014 $ 1.50 22 - 22 Warrants issued July 30, 2014 $ 0.70 800 - 800 Warrants issued December 4, 2014 $ 0.70 960 - 960 Warrants issued August 12, 2015 $ 0.70 - 300 300 Warrants issued December 9, 2015 $ 0.875 - 11,085 11,085 Total $ 0.85 1,782 11,385 13,167 *Exercise price after anti-dilution adjustments The following table summarizes the changes in the derivative warrants' fair values since December 31, 2014 (in thousands): Warrants Warrants Warrants Total Warrant derivative liability as of December 31, 2014 $ 1,410 $ 1,790 $ - $ 3,200 Fair value of outstanding warrants issued on August 12, 2015 - - 347 347 Change in fair value of warrants through December 8, 2015 (1,100 ) (1,414 ) (221 ) (2,735 ) Reclassification of warrant liability to equity on December 8, 2015 (310 ) (376 ) (126 ) (812 ) Warrant derivative liability as of December 31, 2015 $ - $ - $ - $ - |