| Warrants |
11. Warrants
As of March 31, 2014, warrants to purchase 18,921,902 shares were outstanding, having exercise prices ranging from $0.41 to $1.90 and expiration dates ranging from May 19, 2014 to January 21, 2019.
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2014
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2013
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Number of warrants
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Weighted average exercise price
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Number of warrants
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Weighted average exercise price
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Balance, January 1
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24,968,868
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$
|
0.86
|
21,656,142
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$
|
0.89
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Issued during the period
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4,761,905
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$
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1.28
|
-
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$
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-
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Exercised during the period
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(10,808,871)
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$
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0.52
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-
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$
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-
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Expired during the period
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-
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$
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-
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-
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$
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-
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|
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Balance, March 31
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18,921,902
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$
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1.16
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21,656,142
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$
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0.89
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At March 31, 2014 and December 31, 2013, the average remaining contractual life of the outstanding warrants was 3.1 and 3.2 years, respectively.
The warrants issued to investors in the May 2009, October 2009, June 2010, March 2011 and December 2012 offerings contain a provision for net cash settlement in the event that there is a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer or share exchange). If a fundamental transaction occurs in which the consideration issued consists principally of cash or stock in a non-public company, then the warrant holder has the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant. Due to this contingent redemption provision, the warrants require liability classification in accordance with ASC 480 and are recorded at fair value. The warrants issued to investors in the July 2013, October 2013 and January 2014 offerings contain a fundamental transaction provision, but the warrant holders only have an option as to the type of consideration received if the holders of common stock receive an option as to their consideration. In addition, the warrants issued in the May 2009, October 2009, June 2010, March 2011, December 2012, July 2013, October 2013, and January 2014 offerings contain a cashless exercise provision that is exercisable only in the event that a registration statement is not effective. That provision may not be operative if an effective registration statement is not available because an exemption under the U.S. securities laws may not be available to issue unregistered shares. As a result, net cash settlement may be required, and the warrants require liability classification.
ASC 820 provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition. Fair values for warrants are determined using the Binomial Lattice (“Lattice”) valuation technique. The Lattice model provides for dynamic assumptions regarding volatility and risk-free interest rates within the total period to maturity. Accordingly, within the contractual term, the Company provided multiple date intervals over which multiple volatilities and risk free interest rates were used. These intervals allow the Lattice model to project outcomes along specific paths that consider volatilities and risk free rates that would be more likely in an early exercise scenario.
Significant assumptions are determined as follows:
Trading market values—Published trading market values;
Exercise price—Stated exercise price;
Term—Remaining contractual term of the warrant;
Volatility—Historical trading volatility for periods consistent with the remaining terms;
Risk-free rate—Yields on zero coupon government securities with remaining terms consistent with the remaining terms of the warrants.
Due to the fundamental transaction provision, which could provide for early redemption of the warrants, the model also considered the probability the Company would enter into a fundamental transaction during the remaining term of the warrant. Because the Company is still in its development stage and is not yet achieving positive cash flow, management believes the probability of a fundamental transaction occurring over the term of the warrant is unlikely and therefore estimates the probability of entering into a fundamental transaction to be 5%. For valuation purposes, the Company also assumed that if such a transaction did occur, it was more likely to occur towards the end of the term of the warrants.
The significant unobservable inputs used in the fair value measurement of the warrants include management’s estimate of the probability that a fundamental transaction may occur in the future. Significant increases (decreases) in the probability of occurrence would result in a significantly higher (lower) fair value measurement.
The following table summarizes the fair value of the warrants as of the respective balance sheet or transaction dates:
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Fair Value as of:
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Warrant Issuance:
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March 31, 2014
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December 31, 2013
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Transaction Date
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Exercised and Expired Warrants
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$
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-
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$
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-
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$
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3,985,570
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June 5, 2009 financing:
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Series III warrants
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80,889
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11
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1,306,200
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Warrants to placement agent
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8,484
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1
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122,257
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October 23, 2009 financing:
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Warrants to institutional investors
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316,159
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19,689
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1,012,934
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June 30, 2010 financing
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Warrants to institutional investors
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61,000
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10
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1,800,800
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March 31, 2011 financing:
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Warrants to institutional investors
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1,785,333
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311,360
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2,826,666
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December 4, 2012 financing:
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Warrants to institutional investors
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195,651
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2,124,444
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2,474,120
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Warrants to placement agent
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32,964
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222,286
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163,096
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July 26, 2013 financing:
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Warrants to institutional investors
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1,716,200
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1,148,390
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1,295,952
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Warrants to placement agent
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89,253
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83,808
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110,489
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October 16, 2013 financing:
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Warrants to institutional investors
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3,091,430
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1,051,454
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1,070,193
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Warrants to placement agent
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289,869
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72,605
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87,368
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January 21, 2014 financing:
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Warrants to institutional investors
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3,623,334
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-
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3,691,429
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Total:
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$
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11,290,566
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$
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5,034,058
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$
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19,947,074
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The following table summarizes the number of shares indexed to the warrants as of the respective balance sheet or transaction dates:
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Number of Shares indexed as of:
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Warrant Issuance
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March 31, 2014
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December 31, 2013
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Transaction Date
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Exercised and Expired Warrants
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-
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-
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5,950,304
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June 5, 2009 financing:
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Series III warrants
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1,555,555
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1,555,555
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1,555,555
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Warrants to placement agent
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132,143
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132,143
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142,857
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October 23, 2009 financing:
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Warrants to institutional investors
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778,333
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1,228,333
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2,125,334
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June 30, 2010 financing
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Warrants to institutional investors
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2,000,000
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2,000,000
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2,000,000
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March 31, 2011 financing:
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Warrants to institutional investors
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3,333,333
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3,333,333
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3,333,333
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December 4, 2012 financing:
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Warrants to institutional investors
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221,600
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7,418,503
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12,100,000
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Warrants to placement agent
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40,000
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880,000
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880,000
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July 26, 2013 financing:
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Warrants to institutional investors
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2,000,000
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3,990,000
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3,990,000
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Warrants to placement agent
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124,032
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456,000
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456,000
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October 16, 2013 financing:
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Warrants to institutional investors
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3,567,309
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3,567,309
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3,567,308
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Warrants to placement agent
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407,692
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407,692
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407,692
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January 21, 2014 financing:
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Warrants to institutional investors
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4,761,905
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-
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4,761,905
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Total:
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18,921,902
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24,968,868
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41,270,288
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The assumptions used in calculating the fair values of the warrants are as follows:
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Exercised and Expired Warrants
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March 31, 2014
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December 31, 2013
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Transaction Date
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Trading market prices
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$
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-
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$
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-
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$
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1.75-2.14
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Estimated future volatility
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-
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-
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142-143
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%
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Dividend
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-
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-
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-
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Estimated future risk-free rate
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-
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-
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1.95-3.27
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%
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Equivalent volatility
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-
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-
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97-106
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%
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Equivalent risk-free rate
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-
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-
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1.31-3.26
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%
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Estimated additional shares to be issued upon dilutive event
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-
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-
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7,479-98,838
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|
|
|
|
|
|
|
|
June 5, 2009 financing:
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March 31, 2014
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December 31, 2013
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Transaction Date
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|
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Trading market prices
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$
|
1.08
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$
|
0.51
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$
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1.14
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Estimated future volatility
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110
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%
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|
109
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%
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|
100
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%
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Dividend
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-
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-
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-
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Estimated future risk-free rate
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|
|
0.13
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%
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0.13
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%
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0.63-4.31
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%
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Equivalent volatility
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89-90
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%
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43-45
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%
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|
103-117
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%
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Equivalent risk-free rate
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|
|
0.02
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%
|
|
0.05-0.06
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%
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0.20-1.44
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%
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 23, 2009 financing:
|
|
March 31, 2014
|
December 31, 2013
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Transaction Date
|
|
|
Trading market prices
|
|
$
|
1.08
|
|
$
|
0.51
|
|
$
|
0.69
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|
|
Estimated future volatility
|
|
|
110
|
%
|
|
109
|
%
|
|
100
|
%
|
|
Dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Estimated future risk-free rate
|
|
|
0.13
|
%
|
|
0.13
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%
|
|
2.63-3.80
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%
|
|
Equivalent volatility
|
|
|
119
|
%
|
|
57
|
%
|
|
98-99
|
%
|
|
Equivalent risk-free rate
|
|
|
0.05
|
%
|
|
0.07
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%
|
|
0.93-1.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 financing:
|
|
March 31, 2014
|
December 31, 2013
|
Transaction Date
|
|
|
Trading market prices
|
|
$
|
1.08
|
|
$
|
0.51
|
|
$
|
1.43
|
|
|
Estimated future volatility
|
|
|
110
|
%
|
|
109
|
%
|
|
100
|
%
|
|
Dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Estimated future risk-free rate
|
|
|
0.13
|
%
|
|
0.13
|
%
|
|
1.78
|
%
|
|
Equivalent volatility
|
|
|
89
|
%
|
|
49
|
%
|
|
98
|
%
|
|
Equivalent risk-free rate
|
|
|
0.03
|
%
|
|
0.06
|
%
|
|
0.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 financing:
|
|
March 31, 2014
|
December 31, 2013
|
Transaction Date
|
|
|
Trading market prices
|
|
$
|
1.08
|
|
$
|
0.51
|
|
$
|
1.18
|
|
|
Estimated future volatility
|
|
|
110
|
%
|
|
109
|
%
|
|
100
|
%
|
|
Dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Estimated future risk-free rate
|
|
|
1.82
|
%
|
|
1.58
|
%
|
|
1.32-3.64
|
%
|
|
Equivalent volatility
|
|
|
98
|
%
|
|
71
|
%
|
|
79-96
|
%
|
|
Equivalent risk-free rate
|
|
|
0.23
|
%
|
|
0.27
|
%
|
|
0.39-1.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 4, 2012 financing:
|
|
March 31, 2014
|
December 31, 2013
|
Transaction Date
|
|
|
Trading market prices
|
|
$
|
1.08
|
|
$
|
0.51
|
|
$
|
0.30-0.33
|
|
|
Estimated future volatility
|
|
|
110
|
%
|
|
109
|
%
|
|
100
|
%
|
|
Dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Estimated future risk-free rate
|
|
|
1.82-2.56
|
%
|
|
1.58-2.72
|
%
|
|
0.52-1.065
|
%
|
|
Equivalent volatility
|
|
|
100-106
|
%
|
|
69-73
|
%
|
|
88-90
|
%
|
|
Equivalent risk-free rate
|
|
|
0.20-0.43
|
%
|
|
0.22-0.40
|
%
|
|
0.22-0.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 26, 2013 financing:
|
|
March 31, 2014
|
December 31, 2013
|
Transaction Date
|
|
|
Trading market prices
|
|
$
|
1.08
|
|
|
0.51
|
|
$
|
0.53
|
|
|
Dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Equivalent volatility
|
|
|
100-102
|
%
|
|
69-77
|
%
|
|
78-80
|
%
|
|
Equivalent risk-free rate
|
|
|
0.20-0.54
|
%
|
|
0.22-0.62
|
%
|
|
0.20-0.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 16, 2013 financing:
|
|
March 31, 2014
|
December 31, 2013
|
Transaction Date
|
|
|
Trading market prices
|
|
$
|
1.08
|
|
|
0.51
|
|
$
|
0.49
|
|
|
Dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Equivalent volatility
|
|
|
100-101
|
%
|
|
69-76
|
%
|
|
81-83
|
%
|
|
Equivalent risk-free rate
|
|
|
0.20-0.58
|
%
|
|
0.20-0.52
|
%
|
|
0.21-0.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 21, 2014 financing:
|
|
March 31, 2014
|
December 31, 2013
|
Transaction Date
|
|
|
Trading market prices
|
|
$
|
1.08
|
|
|
-
|
|
$
|
1.09
|
|
|
Dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Equivalent volatility
|
|
|
99
|
%
|
|
-
|
|
|
98
|
%
|
|
Equivalent risk-free rate
|
|
|
0.63
|
%
|
|
-
|
|
|
0.62
|
%
|
Changes in the fair value of the warrant liabilities, carried at fair value, as reported as “unrealized (loss) gain on fair value of warrants” in the statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2014
|
Three Months Ended March 31, 2013
|
Cumulative from March 19, 2001 (Inception) to March 31, 2014
|
|
Exercised and Expired Warrants
|
|
$
|
-
|
$
|
144
|
$
|
(1,460,407)
|
|
June 5, 2009 financing:
|
|
|
|
|
|
|
|
|
Series III warrants
|
|
|
(80,878)
|
|
30,022
|
|
1,225,311
|
|
Warrants to placement agent
|
|
|
(8,483)
|
|
2,855
|
|
99,393
|
|
October 23, 2009 financing:
|
|
|
|
|
|
|
|
|
Warrants to institutional investors
|
|
|
(593,950)
|
|
41,395
|
|
(649,945)
|
|
June 30, 2010 financing
|
|
|
|
|
|
|
|
|
Warrants to institutional investors
|
|
|
(60,990)
|
|
8,800
|
|
1,739,800
|
|
March 31, 2011 financing:
|
|
|
|
|
|
|
|
|
Warrants to institutional investors
|
|
|
(1,473,973)
|
|
96,666
|
|
1,041,333
|
|
December 4, 2012 financing:
|
|
|
|
|
|
|
|
|
Warrants to institutional investors
|
|
|
(4,225,702)
|
|
166,980
|
|
(5,613,687)
|
|
Warrants to placement agent
|
|
|
(533,250)
|
|
22,040
|
|
(592,440)
|
|
July 26, 2013 financing:
|
|
|
|
|
|
|
|
|
Warrants to institutional investors
|
|
|
(2,200,617)
|
|
-
|
|
(2,053,055)
|
|
Warrants to placement agent
|
|
|
(293,538)
|
|
-
|
|
(266,857)
|
|
October 16, 2013 financing:
|
|
|
|
|
|
|
|
|
Warrants to institutional investors
|
|
|
(2,039,976)
|
|
-
|
|
(2,021,237)
|
|
Warrants to placement agent
|
|
|
(217,262)
|
|
-
|
|
(202,501)
|
|
January 21, 2014 financing:
|
|
|
|
|
|
|
|
|
Warrants to institutional investors
|
|
|
68,095
|
|
-
|
|
68,095
|
|
Total:
|
|
$
|
(11,660,524)
|
$
|
368,902
|
$
|
(8,686,197)
|
|