Note 11. Warrants

6 Months Ended

Jun. 30, 2012

Warrants [Text Block]

Note 11. Warrants

Common Stock Warrant Liability

In September 2009, the Company closed a registered direct offering with a select group of institutional investors that raised gross proceeds of $7.1 million and net proceeds of $6.3 million.  In connection with this registered direct offering, the Company issued 2,018,153 shares of its common stock and warrants to purchase 1,009,076 shares of common stock. The warrants have an exercise price of $5.24 per share and are exercisable at any time on or after the six month anniversary of the date of issuance and on or prior to 66 months after the date of issuance.  Under the terms of the warrants, upon certain transactions, including a merger, tender offer or sale of all or substantially all of the assets of the Company, each warrant holder may elect to receive a cash payment in exchange for the warrant, in an amount determined by application of the Black-Scholes option valuation model. Accordingly, pursuant to ASC 815.40, Derivative Instruments and Hedging - Contracts in Entity’s Own Equity, the warrants are recorded as a liability and then marked to market each period through the Statement of Operations in other income or expense. At the end of each subsequent quarter, the Company will revalue the fair value of the warrants and the change in fair value will be recorded as a change to the warrant liability and the difference will be recorded through the Statement of Operations in other income or expense.

The fair value of the warrants at June 30, 2012 and December 31, 2011 was $536,121 and $166,398, respectively, calculated using the Black-Scholes option-pricing model with the following assumptions:

	June 30, 2012			December 31, 2011
Risk-free interest rate		0.73	%		0.83	%
Expected volatility		72.58	%		75.17	%
Expected life (in years)		1.25			1.6
Expected forfeiture rate		0.0	%		0.0	%
Expected dividend yield		0.00	%		0.00	%

As a result of this change in the warrant liability, the Company recorded a non-cash loss of $447,323 in the six months ended June 30, 2012. The following is a summary of the changes in the common stock warrant liability for the six months ended June 30, 2012:

Beginning balance, January 1, 2012	$	166,398
Issuances		-
Loss from the adjustment for the change in fair value included in net loss		369,723
Ending balance, June 30, 2012	$	536,121

Common Stock Warrants

As a result of equity financings in 2009 through 2011 and warrants issued in connection with the Credit Agreement as discussed in Note 9, the Company had 11,649,987 warrants outstanding and exercisable as of June 30, 2012.  The warrants had a weighted average exercise price of $3.15 and a weighted average remaining contractual term of 4.7 years.