Note 11 - Warrants

12 Months Ended

Dec. 31, 2012

11. WARRANTS

As more fully described in Note 9, the Company completed a series of equity financing transactions in 2011 that included the issuance of warrants to purchase 10,774,791 shares of the Company’s common stock. In June 2012 in connection with the Credit Agreement the Company entered into in June 2012 with Horizon and Oxford as more fully described in Note 6, the Company issued warrants to purchase 51,370 shares of the Company’s common stock. During 2012 and 2011, the Company received gross proceeds of approximately $10.2 million and $0.4 million, respectively, from the exercise of warrants to purchase 3,804,868 and 156,866 shares of common stock, respectively. During the 1st quarter of 2013 and as of the date of this Form 10K filing, the Company received additional proceeds of approximately $0.3 million from the exercise of warrants to purchase 81,100 shares of the Company’s common stock.

Following is a summary of all warrant activity for the three years ended December 31, 2012:

Warrants	Number of Warrants Issued			Weighted Average Exercise Price
Warrants outstanding at January 1, 2010		1,009,076		$	5.24
Warrants exercised for common stock warrants in 2010		–			–
Warrants issued in 2010		–			–
Warrants outstanding at December 31, 2010		1,009,076		$	5.24
Warrants issued in connection with 2011 equity transactions		10,774,791			2.95
Warrants exercised for common stock warrants in 2011		(156,866	)		2.73
Warrants outstanding at December 31, 2011		11,627,001		$	3.15
Warrants issued in connection with the Credit Agreement as more fully described in Note 7		51,370		$	2.92
Warrants exercised for common stock in 2012		(3,804,868	)		2.69
Warrants outstanding at December 31, 2012		7,873,503		$	3.37

Aggregate intrinsic value of outstanding warrants at December 31, 2012	$	37,947,651

Weighted average remaining contractual terms (years)	3.94

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.

As of December 31, 2012 and 2011, the Company recorded a common stock warrant liability of $4.3 million and $0.2 million respectively. The fair value of the warrants at December 31, 2012, 2011 and 2010 was calculated using the Black-Scholes option-pricing model with the following assumptions:

	December 31,
	2012			2011			2010
Risk-free interest rate		0.73	%		0.83	%		2.02	%
Expected volatility		92.02	%		75.17	%		63.5	%
Expected life (in years)		1.13			1.6			2.1
Expected forfeiture rate		0.0	%		0.0	%		0.0	%
Expected dividend yield		0.00	%		0.00	%		0.00	%

As a result of this change in the warrant liability, the Company recorded a non-cash loss of $4.1 million in 2012, a non-cash benefit of $0.1 million and $0.6 million in 2011 and 2010 respectively. The following is a summary of the changes in the common stock warrant liability for 2012, 2011 and 2010:

Beginning balance, January 1, 2010	$	821,891
Benefit from the adjustment for the change in fair value included in net loss for 2010		(573,760	)
Balance at December 31, 2010		248,131
Benefit from the adjustment for the change in fair value included in net loss for 2011		(81,733	)
Balance at December 31, 2011		166,398
Loss from the adjustment for the change in fair value included in net loss		4,117,534
Ending balance, December 31, 2012	$	4,283,932