Note 13 - Warrants

6 Months Ended

Jun. 30, 2014

Warrants [Abstract]

Warrants [Text Block]

Note 13. Warrants

Common Stock Warrants

Following is a summary of all warrant activity for the six months ended June 30, 2014:

Warrants	Number of Warrants Issued		Weighted Average Exercise Price
Warrants outstanding at December 31, 2013		3,268,013	$	10.43
Warrants granted in connection with the January 2014 Common Stock Offering, as more fully described in Note 11		1,801,802	$	4.10
Warrants exercised for common stock	–		–
Warrants outstanding at June 30, 2014		5,069,815	$	8.18
Aggregate intrinsic value of outstanding warrants at June 30, 2014	$	-
Weighted average remaining contractual terms (in years)		2.9

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 448,478 shares of its common stock and warrants to purchase 224,239 shares of common stock. The warrants have an exercise price of $23.58 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, 2014 and December 31, 2013 was $476,261 and $3,026, respectively, calculated using the Black-Scholes option-pricing model with the following ranges of assumptions:

	June 30, 2014			December 31, 2013
Risk-free interest rate		0.11- 1.62	%		0.13	%
Expected volatility		31.6 – 103.4	%		64.74	%
Expected life (in years)		0.75 – 4.5			1.25
Expected forfeiture rate		0.0	%		0.0	%
Expected dividend yield		0.00	%		0.00	%

The following is a summary of the changes in the common stock warrant liability for the six months ended June 30, 2014:

Beginning balance as of January 1, 2014	$	3,026
Fair value of warrants classified as liability (see note 10)		476,261
Loss from the adjustment for the change in fair value included in net income		15,587
Ending balance as of June 30, 2014	$	494,874

Prior to the closing of the May 2013 Common Stock Offering, there were an insufficient number of authorized shares to complete the transaction.  The investors in the May 2013 Common Stock Offering also held warrants to purchase common stock of the Company which were issued in connection with previous offerings. Concurrent with the closing of the May 2013 Common Stock Offering, the institutional investors agreed to waive their rights to exercise these warrants to purchase 1,398,816 shares of common stock of the Company (the “Waived Warrants”) until the Company obtained stockholders’ approval to increase the number of its authorized shares of common stock in conjunction with the proposed reverse stock split of its outstanding shares of common stock. At the Company’s 2013 Annual Meeting of Stockholders held on July 19, 2013, the Company’s stockholders voted to approve the proposal to grant discretionary authority to the Board of Directors to amend the Certificate of Incorporation of the Company, as amended, to effect, at any time on or prior to the date of the 2014 Annual Meeting of Stockholders, a reverse stock split at an exchange ratio within the specified range and to set the number of authorized shares effective immediately after the reverse stock split at 75 million shares. On October 28, 2013, the Company announced that it effected a 1-for-4.5 reverse stock split of its common stock. See the section titled “Reverse Stock Split” in Note 12 above for further information.

Prior to the closing of the May 2013 Common Stock Offering, the warrants described above were originally recorded as equity at the fair value on the date of issuance.  In accordance with ASC 815-40, Derivative Instruments and Hedging - Contracts in Entity’s Own Equity, the Waived Warrants were required to be liability classified immediately after the closing of the May 2013 Common Stock Offering on June 3, 2013 because there were an insufficient number of common shares authorized to permit the full exercise of the warrants.  Therefore on June 3, 2013, the Company reclassified the fair value of the Waived Warrants totaling approximately $9.1 million from equity to a liability.  The Waived Warrants were required to be recorded at fair value at each balance sheet date with changes in fair value recorded in earnings until such time as there were a sufficient number of common shares authorized to permit the full exercise of the warrants (see Note 11).   

As a result of this change in the warrant liability in the aggregate at June 30, 2013 (which included the valuations of warrants from both the September 2009 register direct financing and the warrants waived in the May 2013 Common Stock Offering), the Company recorded a non-cash benefit of $8.7 million in the six months ended June 30, 2013. In connection with the reverse stock split as more fully described above in Note 12, these warrants were valued as of October 28, 2013, and the Company reclassified the fair value of the Waived Warrants totaling approximately $5.3 million from a liability to equity at that time.

Following is a summary list of the Waived Warrants associated with the May 30, 2013 Common Stock Offering and warrants from the September 2009 registered direct offering:  

Shares of common stock associated with the Waived Warrants		Expiration Date of Waived Warrants	Strike Price		Per Share Fair Value on June 3, 2013		Per Share Fair Value on June 30, 2013
	1,323,496	2/26/2018	$	5.31	$	6.60	$	3.33
	31,243	7/25/2016	$	18.99	$	4.41	$	1.93
	12,628	7/6/2016	$	14.09	$	4.81	$	2.15
	31,448	11/25/2017	$	12.47	$	5.56	$	2.66

Shares of common stock associated with warrants issued in the September 2009 registered direct offering		Expiration Date of warrants issued in the September 2009 registered direct offering	Strike Price		Per Share Fair Value on June 30, 2013
	448,478	March 31, 2015	$	23.58	$	0.71

Assumptions used in the valuation of the Waived Warrants associated with the May 30, 2013 Common Stock Offering and warrants from the September 2009 registered direct offering are as follows:

	June 3, 2013			June 30, 2013
Risk-free interest rate		0.50 - 1.03%			0.36 - 1.41%
Expected volatility		102.9 - 110.9%			103.4 - 147.3%
Expected life (in years)		3.1 - 4.7			1.75 - 4.70
Expected forfeiture rate		0.0	%		0.0	%
Expected dividend yield		0.00	%		0.00	%