Note 6 - Stockholders' Equity | 6 Months Ended |
Jun. 30, 2014 |
Stockholders' Equity Note [Abstract] | ' |
Stockholders' Equity Note Disclosure [Text Block] | ' |
6 | STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
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Series A Convertible Preferred Stock and Warrants Financing |
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During the fourth quarter of 2012, we issued Series A convertible preferred stock (the “Series A Stock”) and warrants to purchase common stock (the “Series A Warrants”) to certain accredited investors (the “Series A Investors”) for gross proceeds of $2.5 million. During the fourth quarter of 2012 and the first quarter of 2013, all of the Series A convertible preferred stock converted into 1.25 million shares of common stock, and during 2013, 1.2 million shares of common stock were issued from the exercise of the Series A Warrants, leaving Series A Warrants to purchase 292,817 shares of common stock unexercised as of December 31, 2013. During the six months ended June 30, 2014, Series A Investors exercised Series A Warrants to purchase 124,111 shares of our common stock, resulting in proceeds of $256,000 to us. |
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Holders of the Series A Stock were entitled to receive accruing dividends at the annual rate of 6%, payable semi-annually. Upon conversion of Series A Stock into common stock, we paid to each holder of Series A Stock converting to common stock, as a “make-whole” payment in common stock, an amount equal to $118 per $1,000 of stated value of Series A Stock so converted, less the aggregate amount of dividends previously paid on such converting Series A Stock. During the first six months of 2013, the Series A Investors converted all of the remaining shares of Series A Stock into 822,421 shares of common stock. In addition, 50,307 shares of common stock were issued to the Series A Investors in payment of the make-whole and accrued dividends related to the Series A Stock conversions. The combination of make-whole and accrued dividends paid in shares of common stock for the six months ended June 30, 2013 was $246,000. |
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For as long as the Series A Warrants remain unexercised through their expiration date in April 2018, we may not sell securities at an effective price per share less than $4.91 except for certain exempt issuances, unless waivers from the Series A Investors are obtained. Prior to June 2014, the exercise price of the Series A Warrants and the number of shares of common stock underlying the Series A Warrants were subject to full-ratchet anti-dilution adjustments in the event we issue securities, other than certain excepted issuances, at a price below the then current exercise price of the Series A Warrants. In June 2014, we executed modification agreements (the “Modification”) with the remaining Series A Investors to remove the full-ratchet anti-dilution adjustment provisions as well as the Black-Scholes cash buy-back provisions from the terms of the Series A Warrants, thereby eliminating the requirement for derivative accounting and liability classification for the Series A Warrants as of the Modification date. In consideration for agreeing to these Modifications, we issued additional warrants to the Series A Investors to purchase 25,303 shares of common stock at an exercise price of $2.06 per share and an expiration date in April 2018, which are equivalent to the terms of the existing Series A Warrants as modified by the Modification, but are not subject to any registration rights. |
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We account for stock purchase warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreements. Under applicable accounting guidance, stock warrants must be accounted for as derivative financial instruments if the warrants contain full-ratchet anti-dilution provisions, which preclude the warrants from being considered indexed to our own stock. Prior to the Modification, the Series A Warrants issued to Series A Investors contained such provisions, thus requiring us to treat them as derivative financial instruments, to be recorded at fair value at issuance and subsequently adjusted to fair value at each reporting date, with the corresponding adjustment reflected as a non-operating credit / charge in the consolidated statement of operations. We valued the Series A Warrants using the Monte-Carlo simulation method using the following assumptions immediately prior to the Modification: (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the individual Series A Warrant terms of 3.8 years; (iii) historical volatilities commensurate with the term of the Series A Warrants of 129.6%; (iv) risk-free interest rates commensurate with the term of the Series A Warrants of 1.2%; and (v) simulated anti-dilution impact assuming various probabilities that we will raise additional capital by issuing equity securities at prices above or below the current contractual Series A Warrant exercise prices during the Series A Warrant terms. The result of this valuation simulation was to value the remaining Series A Warrants held by Series A Investors at $281,000 as of the Modification date. As a result, warrant derivative gains of $152,000 were recognized, and the remaining $281,000 was reclassified to additional paid-in capital. As a result of a similar valuation analysis performed during the first quarter ended March 31, 2014, the combined warrant derivative gains recognized in our consolidated statements of operations and the amount of warrant derivative liabilities reclassified to stockholders’ equity resulting from Series A Warrant exercises for the six months ended June 30, 2014 was $152,000 and $416,000, respectively. The additional Series A Warrants to purchase 25,303 shares of common stock given to Series A Investors as consideration for agreeing to the Modification were valued using the Black-Scholes valuation model, using the following assumptions as of the Modification: (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the individual Series A Warrant terms of 3.8 years; (iii) historical volatility commensurate with the term of the Series A Warrants of 129.6%; and (iv) risk-free interest rates commensurate with the term of the Series A Warrants of 1.2%. The resulting valuation of $44,000 was recognized as a non-operating charge in our consolidated statements of operations for the three and six months ended June 30, 2014. |
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We valued the Series A Warrants using the Monte-Carlo simulation method using the following assumptions at June 30, 2013: (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the remaining Series A Warrant terms of 4.7 years; (iii) historical volatilities commensurate with the term of the remaining Series A Warrants of 120.5%; (iv) risk-free interest rates commensurate with the term of the remaining Series A Warrants of 1.3%; and (v) simulated anti-dilution impact assuming various probabilities that we will raise additional capital by issuing equity securities at prices above or below the current contractual Series A Warrant exercise price during the Series A Warrant terms. The result of these valuation simulations was to value the remaining Series A Warrants at $1.2 million, which was $1.4 million below their carrying value as of March 31, 2013. As a result, we recognized a $1.0 million non-operating, warrant derivative gain in our consolidated statement of operations for the three months ended June 30, 2013, whereas warrant derivative liabilities from Series A Warrant exercises in the amount of $392,000 were reclassified to stockholders’ equity. As a result of a similar valuation analysis performed during the first quarter ended March 31, 2013, the combined warrant derivative gains recognized in our consolidated statements of operations and the amount of warrant derivative liabilities reclassified to stockholders’ equity resulting from Series A Warrant exercises for the six months ended June 30, 2013 was $2.2 million and $1.0 million, respectively. |
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Amortization of the deferred offering-related costs allocated to the Series A Warrants was $280,000 during the six-month period ended June 30, 2013, and was recognized as a component of interest expense. |
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Series B Convertible Preferred Stock Financing |
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On March 19, 2013, we entered into a securities purchase agreement (the “Series B Purchase Agreement”) with an existing institutional investor (the “Series B Investor”) to purchase 130,000 shares of common stock at a price of $3.05 per share and approximately 1,610.4 units consisting of, in the aggregate, Series B 6% convertible preferred stock (the “Series B Stock”) and warrants to purchase up to 275,000 shares of common stock at an exercise price of $3.49 per share (the “Series B Warrants”) in a registered direct offering (the “Series B Financing”) of securities sold off of our existing shelf registration statement on Form S-3 (File No. 333-176372). The Series B Financing closed on March 20, 2013 (the “Series B Closing”). The Series B Stock and Series B Warrants were sold in multiples of fixed combinations, with each fixed combination consisting of one share of Series B Stock and a Series B Warrant to purchase approximately 171 shares of common stock. Each fixed combination of Series B Stock and Series B Warrants was sold at a price of $1,000. The Series B Stock was initially convertible into an aggregate of 528,000 shares of common stock at an initial conversion price of $3.05 per share. During 2013, the Series B Investor converted all of the Series B Stock into common stock. |
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The Series B Warrants were not exercisable for six months from the Series B Closing, and the Series B Stock accrued dividends at an annual rate of 6% beginning six months after the Series B Closing, assuming the Series B Stock had not been converted by that time. Upon the Series B Closing, we received proceeds of $1.8 million, net of placement agent fees and other related paid and accrued costs. Given that the effective conversion price of the Series B Stock was below the closing market price of our common stock at the time of the Series B Closing, we recognized a beneficial conversion feature in the amount of $417,000. Since the Series B Stock was immediately convertible into common stock, the beneficial conversion feature was treated as a deemed dividend charged to retained earnings. |
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The Series B Warrants have a 5½ year term as well as a cashless exercise provision in the event there is no effective registration statement covering the common stock issuable upon exercise of the Series B Warrants, and were not exercisable for the first six months following issuance. The Series B Warrants are not subject to price anti-dilution protection. We also agreed with the Series B Investor pursuant to the Series B Purchase Agreement that, except under certain permitted circumstances, until the time that less than 7.5% of the Series B Warrants remain outstanding, neither we nor our subsidiaries shall issue, or enter into any agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Series B Warrants. |
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Series C Convertible Preferred Stock Financing |
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On May 3, 2013, we entered into a securities purchase agreement (the “Series C Purchase Agreement”) with certain accredited investors (the “Series C Investors”), pursuant to which we sold and issued 1,200 shares of our newly created Series C 6% convertible preferred stock (the “Series C Stock”) to the Series C Investors at a purchase price of $1,000 per share in an initial closing that occurred on May 6, 2013 (the “Series C First Closing”) and sold and issued 1,200 additional shares of Series C Stock to the Series C Investors on June 28, 2013 at a purchase price of $1,000 per share after stockholder approval was obtained on June 27, 2013 (the “Series C Second Closing”) (combined, the “Series C Financing”). After certain offering-related costs paid, the net proceeds from the Series C Financing was approximately $2.2 million. |
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As a result of the Series C Second Closing, the conversion price for the Series C Stock was set to $2.85759 per share, or the equivalent of 839,870 shares of common stock issuable upon conversion of all Series C Stock. The Series C Stock was entitled to 6% annual dividends, and accrued dividends were payable semi-annually, and also on the date of conversion of any Series C Stock, in cash or, subject to certain conditions and at our election, in shares of common stock. If the dividends were paid in shares of common stock, the number of shares of common stock comprising the dividend on each share of Series C Stock was valued at a 20% discount to the average of the daily volume weighted average price for the five-day trading period immediately prior to the dividend payment date. Given that the effective conversion price of the Series C Stock was below the closing market price of our common stock at the time of both of the Series C closings, we recognized beneficial conversion features in the amount of $1.2 million, which were limited to and reduced the net proceeds allocated to the Series C Stock. Since the Series C Stock was immediately convertible into common stock, the beneficial conversion feature was treated as a deemed dividend charged to retained earnings. During the remainder of 2013, the Series C Investors converted all 2,400 shares of Series C stock into 839,864 shares of common stock. |
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In addition to the issuance of the Series C Stock, we issued warrants at the Series C First Closing to purchase 491,803 shares of our common stock with an exercise price of $3.77 per share and at the Series C Second Closing, we issued additional warrants to purchase 491,803 shares of our common stock with an exercise price of $3.55 per share (collectively, the “Series C Warrants”). The Series C Warrants have a 5½ year term, were not exercisable for the first six months following issuance and include a cash-less exercise provision which is only applicable if the common stock underlying the Series C Warrants is not subject to an effective registration statement or otherwise cannot be sold without restriction pursuant to Rule 144. Until all Series C Investors no longer hold Series C Warrants: (i) we may not sell any variable rate securities except for certain exempt issuances; and (ii) if we enter into a subsequent financing on more favorable terms than the Series C Financing, then the agreements between us and the Series C Investors will be amended to include such more favorable terms. In addition, until 7.5% or less of the Series C Warrants remain unexercised, we may not sell any dilutive securities, except for certain exempt issuances. |
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Series D Convertible Preferred Stock Financing |
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On December 20, 2013 (the “Series D Closing”), we closed an underwritten public offering (the “Series D Offering”) and issued 12,000 units of securities to investors, with each unit consisting of: (i) one share of Series D preferred stock (“Series D Stock”) convertible into shares of our common stock equal to 1,000 divided by the conversion price of $2.06, which was 72.5% of the consolidated closing bid price of our common stock on the Nasdaq Capital Market on December 16, 2013, the date we executed the underwriting agreement (“UA date”); and (ii) one warrant exercisable for 485.4369 shares of our common stock, at an exercise price per share equal to $3.12 (“Series D Warrants”), which was 110% of the consolidated closing bid price of our common stock on the Nasdaq Capital Market on the UA date. The shares of common stock underlying the Series D Stock and Series D Warrants were registered on Form S-1 (File No. 333-191221), which was declared effective by the SEC on December 16, 2013. The Series D Stock was immediately convertible and the Series D Warrants were immediately exercisable for shares of common stock and have a term of five years. In total, there were 5,825,243 shares of common stock issuable upon conversion of the Series D Stock and up to 5,825,243 shares of common stock issuable upon exercise of the Series D Warrants. The units were sold for a purchase price equal to $1,000 per unit, resulting in gross proceeds of $12 million at the Series D Closing. After certain offering-related costs paid to the underwriters and others at the closing and through June 30, 2014, net proceeds received by us were approximately $10.7 million. As of December 31, 2013, 9,799.3 shares of Series D Stock have converted into 4,756,946 shares of common stock. During the first quarter of 2014, all of the remaining Series D Stock converted into an additional 1,068,297 shares of common stock. Also as a result of the Series D Offering, the exercise price of the then-outstanding Series A Warrants automatically ratcheted down by their terms from their then exercise price of $2.86 per share to an adjusted exercise price of $2.06 per share, and the underlying shares exercisable was automatically increased by 81,910 shares. A registration statement on Form S-3 was filed in order to register these shares as per the terms of our original Series A offering documents. |
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Warrants |
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Outstanding warrants to purchase common stock are as follows: |
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| | Shares of Common Stock | | | | | | |
| | Issuable from Warrants | | | | | | |
| | Outstanding as of | | | | | | |
| | June 30, | | | December 31, | | | Exercise | | |
| | 2014 | | | 2013 | | | Price | | Expiration |
Liability-classified warrants: | | | | | | | | | | | | | |
Oct-12 | | | - | | | | 292,817 | | | $ | 2.06 | -1 | Mar-18 |
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Equity-classified warrants: | | | | | | | | | | | | | |
Dec-13 | | | 5,825,243 | | | | 5,825,243 | | | $ | 3.55 | | Dec-18 |
Jun-13 | | | 491,803 | | | | 491,803 | | | $ | 3.55 | | Dec-18 |
May-13 | | | 491,803 | | | | 491,803 | | | $ | 3.77 | | Nov-18 |
Mar-13 | | | 275,000 | | | | 275,000 | | | $ | 3.49 | | Sep-18 |
Oct-12 | | | 194,009 | | | | - | | | $ | 2.06 | -1 | Apr-18 |
Apr-11 | | | 131,047 | | | | 131,047 | | | $ | 21.4 | | Apr-16 |
Oct-09 | | | 3,000 | | | | 3,000 | | | $ | 77.8 | | Oct-14 |
May-09 | | | 467 | | | | 2,967 | | | $ | 75.00 - $90.00 | | May 2014 - July 2014 |
May-09 | | | - | | | | 109,997 | | | $ | 90 | | May-14 |
Total | | | 7,412,372 | | | | 7,330,860 | | | | | | |
Total - all warrants | | | 7,412,372 | | | | 7,623,677 | | | | | | |
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-1 | Prior to the anti-dilution adjustments which occurred on March 20, 2013, June 28, 2013 and December 20, 2013, these warrants had an initial exercise price of $9.50 per share. Also, due to the Modification previously discussed, these warrants are no longer liability classified as of June 30, 2014. | | | | | | | | | | | | |
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Subsequent to June 30, 2014, the remaining May 2009 warrants listed above expired unexercised. |