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Note 11 - Subsequent Events
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12 Months Ended |
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Dec. 31, 2012
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| Subsequent Events [Text Block] |
11.
Subsequent
Events
January
2013 Private Placement
In
January 2013, the Company entered into a securities
purchase agreement for the private placement of shares of
the Company’s common stock and warrants to purchase
shares of the Company’s common stock, at a purchase
price of $1.20 per unit (the “January Financing
Transaction”). Each unit consisted of
one share of common stock and a warrant to purchase
one-half share of common stock.
In
the January Financing Transaction, the Company sold to
the investors 9,201,684 shares of common stock, together
with warrants to purchase 4,600,842 shares of common
stock, for aggregate gross proceeds of approximately
$11,000,000, before commissions and offering
expenses. Each warrant is exercisable for five
years from the date of issuance and has an exercise price
of $1.75 per share, subject to adjustment from time to
time for stock splits or combinations, stock dividends,
stock distributions, recapitalizations and other similar
transactions. In the event the Company issues
shares of its common stock or common stock equivalents in
a financing transaction after the January Financing
Transaction at a price below the then prevailing warrant
exercise price, the exercise price of the warrants will
be adjusted downward to the price at which the Company
issues the common stock or common stock
equivalents. Additionally, the warrants
contain a net-cash settlement feature which gives the
warrant holder the right to net-cash settlement using the
Black-Scholes valuation model in the event certain
transactions occur. The Company will apply guidance in
ASC 815-40 to account for the net-cash settlement
provision of the warrants which will result in a portion
of the net proceeds of the January Financing Transaction
being recorded as a derivative
liability. Thereafter, the fair value of this
derivative liability will be calculated each reporting
period and the liability adjusted through charges or
credits to the statements of operations. Non-employee
directors of the Company invested a total of $402,000 in
the January Financing Transaction. The Company’s
placement agents for the January Financing Transaction
earned commissions of approximately $1,100,000.
In
connection with the January Financing Transaction, the
Company entered into a registration rights agreement with
the investors pursuant to which the Company agreed to
prepare and file a registration statement with the SEC
covering the resale of the shares of common stock and the
shares of common stock underlying the warrants issued in
the financing. The Company must bear the
costs, including legal and accounting fees, associated
with the registration of those shares. The
Company filed that registration statement on February 11,
2013. The Company will be required to use its best
efforts to have the registration statement declared
effective as soon as practicable. In the event
the registration statement is not declared effective by
the SEC on or prior to the effectiveness deadline set
forth in the registration rights agreement, or if the
Company fails to continuously maintain the effectiveness
of the registration statement (with certain permitted
exceptions), the Company will incur certain damages to
the investors, up to a maximum amount of 12% of the
investors’ investments in the January Financing
Transaction, or approximately $1,300,000.
As
a consequence of the January Financing Transaction
described above, the exercise price of the warrants
issued by the Company in the July PIPE Financing (see
Note 8) has been adjusted from $1.45 per share to $1.41
per share.
Modification
of Terms of April 2011 Note (see Note 7)
On
February 21, 2013, the Strategic Partner delivered notice
to the Company of the Strategic Partner’s election
to convert the April 2011 Note into shares of the
Company’s common stock at the conversion price of
$0.60 per share. However, prior to the issuance of
those conversion shares, on March 6, 2013 the Company and
the Strategic Partner entered into a loan modification,
and, as a result, the Strategic Partner revoked its
election to convert the April 2011 Note into shares of
common stock. Under the loan modification, the
April 2011 Note was amended (i) to remove the equity
conversion feature, such that the April 2011 Note is no
longer convertible into any shares of the Company’s
capital stock, (ii) to reduce the interest rate,
beginning March 6, 2013, from 10% per year to 5.5% per
year, (iii) to ease certain loan covenants, and (iv) to
reflect a new note principal balance of $4,289,444, which
represents the sum of (A) the original principal balance
of the April 2011 Note in the amount of $2,000,000, plus
(B) interest accrued under the April 2011 Note through
March 6, 2013 in the amount of $389,444, plus (C)
$1,900,000. Both principal and interest will
be due on the original maturity date in April of
2016. The Company will apply guidance in FASB
ASC 470-50, “Debt Modifications and
Extinguishments,” which requires calculating the
fair value of the April 2011 Note, as of the loan
modification date, based on the amended
terms. The difference between the fair value
and the carrying value will be recorded as a charge to
the statement of operations during the three months ended
March 31, 2013.
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