WARRANTS

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 10. WARRANTS

The Company uses valuation methods and assumptions that consider among other factors the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments.  The following assumptions were utilized by the Company:

	2011			2010
Risk-free interest rate		3.36% -3.75	%		2.58% -3.71	%
Expected dividend yield		—			—
Expected term (contractual term)	2 years			2 - 5 years
Forfeiture rate		0	%		0	%
Expected volatility		142	%		141% - 150	%

Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the warrant. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the warrant.

In the years ended December 31, 2011 and 2010, the Company issued warrants with a fair value of approximately $11,191,000 and $617,000, respectively.  Included in the warrant fair value are warrants with a fair value of approximately $41,000 and $469,000 recorded as a debit and credit to additional paid-in capital as stock issuance costs related to the 2011 and 2010 financings, respectively (see Note 8).  The warrants issued in the years ended December 31, 2011 and 2010 generally have a term of 2 to 5 years, a non-redeemable feature, and a cashless exercise provision. Certain warrants have a standard weighted average anti-dilution protection and piggy back registration rights.

At December 31, 2011, the Company had the following outstanding warrants:

	Number of
	Shares		Exercise		Date of
	Exercisable		Price		Expiration
Outstanding warrants accounted for as derivative warrant liability:
Granted to investors and placement agent in private placement		320,703	$	1.28	6/15-7/16/2012
Granted to financial investment advisor		3,000	$	1.38	7/25/2012
Granted to financial advisor in connection with an acquisition		61,625	$	1.75	9/14/2012
Granted to financial investment advisor		7,500	$	1.30	2/11/2013
Granted to investors in private placement		154,990	$	0.50	2/11/2013
Granted to investors in private placement		177,324	$	1.50	3/24/2013
Total outstanding warrants accounted for as derivative warrant liability		725,142
Weighted average exercise price			$	1.21
Weighted average time to expiration in years					0.84 years
Outstanding warrants accounted for as equity:
Granted to investors in private placement of preferred stock		32,249	$	1.00	9/30/2013
Granted to investors in private placement of preferred stock		198,333	$	1.50	10/28/2013
Granted to investors in private placement of preferred stock		70,000	$	0.75	10/31/2013
Granted to investors in private placement of preferred stock		390,000	$	0.75	2/28/2014
Granted to vendor		50,000	$	0.70	3/2/2012
Granted to vendor		60,000	$	0.60	3/15/2014
Granted to investors in private placement		400,000	$	1.59	6/30/2014
Granted to investors in private placement		768,000	$	2.00	11/13/2014
Granted to placement agent in private placement		256,906	$	1.50	11/13/2014
Granted to vendor		50,000	$	2.00	12/1/2012
Granted to investors in private placement		63,000	$	2.00	12/3/2014
Granted to investors in private placement		341,325	$	2.25	2/9/2015
Granted to placement agents in private placement		28,500	$	2.25	2/9/2015
Granted to investor in private placement		6,375	$	2.25	3/18/2015
Granted to financial investment advisor		100,000	$	1.50	2/10/2013
Granted to financial investment advisor		10,367	$	2.00	3/3/2013
Granted to investors in private placement		187,500	$	1.50	11/5/2012
Granted to investors in private placement		187,500	$	2.50	11/5/2012
Granted to placement agent in private placement		5,000	$	1.50	11/5/2012
Granted to placement agent in private placement		5,000	$	2.50	11/5/2012
Granted to investors in private placement		35,000	$	1.50	11/26/2012
Granted to investors in private placement		35,000	$	2.50	11/26/2012
Granted to investors in private placement		495,000	$	1.50	12/29/2012
Granted to investors in private placement		512,500	$	2.50	12/29/2012
Granted to placement agent in private placement		30,000	$	1.50	12/29/2012
Granted to placement agent in private placement		30,000	$	2.50	12/29/2012
Granted to investors in private placement		245,750	$	1.50	1/4/2013
Granted to investors in private placement		245,750	$	2.50	1/4/2013
Granted to placement agent in private placement		18,125	$	1.50	1/4/2013
Granted to placement agent in private placement		18,125	$	2.50	1/4/2013
Granted to investors in private placement		255,000	$	1.50	2/3/2013
Granted to investors in private placement		280,000	$	2.50	2/3/2013
Granted to placement agent in private placement		1,250	$	1.50	2/3/2013
Granted to placement agent in private placement		1,250	$	2.50	2/3/2013
Granted to investors in private placement		250,000	$	1.50	2/8/2013
Granted to investors in private placement		250,000	$	2.50	2/8/2013
Granted to investors in private placement		959,582	$	3.00	12/7/2014
Total outstanding warrants accounted for as equity		6,802,387
Weighted average exercise price			$	1.99
Weighted average time to expiration in years					1.22 years
Totals for all warrants outstanding:
Total		7,527,529
Weighted average exercise price			$	1.92
Weighted average time to expiration in years					1.19 years

A summary of warrant activity in the year ended December 31, 2011 is as follows:

Warrants	Shares			Weighted- Average Exercise Price
Outstanding at January 1, 2011		10,336,292		$	1.82
Granted		5,702,835		$	2.17
Exercised		(8,034,768	)	$	1.16
Forfeited or expired		(476,830	)	$	5.80
Outstanding at December 31, 2011		7,527,529		$	1.92