2010 Private Placements

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 15 - 2010 Private Placements

In 2010, the Company entered into transactions that, in the aggregate, resulted in the Company’s raising $4,000,000 of growth capital and exchanging 3,450 shares of its outstanding Series A-2 convertible preferred stock (the “Series A-2 Preferred Stock”) for (i) 100 shares of our newly-created non-convertible Series B preferred stock (the “Series B Preferred Stock”) and (ii) 4,624,000 shares of common stock (the “2010 Private Placements”).

The following are the amounts of cash, number of the shares of Series A-2 Preferred Stock, Series B Preferred Stock, common stock and warrants issued or exchanged in each component of the 2010 Private Placements  (in thousands except for shares of preferred stock ):

	2010 Series B  Preferred Stock Sales		2010 Series B Preferred Stock Exchanges			2010 Common Stock Conversions		2010 Financial Advisor Warrants		Total
Consideration received by Company:
Cash:
Gross proceeds	$	4,000	$	—		$	—	$	—	$	4,000
Series A-2 Preferred Stock received:
Shares		—		1,600			1,850		—		3,450
Book value	$	—	$	5,066		$	5,855	$	—	$	10,921
Consideration provided to holders:
Warrants issued:
Shares		—		—			—		295		295
Book value	$	—	$	—		$	—	$	443	$	443
Series B Preferred Stock issued:
Shares		40		60			—		—		100
Book value	$	4,000	$	6,000		$	—	$	—	$	10,000
Common Stock issued:
Shares		—		—			4,624		—		4,624
Book value	$	—	$	—		$	2	$	—	$	2
Additional Paid in Capital	$	—	$	—		$	5,853	$	—	$	5,853
Loss on Redemption of Preferred Stock	$	—	$	(934	)	$	—	$	—	$	(934	)

Sale of Series B Preferred Stock

In the 2010 Private Placements, the Company received $4,000,000 of gross proceeds for the issuance of 40 shares of its newly-created Series B Preferred Stock (the “2010 Series B Preferred Stock Sales”). The Series B Preferred Stock was recorded in the balance sheet at $4,000,000, which is the gross cash received in the sale and is also its liquidation value.

Exchange of Series A-2 Preferred Stock for Series B Preferred Stock

In the 2010 Private Placements, 60 shares of Series B Preferred Stock with a liquidation preference of $6,000,000 were issued in exchange for 1,600 shares of Series A-2 Preferred Stock with a liquidation preference of $12,000,000 (the “2010 Series B Preferred Stock Exchanges”).

We accounted for the 2010 Series B Preferred Stock Exchanges as a redemption that requires that the excess of the fair value of the Series B Preferred Stock (the “Series B Fair Value”) over the carrying amount of the Series A-2 Preferred Stock (the “Series A-2 Carrying Amount”) be added to net loss to arrive at net loss attributable to common stockholders.  The Series A-2 Carrying Amount of $5,066,000 is based on the recorded book value.  The Series B Fair Value of $6,000,000 is based on applying the $100,000 sale price of each share of Series B Preferred Stock sold in the 2010 Private Placements to each share of Series B Preferred Stock issued in the 2010 Series B Preferred Stock Exchanges.  As required by ASC topic 260 “Earnings Per Share,” the $934,000 excess of Series B Fair Value over the Series A-2 Carrying Amount is recognized in our consolidated statements of operations as a “Loss on Redemption of Preferred Stock” and added to our net loss to arrive at the net loss attributable to common stockholders.

Conversion of Series A-2 Preferred Stock for Common Stock

In the 2010 Private Placements, 1,850 shares of Series A-2 Preferred Stock were converted into 4,624,000 shares of common stock (the “2010 Common Stock Conversions”).  Each of the Series A-2 Preferred Stock shares was converted into 2,500 shares of common stock, which is consistent with the Series A-2 Preferred Stock Certificate of Designation.

We accounted for the 2010 Common Stock Conversions by taking the Series A-2 carrying amount of $5,855,000 and allocating $2,000 to the par value of common stock and the balance of $5,853,000 to Additional Paid in Capital.

Financial Advisor and Legal Fees

In connection with the 2010 Private Placements, we paid legal fees of $27,000 and paid financial advisory fees of $280,000.  We issued financial advisory warrants to purchase 295,000 shares of common stock at an exercise price of $2.53 per share and exercisable for a period of five years (the “2010 Financial Advisor Warrants”).  We accounted for the issuance of the 2010 Financial Advisor Warrants at fair value. The $443,000 estimated fair value of the 2010 Financial Advisor Warrants, determined using the Black-Scholes option valuation model using the assumptions shown in Note 14, was charged to Additional Paid in Capital “Costs related to 2010 Private Placements” and credited to Additional Paid in Capital “Warrants issued in connection with 2010 Private Placements.”