XML 80 R19.htm IDEA: XBRL DOCUMENT
v2.4.0.8

Derivative Financial Instruments | 9 Months Ended
--- | ---
Sep. 30, 2013
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | NOTE M – DERIVATIVE FINANCIAL INSTRUMENTS The following tables summarize the components of our derivative liabilities and linked common shares as of September 30, 2013 and December 31, 2012 and the amounts that were reflected in our income related to our derivatives for the nine-month periods ended September 30, 2013 and 2012:
|  | September 30, 2013 |  |  | December 31, 2012 |
Derivative liabilities: |  |  |  |  |  |  |  |
Embedded derivatives derived from: |  |  |  |  |  |  |  |
Senior Convertible Notes |  | $ | 421,629 |  |  | $ | 1,529,583 |
Warrant derivatives |  |  |  |  |  |  |  |
Senior Convertible Notes |  |  | 1,463,281 |  |  |  | 1,921,094 |
Series G Convertible Preferred Stock |  |  | 1,264,651 |  |  |  | 1,905,526 |
|  |  | 2,727,932 |  |  |  | 3,826,620 |
Total derivative liabilities |  | $ | 3,149,561 |  |  | $ | 5,356,203 |
|  | September 30, 2013 |  |  | December 31, 2012 |
Common shares linked to derivative liabilities: |  |  |  |  |  |  |  |
Embedded derivatives: |  |  |  |  |  |  |  |
Senior Convertible Notes |  |  | 1,980,938 |  |  |  | 4,247,343 |
Warrant derivatives |  |  |  |  |  |  |  |
Senior Convertible Notes |  |  | 1,562,500 |  |  |  | 1,562,500 |
Series G Convertible Preferred Stock |  |  | 2,250,000 |  |  |  | 2,250,000 |
|  |  | 3,812,500 |  |  |  | 3,812,500 |
Total common shares linked to derivative liabilities |  |  | 5,793,438 |  |  |  | 8,059,843 |
|  | Three months ended September 30, |  |  | Nine months ended September 30, |
|  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
Derivative income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gains (losses) from fair value changes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior Convertible Notes |  | $ | 202,034 |  |  | $ | 2,274,033 |  |  | $ | 244,303 |  |  | $ | 1,174,205 |
Series G Convertible Preferred Stock |  |  | — |  |  |  | 286,335 |  |  |  | — |  |  |  | 158,711 |
Warrant derivatives |  |  | 438,119 |  |  |  | 2,241,494 |  |  |  | 1,098,688 |  |  |  | 379,114 |
|  |  | 640,153 |  |  |  | 4,801,862 |  |  |  | 1,342,991 |  |  |  | 1,712,030 |
Redemptions of Senior Convertible Notes |  |  | 230,300 |  |  |  | — |  |  |  | 863,651 |  |  |  | — |
Total derivative income (expense) |  | $ | 870,453 |  |  | $ | 4,801,862 |  |  | $ | 2,206,642 |  |  | $ | 1,712,030 |
In October 2010, we completed a public offering of shares of Series G Preferred Stock and warrants to purchase common stock. In April 2011, we entered into separate agreements with two holders of the Series G Preferred Stock whereby we agreed to issue warrants to purchase additional shares of common stock to the holders in consideration of the two holders agreeing to extend by six months the dates upon which the conversion option and the redemption option with respect to the shares of Series G Preferred Stock held by them became exercisable and the date upon which the redemption price of the shares of Series G Preferred Stock held by them began to increase by 1% per month. These transactions gave rise to derivative financial instruments. The Series G Convertible Preferred Stock embodied certain terms and features that both possessed all of the conditions of derivative financial instruments and were not clearly and closely related to the host preferred contract in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option and the related down-round anti-dilution protection provision, the Company’s redemption privilege and the holder’s redemption privilege. Each of the redemption features also embodies the redemption premium payments. The warrants issued in connection with these transactions included down-round anti-dilution protection and, accordingly, were not afforded equity classification. In November 2011 and May 2012, we issued and sold Senior Convertible Notes that included certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion options, certain redemption features and a conversion price reset feature. Warrants issued in connection with these transactions included reset price protection and, accordingly, were not afforded equity classification. Current accounting principles that are provided in ASC 815 – Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound embedded derivative. We have selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because we believe that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk free rates. We have selected Binomial Lattice to fair value our warrant derivatives because we believe this technique is reflective of all significant assumption types market participants would likely consider in transactions involving freestanding warrants derivatives. The Monte Carlo Simulations technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators. Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the compound embedded derivative that has been bifurcated from our Senior Convertible Notes and classified in liabilities:
|  | September 30, 2013 |  | December 31, 2012
Quoted market price on valuation date |  | $3.00 |  | $2.97
Contractual conversion rate |  | $3.17 |  | $3.74
Contractual term to maturity |  | 0.58 Years |  | 1.33 Years
Implied expected term to maturity |  | 0.57 Years |  | 1.24 Years
Market volatility: |  |  |  |
Range of volatilities |  | 24.0% - 46.2% |  | 31.3% - 64.03%
Range of equivalent volatilities |  | 32.2% - 37.8% |  | 38.6% - 45.0%
Contractual interest rate |  | 8.0% - 9.0% |  | 8.0% - 9.0%
Range of equivalent market risk adjusted interest rates |  | 8.02% - 9.08% |  | 9.0% - 9.1%
Range of equivalent credit risk adjusted yields |  | 0.58% |  | 0.94% - 1.03%
Risk-free rates |  | 0.03% - 0.04% |  | 0.02% - 0.16%
The following table reflects the issuances of compound embedded derivatives, redemptions and changes in fair value inputs and assumptions related to the compound embedded derivatives during the periods ended September 30, 2013 and 2012.
|  | Nine Months ended September 30, |
|  | 2013 |  |  | 2012 |
Balances at January 1 |  | $ | 1,529,583 |  |  | $ | 2,680,133 |
Issuances |  |  | — |  |  |  | 1,291,298 |
Expirations from redemptions of host contracts reflected in income |  |  | (863,652 | ) |  |  | (650,627 | )
Changes in fair value inputs and assumptions reflected in income |  |  | (244,302 | ) |  |  | (682,289 | )
Balances at September 30 |  | $ | 421,629 |  |  | $ | 2,638,515 |
The fair value of the compound embedded derivative is significantly influenced by our trading market price, the price volatility in trading, redemptions, financing probabilities and the interest components of the Monte Carlo Simulation technique. In October 2010, we also issued warrants to purchase 1,800,000 shares of our common stock in connection with a public offering of our Series G Convertible Preferred Stock, and in April 2011, we issued warrants to purchase an additional 525,000 shares of our common stock to two holders of the Series G Convertible Preferred Stock in connection with the modification of the conversion and redemption features of the shares of Series G Convertible Preferred Stock held by them. Additionally, in November 2011, we issued warrants to purchase 1,302,083 shares of our common stock in connection with the sale of Senior Convertible Notes. These warrants required liability classification as derivative financial instruments because certain down-round anti-dilution protection or price protection features included in the warrants are not consistent with the concept of equity. We applied the Binomial Lattice valuation technique in estimating the fair value of the warrants because we believe that this technique is most appropriate and reflects all of the assumptions that market participants would likely consider in transactions involving the warrants, including the potential incremental value associated with the down-round anti-dilution protections. The Binomial Lattice technique is a level-three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators. Significant assumptions and utilized in the Binomial Lattice process are as follows for both the issuance dates of the warrants and September 30, 2013 and 2012 and December 31, 2012:
|  | September 30, |  | December 31, 2012
|  | 2013 |  | 2012 |
Linked common shares |  | 1,725,000 |  | 1,800,000 |  | 1,725,000
Quoted market price on valuation date |  | $3.00 |  | $3.15 |  | $2.97
Contractual exercise rate |  | $2.4648 |  | $2.50 |  | $2.4648
Term (years) |  | 0.03 |  | 1.03 |  | 0.78
Range of market volatilities |  | 24.0% - 31.5% |  | 38.9% - 68.1% |  | 33.1% - 49.17%
Risk free rates using zero coupon US Treasury Security rates |  | 0.03% |  | 0.06% - 0.17% |  | 0.02% - 0.11%
|  | September 30, |  | December 31, 2012
|  | 2013 |  | 2012 |
Linked common shares |  | 525,000 |  | 525,000 |  | 525,000
Quoted market price on valuation date |  | $3.00 |  | $3.15 |  | $2.97
Contractual exercise rate |  | $2.4648 |  | $2.75 |  | $2.4648
Term (years) |  | 0.54 |  | 1.54 |  | 1.28
Range of market volatilities |  | 26.3% - 46.1% |  | 38.7% - 69.2% |  | 33.8% - 63.6%
Risk free rates using zero coupon US Treasury Security rates |  | 0.02% - 0.04% |  | 0.06% - 0.20% |  | 0.02% - 0.16%
|  | September 30, |  | December 31, 2012
|  | 2013 |  | 2012 |
Linked common shares |  | 1,562,500 |  | 1,562,500 |  | 1,562,500
Quoted market price on valuation date |  | $3.00 |  | $3.15 |  | $2.97
Contractual exercise rate |  | $3.60 |  | $3.60 |  | $3.60
Term (years) |  | 3.61 |  | 4.60 |  | 4.35
Range of market volatilities |  | 38.2% - 60.5% |  | 54.2% - 71.0% |  | 39.2% - 70.2%
Risk free rates using zero coupon US Treasury Security rates |  | 0.02% - 0.63% |  | 0.10% - 0.47% |  | 0.05% - 0.54%
Of the 1,302,083 common shares issuable upon exercise of the warrant issued on November 8, 2011, 434,027 of those common shares were exercisable only upon the Company’s election to require the lender to provide the additional financing. When the lender provided additional financing of $8,000,000 on May 10, 2012, the additional 434,027 of common shares became available for issuance upon exercise. Warrants indexed to an additional 260,417 were issued in conjunction with the additional financing. The following table reflects the issuances of derivative warrants and changes in fair value inputs and assumptions related to the derivative warrants during the nine months ended September 30, 2013 and 2012.
|  | Nine months ended September 30, |
|  | 2013 |  |  | 2012 |
Balances at January 1 |  | $ | 3,826,619 |  |  | $ | 4,653,160 |
Issuances |  |  | — |  |  |  | 363,542 |
Changes in fair value inputs and assumptions reflected in income |  |  | (1,098,688 | ) |  |  | (379,114 | )
Balances at September 30 |  | $ | 2,727,931 |  |  | $ | 4,637,588 |
The fair value of all warrant derivatives is significantly influenced by our trading market price, the price volatility in trading, redemptions, financing probabilities and the risk free interest components of the Binomial Lattice technique.

X
- Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration