Note 5. Stockholders’ Equity

We have granted share-based compensation awards to employees, board members and service providers. Awards may consist of common stock, restricted common stock, restricted common stock units, warrants, or stock options. Our stock options and warrants have lives of up to ten years from the grant date. The stock options or warrants vest either upon the grant date or over varying periods of time. The stock options we grant provide for option exercise prices equal to or greater than the fair market value of the common stock at the date of the grant. Restricted stock units grant the holder the right to receive fully paid common shares with various restrictions on the holder’s ability to transfer the shares. Vesting of the restricted stock units is similar to that of stock options. As of December 31, 2013, we have approximately 43.3 million shares of common stock reserved for issuance of such awards.

We record share-based compensation expense on a straight-line basis over the requisite service period and recognized approximately $2,331,000, $1,611,000 and $3,333,000 in total share-based compensation expense during the years ended December 31, 2013, 2012 and 2011, respectively.

No income tax benefit was recognized in the consolidated statements of operations for stock-based compensation for the years presented due to the Company’s net loss position.

Share-based compensation expense included in the statements of operations was as follows:

	Year Ended December 31,
	2013		2012		2011

Research and development costs	$	932,200	$	655,303	$	1,727,042
General and administrative expenses		1,399,201		955,542		1,606,057
Total	$	2,331,401	$	1,610,845	$	3,333,099

Stock Options

A summary of stock option activity and related information for the year ended December 31, 2013 follows:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value

Outstanding at January 1, 2013		14,787,287	$	1.98		6.1	$	1,926,000
Granted		3,840,962	$	1.11
Exercised		-	$	-
Forfeited/Expired		(51,042)	$	2.72
Outstanding at December 31, 2013		18,577,207	$	1.79		5.8	$	24,000,710

Exercisable at December 31, 2013		12,659,353	$	2.14		4.5	$	12,938,385

Vested and expected to vest at December 31, 2013		18,577,207	$	1.79		5.8	$	24,000,710

Range of Exercise Prices	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
$0.50 - $1.00		7,400,000	$	0.78		6.3	$	15,734,000
$1.01 - $2.00		4,296,837	$	1.19		7.6		7,381,481
$2.01 - $3.00		2,077,037	$	2.48		5.4		885,229
$3.01 - $4.00		4,803,333	$	3.59		3.7		-
		18,577,207	$	1.79		5.8	$	24,000,710

The Company uses the Black-Scholes option pricing model to calculate the fair value of options. Significant assumptions used in this model include:

	Year Ended December 31,
	2013		2012		2011

Annual dividend		-		-		-
Expected life (in years)		3.0 - 6.5		2.0 - 4.0		2.0 - 3.5
Risk free interest rate		0.29% - 2.43%		0.24% - 0.65%		0.25% - 1.39%
Expected volatility		65.1% - 77.5%		55.5% - 77.4%		66.9% - 75.4%

The Company estimates the expected term using the "simplified-method" as it does not have sufficient historical exercise data to provide a reasonable estimate.

The options granted in the years ended December 31, 2013, 2012 and 2011 had weighted average grant date fair values of $1.01, $0.49 and $1.64, respectively. The total fair value of the options vested during the years ended December 31, 2013, 2012 and 2011 was approximately $1,170,000, $557,000 and $3,096,000, respectively.

Unrecognized compensation cost for unvested stock option awards outstanding at December 31, 2013 was approximately $4,498,000 to be recognized over approximately 2.9 years.

RSUs

We have granted restricted stock units (RSUs) to certain employees that entitle the holders to receive shares of our common stock upon vesting of the RSUs, and subject to certain restrictions regarding the exercise of the RSUs. The fair value of RSUs granted is based upon the market price of the underlying common stock as if they were vested and issued on the date of grant.

A summary of our RSU activity for the years ended December 31, 2013 follows:

	Number of RSU's		Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2013		371,491	$	2.10
Granted		30,702	$	1.14
Vested and converted to common shares		-	$	-
Forfeited		(568)	$	1.19
Outstanding at December 31, 2013		401,625	$	2.03

Exercisable at December 31, 2013		389,465	$	2.06

The RSUs granted in the years ended December 31, 2013, 2012 and 2011 had weighted average grant date fair values of $1.14, $1.19 and $2.02, respectively. The total fair value of the shares vested during the years ended December 31, 2013, 2012 and 2011 was approximately $254,000, $248,000 and $256,000, respectively.

Unrecognized compensation cost for unvested RSUs outstanding at December 31, 2013 was approximately $14,000 to be recognized over approximately 1.1 years.

Stock Purchase Warrants

Warrants to purchase common stock were issued to certain officers, directors, stockholders and service providers. In 2013, warrants were issued in conjunction with the March 2013 debt transaction, the September 2013 registered direct offering and at various times replacement warrants were issued in conjunction with warrant exercises.

A summary of warrant activity for the year ended December 31, 2013 follows:

	Number of Warrants		Weighted- Average Exercised Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value

Outstanding at January 1, 2013		19,840,176	$	2.08		3.5	$	854,649

Granted		7,761,211	$	1.83		4.0
Exercised		(5,302,935)	$	1.30
Forfeited		(2,711,633)	$	3.10
Outstanding at December 31, 2013		19,586,819	$	1.96		3.4	$	21,146,495

Exercisable at December 31, 2013		17,992,219	$	1.80		3.0	$	19,695,409

The stock purchase warrants granted in the years ended December 31, 2013, 2012 and 2011 had a weighted average grant date fair value of $0.82, $0.47 and $0.80, respectively. All stock purchase warrants were classified as equity with the exception of the warrant issued to the lender in the March 2013 debt transaction (see Note 4).

Stock purchase warrants exercised in 2013, 2012 and 2011 had an intrinsic value of approximately $3,550,000, $30,000, and 1,150,000, respectively.

Common Stock

In the first quarter of 2011, we issued common stock as a result of several warrant holders exercising their common stock purchase warrants. We issued a total of 1,468,775 shares of common stock at prices ranging from $1.10 to $1.25 generating net proceeds of approximately $1,668,000.

In April 2011, we issued 120,000 common shares to a consultant in lieu of cash compensation for services valued at approximately $240,000.

In September 2011, we issued 195,814 shares of common stock to a consultant in lieu of cash compensation for services valued at approximately $325,000.

In February 2012, the Company completed a registered direct offering of 5,200,000 shares of common stock at a price of $1.00 per share, and 5,200,000 common stock purchase warrants, each with an exercise price of $1.02 per share and exercisable starting six months from the issuance date for a term of five years. The Company received aggregate gross proceeds of $5,200,000, which will be used for general corporate purposes, including ongoing U.S. clinical trials. Net proceeds were approximately $4,877,000. The warrants are classified within equity.

In March 2012, pursuant to the terms of a consulting agreement entered into in January of 2010 and amended May 14, 2010 and February 7, 2011, we issued: (i) 180,000 common shares; and (ii) a common stock purchase warrant entitling the holder to purchase 510,821 shares of common stock at $0.99 per share as compensation for business advisory services. The warrant was exercisable immediately, expires on January 6, 2022, and is freely assignable in whole or in part. We also agreed to register the shares underlying the warrant with the SEC for resale. The warrant was valued at approximately $166,000 and is classified within equity.

In August 2012, the Company completed an underwritten public offering of 6,900,000 shares of common stock at a price of $0.40 per share. The Company received aggregate gross proceeds of $2,760,000, which will be used for general corporate purposes, including ongoing clinical trials. Net proceeds were approximately $2,441,000. In connection with the offering, the Company issued the underwriter a common stock purchase warrant to purchase 300,000 shares; the warrant has an exercise price of $0.50 per share and is exercisable for five years. The warrant is classified within equity.

In September 2012, the Company completed a registered direct offering of 7,000,000 shares of common stock at a price of $1.00 per share. The Company received aggregate gross proceeds of $7,000,000, which will be used for general corporate purposes, including ongoing clinical trials. Net proceeds were approximately $6,368,000. In connection with the offering, the Company issued the placement agent a common stock purchase warrant to purchase 350,000 shares; the warrant has an exercise price of $1.25 per share and is exercisable for five years. The warrant is classified within equity.

In October of 2012, we entered into a consulting agreement related to the marketing of NS-189, our small molecule compound to other pharmaceutical and drug development companies. As partial consideration for the services to be rendered, we issued an aggregate of 25,000 shares of our common stock which vests over the initial five month term of the agreement.

In December 2012, we issued 200,000 shares of common stock as a result of a warrant holder exercising their common stock purchase warrant. The stock was issued at $1.02 and generated approximately $204,000 in net proceeds.

In January and February 2013, we issued 258,000 shares of common stock as a result of certain warrant holders exercising their common stock purchase warrants. The shares were issued at $1.25 per share and generated approximately $323,000 in net proceeds. In conjunction with the exercises we modified the warrants to reduce the exercise price to $1.25 and issued 258,000 replacement warrants. The replacement warrants have an exercise price of $1.25 and expire in March 2020. We recognized an expense for the value of the replacement warrants and the reduction of the strike price on the original warrants. Such expense is classified as warrant modification expense. The warrants are classified within equity.

In March 2013, we issued 350,650 shares of common stock and 1,297,607 common stock purchase warrants to various parties in conjunction with our debt transaction (see Note 4).

In May 2013, we issued 440,000 shares of common stock as a result of a certain warrant holder exercising their common stock purchase warrants. The shares were issued at $1.07 per share and generated approximately $433,000 in net proceeds. In conjunction with the exercise we modified the warrants to reduce the exercise price to $1.07 and issued 440,000 replacement warrants. The replacement warrants have an exercise price of $1.25 and expire in May 2016. We recognized expense for the value of the replacement warrants and the reduction of the strike price on the original warrants; such expense is classified as warrant modification expense. The warrants are classified within equity.

In May 2013, we issued 689,675 shares of common stock as a result of certain warrant holders exercising their common stock purchase warrants. The shares were issued at $1.25 per share and generated approximately $844,000 in net proceeds. In conjunction with the exercises we modified the warrants to reduce the exercise price to $1.25 and issued 689,675 replacement warrants. The replacement warrants have an exercise price of $1.25 and expire in March 2020. We recognized an expense for the value of the replacement warrants and the reduction of the strike price on the original warrants; such expense is classified as warrant modification expense. The warrants are classified within equity.

In May and June 2013, we issued 378,809 shares of common stock as a result of certain warrant holders exercising their common stock purchase warrants. The shares were issued at $1.25 per share and generated approximately $474,000 in net proceeds. In conjunction with the exercise we issued 378,809 replacement warrants. The replacement warrants have an exercise price of $1.25 and expire in March 2020. We recognized an expense for the value of the replacement warrants; such expense is classified as warrant modification expense. The warrants are classified within equity.

In May and June 2013, we issued 300,000 shares of our common stock to a warrant holder as a result of their exercising their common stock purchase warrants. The shares were issued at $1.02 and generated approximately $306,000 in net proceeds.

In July 2013, we issued 942,520 shares of our common stock to a warrant holder as a result of their exercising their common stock purchase warrants. The shares were issued at $1.25 per share and generated approximately $1,178,000 in net proceeds. In conjunction with the exercises we modified 782,005 of the warrants to reduce the exercise price to $1.25 and issued 942,520 replacement warrants. The replacement warrants have an exercise price of $1.25 and expire in March 2020. We recognized an expense for the value of the replacement warrants and the reduction of the strike price on the original warrants; such expense is classified as warrant modification expense. The warrants are classified within equity.

In July 2013, we issued 100,000 shares of common stock as a result of a warrant holder exercising their common stock purchase warrants. The shares were issued at $1.02 and generated approximately $102,000 in net proceeds.

In September 2013, we issued 1,448,798 shares of common stock as a result of certain warrant holders exercising their common stock purchase warrants. The shares were issued at $1.25 per share (800,000 shares) and $1.08 per share (648,798 shares) and generated approximately $1,700,000 in net proceeds. In conjunction with the exercise we issued an additional 72,440 shares of our common stock as a commission for exercise. We recognized an expense for the value of the additional common stock; such expense is classified as warrant modification expense.

In September and December 2013, we issued 344,000 shares of common stock as a result of certain warrant holders exercising their common stock purchase warrants. 340,000 shares of stock were issued at $2.13 while 4,000 shares of stock were issued at $1.56. The exercises generated approximately $730,000 net proceeds.

In September 2013, we issued 401,133 shares of our common stock as a result of certain warrant holders exercising the cashless exercise provision of their common stock purchase warrants with an average strike price of $0.90. Such exercises resulted in 248,867 warrants being forfeited and resulted in no net proceeds to the Company.

In September 2013, the Company completed a registered direct placement of 2,847,500 shares of common stock at a price of $1.60 per share. The Company received aggregate gross proceeds of $4,556,000; net proceeds were approximately $4,242,000. In connection with the offering, the Company issued common stock purchase warrants to purchase 1,423,750 shares of our common stock; the warrants have an exercise price of $2.00 and are exercisable for five years. Additionally, we issued a common stock purchase warrant to the placement agent for the purchase of up to 170,850 shares; the warrant has an exercise price of $2.00 per share and is exercisable for 19 months. The warrants are classified within equity.

In November and December 2013, we issued 1,140,994 shares of common stock as a result of sales under our At the Market Offering Agreement. The shares were sold at an average price of $2.64 per shares and generated approximately $2,895,000 in net proceeds.