6. Stockholders’ Equity – Common and Preferred Shares

Private Placements of Preferred Shares and Warrants

April 2013 Private Placement

On April 16, 2013, the Company closed on an offering pursuant to the terms of a private placement agreement, in which the Company raised $5,000,000 in gross proceeds, before deducting placement agents’ fees and other offering expenses, in a private placement of 5,000 shares of the Company’s Series A Preferred Stock. Subject to certain ownership limitations, shares of Series A Preferred Stock were convertible, at the option of the holder thereof, into an aggregate of up to 1,377,412 shares of the Company’s common stock. The Series A Preferred Stock was not redeemable or contingently redeemable, did not have a dividend right, nor did it have any preferences over the common stock, including liquidation rights.

During the year ended December 31, 2013, the investor in the private placement converted 2,198 shares of Series A Preferred Stock into 605,422 shares of the Company’s common stock.

In connection with the September 2013 private placement, the Company agreed to redeem 2,802 shares of Series A Preferred Stock that remained outstanding as of that date, which had a redemption value of approximately $2,802,000. See below under September 2013 Private Placement.

Also included in the April 16, 2013 offering were warrants to purchase common stock, as follows:

(A) Series A Warrants to purchase 1,377,412 shares of the Company’s common stock, which are exercisable immediately after issuance, have a five-year term and a per share exercise price of $3.40; and

(B) Series B Warrants to purchase 1,377,412 shares of the Company’s common stock, which are exercisable immediately after issuance, have a two-year term and a per share exercise price of $3.40.

At the closing on April 16, 2013, the Company also issued to its placement agent and related persons Series A Warrants to purchase 82,645 shares of the Company’s common stock.

The Series A Warrants and Series B Warrants contain limitations that prevent the holders of the warrants from acquiring shares upon exercise of the warrants that would result in the number of shares beneficially owned by it and its affiliates exceeding 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. In addition, upon certain changes in control of our Company, the holder of Series A Warrants or Series B Warrants can elect to receive, subject to certain limitations and assumptions, securities in a successor entity equal to the value of the warrant, or if holders of common stock are given a choice of cash or property, then cash or property equal to the value of the outstanding warrants. In connection with the April 2013 private placement, we filed a registration statement on Form S-3 with the SEC on April 24, 2013, pursuant to the terms of a Registration Rights Agreement with the investors, to register the shares of our common stock issuable upon conversion of the Series A Preferred Stock and upon exercise of the Series A Warrants and the Series B Warrants. After deducting costs associated with the offering, the net proceeds of this offering were approximately $4,192,000.

During the year ended December 31, 2013, the investor in the private placement exercised 270,390 Series B Warrants into 270,390 shares of the Company’s common stock for net proceeds of approximately $864,166. In the months of January through March 2014, the investor in the private placement exercised 350,000 Series B Warrants into 350,000 shares of the Company’s common stock for net proceeds of approximately $1,119,000. 757,022 Series B Warrants remain outstanding at an exercise price of $3.40 as of March 17, 2014.

The Series A Preferred Stock issued in the offering had a beneficial conversion feature and, as a result, the Company recognized approximately $2.48 million as a non-cash deemed dividend. In order to calculate the amount of the deemed dividend, the Company estimated the relative fair value of the Series A Preferred Stock, the Series A Warrants and the Series B Warrants issued in order to determine the amount of the beneficial conversion feature present in the Series A Preferred Stock. The Series A Preferred Stock was valued using Level 2 inputs by reference to the market value of the Company’s common stock into which the Series A Preferred Stock is convertible. The Series A Warrants and Series B Warrants granted were valued using the Black-Scholes valuation model and the following Level 3 input assumptions:


	Private Placement			Private Placement
Weighted Average Assumptions	Series A Warrants			Series B Warrants
Risk-free interest rate		0.24	%		0.24	%
Expected life (years)		2.3			1.9
Expected volatility		87	%		87	%
Dividend yield		0.00	%		0.00	%

September 2013 Private Placement

On September 23, 2013, the Company closed on another offering pursuant to the terms of a private placement agreement, in which the Company raised $5,800,000 in gross proceeds, before deducting placement agents’ fees and other offering expenses, in a private placement of 5,800 shares of the Company’s Series B Preferred Stock. On September 23, 2013, we also agreed to redeem the remaining outstanding balance of the Series A Preferred Stock of 2,802 shares which had a redemption value of approximately $2,802,000. Subject to certain ownership limitations, shares of Series B Preferred Stock were convertible, at the option of the holder thereof, into an aggregate of up to 2,452,431 shares of the Company’s common stock. The Series B Preferred Stock was not redeemable or contingently redeemable, did not have a preferential dividend right, nor did it have any preferences over the common stock, including liquidation rights. Also included in the offering were warrants to purchase 2,452,431 shares of the Company’s common stock, which are exercisable immediately after issuance, have a five-year term and a per share exercise price of $2.24.

During year ended December 31, 2013, the investor in the private placement converted 5,800 shares of Series B Preferred Stock into 2,452,431 shares of our common stock.

Also included in the offering were warrants to purchase 2,452,431 shares of the Company’s common stock, which were exercisable immediately after issuance, have a five-year term and a per share exercise price of $2.24.

At the closing, the Company also issued to its placement agent and related persons warrants to purchase 147,145 shares of the Company’s common stock, which are exercisable immediately after issuance, have a five-year term and a per share exercise price of $2.80.

The warrants contain limitations that prevent the holders of the warrants from acquiring shares upon exercise of warrants that would result in the number of shares beneficially owned by a holder and its affiliates exceeding 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. In addition, upon certain changes in control of our Company, the holder of a warrant can elect to receive, subject to certain limitations and assumptions, securities in a successor entity equal to the value of the warrant or if holders of common stock are given a choice of cash or property, then cash or property equal to the value of the outstanding warrants. In connection with the September 2013 private placement, we filed a registration statement on Form S-3 on October 2, 2013, pursuant to the terms of a Registration Rights Agreement with the investors, to register the shares of our common stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the warrants.

The Company used the proceeds of this offering in part to redeem the outstanding shares of Series A Preferred Stock issued in April 2013. On September 23, 2013, the Company agreed to redeem the remaining outstanding balance of the Series A Preferred Stock of 2,802 shares for $2,802,000.

In the months of January through March 2014, the investor in the private placement exercised 2,452,431 warrants into 2,452,431 shares of the Company’s common stock for net proceeds of approximately $5,500,000. No five-year term warrants remain outstanding at an exercise price of $2.24 as of March 17, 2014.

As a result of the redemption, the excess of the fair value of the consideration transferred to the holders of the Series B Preferred Stock over the carrying amount of the Series A Preferred Stock in the Company’s balance sheet (net of issuance costs) was treated as a non-cash deemed dividend to the shareholders of the Series B Preferred Stock. The Company recognized approximately $2.31 million as a non-cash deemed dividend. In order to calculate the amount of the deemed dividend, the Company first calculated the amount of the consideration transferred to the holders of the Series B Preferred Stock which included the cash used to redeem the Series A Preferred Stock, and the estimated value of the Series B Preferred Stock and warrants. The Series B Preferred Stock was valued using Level 2 inputs by reference to the market value of the Company’s common stock into which the Series B Preferred Stock is convertible. The warrants granted were valued using the Black-Scholes valuation model and the following Level 3 input assumptions:


	Private Placement			Private Placement
Weighted Average Assumptions	Series A Warrants			Series B Warrants
Risk-free interest rate		0.24	%		0.24	%
Expected life (years)		2.3			1.9
Expected volatility		87	%		87	%
Dividend yield		0.00	%		0.00	%

Common Stock

At the 2013 Annual Meeting of Stockholders in July 2013, the stockholders approved a decrease in the Company’s authorized common stock from 100,000,000 to 70,000,000.

On July 21, 2010, the Company entered into an “at the market” equity offering sales agreement (the ATM Agreement) with MLV & Co. LLC, or MLV, pursuant to which the Company may issue and sell shares of its common stock from time to time through MLV acting as sales agent and underwriter. The Company is limited as to how many shares it can sell under the ATM Agreement due to SEC limitations on the number of shares issuable pursuant to a Form S-3 registration statement in a primary offering by smaller reporting companies such as the Company. As of March 17, 2014, the total dollar amount of common stock that the Company could sell under the ATM Agreement during the next twelve months is approximately $264,000 under the current registration statement. However, the Company is restricted from making sales under this agreement until November 2014 due to the previous agreements the Company entered into for the sale of common and preferred stock. The Company may be able to sell more shares under this agreement over the next twelve months depending on several factors including the Company’s stock price, number of shares outstanding, and when the sales occur.

In connection with the ATM Agreement, the Company issued 422,206 shares of common stock for proceeds of approximately $1,936,000 net of issuance costs, during the year ended December 31, 2013. Additionally, the Company issued 178,000 shares of common stock for proceeds of approximately $1,270,000 net of issuance costs under this agreement, during the year ended December 31, 2012.

In November 2011, the Company entered into a purchase agreement, or the LPC Purchase Agreement, for the sale, from time to time, of up to $20,000,000 of its common stock to Lincoln Park Capital Fund, LLC, or LPC, over a 36 month term. The Company can only sell shares under this arrangement if it maintains a minimum stock price of $6.00 and maintains the effectiveness of a registration statement filed with the Securities and Exchange Commission. Subject to this restriction, if the Company’s stock price rises above $6.00 and the other conditions of the arrangement are met, the Company can generally control the timing and amount of any sales to LPC in accordance with the purchase agreement. LPC has no right to require the Company to sell any shares to LPC, but LPC is obligated to make purchases as the Company directs, subject to certain conditions including the minimum stock price of $6.00 and the continuing effectiveness of a registration statement filed with the Securities and Exchange Commission covering the resale of the shares that may be issued to LPC. There are no upper limits to the price LPC may pay to purchase the Company’s common stock and the purchase price of the shares related to any future sales will be based on the prevailing market prices of the Company’s shares immediately preceding the notice of sale to LPC without any fixed discount. The agreement may be terminated by the Company at any time, at its sole discretion, without any cost or penalty. Assuming that the purchase price per share is $6.00 or greater, the total dollar amount of common stock that the Company could sell under the LPC Purchase Agreement during the next twelve months is approximately $17,400,000, provided that the Company would be required to file and have declared effective an additional registration statement in order to sell more than an additional 66,862 shares of its common stock under the LPC Purchase Agreement.

In connection with the LPC Purchase Agreement, the Company issued 294,000 shares of common stock for proceeds of approximately $2,047,000, net of issuance costs, during the year ended December 31, 2012, including 6,493 shares issued as a commitment fee. No shares of common stock were issued under this agreement during the year ended December 31, 2013.

Warrants

The following is a summary of the Company’s outstanding common stock warrants as of December 31, 2013 and December 31, 2012:


					Number of Warrants
					as of December 31:
Warrants Issued in Connection with:	Date of Issuance		Exercise Price		(In thousands)
Warrants Issued in Connection with:	Date of Issuance		Exercise Price		2013		2012
Committed Equity Financing Facility		02/19/08	$	657.60		—		1
Direct Registration Series I Warrants		07/20/09	$	504.00		12		12
Private Placement Series A Warrants		04/16/13	$	3.40		1,460		—
Private Placement Series B Warrants		04/16/13	$	3.40		1,107		—
2013 Private Placement Warrants		09/23/13	$	2.24		2,452		—
2013 Private Placement Warrants		09/23/13	$	2.80		147		—

Total Warrants Outstanding						5,178		13

Effective with a warrant exchange, the Committed Equity Financing Facility warrants, issued by the Company on February 19, 2008, were reclassified as equity in January 2011. Previously they were recorded as a liability at their fair value in March 2010 and were last recorded as a liability on December 31, 2010. These warrants expired on February 19, 2013.

The Direct Registration Series I Warrants, issued by the Company on July 20, 2009, were recorded as a liability at their fair value as of the date of their issuance in July 2009 and are revalued at each subsequent reporting date. The value of these warrants recorded on the Company’s balance sheet was approximately $0 at both December 31, 2013 and December 31, 2012, respectively. These warrants have a five-year term.

The Private Placement Series A Warrants include warrants to purchase 1,377,412 shares of the Company’s common stock and warrants issued to the Company’s placement agent and related persons to purchase 82,645 shares of the Company’s common stock. The Series A Warrants became exercisable immediately after issuance, have a five-year term and a per share exercise price of $3.40.

The Private Placement Series B Warrants to purchase 1,107,022 shares of the Company’s common stock became exercisable immediately after issuance, have a two-year term and a per share exercise price of $3.40. In the months of January through March 2014, the investor in the April private placement exercised 350,000 Series B Warrants into 350,000 shares of the Company’s common stock for net proceeds of approximately $1,119,000. 757,022 Series B Warrants remain outstanding at an exercise price of $3.40 as of March 17, 2014.

The Private Placement Warrants issued to purchase 2,452,431 shares of the Company’s common stock became exercisable immediately after issuance, have a five-year term and a per share exercise price of $2.24. In the months of January through March 2014, the investor in the September 2013 private placement exercised 2,452,431 warrants into 2,452,431 shares of the Company’s common stock for net proceeds of approximately $5,500,000. No five-year term warrants remain outstanding at an exercise price of $2.24 as of March 17, 2014.

The Private Placement Warrants issued to purchase 147,145 shares of the Company’s common stock became exercisable immediately after issuance, have a five-year term and a per share exercise price of $2.80.

The gain (loss) from the change in fair value of warrants and other financial instruments for the years ended December 31, 2013, 2012 and 2011 is summarized below (in thousands):


	Years ended December 31,
	2013		2012		2011
Committed Equity Financing Facility Warrants	$	—	$	—	$	3
Direct Registration Warrants		—		6		102
Gain recognized in connection with warrant exchange agreements		—		—		690
2010 Private Placement Warrants		—		—		1,427

Total gain (loss) on change in fair market value of derivatives	$	—	$	6	$	2,222

In connection with the warrant exchange, the Company also amended its Stockholder Rights Agreement with American Stock Transfer & Trust Company, LLC, dated as of March 24, 2005, as amended as of October 1, 2008, October 14, 2009 and March 10, 2010, to provide that the provisions of the Stockholder Rights Agreement shall not apply to the transactions contemplated by the Warrant Exchange Agreements. Refer to Private Issuance of Public Equity “PIPE” Warrants below for further discussion of this exchange.

The following is a summary of the Company’s derivative liability activity for the years ended December 31, 2013 and December 31, 2012 (in thousands):


	Years ended December 31,
	2013		2012
Derivative liability oustanding at beginning of period	$	—	$	6
Net decrease in fair value of all warrants		—		(6	)

Derivative liability outstanding at end of period	$	—	$	—

Private Issuance of Public Equity “PIPE” Warrants

On March 11, 2010, the Company completed a definitive agreement with certain institutional investors to sell shares of its common stock and four separate series of warrants to purchase common stock in a private placement. Gross proceeds of the financing were approximately $7,500,000, before deducting placement agent fees and estimated offering expenses, and excluding the subsequent exercises of the warrants.

The four separate series of warrants consisted of the following:

(A) Series A Warrants to initially purchase 27,412 shares of common stock, which were exercisable immediately after issuance, had a 5-year term and had an initial per share exercise price of $364.80;

(B) Series B Warrants to initially purchase 27,412 shares of common stock, which were initially exercisable at a per share exercise price of $273.60, on the earlier of the six month anniversary of the closing date or the date on which the Company’s stockholders approved the issuance of shares in the transaction, and expired on the later of three months from the effective date of the resale registration statement covering such shares and seven months from the closing date. These warrants expired on October 12, 2010;

(C) Series C Warrants to initially purchase 27,412 shares of common stock, and which would be exercisable upon the exercise of the Series B Warrants and on the earlier of the six month anniversary of the closing date or the date on which the Company’s stockholders approved the issuance of shares in the transaction, would expire five years after the date on which they become exercisable, and had an initial per share exercise price of $273.60; and

(D) Series D Warrants to purchase shares of common stock. The Series D Warrants were not immediately exercisable. The Company registered for resale 28,146 shares of common stock issuable upon exercise of the Series D Warrants pursuant to an agreement with the warrant holders. All of the Series D Warrants were exercised by November 4, 2010 and there are no Series D Warrants outstanding after that date.

The Series A, B and C warrants listed above contained full ratchet anti-dilution features based on the price and terms of any financings completed after March 11, 2010 as described in the warrant agreements. All of the warrants listed above contained a cashless exercise feature as described in the warrant agreements.

The Company determined that in accordance with Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity, the Series A, B, and C warrants qualified for treatment as liabilities due to provisions of the related warrant agreements that call for the number of warrants and their exercise price to be adjusted in the event that the Company issues additional shares of common stock, options or convertible instruments at a price that is less than the initial exercise price of the warrants. The Company also determined that, in accordance with ASC 815, Derivatives and Hedging, the Series D Warrants met the definition of a derivative. The issuance date fair market value of the Series A, B, C and D warrants of $11,868,000 was recorded as a liability. The approximately $4,933,000 excess of the fair value of the liability recorded for these warrants over the net proceeds received was recorded as a charge to earnings and is included in “Change in fair value of warrants” within the Statements of Comprehensive Loss. Changes in the fair market value from the date of issuance to the exercise date and reporting date, until exercised or cancelled were recorded as a gain or loss in the Statements of Comprehensive Loss.

As of December 31, 2010, all Series B and D warrants had either been exercised or expired.

On January 18, 2011, the Company entered into separate Warrant Exchange Agreements with each of the holders of Series A and Series C warrants to purchase shares of common stock, issued in March 2010, pursuant to which, at the initial closing, the warrant holders exchanged their outstanding Series A and Series C warrants having “ratchet” price-based anti-dilution protections for (A) an aggregate of 91,411 shares of common stock and (B) Series E Warrants to purchase an aggregate of 101,885 shares of common stock. The Series E Warrants were not exercisable for six months, had an exercise price of $55.20 per share (reflecting the market value of the shares of common stock as of the close of trading on January 18, 2011, prior to the entry into the Warrant Exchange Agreements), and did not contain any price-based anti-dilution protections. In addition, the Company agreed to seek shareholder approval to issue, in exchange for the Series E Warrants, up to 38,128 additional shares of common stock to the warrant holders in a subsequent closing. The Series E Warrants were accounted for as a liability from the date of issuance to the date of exchange, all of which occurred during the first quarter of fiscal 2011. The initial closing occurred on January 20, 2011, and the subsequent closing took place on March 21, 2011, following the stockholder meeting on March 18, 2011. The Company determined that in accordance with Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity, the Series E warrants qualified for treatment as a liability during the period that they were outstanding due to provisions of the related warrant agreement that allow for the warrants to be net settled in shares of the Company’s common stock under certain circumstances as described in the agreement. As a result, there were no Series A, Series C or Series E warrants outstanding as of the subsequent closing date nor for any period thereafter. Similar to the Series A and Series C warrants, the Series E Warrants were classified as a liability during the period that they were outstanding.

On January 20, 2011, the date of the initial closing of the Warrant Exchange Agreements, the Company marked the existing Series A and C warrants to market at a combined fair value of $6,633,000. These warrants were exchanged for Series E warrants, valued at $1,555,000, and shares of common stock valued at $4,388,000. The difference between these items was recorded as a gain on the transaction of $690,000. On the date of the subsequent closing, the fair value of the Series E warrants was equal to the value of the 38,128 shares of common stock issued in the exchange, and therefore there was no gain or loss on this component of the transaction.

The table below summarizes the factors used to determine the value of the Series A and C warrants outstanding during the year ended December 31, 2011. The Company established the fair value of the Series A and C warrants using the Black-Scholes option valuation model:


	Warrant Valuation on date of Warrant Exchange January 19, 2011						Total Fair Market Value
	Series A			Series C			Total Fair Market Value
Stock Price	$	51.84		$	51.84
Exercise Price	$	67.20		$	67.20
Contractual life (in Years)		4.1 years			4.5 years
Expected volatility		82	%		79	%
Risk-free interest rate		1.53	%		1.68	%
Fair market value (in thousands)	$	3,663		$	2,970		$	6,633

	Warrant Valuation as of December 31, 2010						Total Fair Market Value
	Series A			Series C			Total Fair Market Value
Stock Price	$	55.20		$	55.20
Exercise Price	$	67.20		$	67.20
Contractual life (in Years)		4.2 years			4.5 years
Expected volatility		81	%		80	%
Risk-free interest rate		2.01	%		2.01	%
Fair market value (in thousands)	$	4,143		$	3,355		$	7,498

Management determined the fair value of the Series E Warrants on the date of the initial closing to be $1,555,000. This fair value was estimated based upon the $48.00 per share fair value of the 38,128 shares of common stock expected to be exchanged for the Series E Warrants upon shareholder approval adjusted for a 15% discount for lack of marketability which existed until the expected shareholder vote. Management determined the fair value of the Series E warrants on the date of the subsequent closing to be $993,000. This fair value was estimated based upon the $26.04 per share fair value of the 38,128 shares of common stock exchanged for the Series E Warrants.

Direct Registration Warrants

On July 20, 2009, the Company raised approximately $10,000,000 in gross proceeds, before deducting placement agents’ fees and other offering expenses, in a registered direct offering (the “Offering”) relating to the sale of 26,041 units, each unit consisting of (i) one share of common stock, (ii) a five-year warrant (“Direct Registration Series I”) to purchase 0.45 shares of common stock at an exercise price of $504.00 per share of common stock and (iii) a short-term warrant (“Direct Registration Series II”) to purchase 0.45 shares of common stock at an exercise price of $384.00 per share of common stock (the “Units”). The short-term warrants expired on September 24, 2010 consistent with the terms of the warrant, without being exercised.

The Company determined that the Direct Registration Series I warrants should be classified as a liability as they require delivery of registered shares of common stock and thus could require net-cash settlement in certain circumstances. Accordingly, these warrants were recorded as a liability at their fair value as of the date of their issuance and are revalued at each subsequent reporting date.

The fair value of the direct registration warrants was determined using the Black-Scholes option valuation model applying the following assumptions:


	Warrant Valuation as of
	December 31, 2013			December 31, 2012			December 31, 2011
Stock Price	$	2.52		$	5.35		$	11.88
Exercise Price	$	504.00		$	504.00		$	504.00
Contractual life (in Years)		0.6 years			1.6 years			2.6 years
Expected volatility		91	%		101	%		107	%
Risk-free interest rate		0.13	%		0.25	%		0.36	%
Fair market value (in thousands)	$	0		$	0		$	6

Committed Equity Financing Facility (“CEFF”) with Kingsbridge Capital Limited

In February 2008, the Company entered into a Committed Equity Financing Facility (“CEFF”) with Kingsbridge Capital Limited (“Kingsbridge”), which was subsequently amended in February 2010 to increase the commitment period, increase the draw down discount price and increase the maximum draw period. Effective October 14, 2011, the CEFF was terminated by the Company.

Under the terms of the amended CEFF, Kingsbridge committed to purchase, subject to certain conditions, up to 23,783 shares of the Company’s common stock during the period ending May 15, 2012. While the CEFF was effective, the Company was able to draw down in tranches at discounts as described in detail in the common stock purchase agreement. In connection with the CEFF, the Company issued a warrant to Kingsbridge to purchase 1,041 shares of its common stock at a price of $657.60 per share exercisable beginning six months after February 19, 2008 and for a period of five years thereafter. The CEFF was terminated during 2011. As a result, shares of the Company’s common stock are no longer available for sale under this facility.

Due to the initially indeterminate number of shares of common stock underlying the warrants issued in connection with the Company’s private placement on March 11, 2010, the Company concluded that the CEFF warrants should be recorded as a liability effective with the date of the private placement. The fair value of the warrants on this date was reclassified from equity to derivative liabilities. Changes in the fair market value from the date of the private placement to the reporting date were recorded as a gain or loss in “Change in fair value of warrants” in the Statements of Comprehensive Loss. Effective with the warrant exchange agreements executed in January 2011 as described above, the number of shares underlying the warrants issued in connection with the Company’s private placement was no longer indeterminable, and the CEFF warrants were reclassified to equity. The Company revalued these warrants on the effective date of the exchange and recorded the gain in the Statements of Comprehensive Loss. The Company established the fair value of the CEFF warrants using the Black-Scholes option valuation model as reflected in the table below:


	Warrant Valuation as of
	Date of Warrant Exchange
	January 19, 2011			December 31, 2010
Stock Price	$	51.84		$	55.20
Exercise Price	$	657.60		$	657.60
Contractual life (in Years)		2.6 years			2.6 years
Expected volatility		87	%		96	%
Risk-free interest rate		0.82	%		1.02	%
Fair market value (in thousands)	$	3		$	6

Options and restricted stock

The Company’s 2005 Stock Plan, as amended at the 2012 Annual Meeting of Stockholders in May 2012 (the “2005 Plan”) provides for the award of options, restricted stock and stock appreciation rights to acquire up to 833,333 shares of the Company’s common stock in the aggregate. Currently, the 2005 Plan allows for awards of up to 200,000 shares that may be granted to any one participant in any fiscal year. For options subject to graded vesting, the Company elected the straight-line method of expensing these awards over the service period.

The following is a summary of the Company’s stock option activity under its 2005 Plan for the years ended December 31, 2011, 2012 and 2013:


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(In thousands)					(Years)		(In thousands)
Options outstanding at December 31, 2010		27		$	340.00		8.64
Granted		70		$	12.62
Forfeited and expired		(14	)	$	304.52

Options outstanding at December 31, 2011		83		$	70.06		9.23
Granted		124		$	9.83
Forfeited and expired		(64	)	$	66.21

Options outstanding at December 31, 2012		143		$	19.73		8.64
Granted		107		$	3.90
Forfeited and expired		(58	)	$	14.38

Options outstanding at December 31, 2013		192		$	12.54		7.61	$	—

Options exercisable at December 31, 2013		108		$	16.56		6.67	$	—
Options vested or expected to vest at December 31, 2013		157		$	13.68		7.35	$	—

As of December 31, 2013 there was approximately $95,000 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of approximately 2.61 years.

The following stock options were granted during the years ended December 31, 2013, 2012 and 2011:


	Years ended December 31,
	2013		2012		2011
Options Granted (In thousands)		107		124		70
Weighted average fair value	$	2.77	$	6.94	$	7.42

The fair values for the stock options granted were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the three years ended December 31, 2013, 2012 and 2011:


	Years ended December 31,
Weighted Average Assumptions	2013			2012			2011
Risk-free interest rate		0.95	%		0.85	%		0.26	%
Expected life (years)		4			4			2
Expected volatility		100	%		102	%		112	%
Dividend yield		0.00	%		0.00	%		0.00	%

In calculating the estimated fair value of its stock options, the Company used the Black-Scholes option pricing model which requires the consideration of the following six variables for purposes of estimating fair value:

the stock option exercise price,

the expected term of the option,

the grant date price of the Company’s common stock, which is issuable upon exercise of the option,

the expected volatility of the Company’s common stock,

the expected dividends on the Company’s common stock (the Company does not anticipate paying dividends in the foreseeable future), and

the risk-free interest rate for the expected option term.

Stock Option Exercise Price and Grant Date Price of the Company’s common stock — The closing market price of its common stock on the date of grant.

Expected Term — The expected term of options represents the period of time for which the options are expected to be outstanding and is based on an analysis of historical behavior of participants over time.

Expected Volatility — The expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate during the term of the option granted. The Company determines the expected volatility based on the historical volatility of its common stock over a period commensurate with the option’s expected term.

Expected Dividends — Because the Company has never declared or paid any cash dividends on any of its common stock and does not expect to do so in the foreseeable future, the Company uses an expected dividend yield of zero to calculate the grant date fair value of a stock option.

Risk-Free Interest Rate — The risk-free interest rate is the implied yield available on U.S. Treasury issues with a remaining life consistent with the option’s expected term on the date of grant.

The Company is required to estimate the level of award forfeitures expected to occur and record compensation expense only for those awards that are ultimately expected to vest. This requirement applies to all awards that are not yet vested, including awards granted prior to January 1, 2006. Accordingly, the Company performed a historical analysis of option awards that were forfeited prior to vesting, and ultimately recorded total stock option expense that reflected this estimated forfeiture rate.

The Company recorded an expense of $259,913 during the year ended December 31, 2013 related to restricted stock awards granted from the Company’s 2005 Stock Plan. 16,769 shares granted to board of directors as board compensation were valued at $60,000, while 72,993 shares granted to an officer related to a restricted stock award were valued at $199,913. The restricted stock awards were valued based on the closing price of the Company’s common stock on the grant date and the shares were fully vested upon grant. In 2012 and 2011, the Company recorded expenses of $0 and $20,000 related to restricted stock awards.

As of December 31, 2013, the Company did not have any non-vested restricted common stock outstanding.

Employee Stock Purchase Plan (2009 ESPP)

The Company has an Employee Stock Purchase Plan which was suspended in 2012. Under the 2009 Employee Stock Purchase Plan (the “2009 ESPP”), employees have the option to purchase shares of the Company’s common stock at 85% of the closing price on the first day of each purchase period or the last day of each purchase period (as defined in the 2009 ESPP), whichever is lower, up to specified limits. Eligible employees are given the option to purchase shares of the Company’s common stock, on a tax-favored basis, through regular payroll deductions in compliance with Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). Currently, an aggregate of 10,417 shares of common stock may be issued under the 2009 ESPP, subject to adjustment each year pursuant to the terms of the 2009 ESPP.