2.	Stockholders’ Equity — Common and Preferred Shares

Registered Offering of Common Stock and Private Placement of Warrants

On May 28, 2014, the Company closed a financing in which it raised approximately $16,000,000 in gross proceeds or approximately $14,822,000 in net proceeds, after deducting placement agents’ fees and other offering expenses. Investors purchased shares of the Company’s common stock, at a price per share of $2.9625. For each share of common stock purchased, investors received one share of common stock and 0.5 of an unregistered warrant to purchase a share of the Company’s common stock. A total of 5,400,847 shares of common stock were issued and warrants for the purchase of 2,700,424 shares of common stock were issued. The warrants were exercisable immediately after issuance, have a five-year and three-month term, and an exercise price of $2.90 per share. Also, in connection with the offering, the Company issued to its placement agent and related persons warrants to purchase 216,033 shares of the Company’s common stock. The warrants issued to the placement agent and related persons were exercisable immediately after issuance, have an exercise price of $3.7031 per share and terminate on June 14, 2017. The shares of common stock underlying the warrants issued to investors and the placement agent and related persons were subsequently registered pursuant to a registration statement that became effective on June 16, 2014.

The warrants contain limitations that prevent each holder of warrants from acquiring shares upon exercise of the warrants that would cause the number of shares beneficially owned by it and its affiliates to exceed 4.99% of the total number of shares of the Company’s common stock then issued and outstanding, provided that, upon prior notice to the Company, a holder may increase or decrease this limitation provided any increase does not exceed 9.99% of the total number of shares of our common stock then issued and outstanding. In addition, upon certain changes in control of the Company, each holder of a warrant can elect to receive, subject to certain limitations and assumptions, securities in a successor entity. None of the warrants issued on May 28, 2014 were exercised during the six months ended June 30, 2014.

Public Offering of Common Stock and Warrants

On February 18, 2014, the Company closed a registered public offering of units of common stock and warrants, in which the Company raised approximately $12,000,000 in gross proceeds or approximately $10,860,000 in net proceeds, after deducting placement agents’ fees and other offering expenses. Investors purchased units, at a price per unit of $2.05, which consisted of one share of common stock and 0.5 of a warrant to purchase a share of the Company’s common stock. A total of 5,853,657 shares of common stock were issued and warrants for the purchase of 2,926,829 shares of common stock were issued. The warrants were exercisable immediately after issuance, have a five-year term and an exercise price of $2.75 per share. Also, in connection with the offering, the Company issued to its placement agent and related persons warrants to purchase 292,682 shares of the Company’s common stock, which were exercisable immediately after issuance, have a five-year term and an exercise price of $2.56 per share.

The warrants issued to the investors and the placement agent and related persons contain limitations that prevent each holder of 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 the Company, each holder of a warrant can elect to receive, subject to certain limitations and assumptions, securities in a successor entity.

During the six months ended June 30, 2014, the investors in the February 2014 public offering exercised 1,054,625 warrants for the purchase of 1,054,625 shares of the Company’s common stock for net proceeds of approximately $2,900,000.

Private Placements of Preferred Shares and Warrants

April 2013 Private Placement

On April 16, 2013, the Company closed an offering pursuant to the terms of a private placement agreement, in which the Company raised $5,000,000 in gross proceeds, or approximately $4,192,000 in net proceeds after 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 investors 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, and therefore no shares of Series A Preferred Stock remain outstanding as of December 31, 2013. 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 were 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 were 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.

During the year ended December 31, 2013, the investors in the April 2013 private placement exercised 270,390 Series B Warrants for the purchase of 270,390 shares of the Company’s common stock for net proceeds of approximately $864,000. During the six months ended June 30, 2014, the investors in the April 2013 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.

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 the quarter ended June 30, 2013. 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:


Weighted Average Assumptions
	April 2013 Private Placement Series A Warrants			April 2013 Private Placement 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 an offering pursuant to the terms of a private placement agreement, in which the Company raised $5,800,000 in gross proceeds, or approximately $4,905,000 in net proceeds after deducting placement agents’ fees and other offering expenses, in a private placement of 5,800 shares of the Company’s Series B Preferred Stock. The Company used the proceeds of this offering in part to redeem the remaining outstanding balance of 2,802 shares of the Series A Preferred Stock, issued in April 2013, for a redemption value of approximately $2,802,000. After further deducting the amount to redeem the outstanding shares of Series A Preferred Stock, the net proceeds of this offering were approximately $2,103,000.

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.

The investors in the private placement converted all of the 5,800 shares of Series B Preferred Stock into 2,452,431 shares of our common stock during the year ended December 31, 2013 and therefore no shares of Series B Preferred Stock remain outstanding as of December 31, 2013.

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.

During the six months ended June 30, 2014, the investors in the September 2013 private placement exercised 2,452,431 warrants for the purchase of 2,452,431 shares of the Company’s common stock for net proceeds of approximately $5,493,000. As of June 30, 2014, no five-year term warrants issued to investors in the September 2013 private placement remain outstanding.

As a result of the Company’s redemption of the outstanding balance of the Series A Preferred Stock, 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 the quarter ended September 30, 2013. 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:


Weighted Average Assumptions
	September 2013
	Private Placement Warrants
Risk-free interest rate		0.24	%
Expected life (years)		1.9
Expected volatility		79	%
Dividend yield		0.00	%

At The Market Agreement and Purchase Agreement for the sale of common stock

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. Further, the Company is restricted from using this facility until December 2014 pursuant to the terms of the securities purchase agreement entered into with the purchasers in the May 2014 financing. 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 approximately 422,000 shares of common stock for proceeds of approximately $1,936,000 net of issuance costs, during the six months ended June 30, 2013 and issued no shares of common stock under this agreement during the six months ended June 30, 2014.

In November 2011, the Company entered into a purchase agreement (the LPC Purchase Agreement) for the sale, from time to time, of up to $20,000,000 (with a remaining balance of $17,400,000) of its common stock to Lincoln Park Capital Fund, LLC or LPC, which expires on January 11, 2015. The Company can only sell shares under this arrangement if it maintains a minimum stock price of $6.00 and furthermore the Company is restricted from using this facility until December 2014 pursuant to the terms of the securities purchase agreement entered into with the purchasers in the May 2014 financing. Accordingly, the facility is not available to the Company at this time.

Warrants

Warrant Summary Information

The following is a summary of the Company’s outstanding common stock warrants as of June 30, 2014 and December 31, 2013:


				Number of Warrants outstanding as of:
	Date of	Exercise		(In thousands)
Warrants Issued in Connection with:	Issuance	Price		June 30, 2014		December 31, 2013
Direct Registration Series I Warrants	07/20/09	$	504.00		12		12
Private Placement Series A Warrants	04/16/13	$	3.40		1,460		1,460
Private Placement Series B Warrants	04/16/13	$	3.40		757		1,107
2013 Private Placement Warrants	09/23/13	$	2.24		—		2,452
2013 Private Placement Warrants	09/23/13	$	2.80		147		147
2014 Public Offering Warrants	02/18/14	$	2.75		1,872		—
2014 Public Offering Warrants	02/18/14	$	2.56		293		—
2014 Private Placement Warrants	05/28/14	$	2.90		2,700		—
2014 Private Placement Warrants	05/28/14	$	3.70		216		—

Total Warrants Outstanding					7,457		5,178

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 June 30, 2014 and December 31, 2013, respectively. These warrants had a five-year term and expired unexercised on July 20, 2014.

Options

The Company’s 2005 Stock Plan, as amended (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 six months ended June 30, 2014:


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(In thousands)					(Years)		(In thousands)
Options outstanding at December 31, 2013		192		$	12.54		7.61

Granted		438		$	2.77
Forfeited and expired		(15	)	$	4.45


Options outstanding at June 30, 2014		615		$	5.79		8.58	$	—


Options exercisable at June 30, 2014		207		$	10.51		6.49	$	—

Options vested or expected to vest at June 30, 2014		513		$	6.26		8.37	$	—

As of June 30, 2014 there was approximately $568,000, of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of approximately 3 years.

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 six months ended June 30, 2014:


Weighted Average Assumptions
Risk-free interest rate	1.56	%
Expected life (years)	4
Expected volatility	101	%
Dividend yield	0.00	%