6. Stockholders’ Equity – Common and Preferred Shares

As of December 31, 2014 and 2013 the Company has 70,000,000 common stock authorized.

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 year ended December 31, 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 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 the Company, each holder of a warrant can elect to receive, subject to certain limitations and assumptions, securities in a successor entity.

During the year ended December 31, 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 $2,901,000.

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 (the “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 any preferential 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 described below, 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) 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 (the “Series A Warrants”); and

(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 (the “Series B Warrants”).

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 year ended December 31, 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 $1,118,000.

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 “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, 2014.

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 year ended December 31, 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 December 31, 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 ( “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. The Company may be able to sell more shares under this agreement depending on several factors including the Company’s stock price, number of shares outstanding, and when the sales occur. The Company will be required to file a new Form S-3 registration statement before June 14, 2015, as its current Form S-3 will be expiring on that date pursuant to SEC rules. In addition, the Company is restricted for 90 days under the terms of its last financing which closed on March 25, 2015, and in the future it may be restricted by the terms of other financing arrangements that it may enter into from making sales under the ATM Agreement.

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 year ended December 31, 2013. Additionally, the Company issued approximately 178,000 shares of common stock for proceeds of approximately $1,270,000 net of issuance costs, during the year ended December 31, 2012. No shares of common stock were issued under this agreement during the year ended December 31, 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 of its common stock to Lincoln Park Capital Fund, LLC (“LPC”), which expired on January 11, 2015. The Company could only sell shares under this arrangement if it maintained a minimum stock price of $6.00. The facility has expired pursuant to its terms and accordingly is no longer available to the Company.

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 or 2014.

Warrants

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


						Number of Warrants outstanding as of December 31,
	Date of Issuance		Warrant Term	Exercise Price		(In thousands)
Warrants Issued in Connection with:	Date of Issuance		Warrant Term	Exercise Price		2014		2013
Direct Registration Series I Warrants		07/20/09	5years	$	504.00		—		12
Private Placement Series A Warrants		04/16/13	5years	$	3.40		1,460		1,460
Private Placement Series B Warrants		04/16/13	2years	$	3.40		757		1,107
2013 Private Placement Warrants		09/23/13	5years	$	2.24		—		2,452
2013 Private Placement Warrants		09/23/13	5years	$	2.80		147		147
2014 Public Offering Warrants		02/18/14	5years	$	2.75		1,872		—
2014 Public Offering Warrants		02/18/14	5years	$	2.56		293		—
2014 Private Placement Warrants		05/28/14	5 years & 3 months	$	2.90		2,700		—
2014 Private Placement Warrants		05/28/14	5 years & 3 months	$	3.7031		216		—

Total Warrants Outstanding							7,445		5,178

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, 2012, 2013 and 2014:


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(In thousands)					(Years)		(In thousands)
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
Granted		521		$	2.67
Forfeited and expired		(41	)	$	33.40

Options outstanding at December 31, 2014		672		$	3.63		8.49	$	—

Options exercisable at December 31, 2014		244		$	4.51		7.15	$	—
Options vested or expected to vest at December 31, 2014		565		$	3.73		8.34	$	—

As of December 31, 2014 there was approximately $515,000 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of approximately 2.68 years.

The following stock options were granted during the years ended December 31, 2014, 2013 and 2012:


	Years ended December 31,
	2014		2013		2012
Options Granted (In thousands)		521		107		124
Weighted average fair value	$	1.87	$	2.77	$	6.94

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, 2014, 2013 and 2012:


	Years ended December 31,
Weighted Average Assumptions	2014			2013			2012
Risk-free interest rate		1.55	%		0.95	%		0.85	%
Expected life (years)		4			4			4
Expected volatility		99	%		100	%		102	%
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 expenses of $20,000, $259,913 and $0 during the years ended December 31, 2014, 2013 and 2012, respectively, related to restricted stock awards granted from the Company’s 2005 Stock Plan. In 2013 an officer was granted a restricted stock award of 72,933 shares valued at $199,913 as compensation and all other grants of restricted stock were granted to board of directors as board compensation 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.

As of December 31, 2014, 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.