Stockholders' Equity

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Common Stock

During the nine months ended September 30, 2013, the Company issued a total of 200,333,477 shares of common stock of which: (i) 2,663,114 shares were issued upon the conversion of Series C-1² Preferred; (ii)  10,095,731 shares were issued upon the conversion of  Series D-1² Preferred; (iii)  800,000 shares of unregistered common stock were issued to our President and Chief Executive Officer; (iv) 300,000 shares of unregistered common stock were issued to a director; (v) 700,000 shares of unregistered common stock were issued to two employees; (vi)  200,000 shares of restricted stock were issued to one employee; (vii) 2,000,000 shares were issued upon the vesting of restricted stock units; (viii) 87,142,857 shares of restricted stock were issued to management as a result of the Private Placement and (ix) 96,431,775 shares of restricted stock were issued to current and new investors as a result of the Private Placement.

Preferred Stock

As of September 30, 2013, the Company’s Board of Directors is authorized to issue 8,000,000 shares of preferred stock, with a par value of $0.0001 per share, in one or more series, of which 11,000 are designated Series C-1² Preferred, 22,000 are designated Series C-2² Preferred, 5,134 are designated Series D-1² Preferred, 10,868 are designated Series D-2² Preferred and 10,000 are designated Series F Preferred. As of September 30, 2013, 7,081 shares of Series C-1² Preferred and 3,250 shares of Series F Preferred were issued and outstanding.

On September 24, 2013 the Company entered into a Securities Purchase Agreement in which it issued shares of a new series of convertible preferred stock. The new series of preferred stock was designated as Series F Convertible Preferred Stock ("Series F Preferred"). As a result of the Private Placement the company issued 3,250 shares of Series F Preferred. The Series F Preferred is convertible into shares of common stock at a conversion rate of 14,285 shares of common stock for each share of Series F Preferred. There are no dividends on the Series F Preferred but there is a 9.999% conversion blocker and a liquidation preference for the face value of $1,000 per share.

Also on September 24, 2013 the Company paid dividends in kind to holders of the Series C-1² Preferred and Series C-2² Preferred. The Series C-1² Preferred and Series C-2² Preferred received 311 and 27 shares, respectively, of the corresponding preferred.

On May 25, 2013 the Company paid dividends in kind to holders of the Series C-1² Preferred and Series C-2² Preferred. The Series C-1² Preferred and Series C-2² Preferred received 433 and 30 shares, respectively, of the corresponding preferred.

From January 1, 2013 through September 30, 2013, there were 11 shares of Series C-1² Preferred and 47 shares of Series D-1² Preferred converted into 2,663,114 and 10,095,731 shares of common stock, respectively.

On September 24, 2013 the Company entered into an Exchange Agreement with certain preferred holders (See Note 3).

Warrants

In connection with the Company’s public offering of shares of Common Stock and warrants to purchase shares of Common Stock in May 2008, the Company issued warrants to purchase 390 shares of the Company’s Common Stock. The warrants were immediately exercisable upon grant, had an exercise price of $21,500 per share and remained exercisable for five years. On May 12, 2013 the 390 warrants issued in the May 2008 public offering expired. As of September 30, 2013, there were no warrants outstanding.

Share-Based Compensation

Share-Based Compensation Plan

On September 24, 2013 a majority of the shareholders of the Company signed a written consent in lieu of a meeting (the "Written Consent"). The Written Consent approved and adopted an equity compensation plan entitled the 2013 Equity Incentive Plan (the “2013 Equity Plan”). The 2013 Equity Plan is an omnibus equity compensation plan that permits the issuance of various types of equity-based compensation, including options, stock awards, stock appreciation rights and restricted stock units, as well as cash awards, to employees, directors and eligible consultants of the Company. The 2013 Equity Plan has a ten-year term and, subject to shareholder approval as provided under Section 422 of the Internal Revenue Code of 1986, as amended, will permit the issuance of incentive stock options. The administrator under the plan has broad discretion to establish the terms of awards, including the size, term, exercise price (if applicable) and applicable vesting conditions.

Stock Options

The Company’s share-based plans permit the grant of stock options (both incentive and nonqualified stock options), restricted stock and restricted stock units to certain employees, directors and consultants.

The following table summarizes share-based compensation expense related to stock options by expense category (in thousands): 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Research and development	$	250	$	267	$	897	$	503
General and administrative	1,892		2,384		6,854		4,527
Stock option share-based compensation expense included in operating expenses	$	2,142	$	2,651	$	7,751	$	5,030

As of September 30, 2013 there was no unrecognized stock option share-based compensation expense. If there are any modifications or cancellations of underlying unvested share-based awards, we may be required to accelerate, increase or cancel remaining unearned share-based compensation expense. Future share-based compensation expense and unearned share-based compensation will increase to the extent that we grant additional share-based awards.

On September 24, 2013 the Company canceled 592,230,471 stock options to an officer, a director and an employee which were granted on April 10, 2012. The stock options were replaced with restricted stock awards ("RSAs"). On September 24, 2013 the options were revalued and the new RSAs granted were valued in accordance with modification guidance for share-based compensation expense. Share-based compensation expense continued to be recognized until September 24, 2013, at which point the remaining $17,000,000 of unrecognized share-based compensation expense at the time of modification was attributed to the new RSAs and there is no further stock option share-based compensation expense to be recognized as of September 30, 2013.

A summary of the Company’s stock option activity and related data for the nine months ended September 30, 2013 is as follows:

	Outstanding Options
	Number of Shares		Weighted-Average Exercise Price
Balance at December 31, 2012	592,230,567		$	0.0655
Granted
Forfeited/Expired	(5	)	88,740
Canceled	(592,230,471	)	0.0655
Balance at September 30, 2013	91		$	16,192

Restricted Stock

On September 24, 2013, the Company issued restricted stock awards RSAs of 66,352,429 to an officer, 3,981,146 to a director and 16,809,282 to three employees. The grant to the officer, director and one of the employees are for the replacement of canceled stock options and RSUs granted on September 24, 2012, which is a result of the capital restructuring that took place on September 24, 2013. The RSAs were granted outside of the 2013 Equity Plan but are governed in all respects by the 2013 Equity Plan. Vesting terms of the RSAs granted on September 24, 2013 can be found in our 8-K filed with the SEC on September 25, 2013.

In April 2013, the Company issued an aggregate of 200,000 shares of restricted stock to an employee. The shares were issued under the 2010 Plan and vest quarterly beginning on January 14, 2013. These shares are subject to a reacquisition right if the services of the holder are terminated during the vesting period.  No consideration is paid for the redemption of the shares under the reacquisition right, but the holder is required to return to the Company any cash dividends paid or payable with respect to the shares.

The grant date fair value is the market value on the grant date multiplied by the number of shares granted and share-based compensation expense is recognized on a straight-line basis over the vesting period. The share-based compensation expense for restricted stock during the three and nine months ended September 30, 2013 is $7,000 and $51,000 for research and development expenses, respectively. The remaining unamortized share-based compensation expense for research and development to be recognized over the next 20 months is $1,900,000. The share-based compensation expense during the three and nine months ended September 30, 2013 is $593,000 and $714,000 for general and administrative expenses, respectively. The remaining unamortized share-based compensation expense for general and administrative to be recognized over the next 38 months is $17,000,000.

Restricted Stock Units

The share-based compensation expense during the three and nine months ended September 30, 2013 by expense category was zero and $52,000 for general and administrative expenses respectively. The share-based compensation expense during the three and nine months ended September 30, 2013 was $47 and $157 for research and development expenses, respectively. On September 24, 2013 the Company canceled 10,375,111 RSUs that were granted on April 10, 2012 to a director and an employee. As a result of the modification the remaining unamortized share-based compensation expense to be recognized over the remaining service period for the restricted stock units was transferred to the new RSAs and as of September 30, 2013 there is no unamortized share-based compensation expense relating to restricted stock units to be recognized.

The following table summarizes all share-based compensation expense related to stock options, restricted stock and restricted stock units by expense category (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Research and development
Stock options	$	250	$	267	$	897	$	503
Restricted stock	7		12		51		23
Restricted stock units	—		—		—		—
General and administrative
Stock options	1,892		2,384		6,854		4,527
Restricted stock	593		46		714		86
Restricted stock units	—		253		52		533
Share-based compensation expense included in operating expenses	$	2,742	$	2,962	$	8,568	$	5,672