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NOTE 8 STOCKHOLDERS' EQUITY
 12 Months Ended
Dec. 31, 2012
Equity [Abstract]  
NOTE 8 STOCKHOLDERS’ EQUITY

NOTE 8 STOCKHOLDERS’ EQUITY

Amendments to Articles of Incorporation

In June 2011, we amended our certificate of incorporation to increase the number of shares of authorized common stock from 100,000,000 to 1,500,000,000, par value $0.01 per share. The certificate of amendment was approved by a majority of our stockholders on June 29, 2011.

2009 Private Placement

In October 2009, in a private placement, we sold 7,954,543 shares of our common stock at $0.88 per share and warrants to purchase 3,977,270 shares of our common stock, exercisable through January 7, 2015, at an exercise price of $0.88 per share (2009 Private Placement). The purchasers paid $0.125 per underlying share for the warrants. Additionally, the purchasers had the right to purchase up to an additional 5,165,286 shares at $0.97 per share prior to May 14, 2010 and paid $0.125 per underlying share for the right to purchase such additional shares. These rights expired unexercised on May 14, 2010. Total proceeds from the 2009 Private Placement were approximately $7.9 million, net of issuance costs. We filed a Registration Statement on Form S-3 covering 7,532,617 shares on November 6, 2009, which was declared effective by the SEC on November 17, 2009. On June 30, 2010, we filed a Registration Statement on Form S-3 covering the remaining 421,926 shares and the 3,977,270 shares of our common stock underlying the warrants, which was declared effective by the SEC on July 8, 2010. If we fail to keep any registration statements continuously effective, we may be obligated to pay to the holders of the shares and warrants liquidated damages in the amount of 1% per month of the purchase price for the shares and warrants, up to a maximum cap of 8% of such purchase price.

2011 Private Placement

In June 2011, we entered into a Securities Purchase Agreement with certain purchasers (Securities Purchase Agreement), pursuant to which we agreed to sell for an aggregate price of $24.0 million, 160,000,006 shares of our common stock (Shares) and warrants to purchase 80,000,005 shares of our common stock (Warrants) with an exercise price of $0.18 per share (2011 Private Placement). The 2011 Private Placement closed on July 1, 2011. For each share purchased, the investors received one Warrant to purchase 0.5 shares of common stock (together with a Share, a Unit), at a purchase price of $0.15 per Unit. The Warrants were immediately exercisable and expire on the fifth anniversary of the closing date of July 1, 2011. The Warrants may be exercised for cash only or, if a registration statement is not then effective and available for the resale of the shares of common stock issuable upon exercise of the Warrants, by surrender of such Warrant, or a portion of such Warrant, by way of cashless exercise. There is no right to exercise the Warrants to the extent that after giving effect to such exercise the holder would beneficially own in excess of 9.99% of our outstanding shares of common stock or such other limit as may be designated by any particular purchaser. Each holder of the Warrants can amend or waive the foregoing limitation by written notice to the Company, with such waiver taking effect only upon the expiration of a 61-day notice period.

Under the terms of the Securities Purchase Agreement, on July 29, 2011, the Company filed a registration statement with the SEC to register for resale the Shares and the shares of common stock issuable upon the exercise of the Warrants (collectively, the Registrable Securities). The registration statement was declared effective on August 4, 2011. If the Company fails to keep the registration statement continuously effective for a designated time (with limited exceptions), the Company may be obligated to pay to the holders of the Registrable Securities liquidated damages in an amount equal to 1.0% per month of such holder's pro rata interest in the total purchase price of the Private Placement, capped at a total penalty of 6.0%.

The Company received advance proceeds of approximately $20.3 million as of June 30, 2011. The remaining $3.7 million was received in July 2011 when the Private Placement closed. Total proceeds, net of issuance costs of approximately $1.2 million, were $22.8 million. The 2011 Shares and Warrants were recorded as equity at their fair values on the issuance date.

2012 Private Placement

In July 2012, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which the Company agreed to sell 102,000,000 share of its common stock (2012 Shares) at a purchase price of $0.525 per share of common stock, for an aggregate price of approximately $53.6 million, (2012 Private Placement). The 2012 Private Placement closed on July 30, 2012. The proceeds to the Company from the offering, net of issuance costs, were approximately $50.5 million.

In connection with entering into the securities purchase agreement, the Company also entered into a registration rights agreement. On August 24, 2012, the Company filed a registration statement with the SEC to register the 2012 Shares for resale. The registration statement was declared effective on September 6, 2012. If the Company fails to keep the registration statements continuously effective for a designated time (with limited exceptions), the Company may be obligated to pay to each holder of the 2012 Shares an amount equal to 1.5% per month of the aggregate purchase price of the unregistered 2012 Shares held by such holder, capped at a total penalty of 9.0%.

Stock-Based Compensation Plans

We have two types of stock-based compensation plans, which consist of an employee stock purchase plan and three stock option plans.

In 1997, our stockholders approved our 1997 Employee Stock Purchase Plan (the Purchase Plan). In December 2007, May 2009 and June 2011, our stockholders authorized increases in the number of shares reserved for issuance under the Purchase Plan by 100,000, 200,000 and 500,000 shares, respectively, for a total of 1,000,000 shares reserved at December 31, 2012. Under the terms of the Purchase Plan, employees can elect to have up to a maximum of 10% of their base earnings withheld to purchase our common stock. The purchase price of the stock is 85% of the lower of the closing prices for our common stock on: (i) the first trading day in the enrollment period, as defined in the Purchase Plan, in which the purchase is made, or (ii) the purchase date. The length of the enrollment period may not exceed a maximum of six months. Our compensation committee modified the Purchase Plan such that beginning in May 2008, the length of all offering periods was decreased from 24 months to six months. Enrollment dates are the first business day of May and November and the first enrollment date was April 30, 1997. Approximately 16% of eligible employees participated in the Purchase Plan in 2012. Under the Purchase Plan, we issued 85,475, 77,982 and 48,921 shares in 2012, 2011 and 2010, respectively. The weighted-average fair value per share of purchase rights granted during 2012, 2011 and 2010 was $0.26, $0.20 and $0.30, respectively. The weighted-average exercise price per share of the purchase rights exercised during 2012, 2011 and 2010 was $0.26, $0.20 and $0.61, respectively. We had 445,701, 531,176 and 109,158 shares reserved for issuance under the Purchase Plan at December 31, 2012, 2011 and 2010, respectively.

We currently have one stock option plan from which we can grant options and restricted stock awards to employees, officers, directors and consultants. In December 2007, the stockholders approved our 2007 Equity Incentive Plan (the 2007 Plan). In May 2010 and June 2011, our stockholders approved amendments to our 2007 Equity Incentive Plan to increase the maximum number of shares of common stock available for grant by 2,000,000 and 90,000,000 shares of common stock, respectively, resulting in an aggregate of 95,000,000 shares of common stock authorized for issuance pursuant to awards granted under our 2007 Equity Incentive Plan. We have also granted stock options and restricted stock awards under the 2002 Stock Incentive Plan (the 2002 Plan) and the Non-Qualified Stock Plan (the NQ Plan) in prior years. We were authorized to issue up to 425,000 shares under the 2002 Plan, which includes an increase of 100,000 shares which were approved by stockholders in May 2006, and 2,062,500 shares under the NQ Plan, a plan that had not undergone stockholder approval and could only be utilized to grant stock options and restricted stock awards as inducements to attract new employees, to which 1,000,000 shares were added by the Board of Directors in September 2007, and an additional 1,000,000 shares were added in July 2008. The remaining shares available in the NQ Plan and 2002 Plan expired in October 2010 and February 2012, respectively. In 2012, we granted options to new employees outside of our approved stock option plan. The options to purchase our common stock are granted with an exercise price which equals fair market value of the underlying common stock on the grant dates and expire no later than ten years from the date of grant. The options are exercisable in accordance with vesting schedules that generally provide for them to be fully vested and exercisable four years after the date of grant. Any shares that are issuable upon exercise of options granted that expire or become unexercisable for any reason without having been exercised in full are available for future grant and issuance under the same stock option plan.

As discussed in Note 2, we record stock-based compensation expense based on the fair value of stock options and purchase rights issued to employees in conjunction with our stock option plans or the Purchase Plan on the grant date or purchase date. We also record compensation expense for warrants and stock options issued to non-employees and restricted stock awards to employees and directors.

The fair value of each employee and director grant of options to purchase common stock and purchase rights under the Purchase Plan is estimated on the date of the grant using the Black-Scholes option-pricing model assuming no dividends and the following weighted-average assumptions:

  2012 2011 2010
Expected term (years):      
Stock options 5.51 5.00 6.00
Employee Stock Purchase Plan .49 .50 .50
Risk-free interest rate:      
Stock options 0.8% 1.6% 2.6%
Employee Stock Purchase Plan 0.2% 0.8% 0.2%
Volatility:      
Stock options 106% 106% 164%
Employee Stock Purchase Plan 0.8% 142% 92%

The expected term is based on historical data. The expected term for the Purchase Plan is based on the weighted-average purchase period of the Purchase Plan. The expected volatility is based on our historical stock prices, and the estimated forfeiture rate of the options is based on historical data.

The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the award and stock price volatility. The assumptions listed above represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, our recorded stock-based compensation expense could have been materially different.

Stock-based compensation expense recorded for awards granted under the stock option plans and the Purchase Plan, net of estimated forfeitures, was as follows (in thousands, except per share amounts):

For the Years Ended December 31,  2012  2011      2010
          
Research and development  $1,585   $819   $398 
General and administrative   4,147    1,071    1,351 
                
Total  $5,732   $1,890   $1,749 
                
Impact on basic and diluted net loss per common share  $0.02   $0.02   $0.04 

In 2012, we recorded additional stock-based compensation expense as a result of accelerated vesting of stock options in connection with the resignation of two directors. In 2010, we recorded additional stock-based compensation expense as a result of accelerated vesting of stock options in connection with the resignation of our former chief executive officer. No tax benefit was recognized related to stock-based compensation expense since we have incurred operating losses and we have established a full valuation allowance to offset all the potential tax benefits associated with our deferred tax assets.

The following table summarizes option activity for the years ended December 31, 2012, 2011 and 2010:

   2012  2011  2010
         Weighted-  Aggregate            
      Weighted-  Average  Intrinsic     Weighted-     Weighted-
      Average  Remaining  Value as of     Average     Average
      Exercise  Contractual  December 31,     Exercise     Exercise
   Shares  Price  Term (Years)  2012  Shares  Price  Shares  Price
                         
Outstanding at beginning of year   50,106,287   $0.31              3,217,240   $1.49    3,092,417   $1.91 
Granted   37,485,000    0.58              48,070,000    0.26    1,087,700    1.45 
Exercised   —      —                —      —      (37,786)   1.24 
Expired or Forfeited   (1,308,779)   0.74              (1,180,953)   1.63    (925,091)   2.85 
Outstanding at end of year   86,282,508    0.42    8.20   $14,555,918    50,106,287    0.31    3,217,240    1.49 
                                         
Options exercisable at year end   22,646,940    0.38    7.13   $5,137,054    6,740,497    0.53    1,316,567    1.72 
                                         
Options vested or expected to vest   85,471,879    0.42    8.20   $14,466,053    49,434,997    0.31           
                                         
Shares available for future grant at year end   20,471,897                   44,261,608         2,039,549      
                                         
Weighted-average fair value of stock options granted during the year       $0.46                  $0.21        $1.39 

As of December 31, 2012, there was approximately $21.1 million of total unrecognized compensation expense related to unvested stock options. This expense is expected to be recognized over a weighted-average period of 2.9 years. Cash received from option exercises for the years ended December 31, 2012, 2011 and 2010 was $0, $0 and $47,000, respectively. The total intrinsic value of options exercised in the year ended December 31, 2012, 2011 and 2010 was $0, $0, and $5,000, respectively. 

The following table summarizes information about stock options outstanding at December 31, 2012:

 

   OPTIONS OUTSTANDING   OPTIONS EXERCISABLE
      Weighted-         
      Average  Weighted-     Weighted-
      Remaining  Average     Average
Range of  Number  Contractual  Exercise  Number  Exercise
Exercise Prices  Outstanding   Life (Years)   Price   Exercisable   Price
                
 $0.19 - $0.19    162,500    5.61   $0.19    91,667   $0.19 
 $0.26 - $0.26    47,022,303    7.33    0.26    17,200,939    0.26 
 $0.32 - $0.53    11,285,000    9.71    0.47    546,875    0.34 
 $0.58 - $0.61    2,046,436    4.93    0.59    1,764,145    0.59 
 $0.62 - $0.62    10,400,000    9.79    0.62    —      —   
 $0.63 - $0.63    10,000,000    9.46    0.63    1,708,334    0.63 
 $0.64 - $6.96    5,355,769    8.59    0.84    1,324,480    1.36 
 $7.00 - $7.00    5,000    0.67    7.00    5,000    7.00 
 $9.80 - $9.80    3,000    1.04    9.80    3,000    9.80 
 $11.756 - $11.756    2,500    1.40    11.76    2,500    11.76 
                            
 $0.19 - $11.756    86,282,508    8.20   $0.42    22,646,940   $0.38 

 

As of December 31, 2012, there were no unvested restricted stock awards granted to employees and directors. The compensation cost that has been expensed in the statements of operations for the restricted stock awards issued to employees and directors was $0, $98,000 and $385,000 for 2012, 2011 and 2010, respectively.

 

In November 2009, our Board of Directors extended the vesting period for certain restricted stock awards granted in May 2009 from December 31, 2009 to January 2, 2010. The modification of the restricted stock awards did not result in additional compensation expense.

 

The following table summarizes information about the Company’s warrants outstanding at December 31, 2012:

 

   Number of Shares Exercisable  Exercise Price  Expiration Date
          
Issued to private placement investors in October 2009   3,977,270   $0.88   1/7/2015
Issued to private placement investors in July 2011   80,000,005   $0.18   7/1/2016
Other   400,000   $0.69   8/1/2015
Total warrants outstanding at December 31, 2012   84,377,275   $0.21*   
              
* Average exercise price             

Common Stock Reserved for Future Issuance

As of December 31, 2012, the Company had reserved shares of common stock for future issuance as follows:

   No. of Shares
    
Issuance upon exercise of outstanding stock options   86,282,508 
Issuance of future grants under stock option plans   20,471,897 
Issuance of future grants under employee stock purchase plan   445,701 
Issuance of common stock related to convertible notes*   197,686,842 
Issuance upon exercise of warrants   84,377,275 
      
Total   389,264,223 
      
      
* Assumes all interest payments are paid-in-kind through the maturity date.