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Shareholders' Equity
 3 Months Ended
Mar. 31, 2012
Shareholders' Equity

Note 12 – Shareholders’ Equity

 

Common Stock

 

The Company raised an aggregate of approximately $2.25 million in a private placement consummated in February 2012 pursuant to which three entities acquired an aggregate of 3,465,404 shares of Common Stock.

  

In March 2012, the Company completed an underwritten offering of 15,000,000 units at a purchase price of $0.40 per unit, with each unit consisting of one share of Common Stock and a five year warrant to purchase one share of Common Stock at an exercise price of $0.51 per share (the “Offering”). The Company sold securities in the Offering under the Company’s previously filed shelf registration statement on Form S-3 (333-173855), which was declared effective by the Securities and Exchange Commission on June 13, 2011. The Company received gross proceeds of $6,000,000, prior to deducting underwriting discounts and offering expenses payable by the Company, for net proceeds of approximately $5,297,000. In April 2012, the underwriters in the Offering exercised their over-allotment option for an additional 2,000,000 units. The Company received additional gross proceeds of $800,000, prior to deducting underwriting discounts, for net proceeds of approximately $744,000.

 

Warrants

 

The Company has issued common stock purchase warrants from time to time to investors in private placements and public offerings, and to certain vendors, underwriters, placement agents and consultants of the Company. A total of 52,695,366 shares of common stock are reserved for issuance upon exercise of outstanding warrants as of March 31, 2012 at prices ranging from $0.51 to $7.00 and expiring through October 2018.

 

During the three months ended March 31, 2012 and 2011, the Company issued warrants for services as follows ($ in thousands, except share data):

 

    Three Months Ended March 31,  
    2012     2011  
             
Number of Common Stock Purchase Warrants Issued     125,000       270,000  
                 
Value of Common Stock Purchase Warrants Issued   $ 50.6     $ 280.9  

 

The weighted average estimated fair value of warrants issued for services in the three months ended March 31, 2012 was $0.41. The fair value of warrants at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of the Company’s stock. The expected term is based upon the contractual term of the warrants.

 

The range of assumptions used in calculating the fair values of warrants issued for services during the three months ended March 31, 2012 and 2011 was as follows:

 

    Three Months Ended March 31,
    2012   2011
Expected term (in years) 5   3 to 5
         
Expected volatility   82%   82% - 86%
         
Expected dividend yield 0%   0%
         
Risk-free interest rate   0.88%   1.29% - 2.24%

 

Activity related to warrants outstanding was as follows:

 

    Number of Shares     Weighted Average
Exercise Price		     Weighted Average
Remaining Contractual
Term (years)		     Aggregate Intrinsic
Value		  
Balance at December 31, 2011     37,389,825       2.35                  
Granted     15,305,541       0.52                  
Exercised     -       -                  
Expired     -       -                  
Cancelled     -       -                  
Balance at March 31, 2012     52,695,366     $ 1.82       4.01     $ -  

 

At March 31, 2012, the outstanding warrants by range of exercise prices were as follows:

 

      Warrants Outstanding     Warrants Exercisable  
            Weighted Average                 Weighted Average        
Range of           Remaining     Weighted Average           Remaining     Weighted Average  
Exercise Prices     Shares Outstanding     Contractual Life (years)     Exercise Price     Shares Exercisable     Contractual Life (years)     Exercise Price  
$  0.51 - $  1.45       26,388,500       4.7     $ 0.90       10,855,500       4.2     $ 1.44  
$  1.46 - $  2.10       8,114,176       3.7       1.72       8,114,176       3.7       1.72  
$  2.11 - $  2.53       13,032,512       3.0       2.50       13,032,512       3.0       2.50  
$  2.54 - $  5.99       2,929,928       4.2       3.73       2,929,928       4.2       3.73  
$  6.00 - $  7.00       2,230,250       3.1       6.51       1,230,250       0.9       6.11  
          52,695,366       4.0     $ 1.82       36,162,366       3.6     $ 2.23  

 

The Company’s results include share-based compensation expense of approximately $12,500 and $172,800 for the three months ended March 31, 2012 and 2011, respectively. The total fair value of shares vested for warrants issued for services during the three months ended March 31, 2012 was approximately $17,800. As of March 31, 2012, there was approximately $56,700 of total unrecognized service cost related to unvested warrants of which approximately $56,700 is related to warrants that vest over a weighted average life of 1.0 years.

 

Options

 

The Company’s results include share-based compensation expense of approximately $1,751,200 and $1,130,300 for the three months ended March 31, 2012 and 2011, respectively. Options vesting on the accomplishment of business milestones will not be recognized for compensation purposes until such milestones are deemed probable of accomplishment. At March 31, 2012 there were options to purchase 404,928 shares outstanding that will vest upon the accomplishment of business milestones and will be accounted for as an operating expense when such business milestones are deemed probable of accomplishment.

 

The weighted average estimated fair value of stock options granted in the three months ended March 31, 2012 was $0.36. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of the Company’s stock. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees.

 

The range of assumptions used in calculating the fair values of options granted during the three months ended March 31, 2012 and 2011 was as follows:

 

    Three Months Ended March 31,
    2012   2011
Expected term (in years) 3 to 10   2 to 6
         
Expected volatility   82% - 83%   82% - 85%
         
Expected dividend yield 0%   0%
         
Risk-free interest rate   0.02% - 2.00%   0.80% - 2.53%

 

Activity related to stock options outstanding under the U.S. Equity Plan was as follows:

 

    Number of Shares     Weighted Average
Exercise Price		     Weighted Average
Remaining Contractual
Term (years)		     Aggregate Intrinsic Value  
Balance at December 31, 2011     15,043,505       1.68                  
Granted     4,075,452       0.53                  
Exercised     -       -                  
Expired     -       -                  
Cancelled     (11,000 )     0.57                  
Balance at March 31, 2012     19,107,957     $ 1.44       7.5     $ -  

 

At March 31, 2012, the outstanding options under the U.S. Equity Plan by range of exercise prices were as follows: 

 

      Options Outstanding     Options Exercisable  
            Weighted Average                 Weighted Average        
Range of           Remaining     Weighted Average           Remaining     Weighted Average  
Exercise Prices     Shares Outstanding     Contractual Life (years)     Exercise Price     Shares Exercisable     Contractual Life (years)     Exercise Price  
$  0.52 - $    0.71       5,188,052       8.9       0.56       1,630,990       8.7     $ 0.54  
$  0.72 - $    1.50       2,879,100       8.4       1.46       1,126,232       7.6       1.44  
$  1.51 - $    1.80       6,629,000       7.7       1.71       4,877,252       7.6       1.71  
$  1.81 - $    2.00       2,874,255       4.4       1.91       2,705,994       4.4       1.91  
$  2.01 - $  15.00       1,537,550       6.8       2.29       1,430,883       6.7       2.30  
          19,107,957       7.5     $ 1.44       11,771,351       6.9     $ 1.64  

 

Activity related to stock options outstanding under the Non U.S. Plan was as follows:

 

    Number of Shares     Weighted Average
Exercise Price		     Weighted Average
Remaining Contractual
Term		     Aggregate Intrinsic Value  
Balance at December 31, 2011     2,100,000       1.95                  
Granted     195,000       0.52                  
Exercised     -       -                  
Expired     -       -                  
Cancelled     -       -                  
Balance at March 31, 2012     2,295,000     $ 1.83       8.12     $ -  

 

At March 31, 2012, the outstanding options under the Non U.S. Plan by range of exercise prices were as follows:

 

      Options Outstanding     Options Exercisable  
            Weighted Average                 Weighted Average        
Range of           Remaining     Weighted Average           Remaining     Weighted Average  
Exercise Prices     Shares Outstanding     Contractual Life (years)     Exercise Price     Shares Exercisable     Contractual Life (years)     Exercise Price  
$  0.52 - $  1.42       295,000       9.4     $ 0.83       145,000       9.8     $ 0.52  
$  1.43 - $  1.71       600,000       8.4       1.65       200,000       8.4       1.65  
$  1.72 - $  2.08       350,000       7.0       1.74       175,000       7.0       1.74  
$  2.09   $  2.22       650,000       7.8       2.16       300,000       7.9       2.16  
$  2.23 - $  2.36       400,000       8.2       2.36       400,000       8.2       2.36  
          2,295,000       8.1     $ 1.83       1,220,000       8.2     $ 1.89  

 

The total fair value of shares vested during the three months ended March 31, 2012 and 2011 was approximately $1,650,300 and $378,800, respectively.

 

As of March 31, 2012, there was approximately $3,837,800 of total unrecognized compensation costs related to unvested stock option awards of which approximately $3,829,400 is related to stock options that vest over a weighted average life of 1.83 years. The remaining balance of unrecognized compensation costs of $8,400 is related to stock options that vest based on the accomplishment of business milestones which expense begins to be recognized when such milestones become probable of being achieved.

 

Restricted Stock

 

During the three months ended March 31, 2012 and 2011, the Company issued restricted stock for services as follows ($ in thousands, except share data):

 

 

    Three Months Ended March 31,  
    2012     2011  
             
Number of Restricted Stock Issued     189,814       550,320  
                 
Value of Restricted Stock Issued   $ 91.2     $ 819.3  

 

The weighted average estimated fair value of restricted stock issued for services in the three months ended March 31, 2011 was $0.48. The fair value of the restricted stock was determined using the Company’s closing stock price on the date of issuance. The vesting terms of restricted stock issuances are generally within one year. The Company’s results include share-based compensation expense of approximately $663,900 and $691,600 for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, there was approximately $88,500 of unrecognized service cost related to unvested restricted stock.

 

Shares Remaining Under Equity Plans

 

The number of remaining shares authorized to be issued under the various equity plans at March 31, 2012 are as follows:

 

    U.S. Equity Plan     Non-U.S. Plan  
Shares Authorized for Issuance under 2003 Equity Plan     2,500,000       -  
Shares Authorized for Issuance under 2009 Equity Plan     23,750,000       -  
Shares Authorized for Issuance under Non-U.S. Plan     -       5,700,000  
      26,250,000       5,700,000  
Outstanding Options - U.S. Equity Plan     (19,107,957 )        
Exercised Options     (97,500 )     -  
Outstanding Options - Non-U.S. Plan             (2,295,000 )
Restricted stock or equity grants issued under Equity Plans     (4,092,577 )     (885,000 )
Total common shares remaining to be issued under the Equity Plans     2,951,966       2,520,000  

 

Share-Based Compensation

 

The following table summarizes the components of share-based compensation expense in the Consolidated Statements of Income for the three months ended March 31, 2012 and 2011 (in thousands):

 

    Three Months Ended March 31,  
    2012     2011  
             
Cost of revenues   $ 83.9     $ 12.5  
Research and development     161.3       260.1  
Selling, general, and administrative     2,223.4       1,638.8  
    $ 2,468.6     $ 1,911.4