Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity

Note 10 - Stockholders’ Equity

Common Stock

In April 2010, we completed a public offering of 1,666,668 shares of our common stock at $1.50 per share and warrants to purchase an aggregate of 500,000 shares of our common stock at an exercise price of $1.89 per share, generating gross proceeds of approximately $2.5 million. The warrants became exercisable on October 13, 2010 and expire on October 13, 2015. Placement fees of approximately $175,000 and legal and other fees of approximately $140,000 were incurred in connection with this transaction.

In July 2010, we completed a public offering of 2,785,714 shares of our common stock at $1.40 per share and warrants to purchase an aggregate of 1,323,214 shares of our common stock at an exercise price of $1.63 per share, generating gross proceeds of approximately $3.9 million. The warrants become exercisable on January 23, 2011 and expire on January 23, 2017. Placement fees of approximately $260,000 and legal and other fees of approximately $145,000 were incurred in connection with this transaction.

In November 2010, we completed an underwritten public offering of 4,945,000 shares of our common stock at a price to the public of $3.50 per share, generating gross proceeds of approximately $17.3 million. We incurred offering expenses of approximately $1.0 million and legal and other fees of approximately $0.4 million in connection with this transaction.

In June 2011, we completed a public offering of 1,857,143 shares of common stock at a $3.50 per share inclusive of warrants to purchase up to an additional 371,423 shares of common stock. The warrants are exercisable immediately at an exercise price of $3.50 per share until the fifth anniversary of the date of issuance which is June 15, 2016. The warrants are classified as derivative instruments because they include net settlement provisions.  We received gross proceeds of approximately $6.5 million and net proceeds of approximately $5.1 million for stock and $0.7 million for derivative instruments.

Long-Term Incentive Plan

In 2007, the Company’s stockholders approved the 2007 Long Term Incentive Plan (the “2007 Plan”) which provides for the granting of incentive and non-qualified stock options, stock appreciation rights, performance units, restricted common awards and performance bonuses (collectively “awards”)  to Company officers and employees.  Additionally, the 2007 Plan authorizes the granting of non-qualified stock options and restricted stock awards to Company directors and to independent consultants.

In 2008, the Company’s shareholders approved amendments to the 2007 Plan, increasing from 3.5 million shares to 4.6 million shares the maximum number of shares authorized for issuance under the plan and adding an evergreen provision pursuant to which the number of shares authorized for issuance under the plan will increase automatically in each year, beginning in 2009 and continuing through 2015, according to certain limits set forth in the 2007 Plan.  At December 31, 2011, there are approximately 7.1 million shares approved for issuance under the 2007 plan, of which approximately 0.2 million shares are available to be issued. The Board of Directors in conjunction with management determines who receives awards, the vesting conditions and the exercise price.  Options may have a maximum term of ten years.

The following tables summarize the activity of the 2007 Plan for options:

						Weighted-
				Weighted-		Average
				Average		Remaining
				Exercise		Contractual
	Shares			Price		Term
Options
Outstanding January 1, 2010		4,913,366		$	3.88		8.1
Granted		2,722,131			2.50
Exercised		(22,316	)		2.56
Forfeited		(2,273,768	)		3.89
Outstanding, December 31, 2010		5,339,413			3.18		8.3
Granted		1,934,566			1.71
Exercised		(44,464	)		2.66
Forfeited		(936,533	)		3.07
Outstanding, December 31, 2011		6,292,982		$	2.74		8.0

					Weighted-
			Weighted-		Average
			Average		Remaining
			Exercise		Contractual
	Shares		Price		Term
Exercisable, December 31, 2011		2,940,672	$	3.41		6.7
Vested and expected to vest, December 31, 2011		5,890,707	$	2.78		7.9

The aggregate intrinsic value is calculated as the difference between (i) the closing price of the common stock at December 31, 2011 and (ii) the exercise price of the underlying awards, multiplied by the number of options that had an exercise price less than the closing price on the last trading day.  The aggregate intrinsic value of options outstanding and exercisable was approximately $5,000 as of December 31, 2011.

At December 31, 2011, total compensation costs for unvested stock option awards outstanding approximated $3.9 million and will be recognized as stock compensation expense over the next four years.

Valuation assumptions used to determine fair value of share-based compensation

The weighted–average grant date fair value for options granted in 2011 and 2010 approximated $1.17 and $1.88, respectively. The fair value for the 2011 and 2010 awards were estimated at the date of grant using the Black-Scholes option-pricing model using the following assumptions:

	December 31,
	2011			2010
Weighted-average volatility		83	%		87	%
Risk-free rate		0.79% - 2.79	%		0.28% - 3.2	%
Expected annual dividend yield		-			-
Expected weighted-average life, in years		5.9			6.0

The valuation assumptions were determined as follows:

· Weighted average volatility:  We determine expected volatility by using our historical volatility weighted 50% and the average historical volatility from comparable public companies with an expected term consistent with our weighted 50%.

· Risk-free interest rate:  The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term of the award.

· Expected annual dividend yield:  The estimate for annual dividends is zero because we have not historically paid a dividend and do not intend to do so in the foreseeable future.

· Expected life:  The expected term of the awards represents the period of time that the awards are expected to be outstanding.  The Company estimated the expected term using the “simplified-method” as it does not have sufficient historical exercise data to provide a reasonable estimate.

The following table summarizes the activity of the 2007 plan for restricted shares:

				Weighted-
				Average
				Grant Date
	Shares			Fair Value
Restricted Shares
Outstanding January 1, 2010		305,316		$	3.36
Granted		35,000		$	2.67
Vested		(101,899	)	$	3.29
Forfeited or expired		(127,286	)	$	3.95
Outstanding, December 31, 2010		111,131		$	2.92
Granted		145,000		$	1.43
Vested		(123,066	)	$	2.59
Forfeited or expired		(9,168	)	$	2.46
Outstanding, December 31, 2011		123,897		$	1.53

At December 31, 2011, total compensation costs for unvested Restricted Stock awards approximated $0.1 million and will be recognized over three years.

Warrants

At December 31, 2010, we had warrants outstanding to purchase 5,202,121 shares of our common stock (of which 1,323,214 were not exercisable until January 2011) as follows;

Number of Common
Shares Underlying	Exercise		Expiration
Warrants	Price		Date
705,354(1)	$	3.00		September 2014
2,572,775		2.50		January 2015
500,000(1)		1.89		October 2015
1,323,214(1)		1.63		January 2017
100,778		3.97		March 2017

(1) The warrants to purchase the shares are accounted for as derivative liabilities. The fair value of these liabilities (see note 4) is remeasured at the end of every reporting period and the change in fair value is reported in the consolidate statements of operation as other income (expense).

The above warrants remained outstanding as of December 31, 2011. Also, in connection with the June 2011 public offering of 1,857,143 shares of common stock, we issued warrants to purchase up to an additional 371,423 shares of common stock at an exercisable price of $3.50 per share. The warrants were immediately exercisable upon issuance and expire June 2016. These warrants are classified as derivative liabilities.