Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS' EQUITY

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STOCKHOLDERS' EQUITY
 9 Months Ended
Sep. 30, 2012
STOCKHOLDERS' EQUITY

NOTE 4 — STOCKHOLDERS’ EQUITY

Common Stock

Pursuant to an amendment to the at the market issuance sales agreement and a prospectus supplement the Company filed on January 20, 2012 and pursuant to a new registration statement filed with the Securities and Exchange Commission, the Company may sell shares of its common stock having an aggregate offering price of up to $15.0 million from time to time through MLV & Co., LLC, formerly McNicoll, Lewis & Vlak LLC as its sales agent. During the three months ended March 31, 2012, the Company sold 2,022,144 shares of our common stock at an average price of $6.29 pursuant to the at market issuance sales agreement. Net proceeds from the sale of stock were $12.3 million. The sale of stock did not result in an adjustment to the exercise price of certain of our outstanding warrants. During the quarter ended September 30, 2012, there were no sales of common stock pursuant to the at market issuance sales agreement

Common Stock Warrants

The Company accounts for its common stock warrants under guidance now codified in ASC 815 that clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify for classification as liabilities. The guidance required the Company’s outstanding warrants to be classified as liabilities and to be fair valued at each reporting period, with the changes in fair value recognized as other income (expense) in the Company’s consolidated statement of comprehensive loss.

During the three and nine months ended September 30, 2012, warrants to purchase 872,451 shares and 4,584,474 of common stock were exercised for net proceeds of approximately $1.6 million and $8.5 million, respectively. As of the date of exercise of the warrants, the Company transferred the fair value of the warrants of approximately $5.4 million and $27.4 million from warrant liability into stockholders’ equity for the three and nine months ended September 30, 2012, respectively.

 

At September 30, 2012 and December 31, 2011, the Company had warrants outstanding to purchase 3,058,811 and 3,588,221 shares of common stock, respectively, from the Company’s August 2008 stock offering. The fair value of these warrants on September 30, 2012 and December 31, 2011 was determined using a Black-Scholes valuation model with the following level 3 inputs:

 

     September 30,
2012		     December 31,
2011		  

Risk-free interest rate

      0.17 %     0.25 %

Expected life (in years)

      0.91        1.66   

Dividend yield

      —          —     

Volatility

      118 %     84 %

Exercise price

    $ 1.86      $ 1.86   

Stock price

    $ 7.24      $ 1.22   

During the three and nine months ended September 30, 2012, the change in fair value related to the August 2008 warrants of $0.5 million of non-cash income and $19.0 million of non-cash expense, respectively, was recorded as other income (expense) in the Company’s consolidated statement of comprehensive income (loss).

At September 30, 2012 and December 31, 2011, the Company had warrants outstanding to purchase 4,287,940 and 7,329,819 shares of common stock, respectively, from the Company’s October 2009 stock offering. The fair value of these warrants on September 30, 2012 and December 31, 2011 was determined using a Black Scholes valuation model with the following level 3 inputs:

 

     September 30,
2012		     December 31,
2011		  

Risk-free interest rate

      0.23 %     0.36 %

Expected life (in years)

      2.01        2.76   

Dividend yield

      —          —     

Volatility

      105 %     88 %

Exercise price

    $ 2.05      $ 2.05   

Stock price

    $ 7.24      $ 1.22   

During the three and nine months ended September 30, 2012 the change in fair value related to the October 2009 warrants of $0.7 million of non-cash income and $36.8 million of non-cash expense, respectively, was recorded as other income (expense) in the Company’s consolidated statement of comprehensive loss.

At September 30, 2012 and December 31, 2011, the Company had warrants outstanding to purchase 4,378,940 and 5,725,227 shares of common stock, respectively, from the Company’s March 2011 stock offering. The fair value of these warrants on September 30, 2012 and December 31, 2011 was determined using a Black Scholes valuation model with the following level 3 inputs:

 

     September 30,
2012		     December 31,
2011		  

Risk-free interest rate

      0.62 %     0.60 %

Expected life (in years)

      3.46        4.21   

Dividend yield

      —          —     

Volatility

      99 %     102 %

Exercise price

    $ 2.46      $ 2.46   

Stock price

    $ 7.24      $ 1.22   

During the three and nine months ended September 30, 2012, the change in fair value related to the March 2011 warrants of $1.7 million of non-cash income and $29.8 million of non-cash expense, respectively, was recorded as other income (expense) in the Company’s consolidated statement of comprehensive loss.

The following table sets forth the Company’s financial liabilities, related to warrants issued in the August 2008, October 2009 and March 2011 offerings, subject to fair value measurements as of September 30, 2012 and December 31, 2011:

 

(in thousands)    Fair Value as of
September 30,
2012		      Basis of Fair Value Measurements  
            Level 1      Level 2      Level 3  

August 2008 warrants

    $ 17,099       $ —         $ —         $ 17,099   

October 2009 warrants

      24,570         —           —           24,570   

March 2011 warrants

      25,704         —           —           25,704   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total common stock warrants

    $ 67,373       $ —         $ —         $ 67,373   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(in thousands)    Fair Value as of
December 31,
2011		      Basis of Fair Value Measurements  
            Level 1      Level 2      Level 3  

August 2008 warrants

    $ 1,292       $ —         $ —         $ 1,292   

October 2009 warrants

      3,738         —           —           3,738   

March 2011 warrants

      4,179         —           —           4,179   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total common stock warrants

    $ 9,209       $ —         $ —         $ 9,209   
  

 

 

     

 

 

     

 

 

     

 

 

  

The following table is a reconciliation of the warrant liability measured at fair value using level 3 inputs (in thousands):

 

     Warrant Liability  

Balance at December 31, 2011

    $ 9,209   

Change in fair value of common stock warrants during nine months ended September 30, 2012

      85,572   

Exercise of warrants during nine months ended September 30, 2012

      (27,408 ) 
  

 

 

  

Balance at September 30, 2012

    $ 67,373