x
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
36-3898269
|
(State or other jurisdiction of
|
(I.R.S. Employer Identification No.)
|
incorporation or organization)
|
Large accelerated filer ¨
|
Accelerated filer ¨
|
Non-accelerated filer ¨
|
Smaller reporting company x
|
Page
|
||
PART I
|
FINANCIAL INFORMATION
|
|
Item 1.
|
Unaudited Condensed Consolidated Financial Statements:
|
|
Unaudited Condensed Consolidated Balance Sheets
|
4
|
|
Unaudited Condensed Consolidated Statements of Operations
|
5
|
|
Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficiency)
|
6
|
|
Unaudited Condensed Consolidated Statements of Cash Flows
|
8
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
10
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
26
|
Item 3.
|
Quantitative and Qualitative Disclosure About Market Risk
|
36
|
Item 4.
|
Controls and Procedures
|
36
|
PART II
|
OTHER INFORMATION
|
|
Item 1.
|
Legal Proceedings
|
37
|
Item 1A.
|
Risk Factors
|
37
|
Item 6.
|
Exhibits
|
37
|
Signatures
|
38
|
|
·
|
the development of our drug candidates;
|
|
·
|
the regulatory approval of our drug candidates;
|
|
·
|
our use of clinical research centers and other contractors;
|
|
·
|
our ability to find collaborative partners for research, development and commercialization of potential products;
|
|
·
|
acceptance of our products by doctors, patients or payers;
|
|
·
|
our ability to market any of our products;
|
|
·
|
our history of operating losses;
|
|
·
|
our ability to compete against other companies and research institutions;
|
|
·
|
our ability to secure adequate protection for our intellectual property;
|
|
·
|
our ability to attract and retain key personnel;
|
|
·
|
availability of reimbursement for our product candidates;
|
|
·
|
the effect of potential strategic transactions on our business;
|
|
·
|
our ability to obtain adequate financing; and
|
|
·
|
the volatility of our stock price.
|
September 30,
|
December 31,
|
|||||||
|
2011
|
2010
|
||||||
(unaudited)
|
(See Note 1)
|
|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 212,280 | $ | 478,668 | ||||
Grant receivable
|
- | 244,479 | ||||||
Debt issue costs
|
- | 4,408 | ||||||
Other current assets
|
100,759 | 141,622 | ||||||
Total current assets
|
313,039 | 869,177 | ||||||
In-process research and development
|
17,742,110 | 17,742,110 | ||||||
Property and equipment, net
|
1,580 | 2,984 | ||||||
Other assets
|
7,750 | 21,370 | ||||||
Total assets
|
$ | 18,064,479 | $ | 18,635,641 | ||||
Liabilities and Stockholders' Deficiency
|
||||||||
Current Liabilities:
|
||||||||
Notes payable, current portion, net of discount
|
$ | 761,314 | $ | 2,054,246 | ||||
Accounts payable and accrued expenses
|
167,719 | 223,516 | ||||||
Interest payable, current portion, net of beneficial conversion
|
47,223 | 480,890 | ||||||
Derivative liability
|
538,830 | 534,846 | ||||||
Total current liabilities
|
1,515,086 | 3,293,498 | ||||||
Notes payable, noncurrent portion, net of discount
|
16,388,797 | 16,130,571 | ||||||
Interest payable, noncurrent portion
|
455,214 | 626,697 | ||||||
Exchange obligation
|
- | 3,949,176 | ||||||
Total liabilities
|
18,359,097 | 23,999,942 | ||||||
Commitments and contingencies
|
||||||||
Stockholders’ deficiency:
|
||||||||
Preferred stock, $.001 par value. Authorized 1,500,000 shares; no shares issued and outstanding at September 30, 2011 and December 31, 2010
|
- | - | ||||||
Common stock, $.001 par value. Authorized 500,000,000 shares; 7,398,316 shares issued and outstanding at September 30, 2011 and 2,419,305 shares issued and outstanding at December 31, 2010
|
7,398 | 2,419 | ||||||
Contingently issuable shares
|
15,890 | 15,890 | ||||||
Additional paid-in capital
|
60,693,779 | 55,927,180 | ||||||
Deficit accumulated during the development stage
|
(61,011,685 | ) | (61,309,790 | ) | ||||
Total stockholders’ deficiency
|
(294,618 | ) | (5,364,301 | ) | ||||
Total liabilities and stockholders' deficiency
|
$ | 18,064,479 | $ | 18,635,641 |
Three months ended
September 30,
|
Nine months ended
September 30,
|
Cumulative
period from
August 6, 2001
(inception) to
September 30,
|
||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
2011
|
||||||||||||||||
Revenue
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Costs and expenses:
|
||||||||||||||||||||
Research and development
|
95,897 | 236,734 | 541,292 | 305,500 | 29,369,296 | |||||||||||||||
General and administrative
|
165,946 | 278,897 | 609,542 | 1,264,666 | 20,323,939 | |||||||||||||||
In-process research and development charge
|
- | - | - | - | 11,887,807 | |||||||||||||||
Impairment of intangible assets
|
- | - | - | - | 1,248,230 | |||||||||||||||
Loss on disposition of intangible assets
|
- | - | - | - | 1,213,878 | |||||||||||||||
Total operating expenses
|
261,843 | 515,631 | 1,150,834 | 1,570,166 | 64,043,150 | |||||||||||||||
Operating loss
|
(261,843 | ) | (515,631 | ) | (1,150,834 | ) | (1,570,166 | ) | (64,043,150 | ) | ||||||||||
Other (income) expense:
|
||||||||||||||||||||
Equity in losses of Hedrin JV
|
- | - | - | - | 750,000 | |||||||||||||||
Change in fair value of derivative liability
|
(2,100,898 | ) | (830,165 | ) | (39,587 | ) | (2,696,900 | ) | (2,455,261 | ) | ||||||||||
Interest and other income
|
(196 | ) | (76,275 | ) | (4,518,150 | ) | (228,305 | ) | (7,610,133 | ) | ||||||||||
Interest expense
|
1,165,078 | 349,562 | 1,882,886 | 937,555 | 3,795,334 | |||||||||||||||
Loss on early extinguishment of debt
|
1,225,912 | - | 1,225,912 | 159,070 | 1,384,982 | |||||||||||||||
Realized gain on sale of marketable equity securities
|
- | - | - | - | (76,032 | ) | ||||||||||||||
Total other (income) expense
|
289,896 | (556,878 | ) | (1,448,939 | ) | (1,828,580 | ) | (4,211,110 | ) | |||||||||||
Net income (loss)
|
(551,739 | ) | 41,247 | 298,105 | 258,414 | (59,832,040 | ) | |||||||||||||
Preferred stock dividends (including imputed amounts)
|
- | - | - | - | (1,179,645 | ) | ||||||||||||||
Net income (loss) applicable to common shares
|
$ | (551,739 | ) | $ | 41,247 | $ | 298,105 | $ | 258,414 | $ | (61,011,685 | ) | ||||||||
Net income (loss) per common share:
|
||||||||||||||||||||
Basic and diluted
|
$ | (0.16 | ) | $ | 0.02 | $ | 0.10 | $ | 0.12 | |||||||||||
Weighted average shares of common stock outstanding:
|
||||||||||||||||||||
Basic and diluted
|
3,431,031 | 2,419,305 | 2,861,792 | 2,176,257 |
Common stock
shares
|
Common stock
amount
|
Additional paid-
in capital
|
Deficit
accumulated
during
development
stage
|
Other
|
Total
stockholders'
equity
(deficiency)
|
|||||||||||||||||||
Stock issued at $0.02 per share for subscription receivable
|
203,355 | $ | 203 | $ | 3,797 | $ | - | $ | (4,000 | ) | $ | (0 | ) | |||||||||||
Net loss
|
- | - | - | (56,796 | ) | - | (56,796 | ) | ||||||||||||||||
Balance at December 31, 2001
|
203,355 | 203 | 3,797 | (56,796 | ) | (4,000 | ) | (56,796 | ) | |||||||||||||||
Proceeds from subscription receivable
|
- | - | - | - | 4,000 | 4,000 | ||||||||||||||||||
Stock issued at $0.02 per share for license rights
|
50,839 | 51 | 949 | - | - | 1,000 | ||||||||||||||||||
Stock options issued for consulting services
|
- | - | 60,589 | - | (60,589 | ) | - | |||||||||||||||||
Common stock issued at $31.50 per share, net of expenses
|
60,866 | 61 | 1,704,257 | - | - | 1,704,318 | ||||||||||||||||||
Amortization of unearned consulting services
|
- | - | - | - | 22,721 | 22,721 | ||||||||||||||||||
Net loss
|
- | - | - | (1,037,320 | ) | - | (1,037,320 | ) | ||||||||||||||||
Balance at December 31, 2002
|
315,060 | 315 | 1,769,592 | (1,094,116 | ) | (37,868 | ) | 637,923 | ||||||||||||||||
Common stock issued at $31.50 per share, net of expenses
|
26,436 | 26 | 743,665 | - | - | 743,691 | ||||||||||||||||||
Effect of reverse acquisition
|
125,752 | 126 | 2,336,115 | - | - | 2,336,241 | ||||||||||||||||||
Payment for fraction shares for stock combination
|
- | - | (300 | ) | - | - | (300 | ) | ||||||||||||||||
Preferred stock issued at $10 per share, net of expenses
|
- | - | 9,045,176 | - | 1,000 | 9,046,176 | ||||||||||||||||||
Imputed preferred stock dividend
|
- | - | 418,182 | (418,182 | ) | - | - | |||||||||||||||||
Amortization of unearned consulting services
|
- | - | - | - | 37,868 | 37,868 | ||||||||||||||||||
Unrealized loss on short-term investments
|
- | - | - | - | (7,760 | ) | (7,760 | ) | ||||||||||||||||
Net loss
|
- | - | - | (5,960,907 | ) | - | (5,960,907 | ) | ||||||||||||||||
Balance at December 31, 2003
|
467,248 | 467 | 14,312,430 | (7,473,205 | ) | (6,760 | ) | 6,832,932 | ||||||||||||||||
Exercise of stock options
|
552 | 1 | 30,099 | - | - | 30,100 | ||||||||||||||||||
Common stock issued at $55.00 per share, net of expenses
|
67,379 | 67 | 3,361,651 | - | - | 3,361,718 | ||||||||||||||||||
Preferred stock dividend accrued
|
- | - | - | (585,799 | ) | - | (585,799 | ) | ||||||||||||||||
Preferred stock dividend paid by issuance of preferred shares
|
- | - | 281,073 | - | 25 | 281,098 | ||||||||||||||||||
Conversion of preferred stock to common stock at $55.00 per share
|
31,005 | 31 | 140 | - | (171 | ) | - | |||||||||||||||||
Warrants issued for consulting services
|
- | - | 125,558 | - | (120,968 | ) | 4,590 | |||||||||||||||||
Amortization of unearned consulting services
|
- | - | - | - | 100,800 | 100,800 | ||||||||||||||||||
Unrealized gain and reversal of unrealized loss on short-term investments
|
- | - | - | - | 20,997 | 20,997 | ||||||||||||||||||
Net loss
|
- | - | - | (5,896,031 | ) | - | (5,896,031 | ) | ||||||||||||||||
Balance at December 31, 2004
|
566,184 | 566 | 18,110,951 | (13,955,035 | ) | (6,077 | ) | 4,150,405 | ||||||||||||||||
Common stock issued at $55.50 and $57.50 per share, net of expenses
|
238,354 | 238 | 12,249,971 | - | - | 12,250,209 | ||||||||||||||||||
Common stock issued at $55.50 in satisfaction of accounts payable
|
13,513 | 13 | 749,987 | - | - | 750,000 | ||||||||||||||||||
Exercise of stock options
|
648 | 1 | 32,399 | - | - | 32,400 | ||||||||||||||||||
Exercise of warrants
|
5,597 | 6 | 68,485 | - | - | 68,491 | ||||||||||||||||||
Preferred stock dividend accrued
|
- | - | - | (175,663 | ) | - | (175,663 | ) | ||||||||||||||||
Preferred stock dividend paid by issuance of preferred shares
|
- | - | 477,736 | - | 42 | 477,778 | ||||||||||||||||||
Conversion of preferred stock to common stock at $55.00 per share
|
162,937 | 163 | 733 | - | (896 | ) | - | |||||||||||||||||
Stock issued in connection with acquisition of Tarpan Therapeutics, Inc.
|
214,621 | 215 | 11,052,769 | - | - | 11,052,984 | ||||||||||||||||||
Reversal of unrealized gain on short-term investments
|
- | - | - | - | (12,250 | ) | (12,250 | ) | ||||||||||||||||
Share-based compensation
|
- | - | 66,971 | - | 20,168 | 87,139 | ||||||||||||||||||
Net loss
|
- | - | - | (19,140,997 | ) | - | (19,140,997 | ) | ||||||||||||||||
Balance at December 31, 2005
|
1,201,854 | 1,202 | 42,810,002 | (33,271,695 | ) | 987 | 9,540,496 | |||||||||||||||||
Cashless exercise of warrants
|
547 | - | - | - | - | - | ||||||||||||||||||
Costs associated with private placement
|
- | - | (15,257 | ) | - | - | (15,257 | ) | ||||||||||||||||
Unrealized loss on short-term investments
|
- | - | - | - | (987 | ) | (987 | ) | ||||||||||||||||
Share-based compensation
|
- | - | 1,675,499 | - | - | 1,675,499 | ||||||||||||||||||
Net loss
|
- | - | - | (9,695,123 | ) | - | (9,695,123 | ) | ||||||||||||||||
Balance at December 31, 2006
|
1,202,401 | 1,202 | 44,470,244 | (42,966,818 | ) | - | 1,504,628 |
Common stock
shares
|
Common stock
amount
|
Additional paid-
in capital
|
Deficit
accumulated
during
development
stage
|
Other
|
Total
stockholders'
equity
(deficiency)
|
|||||||||||||||||||
Common stock issued at $42.00 and $45.00 per share, net of expenses
|
203,710 | $ | 204 | $ | 7,851,981 | $ | - | $ | - | $ | 7,852,185 | |||||||||||||
Common stock issued at $36.00 per share in satisfaction of accounts payable
|
556 | 1 | 19,999 | - | - | 20,000 | ||||||||||||||||||
Common stock issued with in-licensing agreement at $45.00 per share
|
2,500 | 2 | 112,498 | - | - | 112,500 | ||||||||||||||||||
Common stock issued with in-licensing agreement at $40.00per share
|
3,000 | 3 | 119,997 | - | - | 120,000 | ||||||||||||||||||
Warrants issued for consulting services
|
- | - | 83,670 | - | - | 83,670 | ||||||||||||||||||
Exercise of warrants
|
206 | - | 7,233 | - | - | 7,233 | ||||||||||||||||||
Cashless exercise of warrants
|
112 | - | (6 | ) | - | - | (6 | ) | ||||||||||||||||
Share-based compensation
|
- | - | 1,440,956 | - | - | 1,440,956 | ||||||||||||||||||
Net loss
|
- | - | - | (12,032,252 | ) | - | (12,032,252 | ) | ||||||||||||||||
Balance at December 31, 2007
|
1,412,485 | 1,412 | 54,106,572 | (54,999,070 | ) | - | (891,086 | ) | ||||||||||||||||
Sale of warrant
|
- | - | 150,000 | - | - | 150,000 | ||||||||||||||||||
Warrants issued with 12% notes
|
- | - | 170,128 | - | - | 170,128 | ||||||||||||||||||
Share-based compensation
|
- | - | 463,890 | - | - | 463,890 | ||||||||||||||||||
Net loss
|
- | - | - | (4,268,858 | ) | - | (4,268,858 | ) | ||||||||||||||||
Balance at December 31, 2008
|
1,412,485 | 1,412 | 54,890,590 | (59,267,928 | ) | - | (4,375,926 | ) | ||||||||||||||||
Cumulative effect of a change in accounting principle
|
- | - | (150,000 | ) | 127,778 | - | (22,222 | ) | ||||||||||||||||
Balance at January 1, 2009, as adjusted
|
1,412,485 | 1,412 | 54,740,590 | (59,140,150 | ) | - | (4,398,148 | ) | ||||||||||||||||
Warrants issued with secured 12% notes
|
- | - | 53,044 | - | - | 53,044 | ||||||||||||||||||
Share-based compensation
|
- | - | 353,438 | - | - | 353,438 | ||||||||||||||||||
Net loss
|
- | - | - | (2,793,285 | ) | - | (2,793,285 | ) | ||||||||||||||||
Balance at December 31, 2009
|
1,412,485 | 1,412 | 55,147,072 | (61,933,435 | ) | - | (6,784,951 | ) | ||||||||||||||||
Common stock issued at $3.50 per share, net of expenses
|
865,572 | 866 | 2,584,621 | - | - | 2,585,487 | ||||||||||||||||||
Derivative liability associated with warrants issued with common stock
|
- | - | (3,497,898 | ) | - | - | (3,497,898 | ) | ||||||||||||||||
Shares issued and issuable in Merger with Ariston
|
141,248 | 141 | 1,475,906 | - | 15,890 | 1,491,937 | ||||||||||||||||||
Share-based compensation
|
- | - | 217,479 | - | - | 217,479 | ||||||||||||||||||
Net income
|
- | - | - | 623,645 | - | 623,645 | ||||||||||||||||||
Balance at December 31, 2010
|
2,419,305 | 2,419 | 55,927,180 | (61,309,790 | ) | 15,890 | (5,364,301 | ) | ||||||||||||||||
Share-based compensation
|
- | - | 19,210 | - | - | 19,210 | ||||||||||||||||||
Shares issued on achievement of Ariston milestone
|
176,561 | 177 | 220,524 | - | - | 220,701 | ||||||||||||||||||
Roundup adjustment for 1 for 50 reverse stock split
|
251 | - | - | - | - | - | ||||||||||||||||||
Derivative liability associated with warrant amendment
|
- | - | (115,000 | ) | - | - | (115,000 | ) | ||||||||||||||||
Beneficial conversion feature of Secured 12% Notes Payable and interest
|
- | - | 2,245,596 | - | - | 2,245,596 | ||||||||||||||||||
Conversion of Secured 12% Notes Payable and interest into common stock (see Note 1)
|
4,802,199 | 4,802 | 2,396,269 | 2,401,071 | ||||||||||||||||||||
Net income
|
- | - | - | 298,105 | - | 298,105 | ||||||||||||||||||
Balance at September 30, 2011
|
7,398,316 | $ | 7,398 | $ | 60,693,779 | $ | (61,011,685 | ) | $ | 15,890 | $ | (294,618 | ) |
Nine months ended September 30,
|
Cumulative period
from August 6, 2001
(inception) to
|
|||||||||||
2011
|
2010
|
September 30, 2011
|
||||||||||
Cash flows from operating activities:
|
||||||||||||
Net income/(loss)
|
$ | 298,105 | $ | 258,414 | $ | (59,832,040 | ) | |||||
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
|
||||||||||||
Equity in losses of Hedrin JV
|
- | - | 750,000 | |||||||||
Non cash gain on Nordic settlement
|
(4,017,488 | ) | - | (4,017,488 | ) | |||||||
Share-based compensation
|
19,210 | 211,771 | 4,419,000 | |||||||||
Amortization of OID, issue costs and beneficial conversion feature
|
1,041,745 | 288,772 | 1,978,376 | |||||||||
Change in fair value of derivative liability
|
(39,587 | ) | (2,696,900 | ) | (3,131,569 | ) | ||||||
Loss on early extinguishment of debt
|
1,225,912 | 159,070 | 1,384,982 | |||||||||
Shares issued in connection with in-licensing agreement
|
- | - | 232,500 | |||||||||
Shares issued in connection with Ariston milestone
|
220,701 | - | 220,701 | |||||||||
Warrants issued to consultant
|
- | - | 83,670 | |||||||||
Amortization of intangible assets
|
- | - | 145,162 | |||||||||
Gain on sale of marketable equity securities
|
- | - | (76,032 | ) | ||||||||
Depreciation
|
1,404 | 2,644 | 232,267 | |||||||||
Noncash portion of in-process research and development charge
|
- | - | 11,721,623 | |||||||||
Loss on impairment and disposition of intangible assets
|
- | - | 2,462,108 | |||||||||
Other
|
- | - | 23,917 | |||||||||
Changes in operating assets and liabilities, net of acquisitions:
|
||||||||||||
Decrease in grant receivable
|
244,479 | - | - | |||||||||
Decrease in prepaid expenses and other current assets
|
40,508 | 60,612 | 77,999 | |||||||||
Decrease/(increase) in other assets
|
10,859 | - | (25,511 | ) | ||||||||
Decrease in accounts payable and accrued expenses
|
(55,797 | ) | (332,972 | ) | (178,104 | ) | ||||||
Increase in interest payable
|
843,561 | 620,219 | 1,722,574 | |||||||||
Net cash used in operating activities
|
(166,388 | ) | (1,428,370 | ) | (41,805,865 | ) | ||||||
Cash flows from investing activities:
|
||||||||||||
Purchase of property and equipment
|
- | (2,844 | ) | (242,452 | ) | |||||||
Cash acquired in connection with acquisitions
|
- | 519,365 | 493,334 | |||||||||
Net cash provided from the purchase and sale of short-term investments
|
- | - | 435,938 | |||||||||
Proceeds from sale of license
|
- | - | 200,001 | |||||||||
Net cash provided by investing activities
|
- | 516,521 | 886,821 | |||||||||
Cash flows from financing activities:
|
||||||||||||
Proceeds related to sale of common stock, net
|
- | 2,163,486 | 28,059,748 | |||||||||
Proceeds from sale of preferred stock, net
|
- | - | 9,046,176 | |||||||||
Proceeds from the Hedrin JV agreement
|
- | - | 3,199,176 | |||||||||
Proceeds from sale of notes payable
|
- | - | 1,509,915 | |||||||||
Sale of warrant
|
- | - | 150,000 | |||||||||
Net repayments of notes payable
|
(100,000 | ) | (193,667 | ) | (1,207,124 | ) | ||||||
Other, net
|
- | - | 373,433 | |||||||||
Net cash provided by/(used in) financing activities
|
(100,000 | ) | 1,969,819 | 41,131,324 | ||||||||
Net increase (decrease) in cash and cash equivalents
|
(266,388 | ) | 1,057,970 | 212,280 | ||||||||
Cash and cash equivalents at beginning of period
|
478,668 | 17,996 | - | |||||||||
Cash and cash equivalents at end of period
|
$ | 212,280 | $ | 1,075,966 | $ | 212,280 |
Nine months ended September 30,
|
Cumulative period from
August 6, 2001
(inception) to September 30,
|
|||||||||||
2011
|
2010
|
2011
|
||||||||||
Supplemental disclosure of cash flow information:
|
||||||||||||
Interest paid
|
$ | 882 | $ | 28,212 | $ | 68,387 | ||||||
Supplemental disclosure of noncash investing and financing activities:
|
||||||||||||
Issuance of common stock for acquisitions
|
$ | - | $ | 1,491,937 | $ | 14,881,163 | ||||||
Conversion of debt to common stock and warrants
|
2,401,071 | 422,000 | 2,823,071 | |||||||||
In-process research and development acquired
|
- | 17,742,110 | 17,742,110 | |||||||||
Investment in Hedrin JV
|
- | 500,000 | 1,250,000 | |||||||||
Beneficial conversion feature
|
2,245,596 | - | 2,245,596 | |||||||||
Warrants issued with notes payable
|
- | - | 250,562 | |||||||||
Note issued to settle accrued expenses
|
- | - | 211,900 | |||||||||
Common stock issued in satisfaction of accounts payable
|
- | - | 770,000 | |||||||||
Imputed and accrued preferred stock dividend
|
- | - | 1,179,644 | |||||||||
Conversion of preferred stock to common stock
|
- | - | 1,067 | |||||||||
Preferred stock dividends paid by issuance of shares
|
- | - | 759,134 | |||||||||
Issuance of common stock in connection with in-licensing agreement
|
- | - | 232,500 | |||||||||
Marketable equity securities received in connection with sale of license
|
- | - | 359,907 | |||||||||
Warrants issued to consultant
|
- | - | 83,670 | |||||||||
Net liabilities assumed over assets acquired in business combination
|
- | - | (675,416 | ) | ||||||||
Cashless exercise of warrants
|
- | - | 33 |
September 30,
|
||||||||
2011
|
2010
|
|||||||
Fair value
|
$ | 0.052 - $0.084 | $ | 0.695 - $0.835 | ||||
Expected volatility
|
89 | % | 88 | % | ||||
Dividend yield
|
- | - | ||||||
Expected term (in years)
|
2.14 - 3.52 | 2.51 - 4.52 | ||||||
Risk-free interest rate
|
0.69 | % | 0.96 | % |
September 30,
|
||||||||
2011
|
2010
|
|||||||
Fair value at January 1
|
$ | 534,846 | $ | 784,777 | ||||
Purchases, sales, issuances and settlements
|
43,571 | 3,272,121 | ||||||
Net unrealized (gain)/loss
|
(39,587 | ) | (2,696,900 | ) | ||||
Fair value at September 30
|
$ | 538,830 | $ | 1,359,998 |
2.
|
LIQUIDITY
|
3.
|
REVERSE STOCK SPLIT
|
|
·
|
At June 20, 2011, immediately and without further action by the Company’s stockholders, every fifty (50) shares of the Company’s pre-split Common Stock, par value $0.001 per share, was automatically converted into one (1) share of post-split Common Stock, par value $0.001 per share. Accordingly, the Company’s approximately 129.8 million pre-split shares of common stock outstanding will be combined into approximately 2.6 million post-split shares outstanding. The reverse stock split affects all issued and outstanding shares of the Company’s Common Stock immediately prior to June 20, 2011. In addition, proportional adjustments will be made to the Company’s equity awards, outstanding warrants and convertible notes.
|
|
·
|
Continental Stock Transfer and Trust Company, Manhattan’s transfer agent, will act as exchange agent for the exchange. Stockholders will receive forms and notices to exchange their existing shares for new shares from the exchange agent or their broker. No fractional shares will be issued. Stockholders who otherwise would be entitled to receive fractional shares because they hold a number of shares not evenly divisible by 50, will automatically receive one whole share of Common Stock in lieu of the fractional share.
|
Pre-Reverse
Split
|
Anti-dilution
Effect
|
Reverse Split
Effect
|
Conversion of
12% Secured
Notes and
Interest
|
As of September
30, 2011, Post-
Reverse Split,
Anti-dilution and
Conversion
|
||||||||||||||||
Shares outstanding:
|
||||||||||||||||||||
Before conversion of 12% Secured Notes
|
129,793,289 | (127,197,423 | ) | 2,595,866 | ||||||||||||||||
Conversion of 12% Secured Notes
|
4,802,199 | 4,802,199 | ||||||||||||||||||
After conversion
|
129,793,289 | - | (127,197,423 | ) | 4,802,199 | 7,398,065 | ||||||||||||||
Shares issuable:
|
||||||||||||||||||||
Warrants with antidilution rights
|
129,911,363 | 963,038,387 | (1,071,090,755 | ) | 21,858,995 | |||||||||||||||
Warrants without antidilution rights
|
12,989,189 | (12,729,405 | ) | 259,784 | ||||||||||||||||
Options
|
11,564,936 | (11,333,637 | ) | 231,299 | ||||||||||||||||
Ariston milestone shares
|
15,890,452 | (15,572,643 | ) | 317,809 | ||||||||||||||||
12% Secured Notes and interest
|
240,107,200 | (235,305,001 | ) | (4,802,199 | ) | - | ||||||||||||||
Other Convertible debt
|
45,776,620 | (44,861,088 | ) | 915,532 | ||||||||||||||||
Total shares issued and issuable
|
586,033,049 | 963,038,387 | (1,518,089,952 | ) | - | 30,981,484 |
4.
|
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
|
5.
|
SHARE-BASED COMPENSATION
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
General and administrative expense:
|
||||||||||||||||
Share-based employee compensation cost
|
$ | 5,597 | $ | 5,597 | $ | 19,210 | $ | 211,664 | ||||||||
Share-based consultant and non-employee cost
|
- | 3 | - | 11 | ||||||||||||
Total general and administrative expense
|
5,597 | 5,600 | 19,210 | 211,675 | ||||||||||||
Research and development expense:
|
||||||||||||||||
Share-based employee compensation cost
|
- | - | - | - | ||||||||||||
Share-based consultant and non-employee cost
|
- | 30 | - | 96 | ||||||||||||
Total research and development expense
|
- | 30 | - | 96 | ||||||||||||
Total share-based cost
|
$ | 5,597 | $ | 5,630 | $ | 19,210 | $ | 211,771 |
Nine months ended September 30,
|
||||||||
2011
|
2010
|
|||||||
Expected volatility
|
- | 88 | % | |||||
Dividend yield
|
- | - | ||||||
Expected term (in years)
|
- | 5.7 | ||||||
Risk-free interest rate
|
- | 2.46 | % |
Shares
|
Weighted
average
exercise price
|
Weighted
Average
Remaining
Contractual
Term (years)
|
Aggregate
Intrinsic Value
|
|||||||||||||
Outstanding at December 31, 2010
|
231,499 | $ | 24.37 | 6.72 | ||||||||||||
Granted
|
- | |||||||||||||||
Exercised
|
- | |||||||||||||||
Cancelled
|
(200 | ) | $ | 14.00 | ||||||||||||
Outstanding at September 30, 2011
|
231,299 | $ | 24.37 | 5.19 | $ | - | ||||||||||
Exercisable at September 30, 2011
|
210,303 | $ | 26.45 | 4.86 | $ | - | ||||||||||
Vested and expected to vest at September 30, 2011
|
229,404 | $ | 24.54 | 5.16 | $ | - |
|
·
|
The Nordic Put has been terminated. The Company believed the Nordic Put permitted Nordic to become the owner, upon exercise of the Nordic Put, of 1,428,571 shares of the Company’s common stock. Nordic asserted that the Nordic Put would have permitted Nordic to become the owner of 3,666,666 shares of the Company’s common stock.
|
|
·
|
The Nordic Warrant has been terminated. The Company believed the Nordic Warrant covered 285,714 shares of the Company’s common stock. Nordic asserted that the Nordic Warrant covered 666,666 shares of the Company’s common stock.
|
|
·
|
Nordic was required to make an additional, non-dilutive capital contribution to the Hedrin JV of $1,500,000, which includes $300,000 contributed to the Hedrin JV by Nordic on December 15, 2010.
|
|
·
|
The Hedrin JV has paid to the Company a settlement amount of $500,000, less any "Excess Payment" (defined below). An "Excess Payment" is the amount by which Nordic’s and the Hedrin JV’s reasonable out-of-pocket legal and other costs incurred with respect to the Settlement and Release Agreement exceed $70,000. To date there have been no Excess Payments.
|
|
·
|
Our equity interest in the Hedrin JV was reduced to 15%, and further reductions in our equity interest are possible if and when Nordic makes additional capital contributions to the Hedrin JV. In no event shall the capital contributions by Nordic reduce our ownership in the Hedrin JV below 5%.
|
|
·
|
The Hedrin JV has paid $75,000 to the Company under the Services Agreement, dated February 21, 2008, and that Services Agreement is terminated as of December 31, 2010.
|
|
·
|
The Hedrin JV Agreement, dated January 31, 2008, as amended on February 18, 2008, and as further amended by an Omnibus Amendment on June 9, 2008, between the Company and Nordic; the Shareholders’ Agreement, dated February 21, 2008, as amended by an Omnibus Amendment on June 9, 2008, with respect to the Hedrin JV, and the Registration Rights Agreement, dated February 25, 2009, are terminated.
|
Total
|
Cash portion
|
Non cash portion
|
||||||||||
Exchange obligation, termination of the Nordic Put
|
$ | 3,949,176 | $ | - | $ | 3,949,176 | ||||||
Termination of the Nordic Warrant
|
71,429 | - | 71,429 | |||||||||
Payment of settlement amount
|
500,000 | 500,000 | - | |||||||||
Other
|
(3,117 | ) | - | (3,117 | ) | |||||||
Totals
|
$ | 4,517,488 | $ | 500,000 | $ | 4,017,488 |
|
·
|
Upon the affirmative decision of Manhattan’s Board of Directors, provided that such decision is made prior to March 8, 2011, to further develop the AST-915, either internally or through a corporate partnership, Manhattan would issue 176,561 of the Milestone Shares. This milestone was attained in January 2011 and the shares were issued in March 2011. The Company recognized approximately $220,000 of research and development expense during the nine months ended September 30, 2011 from the issuance of these shares.
|
|
·
|
Upon the acceptance by the FDA of the Ariston’s filing of the first New Drug Application for the AST-726 product candidate, Manhattan would issue 141,248 of the Milestone Shares.
|
|
·
|
Upon the Company receiving FDA approval to market the AST-726 product candidate in the United States of America, Manhattan would issue 176,561 of the Milestone Shares.
|
|
·
|
Timothy McInerney, a former director of Manhattan, owned 333 shares of Ariston common stock which represented less than 1% of Ariston’s outstanding common stock as of the closing of the Merger.
|
|
·
|
Neil Herskowitz, a director of Manhattan, indirectly owned convertible promissory notes of Ariston with interest and principal in the amount of $192,739.
|
|
·
|
Michael Weiser, a former director of Manhattan, owned 2,347 shares of Ariston common stock, which represented approximately 2.1% of Ariston’s outstanding common stock as of the closing of the Merger.
|
|
·
|
Lindsay Rosenwald, a more than 5% beneficial owner of Manhattan common stock, in his individual capacity and indirectly through trusts and companies he controls, owned 9,958 shares of Ariston common stock, which represented approximately 8.9% of Ariston’s outstanding common stock as of the closing of the Merger and indirectly owned convertible promissory notes of Ariston in the amount of $141,438.
|
Cash and cash equivalents
|
$ | 519,365 | ||
Other assets
|
120,870 | |||
Total identifiable assets
|
640,235 | |||
Accounts payable and accrued expenses
|
437,615 | |||
ICON convertible note payable
|
1,000,000 | |||
5% convertible notes payable
|
15,452,793 | |||
Total identifiable liabilities
|
16,890,408 | |||
Net identifiable assets (liabilities)
|
(16,250,173 | ) | ||
In-process research and development acquired
|
17,742,110 | |||
Net assets acquired
|
$ | 1,491,937 |
Pro forma consolidated results:
|
Three Month Period
Ended September 30,
2010
|
Nine Month Period
Ended September 30,
2010
|
||||||
Revenue
|
$ | - | $ | - | ||||
Net income
|
$ | 41,247 | $ | 104,411 | ||||
Basic and diluted income per share
|
$ | 0.02 | $ | 0.05 |
At September 30, 2011
|
At December 31, 2010
|
|||||||||||||||||||||||
Current
portion, net
|
Non-current
portion, net
|
Total
|
Current
portion, net
|
Non-current
portion, net
|
Total
|
|||||||||||||||||||
Secured 12% Note Payable, Net
|
$ | - | $ | - | $ | - | $ | 1,722,346 | $ | - | $ | 1,722,346 | ||||||||||||
Non-interest Bearing Note Payable, Net
|
246,900 | - | 246,900 | 231,900 | - | 231,900 | ||||||||||||||||||
Convertible 5% Notes Payable
|
- | 16,225,433 | 16,225,433 | - | 15,452,793 | 15,452,793 | ||||||||||||||||||
ICON Convertible Note
|
514,414 | 163,364 | 677,778 | 100,000 | 677,778 | 777,778 | ||||||||||||||||||
Total
|
$ | 761,314 | $ | 16,388,797 | $ | 17,150,111 | $ | 2,054,246 | $ | 16,130,571 | $ | 18,184,817 |
December 31, 2010
|
Purchases, sales,
issuances and
settlements
|
Change in Fair
Value During Nine
Months Ended
September 30,
2011
|
September 30,
2011
|
|||||||||||||
Nordic Warrant
|
$ | 71,429 | $ | (71,429 | ) | $ | - | $ | - | |||||||
Warrants issued with Convertible 12% Notes
|
15,644 | - | (1,125 | ) | 14,519 | |||||||||||
Warrants issued in 2010 Equity Financing
|
447,773 | - | (106,012 | ) | 341,761 | |||||||||||
Amended warrants associated with the 12% Secured Notes
|
- | 115,000 | 67,550 | 182,550 | ||||||||||||
Total
|
$ | 534,846 | $ | 43,571 | $ | (39,587 | ) | $ | 538,830 |
Nine months ended September 30,
|
Increase/
|
% Increase/
|
||||||||||||||
2011
|
2010
|
(decrease)
|
(decrease)
|
|||||||||||||
Costs and expenses:
|
||||||||||||||||
Research and development:
|
||||||||||||||||
Share-based compensation
|
$ | - | $ | - | $ | - | N/A | |||||||||
Other research and development expenses
|
541,000 | 305,000 | 236,000 | 77.38 | % | |||||||||||
Total research and development expenses
|
541,000 | 305,000 | 236,000 | 77.38 | % | |||||||||||
General and administrative:
|
||||||||||||||||
Share-based compensation
|
19,000 | 212,000 | (193,000 | ) | -91.04 | % | ||||||||||
Other general and administrative expenses
|
591,000 | 1,053,000 | (462,000 | ) | -43.87 | % | ||||||||||
Total general and administrative expenses
|
610,000 | 1,265,000 | (655,000 | ) | -51.78 | % | ||||||||||
Other (income)/expense:
|
||||||||||||||||
Gain on Nordic Settlement
|
(4,517,000 | ) | - | (4,517,000 | ) | N/A | ||||||||||
Change in fair value of derivative liabilities
|
(40,000 | ) | (2,697,000 | ) | 2,657,000 | -98.52 | % | |||||||||
Loss on early extinguishment of debt
|
1,226,000 | 159,000 | 1,067,000 | 671.07 | % | |||||||||||
Interest expense
|
1,882,000 | 938,000 | 944,000 | 100.64 | % | |||||||||||
Interest and other (income)/expense
|
- | (228,000 | ) | 228,000 | -100.00 | % | ||||||||||
Total other (income)/expense
|
(1,449,000 | ) | (1,828,000 | ) | 379,000 | -20.73 | % | |||||||||
Net income/(loss)
|
$ | 298,000 | $ | 258,000 | $ | 40,000 | 15.50 | % |
Three months ended September 30,
|
Increase/
|
% Increase/
|
||||||||||||||
2011
|
2010
|
(decrease)
|
(decrease)
|
|||||||||||||
Costs and expenses:
|
||||||||||||||||
Research and development:
|
||||||||||||||||
Share-based compensation
|
$ | - | $ | - | $ | - | N/A | |||||||||
Other research and development expenses
|
96,000 | 236,000 | (140,000 | ) | -59.32 | % | ||||||||||
Total research and development expenses
|
96,000 | 236,000 | (140,000 | ) | -59.32 | % | ||||||||||
General and administrative:
|
||||||||||||||||
Share-based compensation
|
5,000 | 6,000 | (1,000 | ) | -16.67 | % | ||||||||||
Other general and administrative expenses
|
161,000 | 273,000 | (112,000 | ) | -41.03 | % | ||||||||||
Total general and administrative expenses
|
166,000 | 279,000 | (113,000 | ) | -40.50 | % | ||||||||||
Other (income)/expense:
|
||||||||||||||||
Change in fair value of derivative liabilities
|
(2,101,000 | ) | (830,000 | ) | (1,271,000 | ) | 153.13 | % | ||||||||
Loss on early extinguishment of debt
|
1,226,000 | - | 1,226,000 | N/A | ||||||||||||
Interest expense
|
1,164,000 | 350,000 | 814,000 | 232.57 | % | |||||||||||
Interest and other (income)/expense
|
1,000 | (76,000 | ) | 77,000 | -101.32 | % | ||||||||||
Total other (income)/expense
|
290,000 | (556,000 | ) | 846,000 | -152.16 | % | ||||||||||
Net income/(loss)
|
$ | (552,000 | ) | $ | 41,000 | $ | (593,000 | ) | -1446.34 | % |
|
·
|
The Nordic Put has been terminated. The Company believed the Nordic Put permitted Nordic to become the owner, upon exercise of the Nordic Put, of 71,428,571 shares (pre-Reverse Split basis) of the Company’s common stock. Nordic asserted that the Nordic Put would have permitted Nordic to become the owner of 183,333,333 (pre-Reverse Split basis) shares of the Company’s common stock.
|
|
·
|
The Nordic Warrant has been terminated. The Company believed the Nordic Warrant covered 14,285,714 (pre-Reverse Split basis) shares of the Company’s common stock. Nordic asserted that the Nordic Warrant covered 33,333,333 (pre-Reverse Split basis) shares of the Company’s common stock.
|
|
·
|
Nordic was required to make an additional, non-dilutive capital contribution to the Hedrin JV of $1,500,000, which includes $300,000 contributed to the Hedrin JV by Nordic on December 15, 2010.
|
|
·
|
The Hedrin JV has paid to the Company a settlement amount of $500,000, less any "Excess Payment" (defined below). An "Excess Payment" is the amount by which Nordic’s and the Hedrin JV’s reasonable out-of-pocket legal and other costs incurred with respect to the Settlement and Release Agreement exceed $70,000. To date there have been no Excess Payments.
|
|
·
|
Our equity interest in the Hedrin JV was reduced to 15%, and further reductions in our equity interest are possible if and when Nordic makes additional capital contributions to the Hedrin JV. In no event shall the capital contributions by Nordic reduce our ownership in the Hedrin JV below 5%.
|
|
·
|
The Hedrin JV has paid $75,000 to the Company under the Services Agreement, dated February 21, 2008, and that Services Agreement is terminated as of December 31, 2010.
|
|
·
|
The Hedrin JV Agreement, dated January 31, 2008, as amended on February 18, 2008, and as further amended by an Omnibus Amendment on June 9, 2008, between the Company and Nordic; the Shareholders’ Agreement, dated February 21, 2008, as amended by an Omnibus Amendment on June 9, 2008, with respect to the Hedrin JV, and the Registration Rights Agreement, dated February 25, 2009, are terminated.
|
Total
|
Cash portion
|
Non cash portion
|
||||||||||
Exchange obligation, termination of the Nordic Put
|
$ | 3,949,176 | $ | - | $ | 3,949,176 | ||||||
Termination of the Nordic Warrant
|
71,429 | - | 71,429 | |||||||||
Payment of settlement amount
|
500,000 | 500,000 | - | |||||||||
Other
|
(3,117 | ) | - | (3,117 | ) | |||||||
Totals
|
$ | 4,517,488 | $ | 500,000 | $ | 4,017,488 |
Exhibit
No.
|
Description
|
|
31.1
|
Certification of Principal Executive and Financial Officer
|
|
32.1
|
|
Certifications of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101
|
XBRL
|
MANHATTAN PHARMACEUTICALS, INC.
|
|||
Date: November 14, 2011
|
By:
|
/s/ Michael G. McGuinness
|
|
Michael G. McGuinness
|
|||
Principal Executive Officer
|
Exhibit No.
|
Description
|
|
31.1
|
Certification of Principal Executive and Financial Officer.
|
|
32.1
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Manhattan Pharmaceuticals, Inc. (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have
|
5.
|
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|
Date: November 14, 2011
|
/s/ Michael G. McGuinness
|
|
Michael G. McGuinness
|
||
Principal Executive and Financial Officer
|
Dated: November 14, 2011
|
/s/ Michael G. McGuinness
|
|
Michael G. McGuinness
|
||
Principal Executive and Financial Officer
|
Condensed Consolidated Balance Sheets[ Parenthetical] (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 1,500,000 | 1,500,000 |
Preferredstock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 500,000,000 | 500,000,000 |
Common stock, shares issued | 7,398,316 | 2,419,305 |
Common stock, shares outstanding | 7,398,316 | 2,419,305 |
Condensed Consolidated Statements of Operations (USD $) | 3 Months Ended | 9 Months Ended | 123 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | |
Revenue | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Costs and expenses: | |||||
Research and development | 95,897 | 236,734 | 541,292 | 305,500 | 29,369,296 |
General and administrative | 165,946 | 278,897 | 609,542 | 1,264,666 | 20,323,939 |
In-process research and development charge | 0 | 0 | 0 | 0 | 11,887,807 |
Impairment of intangible assets | 0 | 0 | 0 | 0 | 1,248,230 |
Loss on disposition of intangible assets | 0 | 0 | 0 | 0 | 1,213,878 |
Total operating expenses | 261,843 | 515,631 | 1,150,834 | 1,570,166 | 64,043,150 |
Operating loss | (261,843) | (515,631) | (1,150,834) | (1,570,166) | (64,043,150) |
Other (income) expense: | |||||
Equity in losses of Hedrin JV | 0 | 0 | 0 | 0 | (750,000) |
Change in fair value of derivative liability | (2,100,898) | (830,165) | 39,587 | 2,696,900 | (2,455,261) |
Interest and other income | (196) | (76,275) | (4,518,150) | (228,305) | (7,610,133) |
Interest expense | 1,165,078 | 349,562 | 1,882,886 | 937,555 | 3,795,334 |
Loss on early extinguishment of debt | 1,225,912 | 0 | (1,225,912) | (159,070) | (1,384,982) |
Realized gain on sale of marketable equity securities | 0 | 0 | 0 | 0 | (76,032) |
Total other (income) expense | 289,896 | (556,878) | (1,448,939) | (1,828,580) | (4,211,110) |
Net income (loss) | (551,739) | 41,247 | 298,105 | 258,414 | (59,832,040) |
Preferred stock dividends (including imputed amounts) | 0 | 0 | 0 | (1,179,645) | |
Net income (loss) applicable to common shares | $ (551,739) | $ 41,247 | $ 298,105 | $ 258,414 | $ (61,011,685) |
Net income (loss) per common share: | |||||
Basic and diluted (in dollars per share) | $ (0.16) | $ 0.02 | $ 0.10 | $ 0.12 | |
Weighted average shares of common stock outstanding: | |||||
Basic and diluted (in shares) | 3,431,031 | 2,419,305 | 2,861,792 | 2,176,257 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 02, 2011 | |
Entity Registrant Name | MANHATTAN PHARMACEUTICALS INC | |
Entity Central Index Key | 0001001316 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Trading Symbol | mhan | |
Entity Common Stock, Shares Outstanding | 7,398,316 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2011 |
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COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE | 9 Months Ended | ||
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Sep. 30, 2011 | |||
Earnings Per Share [Abstract] | |||
Earnings Per Share [Text Block] |
Basic net income (loss) per common share is calculated by dividing net income (loss) applicable to common shares by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per common share is the same as basic net income (loss) per common share for the three and nine month periods ended September 30, 2011 and 2010, since potentially dilutive securities would have an anti-dilutive effect either because such potentially dilutive securities were out of the money and the Company realized net income in the period or because the Company incurred a net loss in the period. The amounts of potentially dilutive securities excluded from the calculation were 23,265,610 and 4,231,197 shares at September 30, 2011 and 2010, respectively.
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Text Block] | 9. NOTES PAYABLE
The following is a summary of Notes Payable:
a.
Secured 12% Notes Payable
In 2008 and 2009 the Company sold $1,725,000 of 12% senior secured notes (the “Secured 12% Notes”) that mature two years after issuance and issued warrants to the investors to purchase 1.15 million shares of the Company’s common stock at $4.50 per share. The warrants expire on December 31, 2013. Net proceeds of $1.4 million were realized and $78,000 of issuance costs were paid outside of the closings.
On February 9, 2011, the Company entered into a waiver and forbearance agreement (the “Extension Agreement”) with the requisite holders of the Secured 12% Notes whereby the holders of the notes (the “Noteholders”) agreed to forbear the exercise of their rights under the Notes and waive the default thereof until December 31, 2011. As part of the Extension Agreement, the Company has agreed to take and has taken prompt steps to seek to reduce its outstanding indebtedness by permitting the Noteholders to convert the Secured 12% Notes into shares of the Company's common stock at a conversion price of $0.50 per share and to amend the terms of the warrants issued with the Secured 12 % Notes to include a full-ratchet anti-dilution feature and an exercise price of $0.50 per share. The Company obtained stockholder approval to, among other things, increase the number of its authorized common stock. The Company has increased its authorized shares of common stock through the Reverse Split. As a result of the Reverse Split the Secured 12% Notes became convertible into common stock at a conversion price of $0.50, this triggered the antidilution rights of the warrants issued with Secured 12% Notes, the warrants issued with the Convertible 12% Note and the warrants issued in the 2010 Equity Pipe. The Secured 12% Notes and interest thereon, amounting to $676,072 at the time of conversion, converted into the right to receive 4,802,199 shares of the Company’s common stock on September 15, 2011 (the “Secured Debt Conversion”).
National Securities Corporation (“National”) was the placement agent for the Secured 12% Notes Transaction. The Company issued to National, as a component of their placement agent fee, Warrants to purchase 0.2 million shares of the Company’s common stock at $4.50 per share. The Warrants expire on December 31, 2013. Interest on the Secured 12% Notes is compounded quarterly and was payable at maturity. At December 31, 2010, accrued and unpaid interest on the Secured 12% Notes amounted to approximately $481,000, and is reflected in the accompanying balance sheet December 31, 2010 as part of interest payable. The Secured 12% Notes are secured by a pledge of all of the Company’s assets except for its investment in the Hedrin JV. In addition, to provide additional security for the Company’s obligations under the notes, the Company entered into a default agreement, which provides that upon an event of default under the notes, the Company shall, at the request of the holders of the notes, use reasonable commercial efforts to either (i) sell a part or all of the Company’s interests in the Hedrin joint venture or (ii) transfer all or part of the Company’s interest in the Hedrin JV to the holders of the notes, as necessary, in order to fulfill the Company’s obligations under the notes, to the extent required and to the extent permitted by the applicable Hedrin joint venture agreements.
The Company incurred a total of approximately $424,000 of costs in the issuance of the $1,725,000 of Secured 12% Notes sold in 2008 and 2009. These costs were capitalized and were amortized over the life of the Secured 12% Notes into interest expense. During the nine months ended September 30, 2011 and the year ended December 31, 2010, the amount amortized into interest expense was approximately $4,000 and $197,000, respectively. At June 30, 2011 the costs of issuance were fully amortized. At December 31, 2010 the remaining unamortized balance of approximately $4,000 is reflected in the accompanying balance sheet as of December 31, 2010 as debt issue costs.
The Company recognized an original issue discount (the “OID”) of approximately $194,000 on the issuance of the Secured 12% Notes sold for the value of the warrants issued to the investors. The OID was being amortized over the life of the Secured 12% Notes into interest expense. During the nine months ended September 30, 2011 and year ended December 31, 2010 the amount amortized into interest expense was approximately $3,000 and $91,000, respectively. At June 30, 2011 the OID was fully amortized. At December 31, 2010 the remaining unamortized balance of approximately $3,000 has been netted against the face amount of Notes Payable in the accompanying balance sheet as of December 31, 2010.
The closing market price of the Company’s common stock on February 9, 2011 was greater than the conversion price, therefore the Company recognized a beneficial conversion feature of $1,725,000 on the Secured 12% Notes and $502,949 on interest payable on the Secured 12% Notes. The closing market price of the Company’s common stock on March 31, 2011 was greater than the conversion price, therefore the Company recognized an additional beneficial conversion feature of $17,647 on interest payable on the Secured 12% Notes. The closing market price of the Company’s common stock on June 30, 2011 was less than the conversion price, therefore there was no beneficial conversion charges for the interest during the quarter ended June 30, 2011. The beneficial conversion feature has been recorded as a discount on the Secured 12% Notes and on the interest payable on the Secured 12% Notes. The Secured 12% Notes became convertible upon the execution of the Reverse Split on June 20, 2011. The beneficial conversion feature was amortized on a straight-line basis over the remaining term of the Secured 12% Notes (June 20, 2011 through December 31, 2011). The Company amortized $1,019,684 of the beneficial conversion feature for the nine months ended September 30, 2011, which is reflected in the accompanying Statement of Operations as a component of interest expense. At the date of the Secured Debt Conversion the unamortized portion of the beneficial conversion feature amounted to $1,225,912 and was charged to income as loss on early extinguishment of debt.
b. 8% Note Payable
On December 21, 2009, the Company entered into a Future Advance Promissory Note (the “8% Note”) with Ariston under which the Company may withdraw up to $67,000 bearing interest at a rate of 8%. As of December 31, 2009, the Company had withdrawn $27,000 from Ariston subject to the terms of the 8% Note. On January 13, 2010, the Company withdrew an additional $20,000 subject to the 8% Note and on January 28, 2010, the Company withdrew an additional $20,000 subject to the 8% Note. On March 4, 2010, the Company repaid Ariston the $67,000 withdrawn subject to the 8% Note and accrued interest of $816.
c. Non-interest Bearing Note Payable On October 27, 2009, the Company entered into a Settlement Agreement and Mutual Release with Swiss Pharma Contract LTD (“Swiss Pharma”) pursuant to which the Company agreed to pay Swiss Pharma $200,000 and issue to Swiss Pharma an interest free promissory note due on October 27, 2011 in the principal amount of $250,000 in full satisfaction of the September 5, 2008 arbitration award.
In connection with the non-interest bearing note, the Company recognized an original issue discount of $40,000 of imputed interest on the note, which is being amortized into interest expense on a straight-line basis over the two-year term of the note. For the nine months ended September 30, 2011 and the year ended December 31, 2010, the Company amortized $15,000 and $20,000 of the OID into interest expense, respectively. The remaining unamortized balances of $3,100 and $18,100 have been netted against the face amount of Notes payable, current portion, net in the accompanying balance sheets as of September 30, 2011 and December 31, 2010, respectively.
d. Convertible 12% Note Payable
In October 2009, the Company sold a 12% Original Issue Discount Senior Subordinated Convertible Debenture with a stated value of $400,000 (the “Convertible 12% Note”) and a warrant to purchase 44,444 shares of the Company’s common stock for a purchase price of $200,000. National was the placement agent for the Convertible 12% Note transaction. The Company issued to National, as a component of their placement agent fee, warrants to purchase 4,444 shares of the Company’s common stock. The warrants issued to the investors and National expire in October 2014 and were exercisable at an original price of $5.50 per share, subject to adjustment. As a result of the 2010 Equity Financing the exercise price and number of shares represented by these warrants adjusted to 69,841 shares at $3.50 per share for the investors and 6,984 shares at $3.50 per share for National.
The Convertible 12% Note was convertible into shares of the Company’s common stock in the event the Company issues new securities in connection with a financing. The Convertible 12% Note may be converted into such new securities at a conversion price equal to the purchase price paid by the purchasers of such new securities. On April 8, 2010, the holder of the Convertible12% Note exercised its option to convert its note, including all accrued interest thereon, into 16.88 Units of the 2010 Equity Financing.
e.
Convertible 5% Notes Payable
Upon the Merger, Ariston issued $15,452,793 of five-year 5% notes payable (the “5% Notes”) in satisfaction of several note payable issuances. The cumulative liability including accrued and unpaid interest of these several issuances of notes was $15,452,793 as of the Merger date. The 5% Notes and accrued and unpaid interest thereon are convertible at the option of the holder into the Manhattan’s common stock at the conversion price of $20 per share. Ariston agreed to make quarterly payments on the 5% Notes equal to 50% of the net product cash flow received from the exploitation or commercialization of Ariston’s product candidates, AST-726 and AST-915. The 5% Notes are solely the obligation of Ariston and have no recourse to Manhattan other than the conversion feature discussed above. Interest accrues monthly, is added to principal on an annual basis, every March 8, and is payable at maturity. For the nine months ended September 30, 2011, the Company recorded approximately $601,000 of interest expense on the 5% Notes. On March 8, 2011 the accrued and unpaid interest on the 5% Notes was $772,640 and was added to the principal amount of the 5% Notes Payable. At September 30, 2011 the principal amount of the 5% Notes was $16,225,433 and interest payable on the 5% Notes Payable was $455,214 and were reflected as components of notes payable, noncurrent portion, net and interest payable, noncurrent portion, respectively, in the accompanying balance sheet as of September 30, 2011. At December 31, 2010 the principal amount of the 5% Notes was $15,452,793 and interest payable on the 5% Notes Payable was $626,697 and were reflected as components of notes payable, noncurrent portion, net and interest payable, noncurrent portion, respectively, in the accompanying balance sheet as of December 31, 2010. f.
ICON Convertible Note Payable
Upon the Merger, Ariston satisfied an account payable of $1,275,188 to ICON Clinical Research Limited (“ICON”) through the payment of $275,188 in cash and the issuance of a three-year 5% note payable (the “ICON Note”). The principal was to be repaid in 36 monthly installments of $27,778 commencing in April 2010. Interest was payable monthly in arrears. On March 1, 2011 Ariston entered into an amended and restated convertible promissory note (the “Amended ICON Note”) with ICON. The principal terms of the Amended ICON Note are that monthly payments of principal and interest will be waived for the thirteen month period ended December 31, 2011 (the “Waiver Period”) in exchange for a single payment of $100,000 on March 31, 2011, an increase in the interest on the Amended ICON Note from 5% to 8% per annum during the Waiver Period and a balloon payment on January 31, 2012. The Amended Note decreased the debt service requirements of the Company and Ariston by approximately $300,000 during the thirteen-month period ended December 31, 2011. The Amended ICON Note is convertible at the option of the holder into the Company’s common stock at the conversion price of $10 per share. During the nine months ended September 30, 2011, the Company has recorded approximately $44,000 of interest expense on the Amended ICON Note. At September 30, 2011 the principal amount of the Amended ICON Note was $667,778, of which $514,414 was current, and interest payable on the Amended ICON Note was $47,223 and were reflected as components of notes payable, current portion, net, notes payable, noncurrent portion, net, and interest payable, current portion, net respectively, in the accompanying balance sheet as of September 30, 2011. At December 31, 2010 the principal amount of the Amended ICON Note was $777,778, of which $100,000 was current, and interest payable on the Amended ICON Note was $3,303 and were reflected as components of notes payable, current portion, net, notes payable, noncurrent portion, net and interest payable, current portion, respectively, in the accompanying balance sheet as of December 31, 2010.
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JOINT VENTURE | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Investments In and Advances To Affiliates, Schedule Of Investments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments in and Advances to Affiliates [Text Block] | 6. JOINT VENTURE
In February 2008, the Company and Nordic Biotech Advisors ApS through its investment fund Nordic Biotech Venture Fund II K/S (“Nordic”) entered into a joint venture agreement (the “Hedrin JV Agreement”) to develop and commercialize the Company's North American rights (under license) to its Hedrin product.
Pursuant to the Hedrin JV Agreement, Nordic formed a new Danish limited partnership, H Pharmaceuticals K/S, (the "Hedrin JV") and provided it with $5.5 million funding in several tranches through January of 2010 and the Company assigned and transferred its North American rights in Hedrin to the Hedrin JV in return for a $3.5 million cash payment from the Hedrin JV, paid in several tranches, and equity in the Hedrin JV representing 47.62% of the nominal equity interests in the Hedrin JV. Through January 2010 the Company recognized an investment in the Hedrin JV of $0.75 million and an exchange obligation of $3.95 million. The exchange obligation represents the Company’s obligation to Nordic to issue the Company’s common stock in exchange for all or a portion of Nordic’s equity interest in the Hedrin JV upon the exercise by Nordic of the put issued to Nordic in the Hedrin JV Agreement transaction. The put is described below.
Nordic had an option to put all or a portion of its equity interest in the Hedrin JV to the Company in exchange for the Company’s common stock (the “Nordic Put”). The Company had an option to, under certain conditions, call all or a portion of Nordic’s equity interest in the Hedrin JV in exchange for the Company’s common stock (the “Nordic Call”). The Nordic Put and the Nordic Call terminated upon the execution, on January 4, 2011, of a settlement and release agreement between Nordic and the Company. The settlement and release agreement is discussed below.
Nordic paid the Company a non-refundable fee of $150,000 in February 2008 for the right to receive a warrant covering shares of the Company’s commons stock. The warrant (the “Nordic Warrant”) was issued in 2008. The Nordic Warrant terminated upon the execution, on January 4, 2011, of a settlement and release agreement between Nordic and the Company. The settlement and release agreement is discussed below.
The Hedrin JV is responsible for the development and commercialization of Hedrin for the North American market and all associated costs including clinical trials, regulatory costs, patent costs, and future milestone payments owed to Thornton & Ross, Ltd., the licensor of Hedrin.
The Hedrin JV engaged the Company to provide management services to the Hedrin JV in exchange for a management fee. For the nine months ended September 30, 2011 and 2010, the Company has recognized $0 and $225,000, respectively, of management fees earned from the Hedrin JV which is included in the Company’s consolidated statements of operations as a component of interest and other income. The management services agreement terminated upon the execution, on January 4, 2011, of a settlement and release agreement between Nordic and the Company. The settlement and release agreement is discussed below.
As previously reported, the Company and Nordic have had various disputes relating to the Hedrin JV, to the Nordic Put and the Nordic Warrant. On January 4, 2011 the Company entered into a settlement and release agreement (the “Nordic Settlement”) with Nordic and the Hedrin JV that resolves all disputes between and among the Company, Nordic and the Hedrin JV.
The principal terms of the Nordic Settlement are:
At December 31, 2010 the Company had unrecognized equity in its share of the losses of the Hedrin JV of approximately $560,000. In conjunction with the Nordic Settlement the Company recognized this $560,000 of its share of the losses of the Hedrin JV during the nine months ended September 30, 2011. The Company also recognized a gain on the Nordic Settlement of approximately $4.5 million during the nine months ended September 30, 2011. The components of the gain on the Nordic Settlement are as
follows:
On April 19, 2011 H Pharmaceuticals K/S (the “Hedrin JV”), of which the Company was a 15% limited partner at the time, filed a demand for arbitration against Thornton & Ross, LTD. (“T&R”) with respect to alleged breaches by T&R of an Exclusive License Agreement (the “Hedrin License”) dated June 28, 2007, which was originally entered into between the Company and T&R, and which the Company assigned in 2008 to the Hedrin JV, with T&R’s consent. The Hedrin JV is seeking damages from T&R in the amount of approximately $7,000,000. The Company was not a party to the initial arbitration demand.
On May 20, 2011 T&R filed an answer to the arbitration demand in which T&R asserted counterclaims against the Hedrin JV for alleged breaches by the Hedrin JV of the Hedrin License and for declaratory relief that the Hedrin License was properly terminated by T&R. In addition, T&R has impleaded an individual (who is not associated with the Company), Nordic Biotech Venture Fund II K/S (an investment fund) and the Company, demanding arbitration against them based on alleged breaches of the Hedrin License and other related claims. T&R is seeking damages of approximately $20,000,000.
The Company has not yet responded to the arbitration demand against it, but believes that T&R’s claims against the Company are without merit. The arbitration has begun between the Hedrin JV and T&R without the Company being named as a participant. The Hedrin JV and T&R held a mediation session in order to avoid the arbitration process. The mediation process did not produce a result. Nordic has recently made an additional capital contribution to the Hedrin JV in order to fund the arbitration. As a result of that capital contribution the Company now owns an 11% interest in the Hedrin JV.
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NIH Agreement | 9 Months Ended |
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Sep. 30, 2011 | |
Nih Agreement [Abstract] | |
Nih Agreement [Text Block] | 11. NIH Agreement
In May 2011 the Company entered into an amendment of a Cooperative Research and Development Agreement (“CRADA”) with the National Institute of Health (“NIH”) for the conduct of two efficacy studies utilizing the Company’s AST-915 product candidate. The Company’s commitment under the CRADA is the payment of $50,000 to the NIH and to provide a neurologist to assist the NIH in the conduct of these two efficacy studies. The term of the amended CRADA is July 1, 2011 through June 30, 2012. The Company paid the $50,000 in June 2011. The $50,000 payment is being amortized into research and development expense on a straight-line basis over the term of the CRADA. The Company recognized $12,500 of research and development expense during the nine months ended September 30, 2011. The remaining unamortized balance was $37,500 at September 30, 2011 and is recorded as a component of other current assets in the accompanying Balance Sheet as of September 30, 2011.
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2010 EQUITY FINANCING | 9 Months Ended |
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Sep. 30, 2011 | |
Stockholders Equity Note [Abstract] | |
Stockholders' Equity Note Disclosure [Text Block] | 7. 2010 EQUITY FINANCING
On March 2, 2010, the Company raised aggregate gross proceeds of approximately $2,547,500 pursuant to a private placement of its securities (the “2010 Equity Financing”). The Company entered into subscription agreements (the "Subscription Agreements") with seventy-seven accredited investors (the "Investors") pursuant to which the Company sold an aggregate of 101.9 Units (as defined herein) for a purchase price of $25,000 per Unit. Pursuant to the Subscription Agreements, the Company issued to each Investor units (the "Units") consisting of (i) 7,143 shares of common stock, $0.001 par value per share (the “Common Stock” or “Shares”) of the Company and (ii) 10,714 warrants (each a “Warrant” and collectively the “Warrants”), each of which will entitle the holder to purchase one additional share of Common Stock for a period of five years (each a “Warrant Share” and collectively the “Warrant Shares”) at an exercise price of $0.08 per share. Because the Warrant Shares are convertible into shares of the Company, subject to adjustment, the conversion feature is subject to Derivative Liability accounting (see Note 10).
National Securities Corporation (“National”) was the placement agent for the 2010 Equity Financing transaction. In connection with the issuance of the Securities, the Company issued warrants to purchase an aggregate of 72,786 shares of Common Stock at an exercise price of $4.00 per share, subject to adjustment, to the placement agent and certain of its designees. Because the warrant is convertible into shares of the Company, subject to adjustment, the warrants are subject to Derivative Liability accounting (see Note 10). The warrants expire on March 2, 2015.
All of the Investors represented that they were “accredited investors,” as that term is defined in Rule 501(a) of Regulation D under the Securities Act, and the sale of the Units was made in reliance on exemptions provided by Regulation D and Section 4(2) of the Securities Act of 1933, as amended. In connection with the closing of the private placement, the Company, the placement agent acting in connection with the private placement (the “Placement Agent”) and the Investors entered into a Registration Rights Agreement, dated as of March 2, 2010, and the Company agreed to, and did, file a registration statement to register the resale of the Shares, within 60 days of the final closing date and the registration statement was declared effective within the time limits of the Registration Rights Agreement.
The Company received net proceeds of approximately $2,100,000 after payment of an aggregate of approximately $300,000 of commissions and expense allowance to the Placement Agent, and approximately $100,000 of other offering and related costs in connection with the private placement.
The Company did not use any form of advertising or general solicitation in connection with the sale of the Units. The Shares, the Warrants and the Warrant Shares are non-transferable in the absence of an effective registration statement under the Act, or an available exemption there from, and all certificates are imprinted with a restrictive legend to that effect.
On April 8, 2010, the Company completed the final closing of the 2010 Equity Financing. In connection with the final closing, the Company sold an aggregate of 2.4 additional Units and received net proceeds of approximately $51,700 after payment of an aggregate of $8,300 of commissions and expense allowance to placement agent. In connection with the final closing, the Company also issued a warrant to purchase 257 shares of Common Stock at an exercise price of $4.00 per share to the placement agent as additional compensation for its services.
In addition, on April 8, 2010, the holder of the Convertible 12% Note (see Note 8) with a stated value of $400,000 and $22,000 of accrued interest, exercised its option to convert its Debenture (including all accrued interest thereon) into 16.88 Units. The conversion price was equal to the per Unit purchase price paid by the Investors in the private placement.
The Company issued a total of 137,714 shares of Common Stock and Warrants to purchase 206,571 shares of Common Stock at an exercise price of $4.00 per share to the investors in the final closing of the 2010 Equity Financing, including the conversion of the 12% Convertible Note. |
SHARE-BASED COMPENSATION | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
The Company has stockholder-approved stock incentive plans for employees, directors, officers and consultants. Prior to January 1, 2006, the Company accounted for the employee, director and officer plans using the intrinsic value method. On January 1, 2006, the Company adopted the share-based payment method for employee options using the modified prospective transition method.
The Company recognizes compensation expense related to stock option grants on a straight-line basis over the vesting period. The Company recognized share-based compensation cost of $19,210 and $211,771 for the nine months ended September 30, 2011 and 2010, respectively.The Company recognized share-based compensation cost of $5,597 and $5,630 for the three months ended September 20, 2011 and 2010, respectively. The Company did not capitalize any share-based compensation cost.
Options granted to consultants and other non-employees are recorded at fair value at the date of grant and subsequently adjusted to fair value at the end of each reporting period until such options vest, and the fair value of the options, as adjusted, is amortized to consulting expense over the related vesting period. As a result of adjusting consultant and other non-employee options to fair value, the Company recognized share-based compensation cost of $0 and $107, respectively, for the three and nine month periods ended September 30, 2011 and 2010. The Company has allocated share-based compensation costs to general and administrative and research and development expenses as follows:
To compute compensation charges in 2011 and 2010 the Company estimated the fair value of each option award on the date of grant using the Black-Scholes model. The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have a sufficient number of years of historical volatility of its common stock. The expected term of options granted represents the period of time that options are expected to be outstanding. The Company estimated the expected term of stock options by the simplified method. The expected forfeiture rates are based on the historical employee forfeiture experiences. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards. The Company has not declared a dividend on its common stock since its inception and has no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.
The following table shows the weighted average assumptions the Company used to develop the fair value estimates for the stock options granted in the nine month period ended September 30, 2010 (there were no options granted in the nine month period ended September 30, 2011):
The Company has shareholder-approved incentive stock option plans for employees under which it has granted non-qualified and incentive stock options. In December 2003, the Company established the 2003 Stock Option Plan (the “2003 Plan”), which provided for the granting of up to 108,000 options to officers, directors, employees and consultants for the purchase of stock. Subsequently, the Company increased the number of shares of common stock reserved for issuance under the 2003 Plan by 192,000. At September 30, 2011, 300,000 shares were authorized for issuance. The options have a maximum term of 10 years and vest over a period determined by the Company’s Board of Directors (generally 3 years) and are issued at an exercise price equal to or greater than the fair market value of the shares at the date of grant. The 2003 Plan expires on December 10, 2013 or when all options have been granted, whichever is sooner. At September 30, 2011 options to purchase 208,754 shares were outstanding, 556 shares of common stock were issued and there were 90,690 shares reserved for future grants under the 2003 Plan.
In July 1995, the Company established the 1995 Stock Option Plan (the”1995 Plan”), which provided for the granting of options to purchase up to 2,600 shares of the Company’s common stock to officers, directors, employees and consultants. The 1995 Plan was amended several times to increase the number of shares reserved for stock option grants. In June 2005, the 1995 Plan expired and no further options can be granted. At September 30, 2011 options to purchase 22,545 shares were outstanding and no shares were reserved for future stock option grants under the 1995 Plan.
A summary of the status of the Company’s stock options as of September 30, 2011 and changes during the period then ended is presented below:
As of September 30, 2011, the total compensation cost related to nonvested option awards not yet recognized is $36,904. The weighted average period over which it is expected to be recognized is approximately 1.43 years.
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