[ X ]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
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June 30, 2011
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or
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______________________
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to ____________________
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Commission File Number: 0-21214
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CAPSTONE THERAPEUTICS CORP.
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(Exact name of registrant as specified in its charter)
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Delaware | 86-0585310 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1275 W. Washington Street, Suite 101, Tempe, Arizona | 85281 |
(Address of principal executive offices) | (Zip Code) |
(602) 286-5520
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Page No.
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14 | ||
·
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unfavorable results of our product candidate development efforts;
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·
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unfavorable results of our pre-clinical or clinical testing;
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·
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delays in obtaining, or failure to obtain FDA approvals;
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·
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increased regulation by the FDA and other agencies;
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·
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the introduction of competitive products;
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·
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impairment of license, patent or other proprietary rights;
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·
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failure to achieve market acceptance of our products;
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·
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the impact of present and future collaborative or partnering agreements or the lack thereof;
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·
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failure to successfully implement our drug development strategy;
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·
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failure to obtain additional funds required to complete clinical trials and supporting research and production efforts necessary to obtain FDA approval for our product candidates; and
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·
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effect of the ongoing qui tam litigation on our stock price, liquidity or our ability to continue operations.
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June 30,
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December 31,
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|||||||
2011
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2010
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|||||||
ASSETS
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(Unaudited)
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|||||||
Current assets
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||||||||
Cash and cash equivalents
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$ | 19,608 | $ | 24,387 | ||||
Interest, income taxes and other current assets
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170 | 643 | ||||||
Total current assets
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19,778 | 25,030 | ||||||
Furniture and equipment, net
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214 | 258 | ||||||
Total assets
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$ | 19,992 | $ | 25,288 | ||||
LIABILITIES, POTENTIALLY REDEEMABLE EQUITY
AND STOCKHOLDERS' EQUITY
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||||||||
Current liabilities
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||||||||
Accounts payable
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$ | 385 | $ | 246 | ||||
Accrued compensation
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637 | 674 | ||||||
Accrued clinical and other accrued liabilities
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140 | 236 | ||||||
Share-based payments liability
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- | 660 | ||||||
Total current liabilities
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1,162 | 1,816 | ||||||
Potentially redeemable equity - See Note B
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- | 15,556 | ||||||
Stockholders' Equity
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||||||||
Common Stock $.0005 par value;
100,000,000 shares authorized; 40,775,411 shares in 2011
and 2010 issued and outstanding
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20 | 20 | ||||||
Additional paid-in capital
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189,022 | 188,258 | ||||||
Accumulated deficit ($142,450 at June 30, 2011 and
$152,600 at December 31, 2010, accumulated during
development stage period)
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(170,212 | ) | (180,362 | ) | ||||
Total stockholders' equity
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18,830 | 7,916 | ||||||
Total liabilities, potentially redeemable equity
and stockholders' equity
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$ | 19,992 | $ | 25,288 |
As a Development
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||||||||||||||||||||
Three months ended June 30,
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Six months ended June 30,
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Stage Company
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||||||||||||||||||
August 5, 2004 -
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||||||||||||||||||||
2011
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2010
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2011
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2010
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June 30, 2011
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OPERATING EXPENSES
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General and administrative
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$ | 797 | $ | 789 | $ | 1,962 | $ | 1,762 | $ | 28,178 | ||||||||||
Research and development
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1,376 | 2,160 | 3,458 | 4,183 | 97,113 | |||||||||||||||
Purchased in-process research and development
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- | - | - | - | 34,311 | |||||||||||||||
Other
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- | - | - | - | (375 | ) | ||||||||||||||
Total operating expenses
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2,173 | 2,949 | 5,420 | 5,945 | 159,227 | |||||||||||||||
Interest and other income, net
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(4 | ) | (26 | ) | (14 | ) | (71 | ) | (13,741 | ) | ||||||||||
Loss from continuing operations before taxes
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2,169 | 2,923 | 5,406 | 5,874 | 145,486 | |||||||||||||||
Income tax benefit
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- | - | - | - | (1,197 | ) | ||||||||||||||
Loss from continuing operations
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2,169 | 2,923 | 5,406 | 5,874 | 144,289 | |||||||||||||||
Discontinued operations - net gain on sale of
the bone device business, net of taxes of $267
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- | - | - | - | (2,202 | ) | ||||||||||||||
NET LOSS
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$ | 2,169 | $ | 2,923 | $ | 5,406 | $ | 5,874 | $ | 142,087 | ||||||||||
Per Share Information:
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||||||||||||||||||||
Net loss, basic and diluted
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$ | 0.05 | $ | 0.07 | $ | 0.13 | $ | 0.14 | ||||||||||||
Basic and diluted shares outstanding
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40,775 | 40,775 | 40,775 | 40,775 |
As a Development
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||||||||||||
Six months ended
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Stage Company | |||||||||||
June 30, | August 5th 2004 - | |||||||||||
2011
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2010
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June 30, 2011
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||||||||||
OPERATING ACTIVITIES
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||||||||||||
Net loss
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$ | (5,406 | ) | $ | (5,874 | ) | $ | (142,087 | ) | |||
Non cash items:
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||||||||||||
Deferred tax expense
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- | - | 770 | |||||||||
Depreciation and amortization
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63 | 67 | 3,888 | |||||||||
Non-cash stock compensation
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107 | 156 | 4,772 | |||||||||
Gain on sale of bone device business
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- | - | (2,298 | ) | ||||||||
In-process research and development
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- | - | 34,311 | |||||||||
Change in other operating items:
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||||||||||||
Interest, income taxes and other current assets
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473 | 1,189 | 1,538 | |||||||||
Accounts payable
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139 | (157 | ) | (586 | ) | |||||||
Accrued liabilities
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(136 | ) | (481 | ) | (2,240 | ) | ||||||
Cash flows used in operating activities
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(4,760 | ) | (5,100 | ) | (101,932 | ) | ||||||
INVESTING ACTIVITIES
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||||||||||||
Expenditures for furniture and equipment, net
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(19 | ) | (38 | ) | (1,044 | ) | ||||||
Proceeds from sale of assets
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- | - | 7,000 | |||||||||
Cash paid for assets of AzERx/CBI
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- | - | (4,058 | ) | ||||||||
Cash paid for patent assignment rights
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- | - | (650 | ) | ||||||||
Purchases of investments
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- | (21,334 | ) | (282,538 | ) | |||||||
Maturities of investments
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- | 22,729 | 340,476 | |||||||||
Cash flows (used in) provided by investing activities
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(19 | ) | 1,357 | 59,186 | ||||||||
FINANCING ACTIVITIES
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||||||||||||
Net proceeds from stock option exercises
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- | - | 4,612 | |||||||||
Net proceeds from sale of stock
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- | - | 3,376 | |||||||||
Common stock purchases
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- | - | (1,041 | ) | ||||||||
Cash flows provided by financing activities
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- | - | 6,947 | |||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS
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(4,779 | ) | (3,743 | ) | (35,799 | ) | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
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24,387 | 12,874 | 55,407 | |||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD
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$ | 19,608 | $ | 9,131 | $ | 19,608 | ||||||
Supplemental Disclosure of Non-Cash Investing Activities
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AzERx and CBI
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|||||||||||
AzERx/CBI Acquisitions
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||||||||||||
Current assets acquired
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$ | 29 | ||||||||||
Patents acquired
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2,142 | |||||||||||
Liabilities acquired, and accrued acquisition costs
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(457 | ) | ||||||||||
Original investment reversal
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(750 | ) | ||||||||||
In-process research and development acquired
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34,311 | |||||||||||
Common stock issued for acquisition
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(31,217 | ) | ||||||||||
Cash paid for acquisition
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$ | 4,058 |
·
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Evaluating AZX100 for medically and commercially significant applications, such as prevention or reduction of hypertrophic and keloid scarring and treatment of pulmonary fibrosis. We are executing a development plan for this peptide, which included filing an IND for dermal scarring in 2007 and commencement of Phase 1 safety studies in this indication in the first quarter of 2008. Our Phase 1a study was completed in May 2008. We initiated a second safety study in dermal scarring (Phase 1b), which was completed in the fourth quarter of 2008. The Studies’ Safety Committee reviewing all safety-related aspects of the clinical trials was satisfied with the profile of AZX100. We commenced in the first quarter of 2009 AZX100 Phase 2 human clinical trials in keloid scar revision and dermal scarring following shoulder surgery. These Phase 2 studies completed enrollment in 2009. In 2010 we completed and reported results from the Phase 2 clinical trials in keloid scar revision. The Phase 2 clinical trial in dermal scarring following shoulder surgery was substantially completed in 2010 and we reported results for this study in April 2011. We continue to perform pre-clinical studies supporting multiple indications for AZX100 and are actively pursuing partnering or collaboration opportunities for the future development of AZX100.
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·
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For Chrysalin, in 2011, we are continuing our vascular partnering/development collaboration efforts. We have no currently planned additional clinical studies.
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Signature | Title | Date |
/s/ John M. Holliman, III
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Executive Chairman
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August 12, 2011
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John M. Holliman, III
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(Principal Executive Officer)
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/s/ Les M. Taeger
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Senior Vice President and Chief
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August 12, 2011
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Les M. Taeger
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Financial Officer
(Principal Financial and Accounting Officer)
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Exhibit No.
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Description
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Incorporated by Reference To:
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Filed
Herewith
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31.1
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Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a), as amended
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X
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31.2
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Certification of Principal Financial and Accounting Officer Pursuant to Securities Exchange Act Rule 13a-14(a), as amended
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X
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32
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Certification of Principal Executive Officer and Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350*
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1.
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I have reviewed this quarterly report on Form 10-Q of Capstone Therapeutics Corp.;
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2.
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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;
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3.
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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;
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4.
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The registrant’s other certifying officer(s) and I are 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:
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a.
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and 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):
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a.
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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1.
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I have reviewed this quarterly report on Form 10-Q of Capstone Therapeutics Corp.;
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2.
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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;
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3.
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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;
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4.
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The registrant’s other certifying officer(s) and I are 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:
|
a.
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and 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):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
CONDENSED BALANCE SHEETS [Parenthetical] (USD $)
In Thousands, except Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Common Stock, par value (in dollar per share) | $ 0.0005 | $ 0.0005 |
Common Stock, shares authorized | 100,000,000 | 100,000,000 |
Common Stock, shares issued | 40,775,411 | 40,775,411 |
Common Stock, shares outstanding | 40,775,411 | 40,775,411 |
Accumulated during development stage (in dollars) | $ 142,450 | $ 152,600 |
CONDENSED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | 84 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
|
OPERATING EXPENSES | Â | Â | Â | Â | Â |
General and administrative | $ 797 | $ 789 | $ 1,962 | $ 1,762 | $ 28,178 |
Research and development | 1,376 | 2,160 | 3,458 | 4,183 | 97,113 |
Purchased in-process research and development | 0 | 0 | 0 | 0 | 34,311 |
Other | 0 | 0 | 0 | 0 | (375) |
Total operating expenses | 2,173 | 2,949 | 5,420 | 5,945 | 159,227 |
Interest and other income, net | (4) | (26) | (14) | (71) | (13,741) |
Loss from continuing operations before taxes | 2,169 | 2,923 | 5,406 | 5,874 | 145,486 |
Income tax benefit | 0 | 0 | 0 | 0 | (1,197) |
Loss from continuing operations | 2,169 | 2,923 | 5,406 | 5,874 | 144,289 |
Discontinued operations - net gain on sale of the bone device business, net of taxes of $267 | 0 | 0 | 0 | 0 | (2,202) |
NET LOSS | $ 2,169 | $ 2,923 | $ (5,406) | $ (5,874) | $ (142,087) |
Per Share Information: | Â | Â | Â | Â | Â |
Net loss, basic and diluted (in dollars per share) | $ 0.05 | $ 0.07 | $ 0.13 | $ 0.14 | Â |
Basic and diluted shares outstanding (in shares) | 40,775 | 40,775 | 40,775 | 40,775 | Â |
DOCUMENT AND ENTITY INFORMATION
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Jul. 13, 2011
|
|
Entity Registrant Name | Capstone Therapeutics Corp. | Â |
Entity Central Index Key | 0000887151 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Trading Symbol | caps | Â |
Entity Common Stock, Shares Outstanding | Â | 40,775,411 |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Period Focus | Q2 | Â |
Document Fiscal Year Focus | 2011 | Â |
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CONTINGENCY - LEGAL PROCEEDINGS
|
6 Months Ended |
---|---|
Jun. 30, 2011
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Commitments and Contingencies Disclosure [Abstract] | Â |
Commitments and Contingencies Disclosure [Text Block] | D. CONTINGENCY – LEGAL PROCEEDINGS
In April 2009, we became aware of a qui tam
complaint that was filed under seal by Jeffrey J. Bierman as relator/plaintiff on March 28, 2005 in the United States District Court for the District of Massachusetts against OrthoLogic and other companies that allegedly manufactured bone growth stimulation devices, including Orthofix International N.V., Orthofix, Inc., DJO Incorporated, Reable Therapeutics, Inc., the Blackstone Group, L.P., Biomet, Inc., EBI, L.P., EBI Holdings, Inc., EBI Medical Systems, Inc., Bioelectron, Inc., LBV Acquisition, Inc., and Smith & Nephew, Inc. By order entered on March 24, 2009, the court unsealed the amended complaint. The amended complaint alleges various causes of action under the federal False Claims Act and state and city false claims acts premised on the contention that the defendants improperly promoted the sale, as opposed to the rental, of bone growth stimulation devices. The amended complaint also includes claims against the defendants for, among other things, allegedly misleading physicians and purportedly causing them to file false claims and for allegedly violating the Anti-kickback Act by providing free products to physicians, waiving patients’ insurance co-payments, and providing inducements to independent sales agents to generate business. The relator is seeking civil penalties under various state and federal laws, as well as treble damages, which, in the aggregate could exceed the financial resources of the Company.
The United States Government declined to intervene or participate in the case. On September 4, 2009, the relator served the amended complaint on the Company. We sold our bone growth stimulation business in November 2003 and have had no further activity in the bone growth stimulation business since that date. We intend, in conjunction with the other defendants, to defend this matter vigorously and believe that at all times our billing practices in our bone growth stimulation business complied with applicable laws. On December 4, 2009, the Company, in conjunction with the other defendants, moved to dismiss the amended complaint with prejudice. In response to that motion, relator filed a second amended complaint. On August 17, 2010, the Company, in conjunction with the other defendants, moved to dismiss the second amended complaint with prejudice. That motion was denied by the court on December 8, 2010. On January 28, 2011, we, in conjunction with the other defendants, filed our answer to the second amended complaint. The case will now move to the trial process, including discovery proceedings. Based upon the currently available information, we believe that the ultimate resolution of this matter will not have a material effect on our financial position, liquidity or results of operations. However, because of many questions of law and facts that may arise, the outcome of this litigation is uncertain. If we are unable to successfully defer or otherwise dispose of this litigation, and the relator is awarded the damages sought, the litigation would have a material adverse effect on our financial position, liquidity and results of operations and we would not be able to continue our business as it is presently conducted.
|
OVERVIEW OF BUSINESS
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | Â |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
OVERVIEW OF BUSINESS Description of the Business Capstone Therapeutics Corp. is a biotechnology company committed to developing a pipeline of novel peptides and other molecules aimed at helping patients with under-served conditions. We are focused on the development and commercialization of two product platforms: AZX100 and Chrysalin (TP508).
AZX100 is a novel synthetic 24-amino acid peptide and is believed to have smooth muscle relaxation and anti-fibrotic properties. AZX100 is currently being evaluated for medically and commercially significant applications, such as prevention of hypertrophic and keloid scarring and treatment of pulmonary disease. We filed an IND for a dermal scarring indication in 2007 and completed Phase 1a and Phase 1b safety clinical trials in dermal scarring in 2008. We commenced Phase 2 clinical trials in dermal (trocar site) scarring following shoulder surgery and keloid scar revision in the first quarter of 2009. During 2010 we completed and reported results for our clinical trials in keloid scar revision and substantially completed our Phase 2 clinical trial in dermal scarring following shoulder surgery. We reported results of our Phase 2 clinical trial in dermal scarring following shoulder surgery in April 2011. We have an exclusive worldwide license to AZX100.
Chrysalin (TP508), a novel synthetic 23-amino acid peptide, is believed to produce angiogenic and other tissue repair effects in part by 1) activating or upregulating endothelial nitric oxide synthase (eNOS); 2) cytokine modulation resulting in an anti-inflammatory effect; 3) inhibiting apoptosis (programmed cell death); and 4) promoting angiogenesis and revascularization. It may have therapeutic value in diseases associated with endothelial dysfunction. We have primarily investigated Chrysalin in two indications: fracture repair and diabetic foot ulcer healing. Our efforts are currently focused on development partnering or licensing opportunities for Chrysalin. We own certain worldwide rights to Chrysalin.
Company History
Prior to November 26, 2003, we developed, manufactured and marketed proprietary, technologically advanced orthopedic products designed to promote the healing of musculoskeletal bone and tissue, with particular emphasis on fracture healing and spine repair. Our product lines included bone growth stimulation and fracture fixation devices are referred to as our “Bone Device Business.”
On November 26, 2003, we sold our Bone Device Business. Our principal business remains focused on tissue repair, although through biopharmaceutical approaches rather than through the use of medical devices.
On August 5, 2004, we purchased substantially all of the assets and intellectual property of Chrysalis Biotechnology, Inc. (“CBI”), including its exclusive worldwide license for Chrysalin for all medical indications. We became a development stage entity commensurate with the acquisition. Subsequently, our efforts were focused on research and development of Chrysalin with the goal of commercializing our product candidates.
On February 27, 2006, we purchased certain assets and assumed certain liabilities of AzERx, Inc. Under the terms of the transaction, we acquired an exclusive license for the core intellectual property relating to AZX100.
Our development activities for AZX100 and Chrysalin represent a single operating segment as they share the same product development path and utilize the same Company resources. As a result, we have determined that it is appropriate to reflect our operations as one reportable segment. Through June 30, 2011, we have incurred $142 million in net losses as a development stage company.
OrthoLogic Corp. commenced doing business under the trade name of Capstone Therapeutics on October 1, 2008, and we formally changed our name from OrthoLogic Corp. to Capstone Therapeutics Corp. on May 21, 2010.
In these notes, references to “we”, “our”, the “Company”, “Capstone Therapeutics”, “Capstone”, and “OrthoLogic” refer to Capstone Therapeutics Corp. References to our Bone Device Business refer to our former business line of bone growth stimulation and fracture fixation devices, including the OL1000 product line, SpinaLogic®, OrthoFrame® and OrthoFrame/Mayo.
Financial Statement Presentation
In the opinion of management, the unaudited condensed interim financial statements include all adjustments necessary for the fair presentation of our financial position, results of operations, and cash flows, and all adjustments were of a normal recurring nature except for the adjustment related to the grant of shareholders’ put rights as described in Note B to this Quarterly Report on Form 10-Q. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the complete fiscal year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations, although we believe that the disclosures herein are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010. Information presented as of December 31, 2010 is derived from audited financial statements.
At December 31, 2010, the uncertainty with regards to the exercise of the put rights (see Note B) raised substantial doubt about the Company’s ability to continue as a going concern. The December 31, 2010 financial statements do not include any adjustments that may have resulted from the outcome of this uncertainty. Based on the disclosures included in this Quarterly Report on Form 10-Q (see Note B) at June 30, 2011, the uncertainty with regards to the exercise of the put rights no longer raises substantial doubt about the Company’s ability to continue as a going concern.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires that management make a number of assumptions and estimates that affect the reported amounts of assets, liabilities, and expenses in our financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s assumptions regarding current events and actions that may impact us in the future, actual results may differ from these estimates and assumptions.
Loss per Common Share
In determining loss per common share for a period, we use weighted average shares outstanding during the period for primary shares and we utilize the treasury stock method to calculate the weighted average shares outstanding during the period for diluted shares. At June 30, 2011, options and warrants were outstanding for the purchase of 3,754,197 shares of our common stock, at exercise prices ranging from $0.42 to $7.83 per share.
|
CASH AND CASH EQUIVALENTS
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
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Cash and Cash Equivalents [Abstract] | Â |
Cash and Cash Equivalents Disclosure [Text Block] | A.
CASH AND CASH EQUIVALENTS
At June 30, 2011 and December 31, 2010, cash and cash equivalents included money market accounts and commercial paper with original maturities of less than 90 days.
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PUT RIGHTS AND POTENTIALLY REDEEMABLE EQUITY
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6 Months Ended |
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Jun. 30, 2011
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | Â |
Derivative Instruments and Hedging Activities Disclosure [Text Block] | B. PUT RIGHTS AND POTENTIALLY REDEEMABLE EQUITY
At our Annual Meeting of Stockholders on May 21, 2010, our stockholders approved an amendment to our Restated Certificate of Incorporation, to provide each record holder of our common stock as of June 30, 2011 with the right to require us, under certain circumstances, to purchase for cash all or a portion of the shares of common stock held by such holder at a formula-based price on or about July 31, 2011 (the “put right”). Unless terminated earlier, the put rights would become exercisable by holders of our common stock as of June 30, 2011. The exercise of the put rights would be facilitated through the use of a tender offer, informing stockholders of the amount of cash that would be paid for each properly exercised put right and the process by which to exercise such put rights. The cash price to be paid to stockholders for each properly exercised put right would be based on a formula calculated by us as of June 30, 2011, which price was intended to approximate the per-share equivalent of 90% of our available cash, defined as the sum of the Company’s cash and cash equivalents, liquidation value of the Company’s other disposable assets, as determined by the Company’s Board of Directors in its sole and absolute discretion, less the amount of funds necessary to satisfy all obligations and liabilities of the Company, including contingent obligations and liabilities, which were then outstanding or would arise if the Company were liquidated, as determined by the Company’s Board of Directors in its sole and absolute discretion, as more further described in our Restated Certificate of Incorporation.
The put rights would have expired upon the occurrence of certain events, including the entry into a partnering, commercial, investment, or capital raising agreement or any other transaction that our Board of Directors, determines, in its sole and absolute discretion, to be material to the Company, a change in control of the Company, or the approval by the Board of Directors of a plan of liquidation or dissolution. Our obligation to purchase shares pursuant to the put rights was subject to certain conditions, including compliance with all applicable state and federal laws, the availability of sufficient cash to consummate the purchase and the absence of any court or administrative order or proceeding prohibiting or seeking to prohibit consummation of the purchase.
As stated above, the Company's obligation to purchase shares upon exercise of the put rights was subject to various conditions. One condition was that such purchases would not violate applicable law, including Section 160 of the Delaware General Corporation Law (DGCL) relating to distributions to stockholders or share repurchases that may impair capital. Because the pending qui tam
litigation described in Note D below seeks potentially significant damages that, if awarded, could exceed the financial resources of the Company, the pendency of this claim at the time of share repurchases or distributions to stockholders could cause a violation of Section 160 of the DGCL and the Uniform Fraudulent Transfer Act. In addition, in determining the price per share to be paid to stockholders upon exercise of the put rights, our Board of Directors was obligated to value all contingent liabilities, including the qui tam
lawsuit. Our Board of Directors has determined that, although it is not probable that there will be an unsuccessful outcome of this litigation, the magnitude of the potential damages that may be awarded in an unfavorable verdict is such that the value ascribed to this contingent liability for purposes of this calculation would cause the per share purchase price upon exercise of the put rights to be zero.
In light of the foregoing, on April 25, 2011 our Board of Directors decided that, absent settlement, dismissal or other developments in the qui tam
litigation or other changes in circumstance by June 30, 2011, the Company would be unable to purchase shares upon exercise of the put rights and therefore, the put rights would not be exercisable and would expire. Through June 30, 2011, there were no settlement, dismissal or other developments in the qui tam
litigation and, accordingly, the put rights are deemed to have expired on June 30, 2011.
The put rights were considered a bifurcated, embedded equity derivative instrument. We measured the estimated fair value of the put rights based on market transactions that consider the impact of a put right feature within an entity’s common stock at the time of an event that would negatively affect the price of a company’s common stock (Level 3 inputs). The estimated fair value of the put rights also considered the market value of our common stock in relation to the estimated put price at June 30, 2011.
We do not believe the change in fair value related to the put rights as of June 30, 2011 is material. The fair value of the put rights was revalued at each reporting period with the change in valuation, if material, reflected in our operating results for that reporting period.
Because the put rights created a potential redemption obligation on June 30, 2011, the estimated amount of that redemption obligation, calculated as of December 31, 2010, was reclassified from accumulated deficit to potentially redeemable equity to reflect the potential redemption obligation. The potentially redeemable equity was amortized, through accumulated deficit, to zero at March 31, 2011 reflecting changes in the estimated redemption obligation. The change in the estimated redemption obligation was based on the decision of the Board of Directors that the Company would be unable to purchase any shares upon exercise of the put rights and therefore, the put rights would expire. Because all shareholders participate equally in the put rights, there is no impact on the calculation of earnings per share.
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SHARE-BASED COMPENSATION
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6 Months Ended |
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Jun. 30, 2011
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | Â |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | C. SHARE-BASED COMPENSATION
Concurrent with the issuance of the put rights, all of the Company’s vested and outstanding share-based payments awards were required to be accounted for as liability awards. At December 31, 2010, the fair value of liability classified stock option awards was estimated utilizing the Black-Scholes option pricing model as probability weighted for potential put right outcomes. The valuation model utilizes inputs including expected volatility, expected life, risk-free interest rate, expected dividends and probability weighting (Level 3 inputs). The assumption used to value the liability awards included risk free interest rates of 0%-3.5%, volatility of 70%, expected terms of 1-10 years, a dividend yield of 0% and a probability weighting based on potential put right outcomes. The fair value of restricted stock awards classified as liabilities are calculated using the then estimated put price determined as defined in our Restated Certificate of Incorporation.
During the three and six months ended June 30, 2011, the Level 3 activity related to the Company’s liability classified share-based payment awards resulted in $375,000 and $660,000, respectively, reductions of the share-based payment liability and increase to additional paid-in capital.
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CONDENSED STATEMENTS OF OPERATIONS [Parenthetical] (USD $)
In Thousands |
84 Months Ended |
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Jun. 30, 2011
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Discontinued Operation, Tax Effect of Income (Loss) from Disposal of Discontinued Operation | $ 267 |
CASH FLOW SUPPLEMENTAL DISCLOSURE (USD $)
In Thousands |
84 Months Ended |
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Jun. 30, 2011
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Supplemental Disclosure of Non-Cash Investing Activities | Â |
Current assets acquired | $ 29 |
Patents acquired | 2,142 |
Liabilities acquired, and accrued acquisition costs | (457) |
Original investment reversal | (750) |
In-process research and development acquired | 34,311 |
Common stock issued for acquisition | (31,217) |
Cash paid for acquisition | $ 4,058 |
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