Subsequent Events

12 Months Ended

Dec. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

10. Subsequent Events

The Company has completed an evaluation of all subsequent events through the issuance date of these consolidated financial statements and the following represent subsequent events for disclosure.

Asset Purchase Agreement

As described in Note 1, the Company acquired certain assets and rights to the GCS-100 compound on January 19, 2012 from Solana in an asset purchase transaction for nominal consideration.

This asset acquisition is expected to be accounted for in accordance with the authoritative guidance for intangible assets. The consideration paid to acquire the Purchased Assets is required to be measured at fair value and, initially, the consideration to be measured consists only of the nominal amount paid at the Closing.

The Company filed its Series C/D Certificate with the State of Delaware on January 20, 2012. The Series C/D Certificate provides the holders with the following rights:

• The holders of 2012 New Preferred Stock do not have voting rights, unless required by the Delaware General Corporation Law or as set forth below.

• Cumulative dividends are payable on the Series C-1 ² Stock and Series C-2 ² Stock (together referred to herein as the “Series C Preferred”) at a rate of 15% per annum, each accruing from the date of issuance through the date of conversion or redemption, payable semi-annually in shares of Series C-1 ² Stock and Series C-2 ² Stock, respectively. Neither the Series D-1 ² Stock nor the Series D-2 ² Stock is entitled to dividends.

• The 2012 New Preferred Stock is convertible into Common Stock, initially at a rate of 166,667 shares of Common Stock for each share of 2012 New Preferred Stock (1,667 shares, after adjusting for our 1-for-100 reverse stock split), subject to certain limitations discussed below, at the election of the holders of New Preferred Stock. The conversion rate will be adjusted for certain events, such as stock splits, stock dividends, reclassifications and recapitalizations, and the 2012 New Preferred Stock is subject to full-ratchet anti-dilution protection such that any subsequent issuance of Common Stock below the effective conversion price of the 2012 New Preferred Stock at the time of such issuance automatically adjusts the conversion price of the 2012 New Preferred Stock to such lower price. There are also limits on the amount of 2012 New Preferred Stock that can be converted and the timing of such conversions.

• Upon a Liquidation Event (as defined in each Series C/D Certificate), no other class or series of capital stock can receive any payment unless the New Preferred Stock has first received a payment in an amount equal to $1,000 per share, plus all accrued and unpaid dividends, if applicable

• In the event that certain actions occur without the prior written consent of the holders of 80% of the shares of 2012 New Preferred Stock and Warrants (as defined in the Securities Purchase Agreement) on an as-converted basis (the “Requisite Holders”), such as the Company’s material breach of any material representation or warranty under the Securities Purchase Agreement, a suspension of the trading of the Common Stock, the failure to timely deliver shares on conversion of the 2012 New Preferred Stock, the Company commences a bankruptcy proceeding, winding up, dissolution and the like, or the consummation of a Change of Control (as defined in the Series C/D Certificate), then the holders of the Series C Preferred shall have the right, upon the delivery of a notice to the Company by the Requisite Holders, to have such shares redeemed by the Company for an amount equal to the greater of $1,000 per share, plus accrued and unpaid dividends, or the fair market value of the underlying Common Stock issuable upon conversion of the Series C Preferred.

• In the event that the Company fails to timely deliver shares on conversion of the 2012 New Preferred Stock, under certain circumstances, the Company must pay the 2012 New Preferred Stock holder’s costs and expenses of acquiring Cover Shares (as defined in the Series C/D Certificate).

• Upon certain redemption events, such as the Company’s breach of covenants or material representations or warranties under the Securities Purchase Agreement, the conversion price of the New Preferred Stock decreases to 10% of the conversion price in effect immediately before such redemption event.

• So long as at least 1,000 shares of 2012 New Preferred Stock remain outstanding (or at least 3,000 shares of 2012 New Preferred Stock remain outstanding if the Cash Warrants have been fully exercised), the Company may not take a variety of actions (such as altering the rights, powers, preferences or privileges of the 2012 New Preferred Stock so as to effect the 2012 New Preferred Stock adversely, amending any provision of the Company’s certificate of incorporation, setting aside any monies for the redemption, purchase or other acquisition of, or declare or pay any dividend or make any Distribution (as defined in the Series C/D Certificate) or other distribution other than pursuant to the Series C/D Certificate or equity compensation plans, increasing the value of the Common Stock, entering into an agreement for a Strategic Transaction or Change of Control (as each is defined in the Series C/D Certificate), consummating any financing or filing a registration statement with the Securities and Exchange Commission, incurring liabilities for no consideration or for cash consideration, property, services or other exchange, or taking any action or entering into any agreement causing the Company’s Net Cash (as defined in the Series C/D Certificate) to fall below $2,900,000 until the date that is thirteen months from the Closing of the asset purchase) without the prior approval of the Requisite Holders.

• Subject to the approval of the Requisite Holders, 2,900 shares of the Series C-1 ² Stock are redeemable on, and only on, the twelve month anniversary of the Closing of the asset purchase.

Reverse Stock Split

The Requisite Holders authorized the Company’s Board of Directors to effect and the Board of Directors has since approved a reverse stock split implemented on February 17, 2012, with such reverse stock split having an exchange ratio of 1-for-100 (the “ 2012 Reverse Stock Split”). No fractional shares were issued, and, instead, fractional shares were rounded up to the nearest whole share. Pursuant to the Series C/D Certificate, the conversion price for the 2012 New Preferred Stock was to automatically be adjusted downward if, after the 2012 Reverse Stock Split, on the Conversion Price Adjustment Date (as defined in the Series C/D Certificate), the average of the closing sales prices (as defined in the Series C/D Certificate) for the three consecutive Trading Day period ending on the last Trading Day prior to the Conversion Price Adjustment Date (the “Adjustment 3-Day Average Price”) is less than the product of the conversion price then in effect multiplied by ten. If this was the case, then the conversion price of the 2012 New Preferred Stock shall be reduced to a price equal to ten percent (10%) of the Adjustment 3-Day Average Price. Effective on March 3, 2012, each share of 2012 New Preferred Stock was convertible into approximately 213,083 shares of common stock.

Stock Options

In connection with the asset purchase agreement, certain members of the Board of Directors of the Company resigned on January 19, 2012. Two new members were appointed to the Board of Directors and both are to receive stock option grants at certain dates. The new President and Chief Executive Officer is one of the new members of the Board of Directors. See Note 6 for the terms of the employment agreement and stock option grant for the new President and Chief Executive Officer. The other new director is to receive a stock option grant four weeks following the Conversion Price Adjustment Date to purchase the number of shares of Common Stock equal to .45% of the Company’s fully diluted, as-converted shares, subject to the terms and conditions of any applicable award agreements and other restrictions and limitations generally applicable to common stock or equity awards held by Company executives or otherwise imposed by law. Subject to applicable terms and conditions, the options will vest equally, on a quarterly basis, for one year following the commencement of his service on the Company’s Board of Directors. The options will be exercisable at a price equal to the fair market value of a share of Common Stock on the date of the grant of the options.

Issuance of Common Stock

After the 2012 Reverse Stock Split, holders of the 2012 New Preferred Stock have converted 22 shares of 2012 New Preferred Stock into 4,666,247 shares of common stock.