On March 31, 2010, the Company announced it would receive approximately $1.5 million in gross proceeds from its registered direct offering (the “Offering”) of 9,100,001 shares of common stock, par value $0.001 per share (the “Common Shares”), at a price of $0.165 per share. The investors received five-year warrants (the “Series A Warrants”) to purchase 4,550,001 shares of common stock with an exercise price of $0.25 per share and six-month warrants (the “Series B Warrants,” together with the Common Shares and the Series A Warrants, the “Securities”) to purchase 3,033,334 shares of common stock at an exercise price of $0.25 per share. The exercise price of the Series A and Series B Warrants are subject to adjustment as provided by such warrants (See Note 5). The Offering closed on March 31, 2010 and the Company sold the Securities pursuant to an effective registration statement. As of September 30, 2010, the Company recorded net proceeds of $1,323,000 relating to the Offering.
Stock Based Compensation
The Company recorded share-based compensation expense of $107,000 and $430,000 for the three and nine months ended September 30, 2010 and $98,000 and $251,000 for the three and nine months ended September 30, 2009, respectively. We will continue to incur share-based compensation charges in future periods. As of September 30, 2010, unamortized share-based compensation expense of $489,000 remains to be recognized, which is comprised of $299,000 related to non-performance based stock options to be recognized over a weighted average period of 1.25 years, $24,000 related to restricted stock to be recognized over a weighted average period of 0.3 years, and $166,000 related to performance-based stock options which vest upon reaching certain milestones. Expenses related to the performance-based stock options will be recognized if and when the Company determines that it is probable that the milestone will be reached. No options were exercised during the three and nine months ended September 30, 2010 or September 30, 2009.
During the nine months ended September 30, 2010 and 2009, employees and non-employee directors of the Company were granted stock options under our 1998 and 2006 Stock Option Plans per the table below:
|
Period Ended
|
|
Grants Issued
|
|
Weighted Average Exercise Price
|
|
Weighted Average
Fair Value
|
|
| |
|
|
|
|
|
|
|
|
September 30, 2010
|
|
900,000
|
|
$
|
0.19
|
|
$
|
0.13
|
|
|
September 30, 2009
|
|
5,102,500
|
|
$
|
0.24
|
|
$
|
0.14
|
|
Note 9 – Related Party Transactions
In September 2006, the Board of Directors appointed Steven B. Ratoff as Chairman of the Board. In connection with Mr. Ratoff’s appointment as Chairman of the Board, the Board entered into a consulting arrangement to compensate Mr. Ratoff for his efforts. This arrangement was on a month-to-month basis, and ended in December 2009. Mr. Ratoff was compensated at a rate of between $10,000 and $17,500 per month depending upon the amount of his involvement at the Company. In January 2010, our Board of Directors appointed Steven B. Ratoff as President and Chief Executive Officer effective January 1, 2010, and the Company and Mr. Ratoff entered into an employment agreement in connection therewith.
Mr. Ratoff has served as a venture partner with ProQuest Investments, or ProQuest, since December 2004. Mr. Ratoff has no authority for investment decisions made by ProQuest. ProQuest owns approximately 35% of our common stock. In March 2010, ProQuest participated in the Offering. As of September 30, 2010, ProQuest owns 34.4 million shares of our common stock, which includes 4.8 million shares acquired in the Offering.
Note 10 – Recent Accounting Pronouncement
In April 2010, an accounting standard update was issued to provide guidance on defining a milestone and determining when it is appropriate to apply the milestone method of revenue recognition for research and development transactions. Vendors can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period the milestone is achieved if the milestone meets all the criteria stated in the guidance to be considered substantive and must be considered substantive in its entirety. The amendments in this update were adopted by the Company during the three months ended June 30, 2010. The adoption did not have a significant impact on the Company’s financial statements or disclosures.
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