UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended JUNE 30, 2009
Commission File Number: 000-50470
CERAGENIX PHARMACEUTICALS, INC.
(Exact name of registrant as Specified in its Charter)
|
Delaware |
|
84-1561463 |
|
(State or Other Jurisdiction of
|
|
(Internal Revenue Service
|
|
|
|
|
|
1444 Wazee Street, Suite 210,
|
|
80202 |
|
(Address of Principal Executive Offices) |
|
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (720) 946-6440
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.0001 par value per share
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer o |
|
Accelerated filer o |
|
|
|
|
|
Non-accelerated filer o |
|
Smaller reporting company x |
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
As of August 17, 2009, the registrant had 18,123,293 shares of its common stock ($.0001 par value) outstanding.
2
CERAGENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
The accompanying notes are an integral part of these financial statements.
3
CERAGENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||
|
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
REVENUE |
|
$ |
892,691 |
|
$ |
18,750 |
|
$ |
1,177,107 |
|
$ |
37,500 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
COST OF GOODS SOLD |
|
666,381 |
|
— |
|
803,270 |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
GROSS MARGIN |
|
226,310 |
|
18,750 |
|
373,837 |
|
37,500 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
||||
|
Licensing fees |
|
113,897 |
|
57,917 |
|
197,603 |
|
124,167 |
|
||||
|
Research and development |
|
26,063 |
|
42,417 |
|
33,527 |
|
113,282 |
|
||||
|
General and administrative |
|
859,119 |
|
1,236,729 |
|
1,769,042 |
|
2,446,047 |
|
||||
|
|
|
999,079 |
|
1,337,063 |
|
2,000,172 |
|
2,683,496 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Loss from operations |
|
(772,769 |
) |
(1,318,313 |
) |
(1,626,335 |
) |
(2,645,996 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
||||
|
Interest and other, net |
|
(427,542 |
) |
(741,804 |
) |
(765,924 |
) |
(4,104,626 |
) |
||||
|
Gain (loss) on value of derivative liability |
|
4,911,708 |
|
2,458,898 |
|
(2,459,146 |
) |
2,986,021 |
|
||||
|
|
|
4,484,166 |
|
1,717,094 |
|
(3,225,070 |
) |
(1,118,605 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
NET INCOME (LOSS) |
|
3,711,397 |
|
398,781 |
|
(4,851,405 |
) |
(3,764,601 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
PREFERRED STOCK DIVIDENDS |
|
— |
|
(20,000 |
) |
— |
|
(80,000 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
$ |
3,711,397 |
|
$ |
378,781 |
|
$ |
(4,851,405 |
) |
$ |
(3,844,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
18,035,436 |
|
17,139,192 |
|
17,922,492 |
|
16,766,458 |
|
||||
|
Diluted |
|
30,021,828 |
|
17,514,192 |
|
17,922,492 |
|
16,766,458 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
INCOME (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
.21 |
|
$ |
.02 |
|
$ |
(.27 |
) |
$ |
(.23 |
) |
|
Diluted |
|
$ |
.14 |
|
$ |
.02 |
|
$ |
(.27 |
) |
$ |
(.23 |
) |
The accompanying notes are an integral part of these financial statements.
4
CERAGENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
|
|
|
2009 |
|
2008 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
||
|
Net loss |
|
$ |
(4,851,405 |
) |
$ |
(3,764,601 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
|
(Gain) loss on value of derivative liabilities |
|
2,459,146 |
|
(2,986,021 |
) |
||
|
Amortization of debt discount |
|
264,368 |
|
1,089,409 |
|
||
|
Stock-based compensation expense |
|
383,162 |
|
883,993 |
|
||
|
Interest expense added to convertible debt balance |
|
453,589 |
|
— |
|
||
|
Depreciation and amortization expense |
|
37,010 |
|
6,576 |
|
||
|
Warrants issued for services |
|
8,802 |
|
— |
|
||
|
Fair value of adjustment to exercise price of convertible securities |
|
— |
|
2,624,629 |
|
||
|
Increase in accounts receivable |
|
(160,573 |
) |
— |
|
||
|
Increase in prepaid expenses, deposits and other |
|
(211,885 |
) |
(177,293 |
) |
||
|
Increase in inventory |
|
(280,906 |
) |
(224,699 |
) |
||
|
Increase in accounts payable, accrued liabilities and customer deposits |
|
1,327,708 |
|
77,068 |
|
||
|
Increase in deferred revenue |
|
874,946 |
|
1,708,636 |
|
||
|
Net cash provided by (used) in operating activities |
|
303,962 |
|
(762,303 |
) |
||
|
|
|
|
|
|
|
||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
||
|
Purchase of property and equipment |
|
— |
|
(3,451 |
) |
||
|
Net cash used in investing activities |
|
— |
|
(3,451 |
) |
||
|
|
|
|
|
|
|
||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
||
|
Payments to Osmotics under promissory note |
|
(25,884 |
) |
(50,000 |
) |
||
|
Repayments from Osmotics under promissory note |
|
— |
|
25,000 |
|
||
|
Borrowings under insurance financing agreement |
|
88,454 |
|
84,434 |
|
||
|
Payments under insurance financing agreement |
|
(34,578 |
) |
(26,238 |
) |
||
|
Net cash provided by financing activities |
|
27,992 |
|
33,196 |
|
||
|
|
|
|
|
|
|
||
|
Net increase (decrease) in cash and cash equivalents |
|
331,954 |
|
(732,558 |
) |
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents at the beginning of period |
|
614,457 |
|
2,213,654 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents at the end of period |
|
$ |
946,411 |
|
$ |
1,481,096 |
|
(Continued)
5
(Continued)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
Six Months ended June 30, |
|
||||
|
|
|
2009 |
|
2008 |
|
||
|
Cash paid during period for: |
|
|
|
|
|
||
|
Interest |
|
$ |
114,224 |
|
$ |
310,415 |
|
|
Income taxes |
|
$ |
— |
|
$ |
— |
|
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
Six Months ended June 30, |
|
||||
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
|
||
|
Assets acquired in exchange for note payable, related party |
|
$ |
516,000 |
|
$ |
— |
|
|
Related party receivables applied to note payable, related party |
|
$ |
49,606 |
|
$ |
— |
|
|
Conversion of preferred stock and accrued dividends into common stock |
|
$ |
— |
|
$ |
240,000 |
|
|
Accrual of preferred stock dividends |
|
$ |
— |
|
$ |
80,000 |
|
The accompanying notes are an integral part of these financial statements.
6
CERAGENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
|
|
|
Preferred Stock |
|
|
|
|
|
Additional |
|
|
|
|
|
|||||||
|
|
|
Series B |
|
Common Stock |
|
Paid in |
|
Accumulated |
|
|
|
|||||||||
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Total |
|
|||||
|
BALANCES, January 1, 2009 |
|
315,000 |
|
$ |
708,750 |
|
17,808,293 |
|
$ |
1,781 |
|
$ |
18,459,423 |
|
$ |
(31,217,937 |
) |
$ |
(12,047,983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
360,662 |
|
— |
|
360,662 |
|
|||||
|
Conversion of preferred shares to common shares |
|
(315,000 |
) |
(708,750 |
) |
315,000 |
|
32 |
|
708,718 |
|
— |
|
— |
|
|||||
|
Issuance of preferred shares for services |
|
60,000 |
|
135,000 |
|
— |
|
— |
|
— |
|
— |
|
135,000 |
|
|||||
|
Warrants issued for services |
|
— |
|
— |
|
— |
|
— |
|
8,802 |
|
— |
|
8,802 |
|
|||||
|
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(4,851,405 |
) |
(4,851,405 |
) |
|||||
|
BALANCES, June 30, 2009 |
|
60,000 |
|
$ |
135,000 |
|
18,123,293 |
|
$ |
1,813 |
|
$ |
19,537,605 |
|
$ |
(36,069,342 |
) |
$ |
(16,394,924 |
) |
The accompanying notes are an integral part of these financial statements.
7
CERAGENIX PHARMACEUTICALS, INC.
(UNAUDITED)
(1) BUSINESS AND OVERVIEW
Ceragenix Pharmaceuticals, Inc. (the “Company”) is an emerging medical device company focused on dermatology and infectious disease. We have two base technology platforms each with multiple applications: Barrier Repair and Ceragenins™ (also known as cationic steroid antibiotics or “CSAs”). Our Barrier Repair platform represents near term revenue opportunities for prescription skin care products to treat a variety of skin disorders all characterized by a disrupted skin barrier. In April 2006, we received clearance from the United States Food and Drug Administration (“FDA”) to market EpiCeram® our first commercial product using the Barrier Repair technology. EpiCeram® is a prescription-only topical cream intended to treat dry skin conditions and to manage and relieve the burning and itching associated with various types of dermatoses including eczema, irritant contact dermatitis, and radiation dermatitis. All of these conditions share in common a defective or incomplete skin barrier function. In November 2007, we entered into an exclusive distribution and supply agreement with Dr. Reddy’s Laboratories, Inc. (“DRL”) for the commercialization of EpiCeram® in the United States (the “DRL Agreement”). Under the terms of the DRL Agreement, we are responsible for manufacturing (through a contract manufacturer) and supplying the product while DRL is responsible for distribution, marketing and sales. DRL launched sales and marketing efforts during October 2008. During the six months ended June 30, 2009, we entered into supply and distribution agreements to commercialize EpiCeram® in Canada (the “Canadian Agreement”), certain Southeast Asian countries (the “Asian Agreement”), and the European Union (the “EU Agreement”) (collectively the “International Agreements”).
Our Ceragenin™ technology represents near, mid and long-term revenue opportunities for treating infectious disease. Ceragenins™ are small molecule, positively charged, aminosterol compounds that have shown activity against both gram negative and gram positive bacteria, certain viruses, certain fungi and certain cancers in preclinical testing. These patented compounds mimic the activity of the naturally occurring antimicrobial peptides that form the body’s innate immune system. We are initially pursuing activities in antimicrobial medical device coatings. We have not applied for, nor have we received, approval from the FDA to market any product using our Ceragenin™ technology. However, it is our expectation that we will be able to generate revenue from the Ceragenin™ technology prior to receiving FDA approvals in the form of upfront and milestone payments under development and sublicense agreements.
(2) GOING CONCERN, MANAGEMENT’S PLANS AND BASIS OF PRESENTATION
Going Concern and Management’s Plans
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Since our inception in February 2002, we have incurred significant cash and operating losses and at June 30, 2009, we had a stockholders’ deficit of $16,394,924 and a working capital deficit of $1,068,244. We have relied upon proceeds from the sale of convertible debt securities, proceeds received from the exercise of common stock purchase warrants, and milestone payments from the DRL Agreement to fund our operations. In order to commercialize the majority of our planned products in the United States, we will require marketing clearance from the FDA. To date, we have received clearance to market one product, EpiCeram®.
As of June 30, 2009, we had cash and cash equivalents of $946,411. As previously noted, in November 2007, we entered into the DRL Agreement for the commercialization of EpiCeram® in the United States. Among other things, the DRL Agreement called for DRL to pay us certain non-sales based milestone payments upon the accomplishment of three specified events (the “Non-Sales Milestones”) of up to $3,500,000. During the six month period ended June 30, 2009, we received the last Non-Sales Milestone payment ($1,000,000) from DRL. Additionally, under the DRL Agreement, we can earn up to $21,250,000 in milestone payments based on cumulative net sales of EpiCeram® (the “Net Sales Milestones”). However, we do not anticipate earning any Net Sales Milestone payments until sometime in 2010.
As discussed above, during the six months ended June 30, 2009, we entered into the International Agreements to commercialize EpiCeram®. We expect commercialization activities to commence under the Asian Agreement and Canadian Agreement during the fourth quarter of 2009. We expect that commercialization of EpiCeram® under the EU Agreement will commence in the third quarter of 2010. Under the Canadian Agreement, we are to receive a $200,000 milestone payment upon EpiCeram® receiving regulatory approval in Canada. We expect to earn and receive this milestone payment during the fourth quarter
8
of 2009. We do not expect the International Agreements to have a material impact on our liquidity or results of operations during 2009.
As previously disclosed in prior periodic reports, in the third quarter of 2008, we negotiated amendments to our existing convertible debt securities (collectively the “Amended Convertible Debt Agreements”). These debt agreements were previously in technical default. Among other things, the Amended Convertible Debt Agreements extended the maturity date of the debt to December 31, 2011 and require that we make minimum quarterly payments to the holders commencing June 30, 2009 (the “Amended Amortization Schedule”) solely from the following revenue streams (the “Dedicated Revenue Streams”):
· 100% of net revenues (as defined in the amendments) paid or owed to us under the DRL Agreement subsequent to April 1, 2009;
· 100% of net revenue received from any other EpiCeram® commercialization arrangements;
· 50% of the net revenue received from the sale of NeoCeram®;
· 33% of any net revenue received from Ceragenin™ commercialization arrangements; and
· 33% of any net revenue received by us in excess of $250,000 in aggregate excluding any capital raised by the Company through equity investment or the issuance of debt.
Accordingly, all net revenues (as defined in the amendments) we receive from the commercialization of EpiCeram® will be utilized to service the existing convertible debt until such time that the debt has been paid in full.
In the event that the Dedicated Revenue Streams are insufficient to make a quarterly interest payment in full, the remedies to the holders are to add the unpaid accrued interest to the outstanding debt balance or receive shares of our common stock in lieu of cash payment. Additionally, in the event that the Dedicated Revenue Streams are not sufficient to make the cumulative payments required by the Amended Amortization Schedule with respect to the 12-month periods ending June 30th, then the remedy to the holders is to have the conversion price of the debt and exercise price of their warrants adjusted downward. See Note 3 for a more detailed discussion. Accordingly, until December 31, 2011, the failure to make scheduled interest and/or principal payments in full does not provide the holders the ability to declare the Company in default.
We made the scheduled quarterly payment to the debt holders on June 30, 2009. However, the scheduled payment was not sufficient to pay the quarterly interest in full. The unpaid accrued interest was added to the debt balance.
While we believe that the Amended Convertible Debt Agreements were more favorable to the Company than the original convertible debt agreements at the time of the amendments, the Dedicated Revenue streams are not a sustainable arrangement and will ultimately need to be modified. In addition, there are a number of factors which could inhibit the Company’s ability to raise additional capital. These may include, but are not necessarily limited to, the following:
· The presence of $9,541,114 in secured convertible debt with most favored nation and other pricing protection;
· The Dedicated Revenue Streams will reduce future cash flows retained by the Company for operations;
· 12,004,569 shares of our common stock (or approximately 66% of our issued and outstanding shares) are currently held in escrow for Osmotics Corporation (“Osmotics”) awaiting exchange with its shareholders. Osmotics has advised us that it must complete its exchange transaction by November 2010 in order to preserve the tax free nature of the transaction;
· Limitations on our ability to register common shares and common shares underlying convertible debt securities sold in private placement transactions;
· A lack of trading volume in our common stock;
· Our limited operating history and lack of profitable operations; and
· The economic downturn and uncertainty in the U.S. financial markets.
We believe that existing cash on hand in combination with projected operating cash flows should be sufficient to fund our planned corporate activities, all current contractual obligations and planned development activities through at least late September 2009. Accordingly, we will require additional funding within 30 - 45 days of filing this Form 10-Q. We are working with several
9
parties to raise additional capital for the Company. As of the date of this Form 10-Q, we have no firm commitments for funding and as described above, our ability to access the capital markets may be severely limited . Additionally, any funding transaction will likely require restructuring of the Amended Convertible Debt Agreements. While the debt holders have amended the terms of their agreements in the past, there is no assurance that they will agree to do so in the future.
There is no assurance that we will be able to raise additional capital within the timeframe described above. Even if we are successful, it could be on terms that substantially dilute our current shareholders. In the event that we cannot raise sufficient capital within the required timeframe, it will have a material adverse effect on the Company’s liquidity, financial condition and business prospects.
Basis of Presentation
For the three and six months ended June 30, 2009 and 2008, the accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Ceragenix Corporation. All inter-company accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with the current year presentation.
The accompanying condensed consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring entries), which in the opinion of management, are necessary to present fairly the financial position at June 30, 2009 and the results of operations and cash flows of the Company for the three and six months ended June 30, 2009 and 2008. Operating results for the six months ended June 30, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended December 31, 2008, which are included in the Company’s Annual Report on Form 10-K.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results may differ from these estimates.
Recently Issued Accounting Pronouncements
In May 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 165 “Subsequent Events” (“SFAS No. 165”) which establishes accounting and reporting standards for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The statement sets forth (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures that an entity should make about events or transactions occurring after the balance sheet date in its financial statements. We adopted the provisions of SFAS No. 165 for the interim period ended June 30, 2009. The adoption of SFAS No. 165 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS No. 107-1 and APB 28-1, “Interim Disclosure about Fair Value of Financial Statements” (“FSP FAS 107-1”). FSP FAS 107-1 amends the disclosure requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 requires public companies to disclose the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. FSP FAS 107-1 is effective for interim periods beginning after June 15, 2009. We have not completed our evaluation of FSP FAS 107-1.
In June 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue 07-5, “Determining Whether an Instrument (or an Embedded Feature”) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated
10
strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. Adoption of EITF 07-5 has not had a material impact on our consolidated balance sheets, results of operations or cash flows.
On June 29, 2009, the FASB issued SFAS No. 168 “Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“SFAS No. 168”). SFAS No. 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. SFAS No. 168 will be effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards will be superseded. We will adopt SFAS No. 168 for the quarterly period ending September 30, 2009, as required, and adoption is not expected to have a material impact on our financial statements taken as a whole.
(3) CONVERTIBLE DEBT
A description of the terms of convertible debt outstanding is as follows:
2006 Debentures
In December 2006, we sold in a private transaction an aggregate of $5,000,000 of convertible debentures (the “2006 Debentures”). We have entered into four amendment agreements with the holders since the original sale as follows:
· The first amendment ( the “First Amendment”) dated June 29, 2007;
· The second amendment ( the “Second Amendment”) dated November 30, 2007;
· The third amendment ( the “Third Amendment”) dated July 1, 2008; and
· The fourth amendment ( the “Fourth Amendment”) dated September 25, 2008
As amended, the 2006 Debentures convert into shares of our common stock at a conversion price equivalent to $.80 per common share (subject to adjustment). The 2006 Debentures accrue interest at 12% per annum, payable quarterly. For the period from July 1, 2008 through March 31, 2009, quarterly interest payments were deferred, with accrued interest for the period added to the principal balance. The maturity date of the 2006 Debentures is December 31, 2011 subject to quarterly redemption payments beginning June 30, 2009 (the “Quarterly Redemption Amounts”) which are to be made solely from the Dedicated Revenue Streams. We made the June 30, 2009 quarterly payment as scheduled. However, the scheduled payment was not sufficient to pay the quarterly interest in full. The unpaid accrued interest was added to the debt balance. As of June 30, 2009, the principal balance of the 2006 Debentures was $6,126,520.
In the event that we fail to pay interest in full on any due date, the holder shall have the option to receive the unpaid balance in shares of common stock at a price equal to 85% of the average of the 5 lowest Volume Weighted Average Prices (“VWAPs”) during any 30 consecutive trading day periods during the 365 day period immediately prior to the interest payment date or, in lieu of receiving shares of common stock, may add such unpaid interest to the outstanding principal amount of the 2006 Debentures. In the event that we fail to pay the cumulative Quarterly Redemption Amounts during any 12-month period ending June 30, 2010 and June 30, 2011, the then conversion price of the 2006 Debentures shall be reduced each July 1, 2010 and July 1, 2011, respectively, to the lesser of (i) the then conversion price or (ii) the average of the 10 lowest VWAPs for the 60 consecutive trading day period immediately prior.
Under certain circumstances, we can force the conversion of the 2006 Debentures. However, the 2006 Debentures contain a provision that prohibits the holder from converting the debenture if such conversion would result in the holder owning more than 4.99% of our outstanding common stock at the time of such conversion, which limitation may be waived by the holder under certain conditions to not more than 9.99% . The conversion price of the 2006 Debentures may be adjusted downward in the event that we issue or grant any right to common stock at a price below the conversion price of the 2006 Debentures including a reduction in the price of the Convertible Notes (see more information on the Convertible Notes under the heading “Convertible Notes” below). A reduction in the conversion price of the 2006 Debentures also triggers a reduction in the exercise price of all warrants held by the holders of the 2006 Debentures. Our obligation to repay the 2006 Debentures is secured by a first lien security interest on all of our tangible and intangible assets. Holders of the 2006 Debentures have no voting, preemptive or other rights of shareholders.
Events of default under the 2006 Debentures include: failure to make a redemption or interest payment as scheduled; a breach of a material covenant not cured within five days of written notice or within 10 days after the Company has become or should become
11
aware of such failure; if a default or event of default (subject to any grace or cure periods provided in the applicable agreement) shall occur under any documents that is part of the transaction or any other material agreement, lease, document or instrument to which the Company or any subsidiary is obligated; a breach of any material representations and warranties; the Company or any subsidiary is subject to a bankruptcy event (as defined in the debenture); the Company defaults on any indebtedness in excess of $150,000 which results in such indebtedness becoming or declared due and payable prior to the date it would otherwise become due and payable; a delisting of our common stock or a stop trade action by the SEC that lasts for more than five consecutive days; if the Company shall be party to a change of control transaction (as defined in the debenture) or if the Company shall agree to sell or dispose of 40% of its assets in one related transaction or a series of related transactions; if the effectiveness of the registration statement lapses for any reason or the holders shall not be permitted to resell registrable securities (as defined in the debenture) under the registration statement for a period of more than 25 consecutive trading days or 35 non-consecutive trading days during any 12 month period; if the Company shall fail for any reason to deliver certificates to a holder prior to the fifth trading day after a conversion date; or a monetary judgment in excess of $50,000 is filed against the Company that is not cured within 45 days. Additionally, we are prohibited from paying cash dividends on any equity security while the 2006 Debentures are outstanding.
Purchasers of the 2006 Debentures received five-year warrants to purchase an aggregate of 1,162,212 shares of our common stock at an exercise price of $2.37 per share (the “2006 Debenture Warrants”), but as discussed both above and below, the exercise price and number of shares underlying the warrants have been adjusted several times. As a result of these adjustments, the exercise price of the 2006 Debenture warrants has been reduced to $.80 per share and the number of common shares underlying the warrants has been increased to 3,443,053.
We also issued to placement agents seven-year warrants to purchase an aggregate of 154,867 shares of common stock at an exercise price of $2.26 per share (the “Agent Warrants”) and paid them cash commissions of $425,000.
Per the guidance of EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF No. 00-19”) and EITF No. 05-2, “The Meaning of ‘Conventional Convertible Debt Instrument’ in Issue No. 00-19” (“EITF No. 05-2”), the anti-dilution features of the 2006 Debentures did not meet the definition of “standard” anti-dilution features. Therefore, the conversion feature of the 2006 Debentures was considered an embedded derivative in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). Accordingly, we bifurcated the derivative from the 2006 Debentures (host contract) and recorded the liability at its fair value of $2,831,858 with a corresponding entry to debt discount.
We evaluated both the Second and Fourth Amendments in the context of EITF Issue 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“EITF 96-19”). Pursuant to the guidance of EITF 96-19, an amendment is considered a major modification if the present value of the cash flows under the terms of the amended debt instrument are greater than 10% different from the present value of the remaining cash flows under the terms of the original instrument. We did not evaluate the First and Third Amendments in the context of EITF 96-19 as those amendments did not impact future cash flows. Based on our analysis, the Fourth Amendment was not considered a major modification of the debt while the Second Amendment was considered a major modification. Accordingly, in connection with the Second Amendment, the outstanding unamortized discount balance of $1,899,747 related to the debt conversion feature was written off and the fair value of the conversion feature of the amended 2006 Debentures was recorded at its fair value of $1,527,389 with a corresponding entry to debt discount. The fair value of the derivative liability was determined using the Black-Scholes option pricing model. The difference between the unamortized discount balance associated with the original debt, and the fair value of the conversion feature of the new debt was included in the calculation of loss on extinguishment of debt. The debt discount is reflected as a reduction to the 2006 Debentures on the accompanying condensed consolidated balance sheet. The debt discount is being amortized on a straight-line basis over the remaining life of the 2006 Debentures.
The 2006 Debenture Warrants also meet the definition of a derivative due to the cashless exercise provision. Accordingly, we bifurcated the derivative from the 2006 Debenture Warrants (host contract) and recorded the liability at its fair value of $1,793,293 with a corresponding entry to debt discount. The 2006 Debenture Warrants were valued using the Black-Scholes option pricing model. The debt discount is being amortized on a straight-line basis over the remaining life of the 2006 Debentures.
The Agent Warrants also meet the definition of a derivative due to the cashless exercise provision. We recorded a derivative liability at its fair value of $268,230 with a corresponding entry to debt placement costs. The Agent Warrants were valued using the Black-Scholes option pricing model. We also recorded the cash compensation paid to the placement agents as well as all transaction related costs such as legal and road show expenses as debt placement costs. Debt placement costs, which totaled $938,380, were being amortized on a straight-line basis over the three year life of the 2006 Debentures. However, in connection with the Second Amendment described above, the outstanding unamortized debt offering cost balance was written off and was included in the loss on extinguishment of debt. Accordingly, there has been no amortization of debt placement costs during 2009 or 2008.
12
For the three months ended June 30, 2009 and 2008, we amortized $132,184 and $330,459, respectively, of debt discount associated with the 2006 Debentures and 2006 Debenture Warrants which is included in interest expense in the accompanying condensed consolidated statements of operations. For the six months ended June 30, 2009 and 2008, we amortized $264,368 and $660,918, respectively, of debt discount associated with the 2006 Debentures and 2006 Debenture Warrants.
In connection with the First, Second and Fourth Amendments, we provided the holders the following consideration:
· First Amendment – Issued five- year warrants to acquire 400,000 shares of our common stock at an initial exercise price of $2.25 per share (the “First Amendment Warrants”). All other terms of the warrants are identical to the 2006 Debenture Warrants. Accordingly, they also meet the definition of a derivative. We valued these warrants using the Black-Scholes option pricing model. As a result of several adjustments (most recently the Fourth Amendment), the exercise price of the First Amendment Warrants has been reduced to $.80 per share and the number of common shares underlying the warrants has been increased to 1,125,000;
· Second Amendment – We agreed to increase the outstanding principal balance of the 2006 Debentures by 10% ($500,000). As discussed above, the Second Amendment was considered the issuance of new debt.
· Fourth Amendment – In addition to the revision of the terms of the 2006 Debentures described above, we issued new five-year warrants to the holders giving them the right to purchase up to 1,718,750 shares of the Company’s common stock at an initial exercise price of $.80 per share (subject to adjustment) (the “Fourth Amendment Warrants”). All other terms of the warrants are identical to the 2006 Debenture Warrants. Accordingly, they also meet the definition of a derivative. We valued these warrants using the Black-Scholes option pricing model.
During the three and six months ended June 30, 2009, $116,521 and $291,570, respectively, of accrued interest was added to 2006 Debenture principal balance.
Convertible Notes
In November 2005, we sold in a private transaction an aggregate of $3,200,000 of promissory notes convertible into shares of our common stock (the “Convertible Notes”). We have modified the Convertible Note agreements with the holders three times since the original sale as follows:
· An amendment dated November 28, 2007 (the “November 2007 Amendment”);
· A consent and waiver agreement dated June 30, 2008 (the “June 2008 Waiver”); and
· An amendment dated August 20, 2008 (the “August 2008 Amendment”).
As amended, the Convertible Notes convert into shares of our common stock at a conversion price equivalent to $.80 per common share (subject to adjustment). The Convertible Notes accrue interest at 12% per annum, payable quarterly. For the period from July 1, 2008 through March 31, 2009, quarterly interest payments were deferred with accrued interest for the period added to the principal balance. The maturity date of the Convertible Notes is December 31, 2011 subject to quarterly redemption payments beginning June 30, 2009 (the “Quarterly Redemption Amounts”) which are to be made solely from the Dedicated Revenue Streams. We made the June 30, 2009 quarterly payment as scheduled. However, the scheduled payment was not sufficient to pay the quarterly interest in full. The unpaid accrued interest was added to the debt balance. As of June 30, 2009, the principal balance of the Convertible Notes was $3,414,594.
In the event that we fail to pay interest in full on any due date, the holder shall have the option to receive the unpaid balance in shares of common stock at a price equal to 85% of the average of the 5 lowest VWAPs during any 30 consecutive trading day periods during the 365 day period immediately prior to the interest payment date or, in lieu of receiving shares of common stock, may add such unpaid interest to the outstanding principal amount of the Convertible Notes. In the event that we fail to pay the cumulative Quarterly Redemption Amounts during any 12-month period ending June 30th, the then conversion price of the Convertible Notes shall be reduced each July 1st to the lesser of (i) the then conversion price or (ii) the average of the 10 lowest VWAPs for the 60 consecutive trading day period immediately prior.
We can force the conversion of the Convertible Notes provided (i) we have registered the common shares underlying the Convertible Notes and (ii) the closing bid price of our common stock has equaled or exceeded $1.60 (as adjusted) for 20 consecutive trading days. However, the Convertible Notes contain a provision that prohibits a holder from converting the note if such conversion would result in the holder owning more than 4.99% of our outstanding common stock at the time of such conversion and certain other
13
restrictions based on the trading volume of our stock. The conversion price of the Convertible Notes was to be adjusted downward if either a “default” or “milestone default” (both defined in the agreements) were to occur. However, in order for an adjustment to take place to the conversion price, both (i) a default or milestone default would have to occur and (ii) the volume weighted average price of our common stock for the five days preceding the default (the “Five Day VWAP”) would have to be less than the stated conversion price. If the Five Day VWAP was less than the conversion price, then the conversion price would be adjusted to the Five Day VWAP. An adjustment to the conversion price due to a default could take place at any time during the year. An adjustment due to a milestone default could only take place on a Reporting Date (the date we file an Annual Report on Form 10-K or a Quarterly Report on Form 10-Q). There are no further potential milestone defaults under the Convertible Notes. Our obligation to repay the Convertible Notes is secured by a first lien security interest on all of our tangible and intangible assets.
Upon filing our Form 10-QSB for the periods ended March 31, 2007 and June 30, 2007 and our Form 10-K for the year ended December 31, 2007, we had milestone defaults and the Five Day VWAP was below the conversion price. Accordingly, the conversion price of the Convertible Notes was reduced from $2.05 per share to $1.92 per share, from $1.92 per share to $1.57 per share, and then from $1.57 per share to $.96 per share. The reduction in conversion price of the Convertible Notes also triggered a reduction in the conversion price of the 2006 Debentures, the 2006 Debenture Warrants and the First Amendment Warrants to $.96 per share. For the six months ended June 30, 2008, we recorded $2,624,629 for the fair value of the reductions in conversion price resulting from milestone defaults which is included in interest expense on the accompanying condensed consolidated statements of operations with a corresponding increase to derivative liability. We determined fair value using the Black-Scholes option pricing model .
Events of default include failure to pay principal or interest in a timely manner; a breach of a material covenant not cured within 10 days of written notice; a breach of any material representations and warranties; the appointment of a receiver or trustee for a substantial part of our property or business without prior written consent; a money judgment filed against us in excess of $75,000; bankruptcy; a delisting of our common stock; and a stop trade action by the SEC that lasts for more than five consecutive days.
Purchasers of the Convertible Notes received warrants exercisable to purchase an aggregate of 780,488 shares of our common stock at an exercise price of $2.255 per share (the “Convertible Note Warrants”). As a result of the August 2008 Amendment, the warrant shares have been increased by 1,326,219 shares and the exercise price reduced to $.80 per share (except for 48,780 warrants held by a holder that previously converted all of their Convertible Notes). We also issued to a placement agent and finder, five-year warrants exercisable to purchase an aggregate of 156,098 shares of common stock at an exercise price of $2.05 per share (the “Placement and Finder Warrants”) and paid them cash commissions of $320,000.
Per the guidance of EITF No. 00-19 and EITF No. 05-2, the anti-dilution features of the Convertible Notes did not meet the definition of “standard” anti-dilution features. Therefore, the conversion feature of the Convertible Notes was considered an embedded derivative in accordance with SFAS No. 133. Accordingly, we bifurcated the derivative from the Convertible Notes (host contract) and recorded the liability at its fair value of $1,792,000 with a corresponding entry to debt discount. The fair value of the derivative liability was determined using the Black-Scholes option pricing model.
The Convertible Note Warrants also meet the definition of a derivative due to the cashless exercise provision. Accordingly, we bifurcated the derivative from the Convertible Note Warrants (host contract) and recorded the liability at its fair value of $1,237,073 with a corresponding entry to debt discount. The Convertible Note Warrants were valued using the Black-Scholes option pricing model.
We evaluated both the November 2007 and August 2008 Amendments in the context of EITF 96-19. We did not evaluate the June 2008 Waiver in the context of EITF 96-19 as it did not impact future cash flows. Based on our analysis, the August 2008 Amendment was not considered a major modification of the debt while the November 2007Amendment was considered a major modification. As a result, the November 2007 Amendment was considered the issuance of a new debt instrument. We recorded the amended Convertible Notes at fair value as of the amendment date. We used the Black-Scholes option pricing model to determine fair value. The difference between the fair value of the amended Convertible Notes and the fair value of the Convertible Notes prior to the amendment was recorded as a loss on extinguishment of debt.
The debt discount associated with the Convertible Notes was amortized over the life of the Convertible Notes as amended by the November 2007 Amendment. The debt discount associated with the Convertible Note Warrants was amortized over the original life of the Convertible Notes. For the three and six months ended June 30, 2008, we amortized $214,246 and $428,491, respectively, of debt discount associated with the Convertible Notes which is included in interest expense in the accompanying condensed consolidated statements of operations.
The Placement and Finder Warrants also meet the definition of a derivative due to the cashless exercise provision. We recorded a derivative liability at its fair value of $252,254 with a corresponding entry to debt placement costs. The Placement and Finder Warrants were valued using the Black-Scholes option pricing model. We also recorded the cash compensation paid to the
14
placement agent as well as all transaction related expenses such as legal fees as debt placement costs. Debt placement costs, which totaled $610,087, were amortized on a straight-line basis over the original two year life of the Convertible Notes. Accordingly, we did not amortize any debt placement costs during 2009 or 2008.
In addition to revising the terms of the Convertible Notes as described above, in connection with the August 2008 Amendment, we issued new five-year warrants to the holders giving them the right to purchase up to 514,481 shares of the Company’s common stock at an initial exercise price of $.80 per share (subject to adjustment) (the “August 2008 Amendment Warrants”). All other terms of the warrants are identical to the Convertible Note Warrants. Accordingly, they also meet the definition of a derivative. We valued these warrants using the Black-Scholes option pricing model.
During the three and six months ended June 30, 2009, $64,442 and $162,019, respectively, of accrued interest was added to Convertible Notes principal balance.
Including the related party note payable described below in Note 10, maturities of debt that could require cash are as follows as of June 30, 2009:
|
Year |
|
Amount |
|
|
|
2009 |
|
$ |
118,465 |
|
|
2010 |
|
1,189,089 |
|
|
|
2011 |
|
8,451,562 |
|
|
|
2012 |
|
102,705 |
|
|
|
2013 |
|
112,898 |
|
|
|
Thereafter |
|
12,725 |
|
|
|
|
|
9,987,444 |
|
|
|
Less debt discount |
|
(1,321,842 |
) |
|
|
|
|
$ |
8,665,602 |
|
(4) STOCKHOLDERS’ EQUITY
Preferred Stock
Our articles of incorporation authorizes our board of directors (the “Board”) to issue up to 5,000,000 shares of preferred stock and allows the Board to determine preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications, and other terms and conditions.
Series A Preferred Stock
In connection with our merger transaction with Ceragenix Corporation in May 2005 (the “Merger”), the Board authorized the issuance of 1,000,000 shares of Series A Preferred Stock to Osmotics. The issuance of the Series A Preferred Stock was in exchange for identical shares of preferred stock issued by Ceragenix Corporation to Osmotics in January 2005. The Series A Preferred Stock had a stated value of $4.00 per share and accrued dividends at a rate of 6% per annum. In May 2008, all of the Preferred Stock and $240,000 of accrued dividends were converted into 1,304,569 shares of common stock.
Series B Preferred Stock
The Board has also authorized the issuance of 435,000 shares of Series B Preferred Stock (“Series B”). Series B has a stated value of $2.25 per share and does not accrue dividends. Series B is convertible into shares of the Company’s common stock at the option of the holder at a rate of one share of common stock for each share of Series B. In the event of liquidation, Series B ranks junior to all debt of the Company.
In June 2009, we entered into an agreement with an investor relations firm to provide certain services over a three month period. Under the terms of the agreement, we issued 60,000 shares of Series B as consideration for the services. We valued these shares at $135,000 which represents the liquidation preference value of the Series B shares that were issued. We believe that the liquidation preference is the best measurement of fair value for the securities. We recorded a prepaid expense equal to the value of these shares with a corresponding entry to stockholders’ equity. We are amortizing the prepaid expense over the term of the agreement. For the three and six months ended June 30, 2009, we amortized $22,500 which is included in general and administrative expense on the accompanying condensed consolidated statements of operations.
15
In September 2007, we entered into an agreement with an investor relations firm to provide certain services over a twelve month period. Under the terms of the agreement, we issued 300,000 shares of Series B as consideration for the services. We valued these shares at $675,000 which represents the liquidation preference value of the Series B shares that were issued. We recorded a prepaid expense equal to the value of these shares with a corresponding entry to stockholders’ equity. We amortized the prepaid expense over the term of the agreement. For the three and six months ended June 30, 2008, we amortized $168,750 and $337,500, respectively, which is included in general and administrative expense on the accompanying condensed consolidated statements of operations. The 300,000 shares of Series B were converted into 300,000 shares of common stock.
In September 2007, we renewed an agreement with an investor relations firm to provide certain services over a twelve month period. Under the terms of the agreement, we issued 75,000 shares of Series B as consideration for the services. We valued these shares at $168,750 which represents the liquidation preference value of the Series B shares that were issued. We recorded a prepaid expense equal to the value of these shares with a corresponding entry to stockholders’ equity. We amortized the prepaid expense over the term of the agreement. For the three and six months ended June 30, 2008, we amortized $42,188 and $84,375, respectively, which is included in general and administrative expense on the accompanying condensed consolidated statements of operations. The 75,000 shares of Series B were converted into 75,000 shares of common stock.
Equity Incentive Plan
On May 29, 2008, our shareholders approved the Ceragenix Pharmaceuticals, Inc. 2008 Omnibus Incentive Plan (the “2008 Plan”). The purpose of the 2008 Plan is to enhance our ability to attract and retain officers, directors, key employees and other persons, and to motivate such persons to serve the Company by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the 2008 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units, unrestricted stock, dividend equivalent rights, and cash bonus awards. Stock options granted under the 2008 Plan may be non-qualified stock options or incentive stock options, except that stock options granted to outside directors and any consultants or advisors shall in all cases be non-qualified stock options. The 2008 Plan is administered by the Compensation Committee of the Board. The number of common shares reserved for issuance under the 2008 Plan is 3,000,000. In June 2008, the Compensation Committee awarded 699,000 incentive stock options and 192,000 non qualified stock options under the 2008 Plan. There have been no other awards issued under the 2008 Plan.
For the three months ended June 30, 2009 and 2008, we recorded compensation expense related to employee stock options of $178,888 and $223,719, respectively. For the six months ended June 30, 2009 and 2008, we recorded compensation expense related to employee stock options of $357,777 and $448,624, respectively. The stock option compensation expense is included in general and administrative expense in the accompanying condensed consolidated statements of operations. We did not issue any stock options during the six months ended June 30, 2009. The weighted average fair value of stock options at the date of grant issued to employees during the six months ended June 30, 2008 was $.36 per share. We determine fair value using the Black-Scholes option pricing model. We used the following assumptions to determine the fair value of stock option grants during the six months ended June 30, 2008:
|
Six Months Ended June 30, 2008 |
|
|
|
|
Volatility |
|
49.6% - 50.5 |
% |
|
Dividend yield |
|
0 |
|
|
Risk-free interest rate |
|
2.37% - 3.20 |
% |
|
Expected term (years) |
|
5.0 |
|
The expected volatility was based on the historical price volatility of our common stock. The dividend yield represented our anticipated cash dividend on common stock over the expected life of the stock options. We utilized the U.S. Treasury bill rate for the expected life of the stock options to determine the risk-free interest rate. The expected term of stock options represents management’s estimation of the period of time that the stock options granted are expected to be outstanding
A summary of stock option activity for the six months ended June 30, 2009 is presented below. Except for 699,000 shares, all options presented below are non-qualified.
16
|
|
|
Number of
|
|
Weighted
|
|
Weighted
|
|
Aggregate
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
Balance, January 1, 2009 |
|
5,796,750 |
|
$ |
1.50 |
|
|
|
|
|
|
|
Options granted |
|
— |
|
$ |
— |
|
|
|
|
|
|
|
Options exercised |
|
— |
|
— |
|
|
|
|
|
||
|
Options canceled |
|
— |
|
— |
|
|
|
|
|
||
|
Outstanding at June 30, 2009 |
|
5,796,750 |
|
$ |
1.50 |
|
6.4 years |
|
$ |
— |
|
|
Exercisable at June 30, 2009 |
|
4,839,083 |
|
$ |
1.58 |
|
6.4 years |
|
$ |
— |
|
The total fair value of stock options that vested during the three months ended June 30, 2009 and 2008 was $ 673,139 and $868,257, respectively. The total fair value of stock options that vested during the six months ended June 30, 2009 and 2008 was $ 715,622 and $894,741, respectively. The intrinsic value of stock options exercised during the three and six months ended June 30, 2009 and 2008 was $0 as there were no options exercised during these periods. As of June 30, 2009, we had $487,550 of unrecognized compensation cost related to stock options that will be recorded over a weighted average period of approximately 1.6 years.
Additionally, in periods prior to 2008, we issued stock options to new scientific advisory board members. We valued these grants using the Black-Scholes pricing model. The compensation expense is being amortized to general and administrative expense over the three year vesting period of the options. For the three months ended June 30, 2009 and 2008, we amortized $1,442 and $6,747, respectively of compensation expense related to scientific adviso