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Document And Entity Information

v2.4.0.6
Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Mar. 23, 2012
Jun. 30, 2011
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2011    
Document Fiscal Year Focus 2011    
Document Fiscal Period Focus FY    
Entity Registrant Name CORTEX PHARMACEUTICALS INC/DE/    
Entity Central Index Key 0000849636    
Current Fiscal Year End Date --12-31    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   85,623,663  
Entity Well-known Seasoned Issuer No    
Entity Public Float     $ 6,800,000
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    

Balance Sheets

v2.4.0.6
Balance Sheets (USD $)
Dec. 31, 2011
Dec. 31, 2010
Assets    
Cash and cash equivalents $ 1,610,945 $ 1,037,549
Marketable securities   1,992,952
Restricted cash 48,309 155,736
Other current assets 85,630 89,807
Total current assets 1,744,884 3,276,044
Furniture, equipment and leasehold improvements, net 66,882 249,831
Other 8,889 41,373
Total assets 1,820,655 3,567,248
Liabilities and Stockholders' Equity    
Accounts payable 472,756 393,781
Accrued wages, salaries and related expenses 235,399 275,353
Unearned revenue 48,309 155,736
Advance for MCI project 323,779 319,761
Deferred rent 64,502 11,288
Total current liabilities 1,144,745 1,155,919
Other non-current liability   8,063
Total liabilities 1,144,745 1,163,982
Commitments and Contingencies (Note 8)      
Stockholders' equity:    
Series B convertible preferred stock, $0.001 par value; $25,001 liquidation preference; shares authorized: 37,500; shares issued and outstanding: 37,500; common shares issuable upon conversion: 3,679 21,703 21,703
Common stock, $0.001 par value; shares authorized: 205,000,000; shares issued and outstanding: 85,623,663 (December 31, 2011) and 78,858,197 (December 31, 2010) 85,624 78,858
Additional paid-in capital 121,337,670 120,816,472
Unrealized gain, available for sale marketable securities   473
Accumulated deficit (120,769,087) (118,514,240)
Total stockholders' equity 675,910 2,403,266
Total liabilities and stockholders' equity $ 1,820,655 $ 3,567,248

Balance Sheets (Parenthetical)

v2.4.0.6
Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2011
Dec. 31, 2010
Balance Sheets [Abstract]    
Series B convertible preferred stock, par value $ 0.001 $ 0.001
Series B convertible preferred stock, liquidation preference amount $ 25,001 $ 25,001
Series B convertible preferred stock, shares authorized 37,500 37,500
Series B convertible preferred stock, shares issued 37,500 37,500
Series B convertible preferred stock, shares outstanding 37,500 37,500
Series B convertible preferred stock, shares issuable upon conversion 3,679 3,679
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 205,000,000 205,000,000
Common stock, shares issued 85,623,663 78,858,197
Common stock, shares outstanding 85,623,663 78,858,197

Statements Of Operations

v2.4.0.6
Statements Of Operations (USD $)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Revenues:    
Sale of AMPAKINE assets (Note 6)   $ 10,000,000
License revenue 3,000,000  
Grant revenue 114,605 473,592
Total revenues 3,114,605 10,473,592
Operating expenses:    
Research and development 2,187,695 3,738,630
General and administrative 3,188,704 4,552,935
Total operating expenses 5,376,399 8,291,565
(Loss) income from operations (2,261,794) 2,182,027
Interest income (expense), net 6,947 (553,302)
Net (loss) income $ (2,254,847) $ 1,628,725
Net (loss) income per share (Note 1), Basic and diluted $ (0.03) $ 0.02
Shares used in calculating per share amounts (Note 1):    
Basic 79,988,864 73,678,335
Diluted 79,988,864 73,688,896

Statements Of Stockholders' Equity (Deficit) And Comprehensive Income (Loss)

v2.4.0.6
Statements Of Stockholders' Equity (Deficit) And Comprehensive Income (Loss) (USD $)
Series B Convertible Preferred Stock [Member]
Common Stock [Member]
Additional Paid-In capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Deficit [Member]
Total
Balance at Dec. 31, 2009 $ 21,703 $ 68,413 $ 118,525,140   $ (120,142,965) $ (1,527,709)
Beneficial conversion feature on note payable issued in January 2010     223,880     223,880
Issuance of 10,445,579 shares of common stock upon conversion of note payable and accrued interest   10,445 1,525,055     1,535,500
Estimated value of warrants issued upon conversion of note payable     233,766     233,766
Issuance and vesting of stock options and warrants for consultants and other service providers     8,757     8,757
Non-cash stock-based employee compensation charges     299,874     299,874
Comprehensive Income Loss            
Net loss or Income         1,628,725 1,628,725
Unrealized gain on available for sale U.S. Government and other marketable securities       473   473
Comprehensive income loss       473 1,628,725 1,629,198
Balance at Dec. 31, 2010 21,703 78,858 120,816,472 473 (118,514,240) 2,403,266
Issuance of 6,765,466 unregistered shares of common stock in October 2011 private placement   6,766 471,036     477,802
Issuance and vesting of stock options and warrants for consultants and other service providers     1,161     1,161
Non-cash stock-based employee compensation charges     49,001     49,001
Comprehensive Income Loss            
Net loss or Income         (2,254,847) (2,254,847)
Realized gain ((loss) on available for sale U.S. Government and other marketable securities       (473)   (473)
Comprehensive income loss       (473) (2,254,847) (2,255,320)
Balance at Dec. 31, 2011 $ 21,703 $ 85,624 $ 121,337,670   $ (120,769,087) $ 675,910

Statements Of Stockholders' Equity (Deficit) And Comprehensive Income (Loss) (Parenthetical)

v2.4.0.6
Statements Of Stockholders' Equity (Deficit) And Comprehensive Income (Loss) (Parenthetical)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Statements Of Stockholders' Equity (Deficit) And Comprehensive Income (Loss) [Abstract]    
Issuance of shares of common stock upon conversion of note payable and accrued interest, shares   10,445,579
Issuance of unregistered shares of common stock in October 2011 private placement 6,765,466  

Statements Of Cash Flows

v2.4.0.6
Statements Of Cash Flows (USD $)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:    
Net (loss) income $ (2,254,847) $ 1,628,725
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:    
Depreciation and amortization 106,971 112,475
Adjustment to fair value of fixed assets 43,643  
Stock option compensation expense 50,162 308,631
Amortization of beneficial conversion feature   223,880
Amortization of capitalized offering costs   57,698
Warrant issued upon conversion of promissory note   233,767
Changes in operating assets/liabilities:    
Restricted cash 107,427 (155,736)
Accrued interest on marketable securities 2,519 19,907
Other current assets 4,177 (70,229)
Other non-current assets 32,484 5,294
Accounts payable and accrued expenses 84,172 (1,226,232)
Unearned revenue (107,427) 155,736
Accrued interest on convertible promissory note   35,500
Changes in other assets and other liabilities (5,092) 9,288
Net cash (used in) provided by operating activities (1,935,811) 1,338,704
Cash flows from investing activities:    
Purchase of marketable securities   (2,622,386)
Proceeds from maturities of marketable securities 1,990,000 610,000
Purchase of fixed assets   (50,889)
Proceeds from sales of fixed assets 41,405 63,435
Net cash provided by (used in) investing activities 2,031,405 (1,999,840)
Cash flows from financing activities:    
Proceeds from issuance of common stock in October 2011 private placement 500,000  
Costs related to issuance of common stock in October 2011 private placement (22,198)  
Proceeds from issuance of convertible promissory note in January 2010 private placement   1,500,000
Costs related to issuance of convertible promissory note in January 2010 private placement   (27,781)
Net cash provided by financing activities 477,802 1,472,219
Increase in cash and cash equivalents 573,396 811,083
Cash and cash equivalents, beginning of period 1,037,549 226,466
Cash and cash equivalents, end of period 1,610,945 1,037,549
Supplemental disclosure of non-cash financing activities:    
Issuance of common stock upon conversion of promissory note   $ 1,535,500

Business And Summary Of Significant Accounting Policies

v2.4.0.6
Business And Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2011
Business And Summary of Significant Accounting Policies [Abstract]  
Business And Summary Of Significant Accounting Policies

Note 1 — Business and Summary of Significant Accounting Policies

Business — Cortex Pharmaceuticals, Inc. (the "Company") was formed to engage in the discovery, development and commercialization of innovative pharmaceuticals for the treatment of neurological and psychiatric disorders. Since its formation in 1987, the Company has been engaged in research and early clinical development activities.

From inception through December 31, 2011, the Company has generated only modest operating revenues. For the year ended December 31, 2011, revenues included amounts related to the restated agreement with Les Laboratoires Servier ("Servier"), as further described in Note 5. Revenues for the year ended December 31, 2010 primarily resulted from the March 2010 transaction with Biovail Laboratories International SRL ("Biovail"), as described more fully in Note 6.

Going Concern — The Company will require substantial additional funds to advance its research and development programs and to continue its operations, particularly if it decides to independently conduct later-stage clinical testing and apply for regulatory approval of any of its proposed products, and if it independently undertakes marketing and promotion of its products. Additionally, the Company will require additional funds in the event that it decides to pursue strategic acquisitions or licenses for other products or businesses. Based on its current operating plan, including research and development costs, the Company estimates that its existing cash resources will be sufficient to meet its requirements into the second quarter of 2012. This raises substantial doubt about the Company's ability to continue as a going concern, which will be dependent on its ability to obtain additional financing and to generate sufficient cash flows to meet its obligations on a timely basis.

The Company is exploring its strategic and financial alternatives for its AMPAKINE program and although it is presently engaged in discussions with a number of candidate companies, there can be no assurance that an agreement will arise from these discussions in a timely manner, or at all.

The Company may need to raise additional capital through the sale of debt or equity and may consider a merger transaction with another pharmaceutical company. The Company believes that without additional investment capital, it will not have sufficient cash to fund its activities in the near future, and will not be able to continue operating. As such, the Company's continuation as a going concern is dependent upon its ability to raise additional financing.

If the Company is unable to obtain additional financing to fund operations beyond mid-second quarter of 2012, it will need to eliminate some or all of its activities, merge with another company, sell some or all of its assets to another company, or cease operations entirely. There can be no assurance that the Company will be able to obtain additional financing on favorable terms or at all, or that the Company will be able to merge with another Company or sell any or all of its assets.

Cash Equivalents — The Company considers all highly liquid short-term investments with maturities of less than three months when acquired to be cash equivalents.

Marketable Securities — Marketable securities are carried at fair value, with unrealized gains and losses, net of any tax, reported as a separate component of stockholders' equity. The Company utilizes observable inputs based on quoted prices in active markets for identical assets to record the fair value of its marketable securities. Authoritative guidance that establishes a framework for fair value for generally accepted accounting principles in the United States deems observable inputs for identical assets as Level 1 inputs, the most reliable in the hierarchy of inputs for determining fair value measurements.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on short-term investments are included in interest income, net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Concentrations of Credit Risk — Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company limits its exposure to credit loss by investing its cash with high credit quality financial institutions.

Furniture, Equipment and Leasehold Improvements — Furniture, equipment and leasehold improvements are recorded at cost and depreciated on a straight-line basis over the lesser of their estimated useful lives, ranging from five to ten years, or the life of the lease, as appropriate.

Long-Lived Assets — The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the total amount of an asset may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and the eventual disposition are less than the asset's carrying amount. The Company did not recognize any significant impairment losses during any of the periods presented.

Revenue Recognition — The Company recognizes revenue when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the fees earned can be readily determined; and (iv) collectibility of the fees is reasonably assured.

Amounts received for upfront technology license fees under multiple-element arrangements are deferred and recognized over the period of committed services or performance, if such arrangements require the Company's on-going services or performance.

The Company records research grant revenues as the expenses related to the grant projects are incurred. Amounts received under research grants are nonrefundable, regardless of the success of the underlying research, to the extent that such amounts are expended in accordance with the approved grant project.

Employee Stock Options and Stock-Based Compensation — All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values. For options granted during the years ended December 31, 2011 and 2010, the fair value of each option award was estimated using the Black-Scholes option pricing model and the following assumptions:

 

     Year ended December 31,  
     2011     2010  

Weighted average risk-free interest rate

     2.8     3.2

Dividend yield

     0     0

Volatility factor of the expected market price of the Company's common stock

     107     108

Weighted average life

     7.0 years        6.9 years   

Expected volatility is based on the historical volatility of the Company's stock. The Company also uses historical data to estimate the expected term of options granted and employee termination rates. The risk-free rate for periods within the expected useful life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

The estimated weighted average fair value of options granted during the years ended December 31, 2011 and 2010 was $0.11 and $0.14, respectively.

As of December 31, 2011, there was approximately $43,000 of total unrecognized compensation cost related to non-vested share-based employee compensation arrangements. That non-cash cost is expected to be recognized over a weighted-average period of one year.

Stock options and warrants issued to non-employees as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. The Company did not record significant charges for non-cash stock-based compensation for options issued to consultants and other non-employees for any of the periods presented.

The Company issues new shares to satisfy stock option and warrant exercises. There were no options exercised during the years ended December 31, 2011 and 2010.

Research and Development Costs — All costs related to research and development activities are treated as expenses in the period incurred.

Comprehensive Income (Loss) — All components of comprehensive income or loss, including net income or loss, are reported in the financial statements in the period in which they are recognized. Comprehensive income or loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including unrealized gains and losses on investments, are reported net of any related tax effect to arrive at comprehensive income (loss).

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, "Presentation of Comprehensive Income" (ASU 2011-05). ASU 2011-05 requires comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income. ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholder's equity.

The Company has yet to determine which of the two approved methods it will use to report its other comprehensive income. The Company will be required to adopt ASU 2011-05 retroactively effective January 1, 2012 and such adoption is not expected to have a material impact on the Company's financial position or its results of operations.

Net Income (Loss) per Share — Net income (loss) per share is computed based on the weighted average number of common shares outstanding.

As of December 31, 2011, the Company has reserved approximately 36.6 million shares of common stock for issuance upon exercise of outstanding stock options and stock purchase warrants, as well as for conversion of the Company's Series B preferred stock, as further described in Note 4. For the year ended December 31, 2011, the effect of the potentially issuable shares of common stock was not included in the calculation of diluted loss per share given that the effect would be anti-dilutive.

For the year ended December 31, 2010, the following table reconciles the numerators and denominators of the basic and diluted income per share computations.

 

     For the Year Ended December 31, 2010  
     Net income
(Numerator)
     Shares
(Denominator)
     Per-Share
Amount
 

Basic Earnings per Share:

        

Net income applicable to common stock

   $ 1,628,725         73,678,335       $ 0.02   

Effect of Dilutive Securities:

        

Options to purchase common stock

     —           10,561      
  

 

 

    

 

 

    

Diluted Earnings per Share:

        

Net income applicable to common stock

        

+ assumed conversions

   $ 1,628,725         73,688,896       $ 0.02   
  

 

 

    

 

 

    

 

 

 

 

Options to purchase up to 11,861,640 shares of the Company's common stock at a weighted average price of $1.42 per share were outstanding as of December 31, 2010, but were excluded from the calculation of diluted income per share given that the options' exercise price exceeded the average market price of the Company's common stock. Similarly, warrants to purchase up to 24,126,952 shares of the Company's common stock at a weighted average price of $0.74 per share were outstanding as of December 31, 2010 and were excluded from the calculation of diluted income per share given that the exercise price of the warrants exceeded the average market price of the Company's common stock.

The effect of the shares issued upon conversion of the convertible promissory note (see Note 3) were included and weighted for the period the shares were outstanding after the conversion. The weighted effect of shares assumed issued for the period the convertible securities were outstanding prior to conversion, and the additions to the numerator for charges related to the promissory note, including the beneficial conversion feature within the promissory note and the allocated fair value of warrants issued upon the note's conversion, were not included in the calculation of diluted earnings per share given that the effect would have been anti-dilutive.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts may differ from those estimates.

Reclassifications — Certain reclassifications have been made to the Cash Flow Statement for the year ended December 31, 2010 to conform with the presentation for the year ended December 31, 2011.

Detail Of Selected Balance Sheet Accounts

v2.4.0.6
Detail Of Selected Balance Sheet Accounts
12 Months Ended
Dec. 31, 2011
Detail Of Selected Balance Sheet Accounts [Abstract]  
Detail Of Selected Balance Sheet Accounts

Note 2 — Detail of Selected Balance Sheet Accounts

The Company did not hold any marketable securities as of December 31, 2011. The following is a summary of marketable securities as of December 31, 2010:

 

     Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair Value
 

Corporate obligations

   $ 518,208       $ —         $ (141   $ 518,067   

Mortgage backed government securities

     475,081         24         —          475,105   

U.S. government obligations

     999,206         574         —          999,780   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total marketable securities

   $ 1,992,495       $ 598       $ (141   $ 1,992,952   
  

 

 

    

 

 

    

 

 

   

 

 

 

The amortized cost and estimated fair value of available-for-sale marketable securities as of December 31, 2010, by contractual maturity, are as follows:

 

     Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair Value
 

Maturities

          

Within one year

     1,992,495         598         (141     1,992,952   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total marketable securities

   $ 1,992,495       $ 598       $ (141   $ 1,992,952   
  

 

 

    

 

 

    

 

 

   

 

 

 

Gross realized gains and losses on sales of marketable securities were not significant in the years ended December 31, 2011 and 2010. The Company manages risk on its investment portfolio by matching scheduled investment maturities with its cash requirements.

Furniture, equipment and leasehold improvements consist of the following:

 

     December 31,  
     2011     2010  

Laboratory equipment

   $ 59,822      $ 1,516,859   

Leasehold improvements

     766,905        773,871   

Furniture and equipment

     170,447        183,549   

Computers and software

     173,675        340,083   
  

 

 

   

 

 

 
     1,170,849        2,814,362   

Accumulated depreciation

     (1,103,967     (2,564,531
  

 

 

   

 

 

 
   $ 66,882      $ 249,831   
  

 

 

   

 

 

 

Transactions With Samyang

v2.4.0.6
Transactions With Samyang
12 Months Ended
Dec. 31, 2011
Transactions With Samyang [Abstract]  
Transactions With Samyang

Note 3 — Transactions with Samyang

In January 2010, the Company completed a private placement of a convertible promissory note in the principal amount of $1,500,000 with a single accredited institutional investor, Samyang Optics Co., Ltd. ("Samyang") of Korea. The promissory note accrued simple interest at the rate of 6% per annum and was convertible into unregistered shares of the Company's common stock at Samyang's election at any time on or after April 15, 2010 and on or before the January 15, 2011 maturity date (the "maturity date").

In June 2010, the promissory note and the related accrued interest were converted by Samyang into a total of 10,445,579 unregistered shares of the Company's common stock at an effective conversion price of $0.147 per share. The number of common shares issuable upon conversion of the promissory note was based upon the greater of: (i) $0.134 per share or (ii) an amount representing a 15% discount to the five-day volume weighted average closing price of the Company's common stock immediately prior to the conversion date.

In connection with the conversion of the promissory note, the Company was obligated to issue to Samyang two-year warrants to purchase up to 4,081,633 additional unregistered shares of the Company's common stock at an exercise price of $0.206 per share. The warrants include a call right, in favor of the Company, to the extent the weighted average closing price of the Company's common stock exceeds $0.309 per share for each of ten consecutive trading days, subject to certain circumstances.

In recording the proceeds from the private placement, the Company evaluated the conversion feature within the promissory note and determined that such embedded feature is indexed to the Company's common stock and should not be separated from the promissory note and accounted for as a derivative instrument. The Company also evaluated the exercise feature for the potentially issuable warrants and deemed the instruments indexed to the Company's common stock and subject to equity classification within the Company's balance sheet.

The value of the promissory note was estimated as of the issuance date based upon the fair value of the underlying common stock issuable upon its conversion. At the same time, the fair value of the warrants potentially issuable to the investor was estimated using the Black-Scholes option pricing model. The Company then used the relative fair value method to allocate the proceeds to the promissory note and the potentially issuable warrants.

Based upon the allocated proceeds, the Company calculated an effective conversion price for the promissory note and then measured the intrinsic value of the beneficial conversion right embedded within the promissory note. The beneficial conversion right is based on the difference between the fair value of the Company's common stock and the effective conversion price of the promissory note on the closing date of the offering.

The value of the beneficial conversion right of approximately $224,000 was originally amortized as interest expense over the 15-month period until potential redemption of the promissory note, or April 15, 2011, along with capitalized offering costs incurred in connection with the transaction. Upon conversion of the promissory note in June 2010, the unamortized balances for the beneficial conversion right and the capitalized offering costs were immediately amortized as interest expense.

Upon issuance of the warrants resulting from conversion of the promissory note, the previously estimated relative fair value allocated to the warrants was recorded as interest expense, with an offsetting entry to additional paid-in capital.

In October 2011, the Company completed a private placement of $500,000 in securities with Samyang Value Partners Co., Ltd., a wholly owned subsidiary of Samyang. The transaction included the issuance of 6,765,466 unregistered shares of the Company's common stock and two-year warrants to purchase up to an additional 1,691,367 unregistered shares of its common stock. The warrants have an exercise price of $0.1035 per share and a call right, in favor of the Company, to the extent the weighted average closing price of the Company's common stock exceeds $0.1553 per share for each of ten consecutive trading days, subject to certain circumstances.

In connection with the investment, the Company and Samyang entered into a non-binding memorandum of understanding ("MOU") regarding a potential license agreement for rights to the AMPAKINE CX1739 for the treatment of neurodegenerative diseases in South Korea. The MOU also provided Samyang with rights of negotiation to expand its territory into other South East Asian countries, excluding Japan, Taiwan and China, and to include rights to the high impact AMPAKINE CX1846 for the potential treatment of neurodegenerative diseases. The related license agreement was subsequently completed in January 2012.

Stockholders' Equity

v2.4.0.6
Stockholders' Equity
12 Months Ended
Dec. 31, 2011
Stockholders' Equity [Abstract]  
Stockholders' Equity

Note 4 — Stockholders' Equity

Preferred Stock

The Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.001 per share, of which, as of December 31, 2011, 1,250,000 shares have been designated as 9% Cumulative Convertible Preferred Stock (non-voting, "9% Preferred"); 37,500 shares have been designated as Series B Convertible Preferred Stock (non-voting, "Series B Preferred"); 205,000 have been designated as Series A Junior Participating Preferred Stock (non-voting, "Series A Junior Participating") and 3,507,500 shares were undesignated and may be issued with such rights and powers as the Board of Directors may designate. No shares of the 9% Preferred or the Series A Junior Participating were outstanding during the years ended December 31, 2011 and 2010.

Series B Preferred outstanding as of December 31, 2011 and 2010 consisted of 37,500 shares issued in a May 1991 private placement. Each share of Series B Preferred is convertible into approximately 0.09812 shares of common stock at an effective conversion price of $6.795 per share of common stock, subject to adjustment under certain circumstances. As of December 31, 2011, the remaining shares of Series B Preferred outstanding are convertible into 3,679 shares of common stock. The Company may redeem the Series B Preferred at a price of $0.6667 per share, an amount equal to its liquidation preference, at any time upon 30 days' prior notice.

Common Stock and Common Stock Purchase Warrants

Under the terms of the Company's completed registered direct offering with several institutional investors in January 2007, the Company sold an aggregate of 5,021,427 shares of its common stock and warrants to purchase 3,263,927 shares of its common stock. The warrants have an exercise price of $1.66 per share and were exercisable on or before January 21, 2012. During the year ended December 31, 2007, the Company received approximately $443,000 from the exercise of related warrants. No other related warrants were exercised and the remaining 2,996,927 warrants expired unexercised in January 2012.

Under the terms of the Company's completed registered direct offering with several institutional investors in August 2007, the Company sold an aggregate of 7,075,000 shares of its common stock and warrants to purchase 2,830,000 shares of its common stock to the investors. The investors' warrants have an exercise price of $2.64 per share and are exercisable on or before August 28, 2012. In addition, the Company issued warrants to purchase up to an aggregate of 176,875 shares of its common stock to the placement agents in the offering. The placement agents' warrants have an exercise price of $3.96 per share and are exercisable on or before August 28, 2012. No related warrants were exercised during the years ended December 31, 2010 and 2011. If the investor and placement agent warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $8,172,000 of additional capital.

In connection with the registered direct offering of the Company's 0% Series E Convertible Preferred Stock in April 2009, the Company issued warrants to purchase an aggregate of 6,941,176 shares of its common stock to a single institutional investor. The warrants were issued with an exercise price of $0.3401 per share and are exercisable on or before October 17, 2012. In February 2010, the exercise price of these warrants was reduced to $0.2721 in exchange for the investor's consent and waiver with respect to the Company's completed financing transaction with Samyang Optics Co., Ltd. in January 2010, as explained more fully in Note 3. The warrants also are subject to a call provision in favor of the Company to the extent that the volume weighted average price of the Company's common stock exceeds $0.6802 for any 20 consecutive trading days. If the warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $1,889,000 of additional capital. The Company also issued warrants to purchase up to an additional aggregate of 433,824 shares of the Company's common stock to the placement agent for the transaction. These warrants have an exercise price of $0.26 per share and are subject to the same term of exercisability as the warrants issued to the investor. The warrants issued to the placement agent are subject to a call provision in favor of the Company to the extent that the volume weighted average price of the Company's common stock exceeds $0.52 for any 20 consecutive trading days. If the warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $113,000 of additional capital. No related warrants were exercised during the years ended December 31, 2010 and 2011.

In connection with the private placement of the Company's Series F Convertible Preferred Stock in July 2009, the Company issued warrants to purchase an aggregate of 6,060,470 shares of its common stock to a single institutional investor. The warrants have an exercise price of $0.2699 per share and are exercisable on or before January 31, 2013. If the warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $1,636,000 of additional capital. The Company also issued warrants to purchase up to an additional aggregate of 606,047 shares of the Company's common stock to the placement agent for the transaction. These warrants have an exercise price of $0.3656 per share and are subject to the same term of exercisability as the warrants issued to the investor. The warrants issued to the investor and the placement agent are subject to a call provision in favor of the Company to the extent that the volume weighted average price of the Company's common stock exceeds $0.5398 for any 20 consecutive trading days. If the warrants issued to the placement agent are fully exercised, of which there can be no assurance, these warrants would provide approximately $222,000 of additional capital. No related warrants were exercised during the years ended December 31, 2010 and 2011.

Warrants issued in connection with the Company's prior financing transactions detailed above permit the Company to settle such warrants in unregistered shares by means of a cashless exercise. Using a cashless exercise, the holder of the warrants would receive a number of unregistered shares representing the gain on exercise of such warrants, divided by the volume weighted average price of the Company's common stock on the trading day immediately preceding such exercise. Given the Company's ability to settle the warrants with unregistered shares, the Company has not accounted for these warrants as derivative liabilities.

In connection with the conversion of the promissory note issued to Samyang (see Note 3), in June 2010 the Company issued to Samyang two-year warrants to purchase up to 4,081,633 unregistered shares of the Company's common stock at an exercise price of $0.206 per share. The warrants include a call right, in favor of the Company, to the extent the weighted average closing price of the Company's common stock exceeds $0.309 per share for each of ten consecutive trading days, subject to certain circumstances.

In connection with the private placement of common stock issued to Samyang (see Note 3), in October 2011 the Company issued to Samyang two-year warrants to purchase up to 1,691,367 unregistered shares of the Company's common stock at an exercise price of $0.1035 per share. The warrants include a call right, in favor of the Company, to the extent the weighted average closing price of the Company's common stock exceeds $0.1553 per share for each of ten consecutive trading days, subject to certain circumstances.

Warrant transactions by the Company for the years ended December 31, 2010 and 2011 are summarized below:

 

     Number of
underlying
shares
    Weighted average
exercise price

per share
 

Outstanding as of December 31, 2009

     20,195,319      $ 0.89   

Issued

     4,081,633        0.21   

Exercised

     —          —     

Expired

     (150,000     2.78   
  

 

 

   

Outstanding as of December 31, 2010

     24,126,952      $ 0.74   

Issued

     1,691,367        0.10   

Exercised

     —          —     

Expired

     —          —     
  

 

 

   

 

 

 

Outstanding as of December 31, 2011

     25,818,319      $ 0.70   
  

 

 

   

 

 

 

Information regarding warrants outstanding at December 31, 2011 is as follows:

 

Range of exercise prices

   Number
outstanding and
exercisable at
December 31,
2011
     Weighted
average
remaining
contractual life
     Weighted
average
exercise price
 

$0.10 - $0.37

     19,814,517         0.9 years       $ 0.25   

$1.66

     2,996,927         0.1 years         1.66   

$2.64 - $3.96

     3,006,875         0.7 years         2.72   
  

 

 

       
     25,818,319         
  

 

 

       

Stock Option and Stock Purchase Plan

The Company's 1996 Stock Incentive Plan (the "1996 Plan"), which terminated pursuant to its terms on October 25, 2006, provided for the granting of options and rights to purchase up to an aggregate of 10,213,474 shares of the Company's authorized but unissued common stock to qualified employees, officers, directors, consultants and other service providers. Options previously granted under the 1996 Plan generally vest over a three-year period, although some options granted to officers included more accelerated vesting. Options previously granted under the 1996 Plan generally expire ten years from the date of grant, but some options granted to consultants expire five years from the date of grant.

On March 30, 2006, the Company's Board of Directors approved the 2006 Stock Incentive Plan (the "2006 Plan"), which subsequently was approved by the Company's stockholders on May 10, 2006. Since the approval of the 2006 Plan, no further options have been or will be granted under the 1996 Plan. The 2006 Plan provides for the granting of options and rights to purchase up to an aggregate of 9,863,799 shares of the Company's authorized but unissued common stock (subject to adjustment under certain circumstances, such as stock splits, recapitalizations and reorganization) to qualified employees, officers, directors, consultants and other service providers.

Under the 2006 Plan, the Company may issue a variety of equity vehicles to provide flexibility in implementing equity awards, including incentive stock options, nonqualified stock options, restricted stock grants, stock appreciation rights, stock payment awards, restricted stock units and dividend equivalents. The exercise price of stock options offered under the 2006 Plan must be at least 100% of the fair market value of the common stock on the date of grant. If the person to whom an incentive stock option is granted is a 10% stockholder of the Company on the date of grant, the exercise price per share shall not be less than 110% of the fair market value on the date of grant. Vesting and expiration provisions for options granted under the 2006 Plan are similar to those under the 1996 Plan.

Subject to any restrictions under federal or securities laws, the Chief Executive Officer may award stock options to new non executive-officer employees and consultants, with a market value at the time of hire equivalent to up to 100% of the employee's annual salary or the consultant's anticipated annual consulting fees. The Chief Executive Officer shall have the discretion to increase or decrease such awards based on market and recruiting factors subject to a limit per person in each case of options to purchase 50,000 shares. Additionally, on an annual basis, the Chief Executive Officer may grant continuing employees and consultants, based upon performance and objectives, a stock option for that number of shares up to 40% of the employee's annual salary or the consultant's annual fees, but not to exceed 50,000 shares per person per year. Any option grant exceeding 50,000 shares per person per year requires approval by the Compensation Committee of the Board of Directors. These options shall be granted with an exercise price equal to the fair market value of the Company's common stock on the date of issuance, have a ten-year term, vest annually over a three-year period from the dates of grant and have other terms consistent with the 2006 Plan.

Each non-employee director (other than those who serve on the Board of Directors to oversee an investment in the Company) is automatically granted options to purchase 30,000 shares of common stock upon commencement of service as a director and, each non-employee director is automatically granted additional options to purchase 30,000 shares of common stock on the date of the first meeting of the Board of Directors for the relative calendar year. Stock option issuances to non-employee directors who serve on the Board of Directors to oversee an investment in the Company are determined separately. No non-employee directors currently serve in that capacity. The nonqualified options to non-employee directors have an exercise price equal to 100% of the fair market value of the common stock on the date of grant, have a ten-year term and vest annually over a three-year period from the dates of grant.

As of December 31, 2011, options to purchase an aggregate of 9,569,860 shares of common stock were exercisable under the Company's stock option plans. During the years ended December 31, 2011 and 2010, the Company did not issue options to purchase shares of common stock with exercise prices below the fair market value of the common stock on the dates of grant.

Stock option transactions under the Company's stock option plans for the years ended December 31, 2010 and 2011 are summarized below:

 

     Shares     Weighted
Average
Per Share
Exercise
Price
     Weighted Average
Remaining
Contractual Term
     Aggregate
Intrinsic Value
 

Balance, December 31, 2009

     13,538,498      $ 1.41         

Granted

     280,000      $ 0.16         

Exercised

     —        $ —           

Expired

     (1,339,650   $ 1.56         

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