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Restatement of Previously Issued Financial Statements
 12 Months Ended
Dec. 31, 2010
Restatement of Previously Issued Financial Statements [Abstract]  
Restatement of Previously Issued Financial Statements
19. Restatement of Previously Issued Financial Statements
     On March 28, 2011, Management of Emisphere Technologies, Inc. (the “Company”), after consulting with the Audit Committee of the Board of Directors and with McGladrey and Pullen, LLP (“McGladrey”), its independent registered public accounting firm, concluded that the Company’s previously issued financial statements included in its quarterly interim period reports previously reported on Forms 10-Q for the periods ended March 31, June 30, and September 30, 2009 and 2010, and its annual report on Form 10-K for the period ended December 31, 2009 (the “Financial Statement Periods”) should no longer be relied upon due to errors in the application of accounting guidance regarding the determination of whether a financial instrument is indexed to its own stock. At the time these financial statements were originally issued, the Company had reviewed its accounting for the adoption of Financial Accounting Standards Board Accounting Codification Topic 815-40-15-5, “Evaluating Whether an Instrument Is Considered Indexed to an Entity’s Own Stock” (“FASB 815-40-15-5” or the “Guidance”) and concluded it was in accordance with GAAP. The Company’s adoption of the Guidance was not straightforward because GAAP specifies the application of a level interest method to amortize interest and debt discounts in accordance with FASB 835-30-35-2, “The Interest Method” (“FASB 835-30-35-2”) . In adopting the guidance, the Company estimated the fair value of the bifurcated conversion feature embedded in the Company’s 11% senior secured convertible notes in favor of MHR Institutional Partners IIA due September 26, 2012 (collectively, the “MHR Convertible Notes”) as a derivative liability and developed an amortization schedule to recognize non-cash interest expense and debt discounts over time. In accordance with the guidance, the Company deducted the incremental value of the conversion feature from the book value of the instrument at its inception. Because the fair value of the conversion feature was in excess of the book value of the instrument, the Company believed it could not apply a level rate method to determine the amortization schedule because the resulting book value would have been $0 and because it is mathematically impossible to apply a level interest rate to amortize from a $0 balance. Therefore, the Company developed an amortization schedule that it believed was consistent with the adoption of the new accounting guidance and was still representative of the economic substance of the financial instrument. This accounting treatment was reflected in the Company’s financial statements during the Financial Statement Periods.
     McGladrey audited the Company’s financial statements for 2009. The Company’s Audit Committee and Management discussed the results of the audit including a review of financial statements for 2009 with McGladrey.
     On March 24, 2011, McGladrey notified the Company that the amortization schedule described above was not in accordance with the level rate method required by GAAP and that it should be recalculated accordingly. McGladrey further notified the Company that as a result of this error, the financial statements did not reflect the proper amortization of non-cash interest expense and debt discounts in connection with the bifurcated conversion feature embedded in the MHR Convertible Notes as a derivative liability. McGladrey further notified the Company that it should make disclosures and take appropriate actions to prevent future reliance on the financial statements disclosed in the Financial Statement Periods.
     After discussions between Management, the Audit Committee and McGladrey, the Company reevaluated its accounting for the adoption of the Guidance and for its assessment of the debt modification entered into during June 2010 and determined that its original accounting was incorrect. Consequently, the Company determined to restate its financial statements for the Financial Statement Periods. The Company used the level rate method in accordance with FASB 835-30-35-2 to revise its amortization schedule in accordance with GAAP. The Company assigned a beginning balance nominally close to $0 to develop this amortization schedule. The restatements of financial statements previously reported on Forms 10-Q for the periods ended March 31, June 30, and September 30, 2009 and 2010, and on Form 10-K for the period ended December 31, 2009 will reflect adjustments primarily to correct for the revised amortization schedule and resulting overstatement of non-cash interest charges and the recorded value of notes payable, which included the effects of the accretion of debt discount resulting from the valuation of the embedded derivative associated with the MHR Convertible Note. Additionally, after correcting the misapplication of guidance for determining whether a financial instrument is indexed to its own stock, the Company reevaluated its accounting for debt modification in connection with the Master Agreement and Amendment by and between the Company and Novartis Pharma AG dated June 4, 2010 and the letter agreement entered into with MHR in connection therewith and concluded that modifications to the MHR Convertible Notes should have been accounted for as extinguishment of debt in accordance with FASB ASC 470-50, “Modifications and Extinguishments”, which resulted in a $17.0 million non-cash adjustment to recognize the loss on extinguishment of debt.
     The Company emphasizes that all reclassifications and related charges to correct the misapplication of the relevant accounting pronouncement and subsequent debt modification adjustment have no impact on the Company’s operating income, its cash position, its cash flows or its future cash requirements.
     The tables below summarize the impact of the restatements described above on financial information previously reported on the Company’s Forms 10-Q for the periods ended March 31, June 30, and September 30, 2009 and 2010 and on Form 10-K for the period ended December 2009. The restatement did not impact cash flow from operating, investing, or financing activities.
Audited Financial Statements:
                         
    Restated           As Reported
    2009   Adjustments   2009
    ($thousands, except per share data)
BALANCE SHEET DATA:
                       
Assets
                       
Deferred financing costs
  $ —     $ (346 )(1)   $ 346  
Total assets
  $ 5,587     $ (346 )   $ 5,933  
Liabilities
                       
Notes payable, including accrued interest
  $ 93     $ (12,983 )(1)   $ 13,076  
Total liabilities
  $ 40,814     $ (12,983 )   $ 53,797  
Equity
                       
Accumulated deficit
  $ (424,034 )   $ 12,637 (1)   $ (436,671 )
Total stockholders’ deficit
  $ (35,227 )   $ 12,637     $ (47,864 )
STATEMENT OF OPERATIONS
                       
SELECTED DATA:
                       
Other non-operating income (expense)
                       
Interest expense, related party
  $ (82 )   $ 4,422 (1)   $ (4,504 )
Total other non-operating income (expense)
  $ (2,269 )   $ 4,422     $ (6,691 )
Net loss
  $ (16,821 )   $ 4,422     $ (21,243 )
Loss per common share, basic and diluted
  $ (0.49 )   $ 0.12     $ (0.61 )
CASH FLOW DATA:
                       
Net loss
  $ (16,821 )   $ 4,422     $ (21,243 )
Non-cash interest expense related party
  $ 82     $ (4,422 )   $ 4,504  
Net cash used in operating activities
  $ (11,931 )   $ —     $ (11,931 )
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
2009 Balance Sheets (unaudited — $thousands)
                                                                         
    March 31,   June 30,   September 30,
    Restated           Reported   Restated           Reported   Restated           Reported
    2009   Adjustments   2009   2009   Adjustments   2009   2009   Adjustments   2009
Assets:
                                                                       
Current assets:
                                                                       
Cash and cash equivalents
    3,951       —       3,951       1,279       —       1,279       6,975       —       6,975  
Accounts receivable, net
    15       —       15       72       —       72       21       —       21  
Prepaid expenses and other current assets
    300       —       300       402       —       402       253       —       253  
Total current assets
    4,266       —       4,266       1,753       —       1,753       7,249       —       7,249  
Equipment and leasehold improvements, net
    312       —       312       244       —       244       161       —       161  
Purchased technology, net
    1,256       —       1,256       1,196       —       1,196       1,137       —       1,137  
Restricted cash
    255       —       255       255       —       255       255       —       255  
Other assets(1)
    —       (404 )     404       —       (386 )     386       —       (367 )     367  
Total assets
    6,089       (404 )     6,493       3,448       (386 )     3,834       8,802       (367 )     9,169  
Liabilities and Stockholders’ Deficit:
                                                                       
Current liabilities:
                                                                       
Notes payable, including accrued interest and net of related discount
    12,146       —       12,146       12,283       —       12,283       12,422       —       12,422  
Accounts payable and accrued expenses
    3,288       —       3,288       3,403       —       3,403       4,511       —       4,511  
Deferred revenue, current
    110       —       110       —       —       —       9       —       9  
Derivative instruments Related party
    173       —       173       337       —       337       2,179       —       2,179  
Others
    268       —       268       557       —       557       2,042       —       2,042  
Restructuring accrual, current
    1,503       —       1,503       1,253       —       1,253       1,253       —       1,253  
Other current liabilities
    22       —       22       48       —       48       51       —       51  
Total current liabilities
    17,510       —       17,510       17,881       —       17,881       22,467       —       22,467  
Notes payable, including accrued interest and net of related discount
    19       (9,655 )     9,674       32       (10,721 )     10,753       52       (11,831 )     11,883  
Restructuring accrual
    750       —       750       —       —       —       —       —       —  
Deferred revenue
    11,403       —       11,403       11,460       —       11,460       11,467       —       11,467  
Derivative instrument related party
    3,194       —       3,194       3,224       —       3,224       3,800       —       3,800  
Deferred lease liability and other liabilities
    123       —       123       96       —       96       90       —       90  
Total liabilities
    32,999       (9,655 )     42,654       32,693       (10,721 )     43,414       37,876       (11,831 )     49,707  
Stockholders’ deficit:
                                                                       
Preferred stock, $.01 par value; authorized 1,000,000 shares
    —       —       —       —       —       —       —       —          
Common stock, $.01 par value; authorized 100,000,000 shares; issued 30,630,810 shares (30,341,078 outstanding) ; issued 30,630,810 (30,341,078 outstanding); issued 42,360,133 (42,070,401 outstanding) in the first, second and third quarter , respectively
    306       —       306       306       —       306       424       —       424  
Additional paid-in-capital
    388,330       —       388,330       389,098       —       389,098       392,059       —       392,059  
Accumulated deficit
    (411,594 )     9,251       (420,845 )     (414,697 )     10,335       (425,032 )     (417,605 )     11,464       (429,069 )
Common stock held in treasury, at cost; 289,732 shares
    (3,952 )     —       (3,952 )     (3,952 )     —       (3,952 )     (3,952 )     —       (3,952 )
Total stockholders’ deficit
    (26,910 )     9,251       (36,161 )     (29,245 )     10,335       (39,580 )     (29,074 )     11,464       (40,538 )
Total liabilities and stockholders’ deficit
    6,089       (404 )     6,493       3,448       (386 )     3,834       8,802       (367 )     9,169  
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
2009 Statements of Operations — Quarterly (unaudited — $thousands, except per share data)
                                                                         
    Three Months Ended March 31,   Three Months Ended June 30,   Three Months Ended September 30,
    Restated           Reported   Restated           Reported   Restated           Reported
    2009   Adjustments   2009   2009   Adjustments   2009   2009   Adjustments   2009
Revenue
    —       —       —       —       —       —       —       —       —  
Costs and expenses:
                                                                       
Research and development
    1,923       —       1,923       748       —       748       782       —       782  
General and administrative expenses
    2,921       —       2,921       2,933       —       2,933       2,493       —       2,493  
Restructuring costs
    (353 )     —       (353 )     —       —       —       —       —       —  
Gain on disposal of fixed assets
    (43 )     —       (43 )     (779 )     —       (779 )     (2 )     —       (2 )
Depreciation and amortization
    211       —       211       96       —       96       120       —       120  
Total costs and expenses
    4,659       —       4,659       2,998       —       2,998       3,393       —       3,393  
Operating income (loss)
    (4,659 )     —       (4,659 )     (2,998 )     —       (2,998 )     (3,393 )     —       (3,393 )
Other non-operating income (expense):
                                                                       
Other income (expense)
    41       —       41       27       —       27       24       —       24  
Sublease income
    232       —       232       —       —       —       —       —       —  
Sale of patents
    —       —       —       500       —       500       —       —       —  
Change in fair value of derivative instruments
                                                                       
Related party(1)
    113       —       113       (193 )     —       (193 )     45       —       45  
Other
    35       —       35       (289 )     —       (289 )     576       —       576  
Interest expense
                                                                       
Related party
    (8 )     1,036       (1,044 )     (13 )     1,084       (1,097 )     (20 )     1,130       (1,150 )
Other
    (135 )     —       (135 )     (137 )     —       (137 )     (139 )     —       (139 )
Total other non-operating income (expense)
    278       1,036       (758 )     (105 )     1,084       (1,189 )     486       1,130       (644 )
Net loss
    (4,381 )     1,036       (5,417 )     (3,103 )     1,084       (4,187 )     (2,907 )     1,130       (4,037 )
Net loss per share, basic and diluted
    (0.14 )     0.04       (0.18 )     (0.10 )     0.04       (0.14 )     (0.08 )     0.03       (0.11 )
Weighted average shares outstanding, basic and diluted
    30,341,078               30,341,078       30,341,078               30,341,078       35,695,769               35,695,769  
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
2009 Statements of Operations — Year to Date (unaudited — $thousands, except per share data)
                                                                         
    Three Months Ended March 31,   Three Months Ended June 30,   Three Months Ended September 30,
    Restated           Reported   Restated           Reported   Restated           Reported
    2009   Adjustments   2009   2009   Adjustments   2009   2009   Adjustments   2009
Revenue
    —       —       —       —       —       —       —       —       —  
Costs and expenses:
                                                                       
Research and development
    1,923       —       1,923       2,670       —       2,670       3,452       —       3,452  
General and administrative expenses
    2,921       —       2,921       5,855       —       5,855       8,348       —       8,348  
Restructuring costs
    (353 )     —       (353 )     (353 )     —       (353 )     (353 )     —       (353 )
Gain on disposal of fixed assets
    (43 )     —       (43 )     (822 )     —       (822 )     (824 )     —       (824 )
Depreciation and amortization
    211       —       211       307       —       307       427       —       427  
Total costs and expenses
    4,659       —       4,659       7,657       —       7,657       11,050       —       11,050  
Operating income (loss)
    (4,659 )     —       (4,659 )     (7,657 )     —       (7,657 )     (11,050 )     —       (11,050 )
Other non-operating income (expense):
                                                                       
Other income (expense)
    41       —       41       68       —       68       91       —       91  
Sublease income
    232       —       232       232       —       232       232       —       232  
Sale of patents
    —       —       —       500       —       500       500       —       500  
Change in fair value of derivative instruments
                                                                       
Related party(1)
    113       —       113       (80 )     —       (80 )     (35 )     —       (35 )
Other
    35       —       35       (254 )     —       (254 )     322       —       322  
Interest expense
                                                                       
Related party
    (8 )     1,036       (1,044 )     (21 )     2,119       (2,140 )     (41 )     3,249       (3,290 )
Other
    (135 )     —       (135 )     (273 )     —       (273 )     (411 )     —       (411 )
Total other non-operating income (expense)
    278       1,036       (758 )     172       2,119       (1,947 )     658       3,249       (2,591 )
Net loss
    (4,381 )     1,036       (5,417 )     (7,485 )     2,119       (9,604 )     (10,392 )     3,249       (13,641 )
Net loss per share, basic and diluted
    (0.14 )     0.04       (0.18 )     (0.25 )     0.07       (0.32 )     (0.32 )     0.10       (0.42 )
Weighted average shares outstanding, basic and diluted
    30,341,078               30,341,078       30,341,078               30,341,078       32,188,554               32,188,554  
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
2009 Statements of Cash Flows (unaudited — $thousands)
                                                                         
    Three Months Ended March 31,   Six Months Ended June 30,   Nine Months Ended September 30,
    Restated           Reported   Restated           Reported   Restated           Reported
    2009   Adjustments   2009   2009   Adjustments   2009   2009   Adjustments   2009
Cash flows from operating activities:
                                                                       
Net loss
    (4,381 )     1,036       (5,417 )     (7,485 )     2,119       (9,604 )     (10,392 )     3,249       (13,641 )
Adjustments to reconcile net loss to net cash used in operating activities:
                                                                       
Depreciation
    151       —       151       187       —       187       248       —       248  
Amortization
    60       —       60       120       —       120       179       —       179  
Change in fair value of derivative instruments
    (148 )     —       (148 )     334       —       334       (286 )     —       (286 )
Non-cash interest expense(1)
    143       (1,036 )     1,179       294       (2,119 )     2,413       452       (3,249 )     3,701  
Non-cash compensation expense
    238       —       238       1,007       —       1,007       1,301       —       1,301  
Gain on disposal of fixed assets
    (43 )     —       (43 )     (822 )     —       (822 )     (824 )     —       (824 )
Changes in assets and liabilities excluding non-cash transactions:
                                                                       
Decrease in accounts receivable
    217       —       217       160       —       160       211       —       211  
Decrease (increase) in prepaid expenses and other current assets
    (27 )     —       (27 )     (129 )     —       (129 )     20       —       20  
Increase in deferred revenue
    186       —       186       133       —       133       149       —       149  
Increase in accounts payable and accrued expenses
    927       —       927       1,042       —       1,042       2,160       —       2,160  
Increase in other current liabilities
    2       —       2       28       —       28       31       —       31  
(Decrease) in deferred lease liability
    (6 )     —       (6 )     (33 )     —       (33 )     (39 )     —       (39 )
Decrease in restructuring accrual
    (627 )     —       (627 )     (1,627 )     —       (1,627 )     (1,627 )     —       (1,627 )
Total adjustments
    1,073       (1,036 )     2,109       694       (2,119 )     2,813       1,975       (3,249 )     5,224  
Net cash used in operating activities
    (3,308 )     —       (3,308 )     (6,791 )     —       (6,791 )     (8,417 )     —       (8,417 )
Cash flows from investing activities:
                                                                       
Proceeds from sale and maturity of investments
    —       —       —       —       —       —       —       —       —  
Proceeds from sale of fixed assets
    45       —       45       856       —       856       880       —       880  
Capital expenditures and other
    —       —       —       —       —       —               —       —  
Net cash provided by investing activities
    45       —       45       856       —       856       880       —       880  
Cash flows from financing activities:
                                                                       
Proceeds from the issuance of common stock and warrants
    —       —       —       —       —       —       7,298       —       7,298  
Net cash provided by financing activities
    —               —       —               —       7,298               7,298  
Net decrease in cash and cash equivalents
    (3,263 )     —       (3,263 )     (5,935 )     —       (5,935 )     (239 )     —       (239 )
Cash and cash equivalents, beginning of period
    7,214       —       7,214       7,214       —       7,214       7,214       —       7,214  
Cash and cash equivalents, end of period
    3,951       —       3,951       1,279       —       1,279       6,975       —       6,975  
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
2010 Balance Sheets (unaudited — $thousands)
                                                                         
    March 31,   June 30,   September 30,
    Restated           Reported   Restated           Reported   Restated           Reported
    2010   Adjustments   2010   2010   Adjustments   2010   2010   Adjustments   2010
Assets:
                                                                       
Current assets:
                                                                       
Cash and cash equivalents
    3,015       —       3,015       418       —       418       2,961       —       2,961  
Accounts receivable, net
    4       —       4       38       —       38       60       —       60  
Inventories
    233               233       261       —       261       260       —       260  
Prepaid expenses and other current assets
    142       —       142       683       —       683       539       —       539  
Total current assets
    3,394       —       3,394       1,400       —       1,400       3,820       —       3,820  
Equipment and leasehold improvements, net
    122       —       122       107       —       107       94       —       94  
Purchased technology, net
    1,017       —       1,017       957       —       957       897       —       897  
Restricted cash
    259       —       259       259       —       259       259       —       259  
Other assets(1)
    —       (324 )     324       82       (300 )     382       —       (273 )     273  
Total assets
    4,792       (324 )     5,116       2,805       (300 )     3,105       5,070       (273 )     5,343  
Liabilities and Stockholders’ Deficit:
                                                                       
Current liabilities:
                                                                       
Notes payable, including accrued interest and net of related discount
    12,810       —       12,810       —       —       —       —       —       —  
Accounts payable and accrued expenses
    4,943       —       4,943       5,852       —       5,852       4,400       —       4,400  
Deferred revenue, current
    —       —       —       —       —       —       —       —       —  
Derivative instruments
                                                                       
Related party
    8,248       —       8,248       12,952       —       12,952       7,477       —       7,477  
Others
    7,830       —       7,830       4,183       —       4,183       2,423       —       2,423  
Contract termination expense
    —       —       —       —                       435       —       435  
Restructuring accrual, current
    600       —       600       600       —       600       450       —       450  
Other current liabilities
    29       —       29       31       —       31       33       —       33  
Total current liabilities
    34,460       —       34,460       23,618       —       23,618       15,218       —       15,218  
Notes payable, including accrued interest and net of related discount(1)(2)
    157       (14,167 )     14,324       18,048       3,726       14,322       19,181       3,318       15,863  
Restructuring accrual
    —       —       —       —       —       —       —       —       —  
Deferred revenue
    13,501       —       13,501       26,475       —       26,475       26,533       —       26,533  
Derivative instrument related party
    8,669       —       8,669       12,031       —       12,031       8,557       —       8,557  
Deferred lease liability and other liabilities
    74       —       74       65       —       65       56       —       56  
Total liabilities
    56,861       (14,167 )     71,028       80,237       3,726       76,511       69,545       3,318       66,227  
Stockholders’ deficit:
                                                                       
Preferred stock, $.01 par value; authorized 1,000,000 shares; none issued and outstanding
    —       —       —       —       —       —       —       —          
Common stock, $.01 par value; authorized 100,000,000 shares; issued 42,373,807 shares (42,804,075 outstanding) ; issued 44,222,054 (43,932,322 outstanding); issued 52,178,834 (51,889,102 outstanding) in the first, second and third quarter, respectively
    424       —       424       442       —       442       522       —       522  
Additional paid-in-capital
    392,753       —       392,753       398,945       —       398,945       401,740       —       401,740  
Accumulated deficit(1)(2)
    (441,294 )     13,843       (455,137 )     (472,867 )     (4,026 )     (468,841 )     (462,785 )     (3,591 )     (459,194 )
Common stock held in treasury, at cost; 289,732 shares
    (3,952 )     —       (3,952 )     (3,952 )     —       (3,952 )     (3,952 )     —       (3,952 )
Total stockholders’ deficit
    (52,069 )     13,843       (65,912 )     (77,432 )     (4,026 )     (73,406 )     (64,475 )     (3,591 )     (60,884 )
Total liabilities and stockholders’ deficit
    4,792       (324 )     5,116       2,805       (300 )     3,105       5,070       (273 )     5,343  
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
 
(2)   Adjustment for June 2010 to account for the modification of the MHR Convertible Notes in connection with the Novartis Agreement and the MHR Letter Agreement as an extinguishment of debt and record the consideration for MHR’s consent as a financing fee
2010 Statement of Operations — Quarterly (unaudited — $thousands, except per share data)
                                                                         
    Three Months Ended March 31,   Three Months Ended June 30,   Three Months Ended September 30,
    Restated           Reported   Restated           Reported   Restated           Reported
    2010   Adjustments   2010   2010   Adjustments   2010   2010   Adjustments   2010
Revenue
    12       —       12       39       —       39       4       —       4  
Costs and expenses:
                                                                       
Research and development
    562       —       562       732       —       732       690       —       690  
General and administrative expenses
    2,334       —       2,334       2,129       —       2,129       2,516       —       2,516  
Restructuring costs
    50       —       50       —       —       —       —       —       —  
Gain on disposal of fixed assets
    (1 )     —       (1 )     —       —       —       —       —       —  
Depreciation and amortization
    75       —       75       75       —       75       73       —       73  
Lawsuit adverse awards
    —       —       —       220               220       58       —       58  
Contract termination expense
    —       —       —       —       —       —       542       —       542  
Total costs and expenses
    3,020       —       3,020       3,156       —       3,156       3,879       —       3,879  
Operating income (loss)
    (3,008 )     —       (3,008 )     (3,117 )     —       (3,117 )     (3,875 )     —       (3,875 )
Other non-operating income (expense):
                                                                       
Other income (expense)
    3       —       3       2       —       2       2       —       2  
Sublease income
    —       —       —       —       —       —       —       —       —  
Sale of patents
    —       —       —       —       —       —       500       —       500  
Change in fair value of derivative instruments
                                                                       
Related party
    (9,120 )     —       (9,120 )     (6,208 )     —       (6,208 )     11,766       —       11,766  
Other
    (4,847 )     —       (4,847 )     (2,424 )     —       (2,424 )     2,831       —       2,831  
Interest expense
                                                                       
Related party(1)
    (65 )     1,206       (1,271 )     (794 )     1,003       (1,797 )     (1,138 )     435       (1,573 )
Other
    (222 )     —       (222 )     (160 )     —       (160 )     (4 )     —       (4 )
Loss on extinguishment of debt(2)
    —       —       —       (17,014 )     (17,014 )     —       —       —       —  
Financing fees
    —       —       —       (1,858 )     (1,858 )     —       —       —       —  
Total other non-operating income (expense)
    (14,251 )     1,206       (15,457 )     (28,456 )     (17,869 )     (10,587 )     13,957       435       13,522  
Net loss (income)
    (17,259 )     1,206       (18,465 )     (31,573 )     (17,869 )     (13,704 )     10,082       435       9,647  
Net loss (income) per share, basic
    (0.41 )     0.03       (0.44 )     (0.73 )     (0.41 )     (0.32 )     0.21       0.01       0.20  
Weighted average shares outstanding, basic
    42,077,334               42,077,334       43,338,432               43,338,432       47,401,395               47,401,395  
Net loss (income) per share, diluted
    (0.41 )     0.03       (0.44 )     (0.73 )     (0.41 )     (0.32 )     0.20       0.01       0.19  
Weighted average shares outstanding, diluted
    42,077,334               42,077,334       43,338,432               43,338,432       50,922,881               50,922,881  
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
 
(2)   Adjustment for June 2010 to account for the modification of the MHR Convertible Notes in connection with the Novartis Agreement and the MHR Letter Agreement as an extinguishment of debt and record the consideration for MHR’s consent as a financing fee
2010 Statement of Operations — Year to Date (unaudited — $thousands, except per share data)
                                                                         
    Three Months Ended March 31,   Six Months Ended June 30,   Nine Months Ended September 30,
    Restated           Reported   Restated           Reported   Restated           Reported
    2010   Adjustments   2010   2010   Adjustments   2010   2010   Adjustments   2010
Revenue
    12       —       12       51       —       51       55       —       55  
Costs and expenses:
                                                                       
Research and development
    562       —       562       1,294       —       1,294       1,984       —       1,984  
General and administrative expenses
    2,334       —       2,334       4,463       —       4,463       6,979       —       6,979  
Restructuring costs
    50       —       50       50       —       50       50       —       50  
Gain on disposal of fixed assets
    (1 )     —       (1 )     (1 )     —       (1 )     (1 )     —       (1 )
Depreciation and amortization
    75       —       75       150       —       150       223       —       223  
Lawsuit adverse awards
                            220               220       542               542  
Contract termination expense
                            —               —       278               278  
Total costs and expenses
    3,020       —       3,020       6,176       —       6,176       10,055       —       10,055  
Operating income (loss)
    (3,008 )     —       (3,008 )     (6,125 )     —       (6,125 )     (10,000 )     —       (10,000 )
Other non-operating income (expense):
                                                                       
Other income (expense)
    3       —       3       5       —       5       7       —       7  
Sublease income
    —       —       —       —       —       —       —       —       —  
Sale of patents
    —       —       —       —       —       —       500       —       500  
Change in fair value of derivative instruments
                                                                       
Related party
    (9,120 )     —       (9,120 )     (15,328 )     —       (15,328 )     (3,562 )     —       (3,562 )
Other
    (4,847 )     —       (4,847 )     (7,271 )     —       (7,271 )     (4,440 )     —       (4,440 )
Interest expense
                                                                       
Related party(1)
    (65 )     1,206       (1,271 )     (859 )     2,210       (3,069 )     (1,997 )     2,645       (4,642 )
Other
    (222 )     —       (222 )     (382 )     —       (382 )     (386 )     —       (386 )
Loss on extinguishment of debt(2)
    —       —       —       (17,014 )     (17,014 )     —       (17,014 )     (17,014 )     —  
Financing fees(2)
    —       —       —       (1,858 )     (1,858 )     —       (1,858 )     (1,858 )     —  
Total other non-operating income (expense)
    (14,251 )     1,206       (15,457 )     (42,707 )     (16,662 )     (26,045 )     (28,750 )     (16,227 )     (12,523 )
Net loss
    (17,259 )     1,206       (18,465 )     (48,832 )     (16,662 )     (32,170 )     (38,750 )     (16,227 )     (22,523 )
Net loss per share, basic and diluted
    (0.41 )     0.03       (0.44 )     (1.14 )     (0.39 )     (0.75 )     (0.87 )     (0.36 )     (0.51 )
Weighted average shares outstanding, basic and diluted
    42,077,334               42,077,334       42,711,367               42,711,367       44,291,889               44,291,889  
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
 
(2)   Adjustment for June 2010 to account for the modification of the MHR Convertible Notes in connection with the Novartis Agreement and the MHR Letter Agreement as an extinguishment of debt and record the consideration for MHR’s consent as a financing fee
2010 Statements of Cash Flows (unaudited — $thousands)
                                                                         
    Three Months Ended March 31,   Six Months Ended June 30,   Nine Months Ended September 30,
    Restated           Reported   Restated           Reported   Restated           Reported
    2010   Adjustments   2010   2010   Adjustments   2010   2010   Adjustments   2010
Cash flows from operating activities:
                                                                       
Net loss
    (17,259 )     1,206       (18,465 )     (48,832 )     (16,662 )     (32,170 )     (38,750 )     (16,227 )     (22,523 )
Adjustments to reconcile net loss to net cash used in operating activities:
                                                                       
Depreciation
    15       —       15       30       —       30       44       —       44  
Amortization
    60       —       60       120       —       120       179       —       179  
Change in fair value of derivative instruments
    13,968       —       13,968       22,599       —       22,599       8,003       —       8,003  
Non-cash interest expense (1)(2)
    287       (1,206 )     1,493       20,112       16,662       3,450       21,254       16,227       5,027  
Non-cash compensation expense
    407       —       407       547       —       547       685       —       685  
Gain on disposal of fixed assets
    (1 )     —       (1 )     (1 )     —       (1 )     (1 )     —       (1 )
Changes in assets and liabilities excluding non-cash transactions:
                                                                       
Decrease in accounts receivable
    154       —       154       120       —       120       99       —       99  
Decrease (increase) in inventory
    2       —       2       (24 )     —       (24 )     (24 )     —       (24 )
(Increase) in deposits on inventory
    —       —       —       —       —       —       (420 )     —       (420 )
Decrease (increase) in prepaid expenses and other current assets
    12       —       12       (531 )     —       (531 )     33       —       33  
Increase in deferred revenue
    2,007       —       2,007       2,012       —       2,012       2,069       —       2,069  
Increase (decrease) in accounts payable and accrued expenses
    (1 )     —       (1 )     887       —       887       (516 )     —       (516 )
Increase (decrease) in other current liabilities
    (23 )     —       (23 )     (21 )     —       (21 )     415       —       415  
Increase (decrease) in deferred lease liability
    (30 )     —       (30 )     (17 )     —       (17 )     (25 )     —       (25 )
Decrease in restructuring accrual
    (150 )     —       (150 )     (150 )     —       (150 )     (300 )     —       (300 )
Total adjustments
    16,707       (1,206 )     17,913       45,683       16,662       29,021       31,495       16,227       15,268  
Net cash used in operating activities
    (552 )     —       (552 )     (3,149 )     —       (3,149 )     (7,255 )     —       (7,255 )
Cash flows from investing activities:
                                                                       
Proceeds from sale of fixed assets
    1       —       1       1       —       1       1       —       1  
Capital expenditures and other
    —       —       —       —       —       —       —       —       —  
Net cash provided by investing activities
    1       —       1       1       —       1       1       —       1  
Cash flows from financing activities:
                                                                       
Proceeds from notes payable
    —       —       —       —       —       —       500       —       500  
Payments on notes payable
    —       —       —       —       —       —       (525 )     —       (525 )
Proceeds from the issuance of common stock
    —       —       —       —       —       —       6,674       —       6,674  
Net cash provided by financing activities
    —       —       —       —       —       —       6,649       —       6,649  
Net decrease in cash and cash equivalents
    (551 )     —       (551 )     (3,148 )     —       (3,148 )     (605 )     —       (605 )
Cash and cash equivalents, beginning of period
    3,566       —       3,566       3,566       —       3,566       3,566       —       3,566  
Cash and cash equivalents, end of period
    3,015       —       3,015       418       —       418       2,961       —       2,961  
Schedule of non cash financing activities
                                                                       
Common stock issued to settle accrued Directors compensation
    11       —       11       11       —       11       11       —       11  
Exchange of debt as deferred revenue (Note 8)
    —       —       —       13,000       —       13,000       13,000       —       13,000  
 
(1)   Adjustment to amortize debt discounts and deferred financing fees based a number nominally close to zero to enable interest and debt discounts to be accreted over the life of the debt using a level yield method
 
(2)   Adjustment for June 2010 to account for the modification of the MHR Convertible Notes in connection with the Novartis Agreement and the MHR Letter Agreement as an extinguishment of debt and record the consideration for MHR’s consent as a financing fee