Share-Based Compensation

9 Months Ended

Sep. 30, 2011

Share-Based Compensation

5. Share-Based Compensation

The Company has adopted incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as outside directors and consultants.  In June 2011, the Company’s shareholders approved the 2011 Long-Term Incentive Plan, of which 835,341 shares of common stock will be available for grants and awards. This number includes 135,341 shares available under the Company’s 2001 Long-Term Incentive Plan which expired in June 2011.  All of the 835,341 shares remain available for grant under the Company’s 2011 Long-Term Incentive Plan as of September 30, 2011.  There are 708,880 shares issuable under options previously granted under the plans and currently outstanding, with exercise prices ranging from $1.76 to $522.50.  Options granted under the plans vest over periods varying from immediately to three years, are not transferable and generally expire ten years from the date of grant.

                The Company records compensation expense associated with stock options and other equity-based compensation in accordance with provisions of authoritative guidance.  Compensation costs are recognized based on a straight-line method over the requisite service period, which is generally the option vesting term of three years.

                The Company’s net loss for the nine months ended September 30, 2011 and 2010 includes compensation expense of $565,948 and $250,311, respectively, related to the Company’s share-based compensation awards.  The compensation expense related to the Company’s share-based compensation arrangements is recorded as components of general and administrative expense and research and development expense, as follows:

	NINE MONTH PERIOD ENDED SEPTEMBER 30,
	2011		2010
Research and development	$	114,257	$	28,993
General and administrative		451,691		221,318
Share-based compensation expense	$	565,948	$	250,311
Net share-based compensation expense, per common share:
Basic and diluted	$	0.05	$	0.03

                The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of stock options granted to employees. Option valuation models, including Black-Scholes-Merton, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award.

                 Following are the weighted-average assumptions used in valuing the stock options granted to employees during the nine-month periods ended September 30, 2011 and 2010:

	NINE MONTH PERIOD ENDED SEPTEMBER 30,
	2011			2010
Expected volatility		94.09	%		97.50	%
Risk-free interest rate		2.04	%		2.38	%
Expected term of option	5.49 years			5 years
Forfeiture rate*		5.00	%		5.00	%
Expected dividend yield		0.00	%		0.00	%

* - Authoritative guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  During the nine-month periods ended September 30, 2011 and 2010, forfeitures were estimated at 5%.

                   The weighted average fair value of stock options granted during the nine-month periods ended September 30, 2011 and 2010 was $4.63 and $5.50, respectively.

                   A summary of the Company’s stock option plans and of changes in options outstanding under the plans for the nine months ended September 30, 2011, is as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding at January 1, 2011		590,009		$	38.94
Granted		181,750		$	6.22
Exercised		(13,260	)	$	1.76
Expired		(49,099	)	$	142.31
Forfeited		(519	)	$	8.31
Outstanding at September 30, 2011		708,880		$	24.11
Vested and expected to vest at September 30, 2011		704,211		$	24.23
Exercisable at September 30, 2011		615,507		$	26.94

                Cash received from option exercises under all share-based payment arrangements for the three and nine months ended September 30, 2011 was $0 and $23,338, respectively.  Cash received from option exercises for the three and nine months ended September 30, 2010 was $2,000 and $12,340, respectively.