0001274644
2011-01-01
2011-03-31
0001274644
2012-01-01
2012-03-31
0001274644
2010-12-31
0001274644
2011-03-31
0001274644
2011-12-31
0001274644
2012-03-31
0001274644
2012-04-25
xbrli:shares
iso4217:USD
iso4217:USD
xbrli:shares
1971000
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2558000
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131795000
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46335000
44711000
45052000
43540000
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Description of Business and Basis of Presentation</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Description of Business</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> Tranzyme, Inc. ("Tranzyme") was incorporated in the State of Delaware on January 12, 1998. On December 17, 2003, Tranzyme entered into a business combination with Neokimia Inc., a Quebec, Canada-based chemistry company and changed the name to Tranzyme Pharma Inc. ("Tranzyme Pharma").  Tranzyme Pharma is a wholly-owned subsidiary of Tranzyme, Inc. The Company, collectively Tranzyme and Tranzyme Pharma, operates in one segment.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company is a clinical-stage biopharmaceutical company focused on discovery, development and commercialization of small molecule therapeutics for the treatment of gastrointestinal (GI) motility disorders. The Company’s two most advanced product candidates are:</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman; font-size:10pt;"><tr><td style="width:72px;" rowspan="1" colspan="1"></td><td rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:top" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;padding-left:48px;"><font style="font-family:inherit;font-size:10pt;">•</font></div></td><td style="vertical-align:top;" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">ulimorelin</font><font style="font-family:inherit;font-size:10pt;">— an intravenous ghrelin agonist in Phase 3 clinical development for the acceleration of postoperative GI recovery. </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Ulimorelin</font><font style="font-family:inherit;font-size:10pt;"> is designed to accelerate the return of normal GI function in patients experiencing GI dysfunction in the acute care setting.</font></div></td></tr></table><div style="line-height:120%;text-indent:48px;font-size:3pt;"><font style="font-family:inherit;font-size:3pt;">  </font></div><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman; font-size:10pt;"><tr><td style="width:72px;" rowspan="1" colspan="1"></td><td rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:top" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;padding-left:48px;"><font style="font-family:inherit;font-size:10pt;">•</font></div></td><td style="vertical-align:top;" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">TZP-102—an orally administered ghrelin agonist that has commenced Phase 2b clinical development for treatment of diabetic gastroparesis, an upper GI motility disorder.</font></div></td></tr></table><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company’s business is subject to significant risks consistent with biopharmaceutical companies seeking to develop technologies and product candidates for human therapeutic use. These risks include, but are not limited to, uncertainties regarding research and development, access to capital, obtaining and enforcing patents, receiving regulatory approval and competition with other biotechnology and pharmaceutical companies.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Basis of Presentation</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The consolidated financial statements include the accounts of Tranzyme and its subsidiary, Tranzyme Pharma. All significant intercompany balances and transactions have been eliminated. All amounts included in these notes to consolidated financial statements are reported in U.S. dollars, unless otherwise indicated.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company’s operations since inception have consisted primarily of organizing the Company, conducting research and development including clinical trials and securing financing. In December 2009, the Company entered into its first revenue generating collaboration agreement consistent with the Company’s business objectives and emerged from the development stage. As of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;">, the Company has incurred losses since inception of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$115.1 million</font><font style="font-family:inherit;font-size:10pt;">. The Company expects to continue to incur losses and requires additional financial resources to advance its products to either commercial stage or liquidity events.</font></div></div>
40930000
42582000
17373000
12479000
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1652000
0.00001
0.00001
100000000
100000000
24597845
24607888
24597845
24607888
0
0
-3330000
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5574000
4181000
77000
84000
-0.34
-24.00
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Net Loss per Share</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of the Company’s Common stock outstanding for the period, without consideration for common stock equivalents.  The Company’s Class C Common stock is excluded from the calculated net loss per share for the three months ended March 31, 2011 because it is a non-participating security and has no liquidation rights upon liquidation or dissolution of the Company.  Diluted net loss per share is computed by dividing the net loss by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method. Under the treasury-stock method earnings per share data is computed as if the common share equivalents were outstanding at the beginning of the period (or at the time of issuance, if later) and as if the funds obtained from exercise of the common stock equivalents were used to purchase common stock at the average market price during the period. If there is little or no market for the common stock, a reasonable estimate of fair value shall be used. For purposes of this calculation, preferred stock, stock options and warrants to purchase capital stock are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The following table sets forth the computation of basic and diluted net loss per share in thousands, except share and per share data:</font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:71.09375%;border-collapse:collapse;text-align:left;"><tr><td colspan="8" rowspan="1"></td></tr><tr><td width="61%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="17%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="17%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="7" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Three Months Ended</font></div><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">March 31,</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2012</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;"><br clear="none"/></font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2011</font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Historical</font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Numerator:</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:12px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Net loss</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">(8,420</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-right:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">)</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">(3,365</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-right:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">)</font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Denominator:</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="3" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Weighted average common shares outstanding</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">24,601,447</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">140,192</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Net loss per share—</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">basic and diluted</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:3px double #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-top:2px;padding-bottom:2px;border-top:3px double #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">(0.34</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:3px double #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">)</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:3px double #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-top:2px;padding-bottom:2px;border-top:3px double #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">(24.00</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:3px double #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">)</font></div></td></tr></table></div></div><div style="line-height:120%;text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Potentially dilutive securities not included in the calculation of diluted net loss per common share because to do so would be anti-dilutive are as follows (in common equivalent shares on a weighted-average basis):</font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:71.09375%;border-collapse:collapse;text-align:left;"><tr><td colspan="6" rowspan="1"></td></tr><tr><td width="61%" rowspan="1" colspan="1"></td><td width="18%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="18%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="5" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Three Months Ended</font></div><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">March 31,</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2012</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2011</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Series A Convertible Preferred stock</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">—</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">7,291,203</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Series B Convertible Preferred stock</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">—</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">149,588</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Convertible Debt</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">—</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">—</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Common Exchangeable shares</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">—</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">138,860</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Preferred Exchangeable shares</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">—</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2,489,002</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Common stock options</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2,379,765</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">752,943</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Common stock warrants</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">175,861</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">67,462</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></div>
14000
-5000
0
-520000
971000
1948000
368000
335000
951000
1977000
1041000
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678000
432000
420000
29397000
20229000
46335000
44711000
10033000
9332000
10734000
19193000
-483000
8538000
-11000
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504000
838000
106000
0
238000
365000
10088000
5472000
-3133000
-7480000
-20000
-35000
171000
163000
105000
60000
-508000
188000
483000
0
66000
11000
0.00001
0.00001
5000000
5000000
0
0
0
0
0
0
1116000
733000
13434000
38000
-3365000
-8420000
1177000
1171000
1823000
1394000
4934000
4501000
8140000
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2339000
2608000
60000
291000
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Summary of Significant Accounting Policies</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Unaudited Financial Statements</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The accompanying balance sheet as of </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;">, statements of comprehensive income for the three months ended </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and 2011 and cash flows for the three months ended </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and 2011 are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles "GAAP" for complete annual financial statements. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2011 contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 29, 2012. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;">, and the results of operations for the three month periods ended </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and 2011 and cash flows for the three month periods ended </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and 2011. The December 31, 2011 balance sheet included herein was derived from audited financial statements, but does not include all disclosures including notes required by GAAP for complete annual financial statements.</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The financial data and other information disclosed in these notes to the financial statements related to the three month periods ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and 2011 are unaudited. Interim results are not necessarily indicative of results for an entire year.</font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Common Stock Split</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On March 2, 2011, the Company’s board of directors approved a 1-for-7 reverse stock split of the Company’s outstanding common stock. In connection with this reverse stock split, the preferred stock conversion price was adjusted to reflect a proportional decrease in the number of shares of common stock to be issuable upon conversion. The reverse stock split became effective on March 31, 2011. The accompanying consolidated financial statements for the three month period ended March 31, 2011, and notes to consolidated financial statements give retroactive effect to the reverse stock split.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Initial Public Offering</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On April 6, 2011, the Company completed its initial public offering of common stock (the “IPO”) pursuant to a registration statement that was declared effective on April 1, 2011. The Company sold 13,500,000 shares of its common stock, at a price of $4.00 per share for aggregate gross proceeds of $54,000,000. The underwriters had 30 days to exercise their option to purchase up to an additional 1,481,250 shares at the initial public offering price per share pursuant to an over-allotment option granted to the underwriters.  The underwriters partially exercised their over-allotment option on April 29, 2011 and purchased an additional 850,000 shares of our common stock for aggregate gross proceeds of $3,400,000.</font></div><div style="line-height:120%;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As a result of the IPO, the Company raised a total of $51.4 million in net proceeds after deducting underwriting discounts and commissions of $4.0 million and offering expenses of approximately $2.0 million. Costs directly associated with the IPO were capitalized and recorded as deferred IPO costs prior to the closing of the IPO. These costs were recorded as a reduction of the proceeds received in arriving at the amount to be recorded in additional paid-in capital.</font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Upon the closing of the IPO, 18,395,156 shares of the Company’s common and preferred exchangeable shares of Tranzyme’s subsidiary, Tranzyme Pharma automatically exchanged into a total of 2,627,862 shares of the common stock of Tranzyme.  In addition, 52,085,690 shares of Tranzyme’s outstanding preferred stock automatically converted into a total of 7,440,791 shares of its common stock and the preferred stock warrant liability was reclassified to additional paid in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock.</font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Investment Tax Credits Receivable</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company participates in government assistance programs in Quebec, Canada that provide refundable investment tax credits for certain research and development expenditures. The receivable represents management’s estimate of amounts expected to be recovered and is subject to adjustment based upon audit by Quebec, Canada taxation authorities. The Company reported investment tax credits receivable using the flow-through method of </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">$610,000</font><font style="font-family:inherit;font-size:10pt;"> and </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$838,000</font><font style="font-family:inherit;font-size:10pt;"> as of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and December 31, 2011, respectively.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Deferred Offering Costs</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Deferred public offering costs represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through a public sale of the Company’s common stock. Costs related to the IPO activities were deferred until the completion of the IPO, at which time they were reclassified to additional paid-in capital as a reduction of the IPO proceeds. Upon closing of the IPO, approximately $2.0 million of offering costs were recorded as a reduction of the proceeds received.</font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Warrant Liability</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Certain warrants to purchase the Company’s capital stock had historically been classified as liabilities and were recorded at estimated fair value. At each reporting period, any change in fair value of the freestanding warrants was recorded as other (expense) income. As a result of the IPO, the preferred stock warrant liability was reclassified to additional paid in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock.</font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Revenue Recognition</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company’s revenues generally consist of licensing and royalty revenue and fees for research services from license or collaboration agreements. The Company recognizes revenues when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products and/or services has occurred; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured. Royalty revenue is recognized in licensing and royalty revenue as applicable licensed products are sold.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">For arrangements that include multiple deliverables, the Company identifies separate units of accounting if certain separation criteria are met in accordance with ASC Topic 605-25, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Multiple Element Arrangements</font><font style="font-family:inherit;font-size:10pt;">. This evaluation requires subjective determinations and requires management to make judgments about the fair value of the individual elements and whether such elements are separable from the other aspects of the contractual relationship. If the Company determines they are separable, the Company will recognize revenue separately for each unit. If management determines the arrangement constitutes a single unit of accounting, revenue will be recognized as a combined unit for the entire arrangement. The consideration for the arrangement is allocated to the separate units of accounting based on their relative fair values. Applicable revenue recognition criteria are considered separately for each unit of accounting. The Company typically receives upfront, nonrefundable payments when licensing its intellectual property in conjunction with a research and development agreement. Management believes that these payments generally are not separable from the activity of providing research and development services because the license does not have stand-alone value separate from the research and development services that the Company provides under applicable agreements. Accordingly, the Company accounts for these elements as one unit of accounting and recognizes upfront, nonrefundable payments as licensing and royalty revenue on a straight-line basis over its contractual or estimated performance period, which is typically the term of its research and development obligations. As a result, the Company is often required to make estimates regarding drug development timelines for compounds being developed pursuant to a strategic collaboration agreement. Amounts received in advance of services performed are recorded as deferred revenue until earned.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company’s strategic collaboration agreements may also contain non-refundable payments. Revenue for non-refundable payments based on the achievement of collaboration milestones beginning January 1, 2011 is recognized in accordance with ASC 605, Subtopic 28, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Milestone Method</font><font style="font-family:inherit;font-size:10pt;">, or ASC 605-28. Under ASC 605-28, a milestone payment is recognized as revenue when the applicable event is achieved if the event meets the definition of a milestone and the milestone is determined to be substantive. ASC 605-28 defines a milestone event as an event having all of the following characteristics: (1) there is substantive uncertainty regarding achievement of the milestone event at the inception of the arrangement; (2) the event can only be achieved based, in whole or in part, on either the Company's performance or a specific outcome resulting from the Company's performance; and (3) if achieved, the event would result in additional payment due to the Company. A milestone is considered substantive if it meets all of the following criteria: (1) the payment is commensurate with either the Company's performance to achieve the milestone or with the enhancement of the value of the delivered item; (2) the payment relates solely to past performance; and (3) the payment is reasonable relative to all of the deliverables and payment terms within the arrangement. If any of these conditions is not met, the milestone payment is deferred and recognized on a straight-line basis over a period determined as discussed above. </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company’s collaboration agreements may also include payment for research and development services provided by the Company on a contractual rate and direct expense basis. The Company records such payments as revenue in accordance with the agreements when the Company acts as principal in the transaction. In addition, certain of the Company’s collaboration agreements contain cost-sharing provisions for development activities. Reimbursable amounts received under these cost sharing provisions are reflected as a reduction of research and development expense.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Research and Development Costs</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities including non-cash share-based compensation, costs for third-party contractors to perform research, conduct clinical trials and prepare drug materials, research supplies and facilities costs. The Company accrues for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by the third parties, patient enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Income Taxes</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Income taxes are computed using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactment of changes in tax law or rates. If it is more likely than not that some or all of a deferred tax asset will not be realized, the Company records a valuation allowance.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Share-based Compensation</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Share-based awards, including stock options, are recorded at their fair value as of the grant date and recognized to expense on a straight-line basis over the employee’s requisite service period, which is generally the vesting period of the award. Share-based compensation expense is based on awards ultimately expected to vest, and therefore the recorded expense includes an estimate of future forfeitures. Forfeitures are to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The measurement of nonemployee share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period over which services are received. The Company estimates the fair value of share-based awards to employees, directors and non-employees using the Black-Scholes option-valuation model. The Black-Scholes model requires the input of subjective assumptions, including volatility, the expected term and the fair value of the underlying common stock on the date of grant, among other inputs.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Fair Value</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and warrant liability. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of such instruments. The carrying amounts of borrowings under the Company’s debt facilities approximate their fair values as of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and December 31, 2011, based on the determination that the stated rates on such debt are consistent with current interest rates for similar borrowing arrangements available to the Company. The carrying amounts of warrant liabilities are revalued and adjusted using the Black-Scholes valuation model at the end of each reporting period to reflect their fair values.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:37px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Fair value measurements are classified and disclosed in one of the following three categories:</font></div><div style="line-height:120%;text-indent:37px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:82px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Level 1</font><font style="font-family:inherit;font-size:10pt;">—Quoted prices in active markets for identical assets or liabilities.</font></div><div style="line-height:120%;text-indent:82px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;padding-left:48px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Level 2</font><font style="font-family:inherit;font-size:10pt;">—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.</font></div><div style="line-height:120%;text-indent:82px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;padding-left:48px;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Level 3</font><font style="font-family:inherit;font-size:10pt;">—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.</font></div><div style="line-height:120%;text-indent:82px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of March 31, 2011, the Company measured its warrant liability using significant unobservable prices that were based on little or no verifiable market data, which is Level 3 in the fair value hierarchy, resulting in a fair value estimate of $76,000.   Upon the completion of the IPO, the liability was reclassified to stockholders’ equity at its then fair value of $76,000, as the warrants to purchase preferred stock converted into warrants to purchase common stock.</font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Recent Accounting Pronouncements</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In June 2011, the Financial Accounting Standards Board issued updated accounting guidance related to the presentation of comprehensive income. This guidance requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective for the Company's interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance did not have a material effect on the Company's consolidated results of operations, financial position, or liquidity.</font></div></div>
24482000
16938000
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Subsequent Events</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> On May 7, 2012, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission (“SEC”) for the issuance and sale of up to $100.0 million of equity or other securities.</font></div></div>
140192
24601447
140192
24601447
-195000
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Strategic Collaboration and License Agreements</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Norgine B.V.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In June 2010, the Company entered into a collaboration agreement with Norgine B.V. ("Norgine") to develop and commercialize the Company’s product candidate, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">ulimorelin</font><font style="font-family:inherit;font-size:10pt;">, in a licensed territory that includes Europe, Australia, New Zealand, Middle East, North Africa and South Africa. Under the terms of the agreement, the Company received a nonrefundable, upfront payment of $8.0 million. The licensing fee was deferred and is being amortized on a straight-line basis over a period of 31 months, which represents the estimated period of time over which the Company’s involvement in the core development phase of the collaboration is a substantive performance obligation. </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In conjunction with the collaboration agreement, Norgine purchased 1,047,120 shares of the Company’s Series B Convertible Preferred stock at $1.91 per share, for total cash proceeds of $2.0 million, net of issuance costs of $28,000 constituting a first closing of the Company's Series B Convertible Preferred stock financing. The agreement also obligates Norgine to purchase an additional $1.0 million of equity securities at a subsequent closing upon the occurrence of a development milestone as specified in the agreement. The shares of the Company’s Series B Convertible Stock held by Norgine converted into 149,588 shares of common stock upon the closing of the IPO.</font></div><div style="line-height:120%;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">During the year ended December 31, 2010, the Company engaged a third party valuation specialist to assist management in determining the estimated fair value of the first tranche issuance of Series B Convertible Preferred shares. The fair value of the equity issuance was determined to be $1.6 million or $1.55 per share. Based on this fair value estimate, it was determined that the shares sold to Norgine in conjunction with the collaboration included a $0.36 per share premium. The Company recorded the $377,000 stock premium as deferred revenue which is being amortized on a straight-line basis over a period of 31 months, representing the estimated period of time over which the Company’s involvement in the core development phase of the collaboration is a substantive performance obligation.</font></div><div style="line-height:120%;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">At the end of each reporting period, the Company reevaluates the period of time over which it's involvement in the collaboration is a substantive performance obligation. For the three month period ended March 31, 2012, the Company determined that no change was required to the remaining estimated period of time over which the Company’s involvement in the core development phase of the collaboration is a substantive performance obligation. </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company recognized </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$823,000</font><font style="font-family:inherit;font-size:10pt;"> of the upfront fee as licensing revenue including the amortization of stock premium, in each of the three month periods ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and 2011. </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The agreement provides for a co-managed product development campaign, and contains cost-sharing provisions whereby the companies will share certain costs related to manufacturing and development performed by third parties including reimbursement from Norgine for certain raw material costs incurred prior to the effective date of the agreement. These raw material costs will be reimbursable when used in the manufacturing of clinical trial materials for the core development program. Costs for development services provided under the agreement are expensed as incurred. The Company recognized </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$35,000</font><font style="font-family:inherit;font-size:10pt;"> and </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$1.2 million</font><font style="font-family:inherit;font-size:10pt;"> as a reduction in research and development expenses as a result of reimbursement for cost-sharing activities under this agreement for the three month periods ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and 2011, respectively. </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Bristol-Myers Squibb Company</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> In December 2009, the Company entered into a two-year collaboration agreement with Bristol-Myers Squibb Company ("BMS") to discover, develop and commercialize novel macrocyclic compounds, other than the Company’s product candidates and internal programs, directed against a limited number of targets of interest to BMS. Under the terms of the agreement, BMS is funding the Company’s lead discovery efforts on these targets and is also primarily responsible for optimizing the identified lead compounds. BMS will be solely responsible for preclinical and clinical development of all products arising from the collaboration and for their commercialization globally. In connection with the agreement, the Company received an upfront license fee of $10.0 million and the Company may receive up to approximately $80.0 million in additional development milestone payments, and $30.0 million in sales milestone payments, for each target program if development and regulatory milestones, or commercial milestones, respectively, are achieved. In addition, the Company would receive graduated single-digit percentage royalties and sales milestone payments on annual net sales of commercial products. The upfront licensing fee was deferred and was initially being amortized on a straight-line basis over a period of 30 months, which represents the estimated period of time over which the Company’s involvement in the collaboration is a substantive performance obligation or deliverable. The research program term was to expire in December 2011; however, in September 2011, the research collaboration was extended by BMS for a six-month period through June 2012. The agreement may be further extended. As a result of the extension, the Company reassessed the period of time over which the Company's involvement in the collaboration represents a substantive performance obligation or deliverable and changed the amortization period for the remaining deferred upfront licensing fee from 30 months to 36 months. </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">At the end of each reporting period, the Company reevaluates the period of time over which its involvement in the collaboration is a substantive performance obligation. For the three month period ended March 31, 2012, the Company determined that no change was required to the remaining estimated period of time over which the Company’s involvement in the core development phase of the collaboration is a substantive performance obligation. </font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:34px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The agreement also provided for up to $6.0 million in research funding, payable in quarterly installments, over the initial two-year research program to support personnel related expenses, laboratory supplies and equipment to support the discovery efforts. BMS will provide up to $2.5 million in research funding during the six-month extension period. Revenue for development services provided under the agreement is recognized as earned where the Company acts as principal in the transaction. </font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The following is the Company's revenue for the BMS collaboration for the periods indicated (in thousands):</font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:71.09375%;border-collapse:collapse;text-align:left;"><tr><td colspan="8" rowspan="1"></td></tr><tr><td width="61%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="17%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="17%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="7" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Three Months Ended <br clear="none"/>March 31,</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2012</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2011</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Licensing revenue</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">570</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1,000</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Research revenue</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1,165</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">442</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1,735</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1,442</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Open Biosystems, Inc.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:33px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In October 2005, the Company entered into a license and marketing agreement whereby Open Biosystems, Inc. acquired a worldwide royalty-bearing license to certain intellectual property unrelated to the Company’s product candidates and Macrocyclic Template Chemistry (MATCH) drug discovery technology, as specified in the agreement. The Company earns royalties on annual net sales at rates that vary by licensed product category as defined in the agreement or, through 2010, minimum annual royalties, if greater than earned royalties, until the expiration date of the last-to-expire licensed patent or twelve years, whichever occurs last. Royalty revenue recognized from the licensing agreement was </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$50,000</font><font style="font-family:inherit;font-size:10pt;"> and </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$64,000</font><font style="font-family:inherit;font-size:10pt;"> for the three month periods ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">March 31, 2012</font><font style="font-family:inherit;font-size:10pt;"> and 2011, respectively.  </font></div></div>
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Equity Transactions</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Warrants and Warrant Liability</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In connection with the 2010 Notes (see Note 5), the Company issued warrants to purchase an aggregate of $520,000 in capital stock of the Company, which were contingently exercisable for a class and series of shares as determined by future events as specified in the agreement. The 2010 warrants became exercisable for shares of common stock upon closing of the Company's initial public offering.</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The warrants were valued under the level 3 hierarchy in accordance with ASC 820 as there are significant unobservable inputs. The fair value of the warrants was determined using a probability weighted valuation model. Values were determined for the warrants based on assumptions for each liquidity scenario using a Black-Scholes pricing model and other methods. These values were discounted back to October 1, 2010, the issuance date, while applying estimated probabilities to each scenario and associated value on a weighted average basis. These scenarios included a potential initial public offering or potential acquisition at different times throughout 2011 and 2012. Accordingly, the Company determined the initial fair value of the warrants to be $254,000, which was recorded as a convertible preferred stock warrant liability and related debt discount. Upon the completion of the Company’s IPO, the liability was reclassified to stockholders’ equity at its then fair value of $76,000.</font></div><div style="line-height:120%;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of March 31, 2012, the following warrants to purchase common stock were outstanding:</font></div><div style="line-height:120%;text-indent:12px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:center;text-indent:12px;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:409px;border-collapse:collapse;text-align:left;"><tr><td colspan="7" rowspan="1"></td></tr><tr><td width="173px" rowspan="1" colspan="1"></td><td width="74px" rowspan="1" colspan="1"></td><td width="4px" rowspan="1" colspan="1"></td><td width="9px" rowspan="1" colspan="1"></td><td width="40px" rowspan="1" colspan="1"></td><td width="4px" rowspan="1" colspan="1"></td><td width="104px" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Issuance Date</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Shares</font></div></td><td colspan="3" style="vertical-align:middle;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Exercise Price</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Expiration</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">12/3/2008</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">28,570</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">7.00</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">12/3/2015</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">9/30/2010</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">38,892</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">13.37</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">04/06/2016</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1/31/2012</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">163,488</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3.67</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">01/31/2022</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Total warrants outstanding</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">230,950</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td colspan="3" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td></tr></table></div></div><div style="line-height:120%;text-indent:12px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:12px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Share-based Compensation</font></div><div style="line-height:120%;text-indent:12px;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">During 2001, the Company adopted two equity compensation plans, the Tranzyme 2001 Employee Stock Option Plan and the 2001 Nonemployee Stock Option Plan (the "2001 Plans"), which authorized up to 1,000,000 and 445,000 shares of common stock, respectively, for granting both incentive and nonqualified stock options to employees, directors, consultants and other individuals set forth in the 2001 Plans. The exercise price and vesting period of the options issued under the plans were determined by the Company’s Board of Directors at the date of grant.</font></div><div style="line-height:120%;text-indent:30px;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">During 2003, the Company adopted an equity compensation plan, the Tranzyme 2003 Equity Incentive Plan (the "2003 Plan"), for eligible employees, directors, consultants and other individuals set forth in the 2003 Plan. The terms of the stock option agreements, including vesting requirements, were determined by the Company’s Board of Directors, subject to the provisions of the 2003 Plan.</font></div><div style="line-height:120%;text-indent:30px;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In 2004, Tranzyme Pharma adopted an equity compensation plan, the Tranzyme Pharma 2004 Stock Option Plan (the "2004 Plan"), which authorized shares of Tranzyme Pharma’s common exchangeable stock for granting stock options to employees, directors and consultants and other individuals set forth in the 2004 Plan. The terms of the stock option agreements, including vesting requirements, were determined by Tranzyme Pharma’s Board of Directors, subject to the provisions of the 2004 Plan.</font></div><div style="line-height:120%;text-indent:30px;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Options granted by the Company generally vest over four years and are exercisable after they have been granted for up to ten years from the date of grant.</font></div><div style="line-height:120%;text-indent:30px;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On March 3, 2011 the Company’s Board of Directors adopted, and stockholders subsequently approved, the 2011 Stock Option Plan, (the “2011 Plan”) which authorized the issuance of up to 2,627,945 shares of common stock under the plan. The plan became effective on April 1, 2011.  As of April 1, 2011, no further shares will be issued under the 2001 Plans, the 2003 Plan or the 2004 Plan.  To the extent outstanding awards under the 2001 Plans, the 2003 Plan or the 2004 Plan are cancelled, forfeited or otherwise terminated without being exercised, the number of shares underlying such awards will be available for grant under the 2011 Plan. The following summarizes shares outstanding, exercisable and available for grant under the plan as of March 31, 2012:</font></div><div style="line-height:120%;text-indent:30px;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;width:100%;border-collapse:collapse;text-align:left;"><tr><td colspan="10" rowspan="1"></td></tr><tr><td width="53%" rowspan="1" colspan="1"></td><td width="14%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="14%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="13%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Shares Outstanding</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Shares</font></div><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Exercisable</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Weighted Average</font></div><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Exercise Price of</font></div><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Shares Outstanding</font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2001 Stock Option Plans</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1,448</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1,448</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">11.34</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2003 Equity Incentive Plan</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">617,949</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">607,681</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3.42</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2004 Stock Option Plan</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">51,228</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">51,228</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">5.95</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2011 Stock Option Plan</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1,664,336</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">140,000</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3.74</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total Shares outstanding</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2,334,961</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">800,357</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3.71</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total Shares authorized</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2,627,945</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total Shares available for grant</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">292,984</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On February 28, 2012, the Company issued 10,043 shares of common stock upon the exercise of stock options at a weighted exercise price of $3.78 for cash proceeds of approximately $38,000. </font></div><div style="line-height:120%;padding-bottom:6px;padding-top:6px;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">A total of 186,607 options were forfeited for the three month period ended March 31, 2012.</font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">For the three month period ended March 31, 2012, the Board of Directors authorized and granted common stock options from the 2011 Plan to employees of the Company as follows:</font></div><div style="line-height:120%;text-align:center;text-indent:48px;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:549px;border-collapse:collapse;text-align:left;"><tr><td colspan="11" rowspan="1"></td></tr><tr><td width="130px" rowspan="1" colspan="1"></td><td width="13px" rowspan="1" colspan="1"></td><td width="127px" rowspan="1" colspan="1"></td><td width="4px" rowspan="1" colspan="1"></td><td width="10px" rowspan="1" colspan="1"></td><td width="9px" rowspan="1" colspan="1"></td><td width="118px" rowspan="1" colspan="1"></td><td width="4px" rowspan="1" colspan="1"></td><td width="9px" rowspan="1" colspan="1"></td><td width="118px" rowspan="1" colspan="1"></td><td width="4px" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Date</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Shares</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Exercise price</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Weighted Average Fair Value</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">February 23, 2012</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">50,000</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">4.98</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3.42</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The exercise price of stock options was equal to the closing market price of the underlying common stock on the grant date. The weighted-average assumptions used in the Black-Scholes valuation model for equity awards granted for the three month period ended March 31, 2012 are shown in the table below. There were no options issued for the three month period ended March 31, 2011.</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:341px;border-collapse:collapse;text-align:left;"><tr><td colspan="3" rowspan="1"></td></tr><tr><td width="177px" rowspan="1" colspan="1"></td><td width="152px" rowspan="1" colspan="1"></td><td width="11px" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Three Months Ended March 31,</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2012</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Expected volatility</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">78.2</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-right:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">%</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Expected dividends</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">—</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Expected life</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">6.25</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Risk-free interest rate</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1.40</font></div></td><td style="vertical-align:bottom;padding-right:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">%</font></div></td></tr></table></div></div><div style="line-height:120%;text-indent:29px;font-size:8pt;"><font style="font-family:inherit;font-size:7pt;">  </font><font style="font-family:inherit;font-size:8pt;"> </font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company determined the options’ life based upon the use of the simplified method.  As a newly public company, sufficient history to estimate the volatility and dividend yield of our common stock is not available.  The Company uses a pool of comparable companies as a basis for the expected volatility assumption and dividend yield.  The Company intends to continue to consistently apply this process using the comparable companies until sufficient amount of historical information becomes available. The risk free interest rate is based upon the yield of an applicable Treasury instrument. </font></div><div style="line-height:120%;text-indent:30px;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:29px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company recognized non-cash share-based compensation expense to employees in its research and development and selling, general and administrative functions as follows:</font></div><div style="line-height:120%;font-size:7pt;"><font style="font-family:inherit;font-size:7pt;"> </font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:63.28125%;border-collapse:collapse;text-align:left;"><tr><td colspan="7" rowspan="1"></td></tr><tr><td width="49%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="25%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="22%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;padding-left:12px;text-indent:12px;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="6" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Three Months</font></div><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">Ended March 31,</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;font-weight:bold;"> </font></div></td><td colspan="3" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2012</font></div></td><td colspan="3" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:8pt;"><font style="font-family:inherit;font-size:8pt;font-weight:bold;">2011</font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Research and development</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">69,000</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">24,000</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">General and administrative</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">222,000</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">36,000</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:1pt;"><font style="font-family:inherit;font-size:1pt;"> </font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">291,000</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">60,000</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div><div style="line-height:120%;text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></div>
1897000
1443000
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Notes Payable and Other Liabilities</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">2008 Notes Payable</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In December 2008, the Company entered into a loan and security agreement (the "2008 Notes") with two lenders, including the holder of promissory notes issued by the Company in 2006, for a total commitment of $6.3 million, and issued a note in the amount of $3.2 million to each lender. The 2008 Notes carried an interest rate equal to 12.09% per annum, were repayable in monthly installments and were to mature on December 1, 2011. Borrowings were collateralized by all of the assets of the Company excluding intellectual property.</font></div><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In connection with the 2008 Notes, the Company issued to the two lenders warrants to purchase shares of preferred stock with an aggregate purchase price of $200,000. The warrants were exercisable for Series A Convertible Preferred stock at a price per share of $1.00. The warrants were recorded as a debt discount at estimated fair value of $87,000, which was being amortized as a component of interest expense over the remaining life of the loan. The warrants are exercisable for seven years from the date of issuance and expire on December 3, 2015. The warrants include an automatic conversion feature upon expiration.  Upon the closing of the IPO, the warrants became exercisable for shares of our common stock at a price per share of $7.00.</font></div><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">2010 Notes Payable</font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On September 30, 2010, the Company entered into a loan and security agreement with two lenders for a total commitment $13.0 million. On October 1, 2010, the parties executed the related note agreements (the "2010 Notes") and the Company repaid the outstanding principal and interest of $3.4 million on the 2008 Notes. The 2010 Notes carried an interest rate equal to 10.75% per annum and were to mature on January 1, 2014. The 2010 Notes were payable in nine installments of interest only followed by thirty installments of principal plus interest. Principal payments on the 2010 Notes commenced in August 2011. In connection with the 2010 loan and security agreement, the Company issued warrants to purchase an aggregate of $520,000 in stock of the Company, which were contingently exercisable for a class and series of shares and exercise price as determined by future events as specified in the agreement.  Upon the closing of the IPO, the warrants became exercisable for shares of the Company's common stock. The Company determined the fair value of the warrants to be $254,000 and recorded the warrant as a liability with a related debt discount to be amortized as interest expense over the term of the 2010 Notes.</font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> The Company recognized $20,000 and $410,000 in interest expense, including the amortization of the warrants, for the three month period ended March 31, 2012 and 2011, respectively. </font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:30px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">2012 Notes Payable</font></div><div style="line-height:120%;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On January 31, 2012, the Company entered into an Amended and Restated Loan and Security Agreement (the "2012 Notes") with the holders of the 2010 Notes whereby the lenders provided the Company with approximately $13.4 million of new proceeds, of which $4.1 million was used to repay a portion of the outstanding principal on the 2010 Notes. The interest rate on all of the outstanding notes was reset to 10.0% per annum. The Company will make interest only payments through February 1, 2013, and then will make 30 monthly principal and interest payments through August 1, 2015, to fully amortize the loan. In addition, the approximately $6.6 million of 2010 Notes that were reissued under the 2012 Notes were reamortized to follow the same interest-only period followed by the same 30 monthly principal and interest payments.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In connection with the 2012 Notes, the Company issued warrants to purchase an aggregate of 163,488 shares of the Company's common stock at an exercise price of $3.67 per share. The warrants are immediately exercisable, and excluding certain mergers or acquisitions, will expire on January 30, 2022. The Company determined the fair value of the warrants to be $527,000 using the Black-Scholes pricing model and recorded the warrants as a debt discount to be amortized as interest expense over the term of the 2012 Notes using the effective interest rate method.</font></div><div style="line-height:120%;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company recognized $419,000 in interest expense, including the amortization of the warrants, for the three month period ended March 31, 2012. </font></div><div style="line-height:120%;text-align:left;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:36px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company determined that the early prepayment and exchange of the 2010 Notes resulted in an exchange of debt instruments with substantially different terms, resulting in a $520,000 loss on extinguishment of debt reflected in other expense for the three month period ended March 31, 2012.</font></div></div>
1165000
442000
false
--12-31
Q1
2012
2012-03-31
10-Q
0001274644
24607888
Non-accelerated Filer
TRANZYME INC