20000000
869047
869047
3.15
119047
3.38
24146419
0.30
0.70
6000000
2500000
0.01
0.03
10
0.001
130000
1.88
12017480
2500000
10000000
24146419
220000
2352031
5.10
3265467
0.01
220000
5.98
100000000
0.001
3000000
24146419
1694163
1096403
-77337
424805
330712810
38029
24800873
-305860947
2200
633569
4763203
24147
29564076
1956000
9600241
10699
682942
65686
29564076
13496587
1300000
907921
14404508
15000
16637
4800000
3.56
2593500
2563327
13500000
300000
8250000
4010530
22495443
220000
5.06
3217043
0.01
220000
0.50
100000000
0.001
3000000
22495443
1694163
460435
-80803
186393
326868578
33894
25425756
-301386714
2200
240148
4120487
22495
29546243
1956000
9600241
680982
82414
29546243
6700493
1673560
6008553
14382606
9889
4800000
6000000
6700000
1000000
P2Y
1158730
1158730
3.15
300000
3700000
158730
51389
1936237
5500000
6000000
2.44
4.10
0.070
50000
1.29
1.60
3.82
2504532
5400000
-4718902
19002419
79462
9405861
-0.27
-3257
44322
3257
6517
2745
-5204499
-5205043
-10637
3257
118567
-5215680
-5205491
4800
-5205043
6697
12765374
5525
262686
3566671
521286
8006950
-39522
5208748
300000
544
4800
193951
67282
1300000
12758677
63704
1642077
-238489
2200000
3329794
3876067
0.0080
0.8610
P5Y6M
0.000
0.0018
0.9144
P6M
0.000
MNOV
MEDICINOVA INC
false
Smaller Reporting Company
2014
10-Q
2014-06-30
0001226616
--12-31
Q2
<div>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Potentially dilutive outstanding securities excluded from diluted
net loss per common share because of their anti-dilutive
effect:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="76%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000"><b>June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Convertible preferred stock, as converted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,200,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,200,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Stock options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,265,467</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,329,794</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Warrants</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,675,567</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,876,067</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Total</p>
</td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,141,034</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,405,861</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
P6Y3M29D
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Revenue Recognition Policy</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Revenues consist of milestone payments and research and development
services. Milestone payments are recognized as revenue upon
achievement of pre-defined scientific events, which require
substantive effort, and for which achievement of the milestone was
not readily assured at the inception of the agreement. Milestones
that do not meet the criteria for accounting under the milestone
method because the payments are solely contingent upon the
performance of a third party are accounted for as contingent
revenue. Research and development services are recognized as
research costs are incurred over the period the services are
performed. For all other revenue 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.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
A summary of stock option activity and related information as of
June 30, 2014 is as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="48%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of<br />
Option Shares</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted Average<br />
Exercise Price</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted Average<br />
Contractual Life</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Aggregate<br />
Intrinsic Value</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at December 31, 2013</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,217,043</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.06</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">95,000</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.43</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Cancelled</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(46,576</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3.18</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,265,467</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.10</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6.33</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Exercisable at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,352,031</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.98</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.26</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
17476
<div>
<p style="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>3. Fair Value Measurements</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Fair value is an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. As such, fair
value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions, a
three-tier fair value hierarchy has been established, which
prioritizes the inputs used in measuring fair value as follows:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="14%"></td>
<td valign="bottom" width="1%"></td>
<td width="85%"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top" align="right">Level 1:</td>
<td valign="bottom"><font style="font-size:8pt"> </font></td>
<td valign="bottom">Observable inputs such as quoted prices in
active markets;</td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="2"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top" align="right">Level 2:</td>
<td valign="bottom"><font style="font-size:8pt"> </font></td>
<td valign="bottom">Inputs are quoted prices for similar items in
active markets or inputs are quoted prices for identical or similar
items in markets that are not active near the measurement date;
and</td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="2"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top" align="right">Level 3:</td>
<td valign="bottom"><font style="font-size:8pt"> </font></td>
<td valign="bottom">Unobservable inputs due to little or no market
data, which require the reporting entity to develop its own
assumptions</td>
</tr>
</table>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Cash and cash equivalents, including money market accounts, of
$13.5 million and $6.7 million measured at fair value as of
June 30, 2014 and December 31, 2013, respectively, are
classified within Level 1.</p>
</div>
5.43
3440294
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>4. Joint Venture</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The Company entered into an agreement to form a joint venture
company with Zhejiang Medicine Co., Ltd. and Beijing Medfron
Medical Technologies Co., Ltd. (formerly Beijing Make-Friend
Medicine Technology Co., Ltd.) effective September 27, 2011.
The joint venture agreement provides for the joint venture company,
Zhejiang Sunmy Bio-Medical Co., Ltd. (“Zhejiang Sunmy”
or “JV Company”), to develop and commercialize MN-221
in China and pursue additional compounds to develop. A sublicense
agreement would be required under which Zhejiang Sunmy would
license MN-221 from the Company and, as of the date of this filing,
no such sublicense agreement has been entered into. In accordance
with the joint venture agreement, in March 2012 the Company paid
$680,000 for a 30% interest in Zhejiang Sunmy. The other parties to
the joint venture agreement provided funding for their combined 70%
interest. In December 2013, the Board of Directors of the JV
Company agreed to amend the joint venture agreement to allow for
the departure of Zhejiang Medicine Co., Ltd. subject to the
approval of the government of the People’s Republic of China.
Through the date of this filing, the Chinese government has not
approved any amendment to the JV Company. Upon approval by the
Chinese government, Beijing Medfron Medical Technologies Co., Ltd.
and MediciNova will each have a 50% interest in the JV Company.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Zhejiang Sunmy is a variable interest entity for which the Company
is not the primary beneficiary as the Company does not have a
majority of the board seats and does not have power to direct or
significantly influence the actions of the entity. The activities
of Zhejiang Sunmy are accounted for under the equity method whereby
the Company absorbs any loss or income generated by Zhejiang Sunmy
according to the Company’s percentage ownership. At
June 30, 2014, the investment is reflected as a long-term
asset on the Company’s consolidated balance sheet which
represents the investment in Zhejiang Sunmy, net of the
Company’s portion of any generated loss or income.</p>
</div>
P10Y
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The following table provides the assumptions used in the
Black-Scholes valuation model for the three and six months ended
June 30, 2014 and 2013. The ESPP assumptions for the three
months ended June 30, 2014 and 2013 are actual amounts, and
the assumptions for the six months ended June 30, 2014 and
2013 are weighted average amounts.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="84%"></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three Months Ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three Months Ended<br />
June 30, 2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Six Months Ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Six Months Ended<br />
June 30, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Stock Option assumptions:</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.21</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.80</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.21</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.80</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility of common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">63.46</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.10</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">63.46</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.10</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected term (in years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.49</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.49</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>ESPP assumptions:</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.06</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.15</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.06</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.18</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility of common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">67.6</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">91.60</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">67.6</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">91.44</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected term (in years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b>1. Interim Financial Information</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b><i>Organization and Business</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company was incorporated in the state of Delaware in September
2000 and is a public company. The Company’s common stock is
listed in both the U.S. and Japan and trades on the NASDAQ Global
Market and the JASDAQ Market of the Tokyo Stock Exchange. The
Company is a biopharmaceutical company focused on acquiring and
developing novel, small molecule therapeutics for the treatment of
serious diseases with unmet medical needs and a commercial focus on
the U.S. market. The Company is currently focusing its development
activities on MN-166 (Ibudilast) for the treatment of neurological
disorders, MN-221(Bedoradrine), for the treatment of acute
exacerbations of asthma, MN-001 (Tipelukast) for the treatment of
NASH (nonalcoholic steatohepatitis), and MN-029 (Denibulin) for the
treatment of solid tumors.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Basis of Presentation</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States (GAAP) for interim financial
information and with the instructions of the Securities and
Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and
disclosures required by GAAP for complete financial statements. In
the opinion of management, the consolidated financial statements
include all adjustments necessary, which are of a normal and
recurring nature, for the fair presentation of the Company’s
financial position and of the results of operations and cash flows
for the periods presented. The accompanying unaudited consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the
year ended December 31, 2013 included in the Company’s
Annual Report on Form 10-K filed with the SEC. The results of
operations for the interim period shown in this report are not
necessarily indicative of the results that may be expected for any
other interim period or for the full year. The balance sheet at
December 31, 2013 has been derived from the audited financial
statements at that date, but does not include all of the
information and footnotes required by GAAP for complete financial
statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Research, Development and Patents</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Research and development costs are expensed in the period incurred.
Research and development costs primarily consist of salaries and
related expenses for personnel, facilities and depreciation,
research and development supplies, licenses and outside services.
Such research and development costs totaled $0.7 million and $0.8
million for the three-months ended June 30, 2014 and 2013,
respectively. For the six months ended June 30, 2014 and 2013
research and development costs totaled $1.4 million and $1.3
million for the six months ended June 30, 2014 and 2013,
respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Costs related to filing and pursuing patent applications are
expensed as incurred, as recoverability of such expenditures is
uncertain. The Company includes all external costs related to the
filing of patents on developments in Research, Development and
Patents expenses. Such patent-related expenses totaled $0.1 million
for the three-months ended June 30, 2014 and 2013. For the six
months ended June 30, 2014 and 2013, patent-related expenses
totaled $0.2 million and $0.3 million for the six months ended
June 30, 2014 and 2013, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Use of Estimates</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The preparation of the consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and the accompanying notes. Actual results
could differ from those estimates.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Recently Issued Accounting Pronouncements</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In May 2014, the Financial Accounting Standards Board
(“FASB”) and the International Accounting Standards
Board “(IASB”) jointly issued Accounting Standards
Update (“ASU”) No. 2014-09, Revenue from Contracts
from Customers, which supersedes the revenue recognition
requirements in ASC 605, Revenue Recognition. ASU 2014-09 is a
comprehensive new revenue recognition standard that will supersede
nearly all existing revenue recognition guidance under US GAAP
and IFRS. The standard’s core principle is that a company
will recognize revenue when it transfers promised goods or services
to customers in an amount that reflects the consideration to which
the company expects to be entitled in exchange for those goods or
services. In doing so, companies will need to use more judgment and
make more estimates than under current authoritative guidance.
These may include identifying performance obligations in the
contract, estimating the amount of variable consideration to
include in the transaction price and allocating the transaction
price to each separate performance obligation. The standard is
effective for public entities for annual and interim periods
beginning after December 15, 2016. Early adoption is not
permitted under US GAAP. The adoption of this guidance is not
expected to have a material impact on the Company.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic
740): Presentation of an Unrecognized Tax Benefit When a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists, a new accounting standard update on the
financial statement presentation of unrecognized tax benefits. The
new guidance provides that a liability related to an unrecognized
tax benefit would be presented as a reduction of a deferred tax
asset for a net operating loss carryforward, a similar tax loss or
a tax credit carryforward if such settlement is required or
expected in the event the uncertain tax position is disallowed. The
new guidance became effective for the Company on January 1,
2014 and it should be applied prospectively to unrecognized tax
benefits that exist at the effective date with retrospective
application permitted. The adoption of this guidance did not have a
material impact on the Company.</p>
</div>
23920782
<div>
<p style="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>6. Stockholders’ Equity</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Kissei Stock Purchase</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In October 2011, pursuant to a stock purchase agreement by and
between the Company and Kissei, Kissei purchased (i) an
aggregate of 800,000 shares of the Company’s common stock,
par value $0.001 per share, at a price of $2.50 per share, and
(ii) 220,000 shares of the Company’s Series B
Convertible Preferred Stock, par value $0.01 per share, at a price
of $25.00 per share. In October 2011 the Company received gross
proceeds of $7.5 million related to this purchase agreement. The
purchase agreement contains a standstill agreement from Kissei that
terminates if Kissei beneficially owns less than three percent of
the Company’s outstanding voting stock. Each share of the
Series B Preferred Stock is convertible into 10 shares of
common stock. The Series B Preferred ranks <i>pari passu</i> (on an
as-if-converted-to-common-stock basis) with the common stock in
liquidation and dividend rights. The holders of the Series B
Preferred do not have voting rights, however, the consent of
holders of a majority of the outstanding Series B Preferred is
required for certain actions.</p>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Common Stock Purchase Agreement</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
On August 20, 2012, the Company entered into a common stock
purchase agreement with Aspire pursuant to which the Company could
elect to sell Aspire, and Aspire would be obligated to purchase, up
to an aggregate of $20 million of common stock over the two-year
term of the agreement including $1.0 million in common stock
purchased by Aspire in connection with execution of the agreement.
The common stock purchase agreement with Aspire was terminated on
October 17, 2013, and as of such date, the Company had
completed sales to Aspire totaling 2,504,532 shares of common stock
at prices ranging from $1.60 to $3.82 per share, generating gross
proceeds of $5.4 million.</p>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>At-The-Market Issuance Sales Agreements</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
On April 17, 2013, the Company entered into an at-the-market
equity distribution agreement with Macquarie Capital (USA) Inc., or
MCUSA, pursuant to which the Company could sell common stock
through MCUSA from time to time up to an aggregate offering price
of $6.0 million. As of July 25, 2013, the Company had
completed all available sales to MCUSA under this agreement,
generating gross and net proceeds of $6.0 million and $5.5 million,
respectively, on sales of 1,936,237 shares of common stock at
prices ranging from $2.44 to $4.10 per share.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
On October 16, 2013, the Company entered into a second
at-the-market equity distribution agreement with MCUSA pursuant to
which the Company may sell common stock through MCUSA from time to
time up to an aggregate offering price of $10.0 million. Under the
terms of this agreement, unless otherwise mutually agreed, no daily
sale of an amount of shares of the Company’s common stock is
to exceed the lower of $50,000 or 10% of the lower of the 5-day or
3-month average daily traded value of the Company’s common
stock on NASDAQ (unless 10% of the lower of the 5-day or 3-month
average daily traded value of the Company’s common stock on
the JASDAQ Market of the Tokyo Stock Exchange (“TSE”)
is greater, in which case the value from the TSE will be used) as
of the date of the applicable issuance notice. The price per share
is not to be less than the greater of $1.29 or the last available
closing price of a share of the Company’s common stock on
NASDAQ. MCUSA agreed to use its commercially reasonable efforts
consistent with its customary trading and sales practices and
applicable laws, rules and regulations to sell shares of the
Company’s common stock and is to sell such shares by any
method permitted by law deemed to be “at the market.”
The Company agreed to pay MCUSA an aggregate commission rate of
7.0% of the gross proceeds of any common stock sold under this
agreement. MCUSA is under no obligation to purchase shares pursuant
to this agreement and there are no assurances that MCUSA will be
successful in selling shares. Proceeds from sales of common stock
will depend on the number of shares of common stock sold to MCUSA
and the per share purchase price of each transaction. The agreement
with MCUSA provides both MCUSA and the Company the right to
terminate the agreement in their discretion upon giving five
business days written notice. For the six months ended
June 30, 2014, the Company has generated gross and net
proceeds of $3.4 million and $3.0 million, respectively, under this
agreement on sales of 1,548,000 shares of the Company’s
common stock at prices ranging from $2.01 to $2.40 per share.</p>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Securities Purchase Agreement</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
On May 9, 2013, the Company entered into a Securities Purchase
Agreement with certain accredited investors (the “Purchase
Agreement”) pursuant to which the Company agreed to sell to
the investors 1,158,730 shares of the Company’s common stock
at a price of $3.15 per share and warrants to purchase an aggregate
of 869,047 shares of the Company’s common stock with an
exercise price of $3.15 per share (the “Private
Placement”). The Private Placement closed on May 14,
2013. The warrants will expire on May 9, 2018 and may be
exercised for cash or, if the current market price of common stock
of the Company is greater than the per share exercise price, by
surrender of a portion of the warrant in a cashless exercise. The
aggregate purchase price for the shares and the warrants sold in
the Private Placement was $3.7 million and associated expenses
incurred were $0.3 million.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In connection with the purchase by one investor of 158,730 shares
of common stock and a warrant to purchase 119,047 shares of common
stock, on May 29, 2013 the investor provided $51,389 additional
consideration for the shares and the warrant, and the Company
entered into an amendment to the warrant with the investor to
reflect an exercise price of $3.38 per share.</p>
<p style="font-size:1px;margin-top:12px;margin-bottom:0px">
 </p>
<p style="margin-top:0pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The net proceeds for the shares and the warrants sold in the
Private Placement of $3.4 million were allocated based on the
relative fair value of each instrument. The fair value of the
shares was based on the closing price of the Company’s common
stock on May 9, 2013, and the fair value of the warrants based
on a Black-Scholes valuation model.</p>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Common Stock Warrant</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In 2011, the Company consummated a firm-commitment underwritten
public offering of 2,800,666 units at a price to the public of
$3.00 per unit for gross proceeds of $8.25 million. Each unit
consists of one share of common stock and a warrant to purchase one
share of common stock. The shares of common stock and warrants are
immediately separable and were issued separately. The warrants are
exercisable immediately upon issuance, have a five-year term and an
exercise price of $3.56 per share. During the six months ended
June 30, 2014, 85,500 of these warrants were exercised for
gross proceeds of $0.3 million. As of June 30, 2014, 2,593,500
of these warrants remain outstanding and exercisable.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In August 2012, the Company issued a warrant in exchange for
investor relations services to purchase up to 130,000 of common
stock of the Company at a price of $1.88 per share, the closing
price of the Company’s common stock on that date. As of
June 30, 2014, the warrant was exercisable for 15,000 shares,
and no further shares will vest. The warrant expires five years
from the date of issuance.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>7. Net Loss Per Share</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company computes basic net loss per share using the weighted
average number of common shares outstanding during the period.
Diluted net income per share is based upon the weighted average
number of common shares and potentially dilutive securities (common
share equivalents) outstanding during the period. Common share
equivalents outstanding, determined using the treasury stock
method, are comprised of shares that may be issued under the
Company’s stock option agreements and warrants. Common share
equivalents are excluded from the diluted net loss per share
calculation because of their anti-dilutive effect.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Potentially dilutive outstanding securities excluded from diluted
net loss per common share because of their anti-dilutive
effect:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Convertible preferred stock, as converted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,200,000</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,200,000</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Stock options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,265,467</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,329,794</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Warrants</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,675,567</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,876,067</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,141,034</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,405,861</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>8. Related Party Transactions</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
On October 13, 2011, the Company entered into a services
agreement with Kissei to perform two separate studies relating to
MN-221 in exchange for $2.5 million paid to the Company in October
2011. The Company is responsible for all costs to be incurred in
the performance of these studies. The amount received from Kissei,
net of the amount recorded as revenue through June 30, 2014,
is included on the balance sheet at June 30, 2014 as deferred
revenue and will be recognized as revenue in future periods as the
Company performs the remaining services.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
On May 9, 2013, the Company entered into a securities purchase
agreement with certain accredited investors pursuant to which the
Company agreed to sell to the investors 1,158,730 shares of common
stock and warrants to purchase an aggregate of 869,047 shares of
common stock (the “Private Placement”). The Private
Placement closed on May 14, 2013. The Private Placement
included issuance of shares of common stock and a warrant to
purchase shares of common stock to Fountain Erika LLC
(“Fountain Erika”), an entity of which Tatsuo Izumi, a
member of the Company’s board of directors at that time, is a
principal. The warrant was subsequently amended on May 29,
2013. Fountain Erika’s acquisition of the shares of common
stock and a warrant to purchase shares of the Company’s
common stock was at an “at the market” price.</p>
</div>
3.18
9141034
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Use of Estimates</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The preparation of the consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and the accompanying notes. Actual results
could differ from those estimates.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The following table provides the assumptions used in the
Black-Scholes valuation model for the three and six months ended
June 30, 2014 and 2013. The ESPP assumptions for the three
months ended June 30, 2014 and 2013 are actual amounts, and
the assumptions for the six months ended June 30, 2014 and
2013 are weighted average amounts.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="84%"></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three Months Ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three Months Ended<br />
June 30, 2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Six Months Ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Six Months Ended<br />
June 30, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Stock Option assumptions:</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.21</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.80</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.21</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.80</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility of common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">63.46</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.10</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">63.46</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.10</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected term (in years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.49</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.49</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>ESPP assumptions:</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.06</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.15</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.06</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.18</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility of common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">67.6</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">91.60</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">67.6</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">91.44</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected term (in years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
-0.19
95000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>9. Subsequent Events</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company has evaluated all subsequent events that have occurred
after the date of the accompanying financial statements and
determined that there were no events or transactions occurring
during the subsequent event reporting period which require
recognition or disclosure in the Company’s consolidated
financial statements.</p>
</div>
P1Y1M10D
46576
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Basis of Presentation</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States (GAAP) for interim financial
information and with the instructions of the Securities and
Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and
disclosures required by GAAP for complete financial statements. In
the opinion of management, the consolidated financial statements
include all adjustments necessary, which are of a normal and
recurring nature, for the fair presentation of the Company’s
financial position and of the results of operations and cash flows
for the periods presented. The accompanying unaudited consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the
year ended December 31, 2013 included in the Company’s
Annual Report on Form 10-K filed with the SEC. The results of
operations for the interim period shown in this report are not
necessarily indicative of the results that may be expected for any
other interim period or for the full year. The balance sheet at
December 31, 2013 has been derived from the audited financial
statements at that date, but does not include all of the
information and footnotes required by GAAP for complete financial
statements.</p>
</div>
P5Y3M4D
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>5. Stock-based Compensation</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b><i>Stock Incentive Plans</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In June 2013, the Company adopted the 2013 Equity Incentive Plan,
or 2013 Plan, under which the Company may grant stock options,
stock appreciation rights, restricted stock, restricted stock units
and other awards to individuals who are then employees, officers,
non-employee directors or consultants of the Company or its
subsidiaries. The 2013 Plan is the successor to the Company’s
Amended and Restated 2004 Stock Incentive Plan, or 2004 Plan, which
was in turn the successor to the Company’s 2000 General Stock
Incentive Plan, or 2000 Plan (together, the Prior Plans). A total
of 2,500,000 shares of common stock were initially reserved
for issuance under the 2013 Plan, plus “returning
shares” that may become available from time to time.
“Returning shares” are shares that are subject to
outstanding awards granted under the 2004 Plan that expire or
terminate prior to exercise or settlement, are forfeited because of
the failure to vest, are repurchased, or are withheld to satisfy
tax withholding or purchase price obligations in connection with
such awards. Although the Company no longer grants equity awards
under the Prior Plans, all outstanding stock awards granted under
the Prior Plans will continue to be subject to the terms and
conditions as set forth in the agreements evidencing such stock
awards and the terms of the Prior Plans, as applicable. As of
June 30, 2014, 2,563,327 options remain available for future
grant under the 2013 Plan.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Stock Options</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Options granted under the 2013 Plan and Prior Plans have terms of
ten years from the date of grant and generally vest over a three or
four year period.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The exercise price of all options granted was equal to the market
value of the Company’s common stock on the date of grant.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
A summary of stock option activity and related information as of
June 30, 2014 is as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="48%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of<br />
Option Shares</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted Average<br />
Exercise Price</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted Average<br />
Contractual Life</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Aggregate<br />
Intrinsic Value</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at December 31, 2013</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,217,043</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.06</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">95,000</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.43</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Cancelled</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(46,576</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3.18</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,265,467</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.10</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6.33</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Exercisable at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,352,031</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.98</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.26</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
No options were exercised during the six months ended June 30,
2014. During the three months ended June 30, 2013 there were
38,085 options exercised, from which gross proceeds of $92,024 were
received. During the six months ended June 30, 2013 there were
79,462 options exercised, from which gross proceeds of $193,951
were received. The intrinsic value of options exercised during the
six months ended June 30, 2013 was $63,704.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Employee Stock Purchase Plan</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Under the Company’s 2007 Employee Stock Purchase Plan, or
ESPP, 300,000 shares of common stock were originally reserved for
issuance. In addition, the shares reserved automatically increase
each year by a number equal to the lesser of: (i) 15,000
shares; (ii) 1% of the outstanding shares of common stock on
the last day of the immediately preceding fiscal year; or
(iii) such lesser amount as determined by the Board. The ESPP
permits full-time employees to purchase common stock through
payroll deductions (which cannot exceed 15% of each
employee’s compensation) at the lower of 85% of fair market
value at the beginning of the offering period or the end of each
six-month offering period.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
For the six months ended June 30, 2014, an aggregate of 17,476
shares were issued under the ESPP, leaving 231,851 shares available
for future issuance.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Compensation Expense</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
During the three and six months ended June 30, 2014, options
to purchase 95,000 shares of common stock were granted. Stock-based
compensation expense for stock option awards and ESPP shares are
reflected in total operating expenses for each respective year. For
the three months ended June 30, 2014 and 2013, stock-based
compensation related to stock options and ESPP was $231,321 and
$363,586, respectively. For the six months ended June 30, 2014
and 2013, stock-based compensation expense related to stock options
and the ESPP was $486,420 and $521,286, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Company uses the Black-Scholes valuation model for determining
the estimated fair value and the stock-based compensation for
stock-based awards to employees. The following table provides the
assumptions used in the Black-Scholes valuation model for the three
and six months ended June 30, 2014 and 2013. The ESPP
assumptions for the three months ended June 30, 2014 and 2013
are actual amounts, and the assumptions for the six months ended
June 30, 2014 and 2013 are weighted average amounts.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="84%"></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three Months Ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three Months Ended<br />
June 30, 2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Six Months Ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Six Months Ended<br />
June 30, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Stock Option assumptions:</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.21</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.80</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.21</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.80</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility of common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">63.46</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.10</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">63.46</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.10</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected term (in years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.49</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.49</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>ESPP assumptions:</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.06</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.15</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.06</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.18</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility of common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">67.6</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">91.60</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">67.6</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">91.44</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.0</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected term (in years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
As of June 30, 2014, there was $1.3 million of unamortized
compensation cost related to unvested stock option awards which is
expected to be recognized over a remaining weighted-average vesting
period of 1.11 years, on a straight-line basis.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Recently Issued Accounting Pronouncements</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In May 2014, the Financial Accounting Standards Board
(“FASB”) and the International Accounting Standards
Board “(IASB”) jointly issued Accounting Standards
Update (“ASU”) No. 2014-09, Revenue from Contracts
from Customers, which supersedes the revenue recognition
requirements in ASC 605, Revenue Recognition. ASU 2014-09 is a
comprehensive new revenue recognition standard that will supersede
nearly all existing revenue recognition guidance under US GAAP
and IFRS. The standard’s core principle is that a company
will recognize revenue when it transfers promised goods or services
to customers in an amount that reflects the consideration to which
the company expects to be entitled in exchange for those goods or
services. In doing so, companies will need to use more judgment and
make more estimates than under current authoritative guidance.
These may include identifying performance obligations in the
contract, estimating the amount of variable consideration to
include in the transaction price and allocating the transaction
price to each separate performance obligation. The standard is
effective for public entities for annual and interim periods
beginning after December 15, 2016. Early adoption is not
permitted under US GAAP. The adoption of this guidance is not
expected to have a material impact on the Company.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic
740): Presentation of an Unrecognized Tax Benefit When a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists, a new accounting standard update on the
financial statement presentation of unrecognized tax benefits. The
new guidance provides that a liability related to an unrecognized
tax benefit would be presented as a reduction of a deferred tax
asset for a net operating loss carryforward, a similar tax loss or
a tax credit carryforward if such settlement is required or
expected in the event the uncertain tax position is disallowed. The
new guidance became effective for the Company on January 1,
2014 and it should be applied prospectively to unrecognized tax
benefits that exist at the effective date with retrospective
application permitted. The adoption of this guidance did not have a
material impact on the Company.</p>
</div>
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<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>2. Revenue Recognition</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b><i>Revenue Recognition Policy</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Revenues consist of milestone payments and research and development
services. Milestone payments are recognized as revenue upon
achievement of pre-defined scientific events, which require
substantive effort, and for which achievement of the milestone was
not readily assured at the inception of the agreement. Milestones
that do not meet the criteria for accounting under the milestone
method because the payments are solely contingent upon the
performance of a third party are accounted for as contingent
revenue. Research and development services are recognized as
research costs are incurred over the period the services are
performed. For all other revenue 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.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Genzyme Corporation</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In December 2005, Avigen, Inc. and Genzyme Corporation entered into
an Assignment Agreement (Genzyme Agreement) in which Genzyme
acquired certain gene therapy intellectual property, programs and
other related assets from Avigen in exchange for an initial $12.0
million payment, and Avigen could receive additional development
milestone payments, sublicensing fees and royalty payments based on
the successful development of products by Genzyme utilizing
technologies previously developed by Avigen. Avigen was
subsequently acquired by the Company in December 2009 along with
Avigen’s rights and obligations under the Genzyme Agreement.
If Genzyme fails to diligently pursue the commercialization or
marketing of products using the assigned technology, as specified
in the Genzyme Agreement, some of the rights assigned could revert
back to the Company at a future date.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The development milestones outlined in the Genzyme Agreement do not
meet the definition of a substantive milestone obligation under
authoritative guidance on revenue recognition for milestone
payments, as Genzyme is responsible for the development of the
product and there is no further substantive service effort required
by the Company. The Company determined that a non-substantive
milestone in the Genzyme Agreement had been earned, and license
revenue and a receivable of $6.0 million was recorded during 2013,
as no future Company performance obligations exist. The Company
received payment of the amount receivable in January 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Kissei Pharmaceutical Co., Ltd</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In October 2011, the Company entered into an agreement with Kissei
Pharmaceutical Co., Ltd., or Kissei, to perform research and
development services relating to MN-221 in exchange for a
non-refundable upfront payment of $2.5 million. Under the
terms of the agreement, the Company is responsible for all costs to
be incurred in the performance of these services. Certain of these
research and development services were completed in 2013 and 2012,
and the remaining services are expected to be delivered and
completed at a future date. The Company assessed the deliverables
in accordance with the authoritative guidance and concluded the
existence of one deliverable, research and development services. As
such, revenue is being recognized as the research and development
services are performed. The amount received from Kissei, net of the
amount recorded as revenue, is included on the balance sheet as
long-term deferred revenue and will be recognized as revenue as the
remaining services are performed. Revenue recorded in the six
months ended June 30, 2014 and 2013 was zero and $3,257,
respectively. No revenue was recorded in the three months ended
June 30, 2013 and 2014.</p>
</div>
Shares reserved automatically increase each year by a number equal to the lesser of (i) 15,000 shares; (ii) 1% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or (iii) such lesser amount as determined by the Board.
3400000
1583531
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<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>Research, Development and Patents</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Research and development costs are expensed in the period incurred.
Research and development costs primarily consist of salaries and
related expenses for personnel, facilities and depreciation,
research and development supplies, licenses and outside services.
Such research and development costs totaled $0.7 million and $0.8
million for the three-months ended June 30, 2014 and 2013,
respectively. For the six months ended June 30, 2014 and 2013
research and development costs totaled $1.4 million and $1.3
million for the six months ended June 30, 2014 and 2013,
respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Costs related to filing and pursuing patent applications are
expensed as incurred, as recoverability of such expenditures is
uncertain. The Company includes all external costs related to the
filing of patents on developments in Research, Development and
Patents expenses. Such patent-related expenses totaled $0.1 million
for the three-months ended June 30, 2014 and 2013. For the six
months ended June 30, 2014 and 2013, patent-related expenses
totaled $0.2 million and $0.3 million for the six months ended
June 30, 2014 and 2013, respectively.</p>
</div>
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1548000
10% of the lower of the 5-day or 3-month average daily traded value of the Company's common stock
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3400000
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May 9, 2018
Each share of the Series B Preferred Stock is convertible into 10 shares of common stock.
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