EXACT SCIENCES CORP, 10-K filed on 3/9/2012
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Mar. 6, 2012
Jun. 30, 2011
Document and Entity Information
 
 
 
Entity Registrant Name
EXACT SCIENCES CORP 
 
 
Entity Central Index Key
0001124140 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 446,504,260 
Entity Common Stock, Shares Outstanding
 
57,023,845 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current Assets:
 
 
Cash and cash equivalents
$ 35,781 
$ 78,752 
Marketable securities
57,580 
16,663 
Prepaid expenses and other current assets
1,034 
246 
Total current assets
94,395 
95,661 
Property and Equipment, at cost:
 
 
Laboratory equipment
2,314 
943 
Office and computer equipment
729 
188 
Leasehold improvements
288 
89 
Furniture and fixtures
23 
20 
Property and Equipment, gross
3,354 
1,240 
Less-Accumulated depreciation and amortization
(796)
(386)
Property and Equipment, net
2,558 
854 
TOTAL ASSETS
96,953 
96,515 
Current Liabilities:
 
 
Accounts payable
765 
1,028 
Accrued expenses
3,069 
1,987 
Deferred license fees, current portion
4,143 
4,143 
Total current liabilities
7,977 
7,158 
Long term debt
1,000 
1,000 
Long term accrued interest
42 
21 
Deferred license fees, less current portion
4,439 
8,582 
Commitments and contingencies
   
   
Stockholders' Equity:
 
 
Preferred stock, $0.01 par value Authorized-5,000,000 shares Issued and outstanding-none at December 31, 2011 and 2010
   
   
Common stock, $0.01 par value Authorized-100,000,000 shares Issued and outstanding-56,624,763 and 52,163,629 shares at December 31, 2011 and 2010, respectively
566 
522 
Additional paid-in capital
304,767 
272,380 
Other comprehensive loss (income)
(14)
Accumulated deficit
(221,824)
(193,149)
Total stockholders' equity
83,495 
79,754 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 96,953 
$ 96,515 
Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2011
Dec. 31, 2010
Balance Sheets
 
 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, Authorized shares
5,000,000 
5,000,000 
Preferred stock, Issued shares
Preferred stock, Outstanding shares
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, Authorized shares
100,000,000 
100,000,000 
Common stock, Issued shares
56,624,763 
52,163,629 
Common stock, Outstanding shares
56,624,763 
52,163,629 
Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Revenue:
 
 
 
Product royalty fees
$ 20 
$ 26 
$ 25 
License fees
4,143 
5,318 
4,733 
Total revenue
4,163 
5,344 
4,758 
Cost of revenue:
 
 
 
Product royalty fees
24 
24 
20 
Gross profit
4,139 
5,320 
4,738 
Operating expenses:
 
 
 
Research and development
21,968 
9,023 
4,213 
General and administrative
8,137 
6,330 
9,549 
Sales and marketing
2,857 
1,793 
226 
Restructuring
 
 
(3)
Total operating expenses
32,962 
17,146 
13,985 
Loss from operations
(28,823)
(11,826)
(9,247)
Interest income
169 
46 
120 
Interest expense
(21)
(20)
(1)
Other income
 
244 
 
Net loss
$ (28,675)
$ (11,556)
$ (9,128)
Net loss per share-basic and diluted (in dollars per share)
$ (0.54)
$ (0.29)
$ (0.28)
Weighted average common shares outstanding-basic (in shares)
52,512 
40,455 
32,791 
Weighted average common shares outstanding-diluted (in shares)
52,512 
40,455 
32,791 
Statements of Stockholders' (Deficit) Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Additional Paid In Capital
Treasury Stock
Other Comprehensive Income (Loss)
Accumulated Deficit
Other Comprehensive (Loss) Income
Balance at Dec. 31, 2008
$ (2,433)
$ 275 
$ 169,854 
$ (97)
 
$ (172,465)
 
Balance (in shares) at Dec. 31, 2008
 
27,522,931 
 
85,550 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Issuance of common stock related to the Genzyme Transaction (Note 3)
4,470 
30 
4,440 
 
 
 
 
Issuance of common stock related to the Genzyme Transaction (Note 3) (in shares)
 
3,000,000 
 
 
 
 
 
Issuance of common stock in private placement
8,062 
43 
8,019 
 
 
 
 
Issuance of common stock in private placement (in shares)
 
4,315,792 
 
 
 
 
 
Exercise of common stock options
732 
728 
 
 
 
 
Exercise of common stock options (in shares)
 
380,355 
 
 
 
 
 
Issuance of common stock to fund the Company's 2010, 2009 and 2008 401(k) match
32 
 
32 
 
 
 
 
Issuance of common stock to fund the Company's 2010, 2009 and 2008 401(k) match (in shares)
 
24,430 
 
 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards
1,426 
1,422 
 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards (in shares)
 
365,182 
 
 
 
 
 
Compensation expense related to stock option modifications (Note 7)
1,155 
 
1,155 
 
 
 
 
Expense related to warrants (Note 4)
1,779 
 
1,779 
 
 
 
 
Treasury share retirement
 
(1)
(96)
97 
 
 
 
Treasury share retirement (in shares)
 
(85,550)
 
(85,550)
 
 
 
Net loss
(9,128)
 
 
 
 
(9,128)
(9,128)
Other comprehensive (income) loss
(1)
 
 
 
(1)
 
(1)
Comprehensive income (loss)
 
 
 
 
 
 
(9,129)
Balance at Dec. 31, 2009
6,094 
355 
187,333 
 
(1)
(181,593)
 
Balance (in shares) at Dec. 31, 2009
 
35,523,140 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Issuance of common stock, net of issuance costs of $1.5 and $5.6 million for 2011 and 2010, respectively
82,327 
157 
82,170 
 
 
 
 
Issuance of common stock, net of issuance costs (in shares)
 
15,700,000 
 
 
 
 
 
Exercise of common stock options and warrants
466 
461 
 
 
 
 
Exercise of common stock options and warrants (in shares)
 
528,937 
 
 
 
 
 
Issuance of common stock to fund the Company's 2010, 2009 and 2008 401(k) match
65 
64 
 
 
 
 
Issuance of common stock to fund the Company's 2010, 2009 and 2008 401(k) match (in shares)
 
15,460 
 
 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards
2,249 
2,245 
 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards (in shares)
 
396,092 
 
 
 
 
 
Expense related to warrants (Note 4)
107 
 
107 
 
 
 
 
Net loss
(11,556)
 
 
 
 
(11,556)
(11,556)
Other comprehensive (income) loss
 
 
 
 
Comprehensive income (loss)
 
 
 
 
 
 
(11,554)
Balance at Dec. 31, 2010
79,754 
522 
272,380 
 
(193,149)
 
Balance (in shares) at Dec. 31, 2010
52,163,629 
52,163,629 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Issuance of common stock, net of issuance costs of $1.5 and $5.6 million for 2011 and 2010, respectively
27,215 
36 
27,179 
 
 
 
 
Issuance of common stock, net of issuance costs (in shares)
 
3,593,750 
 
 
 
 
 
Exercise of common stock options and warrants
685 
678 
 
 
 
 
Exercise of common stock options and warrants (in shares)
 
708,590 
 
 
 
 
 
Issuance of common stock to fund the Company's 2010, 2009 and 2008 401(k) match
169 
 
169 
 
 
 
 
Issuance of common stock to fund the Company's 2010, 2009 and 2008 401(k) match (in shares)
 
27,872 
 
 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards
4,255 
4,254 
 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards (in shares)
 
130,922 
 
 
 
 
 
Expense related to warrants (Note 4)
107 
 
107 
 
 
 
 
Net loss
(28,675)
 
 
 
 
(28,675)
(28,675)
Other comprehensive (income) loss
(15)
 
 
 
(15)
 
(15)
Comprehensive income (loss)
 
 
 
 
 
 
(28,690)
Balance at Dec. 31, 2011
$ 83,495 
$ 566 
$ 304,767 
$ 0 
$ (14)
$ (221,824)
 
Balance (in shares) at Dec. 31, 2011
56,624,763 
56,624,763 
 
 
 
 
 
Statements of Stockholders' (Deficit) Equity (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Statements of Stockholders' (Deficit) Equity
 
 
Issuance of common stock, costs
$ 1.5 
$ 5.6 
Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities:
 
 
 
Net loss
$ (28,675)
$ (11,556)
$ (9,128)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and write-offs of fixed assets
411 
230 
80 
Write-offs of patents
 
 
95 
Stock-based compensation
4,255 
2,249 
2,631 
Amortization of deferred license fees
(4,143)
(5,318)
(4,733)
Warrant licensing expense
107 
107 
1,779 
Changes in assets and liabilities:
 
 
 
Prepaid expenses and other current assets
(788)
238 
(294)
Accounts payable
(263)
873 
(528)
Accrued expenses
1,251 
667 
(81)
Accrued interest
21 
20 
Third party royalty obligation
 
(988)
(2,462)
Net cash used in operating activities
(27,824)
(13,478)
(12,640)
Cash flows from investing activities:
 
 
 
Purchases of marketable securities
(87,017)
(24,498)
(18,879)
Maturities of marketable securities
46,085 
10,241 
16,474 
Purchases of property and equipment
(2,115)
(626)
(462)
Net cash used in investing activities
(43,047)
(14,883)
(2,867)
Cash flows from financing activities:
 
 
 
Proceeds from Genzyme Collaboration, License and Purchase Agreement
 
1,896 
16,650 
Proceeds from sale of common stock to Genzyme
 
 
6,000 
Proceeds from sale of common stock, net of issuance costs
27,215 
82,327 
8,062 
Proceeds from exercise of common stock options and stock purchase plan
685 
466 
732 
Decrease in restricted cash
 
500 
100 
Payment for repurchase of stock options
 
 
(50)
Proceeds from long term debt
 
 
1,000 
Net cash provided by financing activities
27,900 
85,189 
32,494 
Net increase (decrease) in cash and cash equivalents
(42,971)
56,828 
16,987 
Cash and cash equivalents, beginning of period
78,752 
21,924 
4,937 
Cash and cash equivalents, end of period
35,781 
78,752 
21,924 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Unrealized gain (loss) on available-for-sale investments
(15)
(2)
Retirement of 85,550 treasury shares of common stock
 
 
97 
Issuance of 27,872, 15,460, and 24,430 shares of common stock to fund the Company's 401(k) matching contribution for 2010, 2009, and 2008, respectively
$ 169 
$ 65 
$ 32 
Statements of Cash Flows (Parenthetical)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Statements of Cash Flows
 
 
 
Retirement of treasury shares of common stock
 
 
85,550 
Issuance of shares of common stock to fund the Company's 401(k) matching contribution
27,872 
15,460 
24,430 
ORGANIZATION
ORGANIZATION

(1) ORGANIZATION

        Exact Sciences Corporation ("Exact" or the "Company") was incorporated in February 1995. Exact is a molecular diagnostics company focused on the early detection and prevention of colorectal cancer. The Company's non-invasive stool-based DNA (sDNA) screening technology includes proprietary and patented methods that isolate and analyze human DNA present in stool to screen for the presence of colorectal pre-cancer and cancer.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

Cash and Cash Equivalents

        The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. The Company had no restricted cash at December 31, 2011 and 2010.

Marketable Securities

        Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

        At December 31, 2011 and December 31, 2010 the Company's investments were comprised of fixed income investments and all were deemed available-for-sale. The objectives of the Company's investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives. The Company's investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. All of the Company's investments are considered current. Realized gains were $419, $13,149, and $6,380 during the years ended December 31, 2011, 2010, and 2009 respectively. Unrealized losses on investments recorded in other comprehensive income were $13,784 during the year ended December 31, 2011. Unrealized gains on investments recorded in other comprehensive income were $721 during the year ended December 31, 2010.

        Available-for-sale securities at December 31, 2011 consist of the following:

 
  December 31, 2011  
(In thousands)
  Amortized Cost   Gains in Accumulated
Other Comprehensive
Income
  Losses in Accumulated
Other Comprehensive
Income
  Estimated Fair
Value
 

U.S. government agency securities

  $ 28,004   $   $ (10 ) $ 27,994  

Corporate bonds

    19,124           (2 )   19,122  

Certificates of deposit

    9,467         (2 )   9,465  

Commercial paper

    999             999  
                   

Total available-for-sale securities

  $ 57,594   $   $ (14 ) $ 57,580  
                   

        Available-for-sale securities at December 31, 2010 consist of the following:

 
  December 31, 2010  
(In thousands)
  Amortized Cost   Gains in Accumulated
Other Comprehensive
Income
  Losses in Accumulated
Other Comprehensive
Income
  Estimated Fair
Value
 

Certificates of deposit

  $ 6,662   $ 1   $   $ 6,663  

Mutual funds

    10,000             10,000  
                   

Total available-for-sale securities

  $ 16,662   $ 1   $   $ 16,663  
                   

Property and Equipment

        Property and equipment are stated at cost and depreciated using the straight-line method over the assets' estimated useful lives. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of fixed assets are as follows:

Asset Classification
  Estimated Useful Life

Laboratory equipment

  3 - 5 years

Office and computer equipment

  3 years

Leasehold improvements

  Lesser of the remaining lease term or useful life

Furniture and fixtures

  3 years

        Depreciation expense for the years ended December 31, 2011, 2010, and 2009 was $0.4 million, $0.2 million, and $0.1 million, respectively.

Patent Costs

        Patent costs, which have historically consisted of related legal fees, are capitalized as incurred, only if the Company determines that there is some probable future economic benefit derived from the transaction. The capitalized patents are amortized beginning when patents are approved over an estimated useful life of five years. Capitalized patent costs are expensed upon disapproval, upon a decision by the Company to no longer pursue the patent or when the related intellectual property is either sold or deemed to be no longer of value to the Company. The Company determined that all patent costs incurred during the year ended December 31, 2011 and 2010 should be expensed and not capitalized as the future economic benefit derived from the transactions cannot be determined.

Net Loss Per Share

        Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period. Basic and diluted net loss per share is the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive as a result of the Company's losses.

        The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:

(In thousands)
  2011   2010   2009  

Shares issuable upon exercise of stock options

    6,454     6,217     5,912  

Shares issuable upon exercise of outstanding warrants(1)

    325     825     1,250  

Shares issuable upon the release of restricted stock awards

    401     264     40  
               

 

    7,180     7,306     7,202  
               

(1)
At December 31, 2011, represents warrants to purchase 250,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement. At December 31, 2010, represents warrants to purchase 750,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement. At December 31, 2009, represents warrants to purchase 1,250,000 shares of common stock issued under a licensing agreement.

Accounting for Stock-Based Compensation

        In accordance with Generally Accepted Accounting Principles (GAAP), the Company requires all share-based payments to employees, including grants of employee stock options, restricted stock, restricted stock units and shares purchased under an employee stock purchase plan (if certain parameters are not met), to be recognized in the financial statements based on their fair values.

Revenue Recognition

        License fees.    License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period. On June 27, 2007, the Company entered into an amendment to its exclusive license agreement with LabCorp (the "Second Amendment") that, among other modifications to the terms of the license, extended the exclusive license period from August 2008 to December 2010, subject to carve-outs for certain named organizations. Accordingly, the Company amortized the remaining deferred revenue balance resulting from its license agreement with LabCorp at the time of the Second Amendment ($4.7 million) on a straight-line basis over the remaining exclusive license period, which ended in December 2010.

        As more fully described in Note 3 below, in connection with the Company's transaction with Genzyme Corporation, Genzyme agreed to pay the Company a total of $18.5 million, of which $16.65 million was paid on January 27, 2009 and $1.85 million was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations in exchange for the assignment and licensing of certain intellectual property to Genzyme. The Company's on-going performance obligations to Genzyme under the Collaboration, License and Purchase Agreement (the "CLP Agreement"), as described below, including its obligation to deliver through licenses certain intellectual property improvements to Genzyme, if improvements are made during the initial five-year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and is amortizing that up-front payment on a straight line basis into revenue over the initial five-year collaboration period ending in January 2014. The Company received the first holdback amount of $962,000, which included accrued interest, due from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,250 which included accrued interest due, from Genzyme during the third quarter of 2010. The amounts were deferred and are being amortized on a straight-line basis into revenue over the remaining term of the collaboration at the time of receipt.

        In addition, Genzyme purchased 3,000,000 shares of common stock from the Company on January 27, 2009 for $2.00 per share, representing a premium of $0.51 per share above the closing price of the Company's common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company's common stock on the date of the transaction of $1.53 million is deemed to be a part of the total consideration for the CLP Agreement. Accordingly, the Company deferred the aggregate $1.53 million premium and is amortizing that amount on a straight line basis into revenue over the initial five-year collaboration period ending in January 2014.

        The Company recognized approximately $4.1 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme during the year ended December 31, 2011. The Company recognized $5.3 million in license fee revenue in connection with the amortization of the up-front payments from LabCorp and Genzyme during the year ended December 31, 2010.

        Product royalty fees.    The Company has licensed certain of its technologies, including improvements to such technologies, on an exclusive basis to LabCorp. LabCorp developed and commercially offered PreGen-Plus, a non-invasive stool-based DNA colorectal cancer screening service for the average-risk population based on the Company's Version 1 technology, from August 2003 through June 2008. In June 2008, LabCorp stopped offering PreGen-Plus. On July 14, 2008, LabCorp began to commercially offer ColoSure, its next generation non-invasive, stool-based DNA testing service for the detection of colorectal cancer in the average-risk population, which is based on certain of the Company's intellectual property. The Company is entitled to the same royalty and milestone structure on any sales of ColoSure as it was entitled to on sales of PreGen-Plus.

        Prior to the effective date of the Second Amendment, the Company's product royalty fees were based on a specified contractual percentage of LabCorp's cash receipts from performing PreGen-Plus tests. Accordingly, the Company recorded product royalty fees based on this specified percentage of LabCorp's cash receipts, as reported to the Company each month by LabCorp. Subsequent to the effective date of the Second Amendment, the Company's product royalty fees are based on a specified contractual percentage of LabCorp's net revenues from sales of PreGen-Plus through June 1, 2008, when LabCorp stopped offering PreGen-Plus, and from sales of ColoSure from and after July 2008. Accordingly, subsequent to the effective date of the Second Amendment, the Company records product royalty fees based on the specified contractual percentage of LabCorp's net revenues from its sales of such colorectal cancer screening tests, as reported to the Company each month by LabCorp. The current royalty rate is subject to an increase in the event that LabCorp achieves a specified significant threshold of annual net revenues from the sales of such colorectal cancer screening tests.

        Additionally, pursuant to the Second Amendment, the Company is potentially obligated to reimburse LabCorp for certain third-party royalty payments, as described in Note 5 below. To the extent the Company incurs liabilities in connection with this provision of the Second Amendment, the accretion of such liabilities will be recorded as a reduction in the product royalty fee line item in the Company's statements of operations.

Other Income

        The Company recognizes other income as earned. Other income consists of income received related to activities other than normal business operations resulting from activities that are not consistent with the Company's central operations. The Company did not recognize any other income during the year ended December 31, 2011. During 2010, the Company received notice that it had been awarded a total cash grant of $244,479 under the Qualifying Therapeutic Discovery Project program administered under Section 48D of the Internal Revenue Code, all of which relates to qualifying expenses that have previously been incurred. The Company recognized the full amount of the grant as other income for the year ended December 31, 2010 as the Company has incurred all of the qualifying expenses and the amount has been received in full. The Company did not recognize any other income during the year ended December 31, 2009.

Advertising Costs

        The Company expenses the costs of media advertising at the time the advertising takes place. The Company expensed approximately $110,000, $68,100 and $9,800 of media advertising during the years ended December 31, 2011, 2010, and 2009, respectively.

Comprehensive Loss

        Comprehensive loss consists of net loss and the change in unrealized gains and losses on marketable securities. Comprehensive loss for the years ended December 31, 2011, 2010, and 2009 was as follows:

 
  December 31,  
(In Thousands)
  2011   2010   2009  

Net loss

  $ (28,675 ) $ (11,556 ) $ (9,128 )

Unrealized gain (loss) on marketable securities

  $ (15 ) $ 2   $ (1 )
               

Comprehensive loss

  $ (28,690 ) $ (11,554 ) $ (9,129 )
               

Fair Value Measurements

        The FASB has issued authoritative guidance which requires that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. This guidance was adopted in 2009 for non-financial assets and liabilities. Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy. The fair value hierarchy establishes and prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

        The three levels of the fair value hierarchy established are as follows:

Level 1   Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3   Unobservable inputs that reflect the Company's assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

        Fixed-income securities and mutual funds are valued using a third party pricing agency. The valuation is based on observable inputs including pricing for similar assets and other observable market factors. There has been no material change from period to period.

        The following table presents the Company's fair value measurements as of December 31, 2011 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.

 
   
  Fair Value Measurement at
December 31, 2011 Using:
 
Description
  Fair Value at
December 31, 2011
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant
Other Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Available-for-Sale

                         

Marketable securities

                         

U.S. government agency securities

  $ 27,994   $   $ 27,994   $  

Certificates of deposit

    9,465         9,465        

Corporate bonds

    19,122         19,122      

Commercial paper

    999         999      
                   

Total

  $ 57,580   $   $ 57,580   $  
                   

        The following table presents the Company's fair value measurements as of December 31, 2010 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.

 
   
  Fair Value Measurement at
December 31, 2010 Using:
 
Description
  Fair Value at
December 31, 2010
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant
Other Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Available-for-Sale

                         

Marketable securities

                         

Certificates of deposit

  $ 6,663   $   $ 6,663   $  

Mutual funds

    10,000     10,000              
                   

Total

  $ 16,663   $ 10,000   $ 6,663   $  
                   

Concentration of Credit Risk

        In accordance with GAAP, the Company is required to disclose any significant off-balance-sheet risk and credit risk concentration. The Company has no significant off-balance-sheet risk, such as foreign exchange contracts or other hedging arrangements. Financial instruments that subject the Company to credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2011, the Company had cash and cash equivalents deposited in financial institutions in which the balances exceed the federal government agency insured limit of $250,000 by approximately $35.5 million. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.

Subsequent Events

        The Company evaluates events that occur through the filing date and discloses those events or transactions that provide additional evidence with respect to conditions that existed at the date of the balance sheet. In addition, the financial statements are adjusted for any changes in estimates resulting from the use of such evidence.

Recent Accounting Pronouncements

        In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, "Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRS," ("ASU 2011-04"). These amendments, effective for the interim and annual periods beginning on or after December 15, 2011, result in common definition of fair value and common requirements for measurement of and disclosure requirements between US GAAP and IFRS. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The adoption of ASU 2011-04 is not expected to have a material impact on the Company's financial condition or results of operation.

        In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income," ("ASU 2011-05") which amends current comprehensive income guidance. This guidance is effective retrospectively for the interim and annual periods beginning on or after December 15, 2011, and requires presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The pronouncement does not change the current option for presenting components of other comprehensive income, gross, or net of the effect of income taxes, provided that such tax effects are presented in the statement in which other comprehensive income is presented or disclosed in the notes to the financial statements. Additionally, the pronouncement does not affect the calculation or reporting of earnings per share. The pronouncement also does not change the items which must be reported in other comprehensive income, how such items are measured, or when such items must be reclassified to net income. The Company will adopt this guidance in the first quarter of 2012. The adoption of ASU 2011-05 is not expected to have a material impact on the Company's financial condition or results of operation.

        In December 2011, the FASB issued ASU 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" (ASU 2011-12), which deferred the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income while the FASB further deliberates this aspect of the proposal. The amendments contained in ASU 2011-05 do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments also do not affect how earnings per share is calculated or presented. ASU 2011-05, as amended by ASU 2011-12, is effective for us on January 1, 2012.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation in the footnotes.

GENZYME STRATEGIC TRANSACTION
GENZYME STRATEGIC TRANSACTION

(3) GENZYME STRATEGIC TRANSACTION

Transaction summary

        On January 27, 2009, the Company entered into a Collaboration, License and Purchase Agreement (the "CLP Agreement") with Genzyme Corporation ("Genzyme"). Pursuant to the CLP Agreement, the Company (i) assigned to Genzyme all of its intellectual property applicable to the fields of prenatal and reproductive health (the "Transferred Intellectual Property"), (ii) granted Genzyme an irrevocable, perpetual, exclusive, worldwide, fully-paid, royalty-free license to use and sublicense all of the Company's remaining intellectual property (the "Retained Intellectual Property") in the fields of prenatal and reproductive health (the "Genzyme Core Field"), and (iii) granted Genzyme an irrevocable, perpetual, non-exclusive, worldwide, fully-paid, royalty-free license to use and sublicense the Retained Intellectual Property in all fields other than the Genzyme Core Field and other than colorectal cancer detection and stool-based disease detection (the "Company Field"). Following the transaction, the Company retained rights in its intellectual property to pursue only the fields of colorectal cancer detection and stool-based detection of any disease or condition. As part of the transaction on January 27, 2009, the Company entered into an Assignment, Sublicense, Consent and Eighth Amendment to License Agreement (the "JHU Amendment") with Genzyme and Johns Hopkins University ("JHU") (collectively, with the licenses and assignment described herein, the "Genzyme Strategic Transaction"), whereby the Company assigned its rights under the license agreement between the Company and JHU dated March 25, 2003, as amended (the "JHU Agreement") to Genzyme. Pursuant to the JHU Amendment, Genzyme sublicensed to the Company the intellectual property subject to the JHU Agreement for colorectal cancer detection and stool-based disease detection, including the BEAMing technology for the detection of colorectal cancer. Under the JHU Amendment, the Company and Genzyme will share in the royalty and annual payment obligations to JHU.

        Also as part of the Genzyme Strategic Transaction, the Company entered into an Amended and Restated License Agreement (the "Restated License") with Genzyme on January 27, 2009, which amended and restated the License Agreement between the parties dated March 25, 1999, effective as of January 27, 2009. Pursuant to the Restated License, Genzyme granted to the Company a non-exclusive license to use technology related to the use of certain genes, specifically APC and p53, and methodologies related thereto. In exchange for the license, which continues until the expiration of the last to expire licensed patent, the Company agreed to pay Genzyme royalties based on net revenues received from performing tests that incorporate the licensed technology and sales of reagents and diagnostic test kits that incorporate the licensed technology, as well as certain minimum royalties, milestone payments and maintenance fees.

        Pursuant to the Genzyme Strategic Transaction, Genzyme agreed to pay an aggregate of $18.5 million to the Company, of which $16.65 million was paid at closing and $1.85 million (the "Holdback Amount") was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations of the Company. Genzyme also agreed to pay a double-digit royalty to the Company on income received by Genzyme as a result of any licenses or sublicenses to third parties of the Transferred Intellectual Property or the Retained Intellectual Property in any field other than the Genzyme Core Field or the Company Field.

        The Company's on-going performance obligations to Genzyme under the CLP, including the obligation to deliver certain intellectual property improvements to Genzyme, if improvements are made during the initial five year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and is amortizing that up-front payment on a straight line basis into the License Fee Revenue line item in its statements of operations over the initial five year collaboration period. The Company received the first holdback amount of $962,000, which included accrued interest, due from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,250 which included accrued interest due, from Genzyme during the third quarter of 2010. The amounts were deferred and are being amortized on a straight-line basis into revenue over the remaining term of the collaboration.

        In addition, the Company entered into a Common Stock Subscription Agreement with Genzyme on January 27, 2009, which provided for the private issuance and sale to Genzyme of 3,000,000 shares (the "Shares") of the Company's common stock, $0.01 par value per share, at a per share price of $2.00, for an aggregate purchase price of $6.0 million. The price paid by Genzyme for the Shares represented a premium of $0.51 per share above the closing price of the Company's common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company's common stock on the date of the transaction of $1.53 million is included as a part of the total consideration for the CLP. Accordingly, the Company deferred the aggregate $1.53 million premium and is amortizing that amount on a straight line basis into the License fees line item in the Company's statements of operations over the initial five-year collaboration period.

        The Company recognized approximately $4.1 million and $4.0 million in license fee revenue in connection with the amortization of the up-front payments and holdback amounts from Genzyme during the years ended December 31, 2011 and 2010, respectively.

MAYO LICENSING AGREEMENT
MAYO LICENSING AGREEMENT

(4) MAYO LICENSING AGREEMENT

Overview

        On June 11, 2009, the Company entered into a license agreement (the "License Agreement") with MAYO Foundation for Medical Education and Research ("MAYO"). Under the License Agreement, MAYO granted the Company an exclusive, worldwide license within the field (the "Field") of stool or blood based cancer diagnostics and screening (excluding a specified proteomic target) with regard to certain MAYO patents, and a non-exclusive worldwide license within the Field with regard to certain MAYO know-how. The licensed patents cover advances in sample processing, analytical testing and data analysis associated with non-invasive, stool-based DNA screening for colorectal cancer. Under the License Agreement, the Company assumes the obligation and expense of prosecuting and maintaining the licensed patents and is obligated to make commercially reasonable efforts to bring products covered by the licenses to market. Pursuant to the License Agreement, the Company granted MAYO two common stock purchase warrants with an exercise price of $1.90 per share covering 1,000,000 and 250,000 shares of common stock, respectively. The Company also is required to make payments to MAYO for up-front fees, fees once certain milestones are reached by the Company, and other payments as outlined in the agreement. In addition to the license to intellectual property owned by MAYO, the Company will receive product development and research and development efforts from MAYO personnel. The Company determined that the payments made for intellectual property should not be capitalized as the future economic benefit derived from the transactions is uncertain. The Company is also liable to make royalty payments to MAYO on potential future net sales of any products developed from the licensed technology.

Warrants

        The warrants granted to MAYO were valued based on a Black-Scholes pricing model at the date of the grant. The warrants were granted with an exercise price of $1.90 per share of common stock. The grant to purchase 1,000,000 shares was immediately exercisable and the grant to purchase 250,000 shares vests and becomes exercisable over a four year period. The total value of the warrants was calculated to be $2.1 million and a non-cash charge of $1.7 million was recognized as research and development expense in the second quarter of 2009 and the remaining $0.4 million non-cash charge is being recognized straight-line over the four year vesting period.

        In March of 2010, MAYO partially exercised its warrant covering 1,000,000 shares by utilizing the cashless exercise provision contained in the agreement. As a result of this exercise for a gross amount of 200,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respects to 86,596 shares leaving it with a net amount of 113,404 shares.

        In September of 2010, MAYO partially exercised its warrant covering the remaining 800,000 shares by utilizing the cashless exercise provision contained in the agreement. As a result of this exercise for a gross amount of 300,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respect to 97,853 shares leaving it with a net amount of 202,147 shares.

        In June of 2011, MAYO partially exercised its warrant covering the remaining 500,000 shares by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 250,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respect to 60,246 shares leaving it with a net amount of 189,754 shares.

        In September of 2011, MAYO partially exercised its warrant covering the remaining 250,000 shares by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 250,000 shares, in lieu or paying a cash exercise price, MAYO forfeited its right with respect to 56,641 shares leaving it with a net amount of 193,359 shares. Following this exercise, the warrant covering 1,000,000 shares was fully exercised.

Royalty Payments

        The Company will make royalty payments to MAYO based on a percentage of net sales of products developed from the licensed technology starting in the third year of the agreement. Minimum royalty payments will be $10,000 in 2012 and $25,000 per year thereafter through 2029, the year the last patent expires.

Other Payments

        Other payments under the MAYO agreement include an upfront payment of $80,000, a milestone payment of $250,000 on the commencement of patient enrollment in a human cancer screening clinical, and a $500,000 payment upon FDA approval of the Company's cancer screening test. The upfront payment of $80,000 was made in the third quarter of 2009 and expensed to research and development in the second quarter of 2009. The Company began enrollment in its FDA trial in June 2011 and the milestone payment of $250,000 was made and expensed to research and development in June 2011. It is uncertain as to when the FDA will approve the Company's cancer screening test, therefore the $500,000 milestone payment has not been recorded as a liability. The Company periodically evaluates the status of the FDA trial. In addition, the Company is paying MAYO for research and development efforts. Through December 31, 2011, as part of the Company's research collaboration with MAYO, the Company has incurred charges of $1.4 million and has made payments of $1.4 million. The Company has recorded an estimated liability in the amount of $53,000 for research and development efforts as of December 31, 2011.

LABCORP STRATEGIC ALLIANCE AGREEMENT
LABCORP STRATEGIC ALLIANCE AGREEMENT

(5) LABCORP STRATEGIC ALLIANCE AGREEMENT

        On June 26, 2002, the Company entered into a license agreement (subsequently amended on January 19, 2004, June 27, 2007, August 31, 2007, and March 17, 2008) with LabCorp for an exclusive, strategic alliance between the parties to commercialize LabCorp's proprietary, non-invasive DNA-based technologies for the early detection of colorectal cancer in the average-risk population. Pursuant to the amended agreement, the Company exclusively licensed to LabCorp all U.S. and Canadian patents and patent applications owned by the Company relating to its stool-based colorectal cancer screening technology initially through August 2008, followed by a non-exclusive license for the life of the patents. In return for the license, LabCorp agreed to pay the Company certain up-front, milestone and performance-based payments, and a per-test royalty fee. LabCorp made an initial payment of $15 million upon the signing of the agreement, and a second payment of $15 million was made in August 2003 upon the commercial launch of PreGen-Plus. In addition to certain royalty fees, under the amended license agreement, the Company may also be eligible for certain milestone payments from LabCorp as described below.

        In conjunction with the strategic alliance, in June 2002, the Company issued to LabCorp a warrant (the "LabCorp Warrant") to purchase 1,000,000 shares of its common stock, exercisable over a three-year period at an exercise price of $16.09 per share. The Company assigned a value to the warrant of $6.6 million under the Black-Scholes option-pricing model which has been recorded as a reduction in the initial up-front deferred license fee of $15 million. The Company is amortizing the first two payments totaling $30 million, net of the $6.6 million value of the warrant, as license fee revenue over the exclusive license period described below.

        At the time of issuance, the LabCorp Warrant had an expiration date of June 26, 2005. On June 24, 2005, the Company entered into an amendment to the LabCorp Warrant to extend the expiration date of the LabCorp Warrant to August 13, 2008, which was the expiration date of the exclusive period at the time of the extension. All other terms of the LabCorp Warrant were unaffected. The Company assigned a value to the LabCorp Warrant extension of $0.6 million using the Black-Scholes option pricing model. The Company recorded the cost of the LabCorp Warrant extension as a one-time, non-cash reduction in license fee revenue of $0.6 million in the quarter ended June 30, 2005. The LabCorp Warrant expired unexercised on August 13, 2008.

        Second Amendment to LabCorp License Agreement    On June 27, 2007, the Company entered into the Second Amendment with LabCorp. The Second Amendment modified LabCorp's exclusive rights to the Company's DNA technology for colorectal cancer screening to permit the Company to license its technology to select third-party organizations and commercial service laboratories, subject to LabCorp's preferential pricing terms, and to extend LabCorp's modified exclusive period under the Second Amendment until December 31, 2010. Additionally, the Second Amendment clarifies the rights and obligations with respect to the Company's second-generation stool-based DNA screening technology for colorectal cancer screening ("Version 2").

        The Second Amendment also revised the milestone and royalty obligations of LabCorp. The milestones were revised to eliminate milestone payments aggregating $15 million based upon stool-based colorectal cancer screening being included as standard of care and certain policy-level reimbursement approvals. As revised under the Second Amendment, the Company may be eligible for up to an aggregate of $40 million in milestone payments, all of which relate to the achievement of significant sales thresholds. Royalties due to the Company under the Second Amendment are equal to 15% of LabCorp's net revenues from tests performed using the Company's DNA technology licensed under the Second Amendment, and could increase to 17% if LabCorp achieves a significant annual ColoSure net revenue threshold. LabCorp also retains certain pricing protections over third-party organizations and commercial service laboratories to whom the Company may license its DNA technology for colorectal cancer screening.

        The Second Amendment also eliminated an approximate $3.0 million contingent liability of the Company to LabCorp resulting from a historical third-party royalty obligation of LabCorp.

        Pursuant to the terms of the Second Amendment, the Company became obligated to reimburse LabCorp for certain third-party royalty payments if LabCorp's third-party royalty rate is greater than a specified royalty rate during the measuring period. The Company's obligation to pay LabCorp pursuant to this provision of the Second Amendment was based on LabCorp's sales volumes of colorectal cancer screening tests using the Company's technology during three separate measurement periods. The Company did not record any charges in connection with this third-party royalty obligation during the year ended December 31, 2011. The Company recorded charges of $5,000, and $13,000 during the years ended December 31, 2010 and 2009 respectively, in connection with this third-party royalty obligation. These charges were recorded under the caption "Product royalty fees" in the Company's statements of operations. During 2009, the Company made payments of $2.5 million to LabCorp. During 2010, the Company made a final payment of $1.0 million to LabCorp to fully satisfy this liability.

        In addition, as a result of extending the exclusive license period from August 2008 to December 2010, the amortization of the remaining deferred revenue as of the date of the Second Amendment of $4.7 million related to up-front technology license fees received from LabCorp was amortized on a straight line basis over the extended exclusive license period beginning in the quarter ended September 30, 2007 through December 31, 2010. The Company recorded revenues of $1.4 million in both the years ended December 31, 2010 and 2009. The Second Amendment also provided LabCorp with termination rights if stool-based colorectal cancer screening is not accepted as standard of care in the near term (i.e. included in screening guidelines of the American Cancer Society or the American Gastroenterological Association), if the Company's Version 2 technology is not commercially launched in the near term, or if the Company's Version 2 technology does not attain certain sensitivity and specificity thresholds during technology validation.

        Third Amendment to LabCorp License Agreement    On August 31, 2007, the Company entered into a Third Amendment (the "Third Amendment") to its exclusive license agreement with LabCorp that, among other things, added a potential $2.5 million milestone payment for which the Company may be eligible. The milestone obligation is based upon policy-level reimbursement approval from Medicare at a specified minimum reimbursement rate, inclusion of stool-based DNA screening in clinical practice guidelines and the achievement of certain increases in sales levels of PreGen-Plus over a defined measuring period. In addition, the Third Amendment provided that LabCorp will assume sole responsibility, at its expense, for all commercial activities related to LabCorp's stool-based DNA testing service. In accordance with the foregoing, LabCorp also agreed to offer at-will employment to certain former personnel of the Company.

        Fourth Amendment to LabCorp License Agreement    On March 17, 2008, the Company entered into the fourth amendment (the "Fourth Amendment") to its exclusive license agreement with LabCorp. Among other things, the Fourth Amendment further clarified certain license rights of the parties, amended LabCorp's termination rights relating to the failure to launch the Company's Version 2 technology and restricted certain of the Company's termination rights in the event the FDA limits LabCorp's ability to market products that incorporate technology licensed to LabCorp under the amended license agreement. In addition, the Fourth Amendment eliminated certain of the Company's termination rights for a specified period of time during which LabCorp is not marketing any stool-based DNA test for colorectal cancer as a result of preparing for a commercial launch of a stool-based DNA test for colorectal cancer based on the Company's Version 2 technology.

EQUITY
EQUITY

(6) EQUITY

        In April of 2010, the Company entered into a license agreement with MAYO for market research services and rights to use certain intellectual property related to product development. As part of the license agreement, the Company issued to MAYO 11,186 shares of common stock for an initial payment under the agreement and recognized $50,000 of expense for the year ended December 31, 2010. If the Company utilizes the licensed intellectual property in the Company's final product design, the Company will be required to make an additional nonrefundable payment to MAYO in the form of unregistered shares of common stock with a fair market value of $65,000.

        On November 10, 2010, the Company completed an underwritten public offering of 11.5 million shares of common stock at a price of $6.00 per share to the public. The Company received approximately $64.7 million of net proceeds from the offering, after deducting $4.3 million for the underwriting discount and other stock issuance costs paid by the Company.

        On December 6, 2011, the Company completed an underwritten public offering of 3.6 million shares of common stock at a price of $8.00 per share to the public. The Company received approximately $27.1 million of net proceeds from the offering, after deducting $1.5 million for the underwriting discount and other stock issuance costs paid by the Company.

        In February 2011, we adopted a rights agreement that provides that in the event of an acquisition of 15% or more of our outstanding common stock or an announcement of an intention to make a tender offer or exchange offer for 15% or more of our outstanding common stock, our stockholders, other than the potential acquiror, shall be granted rights enabling them to purchase additional shares of our common stock at a substantial discount to the then prevailing market price. The rights agreement could significantly dilute such acquiror's ownership position in our shares, thereby making a takeover prohibitively expensive and encouraging such acquiror to negotiate with our board of directors.

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

(7) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

        The Company maintains the 2010 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan, the 2000 Stock Option and Incentive Plan and the 2000 Employee Stock Purchase Plan (collectively, the "Stock Plans").

        2000 Stock Option and Incentive Plan    The Company adopted the 2000 Option and Incentive Plan (the "2000 Option Plan") on October 17, 2000. At December 31, 2010, there were no shares of common stock available for future grants under the 2000 Option Plan. The 2000 Option Plan expired October 17, 2010 and after such date no further awards could be granted under the plan. Under the terms of the 2000 Option Plan, the Company was authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2000 Option Plan expire ten years from the date of grant. Grants made from the 2000 Option Plan generally vest over a period of three to four years.

        The 2000 Option Plan was administered by the compensation committee of the Company's board of directors, which selected the individuals to whom equity-based awards would be granted and determined the option exercise price and other terms of each award, subject to the provisions of the 2000 Option Plan. The 2000 Option Plan provides that upon an acquisition of the Company, all options to purchase common stock will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all options then outstanding under the 2000 Option Plan held by that employee will immediately become exercisable. At December 31, 2011, options to purchase 5,417,404 shares were outstanding under the 2000 Option Plan and 81,000 shares of restricted stock remained unreleased.

        2000 Employee Stock Purchase Plan    The 2000 Employee Stock Purchase Plan (the "2000 Purchase Plan") was initially adopted by the Company in October 2000, was subsequently amended and restated, and expired on October 31, 2010. The 2000 Purchase Plan provided participating employees the right to purchase common stock at a discount through a series of offering periods. At December 31, 2011, there were no shares of common stock available for purchase by participating employees under the 2000 Purchase Plan.

        The compensation committee of the Company's board of directors administered the 2000 Purchase Plan. Generally, all employees whose customary employment was more than 20 hours per week and more than five months in any calendar year were eligible to participate in the 2000 Purchase Plan. Participating employees authorized an amount, between 1% and 15% of the employee's compensation, to be deducted from the employee's pay during the offering period. On the last day of the offering period, the employee was deemed to have exercised the option, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the 2000 Purchase Plan, the option exercise price is an amount equal to 85% of the fair market value, as defined under the 2000 Purchase Plan and no employee was permitted to purchase more than $25,000 of the Company common stock under the 2000 Purchase Plan in any calendar year. Rights granted under the 2000 Purchase Plan terminate upon an employee's voluntary withdrawal from the 2000 Purchase Plan at any time or upon termination of employment. The Company issued the following shares of common stock under the 2000 Purchase Plan for the year ended December 31, 2010. No shares were issued under the 2000 Purchase Plan in 2009.

Offering period ended
  Number of Shares   Weighted Average
Price per Share
 

April 30, 2010

    34,221   $ 2.04  

October 31, 2010

    24,488   $ 2.40  

        2010 Omnibus Long-Term Incentive Plan    The Company adopted the 2010 Omnibus Long-Term Incentive Plan (the "2010 Stock Plan") on July 16, 2010. The 2010 Stock Plan will expire on July 16, 2020 and after such date no further awards may be granted under the plan. Under the terms of the 2010 Stock Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2010 Stock Plan expire ten years from the date of grant. Grants made from the 2010 Stock Plan generally vest over a period of three to four years.

        The 2010 Stock Plan is administered by the compensation committee of the Company's board of directors, which selects the individuals to whom equity-based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2010 Stock Plan. The 2010 Stock Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon the termination of an employee, who remains an employee of the Company or the acquiring entity immediately following consummation of the acquisition, without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2010 Stock Plan held by that employee will immediately vest. At December 31, 2011, options to purchase 1,036,240 shares were outstanding under the 2010 Stock Plan, and 320,490 restricted stock and restricted stock unit shares remained unreleased. At December 31, 2011, there were 2,716,475 shares available for future grant under the 2010 Stock Plan.

        2010 Employee Stock Purchase Plan    The 2010 Employee Stock Purchase Plan (the "2010 Purchase Plan") was adopted by the Company on July 16, 2010. The 2010 Purchase Plan provides participating employees the right to purchase common stock at a discount through a series of offering periods. The 2010 Purchase Plan will expire on October 31, 2020. At December 31, 2011, there were 248,143 shares of common stock available for purchase by participating employees under the 2010 Purchase Plan.

        The compensation committee of the Company's board of directors administers the 2010 Purchase Plan. Generally, all employees whose customary employment is more than 20 hours per week and for more than five months in any calendar year are eligible to participate in the 2010 Purchase Plan. Participating employees authorize an amount, between 1% and 15% of the employee's compensation, to be deducted from the employee's pay during the offering period. On the last day of the offering period, the employee is deemed to have exercised the option, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the 2010 Purchase Plan, the option exercise price is an amount equal to 85% of the fair market value, as defined under the 2010 Purchase Plan and no employee can purchase more than $25,000 of the Company common stock under the 2010 Purchase Plan in any calendar year. Rights granted under the 2010 Purchase Plan terminate upon an employee's voluntary withdrawal from the 2010 Purchase Plan at any time or upon termination of employment. At December 31, 2011, there were 51,857 shares issued under the 2010 Purchase Plan.

Offering period ended
  Number of Shares   Weighted Average
price per Share
 

April 30, 2011

    27,110   $ 5.48  

October 31, 2011

    24,747   $ 5.78  

Stock-Based Compensation Expense

        The Company recorded approximately $4.0 million in stock-based compensation expense during the year ended December 31, 2011, in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company's employee stock purchase plans and stock options granted to employees and non-employee directors. The Company recorded $2.2 million in stock-based compensation expense during the year ended December 31, 2010 in connection with the amortization of awards of common stock, restricted common stock and stock options granted to employees, non-employee directors and non-employee consultants. The Company recorded approximately $2.6 million in stock-based compensation expense during the year ended December 31, 2009 in connection with the amortization of awards of common stock, restricted common stock and stock options granted to employees, non-employee directors and non-employee consultants and collaborators, as well as the modification of certain stock options. Non-cash stock-based compensation expense by department for the years ended December 31, 2011, 2010, and 2009 are as follows. Amounts included in the table are in thousands.

 
  December 31,  
 
  2011   2010   2009  

Research and development

  $ 1,685   $ 1,067   $ 319  

General and administrative

    1,622     1,132     2,308  

Sales and marketing

    657     50     4  

        In connection with the December 31, 2011 resignation of John Krayacich as the Company's Senior Vice President of Sales and Marketing, the Company accelerated the vesting of 131,250 shares under Mr. Krayacich's previously unvested stock options. This acceleration was done in accordance with Mr. Krayacich's employment agreement. Mr. Krayacich will have a two year period from December 31, 2011 to exercise these options. The remaining 168,750 stock options from his initial grant will be forfeited. As a result of this accelerated vesting, the Company recorded additional stock compensation expense in 2011 to ensure that the total grant date fair value of the actual vested award was amortized to expense.

Determining Fair Value

        Valuation and Recognition—The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions in the table below. The estimated fair value of employee stock options is recognized to expense using the straight-line method over the vesting period.

        Expected Term—The Company uses the simplified calculation of expected life, described in the SEC's Staff Accounting Bulletins 107 and 110, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected life. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

        Expected Volatility—Expected volatility is based on the Company's historical stock volatility data over the expected term of the awards.

        Risk-Free Interest Rate—The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.

        Forfeitures—The Company records stock-based compensation expense only for those awards that are expected to vest. Awards granted in 2011 and 2010 are all expected to vest and no forfeiture rate was utilized.

        The fair value of each restricted stock and restricted stock unit award is determined on the date of grant using the closing stock price on that day. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in the following table.

 
  December 31,  
 
  2011   2010   2009  

Option Plan Shares

                   

Risk-free interest rates

    0.88% - 2.3%     1.17% - 2.69%     1.76% - 2.69%  

Expected term (in years)

    6     6     6  

Expected volatility

    92%     91% - 92%     85 - 92%  

Dividend yield

    0%     0%     0%  

Weighted average fair value per share of options granted during the period

  $ 4.78   $ 3.07   $ 0.89  

ESPP Shares

                   

Risk-free interest rates

    0.13% - 0.61%     0.16% - 0.38%       (1)

Expected term (in years)

    0.5 - 2     0.5 - 2       (1)

Expected volatility

    48% - 63%     53% - 127%       (1)

Dividend yield

    0%     0%       (1)

Weighted average fair value per share of stock purchase rights granted during the period

  $ 2.83   $ 2.03       (1)

(1)
The Company did not issue stock purchase rights under its employee stock purchase plans during the period indicated.

Stock Option and Restricted Stock and Restricted Stock Unit Activity

        A summary of stock option activity under the Stock Plans during the years ended 2011, 2010 and 2009 is as follows:

Options
  Shares   Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term (Years)
  Aggregate
Intrinsic
Value(1)
 

(Aggregate intrinsic value in thousands)

                         

Outstanding, January 1, 2009

   
3,518,899
 
$

4.20
             

Granted

    4,860,000     1.19              

Exercised

    (380,355 )   1.92              

Cancelled

    (2,086,525 )   4.51              
                       

Outstanding, December 31, 2009

    5,912,019     1.76              

Granted

   
518,566
   
4.09
             

Exercised

    (213,386 )   2.19              
                       

Outstanding, December 31, 2010

    6,217,199     1.93              

Granted

   
814,424
   
6.26
             

Exercised

    (325,477 )   2.11              

Forfeited

    (252,502 )   7.15              
                       

Outstanding, December 31, 2011

    6,453,644   $ 2.27     7.2     38,309  
                   

Exercisable, December 31, 2011

   
3,965,380
 
$

1.95
   
6.8
   
24,938
 
                   

Vested and expected to vest, December 31, 2011

   
6,453,644
 
$

2.27
   
7.2
   
38,309
 
                   

(1)
The aggregate intrinsic value of options outstanding at December 31, 2011 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the 6,222,470 options that had exercise prices that were lower than the $8.12 market price of our common stock at December 31, 2011. The aggregate intrinsic value of options exercisable at December 31, 2011 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the 3,860,380 options that had exercise prices that were lower than the $8.12 market price of our common stock at December 31, 2011. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $1.9 million, $0.4 million, $0.2 million, respectively, determined as of the date of exercise.

        A summary of restricted stock and restricted stock unit activity under the Stock Plans during the years ended 2011, 2010 and 2009 is as follows:

 
  Restricted
Shares
  Weighted
Average Grant
Date Fair Value
 

Outstanding, January 1, 2009

    185,000   $ 0.39  

Granted

    411,127     0.98  

Released

    (510,181 )   0.77  

Cancelled

    (45,946 )   0.37  
           

Outstanding, December 31, 2009

    40,000     1.72  

Granted

   
326,197
   
5.73
 

Released

    (102,567 )   2.94  
           

Outstanding, December 31, 2010

    263,630     6.20  

Granted

   
335,716
   
6.06
 

Released

    (192,856 )   5.89  

Forfeited

    (5,000 )   5.61  
           

Outstanding, December 31, 2011

    401,490   $ 6.24  
           

        As of December 31, 2011, there was approximately $6.6 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in forfeitures. The Company expects to recognize that cost over a weighted average period of 2.4 years.

        The Company received approximately $0.7 million, $0.5 million, $0.7 million from stock option exercises during the years ended December 31, 2011, 2010 and 2009, respectively. During the years ended December 31, 2011, 2010 and 2009, 51,857, zero, and zero shares, respectively of common stock were issued under the Company's 2010 Purchase Plan resulting in proceeds to the Company of $0.3 million, $0, and $0, respectively. During the years ended December 31, 2011, 2010 and 2009, zero, 58,709, and zero shares, respectively, of common stock were issued under the Company's 2000 Purchase Plan resulting in proceeds to the Company of $0, $0.1 million, and $0, respectively.

        The following table summarizes information relating to currently outstanding and exercisable stock options as of December 31, 2011:

 
  Outstanding   Exercisable  
Exercise Price
  Number of
Options
  Weighted
Average
Remaining
Contractual
Life (Years)
  Weighted
Average
Exercise
Price
  Number of
Options
  Weighted
Average
Exercise
Price
 

$   — - $1.00

    3,795,000     7.2   $ 0.83     2,623,125   $ 0.83  

$1.01 - $2.00

    211,163     7.3   $ 1.44     64,911   $ 1.44  

$2.01 - $3.00

    1,069,553     6.9   $ 2.79     717,052   $ 2.76  

$3.01 - $4.00

    187,066     6.7   $ 3.55     132,979   $ 3.54  

$4.01 - $5.00

    395,500     7.6   $ 4.26     147,625   $ 4.42  

$5.01 - $7.00

    480,500     9.0   $ 5.83     150,000   $ 5.64  

$7.01 - $9.00

    209,862     8.6   $ 8.15     24,688   $ 7.76  

$9.01 - $14.00

    105,000     1.3   $ 12.73     105,000   $ 12.73  
                       

 

    6,453,644     7.2   $ 2.27     3,965,380   $ 1.95  
                       

Option Modifications

        2009 Modifications In connection with the March 18, 2009 resignation of Jeffrey R. Luber as the Company's President and Chief Executive Officer and Charles R. Carelli, Jr. as the Company's Chief Financial Officer, the Company's board of directors approved the following stock option modifications: On April 2, 2009, the effective date of Mr. Luber's resignation from the Company, the Company accelerated the vesting of 114,896 shares under Mr. Luber's previously unvested stock options, with a fair value of the share price on the original grant date. On April 2, 2009, the effective date of Mr. Carelli's resignation from the Company, the Company accelerated the vesting of 70,556 shares under Mr. Carelli's previously unvested stock options, with a fair value of the share price on the original grant date. As a result of these modifications, the Company recorded one-time non-cash stock-based compensation expense of approximately $0.3 million during the quarter ended March 31, 2009. In addition, the Company repurchased 804,026 shares for $50,000.

        During 2009, the restriction for all 445,181 shares of the Board of Directors restricted stock award grants was lifted. The restriction for the awards was lifted before their one year term which is considered a modification under financial accounting standards. The Company recognized the incremental fair value on the date the restriction was lifted, thus resulting in approximately $0.9 million of non-cash stock-based compensation expense related to the modification.

Shares Reserved for Issuance

        The Company has reserved shares of its authorized common stock for issuance pursuant to its employee stock purchase and stock option plans, including all outstanding stock option grants noted above at December 31, 2011, as follows:

Shares reserved for issuance
   
 

2010 Option Plan

    2,716,475  

2010 Purchase Plan

    248,143  
       

 

    2,964,618  
       
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

(8) COMMITMENTS AND CONTINGENCIES

Operating Leases

        During November 2009, the Company entered into a five year lease for a 17,500 sq. ft. laboratory office facility in Madison, Wisconsin. This lease contains periodic rent escalation adjustments. During November 2010, the Company entered into an amended lease agreement to lease an additional 7,072 sq. ft. of laboratory and office space for a total of 24,572 sq. ft. The amended agreement covers the same term as the original term and is also subject to periodic rent escalation adjustments.

        Future minimum payments under operating leases as of December 31, 2011 are as follows. Amounts included in the table are in thousands.

Year Ending December 31,

       

2012

  $ 389  

2013

    399  

2014

    339  

2015

     

2016

     

Thereafter

     
       

Total lease obligations

  $ 1,127  
       

        Rent expense included in the accompanying statements of operations was approximately $0.3 million, $0.2 million, and $0.2 million for the years ended December 31, 2011, 2010 and 2009, respectively.

        During the fourth quarter of 2007, the Company entered into a sublease agreement with INTRINSIX, Inc. to sublease approximately 11,834 square feet of rentable area in the Company's Marlborough facility. The term of the sublease agreement ran from December 2007 to August 2010. The Company received approximately $0.6 million in sublease payments over the life of the sublease agreement.

        During the fourth quarter of 2008, the Company entered into the 2008 Sublease Agreement with QTEROS to sublease to QTEROS approximately 25,537 square feet of rentable area in the Company's Marlborough facility. The term of the 2008 Sublease Agreement ran from December 2008 to August 2010. The Company received approximately $1.0 million in sublease payments over the life of the 2008 Sublease Agreement. The Company no longer occupies space at the Marlborough facility as the lease expired in August 2010.

        During the fourth quarter of 2009, the Company entered into a sublease agreement (the "2009 Sublease Agreement") with Aldevron Madison to sublease approximately 5,086 square feet of rentable area in the Company's Madison facility. The term of the 2009 Sublease Agreement, which commenced on November 1, 2009, is 36 months. The Company expects to receive approximately $0.2 million in sublease payments over the life of the 2009 Sublease Agreement. Pursuant to the Sublease Agreement, Aldevron has no rights to renew or extend the 2009 Sublease Agreement. The Company received $78,500, $76,600 and $13,000 in sublease payments in 2011, 2010 and 2009, respectively. Under the terms of the 2009 Sublease Agreement, Aldevron is required to provide a security deposit of $6,000 and will be required to pay its pro rata share of any increases in building operating expenses and real estate taxes. Future sublease receipts under sublease agreements as of December 31, 2011 are as follows. Amounts included in the table are in thousands.

Year ending December 31,

       

2012

  $ 67  

2013

     

2014

     

2015

     

2016

       

Thereafter

     
       

 

  $ 67  
       

Licensing and Research Agreements

        The Company licenses, on a non-exclusive basis, certain technologies that are, or may be, incorporated into its technology under several license agreements. Generally, the license agreements require the Company to pay royalties based on net revenues received using the technologies, and may require minimum royalty amounts or maintenance fees.

        On March 24, 2003, the Company entered into a license agreement, subsequently amended on November 17, 2004, May 11, 2006, March 19, 2007, October 17, 2008, October 30, 2008, and again on January 27, 2009 with JHU for an exclusive long-term license to certain patents for use in colorectal cancer detection in stool relating to the digital-PCR technology developed by Dr. Bert Vogelstein's laboratory at the Johns Hopkins Kimmel Cancer Center. Pursuant to the terms of this license agreement, and subsequent to the closing of the Genzyme strategic transaction (See Note 3), the Company has agreed to pay JHU a license fee based on a percentage of the Company's net revenues, including an annual minimum license fee of approximately $0.1 million, over the life of the licensed patents, or 2023.

        On June 11, 2009 the Company entered into a patent licensing agreement with MAYO primarily for the rights to certain patented intellectual property owned by Mayo. Pursuant to the terms of this licensing agreement, the Company made an up-front payment of $80,000 on July 12, 2009. The Company has agreed to pay Mayo a royalty fee based on a percentage of the Company's net sales of licensed products. The Company is also required to pay minimum annual royalty fees of $10,000 on June 12, 2012 and $25,000 on June 12, 2013 and each year thereafter through 2029. The Company granted Mayo a warrant to purchase 1,000,000 shares of common stock at $1.90 per share which vested immediately. The expense related to those warrants is recognized and recorded as research and development expense in 2009. The Company also granted a warrant to purchase 250,000 shares of common stock at $1.90 per share which vest over a four year period. The related expense will be recognized and recorded over a four year period as research and development expense. The Company began enrollment in its FDA trial in June of 2011 and the milestone payment of $250,000 was made in June of 2011. It is uncertain as to when the FDA will approve the Company's cancer screening test. Therefore, the $500,000 milestone payment has not been recorded as a liability. The Company periodically evaluates the status of the FDA trial.

        On October 14, 2009, the Company entered into a technology license agreement with Hologic, Inc. (Hologic). Under the license agreement, Hologic granted the Company an exclusive, worldwide license within the field of human stool based colorectal cancer and pre-cancer detection or identification with regard to certain Hologic patents and improvements. Pursuant to the terms of this license agreement, the Company paid an up-front payment of $50,000. The Company is required to pay Hologic a royalty fee based on a percentage of the Company's net sales of the licensed products. The Company began enrollment in its FDA trial in June of 2011 and the milestone payment of $100,000 was made in June of 2011. It is uncertain as to when the FDA will approve the Company's cancer screening test. Therefore, the $100,000 milestone payment has not been recorded as a liability. The Company periodically evaluates the status of the FDA trial.

        On July 26, 2010, the Company entered into a technology license and royalty agreement with MDx Health (formerly Oncomethylome Sciences). Under the license agreement, MDx Health granted the Company a royalty bearing exclusive, worldwide license to certain patents. Under the licensing agreement, the Company is obligated to make commercially reasonable efforts to bring products covered by the license agreement to market. The Company made an up-front payment of $100,000. The Company also paid $100,000 for the intent to utilize certain patent rights. The Company is required to pay MDx Health a minimum royalty fee of $100,000 on each anniversary of the agreement for the life of the contract. The Company also agreed to pay $100,000 upon the first commercial sale of a licensed product after the receipt of FDA approval and $150,000 after the Company has reached net sales of $10 million of a licensed product after receipt of FDA approval, $750,000 after the Company has reached net sales of $50 million, and $1 million after the Company has reached net sales of $50 million in a single calendar year. The Company is also required to pay MDx Health a royalty fee based on a certain percentage of the Company's net sales of the licensed products.

        The Company has recorded research and development expense associated with license agreements of $0.8 million, $0.4 million, and $1.9 million, respectively, for the years ended December 31, 2011, 2010 and 2009. Future minimum payments due under the Company's technology licenses as of December 31, 2011 are as follows. Amounts included in the table are in thousands.

Year ending December 31,

       

2012

  $ 281  

2013

    296  

2014

    296  

2015

    296  

2016

    256  

Thereafter

    2,544  
       

 

  $ 3,969  
       

        The Company has also entered into several clinical research agreements, under which it is obligated to fund certain research activities for purposes of technology development. As of December 31, 2011 and 2010, the Company had no outstanding sample collection commitments. The Company has recorded research and development expense associated with clinical research agreements of approximately $1.0 million, $1.3 million, and $0.5 million, respectively, for the years ended December 31, 2011, 2010 and 2009. As of December 31, 2011, the Company did not have any remaining obligation under these agreements.

ACCRUED EXPENSES
ACCRUED EXPENSES

(9) ACCRUED EXPENSES

        Accrued expenses at December 31, 2011 and 2010 consisted of the following. Amounts included in the table are in thousands.

 
  December 31,  
 
  2011   2010  

Compensation

  $ 2,041   $ 902  

Research and trial related expenses

    440     573  

Licenses

    338     173  

Professional fees

    182     271  

Other

    37     46  

Occupancy costs

    31     22  
           

 

  $ 3,069   $ 1,987  
           
LONG TERM DEBT
LONG TERM DEBT

(10) LONG TERM DEBT

        During November 2009, the Company entered into a loan agreement with the Wisconsin Department of Commerce pursuant to which the Wisconsin Department of Commerce agreed to lend up to $1 million to the Company subject to the Company's satisfaction of certain conditions. The Company received the $1 million in December 2009. The terms of the loan are such that portions of the loan become forgivable if the Company meets certain job creation requirements. If the Company creates 100 full time positions as of June 30, 2015, the principal shall be reduced at the rate of $5,405 for each new position created. If the Company has created 185 new full-time positions as of June 30, 2015, the full amount of principal shall be forgiven. The loan bears an interest rate of 2%, which is subject to an increase to 4% if the Company does not meet certain job creation requirements. Both principal and interest payments under the loan agreement are deferred for five years. Based on the Company's estimation of the loan obligation, the table below represents the future principal obligations as of December 31, 2011:

Year ending December 31,

       

2012

  $  

2013

     

2014

     

2015

    145  

2016

    217  

Thereafter

    638  
       

 

  $ 1,000  
       
EMPLOYEE BENEFIT PLAN
EMPLOYEE BENEFIT PLAN

(11) EMPLOYEE BENEFIT PLAN

        The Company maintains a qualified 401(k) retirement savings plan (the "401(k) Plan") covering all employees. Under the terms of the 401(k) Plan, participants may elect to defer a portion of their compensation into the 401(k) Plan, subject to certain limitations. Company matching contributions may be made at the discretion of the board of directors.

        The Company's board of directors approved 401(k) Plan matching contributions for 2011, 2010 and 2009 in the form of Company common stock equal to 100% up to 6% of the participant's salary for that year. The Company recorded compensation expense of approximately $0.3 million, $0.2 million, and $0.1 million, respectively, in the statements of operations for the years ended December 31, 2011, 2010 and 2009 in connection with 401(k) Plan matching contributions.

INCOME TAXES
INCOME TAXES

(12) INCOME TAXES

        The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company's tax years are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses.

        Under financial accounting standards, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. Deferred income tax expense or benefit represents the change in the deferred tax assets or liabilities from period to period. At December 31, 2011, the Company had federal net operating loss and state net operating loss carryforward of approximately $194.4 million and $170.1 million, respectively for financial reporting purposes, which may be used to offset future taxable income. The Company also had federal and state research tax credit carryforwards of $4.2 million and $3.3 million, respectively which may be used to offset future income tax liability. The federal and state carryforwards expire beginning 2015 through 2031 and are subject to review and possible adjustment by the Internal Revenue Service. In the event of a change of ownership, the federal and state net operating loss and research and development tax credit carryforwards may be subject to annual limitations provided by the Internal Revenue Code and similar state provisions.

        As of December 31, 2011 and 2010, the Company had $10.6 million and $6.3 million respectively in excess tax benefit stock option deductions. The excess tax benefit arising from these deductions is credited to additional paid in capital as the benefit is realized.

        The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary differences are as follows. Amounts included in the table are in thousands.

 
  December 31,  
 
  2011   2010  

Deferred tax assets:

             

Operating loss carryforwards

  $ 71,471   $ 60,390  

Tax credit carryforwards

    7,511     6,829  

Deferred revenue

    3,399     5,041  

Other temporary differences

    2,257     2,365  
           

Tax assets before valuation allowance

    84,638     74,625  

Less—Valuation allowance

    (84,638 )   (74,625 )
           

Net deferred taxes

  $   $  
           

        A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses since its inception and due to the uncertainty of the amount and timing of future taxable income, management has determined that a $84.6 million and $74.6 million valuation allowance at December 31, 2011 and 2010 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for the current year is $10.0 million. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact the Company's effective tax rate.

        The effective tax rate differs from the statutory tax rate due to the following:

 
  December 31,  
 
  2011   2010   2009  

U.S. Federal statutory rate

    34.0 %   34.0 %   34.0 %

State taxes

    5.6     5.6     5.6  

Research and development tax credit

    2.4     2.6     0.9  

AMT Tax

            (1.0 )

AMT Credit

            1.0  

Stock-based compensation expense

    (2.4 )   (1.9 )   (1.0 )

Other adjustments

    0.1     (0.1 )    

Valuation allowance

    (39.7 )   (40.1 )   (40.5 )
               

Effective tax rate

    0.0 %   0.1 %   (1.0% )%
               

        In June 2006, the FASB issued guidance that clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, the FASB provided guidance on subsequent derecognition of tax positions, financial statement classification, recognition of interest and penalties, accounting in interim periods, and disclosure and transition requirements. The Company adopted these provisions on January 1, 2007. As required by the new guidance issued by the FASB, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied this guidance to all tax positions for which the statute of limitations remained open. The amount of unrecognized tax benefits as of January 1, 2007 was none. There have been no changes in unrecognized tax benefits since January 1, 2007, nor are there any tax positions where it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the 12 months following December 31, 2011.

        As of December 31, 2011, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S. Federal income tax examinations for the tax years 1995 through 2011, and to state income tax examinations for the tax years 1995 through 2011. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2011, 2010 and 2009.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

(13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

        The following table sets forth unaudited quarterly statement of operations data for each of the eight quarters ended December 31, 2011. In the opinion of management, this information has been prepared on the same basis as the audited financial statements appearing elsewhere in this Form 10-K, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited quarterly results of operations. The quarterly data should be read in conjunction with our audited financial statements and the notes to the financial statements appearing elsewhere in this Form 10-K.

 
  Quarter Ended  
 
  March 31,   June 30,   September 30,   December 31,  
 
  (Amounts in thousands, except per share data)
 

2011

                         

Revenue

  $ 1,040   $ 1,042   $ 1,039   $ 1,042  

Cost of revenue

    6     6     6     6  

Research and development

    2,989     5,197     6,110     7,672  

General and administrative

    2,150     1,830     1,951     2,206  

Sales and marketing

    297     651     815     1,094  
                   

Loss from operations

    (4,402 )   (6,642 )   (7,843 )   (9,936 )

Interest income

    34     22     75     38  

Interest expense

    (5 )   (5 )   (5 )   (6 )
                   

Net loss

  $ (4,373 ) $ (6,625 ) $ (7,773 ) $ (9,904 )
                   

Net loss per share—basic and diluted

  $ (0.08 ) $ (0.13 ) $ (0.15 ) $ (0.18 )
                   

Weighted average common shares outstanding—basic and diluted

    51,930     52,010     52,443     53,647  
                   

2010

                         

Revenue

  $ 1,299   $ 1,314   $ 1,356   $ 1,375  

Cost of revenue

    6     6     6     6  

Research and development

    1,795     2,123     2,635     2,470  

General and administrative

    1,512     1,339     1,796     1,683  

Sales and marketing

    109     330     315     1,039  
                   

Loss from operations

    (2,123 )   (2,484 )   (3,396 )   (3,823 )

Interest income, net

    (1 )   7     14     6  

Other income

                244  
                   

Net loss

  $ (2,124 ) $ (2,477 ) $ (3,382 ) $ (3,573 )
                   

Net loss per share—basic and diluted

  $ (0.06 ) $ (0.06 ) $ (0.08 ) $ (0.08 )
                   

Weighted average common shares outstanding—basic and diluted

    35,607     39,067     40,155     46,869