Attached files
file | filename |
---|---|
EX-32 - ARBIOS SYSTEMS INC | v166943_ex32.htm |
EX-31.2 - ARBIOS SYSTEMS INC | v166943_ex31-2.htm |
EX-31.1 - ARBIOS SYSTEMS INC | v166943_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(MARK
ONE)
x QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
quarterly period ended September 30, 2009
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the
transition period from ___________ to __________
Commission
file number: 000-32603
ARBIOS SYSTEMS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
91-1955323
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
80
Commerce Drive, Allendale, NJ
|
07401
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(201)
995-1919
(Registrant's telephone number,
including area code)
530 S. Lake Avenue, Unit
363, Pasadena, CA 91101
(Former
name, former address and former fiscal year, if changed since last
report)
______________________________
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
(do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
On
September 30, 2009, there were 50,000,000 shares of common stock, $.001 par
value per share, issued and outstanding.
2
ARBIOS
SYSTEMS, INC.
FORM
10-Q
TABLE
OF CONTENTS
PAGE
NO.
PART
I. FINANCIAL INFORMATION
Item
1.
|
Financial
Statements:
|
|
Condensed
Balance Sheets as of September 30, 2009 (unaudited) and
|
||
December
31, 2008 (audited)
|
4
|
|
Condensed
Statements of Operations for the three and nine months
ended
|
||
September
30, 2009 and 2008 and from August 23, 2000 (inception)
through
|
||
September
30, 2009 (unaudited)
|
5 | |
Condensed
Statements of Cash Flows for the nine months ended
|
||
September
30, 2009 and 2008 and from August 23, 2000 (inception)
through
|
||
September
30, 2009 (unaudited)
|
6 | |
Condensed
Statement of Stockholders’ Equity (Deficit) from August 23, 2000
(inception)
|
||
through
September 30, 2009 (unaudited)
|
7 | |
Notes
to Condensed Financial Statements
|
12 | |
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results
|
|
of
Operations
|
19
|
|
Item
3.
|
Qualitative
and Quantitative Disclosures About Market
Risk...............................
|
23 |
Item
4T.
|
Controls
and Procedures
|
23
|
PART
II. OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
23
|
Item
1A.
|
Risk
Factors
|
24
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
24
|
Item
3.
|
Defaults
Upon Senior Securities
|
24
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
24
|
Item
5.
|
Other
Information
|
24
|
Item
6.
|
Exhibits
|
24
|
SIGNATURES
|
|
25 |
3
ITEM
1. Condensed Financial Statements
ARBIOS
SYSTEMS, INC.
|
||||
(A
Development Stage Company)
|
||||
CONDENSED
BALANCE SHEETS
|
Successor
|
Predecessor
|
|||||||
September
30, 2009
|
December
31,
|
|||||||
ASSETS
|
(Unaudited)
|
2008
|
||||||
Current
assets
|
||||||||
Cash
|
$ | 193,815 | $ | 370,686 | ||||
Cash
held in attorney trust
|
270,323 | - | ||||||
Prepaid
expenses
|
- | 21,506 | ||||||
Total
current assets
|
464,138 | 392,192 | ||||||
Receivable
|
- | 200,000 | ||||||
Property
and equipment, net
|
- | 6,177 | ||||||
Investment
|
- | 86,209 | ||||||
Other
assets
|
- | 750 | ||||||
Total
assets
|
$ | 464,138 | $ | 685,328 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 470,870 | $ | 194,046 | ||||
Accrued
expenses
|
- | 286,888 | ||||||
Total
current liabilities
|
470,870 | 480,934 | ||||||
Long
term contract obligations
|
- | 150,000 | ||||||
Total
liabilities
|
470,870 | 630,934 | ||||||
Stockholders'
equity (deficit)
|
||||||||
Successor
common stock, $.001 par value; 100,000,000 shares authorized;
50,000,000
|
||||||||
shares
issued and outstanding at September 30, 2009
|
50,000 | - | ||||||
Predecessor
common stock, $.001 par value; 100,000,000 shares
authorized; 25,792,747
|
||||||||
shares
issued and outstanding at December 31, 2008
|
- | 25,792 | ||||||
Additional
paid-in capital
|
143,256 | 21,617,075 | ||||||
Receivable
for stock issuance
|
(199,988 | ) | - | |||||
Deficit
accumulated during the development stage
|
- | (21,588,473 | ) | |||||
Total
stockholders' equity (deficit)
|
(6,732 | ) | 54,394 | |||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 464,138 | $ | 685,328 |
The
accompanying notes are an integral part of these condensed financial
statements.
|
4
ARBIOS
SYSTEMS, INC.
|
(A
Development Stage Company)
|
CONDENSED
STATEMENTS OF OPERATIONS
|
(Unaudited)
|
Predecessor
|
Predecessor
|
Predecessor
|
Predecessor
|
Predecessor
|
||||||||||||||||
For
the three months ended September 30,
|
For
the nine months ended September 30,
|
Inception
to
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
September
30, 2009
|
||||||||||||||||
Revenues
|
$ | - | $ | - | $ | - | $ | - | $ | 320,966 | ||||||||||
Operating
expenses:
|
||||||||||||||||||||
General
and administrative
|
256,348 | 147,103 | 660,795 | 1,358,718 | 13,902,846 | |||||||||||||||
Research
and development
|
- | 164,350 | - | 1,220,747 | 9,325,632 | |||||||||||||||
Total
operating expenses
|
256,348 | 311,453 | 660,795 | 2,579,465 | 23,228,478 | |||||||||||||||
Operating
loss
|
(256,348 | ) | (311,453 | ) | (660,795 | ) | (2,579,465 | ) | (22,907,512 | ) | ||||||||||
Other
income (expense):
|
||||||||||||||||||||
Loss
from disposition of fixed assets
|
(3,120 | ) | - | (3,120 | ) | - | (3,120 | ) | ||||||||||||
Interest
income
|
- | 3,786 | 229 | 32,264 | 497,748 | |||||||||||||||
Gain
on sale of HepatAssist program, net
|
- | - | 404,863 | |||||||||||||||||
Loss
on investment
|
- | - | (86,209 | ) | - | (86,209 | ) | |||||||||||||
Interest
expense
|
- | - | - | - | (244,138 | ) | ||||||||||||||
Total
other income (expense)
|
(3,120 | ) | 3,786 | (89,100 | ) | 32,264 | 569,144 | |||||||||||||
Loss
before reorganization items, net
|
(259,468 | ) | (307,667 | ) | (749,895 | ) | (2,547,201 | ) | (22,338,368 | ) | ||||||||||
Reorganization
items, net
|
147,885 | - | (111,243 | ) | - | (111,243 | ) | |||||||||||||
Net
loss
|
$ | (111,583 | ) | $ | (307,667 | ) | $ | (861,138 | ) | $ | (2,547,201 | ) | $ | (22,449,611 | ) | |||||
Net
loss per share:
|
||||||||||||||||||||
Basic
and diluted
|
$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.10 | ) | ||||||||
Weighted-average
shares:
|
||||||||||||||||||||
Basic
and diluted
|
26,892,442 | 25,792,747 | 25,249,003 | 25,712,950 |
The
accompanying notes are an integral part of these condensed financial
statements.
5
ARBIOS
SYSTEMS, INC.
|
(A
Development Stage Company)
|
CONDENSED
STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
Predecessor
|
Predecessor
|
Predecessor
|
||||||||||
For
the nine months ended September 30,
|
Inception
to
|
|||||||||||
2009
|
2008
|
September
30, 2009
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (861,138 | ) | $ | (2,547,201 | ) | $ | (22,449,611 | ) | |||
Adjustments
to reconcile net loss to net cash
|
||||||||||||
used
in operating activities:
|
||||||||||||
Amortization
of debt discount
|
- | - | 244,795 | |||||||||
Depreciation
and amortization
|
2,757 | 32,190 | 338,794 | |||||||||
Patent
rights impairment
|
- | - | 91,694 | |||||||||
Issuance
of common stock, options and warrants for compensation
|
- | 441,055 | 4,071,460 | |||||||||
Issuance
of warrants for patent acquistion
|
- | - | 74,570 | |||||||||
Settlement
of accrued expense
|
- | - | 54,401 | |||||||||
Deferred
compensation costs
|
- | - | 319,553 | |||||||||
Loss
on disposition of fixed assets
|
3,120 | 2,207 | 8,157 | |||||||||
Loss
on disposition of investment
|
86,209 | - | 86,209 | |||||||||
Gain
on sale of HepatAssist program, net
|
- | - | (404,863 | ) | ||||||||
Non-cash
reorganization items, net
|
(226,103 | ) | - | (226,103 | ) | |||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Prepaid
expenses
|
21,506 | 35,459 | - | |||||||||
Deferred
financing costs
|
- | 16,757 | - | |||||||||
Other
assets
|
750 | 68,686 | - | |||||||||
Accounts
payable
|
322,927 | (114,149 | ) | 516,971 | ||||||||
Accrued
expenses
|
(106,888 | ) | (97,367 | ) | 86,498 | |||||||
Other
liabilities
|
- | - | 64,695 | |||||||||
Contract
obligations
|
(150,000 | ) | (100,000 | ) | - | |||||||
Net
cash used in operating activities
|
(906,860 | ) | (2,262,363 | ) | (17,122,780 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Additions
of property and equipment
|
- | - | (149,467 | ) | ||||||||
Proceeds
from sale of fixed assets
|
300 | 4,175 | 4,476 | |||||||||
Proceeds
from sale of HepatAssist program
|
200,000 | - | 450,000 | |||||||||
Purchase
of short term investments
|
- | - | (21,866,787 | ) | ||||||||
Maturities
of short term investments
|
- | - | 21,866,787 | |||||||||
Net
cash provided from investing activities
|
200,300 | 4,175 | 305,009 | |||||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from issuance of convertible debt
|
- | - | 400,000 | |||||||||
Proceeds
from common stock option/warrant exercise
|
- | - | 67,900 | |||||||||
Net
proceeds from issuance of common stock and warrants
|
800,012 | - | 16,597,092 | |||||||||
Net
proceeds from issuance of preferred stock
|
- | - | 238,732 | |||||||||
Payments
on capital lease obligation, net
|
- | - | (21,815 | ) | ||||||||
Net
cash provided by financing activities
|
800,012 | - | 17,281,909 | |||||||||
Net
(decrease) increase in cash
|
93,452 | (2,258,188 | ) | 464,138 | ||||||||
Cash
at beginning of period
|
370,686 | 2,735,944 | - | |||||||||
Cash
at end of period
|
$ | 464,138 | $ | 477,756 | $ | 464,138 | ||||||
Supplemental
disclosures of non-cash financing activity
|
||||||||||||
Issuance
of securities for obligation related to finder's fees
|
$ | - | $ | - | $ | 47,500 |
The
accompanying notes are an integral part of these condensed financial
statements.
|
6
ARBIOS
SYSTEMS, INC.
|
(A
Development Stage Company)
|
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
|
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO SEPTEMBER 30, 2009
|
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||
Additional
|
Receivable
|
During
the
|
||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
for
Stock
|
Deferred
|
Development
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Issuance
|
Costs
|
Stage
|
Total
|
||||||||||||||||||||||||||||
Balance,
August 23,
|
||||||||||||||||||||||||||||||||||||
2000
(inception) restated
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
for
effect of reverse merger
with
Historical Autographs U.S.A. Inc.
|
||||||||||||||||||||||||||||||||||||
Stock
issuance
|
||||||||||||||||||||||||||||||||||||
in
exchange for cash
|
5,000,000 | 50 | 4,950 | 5,000 | ||||||||||||||||||||||||||||||||
Net
loss
|
(9,454 | ) | (9,454 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31,
|
||||||||||||||||||||||||||||||||||||
2000,
as restated
|
- | - | 5,000,000 | 50 | 4,950 | - | - | (9,454 | ) | (4,454 | ) | |||||||||||||||||||||||||
Issuance
of junior preferred stock
|
||||||||||||||||||||||||||||||||||||
for
cash of $250,000 and in
|
||||||||||||||||||||||||||||||||||||
exchange
for $400,000 in patent rights,
|
||||||||||||||||||||||||||||||||||||
research
and development costs,
|
||||||||||||||||||||||||||||||||||||
and
employee loanout costs less
|
||||||||||||||||||||||||||||||||||||
issuance
expenses
|
||||||||||||||||||||||||||||||||||||
of
$11,268, June 29, 2001
|
681,818 | 7 | 958,278 | (343,553 | ) | 614,732 | ||||||||||||||||||||||||||||||
Issuance
of common stock in exchange
|
||||||||||||||||||||||||||||||||||||
for
patent rights and deferred research
|
||||||||||||||||||||||||||||||||||||
and
development costs
|
362,669 | 4 | 547,284 | 547,288 | ||||||||||||||||||||||||||||||||
Services
receivable
|
(550,000 | ) | (550,000 | ) | ||||||||||||||||||||||||||||||||
Deferred
employee
|
||||||||||||||||||||||||||||||||||||
loan-out
costs
|
||||||||||||||||||||||||||||||||||||
receivable
earned
|
82,888 | 82,888 | ||||||||||||||||||||||||||||||||||
Net
loss
|
(237,574 | ) | (237,574 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31, 2001
|
681,818 | 7 | 5,362,669 | 54 | 1,510,512 | - | (810,665 | ) | (247,028 | ) | 452,880 | |||||||||||||||||||||||||
The
accompanying notes are an integral part of these condensed financial
statements.
|
7
ARBIOS
SYSTEMS, INC.
|
(A
Development Stage Company)
|
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
|
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO SEPTEMBER 30, 2009
|
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||
Additional
|
Receivable
|
During
the
|
||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
for
Stock
|
Deferred
|
Development
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Issuance
|
Costs
|
Stage
|
Total
|
||||||||||||||||||||||||||||
Amendment
of December 31, 2001
|
||||||||||||||||||||||||||||||||||||
agreement
for the issuance of
|
||||||||||||||||||||||||||||||||||||
common
stock agreement in
|
||||||||||||||||||||||||||||||||||||
exchange
for research and
|
||||||||||||||||||||||||||||||||||||
development
services
|
(495,599 | ) | 550,000 | 54,401 | ||||||||||||||||||||||||||||||||
Deferred
employee loan out
|
||||||||||||||||||||||||||||||||||||
costs
receivable earned
|
171,776 | 171,776 | ||||||||||||||||||||||||||||||||||
Issuance
of common
|
||||||||||||||||||||||||||||||||||||
stock
for compensation
|
70,000 | 1 | 10,499 | 10,500 | ||||||||||||||||||||||||||||||||
Issuance
of common stock for cash
|
999,111 | 9 | 149,857 | 149,866 | ||||||||||||||||||||||||||||||||
Net
loss
|
(494,780 | ) | (494,780 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31, 2002
|
681,818 | 7 | 6,431,780 | 64 | 1,175,269 | - | (88,889 | ) | (741,808 | ) | 344,643 | |||||||||||||||||||||||||
Issuance
of common stock for cash
|
||||||||||||||||||||||||||||||||||||
less
issuance expense of $2,956
|
417,000 | 417 | 246,827 | 247,244 | ||||||||||||||||||||||||||||||||
Issuance
of common stock in private
|
||||||||||||||||||||||||||||||||||||
placement
for cash less
|
||||||||||||||||||||||||||||||||||||
issuance
expense of $519,230
|
4,000,000 | 4,000 | 3,476,770 | 3,480,770 | ||||||||||||||||||||||||||||||||
Issuance
of common stock
|
||||||||||||||||||||||||||||||||||||
for
convertible debenture less
|
||||||||||||||||||||||||||||||||||||
issuance
expense of $49,500
|
400,000 | 400 | 350,100 | 350,500 | ||||||||||||||||||||||||||||||||
Shares
issued in connection with
|
||||||||||||||||||||||||||||||||||||
acquisition
of Historical Autographs
|
||||||||||||||||||||||||||||||||||||
U.S.A.,
Inc. on October 30, 2003
|
1,220,000 | 8,263 | (8,263 | ) | - |
The
accompanying notes are an integral part of these condensed financial
statements.
|
8
ARBIOS
SYSTEMS, INC.
|
(A
Development Stage Company)
|
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
|
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO SEPTEMBER 30, 2009
|
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||
Additional
|
Receivable
|
During
the
|
||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
for
Stock
|
Deferred
|
Development
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Issuance
|
Costs
|
Stage
|
Total
|
||||||||||||||||||||||||||||
Value
of warrants and beneficial
|
||||||||||||||||||||||||||||||||||||
conversion
feature of bridge loan
|
244,795 | 244,795 | ||||||||||||||||||||||||||||||||||
Deferred
employee loan-out
|
||||||||||||||||||||||||||||||||||||
costs
receivable earned
|
88,889 | 88,889 | ||||||||||||||||||||||||||||||||||
Preferred
Stock converted
|
||||||||||||||||||||||||||||||||||||
to
Common Stock
|
(681,818 | ) | (7 | ) | 681,818 | 7 | - | |||||||||||||||||||||||||||||
Net
loss
|
(885,693 | ) | (885,693 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31, 2003
|
- | - | 13,150,598 | 13,151 | 5,485,498 | - | - | (1,627,501 | ) | 3,871,148 | ||||||||||||||||||||||||||
Issuance
of common stock options
|
||||||||||||||||||||||||||||||||||||
and
warrants for compensation
|
972,430 | 972,430 | ||||||||||||||||||||||||||||||||||
Exercise
of common stock options
|
18,000 | 18 | 2,682 | 2,700 | ||||||||||||||||||||||||||||||||
Issuance
of securities for payable
|
47,499 | 47 | 47,451 | 47,498 | ||||||||||||||||||||||||||||||||
Net
loss
|
(3,327,827 | ) | (3,327,827 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31, 2004
|
- | - | 13,216,097 | 13,216 | 6,508,061 | - | - | (4,955,328 | ) | 1,565,949 | ||||||||||||||||||||||||||
Issuance
of common stock in private
|
||||||||||||||||||||||||||||||||||||
placement
for cash less issuance
|
||||||||||||||||||||||||||||||||||||
expense
of $384,312
|
2,991,812 | 2,992 | 6,224,601 | 6,227,593 | ||||||||||||||||||||||||||||||||
Issuance
of common stock options
|
||||||||||||||||||||||||||||||||||||
and
warrants for compensation
|
557,080 | 557,080 | ||||||||||||||||||||||||||||||||||
Exercise
of common stock options
|
25,000 | 25 | 62,475 | 62,500 |
The
accompanying notes are an integral part of these condensed financial
statements.
|
9
ARBIOS
SYSTEMS, INC.
|
(A
Development Stage Company)
|
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
|
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO SEPTEMBER 30, 2009
|
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||
Additional
|
Receivable
|
During
the
|
||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
for
Stock
|
Deferred
|
Development
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Issuance
|
Costs
|
Stage
|
Total
|
||||||||||||||||||||||||||||
Net
loss
|
(3,823,903 | ) | (3,823,903 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31, 2005
|
- | - | 16,232,909 | 16,233 | 13,352,217 | - | - | (8,779,231 | ) | 4,589,219 | ||||||||||||||||||||||||||
Issuance
of common stock in private
|
||||||||||||||||||||||||||||||||||||
placement
for cash less issuance
|
||||||||||||||||||||||||||||||||||||
expense
of $95,013
|
1,227,272 | 1,227 | 1,253,760 | 1,254,987 | ||||||||||||||||||||||||||||||||
Issuance
of common stock options
|
||||||||||||||||||||||||||||||||||||
and
warrants for compensation
|
703,839 | 703,839 | ||||||||||||||||||||||||||||||||||
Stock
warrant term extension
|
- | 482,964 | 482,964 | |||||||||||||||||||||||||||||||||
Warrant
liability
|
(1,284,841 | ) | (1,284,841 | ) | ||||||||||||||||||||||||||||||||
Net
loss
|
(4,461,904 | ) | (4,461,904 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31, 2006
|
- | - | 17,460,181 | 17,460 | 14,507,939 | - | - | (13,241,135 | ) | 1,284,264 | ||||||||||||||||||||||||||
Cumulative
effect of change in
|
||||||||||||||||||||||||||||||||||||
accounting
principle:
|
||||||||||||||||||||||||||||||||||||
Adjust
retained earnings at
|
||||||||||||||||||||||||||||||||||||
January
1, 2007 for change in
|
||||||||||||||||||||||||||||||||||||
accounting
principle
|
(521,187 | ) | (521,187 | ) | ||||||||||||||||||||||||||||||||
Reclassification
of warrants
|
1,284,841 | 1,284,841 | ||||||||||||||||||||||||||||||||||
Issuance
of common stock and warrants
|
||||||||||||||||||||||||||||||||||||
in
private placement for cash less issuance
|
||||||||||||||||||||||||||||||||||||
expense
of $377,169
|
7,478,462 | 7,479 | 4,476,352 | 4,483,831 | ||||||||||||||||||||||||||||||||
Exercise
of common stock warrants
|
18,000 | 18 | 2,682 | 2,700 | ||||||||||||||||||||||||||||||||
Stock
option based compensation expense
|
438,263 | 438,263 |
The
accompanying notes are an integral part of these condensed financial
statements.
10
ARBIOS
SYSTEMS, INC.
|
(A
Development Stage Company)
|
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
|
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO SEPTEMBER 30, 2009
|
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||
Additional
|
Receivable
|
During
the
|
||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
for
Stock
|
Deferred
|
Development
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Issuance
|
Costs
|
Stage
|
Total
|
||||||||||||||||||||||||||||
Stock
warrant term extension
|
- | 59,025 | 59,025 | |||||||||||||||||||||||||||||||||
Restricted
stock based compensation expense
|
621,818 | 621 | 315,604 | 316,225 | ||||||||||||||||||||||||||||||||
Issuance
of warrants for patent acquistion
|
74,570 | 74,570 | ||||||||||||||||||||||||||||||||||
Net
loss
|
(5,552,650 | ) | (5,552,650 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31, 2007
|
- | - | 25,578,461 | 25,578 | 21,159,276 | - | - | (19,314,972 | ) | 1,869,882 | ||||||||||||||||||||||||||
Stock
option based compensation expense
|
114,824 | 114,824 | ||||||||||||||||||||||||||||||||||
Stock
warrant term extension
|
175,256 | 175,256 | ||||||||||||||||||||||||||||||||||
Restricted
stock based compensation expense
|
107,933 | 107,933 | ||||||||||||||||||||||||||||||||||
Issuance
of common stock for compensation
|
214,286 | 214 | 59,786 | 60,000 | ||||||||||||||||||||||||||||||||
Net
loss
|
(2,273,501 | ) | (2,273,501 | ) | ||||||||||||||||||||||||||||||||
Balance,
December 31, 2008
|
- | - | 25,792,747 | 25,792 | 21,617,075 | - | - | (21,588,473 | ) | 54,394 | ||||||||||||||||||||||||||
Common
stock shares surrendered by shareholder
|
(1,436,500 | ) | (1,436 | ) | 1,436 | - | ||||||||||||||||||||||||||||||
Arbios
Acquistion Partners capital contribution
|
1,000,000 | (199,988 | ) | 800,012 | ||||||||||||||||||||||||||||||||
Chapter
11 Plan of reorganization:
|
||||||||||||||||||||||||||||||||||||
Cancellation
of existing equity
|
(24,356,247 | ) | (24,356 | ) | 24,356 | - | ||||||||||||||||||||||||||||||
Issuance
of new common stock
|
50,000,000 | 50,000 | (50,000 | ) | - | |||||||||||||||||||||||||||||||
Post
reorganization fresh start accounting
|
(22,449,611 | ) | 22,449,611 | - | ||||||||||||||||||||||||||||||||
Net
loss
|
(861,138 | ) | (861,138 | ) | ||||||||||||||||||||||||||||||||
Balance,
September 30, 2009
|
- | - | 50,000,000 | $ | 50,000 | $ | 143,256 | $ | (199,988 | ) | $ | - | $ | - | $ | (6,732 | ) |
The
accompanying notes are an integral part of these condensed financial
statements.
11
Arbios
Systems, Inc.
(A
Development Stage Company)
Notes
to Condensed Financial Statements (Unaudited)
Nine
Months Ended September 30, 2009
(1)
Basis of Presentation
Arbios
Systems, Inc. is a Delaware corporation with its corporate office in Allendale,
New Jersey. To date, our goal was to seek to develop, manufacture and
market liver assist therapies to meet the urgent need for medical treatment of
liver failure.
Since
Arbios Systems, Inc. was incorporated in February 1999, we have been a medical
device and cell-therapy company that was focused on the development of products
for the treatment of liver failure. Our lead product candidate was under
development during 2008 and consisted of a novel extracorporeal blood
purification therapy called the SEPET™ Liver Assist Device. Until
recently, we also owned the rights to an extracorporeal, bioartificial liver
therapy referred to as the HepatAssist™ Cell-Based Liver Support System which
incorporated porcine pig liver cells, which we sold to HepaLife Technologies,
Inc. in October 2008. Because of our limited financial resources, all
of our development activities during the past few years have focused on our
SEPET™ Liver Assist Device. In February 2008, the U.S. Food and Drug
Administration (“FDA”) granted us conditional approval of an Investigational
Device Exemption, or IDE, application to begin the pivotal clinical trial for
SEPET™. In May 2008, we received approval to begin the first segment
of our pivotal clinical trial for SEPETTM. The
budget to complete this clinical trial and our other projected operating
expenses, however, far exceeded the limited financial resources available to us
at that time, and we have, therefore, not commenced the clinical
trial.
As
a development stage company engaged solely in the development of new products,
we did not generate revenues from our activities and, accordingly, we were
solely dependent upon our ability to raise funding from investors to finance
both our operating expenses and the cost of developing our
technologies. Due in part to the global economic crisis that
commenced in 2008 and the dramatic decline in the availability of financing,
particularly to development stage companies, we were unable to raise the capital
we needed to finance our operational and developmental activities. As
a result, in order to preserve our remaining cash while seeking financing and
while attempting to otherwise maximize the value of our assets, in mid-2008, we
terminated all of our employees and suspended the majority of our
operations. Since then, our activities had been conducted by our
interim Chief Executive Officer and our interim Chief Financial Officer, both of
whom were engaged as part-time consultants. We have not conducted any
active operations since mid-2008, and our sole activity since that time has been
to (i) seek sufficient capital to re-initiate our operations, (ii) find a
strategic partner to co-develop our technologies with us, or (iii) sell our
technologies and assets in a manner that will maximize shareholder
value. Consistent with this plan, in October 2008, we sold the
HepatAssistTM
Cell-Based Liver Support System to HepaLife Technologies, Inc. (“HepaLife”) for
(a) $450,000 in cash, of which $250,000 was paid in October 2008 and the
remaining $200,000 was deferred for up to 18 months from the date of sale, and
(b) a warrant to purchase 750,000 shares of HepaLife common stock at an exercise
price of $0.35 per share. On April 22, 2009, HepaLife paid us the
$200,000 deferred payment immediately, in return for the cancellation of the
warrant to purchase 750,000 shares of HepaLife common stock that was part of the
consideration in our sale of HepatAssistTM to
HepaLife.
Liquidity
and Going Concern
The
accompanying condensed financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred a net
operating loss of $861,138 for the nine months ended September 30, 2009 and an
accumulated deficit of $22,449,611 before fresh start. In addition,
at September 30, 2009, the Company’s working capital is
($6,732). These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
12
Voluntary
Chapter 11 Filing
On
January 9, 2009, the Company filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United
States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”),
Case Number 09-10082 (the “Bankruptcy”). We had operated as a
debtor-in-possession under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and the orders
of the Bankruptcy Court until September 21, 2009, the date our Plan of
Reorganization became effective and a new Board of Directors and management were
appointed.
Plan
of Reorganization; Recapitalization of our Company
On April
3, 2009, the Company filed a motion to conditionally approve our Chapter 11 Plan
of Reorganization as the disclosure statement (the motion to conditionally
approve the disclosure statement and the Plan of Reorganization is herein
referred to as the “Plan”). On April 20, 2009, the Bankruptcy Court
confirmed the use of the Plan of Reorganization as a disclosure
statement. Arbios Acquisition Partners had agreed to pay a total of
$1 million to fund Arbios in consideration for 1) 90% of the new shares to be
issued and 2) payments to class 1 creditors who would receive 90% of the amounts
owed to them upon effectiveness of the Plan.
On
September 21, 2009 (the “effective date”) Arbios Systems Inc.’s previously
disclosed confirmed Chapter 11 Plan of Reorganization in Arbios’ Chapter 11
Bankruptcy filing in the United States Bankruptcy Court for the District of
Delaware, Case No. 09-10082, became effective. Pursuant to the terms of
the Chapter 11 Plan, among other things, as of the effective date:
·
|
All
of Arbios’ currently existing equity (including, but not limited to, all
of its outstanding common and preferred shares of stock, warrants, and
options) were canceled as of the effective date. Since there
were no material changes to the financial statements between the effective
date and end of the third quarter, the Company has elected to use
September 30, 2009 as the fresh start date referenced in footnote 2
below.
|
·
|
The
company issued to Arbios Acquisition Partners, LLC an unrelated, privately
held company, and its designees, who were the funders under the Chapter 11
Plan, an aggregate of 45 million new shares of common stock representing
90% of Arbios’ newly issued shares.
|
·
|
The
company issued to the Company’s existing shareholders an aggregate of 5
million new shares of common stock equal to 10% of its newly issued shares
pro rata, which replaces the canceled shares of common
stock. As a result, pursuant to the Chapter 11 Plan, 1 newly
issued share of Arbios common stock replaced every 4.87 canceled shares of
Arbios common stock held by Arbios shareholders as of September 21,
2009.
|
·
|
The
officers and directors, as of the effective date of the Chapter 11 Plan,
resigned and new officers and directors were
elected.
|
In
consideration for issuing the new shares to shareholders, Arbios Acquisition
Partners and its designees paid the company $800,000 in cash. Of the
45 million new shares of common stock issuable to Arbios Acquisition Partners
and its designees, Arbios Acquisition Partners were issued 30 million shares as
of the effective date of the Chapter 11 Plan, representing 60% of the issued and
outstanding new shares of common stock for $533,333, and Arbios Acquisition
Partners’ ten designees, none of which are affiliated with Arbios Acquisition
Partners, were issued 15 million shares for $266,667 as of the effective date of
the Chapter 11 Plan, which has been paid.
Arbios
Acquisition Partners has advised the Company that the remaining $200,000 called
for under the Chapter 11 Plan will be provided in the future on an as-needed
basis on terms and conditions to be determined.
Arbios
Acquisition Partners, LLC was founded by Thomas J. Fagan to fund Arbios in
consideration for 90% of Arbios’ new common stock in connection with Arbios’
reorganization as provided in Arbios’ Chapter 11 Plan. Mr. Fagan is
the sole Manager of Arbios Acquisition Partners. Energex Systems,
Inc., a developer, manufacturer and marketer of patented medical technologies,
currently owns approximately 85% of the membership interests of Arbios
Acquisition Partners. Thomas Fagan is the Chairman of the Board,
President, Chief Executive Officer, a director and the principal stockholder of
Energex Systems, Inc.
13
Arbios
believes that the funds used by Arbios Acquisition Partners and its designees to
purchase their respective new shares of common stock were raised by Arbios
Acquisition Partners through the private sale of Arbios Acquisition Partners
membership interests, and were personal funds of the designees,
respectively.
The unaudited condensed financial
statements and notes are presented as permitted by Form 10-Q. These
unaudited condensed financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles in the United States of America, have been omitted pursuant to such
SEC rules and regulations. In the opinion of the management of the
Company, the accompanying unaudited condensed financial statements include all
adjustments, including those that are normal and recurring considered necessary
to present fairly the financial position of the Company as of September 30,
2009, and the results of operations for the periods presented. These
unaudited condensed financial statements should be read in conjunction with the
Company's audited financial statements and the accompanying notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2008 as
filed with the SEC. Because of the Bankruptcy and the change in the
Company’s ownership and management, the Company expects that its operating
results will vary from its operating results before the
Bankruptcy. Therefore, period-to-period comparisons should not be
relied upon as predictive of the results in future periods. The
results of operations for the nine months ended September 30, 2009 are not
necessarily indicative of the results to be expected for any subsequent periods
or for the entire 2009 fiscal year.
Sale
of HepaLife Technologies, Inc. Warrant
Pursuant
to a Bankruptcy Court Order, on April 22, 2009, the Company sold the five-year
Series D warrant to purchase up to 750,000 shares of HepaLife’s common stock at
an exercise price of $0.35 per share (the “Warrant”) back to HepaLife in
consideration for the early payment of the $200,000 Deferred Purchase Price,
which funds were received by the Company on April 22, 2009. The
closing price of HepaLife’s common stock on the OTC Bulletin Board on April 22,
2009 was $0.19 per share. The surrender of the Warrant in
exchange for the acceleration of the $200,000 Deferred Purchase Price payment
resulted in a “loss on investment” of $86,209.
Termination
of Immunocept, LLC License Agreement
On
January 2, 2009, Immunocept, LLC declared a default in the foregoing license
with the Company. On May 26, 2009, Immunocept filed an amended proof of claim in
the amount of $3.2 million plus unliquidated damages. In turn, the Company moved
to reject the License Agreement with the Bankruptcy Court on May 28, 2009. As
part of the rejection of the License Agreement, the Company objected to
Immunocept’s damages claims and filed a modified Plan of Reorganization that
rejected assumption of this License Agreement on June 9, 2009. The confirmation
of the Plan occurred on June 22, 2009. In an effort to end the costly litigation
in this matter and to move the Plan of Reorganization forward with the Court,
the Company and Immunocept LLC reached a settlement on July 21,
2009.
Pursuant
to the settlement agreement between Arbios Systems, Inc. and Immunocept, LLC,
the license agreement was terminated on June 22, 2009 and the Company agreed
that Immunocept, LLC would receive a pre-petition claim of $350,000 (paid at
90%). The Company has acknowledged that it owed $100,000 to
Immunocept, LLC on January 1, 2009, as part of a milestone payment, along with
an additional $150,000 payment due for the issuance of a new
patent. Arbios will also pay up to $100,000 to Immunocept as part of
the settlement agreement for legal and administrative costs. Immunocept will
have no rights to the pre-clinical, clinical data, or IDE for SEPET devices and
the Company shall remain bound by confidentiality regarding the Immunocept, LLC
patent portfolio.
14
2. Fresh
Start Consolidated Statement of Financial Position
On the
Effective Date, we adopted fresh-start accounting in accordance with ASC 852
Reorganization,,
formerly American Institute of Certified Public Accountants’ Statement of
Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP
90-7”) as amended by Financial Accounting Standards Board (“FASB”) Staff
Position No. SOP 90-7-1, An
Amendment of AICPA Statement of Position 90-7. This resulted
in our becoming a new reporting entity on September 30, 2009, which has a new
capital structure, a new basis in the identifiable assets and liabilities
assumed and no retained earnings or accumulated losses. Accordingly,
the Consolidated Financial Statements on or after September 30, 2009 are not
comparable to the Consolidated Financial Statements prior to that
date.
Fresh-start
accounting reflects our value as determined in the confirmed
Plan. Under fresh-start accounting, our asset values are re-measured
using fair value and are allocated in accordance with ASC 805 Business Combinations,
formerly Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS
No. 141”). In addition, fresh-start accounting also requires that
all liabilities, other than deferred taxes, should be stated at fair value or at
the present values of the amounts to be paid using appropriate market interest
rates. Deferred taxes are determined in conformity with ASC 740,
Income Taxes, formerly
SFAS No. 109, Accounting for
Income Taxes (“SFAS No. 109”).
All
estimates, assumptions, valuations, appraisals and financial projections,
including the fair value adjustments, the financial projections, the enterprise
value and equity value, are inherently subject to significant uncertainties and
the resolution of contingencies beyond our control. Accordingly,
there can be no assurance that the estimates, assumptions, valuations,
appraisals and the financial projections will be realized and actual results
could vary materially. In accordance with generally accepted
accounting principles, the preliminary allocation of the enterprise value is
subject to additional adjustment within one year after emergence from bankruptcy
when additional or improved information on valuations becomes
available. We do not expect that adjustments to recorded fair values
will be made since our assets are comprised of cash balances and our
liabilities are comprised of accounts payable that have been satisfied
subsequent to September 30, 2009.
The
adjustments set forth in the following Fresh Start Consolidated Statement of
Financial Position in the columns captioned “Effect of Plan” and “Revaluation of
Assets and Liabilities” reflect the effect of the consummation of the
transactions contemplated by the Plan, including the settlement of various
liabilities, securities issuances, incurrence of new indebtedness and cash
payments, and the revaluation of our assets and liabilities to reflect their
fair value under fresh-start accounting. The adjustments resulted in
a pre-tax net effect of discharge of claims and liabilities of $46,103 under the
Plan.
15
ARBIOS
SYSTEMS, INC
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The
effects of the Plan and fresh-start accounting on our Consolidated Balance Sheet
at September 30, 2009 are as follows:
Predecessor
|
Successor
|
|||||||||||||
September
29, 2009
|
Effect
of Plan
|
Revaluation
of
Assets
and Liabilities
|
September
30, 2009
|
|||||||||||
ASSETS
|
||||||||||||||
Current
Assets:
|
||||||||||||||
Cash
|
$
|
-
|
193,815
|
(b)
|
$
|
193,815
|
||||||||
Restricted
cash
|
199,112
|
(199,112
|
)
|
(b)
|
||||||||||
Cash
held in attorney trust
|
-
|
270,323
|
(b)
|
270,323
|
||||||||||
Total
Assets
|
$
|
199,112
|
$
|
464,138
|
||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
(DEFICIT)
|
||||||||||||||
Current
Liabilities:
|
||||||||||||||
Accounts
payable
|
$
|
391,818
|
79,052
|
(a,b)
|
$
|
470,870
|
||||||||
Deposit
from Arbios Acquisition Partners LLC
|
199,112
|
(199,112
|
)
|
(b)
|
-
|
|||||||||
Accrued
expenses
|
180,000
|
(180,000
|
)
|
(c)
|
-
|
|||||||||
Total
Current Liabilities
|
770,930
|
470,870
|
||||||||||||
Liabilities
subject to compromise under
|
||||||||||||||
reorganization
proceeding
|
461,029
|
(461,029
|
)
|
(a)
|
-
|
|||||||||
Shareholders’ Equity
(Deficit):
|
||||||||||||||
Successor
common stock at $0.001 par value
|
-
|
50,000
|
(b)
|
50,000
|
||||||||||
Predecessor
common stock at $0.001 par value
|
24,356
|
(24,356
|
)
|
(c)
|
-
|
|||||||||
Additional
contributed capital
|
21,618,511
|
974,356
|
(b)
|
(22,449,611
|
)
|
(c)
|
143,256
|
|||||||
Receivable
for stock issuance
|
-
|
(199,988
|
)
|
(b)
|
(199,988
|
)
|
||||||||
Accumulated
deficit
|
(22,675,714
|
)
|
226,103
|
(a,b)
|
22,449,611
|
(c)
|
-
|
|||||||
Total
Shareholders’ Equity (Deficit)
|
(1,032,847
|
)
|
(6,732
|
)
|
||||||||||
Total
Liabilities and Shareholders’ Equity (Deficit)
|
$
|
199,112
|
$
|
464,138
|
(a)
|
To
record the discharge and payment of liabilities subject to
compromise.
|
(b)
|
The
company issued to Arbios Acquisition Partners, LLC an unrelated, privately
held company, and its designees, who were the funders under the Chapter 11
Plan, an aggregate of 45 million new shares of common stock representing
90% of Arbios’ newly issued shares for $800,012 in cash. An
additional $199,988 is due per the Plan of Reorganization; the timing and
nature of this infusion to be determined on as needed
basis. The company issued to the Company’s existing
shareholders an aggregate of 5 million new shares of common stock equal to
10% of its newly issued shares pro rata, which replaces the canceled
shares of common stock. As a result, pursuant to the Chapter 11
Plan, 1 newly issued share of Arbios common stock replaced every 4.87
canceled shares of Arbios common stock held by Arbios shareholders as of
September 21, 2009.
|
(c)
|
To
record cancellation of Predecessor common stock, close out of remaining
equity balances of Predecessor in accordance with fresh-start
accounting. The cancellation of all common stock, options
and warrants in conjunction with the Chapter 11 Plan of Reorganization
confirmed on September 21, 2009 resulted in the reversal of an accrued
liquidated damages liability of
$180,000.
|
16
Liabilities
Subject to Compromise
Liabilities
subject to compromise refers to pre-petition obligations that were impacted by
the Chapter 11 Case. The amounts represented our estimate of known or
potential obligations to be resolved in connection with our Chapter 11
Case. The following table summarizes the components of liabilities
subject to compromise included in our balance sheet as of September 29,
2009:
Predecessor
|
||||
September
29,
2009
|
||||
Pre-petition
accounts payable
|
$
|
111,029
|
||
Debt
owed to Immunocept, LLC
|
350,000
|
|||
Total
Liabilities Subject to Compromise
|
$
|
461,029
|
Reorganization
Items, net
Reorganization
items, net are presented separately in the Consolidated Statement of Operations
and represent items of income, expense, gain or loss that we realized or
incurred due to our reorganization under Chapter 11 of the U.S. Bankruptcy
Code.
Reorganization
items consisted of the following items:
Predecessor
|
||||||||
Three
Months Ended
September
30, 2009
|
Nine
Months
Ended
September
30, 2009
|
|||||||
Discharge
of claims and liabilities
(a)
|
$
|
(46,103
|
)
|
$
|
(46,103
|
)
|
||
Professional
fees
(b)
|
78,218
|
337,346
|
||||||
Change
in liquidated damages liability(c)
|
(180,000
|
)
|
(180,000
|
)
|
||||
Total
Reorganization Items,
net
|
$
|
(147,885
|
)
|
$
|
111,243
|
|||
Cash
effect of reorganization items:
|
||||||||
Professional
fees
|
$
|
78,218
|
$
|
337,346
|
(a)
|
The
discharge of claims and liabilities primarily relates to allowed general,
unsecured claims in our Chapter 11 proceedings which represent a 10%
reduction in our outstanding accounts payable and liabilities at the time
of our Chapter 11 filing.
|
(b)
|
Professional
fees for services provided by debtor and creditor professionals directly
related to our reorganization proceedings.
|
(c)
|
The
cancellation of all common stock, options and warrants in conjunction with
the Chapter 11 Plan of Reorganization confirmed on September 21, 2009
resulted in the reversal of an accrued liquidated damages liability of
$180,000.
|
17
(3)
Recent Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105,
Generally Accepted Accounting Principles which establishes the FASB Accounting
Standards Codification (the "Codification" or “ASC”) as the source of
authoritative accounting principles to be applied by nongovernmental entities in
the preparation of financial statements in conformity with U.S. GAAP. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. All guidance
contained in the Codification carries an equal level of authority. ASC 105 is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The Codification will supersede all existing non-SEC
accounting and reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the Codification will become
non-authoritative. Following ASC 105, the FASB will not issue new standards in
the form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates. The FASB will
not consider Accounting Standards Updates as authoritative in their own right.
Accounting Standards Updates will serve only to update the Codification, provide
background information about the guidance and provide the bases for conclusions
on the change(s) in the Codification. The Company adopted ASC 105 in its Form
10-Q for the quarter ended September 30, 2009. The adoption did not
have an impact on the Company’s unaudited condensed consolidated results of
operations and financial condition for the three and nine months ended September
30, 2009.
In April
2009, the FASB issued additional requirements regarding interim disclosures
about the fair value of financial instruments which were previously only
disclosed on an annual basis. Entities are now required to disclose the fair
value of financial instruments which are not recorded at fair value in the
financial statements in both their interim and annual financial statements. The
new requirements were effective for interim and annual periods ending after June
15, 2009 on a prospective basis. There was no impact on the
Company’s financial results as this relates only to additional
disclosures.
In May
2009, the FASB issued ASC 855, Subsequent Events. ASC 855 establishes accounting
principles and requirements for subsequent events. Specifically, ASC 855 sets
forth the following: (a) the period after the balance sheet date during which
management of an entity shall evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (b) the
circumstances under which an entity shall recognize events or transactions
occurring after the balance sheet date in its financial statements and (c) the
disclosures that an entity shall make about events or transactions that occurred
after the balance sheet date. ASC 855 requires entities to recognize in the
financial statement, the effects of all subsequent events that provide
additional evidence about conditions that existed at the date of the balance
sheet, including estimates inherent in the process of preparing financial
statements. Conversely, entities shall not recognize subsequent events that
provide evidence about conditions that did not exist at the date of the balance
sheet but arose after the balance sheet date but before financial statements are
issued or are available to be issued. Entities shall disclose the date through
which subsequent events have been evaluated, as well as whether that date is the
date the financial statements were issued or the date the financial statements
were available to be issued. Entities shall also disclose the nature and
financial effect of nonrecognized subsequent events if such disclosure keeps the
financial statements from being misleading. The Company adopted ASC 855,
effective June 30, 2009.
As of
June 30, 2009 the Company implemented FASB ASC 825-10-65-1, “Financial
Instruments”. ASC 825-10-65-1 provides disclosure about fair value of financial
instruments in interim as well as in annual financial statements. This guidance
is effective for periods after June 15, 2009. In August 2009, the FASB issued
ASU No. 2009-05, “Fair Value Measurements and Disclosures” (ASU 2009-05). ASU
2009-05 provided amendments to ASC 820-10, Fair Value Measurements and
Disclosures – Overall,” for the fair value of liabilities. ASU 2009-05 provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using certain techniques. ASU 2009-05 also clarifies that
when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of a liability. ASU
2009-05 also clarifies that both a quoted price in an active market for the
identical liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are Level fair value measurements.
The new guidance is effective for interim and annual periods beginning after
August 27, 2009, and applies to all fair-value liabilities required by GAAP. The
Company is currently assessing the impact of the adoption of ASU
2009-05.
18
(4)
Stock-Based Compensation:
During
the three months ended September 30, 2009 and 2008, the Company recognized
equity based compensation expense for stock options of $0 and $22,000,
respectively, which was recognized in the Statement of Operations. During the
nine months ended September 30, 2009 and 2008, the Company recognized equity
based compensation expense for stock options of $0 and $98,000, respectively,
which was recognized in the Statement of Operations in general and
administrative expenses. As of September 30, 2009, there was no unrecognized
compensation costs related to non-vested awards. The Plan of
Reorganization confirmed on September 21, 2009 cancels all outstanding options
on the date of confirmation.
(5)
Subsequent Event
None.
ITEM
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
SAFE
HARBOR STATEMENT
In addition to historical
information, the information included in this Quarterly Report on Form 10-Q
contains forward-looking statements, such as those pertaining to the Chapter 11
bankruptcy proceeding. Forward-looking statements involve numerous risks and
uncertainties and should not be relied upon as predictions of future events.
Certain such forward-looking statements can be identified by the use of
forward-looking terminology such as ''believes,'' ''expects,'' ''may,''
''will,'' ''should,'' ''seeks,'' ''approximately,” ''intends,'' ''plans,'' ''pro
forma,'' ''estimates,'' or ''anticipates'' or other variations thereof or
comparable terminology, or by discussions of strategy, plans or intentions. Such
forward-looking statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and may be incapable of being
realized. The following factors, among others, including those risks set forth
under “Factors That May Affect our Business And Our Future Results and Market
Price of Our Stock,” included in Item 6 “Management’s Discussion and Analysis of
Plan of Operation” of our Annual Report on Form 10-K for the year ended December
31, 2008 and other filings we make with the Securities and Exchange
Commission could cause actual results and
future events to differ materially from those set forth or contemplated in the
forward-looking statements: need for a significant amount of additional capital,
lack of revenue, uncertainty of product development, ability to obtain
regulatory approvals in the United States and other countries, and
competition. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect our management's analysis only. We
assume no obligation to update forward-looking statements.
Overview
During
the past few years, our efforts have been principally devoted to research and
development activities, raising capital, and recruiting additional scientific
and management personnel and advisors. We have not marketed or sold
any product and have not generated any revenues from commercial
activities.
In May
2008, we received approval from the FDA to commence a Phase II/III pivotal
clinical trial for SEPETTM. We
estimated that the cost of completing these trials was between $5 million and
$10 million. As we have done since our inception, we intended to
raise the funds to complete our development from financing
transactions. Unfortunately, because of the global economic crisis
that began in 2008 and the dramatic decline in the availability of financing,
particularly to development stage companies like ours, we were unable to raise
the capital we needed to finance our operations and development
activities. As a result, in order to preserve our remaining cash
while seeking financing and while attempting to otherwise maximize the value of
our assets, in July of 2008 we terminated all of our employees and suspended
most of our operations. We have not conducted any active operations
since mid-2008, and our sole activity since that time has been to (i) seek
sufficient capital to re-initiate our operations, (ii) find a strategic partner
to co-develop our technologies with us, or (iii) sell our technologies and
assets in a manner that will maximize shareholder value.
19
On
January 9, 2009, this Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code (the “Bankruptcy”) with the United States
Bankruptcy Court for the District of Delaware (the “Bankruptcy
Court”). We are continuing to exist as a debtor-in-possession under
the jurisdiction of the Bankruptcy Court.
On March
9, 2009, we entered into a Term Sheet with Arbios Acquisition Partners
(“Acquisition Partners”) pursuant to which Acquisition Partners agreed to invest
$1,000,000 for the purchase of 90% of our common stock. The Bankruptcy
Court confirmed the Plan on June 22, 2009. Through September
15, 2009, Acquisition Partners had paid us $400,000 in installments (a portion
of which was held in an escrow account). Another $400,000 payment was
then received, thereby permitting the transaction to be consummated (Acquisition
Partners will provide the final $200,000 following the Effective Date, on an as
needed basis on terms and conditions to be determined). The Plan of
Reorganization to approve that transaction has been submitted to our creditors
and stockholders and approved according to the Plan of
Reorganization. On September 21, 2009, the Plan of Reorganization
became Effective and the Company may emerge from Chapter 11 when the new stock
is issued to the shareholders per the provisions of the Plan of
Reorganization.
In order
to have sufficient funds to operate, in October 2008, we sold our
HepatAssistTM
Cell-Based Liver Support System to HepaLife Technologies, Inc.
(“HepaLife”). We purchased HepatAssistTM in
April 2004 for $450,000 but had not further developed that
technology. We sold our HepatAssistTM system
to HepaLife for (a) $450,000 in cash, of which $250,000 was paid in October 2008
and $200,000 was deferred for up to 18 months from the date of sale, and (b) a
warrant to purchase 750,000 shares of Series D common stock at an exercise price
of $0.35 per share. HepaLife prepaid the $200,000 deferred payment on
April 22, 2009, in consideration for the cancellation of the warrant to purchase
750,000 shares of HepaLife Series D common stock.
As part
of the Plan of Reorganization, all of our former officers and directors have
resigned upon the Plan becoming effective and new officers and directors have
been appointed upon the Plan of Reorganization becoming effective on September
21, 2009.
Critical
Accounting Policies
This
discussion is based on our unaudited condensed financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these unaudited condensed financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis,
management evaluates its estimates, including those related to revenue
recognition, impairment of long-lived assets and their useful lives, including
finite lived intangible costs, accrued liabilities and certain
expenses. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these
estimates under different assumptions or conditions.
Our
significant accounting policies are summarized in Note 1 to our audited
financial statements for the year ended December 31, 2008 included in our Annual
Report on Form 10-K as filed with the Securities and Exchange
Commission. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
our unaudited condensed financial statements:
20
Development
Stage Enterprise
We are a
development stage enterprise as defined by the ASC 915 Development Stage
Entities, formerly, Financial Accounting Standards Board's, or FASB, Statement
of Financial Accounting Standards, or SFAS, No. 7, "Accounting and Reporting by
Development Stage Enterprises." All losses accumulated since our
inception have been considered part of our development stage
activities.
Cash
Cash
consists of a checking account and cash held in an attorney trust
account.
Stock-Based
Compensation
Commencing
January 1, 2006, we adopted ASC 718, formerly SFAS No. 123R, “Share Based
Payment”, or SFAS 123R, which requires all share based payments, including
grants of stock options, to be recognized in the income statement as an
operating expense, based on fair values.
Accounting
for Uncertainty in Income Taxes
In July
2006, the FASB issued ASC 740, formerly Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes”. This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements and prescribes a recognition threshold of
more-likely-than-not to be sustained upon examination. Measurement of the tax
uncertainty occurs if the recognition threshold has been met. ASC 740 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. In the normal course
of business we are subject to examination by taxing authorities. At present,
there are no ongoing audits or unresolved disputes with the various tax
authorities that we file with. The adoption of ASC 740 on January 1, 2007 did
not have any effect on our financial position, results of operations or cash
flows as of or for the period ended September 30, 2009.
Results
of Operations
Since we
have been involved in developing our product candidates and do not have any
products available for sale, we have not yet generated any revenue from
sales. Inception to date revenue represents revenue recognized from
an SBIR government grant.
General
and administrative expenses of approximately $256,000 and $147,000 were incurred
for the three months ended September 30, 2009 and 2008, respectively. General
and administrative expenses for the three months ended September 30, 2009
increased by approximately $109,000 from the prior year’s level. The
increase is primarily attributed to a $178,000 increase in insurance costs
resulting from director and officer insurance coverage for the former officers
and directors. This increase is offset in part by an overall decline
in virtually all expense categories as a result of curtailed operations due to a
lack of capital resources and our voluntary Chapter 11 bankruptcy filing on
January 9, 2009. General and administrative expenses of approximately
$661,000 and $1,359,000 were incurred for the nine months ended September 30,
2009 and 2008, respectively. General and administrative expenses for the nine
months ended September 30, 2009 decreased by approximately $698,000 over the
prior year level. The decrease is primarily attributed to a $316,000 decrease in
non cash option and warrant charges due to a decline in the number of stock
options granted and a non recurring 2008 charge incurred for warrant extensions,
a $95,000 decline in payroll costs due to staff reductions and a $167,000
decrease in legal and consulting fees from the curtailment of patent work and a
decline in contract negotiating costs in 2009. In addition, there
also was an overall decline in virtually all expense categories as a result of
curtailed operations due to a lack of capital resources and our voluntary
Chapter 11 bankruptcy filing on January 9, 2009. The decrease
is offset in part by an increase in insurance costs resulting from director and
officer insurance coverage for the former officers and directors.
Research
and development expenses of approximately $0 and $164,000 were incurred for the
three months ended September 30, 2009 and 2008, respectively. The
research and development expenses for the three months ended September 30, 2009
decreased by approximately $164,000 over the comparable prior year level.
Research and development expenses of approximately $0 and $1,221,000 were
incurred for the nine months ended September 30, 2009 and 2008,
respectively. The research and development expenses for the nine
months ended September 30, 2009 decreased by approximately $1,221,000 over the
comparable prior year level. The decline in research and development
expenses for the three and nine months ended September 30, 2009 is due to the
curtailment of all research and development activities in the fourth quarter of
2008 due to a lack of capital resources and our voluntary Chapter 11 bankruptcy
filing on January 9, 2009.
21
Reorganization
items consist of legal expenses, reversal of an accrued liquidated damages
liability and debt discharge. Legal expenses for the three and nine
months ended September 30, 2009 were approximately $78,000 and $337,000,
respectively, and consist primarily of legal fees incurred in the Bankruptcy
proceedings.
The
cancellation of all common stock, options and warrants in conjunction with the
Chapter 11 Plan of Reorganization confirmed on September 21, 2009 resulted in
the reversal of an accrued liquidated damages liability of
$180,000.
Forgiveness
of debt of approximately $46,000 represents the discharge of claims and
liabilities primarily relates to allowed general, unsecured claims in our
Chapter 11 proceedings which represent a 10% reduction in our outstanding
accounts payable and liabilities at the time of our Chapter 11
filing.
Loss on
investment for the nine months ended September 30, 2009 resulted from the
surrender and cancellation of the HepaLife warrant in exchange for an
acceleration and prepayment of a $200,000 receivable payment due from
HepaLife.
Interest
income of approximately $0 and $3,800 was earned for the three months ended
September 30, 2009 and 2008, respectively. Interest income of
approximately $200 and $32,300 was earned for the nine months ended September
30, 2009 and 2008, respectively. The change in interest income
primarily reflects lower cash and cash equivalent balances in 2009 from prior
year levels and a decline in interest rates earned on our cash
account.
Our net
loss was approximately $112,000 and $308,000 for the three months ended
September 30, 2009 and 2008, respectively. Our net loss was approximately
$861,000 and $2,547,000 for the nine months ended September 30, 2009 and 2008,
respectively. The decrease in net loss for the three and nine month periods
ended September 30, 2009 compared to the comparable period in 2008 is due to the
curtailment of operating and research and development activities due to the lack
of capital resources.
Liquidity
and Capital Resources
Because
we did not have the financial resources to continue to develop our products, on
January 9, 2009 we filed for protection under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of
Delaware. The Bankruptcy enabled us to continue to seek investors in
our equity and bids for the purchase of our assets while working with our
creditors. Our Board of Directors determined that, in light of our
limited cash position and the current economic conditions and financial markets,
the best course of action was to obtain financing and/or sell our assets under
bankruptcy protection.
As of
September 30, 2009, we had cash of approximately $194,000, cash held in attorney
trust of approximately $270,000 and current liabilities of approximately
$471,000. Prior to our Bankruptcy filing, we funded our operations
primarily from the sale of equity securities and, to a lesser extent, from SBIR
grants. Since our Bankruptcy commenced, we have funded our operating
expenses and bankruptcy costs through our remaining cash resources and the
$450,000 we received in October 2008 and April 2009 from the sale of certain
assets related to HepatAssist™. In addition, we have also received a total
of approximately $800,000 in cash deposits from Acquisition
Partners. The foregoing funds constituted our sole source of
liquidity. Arbios Acquisition Partners has advised the Company that
the remaining $200,000 called for under the Chapter 11 Plan will be provided in
the future on an as-needed basis on terms and conditions to be
determined.
As a
development stage company, we do not have any bank credit lines or any other
sources of capital. All of our operations have been
terminated. As part of our Bankruptcy plan of reorganization, we
agreed to sell 90% of our common stock to Acquisition Partners in exchange for a
total of $1,000,000 of consideration ($800,000 in cash for the plan to become
effective and $200,000 after the Effective date to fund operations, as
needed). However, any funds that we will have on hand following the
Bankruptcy will not be sufficient to continue the development of our product
candidates. Accordingly, the new officers and directors may elect to
continue to develop our liver technologies and will have to obtain additional
funding to support these efforts.
22
Our
license agreement with Immunocept, LLC has been terminated as part of the
bankruptcy proceeding. As part of the termination of this license, we
have paid Immunocept $315,000 as a general unsecured claim and have satisfied
this obligation.
We do not
believe that inflation has had a material impact on our business or
operations.
We do not
engage in trading activities involving non-exchange traded
contracts. In addition, we have no financial guarantees, debt or
lease agreements or other arrangements that could trigger a requirement for an
early payment or that could change the value of our assets.
Off-
Balance Sheet Arrangements
We are
not a party to any off-balance sheet arrangements.
ITEM
3. Qualitative and Quantitative Disclosures about Market
Risk.
Not applicable as we are a smaller
reporting company.
ITEM
4T. Controls and Procedures.
(a) Evaluation of Disclosure
Controls and Procedures. As of the end of the period covered by this
report, our company conducted an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of our
disclosure controls and procedures (as defined in Rules 13a-15(e) of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act). Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosures.
(b) Changes in Internal
Controls. There was no change in our internal controls, which are
included within disclosure controls and procedures, during our most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal controls.
(c) Limitations on the Effectiveness
of Controls. Our management, including our Chief Executive
Officer and Chief Financial Officer, does not expect that our disclosure
controls and procedures or our internal control over financial reporting will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within an organization have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.
ITEM
1. Legal Proceedings.
On
January 9, 2009, the Company filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United
States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”),
Case Number 09-10082 (the “Bankruptcy”). Other than the legal
proceedings before the Bankruptcy Court related to our Plan of Reorganization,
we are not engaged in any other legal proceedings. On September 21,
2009 the Plan of Reorganization became effective and the Company may emerge from
Chapter 11 once the new stock is issued to the shareholders per the terms of the
Plan of Reorganization.
23
ITEM
1A. Risk Factors.
Information regarding risk factors
appears under “Factors That May Affect our Business And Our Future Results and
Market Price of Our Stock,” included in Item 6 “Management’s Discussion and
Analysis of Plan of Operation” of our Annual Report on Form 10-K for the year
ended December 31, 2008 as filed with the Securities and Exchange Commission.
Except as set forth below, there have been no material changes from the risk
factors previously disclosed in the Annual Report on
Form 10-K.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
None.
ITEM
3. Defaults Upon Senior Securities.
None.
ITEM
4. Submission of Matters to a Vote of Security
Holders.
None.
ITEM
5. Other Information.
The Company’s common stock was delisted
from the OTC bulletin board in September 2009 due to filing issues related to
the emergence from Chapter 11 bankruptcy. The management is in the
process of relisting the stock on the OTC bulletin board.
31.1
|
Certification
of Principal Executive Officer Pursuant to Section 302
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Section 302
|
32
|
Section
906 certification of periodic financial report by Chief Executive Officer
and Chief Financial Officer.
|
24
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
ARBIOS SYSTEMS, INC. | |||
DATE:
November 18, 2009
|
By:
|
/S/ THOMAS J. FAGAN | |
Thomas J. Fagan | |||
Chief Executive Officer (Principal Executive Officer) | |||
Chief Financial Officer (Principal Financial Officer) |
25