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EX-23.1 - Arno Therapeutics, Incv208078_ex23-1.htm
EX-23.2 - Arno Therapeutics, Incv208078_ex23-2.htm
EX-10.16 - Arno Therapeutics, Incv208078_ex10-16.htm
EX-10.15 - Arno Therapeutics, Incv208078_ex10-15.htm

As filed with the Securities and Exchange Commission on January 18, 2011
Registration No. 333-170474
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
   

 
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
     

  
ARNO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
2834
 
52-2286452
(State or other jurisdiction of incorporation or
organization)
 
(Primary Standard Industrial Classification
Code Number)
 
(I.R.S. Employer
Identification No.)
  

  
4 Campus Drive, 2nd Floor
Parsippany, New Jersey 07054
(862) 703-7170
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
  

  
David M. Tanen
Copies to:
President
Christopher J. Melsha, Esq.
Arno Therapeutics, Inc.
Sean M. Nagle, Esq.
4 Campus Drive, 2nd Floor
Fredrikson & Byron, P.A.
Parsippany, NJ 07054
200 South Sixth Street, Suite 4000
(862) 703-7170
Minneapolis, MN 55402-1425
(Name, address, including zip code, and telephone number,
Telephone: (612) 492-7000
including area code, of agent for service)
Facsimile: (612) 492-7077
  

  
Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this registration statement, as shall be determined by the selling stockholders identified herein.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box.  þ
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  ¨
 
If this Form is a post effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨
 
If this Form is a post effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨
 
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)
Smaller reporting company þ
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.

 

 

A registration statement relating to these securities has been filed with the Securities and Exchange Commission.  These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective.  This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

Subject to completion, dated January 18, 2011
 
OFFERING PROSPECTUS


26,815,831 Shares
Common Stock

The selling stockholders identified beginning on page 20 of this prospectus are offering on a resale basis a total of 26,815,831 shares of our common stock, of which 15,655,844 shares are issuable upon the conversion of our outstanding Series A Convertible Preferred Stock (including up to 381,844 shares of common stock that may be issuable as payment of accrued dividends upon conversion of our Series A Convertible Preferred Stock) and 8,693,930 shares are issuable upon the exercise of outstanding warrants.  We will not receive any proceeds from the sale of these shares by the selling stockholders.

There is not currently a market for our common stock.  The selling stockholders identified herein will be required to sell the common stock (including shares of common stock issued upon conversion of preferred stock and exercise of warrants) registered hereunder at a fixed price of $1.00 per share until such time as a market for our common stock develops. At and after such time, the selling stockholders may sell our common stock at the prevailing market price or at a privately negotiated price.  See “Plan of Distribution.”

The securities offered by this prospectus involve a high degree of risk.
See “Risk Factors” beginning on page 7.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this prospectus is truthful or complete.  A representation to the contrary is a criminal offense.

The date of this prospectus is                  , 2011.

 

 

TABLE OF CONTENTS

PROSPECTUS SUMMARY
3
RISK FACTORS
7
NOTE REGARDING FORWARD-LOOKING STATEMENTS
19
USE OF PROCEEDS
20
SELLING STOCKHOLDERS
20
ADDITIONAL DISCLOSURE REGARDING TRANSACTIONS BETWEEN THE COMPANY AND THE SELLING STOCKHOLDERS
24
PLAN OF DISTRIBUTION
26
DESCRIPTION OF CAPITAL STOCK
29
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
30
MANAGEMENT’S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
32
OUR BUSINESS
39
MANAGEMENT AND BOARD OF DIRECTORS
55
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
62
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
64
WHERE YOU CAN FIND MORE INFORMATION
64
VALIDITY OF COMMON STOCK
64
EXPERTS
64
TRANSFER AGENT
64
DISCLOSURE OF COMMISSION POSITION ON  INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
65
FINANCIAL STATEMENTS
F-1

 
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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus.  Because it is a summary, it may not contain all of the information that is important to you.  Accordingly, you are urged to carefully review this prospectus in its entirety, including the risks of investing in our securities discussed under the caption “Risk Factors” and the financial statements and other information that is contained in or incorporated by reference into  this prospectus or the registration statement of which this prospectus is a part before making an investment decision.  Unless the context otherwise requires, hereafter in this prospectus the terms the “Company,” “we,” “us,” or “our” refer to Arno Therapeutics, Inc., a Delaware corporation.

Company Overview
 
We are a development stage company focused on developing innovative products for the treatment of cancer. We currently have the exclusive worldwide rights to commercially develop three oncology product candidates:
 
·
AR-12 – Our lead clinical product candidate is being developed as a potentially first-in-class, orally available, targeted anti-cancer agent that has been shown in pre-clinical studies to inhibit phosphoinositide dependent protein kinase-1, or PDK-1, a protein in the PI3K/Akt pathway that is involved in the growth and proliferation of cells, including cancer cells.  We believe AR-12 may also cause cell death through the induction of stress in the endoplasmic reticulum. In May 2009, the FDA accepted our investigational new drug application, or IND, for AR-12.  We are currently conducting a multi-centered Phase I clinical study of AR-12 in adult patients with advanced or recurrent solid tumors or lymphoma.    The Phase I study of AR-12 is being conducted in two parts.  The first part is a dose-escalating study, which we refer to as the Escalation Phase, primarily designed to evaluate the compound’s safety in order to identify the maximum tolerated dose, or MTD, or a recommended dose, or RD, for future studies of AR-12.  We anticipate that the Escalation Phase will be completed in 2011.  Following the Escalation Phase, we plan to initiate the second part of the study, which involves enrolling an expanded cohort of additional patients at the MTD or RD in multiple tumor types.  We refer to this second part of the study as the Expansion Phase. The purpose of the Expansion Phase is to further evaluate and confirm the pharmacodynamics, or PD, effects, potential anti-tumor activity, and safety of AR-12 at the MTD or RD in specific patient populations.  We anticipate that most subgroups of the Expansion Phase will be fully enrolled within one year from the initiation of this phase.
  
· 
AR-42 – We are also developing AR-42, an orally available, broad spectrum inhibitor of both histone and non-histone deacetylation proteins, or Pan-DAC, which play an important role in the regulation of gene expression, cell growth and survival.  In preclinical studies, AR-42 has demonstrated greater potency and activity in solid and liquid tumors when compared to vorinostat (also known as SAHA and marketed as Zolinza® by Merck) and other deacetylase inhibitors. These data demonstrate the potent and differentiating activity of AR-42. Additionally, pre-clinical findings presented at the 2009 American Society of Hematology Annual Meeting and Exposition showed that AR-42 potently and selectively inhibits leukemic stem cells in acute myeloid leukemia, or AML.  AR-42 is currently being studied in an investigator initiated Phase I/IIa clinical study in adult patients with relapsed or refractory multiple myeloma, chronic lymphocytic leukemia, or CLL, or lymphoma.  We expect to identify the MTD by mid-2011.  Once the MTD is defined, the study is designed so that additional patients can be added to investigate efficacy in a particular disease and help guide future Phase II programs.  Up to an additional 10 patients may be enrolled at the MTD dose in each of multiple myeloma, CLL and lymphoma.  We expect this expansion phase will take 12 months to complete.
 
·
AR-67 – We are also developing AR-67, a novel, third-generation camptothecin analogue that inhibits Topoisomerase I activity. In 2008, we completed a multi-centered, ascending dose Phase I clinical trial of AR-67 in patients with advanced solid tumors.  AR-67 is currently being studied in a Phase II clinical trial in patients with glioblastoma multiforme, or GBM, a highly aggressive form of brain cancer.  We anticipate having interim data from this Phase II study by the third quarter of 2011.  Thereafter, if data permits, we may elect to initiate larger Phase II studies or advance AR-67 into a registration-enabling Phase III study.
 
 
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In June 2008, we were acquired by Laurier International, Inc., a Delaware corporation, in a “reverse” merger whereby a wholly-owned subsidiary of Laurier merged with and into Arno Therapeutics, with Arno Therapeutics remaining as the surviving corporation and a wholly-owned subsidiary of Laurier. In accordance with the terms of this merger, stockholders of Arno Therapeutics exchanged all of their shares of common stock of Arno Therapeutics for shares of Laurier common stock at a rate of 1.99377 shares of Laurier common stock for each share of Arno Therapeutics common stock. As a result of the issuance of the shares of Laurier common stock to the former Arno Therapeutics stockholders, following the merger the former stockholders of Arno Therapeutics held 95 percent of the outstanding common stock of Laurier, assuming the issuance of all shares underlying outstanding options and warrants.  Upon completion of the merger, all of the former officers and directors of Laurier resigned and were replaced by the officers and directors of Arno Therapeutics. Additionally, following the merger Laurier changed its name to Arno Therapeutics, Inc.

In May 2009, we voluntarily filed a Form 15 with the Securities and Exchange Commission in order to terminate the registration of our common stock under the Securities and Exchange Act of 1934, as amended, or the Exchange Act.  As a result, our obligation to file periodic and other reports under the Exchange Act was suspended.  Following the effective date of the registration statement of which this prospectus forms a part, we will again be required to file periodic and other reports under the Exchange Act.

Our executive offices are located at 4 Campus Drive, 2nd Floor, Parsippany, New Jersey 07054.  Our telephone number is (862) 703-7170.  Our website is www.arnothera.com.  Information contained in, or accessible through, our website does not constitute a part of this prospectus.

Risk Factors

As with most pharmaceutical product candidates, the development of our product candidates is subject to numerous risks, including the risk of delays in or discontinuation of development from lack of financing, inability to obtain necessary regulatory approvals to market the products, unforeseen safety issues relating to the products and dependence on third party collaborators to conduct research and development of the products.  Because we are a development stage company with a very limited history of operations, we are also subject to many risks associated with early-stage companies.  For a more detailed discussion of some of the risks you should consider before purchasing shares of our common stock, you are urged to carefully review and consider the section entitled “Risk Factors” beginning on page 7 of this prospectus.

The Offering

The selling stockholders identified beginning on page 20 of this prospectus are offering on a resale basis a total of 26,815,831 shares of our common stock, of which 15,655,844 shares are issuable upon the conversion of our outstanding Series A Convertible Preferred Stock (including up to 381,844 shares of common stock that may be issuable as payment of accrued dividends upon conversion of our Series A Convertible Preferred Stock) and 8,693,930 shares are issuable upon the exercise of outstanding warrants.  The total value of all the common stock (including shares of common stock that are issuable upon conversion of preferred stock and exercise of warrants) offered pursuant to this prospectus is approximately $26.8 million, based upon a per share price of $1.00.  Of this total amount, approximately $15.7 million represents the value of the common stock offered pursuant to this prospectus that is issuable upon the conversion of our outstanding Series A Convertible Preferred Stock.  See “Plan of Distribution.”

Common stock offered
 
26,815,831 shares
     
Common stock outstanding before the offering(1)
 
20,412,024 shares
     
Common stock outstanding after the offering(2)
 
44,761,798 shares
     
Use of Proceeds
 
We will receive none of the proceeds from the sale of the shares by the selling stockholders, except for the warrant exercise price upon exercise of the warrants, which would be used for working capital and other general corporate purposes
     
Pink Sheets Symbol
 
ARNI.PK


(1)
Based on the number of shares outstanding as of December 31, 2010, not including 2,388,555 shares issuable upon exercise of various warrants and options to purchase our common stock or any Shares of Series A Preferred Stock or warrants to purchase Series A Preferred Stock.
 
 
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(2)
Assumes the issuance of all shares offered hereby that are issuable upon the conversion of our outstanding Series A Convertible Preferred Stock or upon exercise of warrants.  Also assumes six months of dividend accrual at the rate of 5% per annum prior to the automatic conversion of the Series A Convertible Preferred Stock into common stock upon the effectiveness of the registration statement of which this prospectus is a part, and our election to pay such accrued dividends in the form of additional shares of common stock in lieu of cash.  See Description of Capital Stock – Series A Convertible Preferred Stock.

Recent Developments
 
Series A Private Placement
 
On September 3, 2010, we entered into a Securities Purchase and Registration Rights Agreement, or the Purchase Agreement, with a number of institutional and accredited investors pursuant to which we sold in a private placement an aggregate of 15,274,000 shares of our newly-designated Series A Convertible Preferred Stock, par value $0.0001 per share, or Series A Preferred Stock, at a per share purchase price of $1.00.  Each share of Series A Preferred Stock is initially convertible into one share of our common stock, subject to adjustment for stock splits, stock dividends, recapitalizations and similar events.  In accordance with the Purchase Agreement, we also issued to each investor a two-and-one-half-year warrant to purchase a number of additional shares of Series A Preferred Stock equal to 8% of the number of shares purchased by such investor at an initial exercise price of $1.00 per share.  We collectively refer to these warrants as the Class A Warrants.  In addition to the Class A Warrants, each investor also received a five-year warrant to purchase a number of additional shares of Series A Preferred Stock equal to 42% of the number of shares purchased by such investor at an initial exercise price of $1.15 per share, which we collectively refer to as the Class B Warrants.  Pursuant to the Purchase Agreement, we issued to the investors Class A Warrants to purchase an aggregate of 1,221,920 shares of Series A Preferred Stock, and Class B Warrants to purchase an aggregate of 6,415,080 shares of Series A Preferred Stock.  The sale of the shares and warrants resulted in aggregate gross proceeds of approximately $15.2 million, before deducting expenses.  The final closing under the Purchase Agreement, relating to an aggregate of 112,000 shares of Series A Preferred Stock and the corresponding number of warrants, took place on October 29, 2010, and is thus not reflected in the financial statements for the interim period ended September 30, 2010 that appear elsewhere in this prospectus.

Pursuant to the terms of the Purchase Agreement, we agreed to file a registration statement under the Securities Act of 1933, as amended, covering the resale of the shares of our common stock issuable upon conversion of the Series A Preferred Stock sold in the private placement, including the shares issuable upon exercise of the Class A and Class B Warrants.  We further agreed to use our reasonable best efforts to cause such registration statement to be declared effective within 180 days following the initial closing under the Purchase Agreement, or by March 8, 2011.  If such registration statement is not declared effective by the SEC by such date, we agreed to pay liquidated damages to the investors in the amount of 1% of each investor’s aggregate investment amount for each 30-day period until the registration statement is declared effective.  The registration statement of which this prospectus is a part registers the shares of our common stock issuable upon conversion of the Series A Preferred Stock sold in the private placement and upon exercise of the Class A and Class B Warrants following their conversion into warrants to purchase shares of common stock.  Upon the effectiveness of such registration statement, all outstanding shares of Series A Preferred Stock will automatically convert into shares of our common stock, and all outstanding warrants to purchase shares of Series A Preferred Stock will automatically convert into warrants to purchase shares of our common stock.

In connection with the private placement, we engaged Riverbank Capital Securities, Inc., or Riverbank, to serve as placement agent.  In consideration for its services, we paid Riverbank a placement fee of $789,880, and we paid I-Bankers Securities, Inc., or I-Bankers, Riverbank’s sub-agent, a placement fee of $267,050.  In addition, we issued to designees of Riverbank and I-Bankers five-year warrants to purchase an aggregate of 664,880 and 392,050 shares, respectively, of Series A Preferred Stock at an initial exercise price of $1.10 per share. The warrants issued to Riverbank and I-Bankers are in substantially the same form as the Class A and Class B Warrants issued to the investors, except that they do not include certain anti-dilution provisions contained in the Class A and Class B Warrants.  David M. Tanen, our President, Secretary, and a member of our Board of Directors, Peter M. Kash, also a member of our Board of Directors, and Joshua A. Kazam, who served as a director until September 2010, are each officers of and collectively control Riverbank.

 
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The Purchase Agreement provides that the three co-lead investors in the private placement each have the right to designate one individual to be appointed to our board of directors.  Accordingly, following the completion of the private placement, we appointed Tomer Kariv, Yacov Reizman, and Steven Ruchefsky to our board, each of whom was designated by one of the three co-lead investors in the private placement.  
 
Authorization of Reverse Stock Split

On November 15, 2010, our stockholders, acting by written consent together as a single class, authorized the amendment of our amended and restated certificate of incorporation in order to effect a combination (reverse split) of our common stock at a ratio not to exceed one-for-eight, provided that our board of directors shall have absolute discretion to determine and fix the exact ratio of such combination (not to exceed one-for-eight) and the time at which such combination shall become effective, if ever.  By potentially increasing our stock price, a reverse stock split may increase the possibility that our common stock could be listed on the Nasdaq Capital Market in the future.  As of the date of this prospectus, our board of directors has taken no further action to implement a combination of our common stock and reserves the right to abandon the proposed reverse stock split in its sole discretion.
 
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RISK FACTORS
 
Investment in our common stock involves significant risk. You should carefully consider the information described in the following risk factors, together with the other information appearing elsewhere in this prospectus, before making an investment decision regarding our common stock. If any of these risks actually occur, our business, financial conditions, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or a part of your investment in our common stock. Moreover, the risks described below are not the only ones that we face.

Risks Relating to Our Business

We currently have no product revenues and will need to raise substantial additional capital to operate our business. 

To date, we have generated no product revenues . Until, and unless, we receive approval from the FDA and other regulatory authorities for our product candidates, we cannot sell our drugs and will not have product revenues. Currently, our only product candidates are AR-12, AR-42 and AR-67, and none of these products are approved for sale by the FDA. Therefore, for the foreseeable future, we will have to fund all of our operations and capital expenditures from cash on hand and, potentially, future offerings. After giving effect to our September 2010 private placement, we believe we have cash on hand to fund our operations through the first quarter of 2012.  We will require substantial additional funds in addition to the proceeds from this offering to support our continued research and development activities, and the anticipated costs of preclinical studies and clinical trials, regulatory approvals and eventual commercialization. There can be no assurance that such additional financing can be obtained on desirable terms, if at all. In addition, changes may occur that would consume our available capital before that time, including changes in and progress of our development activities, acquisitions of additional product candidates and changes in regulation. Accordingly, we will need additional capital to fund our continuing operations. Since we do not generate any recurring revenue, the most likely sources of such additional capital include private placements of our equity securities, including our common stock, debt financing or funds from a potential strategic licensing or collaboration transaction involving the rights to one or more of our product candidates. To the extent that we raise additional capital by issuing equity securities, our stockholders will likely experience dilution, which may be significant depending on the number of shares we may issue and the price per share. If we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies, product candidates or products, or grant licenses on terms that are not favorable to us. If we raise additional funds by incurring debt, we could incur significant interest expense and become subject to covenants in the related transaction documentation that could affect the manner in which we conduct our business.

We currently have no committed sources of additional capital and our access to capital funding is always uncertain. This uncertainty is exacerbated due to the current global economic turmoil, which has severely restricted access to the U.S. and international capital markets, particularly for small biopharmaceutical and biotechnology companies. Accordingly, despite our ability to secure adequate capital in the past, there is no assurance that additional equity or debt financing will be available to us when needed, on acceptable terms or even at all. If we fail to obtain the necessary additional capital when needed, we may be forced to significantly curtail our planned research and development activities, which will cause a delay in our drug development programs and may severely harm our business.
 
While there can be no assurances, we anticipate that our current cash resources will permit us to advance both AR-12 and AR-42 into or through the Expansion Phase of the respective Phase I clinical study of each technology.  In addition, we believe that we have sufficient capital to complete enrollment of the Phase II clinical study of AR-67 in GBM.  Due to the nature of clinical drug development it is difficult to accurately predict the timing of the completion of our clinical programs.  Moreover, unexpected results may require additional capital expenditure, which could adversely affect our ability to advance our clinical programs to the time points described above.
   
We are a development stage company.
 
We have not received any operating revenues to date and are in the development stage. You should be aware of the problems, delays, expenses and difficulties encountered by an enterprise in our stage of development, and particularly for companies engaged in the development of new biotechnology or biopharmaceutical product candidates, many of which may be beyond our control. These include, but are not limited to, problems relating to product development, testing, regulatory compliance, manufacturing, marketing, costs and expenses that may exceed current estimates and competition. No assurance can be given that our existing product candidates, or any technologies or products that we may acquire in the future will be successfully developed, commercialized and accepted by the marketplace or that sufficient funds will be available to support operations or future research and development programs.

 
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We are not currently profitable and may never become profitable.
 
We expect to incur substantial losses and negative operating cash flows for the foreseeable future, and we may never achieve or maintain profitability. For the years ended December 31, 2009 and 2008, we had a net loss of $6,936,705 and $12,913,566, respectively.  For the nine months ended September 30, 2010, we had a net loss of $3,330,706, and for the period from our inception on August 1, 2005 through September 30, 2010, we had a net loss of $26,911,567.  Even if we succeed in developing and commercializing one or more of our product candidates, we expect to incur substantial losses for the foreseeable future, as we:

 
·
continue to undertake pre-clinical development and clinical trials for our product candidates;
 
 
·
seek regulatory approvals for our product candidates;
 
 
·
in-license or otherwise acquire additional products or product candidates;
 
 
·
seek patent protection for our product candidates;
 
 
·
implement additional internal systems and infrastructure; and
 
 
·
hire additional personnel.

Further, for the years ended December 31, 2009 and 2008, we had negative cash flows from operating activities of $7,310,308 and $8,883,956, respectively.  For the nine months ended September 30, 2010, we had negative cash flows from operating activities of $3,111,495, and since inception on August 1, 2005 through September 30, 2010, we have had negative cash flows from operating activities of $21,481,548.  We expect to continue to experience negative cash flows for the foreseeable future as we fund our operating losses and capital expenditures. As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.

We have a limited operating history upon which to base an investment decision.
 
We are a development stage company and have not demonstrated our ability to perform the functions necessary for the successful commercialization of any of our product candidates. The successful commercialization of our product candidates will require us to perform a variety of functions, including:

 
·
continuing to undertake pre-clinical development and clinical trials for our product candidates;
 
 
·
participating in regulatory approval processes;
 
 
·
formulating and manufacturing products; and
 
 
·
conducting sales and marketing activities.

Our operations have been limited to organizing our company, acquiring, developing and securing our proprietary technologies and performing pre-clinical and clinical trials of our product candidates. These operations provide a limited basis for you to assess our ability to commercialize our product candidates and the advisability of investing in our securities.

 
8

 

We may not successfully manage our growth.
 
Our success will depend upon the expansion of our operations and the effective management of our growth, which will place a significant strain on our management and on our administrative, operational and financial resources. To manage this growth, we may need to expand our facilities, augment our operational, financial and management systems and hire and train additional qualified personnel. If we are unable to manage our growth effectively, our business would be harmed.

The relationships between Two River Consulting, Riverbank Capital Securities and certain of our officers and directors may present potential conflicts of interest.

Arie S. Belldegrun and David M. Tanen, each of whom are currently directors of our company, and Joshua A. Kazam, a co-founder and director of our company until September 2010, are the managing members of Two River Consulting, LLC, or Two River. Mr. Tanen serves as our Secretary and, since June 2009, has also served as our President. In June 2009, we entered into a services agreement with Two River pursuant to which it performs various management, clinical development, operational and administrative activities and services for us. As consideration for these services, we pay Two River a monthly cash fee of $55,000. Each of Messrs. Kazam and Tanen, as well as Peter M. Kash, a director of our company, are also officers and directors of Riverbank, a registered broker-dealer, which served as placement agent in connection with our September 2010 private placement of Series A Preferred Stock. Scott L. Navins, the Financial and Operations Principal of Riverbank, serves as our Treasurer.

Generally, Delaware corporate law requires that any transactions between us and any of our affiliates be on terms that, when taken as a whole, are substantially as favorable to us as those then reasonably obtainable from a person who is not an affiliate in an arms-length transaction. We believe that the terms of the agreements that we have entered into with Two River and Riverbank satisfy the requirements of Delaware law, but in the event one or more parties challenges the fairness of such terms we may have to expend substantial resources in resolving such challenges and can make no guarantees of the result. Further, none of our affiliates or Two River is obligated pursuant to any agreement or understanding with us to make any additional products or technologies available to us, nor can there be any assurance, and the investors should not expect, that any biomedical or pharmaceutical product or technology identified by such affiliates or Two River in the future will be made available to us.
   
In addition to the relationships and transactions described above, each of Dr. Belldegrun and Messrs. Kash, Kazam and Tanen are significant stockholders and serve as officers and directors of other biopharmaceutical and biotechnology companies of which one, Tigris Pharmaceuticals, Inc., a privately-held biopharmaceutical company focused on developing therapies for the treatment of cancer, may be considered a potential competitor of Arno.  Messrs. Kash and Kazam serve on Tigris’s board of directors and are significant stockholders of Tigris.   See “Management and Board of Directors” for additional information about the activities of Dr. Belldegrun and Messrs. Kash and Tanen.  Certain of our other current officers and directors or certain of any officers or directors hereafter appointed may from time to time serve as officers or directors of other biopharmaceutical or biotechnology companies. There can be no assurance that such other companies will not have interests in conflict with our own.
 
We are substantially dependent on the services of Two River and other consultants.

We have only three employees. We currently rely heavily on Two River to render various management, clinical development, regulatory, operational and administrative activities and services for us. We also rely in substantial part, and for the foreseeable future will continue to rely, on certain independent organizations and consultants to provide other important services, including substantially all aspects of regulatory approval, clinical management, and manufacturing. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements.

Our President provides his services on a part-time basis and significant other services are currently being rendered by outside consultants. If we are unable to hire additional qualified personnel in the future, our ability to grow our business may be harmed.

Although we currently engage Two River to provide personnel to perform a variety of management, clinical development and other services on our behalf on a consulting basis, we expect to directly hire employees, including at the senior management level, in the future as we further the development of our clinical programs. In addition, David Tanen, our current President, provides his services to us on a part-time, non-employee basis, devoting approximately 25-30 hours per week to managing our business. As we further the development of our product candidates, we intend to hire a full-time chief executive officer and other employees to perform the services currently being rendered by Two River. Accordingly, our ability to attract and retain qualified personnel will be critical to managing and growing our business in the future, especially the hiring and retention of key executive personnel and scientific staff. There is intense competition and demand for qualified personnel in our area of business and no assurances can be made that we will be able to retain the personnel necessary for the development of our business on commercially reasonable terms, if at all.

 
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We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.
 
The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products candidates, if approved. Even successful defense against product liability claims would require significant financial and management resources. Regardless of the merit or eventual outcome, product liability claims may result in:

 
·
decreased demand for our product candidates;

 
·
injury to our reputation;

 
·
withdrawal of clinical trial participants;

 
·
withdrawal of prior governmental approvals;

 
·
costs of related litigation;

 
·
substantial monetary awards to patients;

 
·
product recalls;

 
·
loss of revenue; and

 
·
the inability to commercialize our product candidates.

Because we do not yet have any products approved for sale, we currently do not carry product liability insurance.  While we intend to obtain product liability insurance prior to any commercial product sales, such insurance coverage may not be adequate to cover claims against us or available to us at an acceptable cost, if at all.  Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of the pharmaceutical products we develop, alone or with commercialization partners. Even if our agreements with any future commercialization partners entitle us to indemnification against damages from product liability claims, such indemnification may not be available or adequate should any claim arise.

We may incur substantial liabilities in connection with the clinical trials of our product candidates and may be required to cease our clinical trials in response to lawsuits brought by clinical trial participants.

Conducting clinical trials entails an inherent risk of liability resulting from lawsuits brought by clinical trial participants who experience unexpected adverse reactions to our product candidates or as a result of the medical care they receive while participating in a clinical trial.  If we cannot successfully defend ourselves against such claims, we may incur substantial liabilities or be required to cease clinical trials of our products candidates, which would have a material adverse effect on our business, financial condition and results of operations.  We currently maintain a clinical trial insurance policy with a $5 million per occurrence and aggregate limit, which may not be adequate to cover claims against us.  While our agreements with the research institutions that conduct our clinical trials often provide that the institutions will indemnify us against damages from claims brought by clinical trial participants that result from the institutions’ conduct, such indemnification may not be available or adequate should any such claim arise.
 
We are controlled by current directors and principal stockholders. 

Our executive officers, directors and principal stockholders, which include the persons affiliated with Two River discussed above, beneficially own approximately 65% of our outstanding voting securities. Accordingly, our executive officers, directors, principal stockholders and certain of their affiliates will have the ability to exert substantial influence over the election of our board of directors and the outcome of issues submitted to our stockholders.
 
The co-lead investors in our September 2010 private placement own a significant amount of our voting securities and are entitled to substantial governance rights that may limit our management’s autonomy.

The three co-lead investors in our September 2010 private placement beneficially own approximately 30% of our outstanding common stock.  In addition, pursuant to the Purchase Agreement, the three co-lead investors each have the right to designate one individual to be appointed to our board of directors, subject to certain ownership and other requirements and conditions.  Moreover, the Purchase Agreement provides that each such director shall have the right to serve on any or all of the committees of our board of directors.  The Purchase Agreement also provides that the affirmative vote of each such investor-designated director then in office shall be required to approve the appointment of our chief executive officer and to authorize certain transactions between us and one of our officers, directors, principal stockholders or their affiliates.  This concentration of ownership and governance rights among the co-lead investors may not be in the best interests of all our stockholders.  The co-lead investors will be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate transactions.  Such concentration of voting power could have the effect of delaying or preventing a change of control or other business combination, and may adversely affect the market price of our common stock.
  
We may be required to implement additional finance and accounting systems, procedures and controls in order to satisfy requirements under the securities laws, including the Sarbanes-Oxley Act of 2002, which will increase our costs and divert management’s time and attention.
 
We are in a continuing process of further establishing and documenting controls and procedures that will allow our management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting if and when required to do so under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. As a company with limited capital and human resources, we anticipate that more of management’s time and attention will be diverted from our business to ensure compliance with these regulatory requirements than would be the case with a company that has well established controls and procedures. This diversion of management’s time and attention may have a material adverse effect on our business, financial condition and results of operations.
 
In the event we identify significant deficiencies or material weaknesses in our internal controls over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements. If this occurs, the trading price of our common stock, if any, and our ability to obtain any necessary financing could suffer. In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls over financial reporting in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, we may be unable to file our Annual Reports on Form 10-K with the SEC. This would likely have an adverse affect on the trading price of our common stock, if any, and our ability to secure any necessary additional financing, and could result in the delisting of our common stock if we are listed on an exchange in the future. In such event, the liquidity of our common stock would be severely limited and the market price of our common stock would likely decline significantly.

 
10

 

We will experience increased costs as a result of becoming subject to the reporting requirements of federal securities laws.

Upon the effectiveness of the registration statement of which this prospectus is a part, we will again become subject to the reporting requirements of the Exchange Act, including the requirements of the Sarbanes-Oxley Act of 2002. These requirements may place a strain on our systems and resources. The Securities Exchange Act of 1934 requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting, which is discussed above. In order to maintain and improve the effectiveness of our disclosure controls and procedures, significant resources and management oversight will be required. We will continue to be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. In addition, sustaining our growth will also require us to commit additional management, operational and financial resources to identify new professionals to join our firm and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management's attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We expect to incur significant additional annual expenses related to these steps and, among other things, additional directors and officers liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.

Risks Relating to the Clinical Testing, Regulatory Approval, Manufacturing
and Commercialization of Our Product Candidates

We may not obtain the necessary U.S. or worldwide regulatory approvals to commercialize our product candidates.
 
We will need FDA approval to commercialize our product candidates in the U.S. and approvals from the FDA equivalent regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. In order to obtain FDA approval of any of our product candidates, we must submit to the FDA a new drug application, or NDA, demonstrating that the product candidate is safe for humans and effective for its intended use. This demonstration requires significant research and animal tests, which are referred to as pre-clinical studies, as well as human tests, which are referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in drugs that the FDA considers safe for humans and effective for indicated uses. The FDA has substantial discretion in the drug approval process and may require us to conduct additional pre-clinical and clinical testing or to perform post-marketing studies. The approval process may also be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals may:

 
·
delay commercialization of, and our ability to derive product revenues from, our product candidates;
 
 
·
impose costly procedures on us; or
 
 
·
diminish any competitive advantages that we may otherwise enjoy.
 
Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our NDAs. We cannot be sure that we will ever obtain regulatory clearance for our product candidates. Failure to obtain FDA approval of any of our product candidates will severely undermine our business by reducing our number of salable products and, therefore, corresponding product revenues.

In foreign jurisdictions, we must receive approval from the appropriate regulatory authorities before we can commercialize our drugs. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures described above. We cannot assure that we will receive the approvals necessary to commercialize our product candidate for sale outside the U.S.

 
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All of our product candidates are in early stages of clinical trials, which are very expensive and time-consuming. Any failure or delay in completing clinical trials for our product candidates could harm our business. 
             
All three of our current product candidates are in early stages of development and will require extensive clinical and other testing and analysis before we will be in a position to consider seeking regulatory approval to sell such product candidates. Conducting clinical trials is a lengthy, time consuming and very expensive process and the results are inherently uncertain. The duration of clinical trials can vary substantially according to the type, complexity, novelty and intended use of the product candidate. We estimate that clinical trials of our product candidates will take at least several years to complete. The completion of clinical trials for our product candidates may be delayed or prevented by many factors, including without limitation:

 
·
delays in patient enrollment, and variability in the number and types of patients available for clinical trials;
 
 
·
difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
 
 
·
poor effectiveness of product candidates during clinical trials;
 
 
·
safety issues, side effects, or other adverse events;
 
 
·
results that do not demonstrate the safety or effectiveness of the product candidates;
 
 
·
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; and
 
 
·
varying interpretation of data by the FDA.
 
In conducting clinical trials, we may fail to establish the effectiveness of a compound for the targeted indication or discover that it is unsafe due to unacceptable side effects or other reasons. Even if our clinical trials are commenced and completed as planned, their results may not support our product candidate claims. Further, failure of product candidate development can occur at any stage of clinical trials, or even thereafter, and we could encounter problems that cause us to abandon or repeat clinical trials. These problems could interrupt, delay or halt clinical trials for our product candidates and could result in FDA, or other regulatory authorities, delaying or declining approval of our product candidates for any or all indications. The results from pre-clinical testing and prior clinical trials may not be predictive of results obtained in later or other larger clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing promising results in earlier clinical trials. Our failure to adequately demonstrate the safety and effectiveness of any of our product candidates will prevent us from receiving regulatory approval to market these product candidates and will negatively impact our business. In addition, we or the FDA may suspend or curtail our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in the conduct of these clinical trials or in the composition, manufacture or administration of the product candidates. Accordingly, we cannot predict with any certainty when or if we will ever be in a position to submit a new drug application, or NDA, for any of our product candidates, or whether any such NDA would ever be approved.
 
Our products use novel alternative technologies and therapeutic approaches, which have not been widely studied.
 
Our product development efforts focus on novel therapeutic approaches and technologies that have not been widely studied. These approaches and technologies may not be successful. We are applying these approaches and technologies in our attempt to discover new treatments for conditions that are also the subject of research and development efforts of many other companies.

 
12

 

Physicians and patients may not accept and use our drugs.
 
Even if the FDA approves our product candidates, physicians and patients may not accept and use them. Acceptance and use of our products will depend upon a number of factors including:

 
·
perceptions by members of the health care community, including physicians, about the safety and effectiveness of our drugs;
 
 
·
cost-effectiveness of our products relative to competing products;
 
 
·
availability of reimbursement for our products from government or other healthcare payers; and
 
 
·
effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.
 
Because we expect sales of our current product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure of any of these drugs to find market acceptance would harm our business and could require us to seek additional financing.
 
Because we are dependent on clinical research organizations and other contractors for clinical testing and for research and development activities, the results of our clinical trials and such research activities are, to a certain extent, not within our control. 

We depend upon independent investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical trials under agreements with us. These parties are not our employees and we cannot control the amount or timing of resources that they devote to our programs. These investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our drug development programs, or if their performance is substandard, the approval of our FDA applications, if any, and our introduction of new drugs, if any, will be delayed. These collaborators may also have relationships with other commercial entities, some of whom may compete with us. If our collaborators assist our competitors at our expense, our competitive position would be harmed.

Our reliance on third parties to formulate and manufacture our product candidates exposes us to a number of risks that may delay the development, regulatory approval and commercialization of our products or result in higher product costs. 

We have no experience in drug formulation or manufacturing and do not intend to establish our own manufacturing facilities. We lack the resources and expertise to formulate or manufacture our own product candidates. Instead, we will contract with one or more manufacturers to manufacture, supply, store and distribute drug supplies for our clinical trials. If any of our product candidates receive FDA approval, we will rely on one or more third-party contractors to manufacture our drugs. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:

 
·
We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must approve any replacement contractor. This approval would require new testing and compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.
 
 
·
Our third-party manufacturers might be unable to formulate and manufacture our drugs in the volume and of the quality required to meet our clinical and/or commercial needs, if any.
 
 
13

 

 
·
Our future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products.
 
 
·
Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with good manufacturing practice and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards, but we will be ultimately responsible for any of their failures.
 
 
·
If any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation. This may prohibit us from seeking alternative or additional manufacturers for our products.

Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA, or the commercialization of our product candidates or result in higher costs or deprive us of potential product revenues.

We have no experience selling, marketing or distributing products and no internal capability to do so.
 
We currently have no sales, marketing or distribution capabilities. We do not anticipate having resources in the foreseeable future to allocate to the sales and marketing of our proposed products. Our future success depends, in part, on our ability to enter into and maintain sales and marketing collaborative relationships, the collaborator’s strategic interest in the products under development and such collaborator’s ability to successfully market and sell any such products. We intend to pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if able to do so, that they will have effective sales forces. To the extent that we decide not to, or are unable to, enter into collaborative arrangements with respect to the sales and marketing of our proposed products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise. There can also be no assurance that we will be able to establish or maintain relationships with third-party collaborators or develop in-house sales and distribution capabilities. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be successful. In addition, there can also be no assurance that we will be able to market and sell our product in the U.S. or overseas.

If we cannot compete successfully for market share against other drug companies, we may not achieve sufficient product revenues and our business will suffer.
 
The market for our product candidates is characterized by intense competition and rapid technological advances. If our product candidates receive FDA approval, they will compete with a number of existing and future drugs and therapies developed, manufactured and marketed by others. Existing or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offer comparable performance at a lower cost. If our products fail to capture and maintain market share, we may not achieve sufficient product revenues and our business will suffer.
 
We will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have technologies already approved or in development. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs and have substantially greater financial resources than we do, as well as significantly greater experience in:

 
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·
developing drugs;
 
 
·
undertaking pre-clinical testing and human clinical trials;
 
 
·
obtaining FDA and other regulatory approvals of drugs;
 
 
·
formulating and manufacturing drugs; and
 
 
·
launching, marketing and selling drugs.
 
Developments by competitors may render our products or technologies obsolete or non-competitive. 

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. The drugs that we are attempting to develop will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. We face competition from pharmaceutical and biotechnology companies in the U.S. and abroad. In addition, companies pursuing different but related fields represent substantial competition. Many of these organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, longer drug development history in obtaining regulatory approvals and greater manufacturing and marketing capabilities than we do. These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures or other collaborations.

Our ability to generate product revenues will be diminished if our drugs sell for inadequate prices or patients are unable to obtain adequate levels of reimbursement.
 
Our ability to commercialize our drugs, alone or with collaborators, will depend in part on the extent to which reimbursement will be available from:

 
·
government and health administration authorities;
 
 
·
private health maintenance organizations and health insurers; and
 
 
·
other healthcare payers.
 
Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Healthcare payers, including Medicare, are challenging the prices charged for medical products and services. Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage and the level of reimbursement for drugs. Even if our product candidates are approved by the FDA, insurance coverage may not be available, and reimbursement levels may be inadequate, to cover our drugs. If government and other healthcare payers do not provide adequate coverage and reimbursement levels for any of our products, once approved, market acceptance of our products could be reduced.

We may be exposed to liability claims associated with the use of hazardous materials and chemicals.
 
Our research and development activities may involve the controlled use of hazardous materials and chemicals by our third-party service providers. Although we believe that our service providers maintain appropriate safety procedures for using, storing, handling and disposing of these materials in compliance with federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages and any liability could materially adversely effect our business, financial condition and results of operations. In addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products may require us or our service providers to incur substantial compliance costs that could materially adversely affect our business, financial condition and results of operations.  We do not carry insurance against liability resulting from the use of hazardous materials and chemicals.  While we generally require our service providers to carry insurance against liability resulting from their use of such materials, we cannot be certain that such insurance will be sufficient to cover any related liability.  To the extent our service providers fail to carry adequate levels of insurance, we could be exposed to liability claims associated with their use of hazardous materials and chemicals.

 
15

 

Risks Related to Our Intellectual Property

If we fail to protect or enforce our intellectual property rights adequately or secure rights to patents of others, the value of our intellectual property rights would diminish.

Our success, competitive position and future revenues will depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing upon the proprietary rights of third parties. Additionally, if any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation.

To date, we hold certain exclusive rights under U.S. patents and patent applications as well as rights under foreign patent applications. We anticipate filing additional patent applications both in the U.S. and in other countries, as appropriate. However, we cannot predict:

 
·
the degree and range of protection any patents will afford us against competitors including whether third parties will find ways to invalidate or otherwise circumvent our patents;
 
 
·
if and when patents will issue;
 
 
·
whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; or
 
 
·
whether we will need to initiate litigation or administrative proceedings which may be costly whether we win or lose.

If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.

Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors as well as our licensors and contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements. To this end, we require all of our employees, consultants, advisors and contractors to enter into agreements which prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.

If we infringe upon the rights of third parties we could be prevented from selling products, forced to pay damages, and defend against litigation.
 
If our products, methods, processes and other technologies infringe upon the proprietary rights of other parties, we could incur substantial costs and we may have to:

 
·
obtain licenses, which may not be available on commercially reasonable terms, if at all;
 
 
·
redesign our products or processes to avoid infringement;
 
 
·
stop using the subject matter claimed in the patents held by others;
 
 
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·
pay damages; or
 
 
·
defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our valuable management resources.
 
If requirements under our license agreements are not met, we could suffer significant harm, including losing rights to our products.

We depend on licensing agreements with third parties to maintain the intellectual property rights to our products under development. Presently, we have licensed rights from the University of Pittsburgh and The Ohio State University Research Foundation. These agreements require us and our licensors to perform certain obligations that affect our rights under these licensing agreements. All of these agreements last either throughout the life of the patents, or with respect to other licensed technology, for a number of years after the first commercial sale of the relevant product.

In addition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us. If we do not meet our obligations under our license agreements in a timely manner, we could lose the rights to our proprietary technology.

Finally, we may be required to obtain licenses to patents or other proprietary rights of third parties in connection with the development and use of our products and technologies. Licenses required under any such patents or proprietary rights might not be made available on terms acceptable to us, if at all.

Risks Related to Our Securities

We cannot assure you that our common stock will ever be listed on NASDAQ or any other securities exchange.

Our common stock is currently eligible for trading on the “Pink Sheets.”  Stocks traded on the Pink Sheets and other electronic over-the-counter markets are often less liquid than stocks traded on national securities exchanges. In fact, the historical trading of our common stock has been extremely limited and sporadic. We plan to seek listing on NASDAQ or the American Stock Exchange in the future, but we cannot assure you that we will be able to meet the initial listing standards of either of those or any other stock exchange, or that we will be able to maintain a listing of our common stock on either of those or any other stock exchange. To the extent that our common stock is not traded on a national securities exchange, such as NASDAQ, the decreased liquidity of our common stock may make it more difficult to sell shares of our common stock at desirable times and at prices.

Our common stock is considered a “penny stock.”
 
The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. Since trading of our common stock commenced, the market price has been below $5.00 per share. Therefore, our common stock is deemed a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell shares of our common stock.

Because we did not become public through an underwritten initial public offering, we may not be able to attract the attention of major brokerage firms.

Additional risks may exist since we did not become public through an initial public offering underwritten by an investment bank. Security analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our company in the future. The lack of such analyst coverage may decrease the public demand for our common stock, making it more difficult for you to resell your shares when you deem appropriate.

 
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Because we do not expect to pay dividends, you will not realize any income from an investment in our common stock unless and until you sell your shares at profit.

We have never paid dividends on our common stock and do not anticipate paying any dividends for the foreseeable future. You should not rely on an investment in our common stock if you require dividend income. Further, you will only realize income on an investment in our shares in the event you sell or otherwise dispose of your shares at a price higher than the price you paid for your shares. Such a gain would result only from an increase in the market price of our common stock, which is uncertain and unpredictable.
 
There may be issuances of shares of “blank check” preferred stock in the future.

Our amended and restated certificate of incorporation authorizes the issuance of up to 35,000,000 shares of preferred stock, all of which are currently designated as Series A Convertible Preferred Stock.  Following the conversion of our Series A Convertible Preferred Stock into common stock upon the effectiveness of the registration statement of which this prospectus is a part, our board of directors will again have the authority to fix and determine the relative rights and preferences of up to 35,000,000 preferred shares, as well as the authority to issue such shares, without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that is senior to our common stock and that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends, additional registration rights, anti-dilution protection, the right to the redemption to such shares, together with other rights, none of which will be afforded holders of our common stock.
 
If we obtain an analyst following, and if our results do not meet such analysts’ forecasts and expectations, our stock price could decline.  
 
We do not believe that any securities analysts cover us.  The lack of analyst coverage of our business and operations may decrease the public demand for our common stock, making it more difficult for you to resell your shares when you deem appropriate.  To the extent we obtain an analyst following in the future, such analysts may provide valuations regarding our stock price and make recommendations whether to buy, hold or sell our stock. Our stock price may be dependent upon such valuations and recommendations. Analysts’ valuations and recommendations are based primarily on our reported results and their forecasts and expectations concerning our future results regarding, for example, expenses, revenues, clinical trials, regulatory marketing approvals and competition. Our future results are subject to substantial uncertainty, and we may fail to meet or exceed analysts’ forecasts and expectations as a result of a number of factors, including those discussed above under the sections Risks Related to Our Business” and “Risks Related to the Clinical Testing, Regulatory Approval, Manufacturing and Commercialization of Our Product Candidates. If our results do not meet analysts’ forecasts and expectations, our stock price could decline as a result of analysts lowering their valuations and recommendations or otherwise.

 
We are at risk of securities class action litigation.
 
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology companies have experienced greater than average stock price volatility in recent years. If we faced such litigation, it could result in substantial costs and a diversion of our management’s attention and resources, which could harm our business.

 
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains “forward-looking statements.” The forward-looking statements are only predictions and provide our current expectations or forecasts of future events and financial performance and may be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “will” or “should” or, in each case, their negative, or other variations or comparable terminology, though the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements include all matters that are not historical facts and include, without limitation, statements concerning our business strategy, outlook, objectives, future milestones, plans, intentions, goals, future financial conditions, our research and development programs and planning for and timing of any clinical trials, the possibility, timing and outcome of submitting regulatory filings for our product candidates under development, research and development of particular drug products, the development of financial, clinical, manufacturing and marketing plans related to the potential approval and commercialization of our drug products, and the period of time for which our existing resources will enable us to fund our operations.
 
Forward-looking statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements.  Examples of the risks and uncertainties include, but are not limited to:

 
·
the risk that recurring losses, negative cash flows and the inability to raise additional capital could threaten our ability to continue as a going concern;
 
 
·
the risk that we may not successfully develop and market our product candidates, and even if we do, we may not become profitable;
 
 
·
risks relating to the progress of our research and development;
 
 
·
risks relating to significant, time-consuming and costly research and development efforts, including pre-clinical studies, clinical trials and testing, and the risk that clinical trials of our product candidates may be delayed, halted or fail;
 
 
·
risks relating to the rigorous regulatory approval process required for any products that we may develop independently, with our development partners or in connection with any collaboration arrangements;
 
 
·
the risk that changes in the national or international political and regulatory environment may make it more difficult to gain FDA or other regulatory approval of our drug product candidates;
 
 
·
risks that the FDA or other regulatory authorities may not accept any applications we file;
 
 
·
risks that the FDA or other regulatory authorities may withhold or delay consideration of any applications that we file or limit such applications to particular indications or apply other label limitations;
 
 
·
risks that, after acceptance and review of applications that we file, the FDA or other regulatory authorities will not approve the marketing and sale of our drug product candidates;
 
 
·
risks relating to our drug manufacturing operations, including those of our third-party suppliers and contract manufacturers;
 
 
·
risks relating to the ability of our development partners and third-party suppliers of materials, drug substance and related components to provide us with adequate supplies and expertise to support manufacture of drug product for initiation and completion of our clinical studies;
 
 
·
risks relating to the transfer of our manufacturing technology to third-party contract manufacturers; and
 
 
·
other risks and uncertainties detailed in “Risk Factors.”
  
Pharmaceutical and biotechnology companies have suffered significant setbacks in advanced clinical trials, even after obtaining promising earlier trial results.  Data obtained from such clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.  Except to the extent required by applicable laws or rules, we do not undertake to update any forward-looking statements or to publicly announce revisions to any of our forward-looking statements, whether resulting from new information, future events or otherwise.

 
19

 

USE OF PROCEEDS
 
We will receive none of the proceeds from the sale of the shares by the selling stockholders, except for the warrant exercise price upon exercise of the warrants, which would be used for working capital and other general corporate purposes.

SELLING STOCKHOLDERS
 
This prospectus covers the resale by the selling stockholders identified below of 26,815,831 shares of our common stock, as follows:

 
·
2,466,057 shares that are currently issued and outstanding;
 
·
15,274,000 shares that are issuable upon the conversion of our outstanding Series A Preferred Stock;
 
·
Up to 381,844 shares of our common stock that may be issued in payment of accrued dividends upon the conversion of our Series A Preferred Stock (assumes six months of dividend accrual at the rate of 5% per annum prior to the conversion of the Series A Preferred Stock into common stock); and
 
·
8,693,930 shares that are issuable upon the exercise of outstanding warrants.

The following table sets forth the number of shares of our common stock beneficially owned by the selling stockholders as of December 31, 2010 and after giving effect to this offering, except as otherwise referenced below.
 
               
Number of
             
               
shares
   
Number of
       
               
offered by
   
shares
       
               
selling
   
offered by
   
Beneficial
 
         
Number of
   
stockholder
   
selling
   
ownership
 
   
Shares
   
outstanding
   
upon
   
stockholder
   
after
 
   
beneficially
   
shares offered
   
conversion of
   
upon
   
offering(1)
 
   
owned before
   
by selling
   
preferred stock
   
exercise of
   
Number of
       
Selling Stockholder
 
offering (1)(2)
   
stockholder
   
(2)
   
warrants
   
shares
   
Percent
 
                                       
3071341 Canada Inc. (3)
    79,402       -       25,625       12,500       41,277       *  
6984321 Canada Inc. (4)
    19,467       -       6,150       3,000       10,317       *  
87111 Canada Limited (5)
    100,041       -       25,625       12,500       61,916       *  
Alan T. Yuasa as Trustee of the Michael J. Shimoko Trust
    152,500       -       102,500       50,000       -       -  
Allan Pantuck and Jodi Pantuck (JTWROS)
    18,300       -       12,300       6,000       -       -  
Allen Rubin (6)
    19,467       -       6,150       3,000       10,317       *  
Alrac Investments Inc. (7)
    19,062       -       12,812       6,250       -       -  
Arie and Rebecka Belldegrun as Trustees of the Belldegrun Family Trust dated February 18, 1994 (8)
    1,355,381       -       128,125       62,500       592,881       1.3  
Benjamin Bernstein (9)
    553,504       -       -       75,000       478,504       *  
Canyon Value Realization Fund (Cayman) Ltd. (10)
    1,011,330       687,651       -       -       -       -  
Canyon Value Realization Fund, L.P. (10)
    1,011,330       263,069       -       -       -       -  
Canyon Value Realization Mac-18 Ltd. (10)
    1,011,330       60,610       -       -       -       -  
Clal Finance Underwriting Ltd. (11)
    3,132,227       9,968       -       -       -       -  
Clal Insurance Company Ltd. – Profit Participating Policies (11)
    3,132,227       825,578       717,500       350,000       -       -  
Clal Pension & Provident Funds Ltd. – Sapir (11)
    3,132,227       412,788       272,650       133,000       -       -  
Clal Pension & Provident Funds Ltd. – Yahalom (11)
    3,132,227       206,393       137,350       67,000       -       -  
Commercial Street Capital, LLC (12)
    3,355,000       -       2,255,000       1,100,000       -       -  
   
 
20

 

               
Number of
             
               
shares
   
Number of
       
               
offered by
   
shares
       
               
selling
   
offered by
   
Beneficial
 
         
Number of
   
stockholder
   
selling
   
ownership
 
   
Shares
   
outstanding
   
upon
   
stockholder
   
after
 
   
beneficially
   
shares offered
   
conversion of
   
upon
   
offering(1)
 
   
owned before
   
by selling
   
preferred stock
   
exercise of
   
Number of
       
Selling Stockholder
 
offering (1)(2)
   
stockholder
   
(2)
   
warrants
   
shares
   
Percent
 
DAFNA Life Science Ltd. (13)
    152,500       -       24,600       12,000       -       -  
DAFNA Life Science Market Neutral Ltd. (13)
    152,500       -       18,450       9,000       -       -  
DAFNA Life Science Select Ltd. (13)
    152,500       -       59,450       29,000       -       -  
David M. Tanen (14)
    1,631,545       -       66,625       100,152       1,464,768       3.3  
Dikla Insurance Company Ltd. (15)
    28,620       -       9,528       4,648       14,444       *  
Esperante AB (16)
    762,500       -       512,500       250,000       -       -  
FCC Ltd (17)
    763,800       -       307,500       456,300       -       -  
Genesis Capital Advisors, LLC (18)
    2,135,000       -       153,750       75,000       -       -  
Genesis Opportunity Fund, LP (18)
    2,135,000       -       1,281,250       625,000       -       -  
Georgette Pagano
    38,125       -       25,625       12,500       -       -  
Hank C.K. Wuh
    38,125       -       25,625       12,500       -       -  
Harel Insurance Company Ltd. (19)
    821,010       -       208,446       101,681       377,688       *  
Harel Pension Fund Management Company Ltd. (19)
    821,010       -       53,531       26,113       377,688       *  
Harel Provident Funds Ltd. (19)
    821,010       -       35,993       17,558       377,688       *  
I-Bankers Securities, Inc. (20)
    207,750       -       82,000       40,000       -       -  
IBS Securities Ltd. (20)
    207,750       -       -       85,750       -       -  
Ira Kalfus
    53,375       -       35,875       17,500       -       -  
Isaac Kier (21)
    275,627       -       51,250       25,000       199,377       *  
Joia Kazam and Joshua Kazam (JTWROS) (22)
    2,055,433       -       256,250       125,000       1,593,989       3.6  
Joshua Kazam (22)
    2,055,433       -       -       80,194       1,593,989       3.6  
Kappa Investors LLC (23)
    3,896,788       -       172,210       84,005       2,005,789       4.5  
Kardan Israel Ltd. (24)
    1,525,000       -       1,025,000       500,000       -       -  
Kenzo Kosuda
    76,250       -       51,250       25,000       -       -  
Leumi Overseas Trust Corporation Limited as Trustee of the BTL Trust (8)
    1,355,381       -       256,250       125,000       592,881       1.3  
MDRB Partnership, L.P. (8)
    1,355,381       -       128,125       62,500       592,881       1.3  
Nazy Zomorodian
    45,750       -       30,750       15,000       -       -  
Ogier Employee Benefit Trust Limited as Trustees of the MBES Employee Benefit Trust – JD Sub Trust (25)
    152,500       -       102,500       50,000       -       -  
Peter Kash (26)
    2,031,587       -       -       189,534       1,689,553       3.8  
Peter Kash and Donna Kash (JTWROS) (26)
    2,031,587       -       102,500       50,000       1,689,553       3.8  
Pontifax (Cayman) II L.P. (27)
    4,574,998       -       1,503,174       733,256       -       -  
Pontifax (Israel) II - Individual Investors L.P. (27)
    4,574,998       -       439,540       214,410       -       -  
Pontifax (Israel) II L.P. (27)
    4,574,998       -       1,132,284       552,334       -       -  
Primafides (Suisse) SA as Trustees of the Sirius Trust (28)
    694,306       -       102,500       50,000       541,806       1.2  
Ricardo de la Guardia
    38,125       -       25,625       12,500       -       -  
Robert I. Falk (29)
    397,722       -       102,500       50,000       245,222       *  
Sabrinco Inc. (30)
    39,699       -       12,812       6,250       20,637       *  

 
21

 

               
Number of
             
               
shares
   
Number of
       
               
offered by
   
shares
       
               
selling
   
offered by
   
Beneficial
 
         
Number of
   
stockholder
   
selling
   
ownership
 
   
Shares
   
outstanding
   
upon
   
stockholder
   
after
 
   
beneficially
   
shares offered
   
conversion of
   
upon
   
offering(1)
 
   
owned before
   
by selling
   
preferred stock
   
exercise of
   
Number of
       
Selling Stockholder
 
offering (1)(2)
   
stockholder
   
(2)
   
warrants
   
shares
   
Percent
 
Scott Navins (31)
    249,532       -       -       100,000       149,532       *  
Sherry Hyon
    7,500       -       -       7,500       -       -  
Steven Blum (32)
    194,781       -       -       125,000       69,781       *  
Susumu Maeda
    76,250       -       51,250       25,000       -       -  
Taichi Wakabayashi
    76,250       -       51,250       25,000       -       -  
UTA Capital LLC (33)
    3,050,000       -       2,050,000       1,000,000       -       -  
Uzi Zucker
    457,500       -       307,500       150,000       -       -  
Wexford Spectrum Investors LLC (23)
    3,896,788       -       1,098,789       535,995       2,005,789       4.5  
Yu Yeung (34)
    39,937       -       -       20,000       19,937       *  
                                                 
TOTAL
            2,466,057       15,655,844       8,693,930                  
  

* denotes less than 1%

(1)
Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act, and includes any shares as to which the security or stockholder has sole or shared voting power or investment power, and also any shares which the security or stockholder has the right to acquire within 60 days of the date hereof, whether through the exercise or conversion of any stock option, convertible security, warrant or other right. The indication herein that shares are beneficially owned is not an admission on the part of the security or stockholder that he, she or it is a direct or indirect beneficial owner of those shares. Percentage of shares beneficially owned after the resale of all the shares offered by this prospectus assumes there are outstanding 44,761,798 shares of common stock, including all shares offered hereby that are issuable upon the conversion of our outstanding Series A Preferred Stock or upon the exercise of warrants.

(2)
Assumes six months of dividend accrual at the rate of 5% per annum prior to the automatic conversion of the Series A Preferred Stock into common stock upon the effectiveness of the registration statement of which this prospectus is a part, and our election to pay such accrued dividends in the form of additional shares of common stock in lieu of cash.  See “Description of Capital Stock – Series A Convertible Preferred Stock.

(3)
Ruth Hornstein is the president and sole owner of the selling stockholder.  In addition to the shares offered hereby, the selling stockholder beneficially owns 41,277 shares of our common stock.

(4)
Daniel Ritter is the president of the selling stockholder.  In addition to the shares offered hereby, beneficial ownership includes 10,317 shares of our common stock held by Mr. Ritter.

(5)
Herschel Schachter, president of the selling stockholder, holds voting and/or dispositive power over the shares held by the selling stockholder.  In addition to the shares offered hereby, the selling stockholder beneficially owns 61,916 shares of our common stock.

(6)
In addition to the shares offered hereby, the selling stockholder beneficially owns 10,317 shares of our common stock.

(7)
Lawrence Stein is the director of the selling stockholder.

(8)
Beneficial ownership includes: (i) 128,125 shares of our common stock that are issuable upon the conversion of our outstanding Series A Preferred Stock and 62,500 shares issuable upon the exercise of warrants held by Arie and Rebecka Belldegrun as Trustees of the Belldegrun Family Trust dated February 18, 1994; (ii) 256,250 shares of our common stock that are issuable upon the conversion of our outstanding Series A Preferred Stock, 125,000 shares issuable upon the exercise of warrants and 61,916 shares of our common stock held by Leumi Overseas Trust Corporation Limited as Trustee of the BTL Trust; (iii) 128,125 shares of our common stock that are issuable upon the conversion of our outstanding Series A Preferred Stock and 62,500 shares issuable upon the exercise of warrants held by MDRB Partnership, L.P. (“MDRB”); and (iv) 24,922 shares of our common stock and 506,043 shares issuable upon the exercise of stock options held by Arie Belldegrun, M.D.  Dr. Belldegrun, who serves as Chairman of our Board of Directors, is a beneficiary of the BTL Trust and is the managing partner of MDRB.  Richard J. Guillaume and Christopher R.P. Lees, directors of Leumi Overseas Trust Corporation Limited (“Leumi”), hold voting and/or dispositive power over the shares held by Leumi as trustee of the BTL Trust.

(9)
In addition to the shares offered hereby, the selling stockholder beneficially owns 478,504 shares of our common stock, which includes 59,813 shares issuable upon the exercise of warrants.

 
22

 

(10)
John Simpson, Joshua S. Friedman, Mitchell R. Julius and John P. Plaga have voting and/or dispositive power over the shares held by the selling stockholder. The selling stockholder has informed us that it is affiliated with a broker-dealer, and has represented to us that it purchased the shares in the ordinary course of business with no agreement or understanding, directly or indirectly, with any persons regarding the distribution of the shares.

(11)
Beneficial ownership includes: (i) 825,578 shares of our common stock held by Clal Insurance Company Ltd. –  Profit Participating Policies; (ii) 412,788 shares of our common stock held by Clal Pension & Provident Funds Ltd. – Sapir (“Sapir”); (iii) 206,393 shares of our common stock held by Clal Pension & Provident Funds Ltd. – Yahalom (“Yahalom”); and (iv) 9,968 shares of our common stock held by Clal Finance Underwriting Ltd. Yossi Dori holds voting and/or dispositive power over the shares held by Sapir and Yahalom. Nir Moroz holds voting and/or dispositive power over the shares held by Clal Insurance Company Ltd. –  Profit Participating Policies.

(12)
Steven Ruchefsky, President of Commercial Street Capital, LLC, is a director of Arno.

(13)
Fariba Ghodsian is the managing member of the selling stockholder.

(14)
Mr. Tanen is our President and a member of our board of directors.  Shares listed as beneficially owned by Mr. Tanen include 149,532 shares of our common stock held by Mr. Tanen’s wife as custodian for the benefit of their minor children under the Uniform Gift to Minors Act (UGMA), for which Mr. Tanen disclaims any beneficial ownership.  In addition to the shares offered hereby, beneficial ownership also includes 1,307,334 shares of our common stock and 7,902 shares issuable upon the exercise of options and warrants held by Mr. Tanen.

(15)
Alfred Rosenfeld and Ofer Nargassi hold voting and/or dispositive power over the shares held by the selling stockholder.  In addition to the shares offered hereby, beneficial ownership includes: (i) 4,127 shares of our common stock held by Dikla Insurance Company Ltd. – Nostro; and (ii) 10,317 shares of our common stock held by Dikla Insurance Company Ltd. – Siudi.

(16)
Dean Slagel, director of the selling stockholder, holds voting and/or dispositive power over the shares held by the selling stockholder.

(17)
Yacov Reizman, chairman and chief executive officer of the selling stockholder, and Rivka Reizman, president of the selling stockholder, hold voting and/or dispositive power over the shares held by the selling stockholder.  Mr. Reizman is a director of Arno.

(18)
Jaime Hartman is the managing member of the selling stockholder.

(19)
Ronen Agassi and Ofer Nargassi hold voting and/or dispositive power over the shares held by the selling stockholder.  In addition to the shares offered hereby, beneficial ownership includes: (i) 20,637 shares of our common stock held by Harel Insurance Company Ltd. – Clali; (ii) 115,580 shares of our common stock held by Harel Insurance Company Ltd. – Mishtatefet; (iii) 45,406 shares of our common stock held by Harel Insurance Company Ltd. – Nostro; (iv) 41,277 shares of our common stock held by Harel Pension Fund Management Company Ltd. – Harel Pensia; (v) 28,893 shares of our common stock held by Harel Provident Funds Ltd. – Taoz; (vi) 10,317 shares of our common stock held by Harel Provident Funds, Ltd. – Hishtalmut; (vii) 8,254 shares of our common stock held by Harel Provident Funds, Ltd. – Gmisha; and (viii) 107,324 shares of our common stock held by Harel Provident Funds, Ltd. – Otzma.

(20)
Shelley Gluck holds voting and/or dispositive power over the shares held by the selling stockholder.  I-Bankers Securities, Inc. (“I-Bankers”) is a registered broker-dealer and the shares offered by I-Bankers are issuable upon the exercise of warrants received as compensation for placement agent services in connection with our September 2010 private placement.  IBS Securities Ltd. (“IBS”) is an affiliate of I-Bankers and acquired the shares offered hereby in the ordinary course of its business.

(21)
In addition to the shares offered hereby, the selling stockholder beneficially owns 199,377 shares of our common stock.

(22)
Shares listed as beneficially owned by the selling stockholders include, in addition to the shares offered hereby, (i) 1,129,759 shares of our common stock and 11,612 shares issuable upon the exercise of options and warrants held by Mr. Kazam; (ii) 99,688 shares of our common stock held by Mrs. Kazam as custodian for the benefit of their minor daughter under the UGMA; (iii)  332,293 shares of our common stock held by the Kazam Family Trust; and (iv) 20,637 shares of our common stock held by the Joshua Kazam Trust.

(23)
In addition to the shares offered hereby, beneficial ownership includes: (i) 247,345 shares of our common stock held by Kappa Investors LLC (“Kappa”); (ii) a warrant held by Kappa to purchase 24,732 shares of our common stock that is exercisable at $2.42 per share; and (iii) 1,733,712 shares of our common stock held by Wexford Spectrum Investors LLC (“Wexford Spectrum”).  Wexford Capital LP, a Delaware partnership (“Wexford Capital”), is a registered Investment Advisor and also serves as an investment advisor or sub-advisor to the members of Kappa and Wexford Spectrum.  Wexford GP LLC (“Wexford GP”) is the general partner of Wexford Capital.  Mr. Charles E. Davidson and Mr. Joseph M. Jacobs are managing and controlling members of Wexford GP.

(24)
Eytan Rechter is chief executive officer and a director of the selling stockholder and Asher Elmoznino is chief financial officer of the selling stockholder.

 
23

 

(25)
Tania Bearryman and Donna Laverty hold voting and/or dispositive power over the shares held by the selling stockholder.

(26)
Peter Kash is a member of our board of directors.  Shares listed as beneficially owned by Mr. Kash include 358,876 shares of our common stock held by Mr. Kash’s wife as custodian for the benefit of their minor children under the UGMA, for which Mr. Kash disclaims any beneficial ownership.  In addition to the shares offered hereby, beneficial ownership also includes 1,327,629 shares of our common stock and 9,138 shares issuable upon the exercise of options and warrants held by Mr. Kash.

(27)
Tomer Kariv and Ran Nussbaum hold voting and/or dispositive power over the shares held by the selling stockholder.  Mr. Kariv is a director of Arno.

(28)
Ari Tatos, Nigel Mifsud, Magali Garcia-Baudin, David Moran, Phillippe De Salis and Ewald Scherrer are directors of Primafides (Suisse) SA, the trustee of the Sirius Trust, and share voting and/or dispositive power over the shares held by the selling stockholder.  In addition to the shares offered hereby, the selling stockholder beneficially owns 541,806 shares of our common stock.

(29)
In addition to the shares offered hereby, beneficial ownership includes: (i) 49,844 shares of our common stock and warrants to purchase 4,946 shares of our common stock at an exercise price of $2.42 per share held by Falk Family Partners, LP, of which Mr. Falk is General Partner; and (ii) 90,744 shares of our common stock and vested options held by Mr. Falk to purchase 99,688 shares of our common stock at an exercise price of $2.42 per share.

(30)
Samuel Gewurz is the president and sole owner of the selling stockholder.  In addition to the shares offered hereby, the selling stockholder beneficially owns 20,637 shares of our common stock.

(31)
In addition to the shares offered hereby, Mr. Navins, who serves as Arno’s Treasurer, beneficially owns 149,532 shares of our common stock.

(32)
In addition to the shares offered hereby, the selling stockholder beneficially owns 69,781 shares of our common stock, which includes 29,906 shares issuable upon the exercise of warrants.

(33)
YZT Management LLC (“YZT”) is the managing member of the selling stockholder.  Udi Toledano is the managing member of YZT and holds voting and/or dispositive power over the shares held by the selling stockholder.

(34)
In addition to the shares offered hereby, the selling stockholder beneficially owns 19,937 shares of our common stock.
 
ADDITIONAL DISCLOSURE REGARDING TRANSACTIONS
BETWEEN THE COMPANY AND THE SELLING STOCKHOLDERS

Payments in connection with the September 2010 Private Placement

The following table summarizes the payments and potential payments to the selling stockholders and affiliates in connection with our September 2010 private placement.

   
Amounts paid as of 
December 31, 2010
         
Potential Future
Payment Obligations
         
Total
 
Placement Fees (1)
  $ 1,056,930     $ -     $ 1,056,930  
Placement Warrants (2)
    464,720       -       464,720  
Liquidated Damages for Delayed Registration (3)
    -       1,832,880       1,832,880  
Total payments and potential payments
  $ 1,521,650     $ 1,832,880     $ 3,354,530  
   

 
(1)
In consideration for their services as placement agents, we paid Riverbank a cash placement fee of $789,880, and we paid I-Bankers, Riverbank’s sub-agent, a cash placement fee of $267,050.

 
(2)
In addition to the cash fees described in footnote (1), we also issued five-year warrants to purchase an aggregate of 1,056,930 shares of Series A Preferred Stock at an initial exercise price of $1.10 per share to the placement agents and their designees (consisting of warrants to purchase an aggregate of 664,880 shares to designees of Riverbank and warrants to purchase an aggregate of 392,050 shares to I-Bankers and its designees).  The Placement Warrants were valued at $464,720 using the Black-Scholes option-pricing model.  The shares issuable upon exercise of the Placement Warrants are being offered by this prospectus.

 
(3)
Under the Purchase Agreement, we agreed to use our best efforts to cause the registration statement of which this prospectus is a part to be declared effective within 180 days following the initial closing under the Purchase Agreement, or by March 8, 2011.  If the registration statement is not declared effective by the SEC by such date, we will pay liquidated damages to the investors in the amount of 1% of each investor’s aggregate investment amount for each 30-day period until the registration statement is declared effective; provided, however, that the maximum amount of liquidated damages payable by us is capped at 12% of the aggregate amount invested under the Purchase Agreement, or $1,832,880.
 
24

 
In addition to the payments reflected above relating to our September 2010 private placement, we also pay a monthly consulting fee of $55,000 pursuant to our services agreement with Two River Consulting, LLC, an entity that is controlled by Arie S. Belldegrun, Joshua A. Kazam and David M. Tanen, each of whom are selling stockholders or affiliates of selling stockholders.  See “Transactions with Related Persons, Promoters and Certain Control Persons.

Comparison of Issuer Proceeds to Potential Selling Stockholder Profit.

The following table provides a comparison of the gross proceeds to the Company from the September 2010 private placement to: (i) the total payments and potential payments to the selling stockholders and affiliates (summarized above under “Payments in connection with the September 2010 Private Placement”); and (ii) the resulting net proceeds to the Company.  None of the securities held by the selling stockholders or their affiliates provides for any conversion discount.

Gross Company Proceeds from September 2010 Private Placement
 
 $
15,274,000
 
Payments and Potential Payments to Selling Stockholders (1)
   
3,354,530
 
Net Company Proceeds from September 2010 Private Placement (2)
 
 $
11,919,470
 
Payments and Potential Payments to Selling Stockholders as a Percentage of Net Company Proceeds from September 2010 Private Placement (3)
   
28.1
%
    

(1)
Includes $1,832,880 in potential liquidated damages that we may be required to pay if the registration statement of which this prospectus is a part is not declared effective by the SEC as set forth above under “—Payments in connection with the September 2010 Private Placement.”

 
(2)
If we are not required to pay the potential liquidated damages described in footnote (1), the net proceeds to us from the September 2010 private placement will be $13,752,350.

 
(3)
If we are not required to pay the potential liquidated damages described in footnote (1), this amount will be reduced to 11.1%.

Prior Transactions between the Company and the Selling Stockholders.

The following table summarizes the prior securities transactions between the Company and the selling stockholders and affiliates.  For additional information regarding the terms of these transactions, please see “Note 6 – Stockholders’ Equity,” in the accompanying Notes to Condensed Financial Statements for the interim period ended September 30, 2010.

Selling Stockholder
 
Date of
Transaction
 
Total Number
of Shares
Outstanding
Prior to the
Transaction
   
Total Number of
Shares held by
Non-Affiliates
Prior to the
Transaction (1)
   
Total Number of
Shares Issued or
Issuable to the
Selling Stockholder
in the Transaction
   
Shares Issued
or Issuable in
Transaction as
a Percentage of
Shares held by
Non-Affiliates
   
Market Price
Per Share
Immediately
Prior to the
Transaction
(2)
   
Current
Market
Price Per
Share (3)
 
                                           
3071341 Canada Inc.
 
6/2/08
    9,968,797       4,169,985       41,277       1.0     $ 2.42     $ 1.00  
6984321 Canada Inc.
 
6/2/08
    9,968,797       4,169,985       10,317       *     $ 2.42     $ 1.00  
87111 Canada Limited
 
6/2/08
    9,968,797       4,169,985       61,916       1.5     $ 2.42     $ 1.00  
Allen Rubin
 
6/2/08
    9,968,797       4,169,985       10,317       *     $ 2.42     $ 1.00  
Belldegrun Selling Stockholders (4)
 
8/9/05
    -       -       24,922       N/A     $ 0.0005     $ 1.00  
   
6/2/08
    9,968,797       4,169,985       61,916       1.5     $ 2.42     $ 1.00  
Benjamin Bernstein  (5)
 
8/9/05
    -       -       418,691       N/A     $ 0.0005     $ 1.00  
   
1/2/08
    9,968,797       4,169,985       59,813       1.4     $ 2.42     $ 1.00  
Canyon Selling Stockholders (6)
 
6/2/08
    9,968,797       4,169,985       1,011,330       24.3     $ 2.42     $ 1.00  
Clal Selling Stockholders (7)
 
8/9/05
    -       -       9,968       N/A     $ 0.0005     $ 1.00  
   
6/2/08
    9,968,797       4,169,985       1,444,759       34.6     $ 2.42     $ 1.00  
David M. Tanen (8)
 
8/9/05
    -       -       1,434,183       N/A     $ 0.0005     $ 1.00  
   
6/2/08
    9,968,797       4,169,985       23,918       *     $ 2.42     $ 1.00  
Dikla Insurance Company Ltd. (9)
 
6/2/08
    9,968,797       4,169,985       14,444       *     $ 2.42     $ 1.00  
Harel Selling Stockholders (10)
 
6/2/08
    9,968,797       4,169,985       377,688       9.1     $ 2.42     $ 1.00  
Isaac Kier
 
8/9/05
    -       -       199,377       N/A     $ 0.0005     $ 1.00  
Kazam Selling Stockholders (11)
 
8/9/05
    -       -       1,512,273       N/A     $ 0.0005     $ 1.00  
   
6/2/08
    9,968,797       4,169,985       75,050       1.8     $ 2.42     $ 1.00  
Kash Selling Stockholders (12)
 
8/9/05
    -       -       1,641,135       N/A     $ 0.0005     $ 1.00  
   
6/2/08
    9,968,797       4,169,985       47,841       1.1     $ 2.42     $ 1.00  
Primafides (Suisse) SA as Trustees of the Sirius Trust (13)
 
8/9/05
    -       -       199,377       N/A     $ 0.0005     $ 1.00  
   
6/2/08
    9,968,797       4,169,985       342,429       8.2     $ 2.42     $ 1.00  
Robert I. Falk (14)
 
8/9/05
    -       -       49,844       N/A     $ 0.0005     $ 1.00  
   
6/2/08
    9,968,797       4,169,985       95,690       2.3     $ 2.42     $ 1.00  
Sabrinco Inc.
 
6/2/08
    9,968,797       4,169,985       20,637       *     $ 2.42     $ 1.00  
Scott Navins
 
8/9/05
    -       -       149,532       N/A     $ 0.0005     $ 1.00  
Steven Blum (15)
 
8/9/05
    -       -       39,875       N/A     $ 0.0005     $ 1.00  
   
1/2/08
    9,968,797       4,169,985       29,906       *     $ 2.42     $ 1.00  
Wexford Selling Stockholders (16)
 
6/2/08
    9,968,797       4,169,985       2,005,798       47.8     $ 2.42     $ 1.00  
Yu Yeung
 
8/9/05
    -       -       19,937       N/A     $ 0.0005     $ 1.00  
 
25

 
* represents less than 1%.
Excludes shares held by the selling stockholders, affiliates of the Company, or affiliates of the selling stockholders.
(2)
Because there was no market for our common stock at the time of the transaction, the listed price represents the negotiated price per share at the time of the transaction.
(3)
There is not currently a market for our common stock.  See “Plan of Distribution.”
(4)
On August 9, 2005, 24,922 founders shares were issued to Bellco Capital, Inc.  In connection with our June 2, 2008 private placement, 61,916 shares of common stock were issued to Leumi Overseas Trust Corporation Limited as Trustees of the BTL Trust.
(5)
On August 9, 2005, 418,691 founders shares were issued to Mr. Bernstein.  On January 2, 2008, five-year warrants to purchase 59,813 shares of common stock at an exercise price of $2.42 per share, the fair market value at the time of issuance, were issued to Mr. Bernstein in exchange for consulting services.
(6)
In connection with our June 2, 2008 private placement: (i) 687,651 shares of common stock were issued to Canyon Value Realization Fund (Cayman) Ltd.; (ii) 263,069 shares were issued to Canyon Value Realization Fund, L.P.; and (iii) 60,610 shares were issued to Canyon Value Realization Mac-18 Ltd.
(7)
On August 9, 2005, 9,968 founders shares were issued to Clal Finance Underwriting Ltd.  In connection with our June 2, 2008 private placement: (i) 825,578 shares of common stock were issued to Clal Insurance Company Ltd. – Profit Participating Policies; (ii) 412,788 shares were issued to Clal Pension & Provident Funds Ltd. – Sapir; and (iii) 206,393 shares were issued to Clal Pension & Provident Funds Ltd. – Yahalom.
(8)
On August 9, 2005: (i) 1,284,651 founders shares were issued to David M. Tanen; and (ii) 149,532 founders shares were issued to Mr. Tanen’s wife as custodian for the benefit of their minor children under the Uniform Gift to Minors Act (UGMA).  In connection with our June 2, 2008 private placement: (i) 22,682 shares of common stock were issued to Mr. Tanen; and (ii) five-year warrants to purchase 1,236 shares of common stock at an exercise price of $2.42 per share were issued to Mr. Tanen.
(9)
In connection with our June 2, 2008 private placement: (i) 4,127 shares of common stock were issued to Dikla Insurance Company Ltd. – Nostro; and (ii) 10,317 shares were issued to Dikla Insurance Company Ltd. – Siudi.
(10)
In connection with our June 2, 2008 private placement: (i) 20,637 shares of common stock were issued to Harel Insurance Company Ltd. – Clali; (ii) 115,580 shares were issued to Harel Insurance Company Ltd. – Mishtatefet; (iii) 45,406 shares were issued to Harel Insurance Company Ltd. – Nostro; (iv) 41,277 shares were issued to Harel Pension Fund Management Company Ltd. – Harel Pensia; (v) 28,893 shares were issued to Harel Provident Funds Ltd. – Taoz; (vi) 10,317 shares were issued to Harel Provident Funds, Ltd. – Hishtalmut; (vii) 8,254 shares were issued to Harel Provident Funds, Ltd. – Gmisha; and (viii) 107,324 shares were issued to Harel Provident Funds, Ltd. – Otzma.
(11)
On August 9, 2005: (i) 1,080,292 founders shares were issued to Joshua Kazam; (ii) 99,688 founders shares were issued to Mr. Kazam’s wife as custodian for the benefit of their minor daughter under the UGMA; and (iii) 332,293 founders shares were issued to the Kazam Family Trust.  In connection with our June 2, 2008 private placement: (i) 20,637 shares of common stock were issued to the Joshua Kazam Trust; (ii) 49,467 shares were issued to Mr. Kazam; and (iii) five-year warrants to purchase 4,946 shares of common stock at an exercise price of $2.42 per share were issued to Mr. Kazam.
(12)
On August 9, 2005: (i) 1,282,259 founders shares were issued to Peter Kash; and (ii) 358,876 founders shares were issued to Mr. Kash’s wife as custodian for the benefit of their minor children under the UGMA.  In connection with our June 2, 2008 private placement: (i) 45,369 shares of common stock were issued to Mr. Kash; and (ii) five-year warrants to purchase 2,472 shares of common stock at an exercise price of $2.42 per share were issued to Mr. Kash.
(13)
On August 9, 2005, 199,377 founders shares were issued to the selling stockholder.  In connection with our June 2, 2008 private placement: (i) 330,064 shares of common stock were issued to the selling stockholder; and (ii) five-year warrants to purchase 12,365 shares of common stock at an exercise price of $2.42 per share were issued to the selling stockholder.
(14)
On August 9, 2005, 49,844 founders shares were issued to Falk Family Partners, LLC.  In connection with our June 2, 2008 private placement: (i) 41,277 shares of common stock were issued to Mr. Falk; (ii) 49,467 shares were issued to Falk Family Partners, LLC; and (iii) five-year warrants to purchase 4,946 shares of common stock at an exercise price of $2.42 per share were issued to Falk Family Partners, LLC.
(15)
On August 9, 2005, 39,875 founders shares were issued to Mr. Blum.  On January 2, 2008, five-year warrants to purchase 29,906 shares of common stock at an exercise price of $2.42 per share, the fair market value at the time of issuance, were issued to Mr. Blum in exchange for consulting services.
(16)
In connection with our June 2, 2008 private placement: (i) 1,733,712 shares of common stock were issued to Wexford Spectrum Investors, LLC; (ii) 247,354 shares were issued to Kappa Investors, LLC; and (iii) five-year warrants to purchase 24,732 shares of common stock at an exercise price of $2.42 per share were issued to Kappa Investors, LLC.
 
PLAN OF DISTRIBUTION
 
We are registering the shares offered by this prospectus on behalf of the selling stockholders.  The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.  There is not currently a market for our common stock.  The selling stockholders identified herein will be required to sell the common stock (including shares of common stock issued upon conversion of preferred stock and exercise of warrants) registered hereunder at a fixed price of $1.00 per share until such time as a market for our common stock develops. At and after such time, any dispositions by the selling stockholders may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.  To the extent any of the selling stockholders gift, pledge or otherwise transfer the shares offered hereby, such transferees may offer and sell the shares from time to time under this prospectus, provided that this prospectus has been amended under Rule 424(b)(3) or other applicable provision of the Securities Act to include the name of such transferee in the list of selling stockholders under this prospectus.
 
The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

 
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 
·
block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 
·
an exchange distribution in accordance with the rules of the applicable exchange;

 
26

 

 
·
privately negotiated transactions;

 
·
short sales;

 
·
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 
·
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

 
·
a combination of any such methods of sale; and

 
·
any other method permitted pursuant to applicable law.
 
The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
 
In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any.  Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents.  We will not receive any of the proceeds from this offering.  Upon any exercise of the warrants by payment of cash, however, we will receive the exercise price of the warrants. 

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.
 
The selling stockholders might be, and any broker-dealers that act in connection with the sale of securities will be, deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act, and any commissions received by such broker-dealers and any profit on the resale of the securities sold by them while acting as principals will be deemed to be underwriting discounts or commissions under the Securities Act.
 
To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

 
27

 
In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers.  In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
 
We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates.  In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act.  The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
 
We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.
 
We have agreed with the selling stockholders to keep the registration statement that includes this prospectus effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which the shares may be sold without restriction pursuant to Rule 144 of the Securities Act.

 Shares Eligible For Future Sale
 
Upon completion of this offering and assuming the issuance of all shares offered hereby that are issuable upon the conversion of our outstanding Series A Preferred Stock or upon exercise of warrants, there will be 44,584,906 shares of our common stock issued and outstanding.  The shares purchased in this offering will be freely tradable without registration or other restriction under the Securities Act, except for any shares purchased by an “affiliate” of our company (as defined in the Securities Act).

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided they meet the criteria and conform to the requirements of such Rule.  Rule 144 governs resale of “restricted securities” for the account of any person (other than us), and restricted and unrestricted securities for the account of an “affiliate” of ours.  Restricted securities generally include any securities acquired directly or indirectly from us or our affiliates, which were not issued or sold in connection with a public offering registered under the Securities Act.  An affiliate of ours is any person who directly or indirectly controls us, is controlled by us, or is under common control with us.  Our affiliates may include our directors, executive officers, and persons directly or indirectly owing 10% or more of our outstanding common stock.  In general, under Rule 144, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at the time of, or at any time during the three months preceding, a sale, and who has beneficially owned restricted securities for at least six months would be entitled to sell those shares, subject to the requirements of Rule 144 regarding publicly available information about us.  Affiliates may only sell in any three month period that number of shares that does not exceed the greater of 1 percent of the then-outstanding shares of our common stock or the average weekly trading volume of our shares of common stock in the over-the-counter market during the four calendar weeks preceding the sale.  However, because we were formerly a “shell company,” in order for the holders of our restricted securities to resell their shares in reliance upon Rule 144, we are required to have been subject to the public reporting requirements of the Exchange Act for at least 90 days, and to have filed all reports required to be filed during the 12 months preceding such sale (or such shorter period that we were required to file such reports).  Further, Rule 144 will not be available to the selling stockholders until one year has elapsed from the date we have filed “Form 10 information” with the SEC, which generally consists of all the information and disclosures concerning our business, financial information, management and other information that is required to be included in a registration statement filed under the Exchange Act.  Accordingly, the shares held by the selling stockholders will become eligible for sale under Rule 144 one year after the filing of the registration statement of which this prospectus is a part.

 
28

 

Following the date of this prospectus, we cannot predict the effect, if any, that sales of our common stock or the availability of our common stock for sale will have on the market price prevailing from time to time.  Nevertheless, sales by existing stockholders of substantial amounts of our common stock could adversely affect prevailing market prices for our stock.

DESCRIPTION OF CAPITAL STOCK
 
General
 
Our amended and restated certificate of incorporation authorizes us to issue 115,000,000 shares of capital stock, par value $0.0001 per share, comprised of 80,000,000 shares of common stock, and 35,000,000 shares of preferred stock.
  
As of the date of this prospectus, we have issued and outstanding approximately:

 
·
20,412,024 shares of our common stock,
 
·
15,274,000 shares of our Series A Preferred Stock,
 
·
warrants to purchase 8,693,930 shares of Series A Preferred Stock,
 
·
options to purchase 1,893,303 shares of our common stock at exercise prices ranging from $0.25 to $3.00 per share, and
 
·
warrants to purchase 495,252 shares of our common stock at an exercise price of $2.42 per share.
 
Common Stock

The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting rights.  Upon our liquidation, dissolution or winding down, holders of our common stock will be entitled to share ratably in all of our assets that are legally available for distribution, after payment of all debts and other liabilities.  The holders of our common stock have no preemptive, subscription, redemption or conversion rights.

Holders of our common stock are entitled to receive such dividends, as the board of directors may from time to time declare out of funds legally available for the payment of dividends.  We seek growth and expansion of our business through the reinvestment of profits, if any, and do not anticipate that we will pay dividends in the foreseeable future.
 
On November 15, 2010, our stockholders, acting by written consent together as a single class, authorized the amendment of our amended and restated certificate of incorporation in order to effect a combination (reverse split) of our common stock at a ratio not to exceed one-for-eight, provided that our board of directors shall have absolute discretion to determine and fix the exact ratio of such combination (not to exceed one-for-eight) and the time at which such combination shall become effective, if ever.  As of the date of this prospectus, our board of directors has taken no further action to implement a combination of our common stock and reserves the right to abandon the proposed reverse stock split in its sole discretion.
  
Series A Convertible Preferred Stock

The terms, conditions, privileges, rights and preferences of our Series A Convertible Preferred Stock are described in a Certificate of Designation filed with the Secretary of State of Delaware on September 3, 2010.  The following provides only a brief summary of certain of the terms of our Series A Preferred Stock.

Conversion. Each share of our Series A Preferred Stock is initially convertible at the holder’s election into one share of our common stock.  Upon the effective date of the registration statement of which this prospectus is a part, each share of Series A Preferred Stock will automatically convert into one share of common stock.

 
29

 

Voting. Along with the holders of our common stock, the holders of our Series A Preferred Stock are entitled to one vote on all matters submitted to the holders of common stock for each share of common stock into which the Series A Preferred Stock would be converted as of the record date for such vote based on the conversion ratio then in effect.  In addition, the holders of the Series A Preferred Stock are entitled to vote as a separate class with respect to any change in the rights of the Series A Preferred Stock, any amendment to our certificate of incorporation, any increase in the number of shares of Series A Preferred Stock, or the authorization, creation or issuance of any class or series of capital stock ranking senior to or of equal seniority with the Series A Preferred Stock.

Dividends. The holders of our Series A Preferred Stock are entitled to an annual per share cumulative dividend equal to 5% of the original issuance price of $1.00 per share, which dividends are payable upon the conversion of the Series A Preferred Stock into common stock, and which we may elect to pay in the form of additional shares of common stock in lieu of cash.  Solely as an example of the foregoing, if the registration statement of which this prospectus is a part is declared effective by the SEC after the Series A Preferred Stock has been issued and outstanding for six months, the total accrued dividend preference on the 15,274,000 shares of Series A Preferred Stock issued in our September 2010 private placement would be $381,850, which we could elect to pay by issuing approximately an additional 381,850 shares of common stock upon the automatic conversion of the Series A Preferred Stock into common stock.  The holders of our Series A Preferred Stock are entitled to payment of all accrued dividends prior to the payment of any dividends to the holders of our common stock.  Following payment of such accrued dividends, the holders of our Series A Preferred Stock are entitled to participate with the holders of our common stock in any other dividend payment on an as-converted basis.
 
Liquidation. Upon our liquidation, dissolution or winding up, whether voluntary or involuntary, the holders of our Series A Preferred Stock are entitled to be paid, prior to any payments to the holders of our common stock, an amount per share equal to the sum of (i) 1.5 times the original issuance price of $1.00 per share, plus (ii) any accrued but unpaid dividends on the Series A Preferred Stock.

Authority to Issue Stock  

Our board of directors has the authority to issue the authorized but unissued shares of our common stock without action by the shareholders.  The issuance of such shares would reduce the percentage ownership held by current shareholders.

Our amended and restated certificate of incorporation authorizes the issuance of up to 35,000,000 shares of preferred stock, all of which are currently designated as Series A Convertible Preferred Stock.  Following the conversion of our Series A Preferred Stock into common stock, our board of directors will again have the authority to fix and determine the relative rights and preferences of up to 35,000,000 preferred shares, as well as the authority to issue such shares, without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that is senior to our common stock and that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends, additional registration rights, anti-dilution protection, the right to the redemption to such shares, together with other rights, none of which will be afforded holders of our common stock.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS