Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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[X]
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended June 30, 2013
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[ ]
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Transition Report under Section 13 or 15(d) of the Exchange Act
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For the transition period from __________ to __________
Commission file number: 333-147193
FluoroPharma Medical, Inc.
(Exact name of registrant as specified in its charter)
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Nevada
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20-8325616
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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8 Hillside Avenue, Suite 207
Montclair, NJ
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07042
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(Address of principal executive offices)
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(Zip Code)
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(973) 744-1565
(Registrant’s telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]
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.
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 14, 2013, there were 24,380,013 shares of $0.001 par value common stock issued and outstanding.
FORM 10-Q
FluoroPharma Medical, Inc.
INDEX
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Page
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PART I - FINANCIAL INFORMATION
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1
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1
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2
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3
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4
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14
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18
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18
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PART II - OTHER INFORMATION
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19
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19
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19
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19
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20
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PART I - FINANCIAL INFORMATION
FLUOROPHARMA MEDICAL, INC. and Subisidiary (a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30,
2013
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December 31,
2012
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(unaudited)
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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65,935
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$
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1,304,088
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Prepaid expenses & other
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30,711
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77,310
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Total Current Assets
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96,646
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1,381,398
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Property and equipment, net
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168,709
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176,889
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Intangible assets, net
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52,293
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55,247
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Total Assets
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$
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317,648
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$
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1,613,534
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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Current Liabilities:
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Accounts payable
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$
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339,827
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$
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137,779
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Notes Payable - Stockholders
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200,000
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-
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Accrued expenses
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34,134
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97,728
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| Total Current Liabilities | 573,961 | 235,507 | ||||||
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Commitments & Contingencies
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Stockholders’ Equity (Deficit):
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Preferred stock - Series A - $0.001 par value, 3,500,000 designated 2,234,673 and 2,126,574 shares issued and outstanding at June 30, 2013 and at December 31, 2012, respectively
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2,236
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2,127
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(preference in liquidation of $1,854,779 at June 30, 2013)
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Common stock - Class A - $0.001 par value, 200,000,000 shares authorized, 24,375,013 and 24,330,013 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively
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24,376
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24,331
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Additional paid-in capital
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18,786,302
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18,242,109
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Deficit accumulated in the development stage
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(19,069,227)
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(16,890,540)
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Total Stockholders’ Equity (Deficit)
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(256,313)
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1,378,027
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Total Liabilities and Stockholders’ Equity (Deficit)
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$
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317,648
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$
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1,613,534
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The accompanying notes are an integral part of these consolidated financial statements.
FLUOROPHARMA MEDICAL, INC. and Subsidiary (a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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For the Three Months Ended June 30,
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For the Six Months Ended June 30,
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June 13, 2003 (inception) to
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2013
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2012
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2013
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2012
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June 30, 2013
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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Operating Expenses:
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General and administrative
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$ | 718,722 | $ | 586,167 | $ | 1,486,321 | $ | 1,228,086 | $ | 12,396,698 | ||||||||||
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Research and development
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365,534 | 264,976 | 656,733 | 560,271 | 6,723,796 | |||||||||||||||
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Total Operating Expenses
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1,084,256 | 851,143 | 2,143,054 | 1,788,357 | 19,120,494 | |||||||||||||||
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Loss from Operations
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(1,084,256 | ) | (851,143 | ) | (2,143,054 | ) | (1,788,357 | ) | (19,120,494 | ) | ||||||||||
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Other Income (Expense):
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Interest income
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42 | 187 | 209 | 374 | 5,305 | |||||||||||||||
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Other Income
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- | - | 70,525 | - | 70,525 | |||||||||||||||
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Gain on debt restructuring
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- | - | - | - | 1,358,127 | |||||||||||||||
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Loss on disposition of fixed assets
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- | - | - | - | (72,695 | ) | ||||||||||||||
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Gain on settlement of accounts payable
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- | - | - | 124,000 | 258,031 | |||||||||||||||
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Interest and other expense
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(16,646 | ) | - | (16,646 | ) | - | (332,972 | ) | ||||||||||||
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Total Other Income (Expense), net
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(16,604 | ) | 187 | 54,088 | 124,374 | 1,286,321 | ||||||||||||||
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Loss Before Provision for Income Taxes
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(1,100,860 | ) | (850,956 | ) | (2,088,966 | ) | (1,663,983 | ) | (17,834,173 | ) | ||||||||||
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Provision for Income Taxes
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- | - | - | - | - | |||||||||||||||
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Net Loss
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$ | (1,100,860 | ) | $ | (850,956 | ) | $ | (2,088,966 | ) | $ | (1,663,983 | ) | $ | (17,834,173 | ) | |||||
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Preferred Stock Dividend
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(45,664 | ) | (41,103 | ) | (89,721 | ) | (81,416 | ) | (1,235,054 | ) | ||||||||||
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Net Loss Attributable to Common Stockholders
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$ | (1,146,524 | ) | $ | (892,059 | ) | $ | (2,178,687 | ) | $ | (1,745,399 | ) | $ | (19,069,227 | ) | |||||
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Net loss per common share - Basic and Diluted
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$ | (0.05 | ) | (0.04 | ) | $ | (0.09 | ) | $ | (0.08 | ) | $ | (1.87 | ) | ||||||
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Weighted Average Shares Used in
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per Share Calculation - Basic and Diluted:
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24,365,067 | 22,440,894 | 24,355,346 | 22,389,182 | 10,193,512 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
FLUOROPHARMA MEDICAL, INC. and Subsidiary (a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the Six Months Ended June 30,
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June 13, 2003 (inception) to
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2013
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2012
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June 30, 2013
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CASH FLOWS FROM OPERATING ACTIVITIES:
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(unaudited)
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(unaudited)
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(unaudited)
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Net loss
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$ | (2,088,966 | ) | $ | (1,663,983 | ) | $ | (17,834,173 | ) | |||
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Adjustments to reconcile net loss to net cash used by operating activities
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Depreciation and amortization
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12,163 | 12,464 | 268,151 | |||||||||
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Non-cash fair value of common stock issued for consulting
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36,150 | - | 170,138 | |||||||||
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Share-based compensation related to employee stock options
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264,715 | 158,430 | 2,949,662 | |||||||||
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Amortization of debt discount
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- | - | 19,292 | |||||||||
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Non-cash fair value of stock and options issued to non-employees for consulting
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153,761 | 110,500 | 1,528,513 | |||||||||
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Non-cash fair value of warrants issued to non-employees
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- | 45,816 | 134,420 | |||||||||
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Expenses paid by issuance of preferred stock/ common stock
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- | 247,650 | ||||||||||
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Loss on fixed asset dispositions
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- | - | 72,695 | |||||||||
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Gain on debt and accounts payable settlement
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- | (124,000 | ) | (1,616,158 | ) | |||||||
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Loss on early extinguishment of debt
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- | - | 61,419 | |||||||||
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(Increase) decrease in:
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Accounts receivable
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- | - | 50,000 | |||||||||
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Prepaid expenses
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46,599 | (56,569 | ) | (30,711 | ) | |||||||
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Increase (decrease) in:
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Accounts payable
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202,048 | 11,879 | 852,077 | |||||||||
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Accrued expenses
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(63,594 | ) | (36,122 | ) | 529,916 | |||||||
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Net Cash Used by Operating Activities
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(1,437,124 | ) | (1,541,585 | ) | (12,597,109 | ) | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Cash paid for intangible assets
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- | - | (161,609 | ) | ||||||||
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Net cash received in acquistition
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- | - | 69 | |||||||||
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Cash paid for purchase of property and equipment
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(1,029 | ) | (33,035 | ) | (414,001 | ) | ||||||
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Net Cash Used by Investing Activities
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(1,029 | ) | (33,035 | ) | (575,541 | ) | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from issuance of notes payable – stockholders
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200,000 | - | 1,600,000 | |||||||||
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Proceeds from issuance of short-term convertible notes
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- | - | 608,165 | |||||||||
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Advances from stockholders
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- | - | 679,500 | |||||||||
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Proceeds from sale of common stock, net
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- | - | 8,430,920 | |||||||||
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Proceeds from sale of preferred stock, net
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- | - | 1,920,000 | |||||||||
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Net Cash Provided by Financing Activities
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200,000 | - | 13,238,585 | |||||||||
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Net Increase (Decrease) in Cash and Cash Equivalents
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(1,238,153 | ) | (1,574,620 | ) | 65,935 | |||||||
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Cash and Cash Equivalents, Beginning of Period
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1,304,088 | 3,265,141 | - | |||||||||
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Cash and Cash Equivalents, End of Period
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$ | 65,935 | $ | 1,690,521 | $ | 65,935 | ||||||
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Supplemental Cash Flow Disclosures:
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Interest expense paid in cash
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$ | - | - | $ | - | |||||||
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Income tax paid
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$ | - | - | $ | - | |||||||
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Supplemental Non-Cash Disclosure:
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Conversion of preferred stock to common stock
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$ | - | $ | - | $ | 288 | ||||||
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Notes payable – stockholder – settled in common stock
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$ | - | $ | - | $ | 2,135,000 | ||||||
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Accrued interest – stockholder – settled in common stock
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$ | - | $ | - | $ | 188,569 | ||||||
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Preferred Stock Dividend
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$ | (89,721 | ) | $ | (81,416 | ) | $ | (1,235,054 | ) | |||
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Advances from stockholders settled in common stock
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$ | - | $ | - | $ | 679,500 | ||||||
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Accounts payable settled in common stock
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$ | - | $ | - | $ | 471,472 | ||||||
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Accounts payable settled in common stock options
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$ | - | $ | - | $ | 30,500 | ||||||
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Accrued expenses settled in common stock options
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$ | - | $ | - | $ | 3,000 | ||||||
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Decrease in accounts payable related to fixed asset disposition
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$ | - | $ | - | $ | 133,314 | ||||||
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Decrease in accounts payable related to settlement
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$ | - | $ | (124,000 | ) | $ | 1,616,158 | |||||
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Decrease in accrued expenses related to settlement
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$ | - | $ | - | $ | 3,000 | ||||||
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Increase in accounts receivable related to common stock issuance
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$ | - | $ | - | $ | 50,000 | ||||||
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Warrants issued with convertible notes payable
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$ | - | $ | - | $ | 7,474 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
FLUOROPHARMA MEDICAL, INC. and Subsidiary (a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FluoroPharma Medical, Inc. (“FPM”, "FluoroPharma" or the “Company”), a Nevada corporation, is a molecular imaging company headquartered in Montclair, NJ. The Company was founded as FluoroPharma Inc. in 2003 to engage in the discovery, development and commercialization of proprietary products for the positron emission tomography (PET) market. The Company’s initial focus has been on the development of novel cardiovascular imaging agents that can more efficiently and effectively detect and assess acute and chronic forms of coronary artery disease (CAD). Molecular imaging pharmaceuticals are radiopharmaceuticals that enable early detection of disease through the visualization of subtle changes in biochemical and biological processes.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, FluoroPharma, Inc. ("Subsidiary"), a Delaware corporation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of FluoroPharma Medical, Inc. and Subsidiary have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation. Certain prior year amounts in the condensed consolidated financial statements and notes thereto have been reclassified to conform to the current period’s presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, 2013 or for any other interim period. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company and the notes thereto as of and for the year ended December 31, 2012, as included in the Company's Form 10-K filed with the SEC on March 28, 2013.
As of June 30, 2013, the Company has not generated any revenues from its products and is therefore still considered to be a development stage company as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 915 “Development Stage Entities”. The Company is devoting substantially all of its present efforts to research and development of commercially viable products that meet the standards of and are approved by the Food and Drug Administration, raising capital and attracting qualified advisors and personnel to further advance the Company’s goals. The Company has not commenced its planned principal operations, has not generated any revenues from operations and has no assurance of any future revenues. All losses accumulated since incorporation on June 13, 2003 have been considered as part of the Company's development stage activities.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. All cash balances were highly liquid at June 30, 2013 and December 31, 2012.
Use of Estimates
The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period, including contingencies. Accordingly, actual results may differ from those estimates.
Concentration of Risks
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company primarily maintains its cash balances with financial institutions in federally insured accounts. The Company may from time to time have cash in banks in excess of FDIC insurance limits. The Company has not experienced any losses to date resulting from this practice.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and the Subsidiary. Intercompany transactions and balances have been eliminated upon consolidation.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment at June 30, 2013 and December 31, 2012 consisted of computer and office equipment and machinery and equipment, and leasehold improvements with estimated useful lives of three to five years. Depreciation and amortization was $12,163, $12,464 and $268,151 in the periods ended June 30, 2013, 2012 and the period from inception to June 30, 2013, respectively. At June 30, 2013, included in Property and Equipment was idle equipment with a carrying value of $128,245 purchased by the Company for use in future clinical trials.
Intangible Assets
The Company’s intangible assets consist of technology licenses and are carried at the legal cost to obtain them. Intangible assets are amortized using the straight line method over their estimated useful life of 15 years.
Impairments
The Company assesses its long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable in accordance with ASC Topic 360-10-35, “Impairment or Disposal of Long-Lived Assets.” The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. The Company records an impairment charge if it believes an investment has experienced a decline in value that is other than temporary.
Management has determined that no impairments had occurred as of June 30, 2013 or December 31, 2012.
Fair Value of Financial Instruments
The Company's financial instruments primarily consist of cash, cash equivalents short-term notes payable and accounts payable. All instruments are accounted for on the historical cost basis, which, due to the short maturity of these financial instruments, approximates the fair value at the reporting dates of these financial statements.
The Company groups its assets and liabilities measured at fair value, in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
The three levels of the fair value hierarchy are as follows:
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.
The Company recognizes transfers between levels at the end of the reporting period as if the transfers occurred on the last day of the reporting period.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of the existing assets and liabilities and the respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that the tax rate change occurs. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company accounts for uncertain tax positions in accordance with FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes. Income tax positions must meet a more-likely-than-not threshold in order to be recognized in the financial statements. There were no recognized uncertain tax positions at June 30, 2013 and December 31, 2012. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense. As new information becomes available, the assessment of the recognition threshold and the measurement of the associated tax benefit of uncertain tax positions may result in financial statement recognition or de-recognition. The Company had no accrual for interest or penalties on its balance sheets at June 30, 2013 or December 31, 2012, and has not recognized interest and/or penalties in the statement of operations for the periods ended June 30, 2013 and December 31, 2012. Further, the Company currently has no open tax years, subject to audit prior to December 31, 2009.
Accounting for Share-Based Payments
The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. FPM uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed, which resulted in employee stock-based compensation expense for the periods ended June 30, 2013 and 2012 of $264,715 and $158,430, respectively, and $2,949,662 for the period from June 13, 2003 (inception) to June 30, 2013.
The Company accounts for share-based payments granted to non-employees in accordance with ASC Topic 505, “Equity Based Payments to Non-Employees.” The Company determines the fair value of the stock-based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.
To compute compensation expense, the Company estimated the fair value of each option award on the date of grant using the Black-Scholes option pricing model for employees, and calculated the fair value of each option award at the end of the period for non-employees. The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have sufficient historical market information to estimate the volatility of its own stock. The expected term of options granted represents the period of time that options are expected to be outstanding. The Company estimated the expected term of stock options by using the simplified method. The expected forfeiture rates are based on the historical employee forfeiture experiences. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards. The Company has not declared a dividend on its common stock since its inception and has no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.
The fair value of each share-based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions:
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2013
|
2012
|
|||||||
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Risk-free interest rate
|
2.61%
|
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2.42%
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|
||||
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Expected volatility
|
62.20%
|
|
77.70%
|
|
||||
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Dividend yield
|
none
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none
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||||||
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Expected term
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6 years
|
5 years
|
||||||
Net Loss per Common Share
The Company computes net loss per common share in accordance with ASC Topic 260. Net loss per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, and convertible notes, if applicable, that are outstanding each year.
Basic and diluted earnings per share were the same for all periods presented as including common stock equivalents in the calculation of diluted earnings per share would have been antidilutive. As of June 30, 2013, the Company had outstanding options exercisable for 4,550,428 shares of its common stock, warrants exercisable for 7,318,312 shares of its common stock and preferred stock convertible into 2,234,673 shares of common stock. At June 30, 2012, the Company had outstanding options exercisable for 3,876,548 shares of its common stock, and warrants exercisable for 5,183,531 shares of common stock, and preferred stock convertible into 2,022,321 shares of common stock.
Research and Development Costs
Research and development costs are expensed as incurred.
Reclassification
Certain items in the 2012 financial statements have been reclassified to conform to the current year presentation.
Segment Reporting
The Company has determined that it operates in only one segment currently, which is biopharmaceutical research and development.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
Going concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced net losses and negative cash flows from operations since its inception. The Company has sustained cumulative losses of $19,069,227 as of June 30, 2013. The Company has historically financed its operations through issuances of equity and the proceeds of debt instruments. In the past, the Company has also provided for its cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees. During the year ended December 31, 2012, the Company raised $1,360,572 net of offering costs, through the private placement of common stock and warrants (see Note 2). During the six months ended June 30, 2013, the Company issued short-term notes payable for $200,000 (see Note 3). At the conclusion of their audit of the Company’s financial statements for the year ended December 31, 2012, the Company’s independent registered public accounting firm expressed substantial doubt about the Company’s ability to continue as a going concern.
The Company continues to actively pursue various funding options, including equity offerings, to obtain additional funds to continue the development of its products and bring them to commercial markets. Management continues to assess fund raising opportunities to ensure minimal dilution to its existing shareholder base and to obtain the best price for its securities. Management is optimistic based upon its ability to raise funds in prior years, through private placement offerings (see description of the 2012 private placement in Note 2), that it will be able to raise additional funds in the future. There can be no assurance that we will be able to consummate any fund raising transactions on terms acceptable to us or at all or in the time frames we anticipate. If the Company is unable to raise additional capital as may be needed to meet its operating expenses, it could have a material adverse effect on liquidity or require the Company to cease or significantly delay some of its clinical trials. These financial statements do not include any adjustments relating to the recoverability of recorded asset amounts that might be necessary as a result of the above uncertainty.
2. 2012 PRIVATE PLACEMENT
On November 19, 2012, the Company conducted a private placement offering and raised aggregate gross proceeds of $1,546,250 upon the sale of 1,819,119 shares of common stock at a price per share of $0.85 (the “2012 Private Placement”). For each share of common stock purchased, the investors received a warrant to purchase a share of the Company’s common stock at an exercise price of $0.90 per share and a term of one year. Net proceeds amounted to $1,360,572 after deducting offering expenses.
Brookline Group LLC served as the placement agents in connection with the 2012 Private Placement. Brookline received cash fees of $123,700 and 181,912 placement agent warrants to purchase shares of the Company’s common stock at a price per share of $0.85 and a term of five years. The fair value of the placement agent warrants was approximately $62,000 and were recorded as both a debit and credit to additional paid-in capital as a stock issuance cost.
All of the Investors represented that they were “accredited investors,” as that term is defined in Rule 501(a) of Regulation D under the Securities Act, and the sale of the securities was made in reliance on exemptions provided by Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
In connection with the closing of the 2012 Private Placement, the Company entered into a registration rights agreement with the investors agreeing to file a registration statement within 30 days of the closing and to have the registration statement declared effective within 150 days of the closing, if the registration statement is not subject to a full review and within 180 days of the closing if the registration statement is subject to a full review. The Company filed a registration statement with the SEC on December 21, 2012, which was declared effective by the SEC on December 31, 2012.
3. SHORT-TERM NOTES PAYABLE
One June 21 and June 27, 2013, the Company entered into Note Purchase Agreements (the “NPA”) with investors for the sale and issuance of promissory notes in the principal amount of $150,000 and $50,000, respectively (the “Notes”).
The Notes bear interest at the rate of 10% per annum, and mature six months from the date of issuance. The Notes contain customary default provisions and provide that 110% of principal amount of the Notes shall be exchanged by the investor into securities offered in a subsequent financing consummated by the Company prior to the maturity date of the Notes.
As of June 30, 2013, the Company has accrued approximately $400 in interest on the Notes and incurred approximately $15,000 in costs related to issuing the Notes. These costs are included in interest and other expense in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2013.
4. COMMITMENTS AND CONTINGENCIES
License Agreements
The Company has one exclusive technology license with Massachusetts General Hospital (MGH) which consists of three of its cardiac imaging licenses. The license requires the Company to meet certain obligations, including, but not limited to, meeting certain development milestones relating to clinical trials and filings with the FDA. MGH has the right to cancel or make non-exclusive certain licenses on certain patents should the Company fail to meet stipulated obligations and milestones. In accordance with the terms of the license, the Company is required to pay MGH an annual license maintenance fee of $30,000. Additionally, upon commercialization, the Company is required to make specified milestone payments and royalties on commercial sales.
The Company is current with all stipulated obligations and milestones under the cardiac imaging license agreement and the agreement remains in full force and effect. The Company believes that it maintains a good relationship with MGH and will be able to obtain waivers or extension of its obligations under the license agreement, should the need arise. If MGH were to refuse to provide the Company with a waiver or extension of any of its obligations or were to cancel or make the license non-exclusive, this would have a material adverse impact on the Company as it may be unable to commercialize products without exclusivity and would lose its competitive edge for portions of the patent portfolio.
All of the Company’s other license agreements stipulate certain annual license fees and development milestone payments in addition to royalty payments upon commercialization.
Clinical Research Services Agreement
On September 7, 2012, the Company entered into a Clinical Research Services Agreement (“CRS Agreement”) with SGS Life Science Services (“SGS”), a company with its registered offices in Belgium, for clinical research services relating to the Company’s CardioPET Phase II study to assess myocardial perfusion and fatty acid uptake in coronary artery disease (CAD) patients. The phase II trial will be an open label trial designed to assess the safety and diagnostic performance of CardioPET as compared to stress echocardiography, myocardial perfusion imaging and angiography as a gold standard of background disease. Two trial sites are planned in Belgium and are expected to be concluded in the second half of 2013.
In March 2012 the Company had signed a Letter of Intent (“LOI”) that provided for the pre-payment of $290,271 for start-up services. The CRS Agreement provides for additional payments of $346,234 to SGS subject to a schedule of milestones relating to the progress of the clinical trial. Immediately before entry into the LOI, the Company engaged FGK Representative Service GmbH to serve as the Company’s sponsor in compliance with the laws governing clinical trials conducted in the European Union. On February 28, 2013, the Company announced that the Phase II trial had begun and released the initial data and images from the trial.
Executive Employment Contracts
The Company has an employment contract with a key Company executive that provides for the continuation of salary and the grant of certain options to the executive if terminated for reasons other than cause, as defined in that agreement. The contract also provides for a $1 million bonus should the Company execute transactions as specified in the contract, including the sale of substantially all of the Company’s assets or stock or a merger transaction, any of which resulting in compensation to the Company’s stockholders aggregating in excess of $50 million for such transaction.
Operating Lease Commitment
In July 2011, the Company entered into a three-year lease for office space, which commenced May 1, 2012 and expires on April 30, 2015. The annual minimum lease payments over this three-year period for this office space are $45,600 per year plus common area costs. In conjunction with this agreement, the Company paid $5,700 as a security deposit and an additional $25,171 for leasehold improvements. The future minimum lease payments through April 30, 2015 are as follows:
|
Year ending December 31, 2013
|
$
|
45,600
|
||
|
2014
|
45,600
|
|||
|
2015
|
15,200
|
|||
|
$
|
106,400
|
Rent expense was $15,700, $35,100 and $303,136 for the six months ended June 30, 2013 and 2012 and the period from inception to June 30, 2013, respectively.
Legal Contingencies
The Company is not aware of any material, active, pending or threatened proceeding, nor is the Company, or any subsidiary, involved as a plaintiff or defendant in any other material proceeding or pending litigation (see Note 8).
5. CAPITAL STOCK
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value; 3,500,000 shares have been designated Series A Preferred Stock. At June 30, 2013 and December 31, 2012, 2,234,673 and 2,126,574 shares of Series A preferred stock, respectively, were issued and outstanding.
Significant terms of the Series A preferred stock, as specified in the Certificate of Designation (“COD”) are as follows:
Conversion
Each share of Series A Preferred Stock may, at the holder’s option, convert into common stock (“voluntary conversion”). The conversion rate is equal to the sum of the stated value of the preferred shares plus all accrued and unpaid dividends divided by $0.83, the conversion price. Subject to the specified provisions, the Series A Preferred Stock will automatically convert into common stock at a $0.83 conversion price on the Mandatory Conversion Date. Mandatory Conversion Date as defined in the COD is the first date at least six (6) months after the issuance of the Series A Preferred Stock on which each of the following conditions shall have been satisfied: (i) the Company shall have consummated, on or prior to such date, a Qualified Financing for aggregate gross proceeds to the Company of $7,000,000, (ii) the volume weighted average trading price for the Common Stock for each day on thirty (30) consecutive trading days immediately preceding such date, as published by Bloomberg, must be above a price of $1.50 and the trading volume over that period must exceed 1,500,000 shares, and (iii) as of such date, all shares of Common Stock issuable upon conversion of the Series A Preferred Stock are registered under the Securities Act of 1933 pursuant to an effective registration statement or are otherwise eligible for sale under Rule 144 of the Act. As of June 30, 2013, no mandatory conversion has taken place as all of the conditions required for conversion have not occurred.
Dividends
(a) Cumulative Preferred Dividends. Each holder of the Series A Preferred Stock shall be entitled to receive cash dividends payable on the Stated Value of the Series A Preferred Stock at a rate of 10% per annum which shall be cumulative, accrue daily from the original issuance date of the Series A Preferred Stock (the “Issuance Date”); provided however, if either (i) the Company shall not have consummated a Qualified Financing, as defined in the COD, with aggregate gross proceeds to the Company of $7,000,000 on or before June 30, 2012, or (ii) for any reason, any shares of Common Stock issuable upon conversion of the Series A Preferred Stock are not registered under the Securities Act of 1933 (the “Act”) pursuant to an effective registration statement on or before June 30, 2012 or are not otherwise eligible for sale under Rule 144 of the Act, then, effective July 1, 2012, the rate of dividends on the Series A Preferred Stock shall increase to 12% per annum. As of June 30, 2012, both of the above conditions have been met by the Company and accordingly, the rate of dividends on the Series A Preferred Stock remains at 10% per annum.
(b) Payment of Dividends. The Company shall be required to pay all accrued and unpaid dividends (whether or not declared) in respect of the Series A Preferred Stock semi-annually on each June 30 and December 31 of each calendar year. All such dividends shall be paid in cash; provided, that, at the option of the Company, the Company may pay any accrued and unpaid dividends on the Series A Preferred Stock in the form of additional shares of Series A Preferred Stock, with each share of Series A Preferred Stock being valued for this purpose at the Stated Value in effect on the date of payment.
For the six months ended June 30, 2013, the Company accrued a preferred stock dividend of $89,721 and issued 108,099 shares of Preferred Stock in payment of such dividends. For the year ended December 31, 2012, the Company accrued a preferred stock dividend of $167,945 and issued 202,344 shares of Preferred Stock in payment of such dividends.
Liquidation preference
In the event of liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, each holder of Series A Preferred Stock shall be entitled to receive, for each share thereof, out of assets of the Company legally available therefor, a preferential amount in cash, per share of Series A Preferred Stock, equal to (and not more than) the sum of the (x) Stated Value, plus (y) all accrued and unpaid dividends thereon. All preferential amounts to be paid to the holders of Series A Preferred Stock in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Company to the holders of the Company's Common Stock. If upon any such distribution the assets of the Company shall be insufficient to pay the holders of the outstanding shares of Series A Preferred Stock the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full.
Voting
The holders of the Series A Preferred Stock have the right to one vote for each share of common stock into which such Series A Preferred Stock could then convert.
Common Stock
The Company has authorized 200,000,000 shares of its common stock, $0.001 par value, At June 30, 2013 and December 31, 2012, the Company had issued and outstanding 24,375,013 and 24,330,013, respectively, shares of its common stock.
In March 2012, the Company issued 130,000 shares of common stock, valued at $0.85 per share, for services performed pursuant to a consulting agreement. In September 2012, the Company issued 70,000 shares of common stock to employees, valued at $1.00 per share, for compensation. The total fair value of these shares, $180,500, is included in 2012 operating expenses. In November 2012, the Company issued 1,819,119 shares of common stock, valued at $0.85 per share, in conjunction with a private placement (see note 3).
During the six months ended June 30, 2013, the Company issued 45,000 shares of common stock for services performed pursuant to a consulting agreement. The total fair value of these shares, $36,150, is included in operating expenses.
6. STOCK PURCHASE WARRANTS
Common Stock Warrants
There were no warrants issued in the six months ended June 30, 2013. All issuances of common stock warrants during the year ended December 31, 2012 were related to equity financing or compensation to non-employees for services.
The following is a summary of all common stock warrant activity through June 30, 2013:
|
Number of Shares
|
Exercise Price Share
|
Weighted Average
|
||||||||||
|
Under Warrants
|
Per Share
|
Exercise Price
|
||||||||||
|
Warrants issued and exercisable at December 31, 2012
|
7,404,562
|
$
|
0.50 - $2.00
|
$
|
1.08
|
|||||||
|
Warrants Granted
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Warrants Expired
|
(86,250)
|
$
|
0.95
|
$
|
0.95
|
|||||||
|
Warrants issued and exercisable at June 30, 2013
|
7,318,312
|
$
|
0.50 - $2.00
|
$
|
1.08
|
|||||||
During the year ended December 31, 2012, the Company issued an aggregate of 320,000 common stock warrants to non-employees for consulting services. The fair value of the warrants, determined using a Black-Scholes option pricing model, was approximately $134,000 and is included in general and administrative expenses in the accompanying consolidated statements of operations for the year ended December 31, 2012.
In June 2012, the Company exchanged 277,500 common stock options for 277,500 common stock warrants with the same terms resulting in no incremental fair value to be recorded by the Company.
In connection with the 2012 Private Placement, the Company issued 1,819,119 common stock warrants to investors and 181,912 common stock warrants to the placement agent.
The following represents additional information related to common stock warrants outstanding and exercisable at June 30, 2013:
|
Exercise Price
|
Number of Shares
Under Warrants
|
Weighted Average Remaining Contract
Life in Years
|
Weighted Average
Exercise Price
|
|||||||||||
|
$
|
0.50
|
277,500
|
0.80
|
$
|
0.50
|
|||||||||
|
$
|
0.83
|
1,041,028
|
2.16
|
$
|
0.83
|
|||||||||
|
$
|
0.84
|
20,000
|
3.09
|
$
|
0.84
|
|||||||||
|
$
|
0.85
|
281,912
|
4.07
|
$
|
0.85
|
|||||||||
|
$
|
0.90
|
1,819,119
|
0.39
|
$
|
0.90
|
|||||||||
|
$
|
0.95
|
20,000
|
3.26
|
$
|
0.95
|
|||||||||
|
$
|
1.00
|
426,417
|
5.85
|
$
|
1.00
|
|||||||||
|
$
|
1.33
|
3,432,336
|
2.01
|
$
|
1.33
|
|||||||||
|
7,318,312
|
1.89
|
$
|
1.08
|
|||||||||||
The Company used the Black-Scholes option price calculation to value the warrants granted in 2012 using the following assumptions: risk-free rate of 2.42, volatility ranging from 62.2%; actual term and exercise price of warrants granted. See Note 1, Summary of Significant Accounting Policies, “Accounting for Share Based Payments.”
7. COMMON STOCK OPTIONS
On February 11, 2011, the Company adopted its 2011 Equity Incentive Plan (the “Plan”) under which 6,475,750 shares of common stock were reserved for issuance under options or other equity interests as set forth in the Plan. Under the Plan, options are available for issuance to employees, officers, directors, consultants and advisors. The Plan provides that the Board of Directors will determine the exercise price and vesting terms of each option on the date of grant. Options granted under the Plan generally expire ten years from the date of grant.
Under the Plan, the Company has issued 161,250 shares of fully paid and non-assessable restricted common stock to a director of the Company. These shares of restricted stock are subject to the terms of the Plan and are unvested and outstanding as of June 30, 2013. The shares shall vest upon the earlier of (i) the occurrence of a Change of Control, as defined in the Plan, (ii) the successful completion of a Phase II clinical trial for any of the Company’s products, or (iii) the determination by the Board of Directors to provide for immediate vesting. The weighted average grant-date fair value is $0.83 per share.
The following is a summary of all common stock option activity for the quarter ended June 30, 2013:
|
Shares Under
Options Outstanding
|
Weighted Average
Exercise Price
|
|||||||
|
Outstanding at December 31, 2012
|
4,035,428
|
$
|
0.66
|
|||||
|
Options granted
|
515,000
|
$
|
0.83
|
|||||
|
Options forfeited
|
-
|
$
|
-
|
|||||
|
Options exercised
|
-
|
$
|
-
|
|||||
|
Outstanding at June 30, 2013
|
4,550,428
|
$
|
0.68
|
|||||
|
Options Exercisable
|
Weighted Average Exercise
Price per Share
|
|||||||
|
Exercisable at December 31, 2012
|
2,294,053
|
$
|
0.66
|
|||||
|
Exercisable at June 30, 2013
|
2,594,053
|
$
|
0.68
|
|||||
The weighted average fair value of options granted during the six months ended June 30, 2013 was $0.49.
As of June 30, 2013, the weighted average remaining contractual term for exercisable and outstanding options is 5.97 and 7.04 years, respectively. The aggregate intrinsic value of all of the Company’s exercisable and outstanding options is approximately $431,000 and $584,000, respectively.
As of June 30, 2013, there was approximately $902,000 of unrecognized compensation cost related to non-vested options. The unrecognized compensation expense is estimated to be recognized over a period of 1.55 years at June 30, 2013.
The Company used the Black-Scholes option pricing model to value the all option grants (see Note 1, Summary of Significant Accounting Policies, “Accounting for Share Based Payments”).
8. SUBSEQUENT EVENTS
The Company evaluated events occurring subsequent to June 30, 2013, identifying those that are required to be disclosed as follows:
On July 16, 2013, Plaintiff, Todd Nelson, served Fluoropharma Medical, Inc. with process in the matter captioned, Todd Nelson v. Fluoropharma Medical, Inc.; and Does 1 through 10, No. 13 CV 01152 JCM CWH, which is pending before the United States District Court for the District of Nevada. In this action, the Plaintiff alleged that he suffered damages attributable to the Company’s refusal to honor certain stock options after February 28, 2012. Plaintiff seeks at least $325,200.00 in damages, as well as punitive and exemplary damages, prejudgment interest, and costs. The Company was due to respond to these allegations by August 6, 2013, however on August 5, 2013 the company filed an Emergency Motion to Extend the Time to Answer or Otherwise Respond to Complaint. The Court granted the Company’s Emergency Motion extending its time to respond to the allegations until August 16, 2013. On August 16, 2013, the Company filed a Motion to Dismiss the Complaint. The Company is presently awaiting the Plaintiff's response to its motion.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements. These forward-looking statements include, without limitation, statements containing the words “believes”,“anticipates”,“expects”,“intends”,“projects”,“will” and other words of similar import or the negative of those terms or expressions. Forward-looking statements in this report include, but are not limited to, expectations of future levels of research and development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate strategic opportunities available to us.. Forward-looking statements subject to certain known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to those described in “Risk Factors” of the reports we file with the Securities and Exchange Commission.
Overview
We are a biopharmaceutical company specializing in discovering, developing and commercializing molecular imaging pharmaceuticals with initial applications in the area of cardiology. Molecular imaging pharmaceuticals are radiopharmaceuticals that enable early detection of disease through the visualization of subtle changes in biochemical and biological processes. We currently have two clinical-stage molecular imaging pharmaceutical product candidates: CardioPET and BFPET. Additionally we have identified potential candidates that may be useful in the detection and/or treatment of vulnerable plaque.
Our Product Candidates
BFPET
Our BFPET ([18F]-labeled cationic lipophilic tetraphosphonium) is an imaging agent used in stress-testing for patients with presumptive or proven Cardiac Artery Disease (CAD). BFPET measures the cardiovascular blood flow through the detection of ischemic (reversibly damaged) and infarcted (irreversibly damaged) myocardium (heart) tissue. Its mechanism of action is to enter the myocardial cells of the heart muscle in direct proportion to blood flow and membrane potential (the most important indicators of adequate cardiac blood supply). Since ischemic and infarcted myocardial cells take up significantly less BFPET than normal healthy myocardial cells do, BFPET can distinguish ischemic and infarcted cells from those that are healthy. Therefore, as a result of BFPET’s use, we believe ischemic heart tissue can be more reliably detected using BFPET. We anticipate that BFPET will primarily be used in conjunction with stress-testing for patients with suspected or proven chronic CAD. If approved, BFPET will represent one of the first molecular imaging blood flow agent commercialized for use in the cardiovascular segment of the PET imaging market.
Currently, cardiac perfusion imaging is performed with SPECT tracers such Cardiolite®, Thallium-201 or the PET tracer Rubidium-82. However, SPECT imaging only has approximately 75% diagnostic accuracy with research showing that 10% of patients cleared as “normal” were subsequently found to be “abnormal” using PET imaging. The current PET tracer Rubidium-82 has experienced FDA recall and high cost issues.
BFPET successfully completed the Phase Ia clinical trial in 12 healthy volunteers with no adverse events and no clinically significant changes noted in follow-up clinical and laboratory testing (trial ID# NCT00733460). The results of the trial demonstrated the required dosimetry, safety profile and high resolution myocardial imaging pharmacokinetics to justify a controlled Phase II clinical trial. In January 2013, we announced that we will begin Phase II trials at Massachusetts General Hospital to assess its efficacy in CAD subjects.
CardioPET
Our CardioPET (Trans-9-[18F]-Fluoro-3, 4-Methyleneheptadecanoic Acid) is a molecular imaging agent to assess myocardial metabolism for patients with Coronary Artery Disease (CAD), especially for patients who are unable to perform exercise cardiac stress-testing. CardioPET allows for the detection of ischemic (reversibly damaged) and infarcted (irreversibly damaged) myocardium (heart) tissue in patients with presumptive or proven acute and chronic CAD.
In addition, CardioPET could be used for Cardiac Viability Assessment (CVA) for the prediction of improvement prior to and/or following revascularization in patients with acute CAD including myocardial infarction (heart attack). Because CardioPET allows for the identification of damaged but viable heart tissue, is important since revascularization in those patients with substantial viable myocardium results in improved left ventricular function and survival. Importantly, CardioPET, if approved, may have several significant advantages for assessing cardiac viability using PET, and would likely represent the first imaging agent available in the U.S. for use in patients with acute and chronic CAD that cannot undergo stress-testing. CardioPET is designed to provide the metabolic component for CVA. Accordingly, it may be used with either BFPET or other blood flow agents in performing CVA.
CardioPET has completed Phase I trials and is enrolling patients in its Phase II trials to assess its safety and efficacy in CAD subjects. Phase II clinical trial plan for CardioPET will be an open label trial designed to assess the safety and diagnostic performance of CardioPET as compared to stress echocardiography, myocardial perfusion imaging and angiography as a gold standard of background disease. Specifically, the Phase II trial will consist of between 30-100 individuals with known stable chronic CAD who cannot undergo stress-testing for the evaluation of suspected or proven CAD. We could close out a phase IIa trial and switch the remaining enrolled patients into a Phase IIb trial in patients with acute CAD that are undergoing CVA for the prediction of functional improvement either prior to, or following, revascularization. Two trial sites are currently planned in Belgium and results are expected in the second half of 2013.
On June 20, 2013, the Company announced its internal review of imaging data received from our ongoing Phase II clinical trial for CardioPET™ (FCPHA) to assess myocardial perfusion and fatty acid uptake in coronary artery disease patients.
VasoPET
We are developing VasoPET, Diadenosine-5’5’’’-P1, P4-tetraphosphate (Ap4A) analogs, such as P2, P3-monochloromethylene diadenosine 5’, 5’’’-P1, P4-tetraphosphate (Ap2CHClp2A), as novel molecular imaging agent for the detection of “vulnerable” coronary artery plaque in patients with CAD. VasoPET, if approved, would represent the first PET cardiac product to reliably image inflamed plaque and therefore may differentiate between vulnerable and stable coronary artery plaque.
The rupture of atherosclerotic plaques and the subsequent formation of thrombi are currently recognized as the primary mechanisms of myocardial and cerebral infarctions. Therefore, the detection of vulnerable plaque in atherosclerotic lesions is a desirable goal—and to date remains both a significant unmet clinical objective and a large unaddressed market opportunity.
Coronary artery plaques grow over time and progressively narrow the lumen of the coronary artery until blood flow to the heart diminishes to a critical level. The decrease in blood flow causes symptoms of chest pain (angina), at first during exercise and then progressively during rest. Rupture of the plaque and/or clot formation overlying the plaque may then result in myocardial ischemia and/or myocardial infarction. Coronary artery plaque that is “vulnerable” is differentiated from its “stable” form by a large lipid-rich atheromatous core, a thin fibrous cap, and infiltration by inflammatory cells such as macrophages. The risk factor for rupture (and subsequent heart attack) is currently thought to be independent of plaque size and arterial narrowing, but rather is thought to correlate more with the presence of inflammation.
Recent Accounting Pronouncements
Management does not expect any recently issued, but not yet effective, accounting standards to have a material effect on its results of operations or financial condition.
Critical Accounting Policies
This summary of significant accounting policies is presented to assist in understanding our consolidated financial statements. The consolidated financial statements and notes are representations of our management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the financial statements.
Accounting for Share-Based Payments
We follow the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. We use the Black-Scholes option pricing model in determining fair value. Accordingly, compensation is recognized using the fair value method and expected term accrual requirements as prescribed.
We account for share-based payments granted to non-employees in accordance with ASC Topic 505, “Equity Based Payments to Non-Employees.” The Company determines the fair value of the stock-based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.
The fair value of each share based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year:
Risk-Free Interest Rate. We utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards.
Expected Volatility. We calculate the expected volatility based on a volatility index of peer companies as we did not have sufficient historical market information to estimate the volatility of our own stock.
Dividend Yield. We have not declared a dividend on its common stock since its inception and have no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.
Expected Term. The expected term of options granted represents the period of time that options are expected to be outstanding. We estimated the expected term of stock options by using the simplified method. For warrants, the expected term represents the actual term of the warrant.
Forfeitures. Estimates of option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.
Impairments
We assess the impairment of long-lived assets, including other intangible assets, whenever events or changes in circumstances indicate that their carrying value may not be recoverable in accordance with ASC Topic 360-10-35, “Impairment or Disposal of Long-Lived Assets.” The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. We hold investments in companies having operations or technologies in areas that are within or adjacent to our strategic focus when acquired, all of which are privately held and whose values are difficult to determine. We record an investment impairment charge if it believes an investment has experienced a decline in value that is other than temporary.
Management has determined that no impairments had occurred as of June 30, 2013 or December 31, 2012.
Intangible Assets
Our intangible assets consist of technology licenses and are carried at the legal cost to obtain them. Intangible assets are amortized using the straight-line method over the estimated useful life. Useful lives are as follows: technology licenses 5 to 15 years.
Research and Development Costs
Research and development costs are expensed as incurred. The cost of intellectual property purchased from others that is immediately marketable or that has an alternative future use is capitalized and amortized as intangible assets. Capitalized costs are amortized using the straight-line method over the estimated economic life of the related asset.
Use of Estimates
The accompanying consolidated financial statements are prepared in conformity with GAAP in the United States of America, and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2013 compared to the Three and Six Months Ended June 30, 2012.
Revenues
There were no operating revenues for the three and six months ended June 30, 2013 and 2012.
General and Administrative Expenses
General and administrative expenses were $718,722 and $586,167 for the three months ended June 30, 2013 and 2012, respectively. General and administrative expenses were $1,486,321 and $1,228,086 for the six months ended June 30, 2013 and 2012, respectively. The increase was due primarily to increases in investor relations activities as well as a general increase in operating expenses, which we expect to increase going forward, in the long term, as we proceed to move our technologies forward toward commercialization.
Research and Development Expenses
Research and development expenses were $365,534 and $264,976 for the three months ended June 30, 2013 and 2012, respectively. Research and development expenses were $656,733 and $560,271 for the six months ended June 30, 2013 and 2012, respectively. In the six months ended June 30, 2013, the Company incurred approximately $220,000 in clinical trial expenses. We expect research and development expenses to continue to increase in future periods as we continue our clinical studies of our lead candidates in cardiology and pursue our strategic opportunities.
Interest and Other Income and Expenses, net
Other income (expense), net was $(16,604) and $187 for the three months ended June 30, 2013 and 2012, respectively. Other income, net was $54,088 and $124,374 for the six months ended June 30, 2013 and 2012, respectively. For the six months ended June 30, 2013, the Company received other income of approximately $70,000 from the sale of an insurance company of which we were a policyholder, offset by approximately $17,000 of expenses related to the closing of the notes payable. For the six months ended June 30, 2012, the Company recorded a gain on settlements of accounts payable of approximately $124,000.
Liquidity and Capital Resources
We have experienced net losses and negative cash flows from operations since our inception. We have sustained cumulative losses of $19,069,227 as of June 30, 2013. We have historically financed our operations through issuances of equity and the proceeds of debt instruments. In the past, we have also provided for our cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees. During the year ended December 31, 2012, we raised gross proceeds of $1,546,250 through a private placement of our common stock and warrants.
In June 2013, we entered into Note Purchase Agreements (the “Notes”) with investors for the sale and issuance of 10% promissory notes in the aggregate principal amount of $200,000.
We continue to actively pursue various funding options, including equity offerings, to obtain additional funds to continue the development of its products and bring them to commercial markets. Management continues to assess fund raising opportunities to ensure minimal dilution to its existing shareholder base and to obtain the best price for its securities. Management is optimistic based upon its ability to raise funds in prior years, through private placement offerings, that it will be able to raise additional funds in the future. There can be no assurance that we will be able to consummate any fund raising transactions on terms acceptable to us or at all or in the time frames we anticipate. If we are unable to raise additional capital as may be needed to meet our projections for operating expenses, it could have a material adverse effect on liquidity or require us to cease or significantly delay some of its clinical trials.
Net cash used in operating activities for the six months ended June 30, 2013 was $1,437,124, which primarily reflected our net loss of $2,088,966 offset by non-cash expenses of $466,789 and a decrease in working capital of $185,033. Net cash used in operating activities for the six months ended June 30, 2012 was $1,541,585 which primarily reflected our net loss of $1,663,983, changes in working capital and gain on settlement of accounts payable of $124,000.
Net cash used by investing activities was $1,029 for the six months ended June 30, 2013, which primarily reflected purchases of office equipment. For the six months ended June 30, 2012, net cash used by investing activities was approximately $33,035, which primarily reflected a purchase of office furniture and leasehold improvements.
For the six months ended June 30, 2013, net cash provided by financing activities was $200,000, which reflects net cash received from the issuance of the Notes. There were no financing activities in the six months ended June 30, 2012.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There have been no changes in our internal controls over financial reporting during our first fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 16, 2013, Plaintiff, Todd Nelson, served Fluoropharma Medical, Inc. with process in the matter captioned, Todd Nelson v. Fluoropharma Medical, Inc.; and Does 1 through 10, No. 13 CV 01152 JCM CWH, which is pending before the United States District Court for the District of Nevada. In this action, the Plaintiff alleged that he suffered damages attributable to the Company’s refusal to honor certain stock options after February 28, 2012. Plaintiff seeks at least $325,200.00 in damages, as well as punitive and exemplary damages, prejudgment interest, and costs. The Company was due to respond to these allegations by August 6, 2013, however on August 5, 2013 the company filed an Emergency Motion to Extend the Time to Answer or Otherwise Respond to Complaint. The Court granted the Company’s Emergency Motion extending its time to respond to the allegations until August 16, 2013. On August 16, 2013, the Company filed a Motion to Dismiss the Complaint. The Company is presently awaiting the Plaintiff's response to its motion.
Except for the foregoing, the Company is not aware of any material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the six months ended June 30, 2013, the Company issued 45,000 shares of Common Stock for services performed pursuant to a consulting agreement.
The Company relied upon an exemption afforded by Section 4(2) of the Securities of 1933, as amended in connection with the above issuance.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
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Exhibit No.
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Title of Document
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10.1
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Form of Note Purchase Agreement entered into between the Company and the purchasers signatory thereto (Incorporated by reference to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on June 26, 2013)
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31.1
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Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
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Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
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Certification of the Chief Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification of the Chief Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101.INS
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XBRL Instance Document*
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101.SCH
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XBRL Schema Document*
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101.CAL
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XBRL Calculation Linkbase Document*
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101.LAB
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XBRL Label Linkbase Document*
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101.PRE
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XBRL Presentation Linkbase Document*
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101.DEF
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XBRL Definition Linkbase Document*
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* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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FluoroPharma Medical, Inc.
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Date: August 19, 2013
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/s/ Johan M. (Thijs) Spoor
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Johan M. (Thijs) Spoor
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President and Chief Executive Officer
(Principal Executive Officer)
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Date: August 19, 2013
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/s/ Tamara Rhein
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Tamara Rhein
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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