Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended December 31, 2016
[ ]
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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
_______________
333-147193
(Commission file number)
FluoroPharma Medical, Inc.
(Exact name of registrant as specified in its
charter)
Nevada
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20-8325616
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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8 Hillside Avenue, Suite 108
Montclair, NJ 07042
(973) 744-1565
(Address and telephone
number of principal executive offices)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No
[X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange
Act.
Yes [X] No [ ]
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in
the definitive proxy or information statement incorporated by
reference in Part III of this Form 10-K or amendment to Form 10-K.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a small reporting company. See definitions of “large
accelerated filer”, “accelerated filer”, and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
(Do not check if a smaller reporting
company)
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Smaller reporting company [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]
The aggregate market value of the voting and non-voting common
equity held by non-affiliates as of June 30, 2016, was
$7,391,435.
As of March 27, 2017, there were 34,262,264 shares of common
stock outstanding.
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FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K (including the section regarding
Management's Discussion and Analysis or Plan of Operation) contains
forward-looking statements regarding our business, financial
condition, results of operations and prospects. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions or variations of such words are
intended to identify forward-looking statements, but are not deemed
to represent an all-inclusive means of identifying forward-looking
statements as denoted in this Annual Report on Form 10-K.
Additionally, statements concerning future matters are
forward-looking statements.
Although forward-looking statements in this Annual Report on Form
10-K reflect the good faith judgment of our management, such
statements can only be based on facts and factors currently known
by us. Consequently, forward-looking statements are inherently
subject to risks and uncertainties and actual results and outcomes
may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements. Factors that could
cause or contribute to such differences in results and outcomes
include, without limitation, those specifically addressed under the
heading "Risks Factors" below, as well as those discussed elsewhere
in this Annual Report on Form 10-K. Readers are urged not to place
undue reliance on these forward-looking statements, which speak
only as of the date of this Annual Report on Form 10-K. We file
reports with the United States Securities and Exchange Commission
("SEC"). Our electronic filings with the SEC (including our Annual
Reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, and any amendments to these reports) are
available free of charge on the SEC’s website at
http://www.sec.gov. You can also read and copy any materials we
file with the SEC at the SEC's Public Reference Room at 100 F
Street, NE, Washington, DC 20549. You can obtain additional
information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains
an Internet site (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking
statements in order to reflect any event or circumstance that may
arise after the date of this Annual Report on Form 10-K, except as
required by law. Readers are urged to carefully review and consider
the various disclosures made throughout the entirety of this Annual
Report, which are designed to advise interested parties of the
risks and factors that may affect our business, financial
condition, results of operations and prospects.
Item 1. Description of Business
Overview
FluoroPharma Medical, Inc. ("we", the "Company" or the
"Registrant") is 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 and/or assessment
of disease through the visualization of subtle changes in
biochemical and biological processes. Our 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, or CAD. We
currently have two clinical-stage molecular imaging pharmaceutical
product candidates: 18-F TPP (BFPET) and 18-F FCPHA
(CardioPET).
Corporate History
FluoroPharma Medical, Inc. (f/k/a Commercial E-Waste Management
Inc.) was organized in January 2007 under the laws of the State of
Nevada to serve as an electronics waste management solution
provider, specializing in the collection, retirement, storage and
remarketing of excess, damaged or obsolete electronic assets.
FluoroPharma Inc. was organized in June 2003 under the laws of the
State of Delaware to engage in the discovery, development and
commercialization of proprietary products for the positron emission
tomography (PET) market. Pursuant to an Agreement and
Plan of Merger by and among FluoroPharma Medical, Inc.,
FluoroPharma, Inc., and FPI Merger Corporation., a wholly
owned Delaware subsidiary of FluoroPharma Medical, Inc.
(“MergerCo”), on May 16, 2011, MergerCo merged with and
into FluoroPharma Inc., and FluoroPharma Inc., as the surviving
corporation, became a wholly owned subsidiary of FluoroPharma
Medical, Inc. (the “Merger”). Since the Merger, we
have conducted our business through our wholly-owned
subsidiary.
Our Product Candidates
BFPET (18-F FTPP)
Our BFPET program employs a ([18F]-labeled cationic lipophilic
tetraphenylphosphonium ion (18-FTPP) as an imaging agent designed
for use in stress-testing for patients with presumptive or proven
CAD. 18-F FTPP measures the extent and severity of cardiovascular
disease through the detection of ischemic (i.e. reversible and
viable) and infarcted (i.e., irreversibly damaged) myocardial
(i.e., heart) tissue. Its mechanism of action allows it 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 18-F FTPP than normal
healthy myocardial cells do, 18-F FTPP can distinguish ischemic and
infarcted cells from those that are healthy. If approved, 18-F FTPP
will represent one of the first molecular imaging blood flow agents
commercialized for use in the cardiovascular segment of the PET
imaging market. 18-F FTPP may also provide information on cardiac
mitochondrial membrane potential, enabling global and regional
assessment of the electro-physiologic integrity of the
myocardium.
Currently, cardiac perfusion imaging is performed routinely with
SPECT tracers such as Sestamibi, Tetrofosmin, Thallium-201 or the
PET tracers Rubidium-82 and N-13 ammonia. However, the industry
standard SPECT imaging has a diagnostic accuracy of approximately
75%, with research indicating that 10% of patients cleared as
“normal” were subsequently found to be
“abnormal” using PET imaging. The current PET tracer
Rubidium-82 has experienced an FDA recall and high cost issues,
while N-13 ammonia is produced in a cyclotron and must be used
locally within a matter of minutes due to a very short physical
half-life. The introduction of a Fluorine-labeled myocardial agent,
with its longer half-life enabling the existing supply-chain
potential, would be a catalyzing event toward advancing the role of
PET imaging in cardiovascular disease and improving diagnostic
imaging.
18-F FTPP successfully completed a Phase I clinical trial in 12
healthy volunteers with no adverse events and no clinically
significant changes noted in follow-up clinical and laboratory
testing. 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.
We have announced that we will begin Phase II trials at
Massachusetts General Hospital to assess its efficacy in CAD
subjects; and expect enrollment to commence in 2017.
CardioPET (18-F FCPHA)
Our CardioPET program employs Trans-9-[18F]-Fluoro-3,
4-Methyleneheptadecanoic Acid (18-F FCPHA) as a molecular imaging
agent designed to assess myocardial blood flow and metabolism in
patients with
CAD, including patients unable to
perform exercise cardiac stress-testing. 18-F FCPHA allows for the
potential detection of ischemic (i.e. reversible and viable) and
infarcted (i.e. irreversibly damaged) myocardial tissue in patients
with presumptive or proven acute and chronic CAD and related
cardiac diseases.
In addition, 18-F FCPHA could be useful for assessing myocardial
viability for the prediction of improvement prior to and/or
following revascularization in patients with acute CAD, including
myocardial infarction (heart attack). 18-F FCPHA allows for the
identification of compromised but viable heart tissue, which is
important since revascularization in those patients with
substantial viable myocardium results in improved left ventricular
function and survival. Importantly, 18-F FCPHA, 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 chronic CAD and
underlying metabolic disorders. 18-F FCPHA is designed to provide
the fatty-acid metabolic component for assessing myocardial
metabolism and viability, which play a central role in the
progression of diabetes and heart failure.
The safety and tolerability of 18-F FCPHA have been demonstrated in
a Phase I trial conducted at the Massachusetts General
Hospital. Enrollment in a Phase IIa trial has been
completed at four sites in Belgium to assess its safety and
efficacy in CAD patients. This Phase IIa study was an
open label trial designed to assess the safety and diagnostic
performance of 18-F FCPHA compared with standard-of-care myocardial
perfusion imaging, and angiography as a gold standard of epicardial
coronary artery disease. Specifically, the Phase IIa trial
consisted of approximately 30 individuals with known or suspected
stable chronic CAD who underwent imaging at rest and after
pharmacologic and exercise stress-testing for the evaluation of
suspected or proven CAD. Interim safety and imaging results
were presented in February 2014. The enrollment for the Phase IIa clinical
trial of CardioPET was closed in December 2014. Analysis was
performed and a full clinical study report (CSR) was completed and
submitted to FAMHP (Europe) in July of 2016. A briefing package
will be submitted to US FDA with the annual IND update in May of
2017.
Strategic Alliances and Commercial Agreements
License Agreement with Massachusetts General Hospital
We have two exclusive technology licenses with Massachusetts
General Hospital (“MGH”) which we entered into on June
26, 2014 (collectively, the “Agreements”). Those
agreements replace the single license agreement with MGH dated
April 27, 2009, as amended by letter dated June 21, 2011 and
agreement dated October 31, 2011 (the “Original
Agreement”). The Agreements provide exclusive licenses for
our two lead product candidates, BFPET and CardioPET, two of the
three cardiac imaging technologies covered by the Original
Agreement. The Agreements were entered into primarily for the
purpose of separating our rights and obligations with respect to
our different product development programs. Each of the Agreements
requires us to pay MGH an initial license fee of $175,000 and
annual license maintenance fees of $125,000 each. The Agreements
require us to meet certain obligations, including, but not limited
to, meeting certain development milestones relating to clinical
trials and filings with the United States Food and Drug
Administration. MGH has the right to cancel or make non-exclusive
certain licenses on certain patents should we fail to meet
stipulated obligations and milestones. Additionally, upon
commercialization, we are required to make specified milestone
payments and royalties on commercial sales. On August 10, 2016, we
entered into agreements with MGH to amend the Agreements to
include the potential to license technical information in
addition to intellectual property. We are amortizing the cost of
these intangible assets over the remaining useful life of the
Agreements of 10 years.
We believe that we maintain a good relationship with MGH and will
be able to obtain waivers or extension of our obligations under the
Agreements, should the need arise. If MGH were to refuse to provide
us with a waiver or extension of any of our obligations or were to
cancel or make the license non-exclusive, this would have a
material adverse impact on our business as we may be unable to
commercialize products without exclusivity and would lose our
competitive edge for portions of the patent
portfolio.
License Agreement with Sinotau USA
We have two exclusive license agreements (the
“Licenses”) with Sinotau USA, Inc., a wholly-owned
subsidiary of Hainan Sinotau Pharmaceutical Co., Ltd.
(“Sinotau”), a pharmaceutical organization. Sinotau is
responsible for developing and commercializing the Company’s
proprietary cardiac PET imaging assets, CardioPET and BFPET, in
China and Canada. Sinotau also retains a first right of
refusal to license the technology for development in Australia and
Singapore. In accordance with the Licenses, the Company is
entitled to upfront payments of $550,000, milestone payments
totaling $1,450,000 upon the completion of certain development
activities and royalties on future sales made by
Sinotau. As of December 31, 2016, the Company has received
payments of $775,000 in accordance with the terms of the
Licenses.
Clinical Research Agreements
Beginning in September 2012, we entered into Clinical Research
Services Agreements with SGS Life Science Services (Belgium),
Biomedical Systems (St. Louis, MO), and MERGE eCLinical OS
(Morrisville, NC) for clinical research services relating to our
CardioPET Phase II study to assess myocardial perfusion and fatty
acid uptake in coronary artery disease (“CAD”)
patients. The Phase IIa trial was described above As of December
31, 2016 the Company has terminated its agreement with SGS and
recorded a gain on settlement of accounts payable of $84,842 in
other income in the statement of operations. The Company has made
all required payments to SGS and all settlement terms have been
met. In addition, we engaged FGK Representative Service GmbH to
serve as our sponsor in compliance with the laws governing clinical
trials conducted in the European Union. In December
2014, we announced that the enrollment for a Phase II clinical
trial of CardioPET was closed. We believed that this trial had
acquired sufficient patient data allowing for the assessment of the
pharmaceutical's safety and quality of 18-F FCPHA generated
cardiac images in humans.
The Company currently maintains clinical research agreements with
Pharmaceutical Product Development, LLC (Wilmington, NC),
Cardiovascular Imaging Technologies (CVIT, Kansas City, MO),
clinical research organizations engaged in the business of managing
clinical research programs and providing clinical development and
other related services, for the services relating to the BFPET
Phase II study.
Product Development and Commercialization
We intend to develop our products through the completion of Phase
II and/or Phase III studies at which point we will seek to partner
with organizations having the resources required to undertake the
further development, regulatory approval and commercialization of
our proprietary products.
We believe that while the overall regulatory process for molecular
imaging products is currently similar to those governing
therapeutic agents, the development timelines may be significantly
shorter. Whereas typical clinical trials involving therapeutic
agents include efficacy endpoints such as survival, time to disease
progression, and progression free survival, all of which must be
monitored over long periods (often years), diagnostic imaging
agents often take significantly less time to evaluate. This
shortened clinical development period relative to therapeutics is a
function of the speed with which a molecular imaging study takes
place—on the order of several hours, as compared to months.
Also, because the results of the scan are instantaneous, the
clinical trials do not initially require long-term follow-up for
primary endpoints that may take significant periods of time to
evaluate. Many PET centers in the U.S. routinely perform 5 to 20
PET scans per day. Based on the foregoing, we believe our first
product may be able to be commercialized within five
years.
Market Opportunity
Each year, millions of patients undergo molecular imaging studies
in the United States. Approximately half of these studies are
performed to detect and evaluate ischemic heart disease and
myocardial infarction in patients with acute and chronic forms of
CAD. These studies provide clinical benefit in the initial
evaluation of patients with suspected but unproven CAD, and in
those patients in whom a diagnosis of CAD has been established and
information on prognosis or risk is required. Molecular imaging
studies are used for detecting the presence or absence of critical
coronary artery stenosis, providing prognostic information on
long-term outcomes, and stratifying patient risk for adverse
cardiac events.
We believe that our market opportunity is a direct function of the
prevalence of coronary artery disease, and the number of molecular
imaging studies anticipated to be performed per year using SPECT
and PET imaging technologies. This is reflected in the more than 12
million scans in the U.S. alone for patients with suspected acute
or chronic forms of CAD. We expect the market for 18-F
FTPP, if approved, will be driven by its use (i) as a blood flow
imaging agent in combination with stress-testing for the
identification of ischemic and infarcted tissue in patients with
chronic CAD; and/or (ii) for the assessment of left ventricular
mechanical function and myocardial mitochondrial membrane
integrity. We expect that the market for 18-F FCPHA, if approved,
will derive from the approximately 19 million patients in the U.S.
annually with chronic forms of CAD and underlying metabolic
disorders that contribute to high risk of diabetes and heart
failure Because we believe there is no product currently on the
market that may allow for an at-rest assessment of significant
portions of this population, we believe 18-F FCPHA may be readily
adopted by the cardiology community for the assessment of ischemia
and metabolic risk in this patient pool, with the long-term goal of
providing guidance for the therapeutics used for glucose and fatty
acid modulation in diabetes, and ischemic or non-ischemic heart
failure.
Competition
We operate in a highly competitive segment of the pharmaceutical
market. If any of our products are approved for commercialization,
we will face competition for market share from large pharmaceutical
and biotechnology companies such as Lantheus, Bracco, GE Healthcare
and Mallinckrodt, academic institutions, government agencies, and
private and public research institutions engaged in the development
and commercialization of existing standard of care products, as
well as novel cardiac imaging agents. Many of our competitors have
significantly greater financial, product development, manufacturing
and marketing resources than do we. Large pharmaceutical companies
have extensive experience in clinical testing and obtaining
regulatory approval for products. We also may compete with these
organizations to recruit scientists and clinical development
personnel. Smaller or early-stage companies may also prove to be
significant competitors, particularly through collaborative
arrangements with large and established companies.
Intellectual Property
We believe that clear and extensive patent coverage for our
technologies, both domestic and international, is central to our
long-term success and intend to continue to allocate resources to
protection of our intellectual property accordingly. We have
obtained the licenses to our patents and patent applications from
MGH, the patent assignee in each case. The issued patents covering
our 18-F FCPHA and 18-F FTPP technologies include both composition
and method of use patents within the field of diagnostic cardiology
that expire in 2025.
We also depend upon the skills, knowledge, experience and know-how
of our management and research and development personnel, as well
as that of our advisors, consultants and other contractors. To help
protect our proprietary know-how, which is not patentable, and for
inventions for which patents may be difficult to enforce, we
currently rely and will in the future rely on trade secret
protection and confidentiality agreements to protect our interests.
To this end, we require all of our employees, consultants, advisors
and other contractors to enter into confidentiality agreements that
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.
Governmental Regulations
Government authorities in the United States and foreign countries
extensively regulate, among other things, the research,
development, testing, manufacture, labeling, promotion,
advertising, distribution, sampling, marketing and import and
export of pharmaceutical products. Our molecular imaging
pharmaceuticals in the United States will be subject to FDA
regulation as drugs under the Federal Food, Drug and Cosmetic Act,
or FDCA, and require FDA approval prior to commercial distribution.
The process of obtaining governmental approvals and complying with
ongoing regulatory requirements requires the expenditure of
substantial time and financial resources. In addition, statutes,
rules, regulations and policies may change and new legislation or
regulations may be issued that could delay such approvals. If we
fail to comply with applicable regulatory requirements at any time
during the product development process, approval process, or after
approval, we may become subject to administrative or judicial
sanctions. These sanctions could include the FDA’s refusal to
approve pending applications, withdrawals of approvals, clinical
holds, warning letters, product recalls, product seizures, total or
partial suspension of our operations, injunctions, fines, civil
penalties or criminal prosecution. Any agency enforcement action
could have a material adverse effect on us.
The U.S. regulatory scheme for the development and
commercialization of new pharmaceutical products can be divided
into three distinct stages as described below.
Preclinical Stage
The preclinical stage involves the characterization, product
formulation and animal testing necessary to prepare an
Investigational New Drug application, or IND, for submission to the
FDA. The IND must be reviewed and authorized by the FDA before the
drug can be tested in humans. Once a new pharmaceutical agent has
been identified and selected for further development, preclinical
testing is conducted to confirm pharmacological activity, to
generate safety data, to evaluate prototype dosage forms for
appropriate release and activity characteristics, and to confirm
the integrity and quality of the material to be used in clinical
trials. A bulk supply of the active ingredient to support the
necessary dosing in initial clinical trials must be secured. Data
from the preclinical investigations and detailed information on
proposed clinical investigations are compiled in an IND submission
and submitted for FDA approval before human clinical trials may
begin. If the FDA does not formally communicate an objection to the
IND within 30 days, the specific clinical trials outlined in
the IND may go forward.
Clinical Stage
The clinical stage of drug development follows a successful IND
submission and involves the activities necessary to demonstrate the
safety, tolerability, efficacy, and dosage of the substance in
humans, as well as the ability to produce the substance in
accordance with the FDA’s cGMP requirements. Data from these
activities are compiled in a New Drug Application, or NDA,
requesting approval to market the drug for a given use, or
indication. Clinical trials must be conducted under the supervision
of qualified investigators in accordance with good clinical
practice, and according to IND-approved protocols detailing, among
other things, the study objectives and the parameters, or
endpoints, to be used in assessing safety and efficacy. Each trial
must be reviewed, approved and conducted under the auspices of an
independent Institutional Review Board, or IRB, and each trial,
with limited exceptions, must include all subjects’ informed
consent. The clinical evaluation stage typically involves the
following sequential process:
Phase I clinical trials are conducted in a limited number of
healthy subjects to determine the drug’s safety,
tolerability, and biological performance. The total number of
subjects in Phase I clinical trials varies, but is generally
in the range of 20 to 80 people (or less in some cases, such as
drugs with significant human experience).
Phase II clinical trials involve administering the drug to
subjects suffering from the target disease or condition to evaluate
the drug’s potential efficacy and appropriate dose. The
number of subjects in Phase II trials is typically several
hundred subjects or less.
Phase III clinical trials are performed after preliminary
evidence suggesting effectiveness has been obtained and safety,
tolerability, and appropriate dosing have been established.
Phase III clinical trials are intended to gather additional
data needed to evaluate the drug’s overall benefit-risk
relationship of the drug and to provide adequate instructions for
its use. Phase III trials usually include from several hundred to
several thousand subjects.
Throughout the clinical testing stage, samples of the product made
in different batches are tested for stability to establish shelf
life constraints. In addition, increasingly large-scale production
protocols and written standard operating procedures must be
developed for each aspect of commercial manufacture and
testing.
The clinical trial stage is both costly and time-consuming, and may
not be completed successfully within any specified time period, if
at all. The FDA closely monitors the progress of each of the three
phases of clinical trials that are conducted under an IND and may,
at its discretion, reevaluate, alter, suspend, or terminate the
testing at any time for various reasons, including a finding that
the subjects or patients are being exposed to an unacceptable
health risk. The FDA can also request additional clinical testing
as a condition to product approval. Additionally, new government
requirements may be established that could delay or prevent
regulatory approval of our products under development. Furthermore,
institutional review boards, which are independent entities
constituted to protect human subjects in the institutions in which
clinical trials are being conducted, have the authority to suspend
clinical trials in their respective institutions at any time for a
variety of reasons, including safety issues.
New Drug Application and Review
After the successful completion of Phase III clinical trials,
the sponsor of the new drug submits an NDA to the FDA requesting
approval to market the product for one or more indications. An NDA
is a comprehensive, multi-volume application that includes, among
other things, the results of all preclinical and clinical studies,
information about the drug’s composition, and the
sponsor’s plans for producing, packaging, and labeling the
drug. In most cases, the NDA must be accompanied by a substantial
user fee. FDA has 60 days after submission to review the
completeness and organization of the application, and may refuse to
accept it for continued review, or refuse to file, if the
application is found deficient. After filing, the FDA reviews an
NDA to determine, among other things, whether a product is safe and
effective for its intended use. Drugs that successfully complete
NDA review may be marketed in the United States, subject to all
conditions imposed by the FDA.
Prior to granting approval, the FDA generally conducts an
inspection of the facilities, including outsourced facilities that
will be involved in the manufacture, production, packaging, testing
and control of the drug product for cGMP compliance. The FDA will
not approve the application unless cGMP compliance is satisfactory.
If the FDA determines that the marketing application, manufacturing
process, or manufacturing facilities are not acceptable, it will
outline the deficiencies in the submission and will often request
additional testing or information. Notwithstanding the submission
of any requested additional information, the FDA ultimately may
decide that the marketing application does not satisfy the
regulatory criteria for approval and refuse to approve the
application by issuing a “not approvable”
letter.
The length of the FDA’s review can range from a few months to
several years or more. Once an NDA is in effect, significant
changes such as the addition of one or more new indications for use
generally require prior approval of an NDA including additional
clinical trials or other data required to demonstrate that the
product as modified remains safe and effective.
Fast Track Review
The Food and Drug Administration Modernization Act of 1997, or the
Modernization Act, establishes a statutory program for relatively
streamlined approval of “Fast Track” products, which
are defined under the Modernization Act as new drugs or biologics
intended for the treatment of a serious or life-threatening
condition that demonstrates the potential to address unmet medical
needs for this condition. Fast Track status requires an official
designation by the FDA.
Abbreviated New Drug Application and Review
An Abbreviated New Drug Application, or ANDA, is a type of NDA that
is used for the review and approval of a generic drug product. A
generic drug product is one that is the same as a previously
approved innovator drug product, which means it has the same active
ingredient, dosage form, and strength, route of administration,
quality, performance characteristics, and intended use. An ANDA is
generally not required to include preclinical and clinical data to
establish safety and effectiveness. Instead, generic applicants
must scientifically demonstrate that their product is bioequivalent
to the previously approved drug, which means that it performs in
the same manner. None of the products currently under development
by FluoroPharma will be eligible for ANDA approval, although it is
possible that competing products based on our product could be
approved by this route at some future time.
Section 505(b)(2) Applications
If a proposed drug product represents only a limited change from a
product that has already been approved by the FDA, yet differs in
more ways than those permitted under the ANDA requirements, then
the applicant may be able to submit a type of NDA referred to as a
505(b)(2) application. In effect, a 505(b)(2) applicant is
permitted to rely on information in the scientific literature, or
previous safety and efficacy determinations by the FDA, rather than
submitting the full complement of clinical or other data that would
otherwise be required for NDA approval. However, the 505(b)(2)
sponsor must provide any additional clinical or other data needed
to supplement and/or establish the relevance and applicability of
prior findings for the new product formulation. We do not expect
any of our current drug portfolio to be granted approval via this
process as our products are novel and patent
protected.
Post-Approval Phase
Once the FDA has approved a new drug for marketing, the product
becomes available for physicians to prescribe in the United States.
After approval, we must comply with post-approval requirements,
including ongoing compliance with cGMP regulations, delivering
periodic reports to the FDA, submitting descriptions of any adverse
reactions reported, and complying with drug sampling and
distribution requirements. We are required to maintain and provide
updated safety and efficacy information to the FDA. We are also
required to comply with requirements concerning advertising and
promotional labeling.
Compliance with post-approval requirements will require us to
expend time, money, and effort on an ongoing basis. We expect to
use third party manufacturers to produce certain of our products in
clinical and commercial quantities. Future FDA inspections may
identify compliance issues at our facilities or at the facilities
of our contract manufacturers that may disrupt production or
distribution, or require substantial resources to
correct.
In addition, discovery of problems with a product or the failure to
comply with requirements may result in restrictions including
withdrawal or recall of the product from the market or other
voluntary or FDA-initiated action that could delay further
marketing. Newly discovered or developed safety or efficacy data
may require changes to a product’s approved labeling,
including the addition of new warnings and contraindications. Also,
the FDA may require post-market testing and surveillance to monitor
the product’s safety or efficacy, including additional
clinical studies, known as Phase IV trials, to evaluate
long-term effects.
Other Regulation in the United States
Healthcare Reimbursement
Government and private sector initiatives to limit the growth of
healthcare costs including price regulation, competitive pricing,
coverage and payment policies, and managed-care arrangements, are
continuing in many countries where we do business, including the
United States. These changes are causing the marketplace to put
increased emphasis on the delivery of more cost-effective medical
products. Government programs, including Medicare and Medicaid,
private healthcare insurance and managed-care plans have attempted
to control costs by limiting the amount of reimbursement they will
pay for procedures or treatments. This has created an increasing
level of price sensitivity among customers for diagnostic products.
Even though a new medical product may have been cleared for
commercial distribution, we may find limited demand for the product
until full reimbursement approval has been obtained from
governmental and private third-party payers.
Environmental Regulation
We are also subject to various environmental laws and regulations
both within and outside the United States. Like many other
pharmaceutical and medical device companies, our operations involve
the use of substances, including hazardous wastes, which are
regulated under environmental laws, primarily manufacturing and
sterilization processes. We do not expect that compliance with
environmental protection laws will have a material impact on our
consolidated results of operations, financial position or cash
flow. These laws and regulations are all subject to change,
however, and we cannot predict what impact, if any, such changes
might have on our business, financial condition or results of
operations.
Foreign Regulation
Whether or not we obtain FDA approval for a product, we must obtain
approval from the comparable regulatory authorities of foreign
countries before we can commence clinical trials or marketing of
the product in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that
required for FDA approval. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement
also vary greatly from country to country. Although governed by the
applicable jurisdiction, clinical trials conducted outside of the
United States typically are administered under a three-phase
sequential process similar to that discussed above for
pharmaceutical products.
Under European Union regulatory systems, we may submit marketing
authorization applications either under a centralized or
decentralized procedure. The centralized procedure, which is
available for medicines produced by biotechnology or which are
highly innovative, provides for the grant of a single marketing
authorization that is valid for all European Union member states.
This authorization is a marketing authorization approval, or MAA.
The decentralized procedure provides for mutual recognition of
national approval decisions. Under this procedure, the holder of a
national marketing authorization may submit an application to the
remaining member states. Within 90 days of receiving the
applications and assessment report, each member state must decide
whether to recognize approval. This procedure is referred to as the
mutual recognition procedure, or MRP.
In addition, regulatory approval of prices is required in most
countries other than the United States. We face the risk that the
prices which result from the regulatory approval process would be
insufficient to generate an acceptable return to us or our
collaborators.
Employees
As of December 31, 2016, we had four full-time
employees.
Item 1A. Risk
Factors.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You
should carefully consider the risks described below with all of the
other information included in this annual report before making an
investment decision. If any of the possible adverse events
described below actually occurs, our business, results of
operations or financial condition would likely suffer. In such an
event, the market price of our common stock could decline and you
could lose all or part of your investment.
Risks Related to Our Finances, Capital Requirements and Other
Financial Matters
We are an early stage company with a history of operating losses
that are expected to continue and we are unable to predict the
extent of future losses, whether we will generate significant
revenues or whether we will achieve or sustain
profitability.
We are a company in the early stage and our prospects must be
considered in light of the uncertainties, risks, expenses and
difficulties frequently encountered by companies in their early
stages of operations. We have incurred net losses every year since
our inception in 2003 and have generated no revenue from product
sales or licenses to date. Our operations have been limited to
organizing and staffing our company, acquiring, developing and
securing the proprietary rights for, and undertaking pre-clinical
development and clinical trials of our product candidates. As of
December 31, 2016, we had an accumulated deficit of approximately
$35.2 million. We expect to make substantial expenditures and incur
increasing operating costs in the future and our accumulated
deficit will increase significantly as we expand development and
clinical trial activities for our product candidates. Our losses
have had, and are expected to continue to have, an adverse impact
on our working capital, total assets and stockholders’
equity. Because of the risks and uncertainties associated with
product development, we are unable to predict the extent of any
future losses, whether we will ever generate significant revenues
or if we will ever achieve or sustain profitability.
We will need substantial additional funding and may be unable to
raise capital when needed, which would force us to delay, curtail
or eliminate one or more of our research and development
programs.
Our operations have consumed substantial amounts of cash since
inception. At December 31, 2016, we had cash and cash equivalents
of approximately $25,000, which we expect will be sufficient,
together with the proceeds from our recent private placements, to
fund our operations through March 2017. We will need to seek
substantial additional financing to continue our activities beyond
such date. We have no bank lines of credit or other arrangements or
commitments for such financing and we may not be successful in our
efforts to raise needed capital on acceptable terms, if at all. If
we are unable to obtain sufficient funding, through a corporate
collaboration, debt or equity financing or otherwise, we will be
required to curtail or discontinue one or more of our product
development programs.
We received a report from our independent registered public
accounting firm with an explanatory paragraph for the year ended
December 31, 2016 with respect to our ability to continue as a
going concern, the existence of which may adversely affect our
stock price and our ability to raise
capital.
In their report dated March 31, 2017, our independent registered
public accounting firm expressed substantial doubt about our
ability to continue as a going concern. We have incurred
losses and negative cash flows from operations since inception,
have an accumulated deficit as of December 31, 2016 and require
additional financing to fund future operations. Our ability to
continue as a going concern is subject to our ability to obtain
necessary funding from outside sources, including obtaining
additional funding from the sale of our securities.
Raising additional funds by issuing securities or through licensing
or lending arrangements may cause dilution to our existing
stockholders, restrict our operations or require us to relinquish
proprietary rights.
To the extent that we raise additional capital by issuing equity
securities, the share ownership of existing stockholders will be
diluted. Any future debt financing may involve covenants that
restrict our operations, including limitations on our ability to
incur liens or additional debt, pay dividends, redeem our stock,
make certain investments and engage in certain merger,
consolidation or asset sale transactions, among other restrictions.
In addition, if we raise additional funds through licensing
arrangements, it may be necessary to relinquish potentially
valuable rights to our product candidates, or grant licenses on
terms that are not favorable to us.
If we fail to maintain an effective system of internal control, we
may not be able to report our financial results accurately or to
prevent fraud. Any inability to report and file our
financial results accurately and timely could harm our reputation
and adversely impact the trading price of our common
stock.
Effective internal control is necessary for us to provide reliable
financial reports and prevent fraud. If we cannot
provide reliable financial reports or prevent fraud, we may not be
able to manage our business as effectively as we would if an
effective control environment existed, and our business and
reputation with investors may be harmed. As a result,
our small size and any current internal control deficiencies may
adversely affect our financial condition, results of operation and
access to capital. We have not performed an in-depth
analysis to determine if historical un-discovered failures of
internal controls exist, and may in the future discover areas of
our internal control that need improvement.
Risks Related to Our Business and Industry
Our product candidates are at an early stage of development and may
not be successfully developed or commercialized.
Our product candidates are in the early stage of development and
will require substantial further capital expenditures, development,
testing, and regulatory clearances prior to commercialization. Of
the large number of drugs in development, only a small percentage
successfully complete the United States Food and Drug
Administration, or FDA, regulatory approval process and are
commercialized. Accordingly, even if we are able to obtain the
requisite financing to fund our development programs, we cannot
assure you that our product candidates will be successfully
developed or commercialized. We are subject to the risk that some
or all of our proposed products:
●
will
be found to be ineffective or unsafe;
●
will
not receive necessary regulatory clearances;
●
will
be unable to get to market in a timely manner;
●
will
not be capable of being produced in commercial quantities at
reasonable costs;
●
will
not be successfully marketed; or
●
will
not be widely accepted by the medical community.
We may experience unanticipated problems relating to product
development, testing, regulatory compliance, manufacturing,
marketing and competition, and our costs and expenses could exceed
current estimates. We cannot predict whether we will
successfully develop and commercialize any products.
If we fail to obtain U.S. regulatory approval of our current or
future product candidates, we will be unable to commercialize these
potential products in the United States.
The clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, import, export, marketing
and distribution of our product candidates are subject to extensive
regulation by the FDA in the United States and by comparable health
authorities in foreign markets. In the United States, we are not
permitted to market our product candidates unless and until we
receive FDA approval. The process of obtaining FDA approval is
expensive, often takes many years and can vary substantially based
upon the type, complexity and novelty of the products involved. In
addition to the significant clinical testing requirements, our
ability to obtain marketing approval for these products depends on
obtaining the final results of required non-clinical testing,
including characterization of the manufactured components of our
product candidates and validation of our manufacturing processes.
With respect to foreign markets, approval procedures vary among
countries and, in addition to the aforementioned risks, can involve
additional product testing, administrative review periods and
agreements with pricing authorities. Approval of a
product candidate in the U.S. or foreign markets may be delayed,
limited or denied for many reasons, including, but not limited
to:
●
disagreement
with the design or implementation of our clinical
trials;
●
disagreement
with our interpretation of data from preclinical studies or
clinical trials;
●
our
failure to demonstrate to the satisfaction of the FDA or other
regulatory agency that a product candidate is safe and effective
for any indication;
●
the
results of clinical trials may not meet the level of statistical
significance required for approval;
●
our
inability to demonstrate that a product candidate’s clinical
and other benefits outweigh its safety risks; or
●
the
manufacturing processes or facilities of third party manufacturers
with which we or our collaborators contract for clinical and
commercial supplies may not be acceptable.
Any delay in obtaining, or inability to obtain, applicable
regulatory approvals would prevent us from commercializing our
product candidates.
Any regulatory approvals that we or our partners receive for our
product candidates may also be subject to limitations on the
indicated uses for which the product candidate may be marketed or
contain requirements for potentially costly post-marketing
follow-up studies. The subsequent discovery of previously unknown
problems with the product candidate, including adverse events of
unanticipated severity or frequency, may result in restrictions on
the marketing of the product candidate and withdrawal of the
product candidate from the market.
U.S. manufacturing, labeling, storage and distribution activities
also are subject to strict regulating and licensing by the FDA. Our
failure, or the failure of any manufacturing facilities that supply
our product candidates, to continue to meet regulatory standards or
to remedy any deficiencies could result in corrective action by the
FDA or these other authorities, including the interruption or
prevention of marketing, closure of such facilities, and fines or
penalties.
Regulatory authorities also will require post-marketing
surveillance to monitor and report to the FDA potential adverse
effects of our product candidates. If approved, any of our product
candidates’ subsequent failure to comply with applicable
regulatory requirements could, among other things, result in
warning letters, fines, suspension or revocation of regulatory
approvals, product recalls or seizures, operating restrictions,
injunctions and criminal prosecutions.
Delays in the commencement of our clinical trials could result in
increased costs and delay our ability to pursue regulatory
approval.
The commencement of clinical trials can be delayed for a variety of
reasons, including delays in:
●
obtaining
regulatory clearance to commence a clinical trial;
●
identifying,
recruiting and training suitable clinical
investigators;
●
reaching
agreement on acceptable terms with prospective clinical research
organizations, or CROs, and trial sites, the terms of which can be
subject to extensive negotiation, may be subject to modification
from time to time and may vary significantly among different CROs
and trial sites;
●
obtaining
sufficient quantities of a product candidate for use in clinical
trials;
●
obtaining
Investigator Review Board, or IRB, or ethics committee approval to
conduct a clinical trial at a prospective site;
●
identifying,
recruiting and enrolling patients to participate in a clinical
trial; and
●
retaining
patients who have initiated a clinical trial but may withdraw due
to adverse events from the compounds, insufficient efficacy,
fatigue with the clinical trial process or personal
issues.
Any delays in the commencement of our clinical trials will delay
our ability to pursue regulatory approval for our product
candidates. In addition, many of the factors that cause, or lead
to, a delay in the commencement of clinical trials may also
ultimately lead to the denial of regulatory approval of a product
candidate.
Delays in clinical testing could result in increased costs to us
and delay our ability to generate revenue.
Once a clinical trial has begun, patient recruitment and enrollment
may be slower than we anticipate. Clinical trials may also be
delayed as a result of ambiguous or negative interim results or
difficulties in obtaining sufficient quantities of product
manufactured in accordance with regulatory requirements. Further, a
clinical trial may be modified, suspended or terminated by us, an
IRB, an ethics committee or a data safety monitoring committee
overseeing the clinical trial, any clinical trial site with respect
to that site, or the FDA or other regulatory authorities due to a
number of factors, including:
●
failure
to conduct the clinical trial in accordance with regulatory
requirements or our clinical protocols;
●
inspection
of the clinical trial operations or clinical trial site by the FDA
or other regulatory authorities resulting in the imposition of a
clinical hold;
●
unforeseen
safety issues or any determination that the clinical trial presents
unacceptable health risks; and
●
lack
of adequate funding to continue the clinical trials.
Changes in regulatory requirements and guidance also may occur and
we may need to amend clinical trial protocols to reflect these
changes. Amendments may require us to resubmit our clinical trial
protocols to IRBs for re-examination, which may impact the costs,
timing and the likelihood of a successful completion of a clinical
trial. If we experience delays in the completion of, or if we must
terminate, any clinical trial of any product candidate, our ability
to obtain regulatory approval for that product candidate will be
delayed and the commercial prospects, if any, for the product
candidate may suffer as a result. In addition, many of these
factors may also ultimately lead to the denial of regulatory
approval of a product candidate.
We rely on third parties to conduct our clinical trials. If these
third parties do not meet our deadlines or otherwise conduct the
trials as required, our clinical development programs could be
delayed or unsuccessful and we may not be able to obtain regulatory
approval for or commercialize our product candidates when expected
or at all.
We do not have the ability to conduct all aspects of our
preclinical testing or clinical trials ourselves and intend to
continue to rely upon such CROs, as well as medical institutions,
clinical investigators and consultants, to conduct our clinical
trials in accordance with our clinical protocols. Our CROs,
investigators and other third parties play a significant role in
the conduct of these trials and the subsequent collection and
analysis of data from the clinical trials. There is no guarantee
that any CROs, investigators and other third parties upon which we
rely for administration and conduct of our clinical trials will
devote adequate time and resources to such trials or perform as
contractually required. If any of these third parties fail to meet
expected deadlines, fail to adhere to our clinical protocols or
otherwise perform in a substandard manner, our clinical trials may
be extended, delayed or terminated and may result in additional
costs. If any of our clinical trial sites terminate for any reason,
we may experience the loss of follow-up information on patients
enrolled in our ongoing clinical trials unless we are able to
transfer the care of those patients to another qualified clinical
trial site. In addition, principal investigators for our clinical
trials may serve as scientific advisors or consultants to us from
time to time and receive cash or equity compensation in connection
with such services. If these relationships and any related
compensation result in perceived or actual conflicts of interest,
the integrity of the data generated at the applicable clinical
trial site may be jeopardized.
If we are unable to establish sales and marketing capabilities or
fail to enter into agreements with third parties to market,
distribute and sell any products we may successfully develop, we
may not be able to effectively market and sell any such products
and generate product revenue.
We do not currently have the infrastructure for the sales,
marketing and distribution of any of our product candidates, and
must build this infrastructure or make arrangements with third
parties to perform these functions in order to commercialize any
products that we may successfully develop. The establishment and
development of a sales force, either by us or jointly with a
partner, or the establishment of a contract sales force to market
any products we may develop, will be expensive and time-consuming
and could delay any product launch. If we, or our partners, are
unable to establish sales and marketing capability or any other
non-technical capabilities necessary to commercialize any products
we may successfully develop, we will need to contract with third
parties to market and sell such products. We may not be able to
establish arrangements with third-parties on acceptable terms, if
at all.
We license patent rights from third party owners. If such owners do
not properly maintain or enforce the patents underlying such
licenses, our competitive position and business prospects will be
harmed.
We are party to a number of licenses that give us rights to third
party intellectual property that is necessary or useful for our
business. In particular, we have obtained the rights from
Massachusetts General Hospital, for our composition of matter
patents and some method of use patents. We may enter into
additional licenses to third party intellectual property in the
future. Our success will depend in part on the ability of our
licensors to obtain, maintain and enforce patent protection for
their intellectual property, in particular, those patents to which
we have secured exclusive rights. Our licensors may not
successfully prosecute the patent applications to which we are
licensed. Even if patents issue with respect to these patent
applications, our licensors may fail to maintain these patents, may
determine not to pursue litigation against other companies that are
infringing these patents, or may pursue such litigation less
aggressively than we would. In addition, our licensors may
terminate their agreements with us in the event we breach the
applicable license agreement and fail to cure the breach within a
specified period of time. Without protection for the intellectual
property we license, other companies might be able to offer
substantially identical products for sale, which could adversely
affect our competitive business position and harm our business
prospects. Our proprietary rights may not adequately protect our
intellectual property and product candidates and if we cannot
obtain adequate protection of our intellectual property and product
candidates, we may not be able to successfully market our product
candidates.
Our commercial success will depend in part on obtaining and
maintaining intellectual property protection for our technologies
and product candidates. We will only be able to protect our
technologies and product candidates from unauthorized use by third
parties to the extent that valid and enforceable patents cover
them, or that other market exclusionary rights apply.
The patent positions of life science companies, like ours, can be
highly uncertain and involve complex legal and factual questions
for which important legal principles remain unresolved. Our issued
patents may be subject to challenge and possibly invalidated by
third parties. Changes in either the patent laws or in the
interpretations of patent laws in the United States or other
countries may diminish the market exclusionary ability of our
intellectual property.
In addition, others may independently develop similar or
alternative compounds and technologies that may be outside the
scope of our intellectual property. Should third parties obtain
patent rights to similar compounds or radiolabeling technology,
this may have an adverse effect on our business.
To the extent that consultants or key employees apply technological
information independently developed by them or by others to our
product candidates, disputes may arise as to the proprietary rights
of the information, which may not be resolved in our favor.
Consultants and key employees that work with our confidential and
proprietary technologies are required to assign all intellectual
property rights in their discoveries to us. However, these
consultants or key employees may terminate their relationship with
us, and we cannot preclude them indefinitely from dealing with our
competitors. If our trade secrets become known to competitors with
greater experience and financial resources, the competitors may
copy or use our trade secrets and other proprietary information in
the advancement of their products, methods or technologies. If we
were to prosecute a claim that a third party had illegally obtained
and was using our trade secrets, it would be expensive and time
consuming and the outcome would be unpredictable. In addition,
courts outside the United States are sometimes less willing to
protect trade secrets than courts in the United States. Moreover,
if our competitors independently develop equivalent knowledge, we
would lack any contractual claim to this information, and our
business could be harmed.
Our ability to commercialize our product candidates will depend on
our ability to sell such products without infringing the patent or
proprietary rights of third parties. If we are sued for infringing
intellectual property rights of third parties, such litigation will
be costly and time consuming and an unfavorable outcome would have
a significant adverse effect on our business.
Our ability to commercialize any of our product candidates that we
may successfully develop will depend on our ability to sell such
products without infringing the patents or other proprietary rights
of third parties. Third party intellectual property in the fields
of cardiology, oncology, neurology, and radiopharmaceutical
technologies are complicated, and third party intellectual property
rights in these fields are continuously evolving. We have not
performed searches for third party intellectual property rights
that may raise freedom-to-operate issues, and we have not obtained
legal opinions regarding commercialization of our product
candidates. As such, there may be existing patents that may affect
our ability to commercialize our product candidates.
In addition, because patent applications are published
18 months after their filing, and because applications can
take several years to issue, there may be currently pending third
party patent applications that are unknown to us, which may later
result in issued patents. If a third party claims that we infringe
on its patents or other proprietary rights, we could face a number
of issues that could seriously harm our competitive position,
including:
●
infringement
claims that, with or without merit, can be costly and time
consuming to litigate, can delay the regulatory approval process
and can divert management’s attention from our core business
strategy;
●
substantial
damages for past infringement which we may have to pay if a court
determines that our products or technologies infringe upon a
competitor’s patent or other proprietary rights;
●
if
a license is available from a holder, we may have to pay
substantial royalties or grant cross licenses to our patents or
other proprietary rights; and
●
redesigning
our process so that it does not infringe the third party
intellectual property, which may not be possible, or which may
require substantial time and expense including delays in bringing
our own products to market.
Such actions could harm our competitive position and our ability to
generate revenue and could result in increased costs.
We may incur substantial product liability or indemnification
claims relating to the clinical testing of our product
candidates.
We face an inherent risk of product liability exposure related to
the testing of our product candidates in human clinical trials, and
claims could be brought against us if use or misuse of one of our
product candidates causes, or merely appears to have caused,
personal injury or death. While we have and intend to maintain
product liability insurance relating to our clinical trials, our
coverage may not be sufficient to cover claims that may be made
against us and we may be unable to maintain such insurance. Any
claims against us, regardless of their merit, could severely harm
our financial condition, strain our management and other resources
or destroy the prospects for commercialization of the product which
is the subject of any such claim. We are unable to predict if we
will be able to obtain or maintain product liability insurance for
any products that that may be approved for marketing. Additionally,
we have entered into various agreements where we indemnify third
parties for certain claims relating to the testing and use of our
product candidates. These indemnification obligations may require
us to pay significant sums of money for claims that are covered by
these indemnifications.
If any product candidates that we may successfully develop do not
gain market acceptance among physicians, patients and the medical
community, we will be unable to generate significant revenue, if
any.
Even if our product candidates receive regulatory approval, they
may not gain market acceptance among physicians, patients,
healthcare payers and the medical community. Coverage and
reimbursement of our product candidates by third party payers,
including government payers, generally is also necessary for
commercial success. The degree of market acceptance of any approved
products will depend on a number of factors,
including:
●
limited
indications of regulatory approvals;
●
the
establishment and demonstration in the medical community of the
clinical efficacy and safety of our product candidates and their
potential advantages over existing diagnostic
compounds;
●
the
prevalence and severity of any side effects;
●
our
ability to offer our product candidates at an acceptable
price;
●
the
relative convenience and ease of administration of our
products;
●
the
strength of marketing and distribution support; and
●
sufficient
third party coverage or reimbursement.
The failure of any of our product candidates to gain market
acceptance could impair our ability to generate revenue, which
could have a material adverse effect on our future
business.
We have no manufacturing capabilities and rely on third parties to
manufacture our preclinical and clinical supplies and expect to
continue to rely on third parties to produce commercial supplies of
any approved product candidate, which reliance could adversely
impact our business.
We have no commercial manufacturing facility for our product
candidates and no experience in manufacturing commercial quantities
of our product candidates. As such, we are dependent on third
parties to supply our product candidates according to our
specifications, in sufficient quantities, on time, in compliance
with appropriate regulatory standards and at competitive prices. We
cannot be sure that we will be able to obtain an adequate supply of
our product candidates on acceptable terms, or at all. If any third
party becomes unable or unwilling to deliver sufficient quantities
of our product candidates to us on a timely basis and in accordance
with applicable specifications and other regulatory requirements,
it would materially adversely affect clinical development and
potential commercialization of the product.
Third party manufacturers are required to maintain compliance with
cGMPs and will be subject to inspections by the FDA or comparable
agencies in other jurisdictions to confirm such compliance. In the
event that the FDA or such other agencies determine that our third
party suppliers have not complied with cGMP, our clinical trials
could be terminated or subjected to a clinical hold until such time
as we are able to obtain appropriate replacement
material. Any delay, interruption or other issues that
arise in the manufacture, packaging, or storage of our products as
a result of a failure of the facilities or operations of our third
party suppliers to pass any regulatory agency inspection could
significantly impair our ability to develop and commercialize our
products.
We do not expect to have the resources or capacity to commercially
manufacture any of our proposed products, if approved, and will
likely continue to be dependent upon third party manufacturers. Our
dependence on third parties to manufacture and supply us with
clinical trial materials and any approved products may adversely
affect our ability to develop and commercialize our products on a
timely basis or at all.
Our competitors may develop products that are less expensive,
deemed safer or more effective, which may diminish or eliminate the
commercial success of any potential products that we may
successfully develop and seek to commercialize.
If our competitors market products that are less expensive, safer
or more effective than our future products developed from our
product candidates, or that reach the market before our product
candidates, we may not achieve commercial success. For example, if
approved, 18-F FTPP’s primary competition in the non-acute
setting will be perfusion imaging agents, such as Sestamibi,
produced by Lantheus Medical Imaging; Tetrofososmin produced by GE
Healthcare; and generic thallium, the majority U.S. suppliers being
Mallinckrodt and Lantheus Medical Imaging. The market may choose to
continue utilizing the existing products for any number of reasons,
including familiarity with or pricing of these existing products.
The failure of BFPET or any of our product candidates to compete
with products marketed by our competitors would impair our ability
to generate revenue, which would have a material adverse effect on
our future business, financial condition and results of
operations.
Our competitors may:
●
develop
and market products that are less expensive or more effective than
our future products;
●
commercialize
competing products before we or our partners can launch any
products developed from our product candidates;
●
operate
larger research and development programs or have substantially
greater financial resources than we do;
●
initiate
or withstand substantial price competition more successfully than
we can;
●
have
greater success in recruiting skilled technical and scientific
workers from the limited pool of available talent;
●
secure
reimbursement faster; and
●
take
advantage of acquisition or other opportunities more readily than
we can.
We expect to compete for market share against large pharmaceutical
and biotechnology companies, smaller companies that are
collaborating with larger pharmaceutical companies, new companies,
academic institutions, government agencies and other public and
private research organizations.
In addition, the life sciences industry is characterized by rapid
technological change. Because our research approach integrates many
technologies, it may be difficult for us to stay abreast of the
rapid changes in each technology. If we fail to stay at the
forefront of technological change, we may be unable to compete
effectively. Our competitors may render our technologies obsolete
by advances in existing technological approaches or the development
of new or different approaches, potentially eliminating the
advantages in our product discovery process that we believe we
derive from our research approach and proprietary
technologies.
The use of hazardous materials in our operations may subject us to
environmental claims or liabilities.
Our research and development activities involve the use of
hazardous materials, including chemicals and biological and
radioactive materials. Injury or contamination from these materials
may occur and we could be held liable for any damages, which could
exceed our available financial resources. This liability could
materially adversely affect our business, financial condition and
results of operations.
We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of
hazardous materials and waste products. We may be required to incur
significant costs to comply with environmental laws and regulations
in the future that could materially adversely affect our business,
financial condition and results of operations.
If we fail to attract and retain senior management, consultants,
advisors and scientific and technical personnel, our product
development and commercialization efforts could be
impaired.
Our performance is substantially dependent on the performance of
our senior management and key scientific and technical personnel,
particularly Dr. Thomas H. Tulip, our president, chief executive
officer and member of our board of directors. Although we have
entered into an employment agreement with Dr. Tulip, there is no
assurance that he will remain in our employ for the entire term of
such employment agreement. The loss of the services of any member
of our senior management or our scientific or technical staff may
significantly delay or prevent the development of our product
candidates and other business objectives by diverting
management’s attention to transition matters and
identification of suitable replacements, if any, and could have a
material adverse effect on our business, operating results and
financial condition.
We also rely on consultants and advisors to assist us in
formulating our research and development strategy. All of our
consultants and advisors are either self-employed or employed by
other organizations, and they may have conflicts of interest or
other commitments, such as consulting or advisory contracts with
other organizations, that may affect their ability to contribute to
us.
In addition, we believe that we will need to recruit additional
executive management and scientific and technical personnel. There
is currently intense competition for skilled executives and
employees with relevant scientific and technical expertise, and
this competition is likely to continue. The inability to attract
and retain sufficient scientific, technical and managerial
personnel could limit or delay our product development efforts,
which would adversely affect the development of our product
candidates and commercialization of our potential products and
growth of our business.
Healthcare reform and restrictions on reimbursement may limit our
financial returns.
Our ability or the ability of our collaborators to commercialize
any of our product candidates that we successfully develop may
depend, in part, on the extent to which government health
administration authorities, private health insurers and other
organizations will reimburse consumers for the cost of these
products. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. Each of our product
candidates is intended to replace or alter existing therapies or
procedures. These third party payers may conclude that our product
candidates are less safe, effective or cost-effective than these
existing therapies or procedures. If third party payers do not
approve our product candidates for reimbursement or fail to
reimburse for them adequately, sales will suffer as some physicians
or their patients will opt for a competing product that is approved
for reimbursement or is adequately reimbursed. Even if third party
payers make reimbursement available, these payers’
reimbursement policies may adversely affect our ability and the
ability of our potential collaborators to sell our potential
products on a profitable basis.
If we or any of our independent contractors, consultants,
collaborators, manufacturers, vendors or service providers fail to
comply with healthcare laws and regulations, we or they could be
subject to enforcement actions, which could result in penalties and
affect our ability to develop, market and sell our product
candidates and may harm our reputation.
We are subject to federal, state, and foreign healthcare laws and
regulations pertaining to fraud and abuse and patients’
rights. These laws and regulations include:
●
the
U.S. federal healthcare program anti-kickback law, which prohibits,
among other things, persons and entities from soliciting, receiving
or providing remuneration, directly or indirectly, to induce either
the referral of an individual for a healthcare item or service, or
the purchasing or ordering of an item or service, for which payment
may be made under a federal healthcare program such as Medicare or
Medicaid;
●
the
U.S. federal false claims and civil monetary penalties laws, which
prohibit, among other things, individuals or entities from
knowingly presenting or causing to be presented, claims for payment
by government funded programs such as Medicare or Medicaid that are
false or fraudulent, and which may apply to us by virtue of
statements and representations made to customers or third
parties;
●
the
U.S. federal Health Insurance Portability and Accountability Act,
or HIPAA, which prohibits, among other things, executing a scheme
to defraud healthcare programs;
●
HIPAA,
as amended by the Health Information Technology for Economic and
Clinical Health Act, or HITECH, imposes requirements relating to
the privacy, security, and transmission of individually
identifiable health information, and requires notification to
affected individuals and regulatory authorities of certain breaches
of security of individually identifiable health
information;
●
the
federal Physician Payment Sunshine Act, which requires certain
manufacturers of drugs, devices, biologics and medical supplies to
report annually to the Centers for Medicare & Medicaid
Services, or CMS, information related to payments and other
transfers of value to physicians, other healthcare providers and
teaching hospitals, and ownership and investment interests held by
physicians and other healthcare providers and their immediate
family members, which is published in a searchable form on an
annual basis; and
●
state
laws comparable to each of the above federal laws, such as, for
example, anti-kickback and false claims laws that may be broader in
scope and also apply to commercial insurers and other non-federal
payors, requirements for mandatory corporate regulatory compliance
programs, and laws relating to patient data privacy and
security.
If our operations are found to be in violation of any such health
care laws and regulations, we may be subject to penalties,
including administrative, civil and criminal penalties, monetary
damages, disgorgement, imprisonment, the curtailment or
restructuring of our operations, loss of eligibility to obtain
approvals from the FDA, or exclusion from participation in
government contracting, healthcare reimbursement or other
government programs, including Medicare and Medicaid, any of which
could adversely our financial results. Although
effective compliance programs can mitigate the risk of
investigation and prosecution for violations of these laws, these
risks cannot be entirely eliminated. Any action against
us for an alleged or suspected violation could cause us to incur
significant legal expenses and could divert our management’s
attention from the operation of our business, even if our defense
is successful. In addition, achieving and sustaining
compliance with applicable laws and regulations may be costly to us
in terms of money, time and resources.
In addition, legislation and regulations affecting the pricing of
our product candidates may change in ways adverse to us before or
after the FDA or other regulatory agencies approve any of our
product candidates for marketing. While we cannot predict the
likelihood of any of these legislative or regulatory proposals, if
any government or regulatory agencies adopt these proposals, they
could materially adversely affect our business prospects, financial
condition and results of operations.
Risks Related to our Common Stock
Our stock price may be volatile.
The stock market, particularly in recent years, has experienced
significant volatility particularly with respect to pharmaceutical,
biotechnology and other life sciences company stocks. The
volatility of pharmaceutical, biotechnology and other life sciences
company stocks often does not relate to the operating performance
of the companies represented by the stock. Factors that could cause
this volatility in the market price of our common stock
include:
●
results
from and any delays in our clinical trials;
●
failure
or delays in entering additional product candidates into clinical
trials;
●
failure
or discontinuation of any of our research programs;
●
delays
in establishing new strategic relationships;
●
delays
in the development or commercialization of our potential
products;
●
market
conditions in the pharmaceutical and biotechnology sectors and
issuance of new or changed securities analysts’ reports or
recommendations;
●
actual
and anticipated fluctuations in our financial and operating
results;
●
developments
or disputes concerning our intellectual property or other
proprietary rights;
●
introduction
of technological innovations or new commercial products by us or
our competitors;
●
issues
in manufacturing our potential products;
●
market
acceptance of our potential products;
●
third
party healthcare reimbursement policies;
●
FDA
or other domestic or foreign regulatory actions affecting us or our
industry;
●
litigation
or public concern about the safety of our product candidates;
and
●
additions
or departures of key personnel.
These and other external factors may cause the market price and
demand for our common stock to fluctuate substantially, which may
limit or prevent investors from readily selling their shares of
common stock and may otherwise negatively affect the liquidity of
our common stock. In the past, when the market price of a stock has
been volatile, holders of that stock have instituted securities
class action litigation against the company that issued the stock.
If any of our stockholders brought a lawsuit against us, we could
incur substantial costs defending the lawsuit. Such a lawsuit could
also divert the time and attention of our management.
We have not and do not anticipate paying any dividends on our
common stock.
We have paid no dividends on our common stock to date and it is not
anticipated that any dividends will be paid to holders of our
common stock in the foreseeable future. While our future dividend
policy will be based on the operating results and capital needs of
the business, it is currently anticipated that any earnings will be
retained to finance our future expansion and for the implementation
of our business plan. As an investor, you should take note of the
fact that a lack of a dividend can further affect the market value
of our stock, and could significantly affect the value of any
investment in our Company.
Because we became public with a reverse merger, we may not be able
to attract the attention of major brokerage firms.
There may be risks associated with us becoming public through a
“reverse merger.” Securities 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, in the future, want to conduct any secondary offerings
on behalf of our post-merger company.
The limited trading market for our common stock results in limited
liquidity for shares of our common stock and significant volatility
in our stock price.
Although prices for our shares of common stock are quoted on the
OTC.QB, there is little current trading and no assurance can be
given that an active public trading market will develop or, if
developed, that it will be sustained. The OTC.QB is
generally regarded as a less efficient and less prestigious trading
market than other national markets. There is no
assurance if or when our common stock will be quoted on another
more prestigious exchange or market. Active trading
markets generally result in lower price volatility and more
efficient execution of buy and sell orders. The absence
of an active trading market reduces the liquidity of our common
stock.
The market price of our stock is likely to be highly volatile
because for some time there will likely be a thin trading market
for the stock, which causes trades of small blocks of stock to have
a significant impact on our stock price. As a result of
the lack of trading activity, the quoted price for our common stock
on the OTC.QB is not necessarily a reliable indicator of its fair
market value. Further, if we cease to be quoted, holders
of our common stock would find it more difficult to dispose of, or
to obtain accurate quotations as to the market value of, our common
stock, and the market value of our common stock would likely
decline.
Our common stock is currently deemed a “penny stock,”
which makes it more difficult for our investors to sell their
shares.
Our common stock is subject to the “penny stock” rules
adopted under Section 15(g) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). The penny
stock rules generally apply to companies whose common stock is not
listed on The NASDAQ Stock Market or other national securities
exchange and trades at less than $4.00 per share, other than
companies that have had average revenue of at least $6,000,000 for
the last three years or that have tangible net worth of at least
$5,000,000 ($2,000,000 if the company has been operating for three
or more years). These rules require, among other things,
that brokers who trade penny stock to persons other than
“established customers” complete certain documentation,
make suitability inquiries of investors and provide investors with
certain information concerning trading in the security, including a
risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade
penny stocks because of the requirements of the penny stock rules
and, as a result, the number of broker-dealers willing to act as
market makers in such securities is limited. If we
remain subject to the penny stock rules for any significant period,
it could have an adverse effect on the market, if any, for our
securities. If our securities are subject to the penny
stock rules, investors will find it more difficult to dispose of
our securities.
Offers or availability for sale of a substantial number of shares
of our common stock may cause the price of our common stock to
decline.
If our stockholders sell substantial amounts of our common stock in
the public market upon the expiration of any statutory holding
period, under Rule 144, or issued upon the exercise of outstanding
options or warrants, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of
which the market price of our common stock could
fall. The existence of an overhang, whether or not sales
have occurred or are occurring, also could make more difficult our
ability to raise additional financing through the sale of equity or
equity-related securities in the future at a time and price that we
deem reasonable or appropriate.
Our articles of incorporation allows for our board of directors to
create new series of preferred stock without further approval by
our stockholders, which could adversely affect the rights of the
holders of our common stock.
Our board of directors, or our Board, has the authority to fix and
determine the relative rights and preferences of preferred stock
and has designated 3,500,000 preferred shares as Series A Preferred
Stock and 12,000,000 preferred shares as Series B Preferred Stock.
Our Board also has the authority to issue additional shares of our
preferred stock without further stockholder approval. As a result,
our Board could authorize the issuance of a series of preferred
stock that would grant to holders the preferred right to our assets
upon liquidation, the right to receive dividend payments before
dividends are distributed to the holders of common stock and the
right to the redemption of the shares, together with a premium,
prior to the redemption of our common stock. In addition, our Board
could authorize the issuance of a series of preferred stock that
has greater voting power than our common stock or that is
convertible into our common stock, which could decrease the
relative voting power of our common stock or result in dilution to
our existing stockholders.
Item 1B. Unresolved Staff
Comments
Not Applicable.
Item 2. Properties.
Our offices are located in Montclair, New Jersey pursuant to a
lease expiring on August 1, 2017 that provides for a monthly rent
of $2,164.
Item 3. Legal
Proceedings.
We are not aware of any material, active, pending or threatened
legal proceeding against us nor are we, or any subsidiary, involved
as a plaintiff or defendant in any other material proceeding or
pending litigation.
Item 4. Mine Safety
Disclosures.
Not applicable.
PART
II
Item 5. Market for Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is quoted on the OTC.QB under the symbol
“FPMI”. The following table sets forth, for the
calendar periods indicated the range of the high and low last
reported of the Company’s common stock, as reported by the
OTC.QB. The quotations represent inter-dealer prices without retail
mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions. The quotations may be rounded
for presentation.
2016
|
High
|
Low
|
First
Quarter
|
$0.37
|
$0.21
|
Second
Quarter
|
$0.28
|
$0.20
|
Third
Quarter
|
$0.29
|
$0.18
|
Fourth
Quarter
|
$0.21
|
$0.11
|
|
|
|
2015
|
|
|
First
Quarter
|
$0.50
|
$0.35
|
Second
Quarter
|
$0.45
|
$0.30
|
Third
Quarter
|
$0.43
|
$0.24
|
Fourth
Quarter
|
$0.37
|
$0.30
|
As of March 16, 2017, we had approximately 184 stockholders of
record. Our transfer agent is VStock Transfer, LLC,
Cedarhurst, New York.
Dividend Policy
We have not previously paid any cash dividends on our common stock
and do not anticipate or contemplate paying dividends on our common
stock in the foreseeable future. We currently intend to utilize all
available funds to develop our business. We can give no assurances
that we will ever have excess funds available to pay
dividends.
Unregistered Sales of Equity Securities
Equity Compensation Plan Information
The following table reflects, as of December 31, 2016, compensation
plans pursuant to which the Company is authorized to issue options,
warrants or other rights to purchase shares of its common stock,
including the number of shares issuable under outstanding options,
warrants and rights issued under the plans and the number of shares
remaining available for issuance under the plans:
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants and rights (a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
(c)
|
Equity
compensation plans approved by shareholders
|
2,736,839
|
$0.58
|
3,577,661
|
Equity
compensation plans not approved by shareholders
|
--
|
--
|
--
|
Total
|
2,736,839
|
$0.58
|
3,577,661
|
Item 6. Selected Financial Data.
Not required for smaller reporting companies.
Item 7. 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, including sales of certain of our
assets. 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 filed with the SEC.
The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto included
elsewhere herein.
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.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15 “Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern.” The core principle of the guidance is that an
entity’s management should evaluate whether there are
conditions or events, considered in the aggregate, that raise
substantial doubt about the entity’s ability to continue as a
going concern within one year after the date that the financial
statements are available to be issued. When management identifies
conditions or events that raise substantial doubt about an
entity’s ability to continue as a going concern, management
should consider whether its plans that are intended to mitigate
those relevant conditions or events that will alleviate the
substantial doubt are adequately disclosed in the footnotes to the
financial statements. This guidance will be effective for the
annual period ending after December 15, 2016, and for annual
periods and interim periods thereafter. . The Company adopted ASU
2014-15as of December 31, 2016 and updated the related disclosures.
Other than the updates to going concern related disclosures, the
adoption of ASU 2014-15 did not have an impact on the
Company’s financial statements.
In April 2015, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update
(“ASU”) 2015-03, 'Interest - Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs”. ASU 2015-03 is intended to simplify the presentation
of debt issuance costs. These amendments require that debt issuance
costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of
that debt liability, consistent with debt discounts. The
recognition and measurement guidance for debt issuance costs are
not affected by the amendments in this ASU. The adoption of ASU
2015-03 resulted in the reclassification of $17,116 and $136,260 of
unamortized debt issuance costs related to the Company's
Convertible Notes (see Note 5) from prepaid expenses and other
current assets to convertible notes payable within the
Company’s condensed consolidated balance sheets as of
December 31, 2016 and December 31, 2015, respectively. Other than
this reclassification, the adoption of ASU 2015-03 did not have an
impact on the Company's financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation
– Stock Compensation”. The areas for simplification in
this update involve several aspects of the accounting for
share-based payment transactions, including the income tax
consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. For
public entities, the amendments in this update are effective for
annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Early adoption is permitted in
any interim or annual period. If an entity early adopts the
amendments in an interim period, any adjustments should be
reflected as of the beginning of the fiscal year that includes that
interim period. An entity that elects early adoption must adopt all
of the amendments in the same period. The Company is currently
evaluating the impact of adopting this ASU on the financial
statements.
On
August 26, 2016, the FASB issued ASU No. 2016-15
“Statement of Cash Flows (Topic 230)”, a consensus of the
FASB’s Emerging Issues Task Force. The new guidance is
intended to reduce diversity in practice in how certain
transactions are classified in the statement of cash
flows. For public business entities, the standard is effective
for financial statements issued for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years.
For all other entities, the standard is effective for financial
statements issued for fiscal years beginning after December 15,
2018, and interim periods within fiscal years beginning after
December 15, 2019. Early adoption is permitted, provided that all
of the amendments are adopted in the same period. The guidance
requires application using a retrospective transition method. The
Company is currently evaluating the impact of adopting this ASU on
the financial statements.
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 U.S. 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.
Derivative Financial Instrument.
We evaluate all financial instruments to determine if such
instruments are derivatives or contain features that qualify as
embedded derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the
consolidated statements of operations. For stock-based derivative
financial instruments, we use a binomial pricing model to
value the derivative instruments at inception and on subsequent
valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as
liabilities or as equity, is evaluated at the end of each reporting
period. Derivative instrument liabilities are classified
in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be
required within 12 months of the balance sheet date.
At December 31, 2016, we had a derivative liability relating to
certain warrants as well as embedded conversion features that
contain anti-dilution provisions.
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
December 31, 2016.
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.
License Revenue Recognition
From time to time we enter into licensing agreements, the terms of
which may include grants of licenses, or options to obtain
licenses, to our intellectual property and research and development
activities. Payments under these arrangements typically include one
or more of the following: non-refundable, up-front license fees;
funding of research and/or development efforts; amounts due upon
the achievement of specified objectives; and/or royalties on future
product sales.
We recognize milestone payments as revenue in their entirety upon
the achievement of a substantive milestone if the consideration
earned from the achievement of the milestone (i) is consistent with
performance required to achieve the milestone or the increase in
value to the delivered item, (ii) relates solely to past
performance and (iii) is reasonable relative to all of the other
deliverables and payments within the arrangement. Amounts
received contractually designated to fund further research are
recorded as a reduction to research and development expenses when
we have satisfied all performance obligations to the licensee and
expenses for specified development activities have been
incurred.
RESULTS OF OPERATIONS
General
To date, we have not generated any revenues from operations and at
December 31, 2016, we had an accumulated deficit of approximately
$35.2 million primarily as a result of research and development, or
R&D, expenses and general and administrative, or G&A,
expenses. While we may in the future generate revenue from a
variety of sources, including license fees, research and
development payments in connection with strategic partnerships
and/or government grants, our product candidates are at an early
stage of development and may never be successfully developed or
commercialized. Accordingly, we expect to continue to incur
substantial losses from operations for the foreseeable future and
there can be no assurance that we will ever generate significant
revenues.
R&D Expenses
Conducting R&D is central to our business. R&D expenses
consist primarily of:
●
employee-related
expenses, which include salaries and benefits, and rent
expense;
●
license
fees and annual payments related to in-licensed products and
intellectual property;
●
expenses
incurred under agreements with CROs, investigative sites and
consultants that conduct or provide other services relating to our
clinical trials and a substantial portion of our preclinical
activities;
●
the
cost of acquiring clinical trial materials from third party
manufacturers; and
●
costs
associated with non-clinical activities, patent filings and
regulatory filings.
We expect to continue to incur substantial expenses related to our
R&D activities for the foreseeable future as we continue
product development. Since product candidates in later stages of
clinical development generally have higher development costs than
those in earlier stages of clinical development, primarily due to
the increased size and duration of later stage clinical trials, we
expect that our R&D expenses will increase in the future. In
addition, if our product development efforts are successful, we
expect to incur substantial costs to prepare for potential
commercialization of any late-stage product candidates and, in the
event one or more of these product candidates receive regulatory
approval, to fund the launch of the product.
G&A Expenses
G&A expenses consist principally of personnel-related costs,
professional fees for legal, consulting and audit services, rent
and other general operating expenses not otherwise included in
R&D. We anticipate G&A expenses will increase in future
periods, reflecting continued and increasing costs associated
with:
●
support
of our expanded R&D activities;
●
an
expanding infrastructure and increased professional fees and other
costs associated with the compliance with the Exchange Act, the
Sarbanes-Oxley Act and stock exchange regulatory requirements and
compliance; and
●
business
development and financing activities.
Comparison of Years Ended December 31, 2016 and 2015
G&A expenses were $1,691,048 and $2,465,478 for the years ended
December 31, 2016 and 2015, respectively. The 30% decrease was due
primarily to a decrease in legal costs related to litigation and
financing, reduced investor relations activities, as well as a
general decrease in operating expenses. We expect G&A expenses
to increase going forward as we proceed to advance our product
candidates through the development and regulatory
process.
R&D expenses were $511,381 and $720,861 for the years ended
December 31, 2016 and 2015, respectively. The 29% decrease was due
primarily to the delay of initiation of the BFPET trial and the
reimbursement of certain R&D expense as a result of the
Company’s license agreement with Sinotau USA,
Inc. We expect R&D expenses to increase in future
periods as our product candidates continue through clinical trials
and we seek strategic collaborations.
Other income, net was $152,568 and $22,682 for the years ended
December 31, 2016 and 2015, respectively. For the year
ended December 31, 2016, other income, net, consisted primarily of
loss on debt extinguishment of approximately $996,000, gain on
revaluation and modification of our derivative liability of
approximately $2,300,000 and interest and other expenses of
approximately $1,262,000, which primarily related to notes payable.
In addition, for the year ended December 31, 2016, we recorded a
gain on settlements of accounts payable of approximately $107,000
and other income of approximately $2,500. For the year ended
December 31, 2015, other income, net, consisted primarily of
realized and unrealized losses on trading securities of
approximately $4,000, gain on revaluation and modification of our
derivative liability of approximately $716,000 and interest and
other expenses of $873,000, which primarily related to notes
payable. In addition, for the year ended December 31, 2015, we
recorded a gain on settlements of accounts payable of approximately
$184,000.
Liquidity and Capital Resources
We have experienced net losses and negative cash flows from
operations since our inception. We have sustained
cumulative losses attributable to common stockholders of
approximately $35.2 million as of December 31, 2016. We
have historically financed our operations through issuances of
equity and the proceeds of debt instruments. 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, 2016, we issued convertible
promissory notes to certain accredited investors and received gross
proceeds of $570,000. In addition, during the year ended December
31, 2016, we received gross proceeds of $155,000 from the issuance
of short-term notes payable.
At December 31, 2016, we had cash and cash equivalents of
approximately $25,000. We continue to actively pursue various
funding options, including equity offerings, to obtain additional
funds to continue our product development activities beyond such
date. We will seek funds through equity or debt financings,
collaborative or other arrangements with corporate sources, or
through other sources. Adequate additional funding may not be
available to us on acceptable terms or at all. If adequate funds
are not available to us, we will be required to delay, curtail or
eliminate one or more of our research and development
programs.
During the year ended December 31, 2015, we issued convertible
promissory notes to certain accredited investors and received gross
proceeds of $2,980,005. In addition, during the year
ended December 31, 2015, we received gross proceeds of $365,000
from the issuance of short-term notes payable and $35,970 from the
sale of freely tradable securities.
Cash Flows for the Years Ended December 31, 2016 and
2015
Net cash used in operating activities for the year ended December
31, 2016 was $880,121 which primarily reflected our net loss of
$2,049,861, including a non-cash gain on revaluation of the
derivative liability of $2,300,341 offset by non-cash expenses of
$1,938,422, and changes in the components of working capital of
$1,531,659.
Net cash used in operating activities for the year ended December
31, 2015 was $2,676,889 which primarily reflected our net loss of
$3,163,657, including a non-cash gain on revaluation of the
derivative liability of $715,962 offset by non-cash expenses of
$623,612, and changes in the components of working capital of
$579,118.
For the year ended December 31, 2016, net cash used by investing
activities was $1,293, which reflected the purchase of the office
equipment. For the year ended December 31, 2015, net cash
provided by investing activities was $29,276, which primarily
reflected the proceeds from the sale of trading securities of
$35,970, offset by the purchase of office
equipment.
For the year ended December 31, 2015, net cash provided by
financing activities was $615,290, which reflects net proceeds from
the issuance of convertible and other notes payable. For
the year ended December 31, 2015, net cash provided by financing
activities was $2,686,315, which reflects net proceeds related to
the issuance of convertible notes payable.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to our
stockholders.
Item 7A. Quantitative and
Qualitative Disclosure About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The financial statements are included herein commencing on page
F-1.
Item 9. Change in and
Disagreement with Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and
Procedures
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation
of our CEO and our CFO, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15) and
Rule 15d-15(e) of the Exchange Act) as of the end of the period
covered by this report. Based on that evaluation, our CEO and our
CFO concluded that our disclosure controls and procedures as of the
end of the period covered by this report were effective to
ensure that information required to be disclosed is made known
to management and others, as appropriate, to allow timely decision
regarding required disclosure and that the information required to
be disclosed by us in reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules
and forms and (ii) accumulated and communicated to our
management, including our CEO and CFO, or persons performing
similar functions, as appropriate to allow timely decisions
regarding required disclosure. A controls system cannot provide
absolute assurance, however, that the objectives of the controls
system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within a company have been detected.
Management’s Annual Report on Internal Control over Financial
Reporting. Our management is
responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act). Our internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of
accounting principles generally accepted in the United
States.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control
objectives.
Our management evaluated the effectiveness of the Company’s
internal control over financial reporting as of December 31,
2016. In making this assessment, our management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in its updated 2013 Internal
Control — Integrated Framework (2013). Based on this
evaluation, our management, with the participation of the CEO and
CFO, concluded that, as of December 31, 2016, our internal
control over financial reporting was effective.
This annual report does not include an attestation report of the
Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s
registered public accounting firm pursuant to rules of the SEC that
permits us to provide only management’s report in this annual
report.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal
control over financial reporting that occurred during the fourth
quarter of the year ended December 31, 2016 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other
Information
None.
Item 10. Directors,
Executive Officers and Corporate Governance
The following persons are our executive officers and directors, and
hold the positions set forth opposite their respective
names.
Name
|
|
Age
|
|
Position
|
|
Thomas H. Tulip, Ph.D.
|
|
64
|
|
Chief Executive Officer, President and Director
|
|
Tamara Rhein
|
|
44
|
|
Chief Financial Officer
|
|
Walter Witoshkin
|
|
71
|
|
Chairman of the Board
|
|
W. Austin Lewis, IV
|
|
40
|
|
Director
|
|
Our directors hold office until the earlier of their death,
resignation or removal or until their successors have been
qualified.
Thomas H. Tulip, Ph.D. has
served as our chief executive officer since December 28, 2015 and
our president since October 5, 2015. He has also been a member of
our Board since November 6, 2015. Dr. Tulip served in leadership
roles at Navidea BioPharmaceuticals, Inc. (NAVB) from June 2011 to
May 2015. At Navidea, Dr. Tulip was responsible for defining the
strategic direction of the company, as well as leadership of
business, commercial, market, brand and product development, in
addition to new product planning and project direction. Prior to
joining Navidea, Dr. Tulip held senior leadership positions at
Alseres Pharmaceuticals from August 2008 to May 2011 and with the
succession of companies, Lantheus Medical Imaging, Bristol Myers
Squibb (BMS) and DuPont, where his roles spanned product discovery
and development, business and technology planning, brand and
alliance management and international business management. Most
recently, as President of Alseres, Molecular Imaging, Dr. Tulip led
efforts to develop markets for a Phase III neuroimaging agent.
While at DuPont and BMS, he was instrumental in the development,
commercialization and international management of the nuclear
cardiology franchise, successfully built the BMS Medical Imaging
international business, and led planning activities for innovative
PET tracers. Dr. Tulip earned a B.S. from the University of
Vermont, and an M.S. and Ph.D. from Northwestern University. He was
also a visiting scholar at Osaka University. He was Treasurer and a
Board Member of the Academy of Molecular Imaging and Chairperson of
its Institute for Molecular Technologies (IMT), where he held
numerous leadership positions. Dr. Tulip was Chairperson of the
Society of Nuclear Medicine (SNM) Corporate Advisory Board. He
serves on the Board of Directors of the Medical Imaging Technology
Association (MITA), leads its PET Working Group in the Molecular
Imaging Section and has served as a Director for the Council on
Radionuclides and Radiopharmaceuticals (CORAR). We believe that Dr.
Tulip’s extensive experience in advanced imaging
pharmaceutical product development and commercialization provides
him with the appropriate skills to serve as a member of the
Board.
Tamara Rhein has been our chief
financial officer since August 16, 2012 and served as our financial
controller since July 2011. From November 2008
until joining us, Ms. Rhein was controller for Manhattan
Pharmaceuticals, where she was responsible for a wide range of
activities, including financial statement preparation, footnote
disclosures for SEC filings, stock option accounting and quarterly
and year-end audits. From 2005 until 2008, Ms. Rhein was with
Vyteris, where her primary role was to manage the SEC accounting
and reporting department. Ms. Rhein received a Bachelor's of
Science degree in accounting from California State University at
Northridge and is also a licensed (inactive) certified public
accountant.
Walter Witoshkin has been
elected interim chairman of our Board as of December 28, 2015.
He has been a member of our Board since February 14,
2011. Mr. Witoshkin was the chairman and chief executive
officer of QuantRx Biomedical Corporation, a medical technology
company from April 2005 through August 2010. Mr. Witoshkin
has held executive positions in the healthcare and pharmaceutical
industries including senior financial positions at Wyeth Labs
(American Cyanimade), VP Business Development and chief financial
officer positions at SmithKline Beecham (now Glaxo SmithKline) and
Menley & James Laboratories, Inc. He is a founding
partner of the Trident Group, a global consultancy to the
pharmaceutical industry. We believe that Mr.
Witoshkin’s industry specific extensive management experience
provides him with a broad and deep understanding of our business
and our competitors’ efforts, which is an invaluable resource
to our Board.
W. Austin Lewis, IV has been
appointed a member of our Board effective November 6,
2015. Mr. Lewis serves as CEO, CFO, and a Director of
PAID, Inc., a company focusing on web-development and online
auctions, as well as the CEO of Lewis Asset Management Corp., an
investment management company headquartered in New York City, which
he founded in 2004. From 2003 to 2004, Mr. Lewis was employed at
Puglisi & Company, a New York based broker-dealer registered
with FINRA, where he served as a registered representative and
managed individual client accounts, conducted due diligence for
investment banking activities and managed his own personal account.
In 2002, Mr. Lewis co-founded Thompson Davis & Company, Inc., a
registered broker-dealer headquartered in Richmond, Virginia. Mr.
Lewis received his Bachelor of Science degree in Finance and
Financial Economics from James Madison University in 1998. Mr.
Lewis is also a director on the following companies with a class of
securities registered: MAM Software Group, Inc., Quest Solutions
and ScripsAmerica, Inc. We believe that Mr. Lewis’s
management and financial industry experience, together with his
understanding of our business, provides him with the appropriate
skills to serve as a member of the Board.
Director Independence
Walter Witoshkin and Austin Lewis are independent directors, as the
term “independent” is defined by the rules of the
NASDAQ Stock Market.
Board Leadership Structure and Role in Oversight
Our Board is primarily responsible for overseeing our risk
management processes. The Board receives and reviews periodic
reports from management, auditors, legal counsel, and others, as
considered appropriate regarding our assessment of risks. The
Board focuses on the most significant risks facing our company and
our general risk management strategy, and also ensures that risks
undertaken by us are consistent with the Board’s appetite for
risk. While the Board oversees our company, our management is
responsible for day-to-day risk management processes. We believe
this division of responsibilities is the most
effective.
Board Committees
Audit Committee
Walter Witoshkin and Austin Lewis serve on the audit committee of
the Board with Mr. Witoshkin serving as the Chairman. The
audit committee operates under a charter approved by the Board. The
functions of the audit committee include, among other
things:
●
evaluating
the performance, independence and qualifications of our independent
auditors and determining whether to retain our existing independent
auditors or engage new independent auditors;
●
reviewing
and approving the engagement of our independent auditors to perform
audit services and any permissible non- audit
services;
●
reviewing
our annual and quarterly financial statements and reports and
discussing the statements and reports with our independent auditors
and management;
●
reviewing
with our independent auditors and management significant issues
that arise regarding accounting principles and financial statement
presentation, and matters concerning the scope, adequacy and
effectiveness of our financial controls;
●
preparing
the report that the SEC will require in our annual proxy statement;
and
●
reviewing
and providing oversight with respect to any related party
transactions and monitoring compliance with our Code of Ethics;
and
Our Board has determined that each member of the audit committee
meets the financial literacy requirements under NASDAQ Stock Market
rules and that Mr. Witoshkin’s employment experience
qualifies him as an audit committee financial expert within the
meaning of SEC rules and regulations.
Compensation Committee
Walter Witoshkin and Austin Lewis serve on the compensation
committee of the Board, with Mr. Lewis serving as the Chairman. The
compensation committee operates under a charter approved by our
Board. The functions of the compensation committee include, among
other things:
●
reviewing
our corporate goals and objectives relevant to our
executives’ compensation, evaluating the executives’
performance in light of such goals and objectives and determining
executive compensation levels based on such
evaluations;
●
reviewing
and making recommendations to the Board with respect to
non-executive officer compensation and independent director
compensation;
●
administering
our incentive compensation and equity-based plans; and
●
preparing
the report that the SEC will require in our annual proxy statement
and Form 10-K.
Nominating Committee
We do not presently have a nominating committee. Our Board
currently acts as our nominating committee.
Code of Ethics
We adopted a Code of Ethics on July 22, 2011 that applies to all
directors, officers and employees. Our Code of Ethics is
available on our website at http://www.fluoropharma.com.
A copy of our code of ethics will also be provided to any person
without charge, upon written request sent to us at our offices
located at 8 Hillside Avenue, Suite 108, Montclair, NJ
07042.
Compensation Discussion and Analysis
Overview
Dr. Tulip was appointed
as our president on October 5, 2015 and our chief executive officer
on December 28, 2015. We have structured our
compensation packages to reflect our current level of operations
and resources. This compensation discussion describes the material
elements of compensation awarded to, earned by, or paid to each of
our executive officers who served as named executive officers
during the year ended December 31, 2016. This compensation
discussion focuses on the information contained in the following
tables and related footnotes and narrative for primarily the last
completed fiscal year; however, we also describe compensation
actions taken before or after the last completed fiscal year to the
extent it enhances the understanding of our executive compensation
disclosure.
Compensation Program Objectives and Philosophy
Our compensation committee currently oversees the design and
administration of our executive compensation program. It reviews
and approves all elements of compensation for each of our named
executive officers taking into consideration recommendations from
our chief executive officer (for compensation other than his own),
as well as competitive market guidance. We define our competitive
markets for executive talent to be the pharmaceutical and
biotechnology industries in the tri-state area. To date, we have
utilized Equilar Executive Compensation Survey, a third party
market specific compensation survey, and, when applicable, other
independent third-party compensation consultants, to benchmark our
executive compensation.
The principal elements of our executive compensation program have
historically been base salary, annual cash incentives, long-term
equity incentives in the form of stock options, other benefits and
perquisites, post-termination severance and acceleration of stock
option vesting for certain named executive officers upon
termination and/or a change in control. Our other benefits and
perquisites have consisted of life, health and disability insurance
benefits, and a qualified 401(k) savings plan. Our philosophy has
been to position the aggregate of these elements at a level that is
competitive within the industry and commensurate with our size and
performance. During 2016, our compensation philosophy has continued
to evolve to accommodate our changing circumstances, operational
needs and limited financial resources during this
period.
Base Salaries
For the year ended December 31, 2016, the base salary of our named
executives was reflective of the availability of resources and
level of continuing operations. Dr. Tulip, who was appointed as our
president on October 5, 2015 and chief executive officer on
December 28, 2015, receives an annual salary of $320,000. Ms.
Rhein, our chief financial officer, receives an annual salary of
$130,000. See “Employment Agreements”
below.
As we continue to evaluate our future human resource requirements,
our compensation committee will continue to review appropriate base
salaries for our executive officers. In making its determination,
the compensation committee will consider the time commitment
necessary and the roles our executives will play in implementing
our plans.
Long-term Equity Incentives
We provide the opportunity for our named executive officers and
other executives to earn a long-term equity incentive award.
Long-term incentive awards provide employees with the incentive to
stay with us for longer periods of time, which in turn, provides us
with greater stability. Equity awards also are less costly to us in
the short term than cash compensation. We review long-term equity
incentives for our named executive officers and other executives
annually.
Historically, for our named executive officers, our stock option
grants were of a size and term determined and approved by the
compensation committee. We have traditionally used stock options as
our form of equity compensation because stock options provide a
relatively straightforward incentive for our executives and result
in less immediate dilution of existing shareholders’
interests. Generally, all grants of stock options to our employees
were granted with exercise prices equal to or greater than the fair
market value of our common stock on the respective grant dates. For
a discussion of the determination of the fair market value of these
grants, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Critical
Accounting Policies and the Use of Estimates.”
We do not time stock option grants to executives in coordination
with the release of material non-public information. Our stock
option grants have a 10-year contractual exercise
term. The compensation committee may provide that, in
the event of a change in control, any outstanding awards that are
unexercisable or otherwise unvested will become fully vested and
immediately exercisable. If there is a termination of
employment, the applicable termination provisions regarding
exercise term will apply.
The vesting of certain of our named executive officers’ stock
options is accelerated pursuant to the terms of their employment
agreements in certain change in control or other material
events.
During 2011, Ms. Rhein was granted 10,500 common stock options with
an exercise price of $1.05 which vested equally over a three year
period. During 2012, Ms. Rhein was granted 80,000 common stock
options with an exercise price of $0.83 which vest based on
milestones related to the completion of our clinical
trials. During 2013, Ms. Rhein was granted 100,000
common stock options with an exercise price of
$0.83. These options vest equally over a three-year
period. During 2014, Ms. Rhein was granted 50,000 common stock
options with an exercise price of $0.51. These options vest based
on milestones related to the completion of our clinical trials.
During 2015, Dr. Tulip was granted 500,000 common stock options
with an exercise price of $0.35. These options vest equally over
three years upon each anniversary of his employment.
Compensation Committee Interlocks and Insider
Participation
Members of our compensation committee of the board of directors
were Lawrence Atinsky, Walter Witoshkin and W. Austin Lewis. No
member of our compensation committee was, or has been, our officer
or employee.
No member of the compensation committee has a relationship that
would constitute an interlocking relationship with our executive
officers or directors or another entity.
Item 11. Executive
Compensation
The following table sets forth the annual and long-term
compensation paid to our chief executive officer and the other
executive officers who earned more than $100,000 per year at the
end of the last three completed fiscal years. We refer to all of
these officers collectively as our “named executive
officers.”
Summary Compensation Table
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock Awards ($)
|
Option Awards ($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
All Other Compensation
($)
|
Total ($)
|
Thomas H. Tulip
|
2016
|
320,000(1)
|
|
|
|
|
|
320,000
|
|
2015
|
77,744(2)
|
|
|
52,204
|
|
|
129,948
|
|
|
|
|
|
|
|
|
|
Tamara Rhein
|
2016
|
130,000
|
|
|
|
|
|
130,000
|
|
2015
|
130,000
|
|
|
|
|
|
130,000
|
|
2014
|
130,000
|
|
|
15,169
|
|
|
145,169
|
|
|
|
|
|
|
|
|
|
Johan (Thijs) Spoor
|
2016
|
-
|
-
|
-
|
-
|
|
|
-
|
|
2015
|
266,459(3)
|
-
|
-
|
-
|
|
|
266,459
|
|
2014
|
305,000(4)
|
-
|
-
|
-
|
|
|
305,000
|
(1)
Of
this amount, $133,333 of Mr. Tulip’s salary has been accrued
for at December 31, 2016.
(2)
Dr.
Thomas H. Tulip joined us as president effective October 5, 2015
and chief executive officer effective December 28,
2015.
(3)
Of
this amount, $25,417 of Mr. Spoor’s salary has been accrued
for at December 31, 2016. Mr. Spoor resigned as our chief executive
officer on December 28, 2015.
(4)
Of
this amount, $63,542 of Mr. Spoor’s salary has been accrued
for at December 31, 2016.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information with respect to grants
of options to purchase our common stock to the named executive
officers at December 31, 2016.
|
Options
awards
|
Stock
awards
|
|||||||
Name
|
Number
of securities underlying unexercised options (#)
exercisable
|
Number
of securities underlying unexercised options (#)
unexercisable
|
Equity
incentive plan awards: Number of securities underlying unexercised
unearned options (#)
|
Option
exercise price ($)
|
Option expiration date
|
Number
of shares or units of stock that have not vested (#)
|
Market
value of shares or units of stock that have not vested
($)
|
Equity
incentive plan awards: Number of unearned shares, units or other
rights that have not vested (#)
|
Equity
incentive plan awards: Market or payout value of unearned shares,
units or other rights that have not vested ($)
|
Thomas
H. Tulip
|
166,667
|
333,333
|
|
$0.35
|
10/05/2025
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
Tamara
Rhein
|
10,500
|
|
|
$1.05
|
12/05/2021
|
-
|
-
|
-
|
-
|
|
40,000
|
40,000
|
|
$0.83
|
06/25/2022
|
-
|
-
|
-
|
-
|
|
100,000
|
|
|
$0.83
|
01/02/2023
|
-
|
-
|
-
|
-
|
|
25,000
|
25,000
|
|
$0.51
|
02/13/2024
|
-
|
-
|
-
|
-
|
Employment Agreements with Executive Officers
Thomas H. Tulip, Ph.D.:
On October 5, 2015, we entered into a three-year employment
agreement with Dr. Tulip to join the Company as president. The
employment agreement provides for a base salary of $320,000, which
amount shall increase to $375,000 per year upon the completion of a
bona fide firm commitment underwritten public offering in which we
raise gross proceeds of at least $12,000,000. Dr. Tulip is entitled
to an annual bonus in such amount and based upon such criteria as
the Board of Directors or Compensation Committee shall
determine. For the calendar year ending December 31,
2016, the maximum bonus payable to Dr. Tulip will be $125,000,
which bonus will be primarily based upon successfully achieving the
financial business and clinical milestones as set forth in the
agreement. In addition, Dr. Tulip is eligible for grants
of awards under the Company’s 2011 Equity Incentive Plan as
the Board of Directors or Compensation Committee may from time to
time determine. Dr. Tulip shall initially be granted
500,000 stock options pursuant to the terms of the 2011 Equity
Incentive Plan, which options shall vest equally over three years
upon each anniversary of his employment.
Upon termination of Dr. Tulip’s employment without Cause (as
defined in the agreement) or his resignation for Good Reason (as
defined in the agreement) prior to expiration of his employment
period, he shall be entitled to receive $550,000 payable in either
12 equal monthly installment payments or in a single lump sum, at
the Company’s discretion, together with the value of any
accrued but unused vacation time, the amount of all accrued but
previously unpaid base salary through the date of such termination,
and reimbursement of any expenses incurred. In addition, the
Company shall provide him with all benefits to which he is entitled
for 18 months or the full unexpired term of the agreement,
whichever is longer, unless Dr. Tulip’s employment is
terminated for Cause. Additionally, in the event the
Company complete a Sales Transaction (as defined in the agreement),
Dr. Tulip shall be entitled to a bonus as set forth in the
agreement and 100% of Dr. Tulip’s then outstanding options
will vest immediately. This agreement contains standard
non-competition, non-solicitation, and confidentiality
clauses.
Tamara Rhein:
We are party to an employment agreement with Ms. Rhein pursuant to which
Ms. Rhein serves as our chief financial officer. The
agreement is for an initial one year term that shall automatically
renew for successive one year increments unless otherwise
terminated. Under the agreement, Ms. Rhein will receive
a base salary at an annual rate of $130,000, and is entitled to an
annual bonus as determined by our Board or compensation
committee. Ms. Rhein is also eligible for grants of
awards under our 2011 Incentive Plan as the compensation committee
may determine from time to time. Upon termination of Ms.
Rhein’s employment prior to expiration of her employment
period without cause Ms. Rhein shall be entitled to receive (i) all
unpaid but due base salary, unpaid bonus and unused vacation days,
(ii) benefits received immediately prior to termination for an
additional period of six months following termination, (iii)
reimbursement of expenses, and (iv) base salary immediately prior
to termination for an additional period of six months following
termination. In the event that her employment is
terminated within 30 days prior to, or is terminated or she resigns
for Good Reason (as defined in the agreement) within 12 months
following a Change of Control (as defined in the agreement, she
will be entitled to her base salary and benefits for a period of 12
months following such termination or resignation. The employment
agreement contains standard non-competition, non-solicitation, and
confidentiality clauses.
Director Compensation
The following table sets forth certain information concerning
compensation paid or accrued to our non-executive directors during
the year ended December 31, 2016.
Name
|
Fees
Earned or Paid in Cash ($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
All
Other Compensation ($)
|
Total
($)
|
Walter
Witoshkin
|
$-
|
-
|
$3,480
|
-
|
-
|
$80,000
|
$83,480
|
Lawrence
Atinsky (1)
|
$-
|
-
|
$3,480
|
-
|
-
|
$-
|
$3,480
|
W.
Austin Lewis, IV
|
$-
|
-
|
$534
|
-
|
-
|
$-
|
$534
|
Peter
Conti (2)
|
$-
|
-
|
$3,480
|
-
|
-
|
$-
|
3,480
|
__________________
(1)
Mr.
Lawrence Atinksy resigned as a director in February
2017
(2)
Mr.
Peter Conti resigned as a director in January 2017
Equity Incentive Plan
On February 14, 2011, our Board and stockholders adopted the 2011
Equity Incentive Plan (the “Plan”). Under the Plan,
awards may take the form of options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue
Code of 1986 (the “Code”), non-statutory options or
restricted stock. The purpose of the Plan is to attract and
retain the best available personnel in order to promote the success
of our business and to encourage the sense of proprietorship and to
stimulate the active interest of such persons in our development
and financial success.
The Plan initially reserved 6,475,750 shares of common stock for
issuance, of which a maximum of 161,250 could be issued as
restricted stock. The 2011 Plan provides that on January 1 of each
year, commencing on January 1, 2013, the aggregate number of shares
available for issuance under the Plan shall be automatically
increased so that the number of shares then available for issuance
under the Plan will equal the greater of (i) the aggregate number
of shares subject to the Plan as of the preceding December 31 and
(ii) seven percent (7%) of our total outstanding shares. There are
currently 3,577,661 shares reserved for issuance under the Plan. As
of December 31, 2016, there were outstanding under the Plan options
to purchase 2,736,839 shares and 161,250 shares of restricted
stock.
Administration
The Plan is administered by our Board or a committee designated by
our Board. With respect to grants of awards to our officers or
directors, the Plan is administered by our Board or a committee in
a manner that permits such grants to be exempt from Section 16(b)
of the Exchange Act. Grants of awards to covered employees as
defined under Section 162(m) of the Code, will be made only by a
committee comprised solely of two or more directors eligible to
serve on a committee making awards. The Board or the committee has
the full authority to select recipients of the grants, determine
the terms and conditions of any awards, interpret the Plan, and to
take any other action deemed appropriate, consistent with the terms
of the Plan.
Eligibility
Under the Plan, awards may be granted to employees, officers and
directors of, and consultants and advisors to, our company and any
subsidiary.
Terms of
Options
The term of each option granted under the Plan shall be contained
in a stock option agreement with the optionee and such terms shall
be determined by the administrator consistent with the provisions
of the Plan, including the following:
Purchase Price. The purchase
price of the common stock subject to each incentive stock option
shall not be less than the fair market value (as set forth in the
Plan), or in the case of the grant of an incentive stock option to
a principal stockholder, not less than 110% of fair market value of
such common stock at the time such option is
granted.
Vesting. The dates on which
each option (or portion thereof) shall be exercisable and the
conditions precedent to such exercise, if any, shall be fixed by
the administrator, in its discretion, at the time such option is
granted. Unless otherwise provided in the grant agreement, in the
event of a change of control (as set forth in the Plan) the
administrator may, in its sole discretion, accelerate the vesting
of outstanding options, in whole or in part.
Expiration. Any option granted
to an employee shall become exercisable over a period of no longer
than five years. No option shall in any event be exercisable after
10 years from, and no incentive stock option granted to a 10%
stockholder shall become exercisable after the expiration of five
years from, the date of the option.
Transferability. Options are
not transferable and may be exercised solely by the optionee during
his or her lifetime or, following death, by the person entitled by
will or the laws of descent and distribution; provided, however,
that the administrator may, in its sole discretion, permit limited
transfers of non-statutory options.
Terms of Restricted Stock
A stock award consists of the transfer by us to a participant of
shares of common stock. The consideration for the shares to be
issued shall be determined by the administrator. Shares of
restricted stock are forfeitable until the terms of grant are
satisfied and are not transferable until all restrictions have
lapsed. Unless otherwise provided by the administrator, any
distributions in respect of a restricted stock award will be
subject to the same restrictions as the award.
Termination, Modification and Amendment
The Board may, in so far as permitted by law, from time to time,
suspend or terminate the Plan or revise or amend it in any respect
whatsoever, except that without the approval of our stockholders,
no such revision or amendment shall (i) materially increase the
number of shares subject to the Plan, (ii) decrease the price at
which grants may be granted, (iii) materially increase the benefits
to participants, (iv) materially modify the eligibility
requirements for participation in the Plan, (v) effect a repricing,
including through cancellations and regrants of awards, or (v)
alter or impair the rights and obligations under any outstanding
award without the written consent of the participant
thereunder.
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
The following tables set forth certain information as of March 15,
2017 regarding the beneficial ownership of our common
stock, by (i) each person or entity who, to our knowledge,
owns more than 5% of our common stock; (ii) our executive officers;
(iii) each director; and (iv) all of our executive officers and
directors as a group. Unless otherwise indicated in the footnotes
to the following table, each person named in the table has sole
voting and investment power and that person’s address is c/o
FluoroPharma Medical, Inc., 8 Hillside Avenue, Suite 108,
Montclair, N.J. 07042. Shares of common stock subject to options,
warrants, or other rights currently exercisable or exercisable
within 60 days of March 15, 2017, are deemed to be beneficially
owned and outstanding for computing the share ownership and
percentage of the stockholder holding such options, warrants or
other rights, but are not deemed outstanding for computing the
percentage of any other stockholder.
Name and Address of Beneficial Owner (1)
|
Number of
Shares Beneficially Owned
|
Percentage Beneficially
Owned (2)
|
Thomas
H. Tulip (3)
|
166,667
|
0.5%
|
Tamara
Rhein (4)
|
219,202
|
0.6%
|
Johan
(Thijs) Spoor (5)
|
288,925
|
0.8%
|
Walter
Witoshkin (6)
|
230,845
|
0.7%
|
Peter
S. Conti (7)
|
514,083
|
1.5%
|
Lawrence
Atinsky (8)
|
307,587
|
0.9%
|
W.
Austin Lewis, IV (9)
|
10,871,693
|
31.7%
|
Platinum
Long Term Growth VII LLC (10)
|
1,815,193
|
5.3%
|
All
executive officers and directors as a group (7
persons)
|
12,599,002
|
36.8%
|
(1)
Unless
otherwise indicated in the footnotes to the following table, each
person named in the table has sole voting and investment power and
that person’s address is c/o FluoroPharma Medical, Inc., 8
Hillside Avenue, Suite 108, Montclair, N.J. 07042.
(2)
Based
upon 34,262,264 shares of our common stock issued and
outstanding.
(3)
Represents
166,667 shares of common stock issuable upon exercise of options at
$0.35 per share. Does not include 333,333 shares of common stock
issuable upon exercise of options at $0.35 per share which are held
by Dr. Tulip but not currently exercisable nor exercisable within
60 days of March 15, 2017.
(4)
Includes
10,000 shares of common stock, 22,991 shares of common stock
issuable upon conversion of Series B Preferred Stock, 10,711 shares
of common stock underlying warrants, 10,500 shares of common stock
issuable upon exercise of options at $1.05 per share, 140,000
shares of common stock issuable upon exercise of options at $0.83
per share and 25,000 shares of common stock issuable upon exercise
of options at $0.51. Does not include 40,000 shares of
common stock issuable upon exercise of options at $0.83 per share
and 25,000 shares of common stock issuable upon exercise of options
at $0.51 per share which are held by Ms. Rhein but not currently
exercisable nor exercisable within 60 days of March 15,
2017.
(5)
Includes
200,398 shares of common stock, 53,571 shares of common stock
issuable upon conversion of Series B Preferred Stock, and 34,956
shares of common stock underlying warrants.
(6)
Does
not include 161,250 restricted shares that vest upon the earlier of
(i) the occurrence of a Change of Control, as defined in the 2011
Equity Incentive Plan; (ii) the successful completion of a Phase II
clinical trial for any of the Company’s products; or (ii) the
determination by the Board to provide for immediate vesting. Does
include 37,500 shares of common stock issuable upon exercise of
options at $0.95 per share, 17,857 shares of common stock issuable
upon exercise of options at $1.40 per share, 125,488 shares of
common stock issuable upon exercise of options at $0.83 per share,
25,000 shares of common stock issuable upon exercise of options at
$$0.53 per share and 25,000 shares of common stock issuable upon
exercise of options at $0.35 per share.
(7)
Includes
35,738 shares of common stock, 285,000 shares of common stock
issuable upon exercise of options at $0.16 per share, 17,857 shares
of common stock issuable upon exercise of options at $1.40 per
share, 125,488 shares of common stock issuable upon exercise of
options at $0.83 per share, 25,000 shares of common stock issuable
upon exercise of options at $0.53 per share and 25,000 shares of
common stock issuable upon exercise of options at $0.35 per
share.
(8)
Includes
53,571 shares of common stock issuable upon conversion of Series B
Preferred Stock, 24,956 shares of common stock underlying warrants,
125,488 shares of common stock issuable upon exercise of options at
$0.83 per share, 25,000 shares of common stock issuable upon
exercise of options at $0.53 per share, 25,000 shares of common
stock issuable upon exercise of options at $0.35 per share and
53,571 shares of common stock issuable upon conversion of
outstanding convertible notes. Does not include any shares of
common stock issued or issuable as accrued interest pursuant to the
convertible notes.
(9)
Includes
100,000 shares of common stock, 3,836 shares of common stock
issuable upon exercise of options at $0.35 per share and 178,571
shares of common stock issuable upon conversion of outstanding
convertible notes. Also includes, 7,732,143 shares of common
stock issuable upon conversion of the convertible notes at
$0.28 per share and 2,857,143 shares of common stock issuable upon
exercise of the warrants at $0.50 per share held by Lewis
Opportunity Fund. Does not include any shares of common stock
issued or issuable as accrued interest pursuant to the convertible
notes. W. Austin Lewis, IV is an affiliate of Lewis Opportunity
Fund and has voting and dispositive power with respect to such
shares.
(10)
Includes
1,815,193 shares of common stock. The number of shares beneficially
owned by Platinum Long Term Growth VII LLC does not include
4,523,076 shares of common stock underlying 4,523,076 shares of
Series B Preferred Stock and 6,020,214 shares of common stock
underlying warrants, exercisable at $0.28 per share, beneficially
owned by Platinum-Montaur Life Sciences, LLC. The terms of such
Series B Preferred Stock and warrants provide that the holder may
not convert or exercise such securities to the extent such
conversion or exercise could result in the holder beneficially
owning more than 4.99% of our outstanding common stock, unless
waived by the holder on at least 61 days’ notice and subject
to the terms of such securities. Assuming such blocker provisions
were waived and the full conversion and exercise of the Series B
Preferred Stock and warrants held by Platinum-Montaur Life
Sciences, LLC, such holder would beneficially own, together with
Platinum Long Term Growth Fund VII LLC, approximately 47% of our
issued and outstanding common stock. Michael Goldberg has the
voting and dispositive power over the securities held for the
account of this beneficial owner. The address of Platinum Long Term
Growth VII LLC is 152 West 57th Street, 4th Floor, New York, NY
10019.
The
information regarding the Company's “Equity Compensation Plan
Information” is incorporated herein by reference in Part II,
Item 5 of this Annual Report on Form 10-K.
Item 13. Certain Relationships
and Related Transaction, and Director Independence
Lewis Opportunity Fund, an affiliate of W. Austin Lewis, IV, a
member of our Board, participated as an investor in the private
placement of convertible notes in 2015 and was issued 12%
convertible notes in an aggregate principal amount of $2,000,000
and warrants to purchase an aggregate of 2,857,143 shares of common
stock. In addition, W. Austin Lewis Defined Benefit Plan
participated in the private placement of convertible notes in 2016
and was issued 12% convertible notes in the aggregate principal
amount of $160,000.
Director independence
Walter Witoshkin and Austin Lewis are independent directors, as the
term “independent” is defined by the rules of the
NASDAQ Stock Market.
Item 14. Principal
Accounting Fees and Services
The following table sets forth fees billed to us by our independent
auditors for the years ended 2016 and 2015 for (i) services
rendered for the audit of our annual financial statements and the
review of our quarterly financial statements, (ii) services
rendered that are reasonably related to the performance of the
audit or review of our financial statements that are not reported
as Audit Fees, and (iii) services rendered in connection with tax
preparation, compliance, advice and assistance.
SERVICES
|
2016
|
2015
|
Audit
fees
|
$81,000
|
$75,500
|
Audit-related
fees
|
12,000
|
14,000
|
Tax
fees
|
-
|
-
|
All
other fees
|
-
|
-
|
|
|
|
Total fees
|
$93,000
|
$89,500
|
Our audit committee is responsible for the pre-approval of all
audit and permissible non-audit services provided by our principal
accountants on a case-by-case basis. Our audit committee has
established a policy regarding approval of all audit and
permissible non-audit services provided by our principal
accountants. Our audit committee pre-approves these services by
category and service. Our audit committee has pre-approved all of
the services provided by our principal accountants.
Item 15. Exhibits,
Financial Statement Schedules
Exhibit No.
|
Description
|
2.1
|
Agreement and Plan of Merger, dated as of May 16, 2011, by and
among FluoroPharma Medical, Inc., FPI Merger Corporation and
FluoroPharma, Inc. (Incorporated by reference to the
Company’s Current Report on Form 8-K/A filed with the
Securities and Exchange Commission on July 12, 2011).
|
2.2
|
Certificate of Merger, dated May 16, 2011 merging FPI Merger
Corporation with and into FluoroPharma, Inc. (Incorporated by
reference to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 16,
2011).
|
3.1
|
Articles of Incorporation (Incorporated by reference to the
Company’s Registration Statement on Form SB-2 filed on
November 7, 2007).
|
3.2
|
Bylaws (Incorporated by reference to the Company’s
Registration Statement on Form SB-2 filed on November 7,
2007).
|
3.3
|
Certificate of Designation of the Relative Rights and Preferences
of the Series A Preferred Stock, filed with the Secretary of State
of Nevada on May 13, 2011 (Incorporated by reference to the
Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 16, 2011).
|
3.4
|
Certificate of Designation of the Relative Rights and Preferences
of the Series B Preferred Stock, filed with the Secretary of State
of Nevada on September 18, 2013 (Incorporated by reference to the
Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 19,
2013).
|
3.5
|
Certificate of Amendment to Articles of Incorporation (incorporated
by reference to the Company's Current Report on Form 10-K filed
with the Securities and Exchange Commission on August 18,
2016.
|
4.1
|
Form of 2012 Warrant (Incorporated by reference to the
Company’s Current Report on Form 8-K filed with the SEC on
November 21, 2012).
|
4.2
|
Form of 2011 Warrant (Incorporated by reference to the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 16, 2011).
|
4.3
|
Form of Warrant (Incorporated by reference to the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 19, 2013).
|
4.4
|
Form of Warrant (Incorporated by reference to the Company's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on January 7, 2014).
|
4.5
|
Form of 2014 Promissory Note (Incorporated by reference to the
Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 25, 2014).
|
4.6
|
Form of Amendments to 2014 Promissory Note (Incorporated by
reference to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on January 22,
2016).
|
4.7
|
Form of 2015 Convertible Note (Incorporated by reference to the
Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 3, 2015).
|
4.8
|
Form of 2015 Warrant (Incorporated by reference to the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 3, 2015).
|
4.9
|
Form of Amendment to 2015 Promissory Note (incorporated by refernce
to the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on May 31, 2013.
|
4.10
|
Form of 2016 Convertible Note (incorporated by reference to the
Company's Report Fom 8-K filed with the Securities and Exchange
Commission on March 23, 2016).
|
10.1
|
Exclusive License Agreement with Massachusetts General Hospital
dated as of April 27, 2009, as amended.** +
|
10.2
|
Securities Purchase Agreement dated November 19, 2012 (Incorporated
by reference to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on November 21,
2012).
|
10.3
|
Registration Rights Agreement dated November 19, 2012 (Incorporated
by reference to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on November 21,
2012).
|
10.4
|
Form of 2011 Subscription Agreement - Lead Investor (Incorporated
by reference to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 16,
2011).
|
10.5
|
Form of 2011 Registration Rights Agreement (Incorporated by
reference to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 16,
2011).
|
10.6
|
Form of Securities Purchase Agreement dated September 18, 2013
(Incorporated by reference to the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on
September 19, 2013).
|
10.7
|
Form of Registration Rights Agreement dated September 18, 2013
(Incorporated by reference to the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on
September 19, 2013).
|
10.8
|
Form of Securities Purchase Agreement dated December 31, 2013
(Incorporated by reference to the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on
January 7, 2014).
|
10.9
|
Form of Registration Rights Agreement dated December 31, 2013
(Incorporated by reference to the Company’s Current Report on
Form 8-K filed with the SEC on January 7, 2014).
|
|
10.10
|
FluoroPharma Medical, Inc. 2011 Incentive Plan (Incorporated by
reference to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 16,
2011).
|
|
10.11
|
Lease Agreement between Hillside Square, LLC and FluoroPharma
Medical, Inc. dated as of September 8, 2011 (Incorporated by
reference to the Company’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on November 14,
2011).
|
|
10.12
|
Second Amendment to Lease Agreement between Hillside Square, LLC
and FluoroPharma Medical, Inc. dated as of February 2015
(Incorporated by reference to the Company’s Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
March 31, 2015).
|
|
10.13
|
Employment Agreement dated August 22, 2012 between the Company and
Tamara Rhein (Incorporated by reference to the Company's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on August 22, 2012).
|
|
10.14
|
Amendment to Employment Agreement dated October 5, 2015 between the
Company and Tamara Rhein (Incorporated by reference to the
Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 8, 2015).
|
|
10.15
|
Employment Agreement dated October 5, 2015 between the Company and
Thomas H. Tulip (Incorporated by reference to the Company's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on October 8, 2015).
|
|
10.16
|
Note Purchase Agreement dated July 22, 2014 (Incorporated by
reference to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on July 25,
2014).
|
|
10.17
|
Note and Warrant Purchase Agreement dated May 28, 2015
(Incorporated by reference to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on June 3,
2015).
|
|
10.18
|
Note Purchase Agreement dated March 23, 2016 (incorporated by
reference to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 23,
2016).
|
|
10.19
|
License Agreement dated as of June 3, 2016 between the Company and
Sinatau USA, Inc. (CardioPet license) (incorporated by reference to
the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on June 9, 2016).
|
|
10.20
|
License Agreement dated as of June 3, 2016 between the Company and
Sinatau USA, Inc. (BFPet license), (incorporated by reference to
the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on June 9, 2016).
|
|
14.1
|
Code of Ethics adopted by the Board of Directors (Incorporated by
reference to the Company’s Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 16,
2012).
|
|
21
|
List of Subsidiaries (Incorporated by reference to the
Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 16, 2011).
|
|
23.1*
|
Consent of Wolf & Company, P.C.
|
|
31.1*
|
Certification of Chief Executive Officer pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934.
|
|
31.2*
|
Certification of Chief Financial Officer pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934.
|
|
32.1*
|
Certification of Chief Executive Officer pursuant to Section
1350.
|
|
32.2*
|
Certification of Chief Financial Officer pursuant to Section
1350.
|
|
|
|
|
101.INS*
|
XBRL Instance Document.
|
|
101.SCH*
|
XBRL Schema Document.
|
|
101.CAL*
|
XBRL Calculation Linkbase Document.
|
|
101.LAB*
|
XBRL Label Linkbase Document.
|
|
101.PRE*
|
XBRL Presentation Linkbase Document.
|
|
101.DEF*
|
XBRL Definition Linkbase Document.
|
|
+ Confidential treatment has been granted with respect to portions
of this exhibit.
++ The XBRL-related information in Exhibit 101 to this Registration
Statement on Form S-1 shall not be deemed
“filed” or a part of this registration statement
or prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933, as amended, and is not filed for purposes of Section
18 of the Exchange Act, or otherwise subject to the liabilities of
those sections.
|
Item 16. Form 10-K
Summary
No
Disclosure.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
FluoroPharma Medical, Inc.
|
|
|
|
|
|
|
March 31, 2017
|
By:
|
/s/
Thomas H. Tulip
|
|
|
|
Thomas H. Tulip, Ph.D.
|
|
|
|
President and Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
/s/
Thomas H. Tulip
|
|
March 31, 2017
|
Thomas H. Tulip, Ph.D.
|
|
|
President, Chief Executive Officer & Director
(Principal Executive Officer)
|
|
|
|
|
|
/s/
Tamara Rhein
|
|
March 31, 2017
|
Tamara Rhein
|
|
|
Chief Financial and Accounting Officer
(Principal Accounting Officer)
|
|
|
|
|
|
/s/
Walter Witoshkin
|
|
March 31, 2017
|
Walter Witoshkin
|
|
|
Director
|
|
/s/
W. Austin Lewis
|
|
March 31, 2017
|
W. Austin Lewis
|
|
|
Director
|
|
FluoroPharma Medical, Inc.
Index to Financial Statements
|
|
Page Number
|
|
Report of Independent Registered Public Accounting
Firm
|
|
F-2
|
|
Consolidated Balance Sheets at December 31, 2016 and
2015
|
|
F-3
|
|
Consolidated Statements of Operations for the years ended December
31, 2016 and 2015
|
|
F-4
|
|
Consolidated Statements of Stockholders' Deficit for the years
ended December 31, 2016 and 2015
|
|
F-5
|
|
Consolidated Statements of Cash Flows for the years ended December
31, 2016 and 2015
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
F-7
|
|
Report
of Independent Registered Public Accounting
Firm
To the Board of Directors of FluoroPharma Medical, Inc. and
Subsidiary
We have audited the accompanying consolidated balance sheets of
FluoroPharma Medical, Inc. and Subsidiary as of December 31, 2016
and 2015 and the related consolidated statements of operations,
stockholders’ deficit, and cash flows for the years then
ended. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of FluoroPharma Medical, Inc. and Subsidiary as of
December 31, 2016 and 2015, and the results of its operations and
its cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated
financial statements, the Company has incurred recurring losses
from operations, has a significant accumulated deficit and, at
December 31, 2016, the Company did not have sufficient capital to
fund its operations. This raises substantial doubt about
the Company’s ability to continue as a going
concern. Management’s plans in regards to these
matters are described in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 31, 2017
FLUOROPHARMA MEDICAL, INC. and Subisidiary
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
December 31,
2016
|
December 31,
2015
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
Cash
and cash equivalents
|
$24,723
|
$290,847
|
Prepaid
expenses and other
|
23,060
|
218,155
|
Total
Current Assets
|
47,783
|
509,002
|
|
|
|
Property
and equipment, net
|
7,424
|
11,049
|
Intangible
assets, net
|
279,553
|
318,547
|
|
|
|
Total
Assets
|
$334,760
|
$838,598
|
`
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
Current
Liabilities:
|
|
|
Convertible
notes payable - short term, net (see Note 5)
|
$5,769,558
|
$4,349,449
|
Notes
payable - short term
|
55,000
|
-
|
Accounts
payable
|
1,413,874
|
1,219,867
|
Derivative
liabilities
|
251,806
|
1,526,060
|
Deferred
revenue
|
408,333
|
-
|
Accrued
expenses and other
|
2,615,481
|
1,603,605
|
Total
Current Liabilities
|
10,514,052
|
8,698,981
|
|
|
|
Commitments
& Contingencies
|
|
|
|
|
|
Stockholders’
Deficit:
|
|
|
Preferred stock Series A; $0.001 par value,
3,500,000 shares designated
|
|
|
9,370 and 150,611 shares issued and outstanding at
December 31, 2016 and
2015, respectively
(preference in liquidation of
$7,777 at December 31, 2016)
|
11
|
152
|
Preferred stock Series B; $0.001 par value, 12,000,000 shares
designated
|
|
|
5,382,071 shares
issued and outstanding at December 31, 2016 and
2015
(preference
in liquidation of $5,860,248 at December 31,
2016)
|
5,382
|
5,382
|
Common stock - Class A - $0.001 par value,
200,000,000 shares
|
|
|
authorized, 34,074,284 and 32,908,503 shares issued and
outstanding
|
|
|
at
December 31, 2016 and 2015, respectively
|
34,075
|
32,910
|
Additional
paid-in capital
|
24,958,880
|
24,705,547
|
Accumulated
deficit
|
(35,177,640)
|
(32,604,374)
|
Total
Stockholders’ Deficit
|
(10,179,292)
|
(7,860,383)
|
|
|
|
Total
Liabilities and Stockholders’ Deficit
|
$334,760
|
$838,598
|
See the
report of independent registered public accounting firm and the
accompanying notes to these consolidated financial
statements
FLUOROPHARMA MEDICAL, INC. and Subsidiary
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2016
|
2015
|
Operating
Expenses:
|
|
|
General
and administrative
|
$1,691,048
|
$2,465,478
|
Research
and development
|
511,381
|
720,861
|
Total
Operating Expenses
|
2,202,429
|
3,186,339
|
|
|
|
Loss
from Operations
|
(2,202,429)
|
(3,186,339)
|
|
|
|
Other
Income (Expense):
|
|
|
Other
income
|
2,485
|
-
|
Loss
on debt extinguishment
|
(995,735)
|
-
|
Gain
on settlement of accounts payable
|
107,451
|
184,039
|
Loss
on sale of trading securities
|
-
|
(11,946)
|
Unrealized
gain on trading securities
|
-
|
7,986
|
Gain
on revaluation of derivative liabilities
|
2,300,341
|
715,962
|
Interest
and other expense
|
(1,261,974)
|
(873,359)
|
Total
Other Income, net
|
152,568
|
22,682
|
|
|
|
Net
Loss
|
$(2,049,861)
|
$(3,163,657)
|
|
|
|
Preferred
Stock Dividends
|
(523,405)
|
(574,034)
|
|
|
|
Net
Loss Attributable to Common Stockholders
|
$(2,573,266)
|
$(3,737,691)
|
|
|
|
Net
Loss per Common Share - Basic and Diluted
|
$(0.08)
|
$(0.12)
|
|
|
|
Weighted
Average Shares Used in
|
|
|
per
Share Calculation - Basic and Diluted:
|
33,556,201
|
30,038,240
|
See the
report of independent registered public accounting firm and the
accompanying notes to these consolidated financial
statements
FLUOROPHARMA MEDICAL, INC. and Subsidiary
|
|
|
|
|
|
||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock - Series A
|
Preferred Stock - Series
B
|
Common
Stock
|
Additional
|
|
Total
Stockholders'
|
|||
|
Number of
shares
|
Amount
|
Number of
shares
|
Amount
|
Number of
shares
|
Amount
|
Paid-In
Capital
|
Accumulated Deficit
|
Equity
(Deficit) |
BALANCE, December 31, 2014
|
949,477
|
$951
|
5,694,571
|
$5,695
|
29,197,497
|
$29,199
|
$24,034,203
|
$(28,866,683)
|
$(4,796,635)
|
|
|
|
|
|
|
|
|
|
|
Share
Based Compensation
|
|
|
|
|
|
|
135,492
|
|
135,492
|
Fair
value of warrants issued
|
|
|
|
|
|
|
80,472
|
|
80,472
|
Common
stock issued in settlement of accounts payable
|
|
|
|
|
738,572
|
739
|
276,511
|
|
277,250
|
Common
stock issued for consulting services
|
|
|
|
|
128,571
|
129
|
59,871
|
|
60,000
|
Preferred
Stock Dividend - Series A
|
57,353
|
57
|
|
|
45,987
|
46
|
64,532
|
(64,635)
|
-
|
Common
Stock issued for cash, net of offering costs of
$31,445
|
|
|
|
|
|
|
|
|
-
|
Conversion
of Series A Preferred to Common Stock
|
(856,219)
|
(856)
|
|
|
1,923,324
|
1,923
|
(1,067)
|
|
-
|
Conversion
of Series B Preferred to Common Stock
|
|
|
(312,500)
|
(313)
|
714,285
|
714
|
(401)
|
|
-
|
Preferred
Stock Dividend Accrued - Series B
|
|
|
|
|
|
|
|
(509,399)
|
(509,399)
|
Warrant
modification and reclassification to derivative
liability
|
|
|
|
|
|
|
|
|
-
|
Common
Stock issued in lieu of accumulated dividend on Series
B
|
|
|
|
|
160,267
|
160
|
55,934
|
|
56,094
|
Exercise
of Warrants
|
|
|
|
|
|
|
|
|
-
|
Net
loss
|
|
|
|
|
|
|
|
(3,163,657)
|
(3,163,657)
|
BALANCE, December 31, 2015
|
150,611
|
$152
|
5,382,071
|
$5,382
|
32,908,503
|
$32,910
|
$24,705,547
|
$(32,604,374)
|
$(7,860,383)
|
|
|
|
|
|
|
|
|
|
|
Share
Based Compensation
|
|
|
|
|
|
|
32,451
|
|
32,451
|
Fair value of warrants issued
|
|
|
|
|
|
22,576
|
|
22,576
|
|
Common
stock issued in settlement of accounts payable
|
|
|
|
|
61,159
|
61
|
21,345
|
|
21,406
|
Preferred
Stock Dividend - Series A
|
9,370
|
10
|
|
|
10,432
|
10
|
10,688
|
(10,708)
|
-
|
Conversion
of Series A Preferred to Common Stock
|
(150,611)
|
(151)
|
|
|
440,202
|
440
|
(289)
|
|
-
|
Preferred
Stock Dividend Accrued - Series B
|
|
|
|
|
|
|
|
(512,697)
|
(512,697)
|
Conversion
of Convertible Notes Payable to Common Stock
|
|
|
|
|
653,988
|
654
|
166,562
|
|
167,216
|
Net
loss
|
|
|
|
|
|
|
|
(2,049,861)
|
(2,049,861)
|
BALANCE, December 31, 2016
|
9,370
|
$11
|
5,382,071
|
$5,382
|
34,074,284
|
$34,075
|
$24,958,880
|
$(35,177,640)
|
$(10,179,292)
|
See the
report of independent registered public accounting firm and the
accompanying notes to these consolidated financial
statements
FLUOROPHARMA MEDICAL, INC. and Subsidiary
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2016
|
2015
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
$(2,049,861)
|
$(3,163,657)
|
Adjustments to reconcile net loss to net cash used by operating
activities |
|
|
Depreciation
and amortization
|
43,912
|
46,365
|
Amortization
of issuance costs and discounts on convertible notes
|
751,684
|
511,362
|
Accretion
of interests related to convertible notes
|
199,515
|
-
|
Share-based
compensation related to stock options
|
32,451
|
135,492
|
Fair
value of warrants
|
22,576
|
80,472
|
Fair
value of stock issued for consulting
|
-
|
30,000
|
Gain
on accounts payable settlement
|
(107,451)
|
(184,039)
|
Loss
on debt extinguishment
|
995,735
|
-
|
Net
loss on sale of trading securities
|
-
|
11,946
|
Change
in unrealized loss on trading securities
|
-
|
(7,986)
|
Gain
on revaluation of derivative liabilities
|
(2,300,341)
|
(715,962)
|
(Increase)
decrease in:
|
|
|
Prepaid
expenses and other
|
77,878
|
(113,247)
|
Increase
(decrease) in:
|
|
|
Accounts
payable
|
322,864
|
616,676
|
Deferred
revenue
|
408,333
|
-
|
Accrued
expenses and other
|
722,584
|
75,689
|
Net
Cash Used by Operating Activities
|
(880,121)
|
(2,676,889)
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
Proceeds
from sale of investments
|
-
|
35,970
|
Purchase
of equipment
|
(1,293)
|
(6,694)
|
Net
Cash Provided (Used) by Investing Activities
|
(1,293)
|
29,276
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
Proceeds
from other short - term financing
|
155,000
|
365,000
|
Proceeds
from issuance of convertible notes payable – short
term
|
570,000
|
2,980,005
|
Notes
payable issuance costs
|
(9,710)
|
(168,690)
|
Repayment
of notes payable
|
(100,000)
|
(490,000)
|
Net
Cash Provided by Financing Activities
|
615,290
|
2,686,315
|
|
|
|
Net
change in Cash and Cash Equivalents
|
(266,124)
|
38,702
|
Cash
and Cash Equivalents, Beginning of Period
|
290,847
|
252,145
|
Cash
and Cash Equivalents, End of Period
|
$24,723
|
$290,847
|
|
|
|
Supplemental
Cash Flow Disclosures:
|
|
|
Interest
expense paid in cash
|
$472
|
$3,543
|
Tax
paid
|
$1,662
|
$1,912
|
|
|
|
Supplemental
Non-Cash Disclosure:
|
|
|
Series
B Preferred Stock dividends
|
$512,697
|
$453,305
|
Series
A Preferred Stock dividends
|
$7,777
|
$47,602
|
Accounts
payable settled in Common Stock
|
$21,406
|
$277,250
|
Series
A Preferred Stock dividend issued upon conversion to Common
Stock
|
$2,931
|
$17,033
|
Prepaid
consulting settled in Common Stock
|
$-
|
$30,000
|
Conversion
of Series A Preferred Stock to Common Stock
|
$440
|
$1,923
|
Conversion
of Series B Preferred Stock dividend to Common Stock
|
$-
|
$56,094
|
Conversion
of Series B preferred shares to Common Stock
|
$-
|
$313
|
Conversion
of Convertible Notes plus accreted interests
|
$178,731
|
$-
|
Fair
value of warrants issued as covenant settlement
|
$-
|
$80,472
|
Fair
value of warrants issued with Convertible Notes
|
$-
|
$358,255
|
Fair
value of warrants issued to Convertible Notes placement
agents
|
$-
|
$39,108
|
Fair
value of embedded derivative liability in 2016 Convertible
Notes
|
$95,407
|
$-
|
Fair
value of embedded derivative liability in 2015 Convertible
Notes
|
$-
|
$490,340
|
Fair
value of embedded derivative liability in 2014 Convertible
Notes
|
$945,951
|
$-
|
Embedded
conversion feature -Amended 2014 Notes Converted
|
$15,271
|
$-
|
See the
report of independent registered public accounting firm and the
accompanying notes to these consolidated financial
statements
FLUOROPHARMA MEDICAL, INC. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
AND GOING CONCERN
FluoroPharma Medical, Inc. (the “Company”) was
organized on January 25, 2007 under the laws of the State of
Nevada. The Company’s subsidiary, FluoroPharma Inc.
(“FPI” or “the Subsidiary”), a Delaware
corporation, is a molecular imaging company headquartered in
Montclair, NJ. FPI was founded 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.
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 attributable to common stockholders of
$35,217,640 as of December 31, 2016. 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,
2016, the Company raised net cash proceeds of $615,290 through the
issuance of notes payable. In addition, during the year ended
December 31, 2016, the Company received payments of $775,000 in
accordance with two exclusive license agreements.
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 Note 5), that it will be able to
raise additional funds in the future. If the Company is
unable to raise additional capital as may be needed to meet its
projections for 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. The outcome
of these matters cannot be predicted at this time. The Company is
uncertain whether it can obtain financing to complete its clinical
trials. These uncertainties cast significant doubt upon the
Company’s ability to continue as a going concern. 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities
of three months or less from date of purchase to be cash
equivalents. All cash balances were highly liquid at December 31,
2016 and 2015.
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 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 its wholly-owned subsidiary, FluoroPharma, Inc.
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 December
31, 2016 and 2015 consisted of computer and office equipment and
machinery and equipment with estimated useful lives of three to
five years. Depreciation was $4,918 and $7,372 in the
years ended December 31, 2016 and 2015,
respectively.
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
the estimated useful life. Useful lives on technology licenses are
5 to 15 years.
Impairments
The Company assesses 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. 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 were required as of
December 31, 2016 and 2015, respectively.
Derivative financial instruments
The Company evaluates all of its financial instruments to determine
if such instruments are derivatives or contain features that
qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value
reported in the consolidated statements of operations. For
stock-based derivative financial instruments, the Company uses a
binomial pricing model to value the derivative
instruments at inception and on subsequent valuation dates. The
classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting
period. Derivative instrument liabilities are classified
in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be
required within 12 months of the balance sheet date.
The Company has derivative liabilities at December 31, 2016 and
2015 relating to certain warrants and embedded conversion features
that contain anti-dilution provisions.
Fair Value of Financial Instruments
The Company's financial instruments primarily consist of cash,
trading securities, accounts payable, notes payable and derivative
liabilities. The fair value of these instruments is calculated
using current market prices, or on a 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.
Assets and liabilities measured at fair value on a recurring basis
are summarized below:
|
December 31, 2016
|
|||
|
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
Current
Liabilities:
|
|
|
|
|
Derivative
liabilities
|
$-
|
$--
|
$251,806
|
$251,806
|
|
December 31, 2015
|
|||
|
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
Current
Liabilities:
|
|
|
|
|
Derivative
liabilities
|
$-
|
$--
|
$1,526,060
|
$1,526,060
|
The following table sets forth the changes in the estimated fair
value for our Level 3 classified derivative
liabilities:
|
Year Ended
|
Year Ended
|
|
December 31,
2016
|
December 31,
2015
|
Fair
value at beginning of the year
|
$1,526,060
|
$1,354,319
|
Issuance
of warrants – 2015 Notes
|
-
|
397,363
|
Embedded
conversion feature – 2015 Notes
|
-
|
490,340
|
Embedded
conversion feature – Amended 2014 Notes
|
945,951
|
-
|
Embedded
conversion feature – 2016 Notes
|
95,407
|
-
|
Embedded
conversion feature – Amended 2014 Notes
converted
|
(15,271)
|
-
|
Change
in fair value
|
(2,300,341)
|
(715,962)
|
Fair
value at end of the year
|
$251,806
|
$1,526,060
|
Revenue Recognition
From time to time the Company enters into licensing agreements, the
terms of which may include grants of licenses, or options to obtain
licenses, to our intellectual property and research and development
activities. Payments under these arrangements typically include one
or more of the following: non-refundable, up-front license fees;
funding of research and/or development efforts; amounts due upon
the achievement of specified objectives; and/or royalties on future
product sales.
The Company recognizes milestone payments as revenue in their
entirety upon the achievement of a substantive milestone if the
consideration earned from the achievement of the milestone (i) is
consistent with performance required to achieve the milestone or
the increase in value to the delivered item, (ii) relates solely to
past performance and (iii) is reasonable relative to all of the
other deliverables and payments within the arrangement.
Amounts received contractually designated to fund further research
are recorded as a reduction to research and development expenses
when the Company has satisfied all performance obligations to the
licensee and expenses for specified development activities have
been incurred.
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 December 31, 2016 and
2015. 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 December 31, 2016 or 2015, and
has not recognized interest and/or penalties in the statement of
operations for the years ended December 31, 2016 and
2015. Further, the Company currently has no open tax
years, subject to audit prior to December 31,
2013.
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. The Company 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 stock-based
compensation expense for the years ended December 31, 2016 and 2015
of $32,451 and $135,492, respectively.
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-Merton 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:
|
2016
|
2015
|
Risk-free
interest rate
|
1.83%
|
2.07%
|
Expected
volatility
|
68.09%
|
49.42%
|
Dividend
yield
|
none
|
none
|
Expected
term
|
5
years
|
6.5
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
December 31, 2016, the Company had outstanding options exercisable
for 2,736,839 shares of its common stock, warrants exercisable for
16,137,761 shares of its common stock, series A preferred stock
(the “Series A Preferred Stock”) convertible into
27,775 shares of common stock, and series B preferred stock (the
“Series B Preferred Stock”) convertible into 20,929,456
shares of common stock. As of December 31, 2015, the Company had
outstanding options exercisable for 4,996,095 shares of its common
stock, warrants exercisable for 16,281,164 shares of its common
stock, series A preferred stock (the “Series A Preferred
Stock”) convertible into 357,163 shares of common stock, and
series B preferred stock (the “Series B Preferred
Stock”) convertible into 15,278,717 shares of common
stock.
Research and Development Costs
Research and development costs are expensed as
incurred.
Segment Reporting
The Company has determined that it operates in only one segment
currently, which is biopharmaceutical research and
development.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15 “Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern.” The core principle of the guidance is that an
entity’s management should evaluate whether there are
conditions or events, considered in the aggregate, that raise
substantial doubt about the entity’s ability to continue as a
going concern within one year after the date that the financial
statements are available to be issued. When management identifies
conditions or events that raise substantial doubt about an
entity’s ability to continue as a going concern, management
should consider whether its plans that are intended to mitigate
those relevant conditions or events that will alleviate the
substantial doubt are adequately disclosed in the footnotes to the
financial statements. This guidance will be effective for the
annual period ending after December 15, 2016, and for annual
periods and interim periods thereafter. The Company adopted ASU
2014-15 as of December 31, 2016 and updated the related
disclosures. Other than the updates to going concern related
disclosures, the adoption of ASU 2014-15 did not have an impact on
the Company’s financial statements.
In April 2015, the FASB issued ASU 2015-03, 'Interest -
Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs”. ASU 2015-03 is intended
to simplify the presentation of debt issuance costs. These
amendments require that debt issuance costs related to a recognized
debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability,
consistent with debt discounts. The recognition and measurement
guidance for debt issuance costs are not affected by the amendments
in this ASU. The Company adopted ASU 2015-03 on January 1, 2016 and
applied the standard retrospectively. The adoption of ASU 2015-03
resulted in the reclassification of $17,116 and $136,260 of
unamortized debt issuance costs related to the Company's
Convertible Notes (see Note 5) from prepaid expenses and other
current assets to convertible notes payable within the
Company’s condensed consolidated balance sheets as of
December 31, 2016 and December 31, 2015, respectively. Other than
this reclassification, the adoption of ASU 2015-03 did not have an
impact on the Company's financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation
– Stock Compensation”. The areas for simplification in
this update involve several aspects of the accounting for
share-based payment transactions, including the income tax
consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. For
public entities, the amendments in this update are effective for
annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Early adoption is permitted in
any interim or annual period. If an entity early adopts the
amendments in an interim period, any adjustments should be
reflected as of the beginning of the fiscal year that includes that
interim period. An entity that elects early adoption must adopt all
of the amendments in the same period. The Company is currently
evaluating the impact of adopting this ASU on the financial
statements.
On
August 26, 2016, the FASB issued ASU No. 2016-15
“Statement of Cash Flows (Topic 230)”, a consensus of the
FASB’s Emerging Issues Task Force. The new guidance is
intended to reduce diversity in practice in how certain
transactions are classified in the statement of cash
flows. For public business entities, the standard is effective
for financial statements issued for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years.
For all other entities, the standard is effective for financial
statements issued for fiscal years beginning after December 15,
2018, and interim periods within fiscal years beginning after
December 15, 2019. Early adoption is permitted, provided that all
of the amendments are adopted in the same period. The guidance
requires application using a retrospective transition method. The
Company is currently evaluating the impact of adopting this ASU on
the financial statements.
Management does not expect the above recently issued, but not yet
effective, accounting standards to have a material effect on the
accompanying financial statements.
3.
OTHER BALANCE SHEET INFORMATION
Components of selected captions in the accompanying balance sheets
as of December 31, 2016 and 2015 consist of:
|
December 31,
2016
|
December 31,
2015
|
Prepaid
expenses and other:
|
|
|
Prepaid
insurance
|
$20,038
|
$39,756
|
Annual
license fee
|
-
|
104,167
|
Other
|
3,022
|
74,232
|
Prepaid
expenses and other
|
$23,060
|
$218,155
|
|
|
|
Property
and equipment:
|
|
|
Computers
and office equipment
|
$75,204
|
$73,911
|
Machinery
and equipment
|
112,421
|
112,421
|
|
|
|
Less:
accumulated depreciation
|
(180,201)
|
(175,283)
|
Property
and equipment, net
|
$7,424
|
$11,049
|
|
|
|
Accrued
expenses and other:
|
|
|
Professional
fees
|
$32,000
|
$49,703
|
Accrued
dividends Series B Preferred Stock
|
1,554,591
|
1,041,894
|
Deferred
salary
|
237,293
|
88,958
|
Accrued
interest on Notes Payable
|
523,360
|
327,203
|
Accrued
research and development
|
53,995
|
39,268
|
Funded
research
|
77,316
|
-
|
Other
|
136,926
|
56,579
|
Accrued
expenses and other
|
$2,615,481
|
$1,603,605
|
4. INTANGIBLE
ASSETS
Intangible assets as of December 31, 2016 and 2015 consist of the
following:
|
December 31,
2016
|
December 31,
2015
|
Technology
license
|
$413,398
|
$413,398
|
Less:
accumulated amortization
|
(133,845)
|
(94,851)
|
Intangibles,
net
|
$279,553
|
$318,547
|
Amortization expense relating to intangible assets was $38,994
during the years ended December 31, 2016 and
2015.
On June 26, 2014, the Company and The General Hospital Corporation,
d/b/a Massachusetts General Hospital (“MGH”) entered
into two license agreements, which replaced the single license
agreement dated April 27, 2009. The Company paid to MGH an initial
license fee of $175,000 for each license.
The assumptions and estimates used to determine future values and
remaining useful lives of our intangible and other long-lived
assets are complex and subjective. They can be affected by various
factors, including external factors such as industry and economic
trends, and internal factors such as changes in our business
strategy. Based on our assessment, we did not recognize any
impairment as of December 31, 2016 and 2015.
Future amortization will approximate $39,000 for each of the next
five years.
See Note 12 for commitments and contingencies associated with
the Company’s technology licenses.
5. CONVERTIBLE
NOTES PAYABLE - SHORT TERM
2014 Convertible Notes Payable
During 2014 and 2015, the Company issued promissory notes (the
“2014 Notes”) pursuant to a Note Purchase Agreement
entered into with certain accredited investors for an aggregate
principal amount of $2,198,416. The 2014 Notes mature one year from
the date of issuance and bear interest at the rate of 8% per annum.
All principal and accrued interest under the 2014 Notes will
automatically convert into the Company’s next equity or
equity-linked financing (a “Subsequent Financing”)
in accordance with the following formula: (outstanding balance of
the Notes as of the closing of the Subsequent Financing) x (1.15) /
(the per security price of the securities sold in the Subsequent
Financing). The investors shall be considered to be
purchasers in the Subsequent Financing by way of their converted
2014 Notes. In addition, upon the closing of a
Subsequent Financing, each of the investors shall be issued, in
addition to any warrants issued in connection with a Subsequent
Financing, an additional warrant to purchase a number of shares of
common stock equal to fifty percent (50%) of the number of shares
of common stock purchased by such investor in the Subsequent
Financing assuming a per share purchase price of the securities to
be issued in the Subsequent Financing.
In May 2015, in connection with the issuance of the Convertible
Notes (as defined and discussed below), the holders of the 2014
Notes, in the outstanding principal amount of $2,198,416, amended
their 2014 Notes to (i) extend the maturity date an additional six
months, (ii) change the terms of the conversion premium from 1.15
to 1.25 to be consistent with conversion terms of the Convertible
Notes, and (iii) provide that the issuance of promissory notes
by the Company in a transaction with a substantially similar
structure to the transactions contemplated by the 2014 Notes shall
not be deemed a Subsequent Financing.
On January 20, 2016, the Company further amended the
2014 Notes (the “Amended 2014 Notes”), in
order to (i) extend the maturity date for an additional
six months, (ii) retroactively increase the interest
rate to 12%, (iii) provide the ability to voluntary convert the
notes, including principal and interest multiplied by 1.25, at a
conversion price of $0.35 per share (which results in an effective
conversion price of $0.28 per share), (iv) provide resale
registration rights, and (v) provide “full-ratchet”
anti-dilutive protection. As a result of this amendment, the
conversion price of each of the Company's existing Series A
Preferred Stock, Series B Preferred Stock, the Convertible Notes
and certain related warrants, has been adjusted to $0.28 per
share.
The Company applied guidance in FASB ASC 470-50, “Debt
Modifications and Extinguishments,” (ASC 470-50) and
determined that the amendment qualified as a debt extinguishment
(the “Debt Extinguishment”). This determination was
made after calculating that the newly amended terms increased
the fair value of the embedded conversion feature in excess of
10 percent.
In order to account for the Debt Extinguishment, the Company
recorded the Amended 2014 Notes and the embedded conversion feature
at their then fair values of $2,495,582 and $945,951,
respectively. The embedded conversion feature was
recorded as a derivative liability after determining the
requirements for equity classification, in accordance with ASC
Topic 815-40, were not met. The difference between the
carrying value of the 2014 Notes, including all principal, accrued
interest and deferred financing costs and the fair value of the
Amended 2014 Notes and embedded conversion feature was recorded as
a loss on debt extinguishment of $1,022,520 in the statement of
operations. The difference between the principal amount
of the Amended 2014 Notes and the fair value of the Amended 2014
Notes of $238,515 will be amortized to interest expense over the
term of the notes. During the year ended December 31, 2016, the
Company amortized interest of $199,515 on the Amended 2014
Notes.
On July
22, 2016, the Company entered into a further amendment to the 2014
Notes to extend the maturity date of the Notes for an additional
ninety days. On November 2, 2016, the Company obtained majority
approval to further amend the 2014 Notes to extend the maturity
date of the Notes for an additional ninety days, with an effective
date of October 22, 2016. On March 13, 2017, the Company
obtained majority approval to further amend the 2014 Notes to
extend the maturity date of the Notes to June 22, 2017, with an
effective date of January 22, 2017.
During the year ended December 31, 2016, the Company issued 653,988
shares of common stock pursuant to the conversion of Amended 2014
Notes. The carrying value of the converted Amended 2014 Notes plus
accreted interest was approximately $178,731 and the fair value of
the derivative related to the embedded conversion feature was
$15,271. The Company recorded a gain on extinguishment related to
these conversions totaling $26,785.
The calculation of the net loss on extinguishment is as
follows:
|
December 31,
2016
|
|
|
Fair
value – Amended 2014 Notes
|
$2,495,582
|
Fair
value – embedded conversion feature
|
945,951
|
Total
Amended 2014 Notes
|
3,441,533
|
|
|
Principal
– 2014 Notes
|
2,198,416
|
Accrued
interest – 2014 Notes
|
232,235
|
Deferred
financing costs – 2014 Notes
|
(11,638)
|
Total
2014 Notes
|
2,419,013
|
|
|
Loss
on Extinguishment from 2014 Note Amendment
|
1,022,520
|
|
|
Carrying
value – Amended 2014 Notes converted
|
175,922
|
Value
of interest accretion – Amended 2014 Notes
converted
|
2,809
|
Fair
value of embedded conversion feature – Amended 2014 Notes
converted
|
15,271
|
Fair
value – common stock issued upon conversion
|
(167,217)
|
Gain
on Extinguishment from Amended 2014 Note Conversions
|
26,785
|
|
|
Loss
on Extinguishment, net
|
$995,735
|
The derivative liability related to the embedded conversion feature
is being re-measured at each balance sheet date based on estimated
fair value, and any resultant changes in fair value is being
recorded in the Company’s consolidated statement of
operations.
Upon conversion, the notes and embedded derivatives are removed at
their carrying value, after a final mark-to-market of the embedded
derivative’s fair value. Common stock issued upon conversion
is measured at its current fair value, with any difference recorded
as a gain or loss on extinguishment.
2015 Convertible Notes Payable
On May 28, 2015, the Company accepted subscriptions pursuant to a
new Note and Warrant Purchase Agreement, as amended on August 6,
2015, for the issuance and sale in a private placement of up to
$3,000,000 of convertible promissory notes (the “Convertible
Notes”). The Convertible Notes mature one year
from the date of issuance and bear interest at the rate of 8% per
annum. All principal and accrued interest under the
Convertible Notes will, at the sole option of the investor (i)
convert into the Company’s next equity or equity-linked
financing in which the Company raises gross proceeds of at least
$3,600,000 (the “Subsequent Financing”), into such
securities, including warrants of the Company as are issued in the
Subsequent Financing, the amount of which shall be determined in
accordance with the following formula: (the outstanding balance of
the Convertible Notes plus accrued interest as of the closing of
the Subsequent Financing) x (1.25) / (the per security price of the
securities sold in the Subsequent Financing), or (ii) convert into
a new financing in which the Company shall issue to the investor
one share of common stock and one-half of one warrant at a purchase
price no greater than $0.35 per share. The per security price of
the securities sold in the Subsequent Financing shall not exceed
$0.35. In addition, the holders of the Convertible Notes
shall have the option, at any time, to convert all principal and
accrued interest into common stock at price per share of
$0.35. In the event that the Company shall, at any
time, issue or sell additional shares of common stock or common
stock equivalents, as defined, at a price per share less than
$0.35, then the conversion price of the Convertible Notes shall be
reduced to a price equal to the consideration paid for these
additional shares of common stock. As a result of the
2016 amendment to the 2014 Notes, the conversion price of the
Convertible Notes was adjusted to $0.28 per share.
Pursuant to the Note and Warrant Purchase Agreement, the Company
issued warrants at an initial exercise price per share of $0.50 to
purchase a number of shares of common stock equal to fifty percent
of the number of shares of common stock such investor would receive
upon full conversion of the Convertible Notes at a conversion price
of $0.35 per share. As a result of the 2016 amendment to
the 2014 Notes, the exercise price of the warrants was adjusted to
$0.28 per share.
From May through September 2015, the Company
issued Convertible Notes in the aggregate principal amount of
$2,780,005 and warrants to purchase 3,971,436 shares of common
stock at $0.50 per share. In connection with the
issuance of the Convertible Notes, the Company paid to placement
agents a cash fee of $142,400 and issued 406,859 five-year warrants
to purchase shares of common stock at an exercise price of $0.50
per share. On the issuance date, the fair
value of the placement agent warrants was $39,108 which was
recorded as a deferred offering cost and as a derivative warrant
liability.
Based upon the Company’s analysis of the criteria contained
in ASC Topic 815-40, “Derivatives and Hedging—Contracts
in Entity’s Own Equity” (“ASC Topic
815-40”), the Company has determined that since the exercise
price of the warrants may be reduced if the Company issues shares
at a price below the then-current exercise price, the warrants
issued in connection with the Convertible Notes must be classified
as derivative instruments. In accordance with ASC Topic 815-40,
these warrants are also being re-measured at each balance sheet
date based on estimated fair value, and any resultant changes in
fair value is being recorded in the Company’s consolidated
statement of operations.
In order to account for the issuance of the Convertible Notes and
warrants, the Company allocated the total gross proceeds of
$2,780,005 between the Convertible Notes and the
warrants. The warrants were allocated their full fair
value as of the respective grant dates totaling $358,255 and the
residual net proceeds of $2,421,750 were allocated to the
Convertible Notes. The conversion feature of the
Convertible Notes was then analyzed. The Company
determined that the embedded conversion feature did not meet the
requirements for equity classification in accordance with ASC Topic
815-40. Therefore, the conversion feature fair value of
$490,340 was bifurcated from the host contract, the Convertible
Notes, and recorded as a derivative liability, thereby creating a
further discount on the Convertible Notes. The
conversion feature is also being re-measured at each balance sheet
date based on estimated fair value, and any resultant changes in
fair value is being recorded in the Company’s consolidated
statement of operations.
On May 26, 2016, the 2015 Notes were amended to (i) extend the
maturity date an additional six months and (ii) increase the
interest rate, from 8% to 12%, applied retroactively from the
initial issuance date of the Notes. The Company applied guidance in
ASC 470-50 and determined that the amendment did not qualify as a
debt extinguishment. This determination was made after
calculating that the present value of the cash flows under the
modified debt instrument is less than a 10 percent change from the
present value of the remaining cash flows under the original debt.
On December 5, 2016, the Company obtained majority approval to
further amend the 2015 Notes to extend the maturity date of the
2015 Notes for additional six months, with an effective date
November 28, 2016.
Lewis Opportunity Fund, an affiliate of W. Austin Lewis, IV, a
member of the Company’s Board of Directors, participated as
an investor in the Convertible Notes in 2015 in an aggregate
principal amount of $2,000,000 and was issued warrants to purchase
an aggregate of 2,857,143 shares of common stock.
2016 Convertible Notes Payable
During 2016, the Company issued convertible promissory notes (the
“2016 Convertible Notes”) in the principal amount of
$570,000 under the terms of a new Note Purchase Agreement. The
Company’s Chief Executive Officer and the W. Austin Lewis
Defined Benefit Plan, an affiliate of W. Austin Lewis, IV, a member
of the Company’s Board of Directors, participated as an
investor in the Convertible Notes in 2016 in an aggregate principal
amounts of $150,000 and $160,000, respectively.
The 2016 Convertible Notes mature one year from the date of
issuance and bear interest at the rate of 12% per annum payable
upon the earlier of (i) exchange or voluntary conversion of the
2016 Convertible Notes in accordance with the terms thereof and
(ii) the maturity date. All principal and accrued interest under
the 2016 Convertible Notes (the “Outstanding Balance”)
will automatically convert into the Company’s next equity or
equity-linked financing (the “Subsequent Financing”),
without any action on the part of the investor, into such
securities, including warrants of the Company that are issued in
the Subsequent Financing, the amount of which shall be determined
in accordance with the following formula: (the Outstanding Balance
as of the closing of the Subsequent Financing) x (1.25) / (the per
security price of the securities sold in the Subsequent Financing).
For the purpose of calculating the formula above, the per security
price of the securities sold in the Subsequent Financing shall not
exceed $0.35. The issuance of promissory notes by the Company in a
transaction with a substantially similar structure to the 2016
Convertible Notes (as determined in good faith by the
Company’s board of directors) shall not be deemed a
Subsequent Financing.
Each investor also has the right, at its option at any time, to
convert the Outstanding Balance into shares of common stock as is
obtained by dividing (i) the Outstanding Balance to be converted
multiplied by 1.25, by (ii) a conversion price, $0.35 per share;
provided, however, if an event of default has occurred and is
continuing, the conversion price shall be adjusted to $0.15 per
share. The 2016 Convertible Notes are subject to customary
adjustments for issuances of shares of common stock as a dividend
or distribution on shares of the common stock, or mergers or
reorganizations, as well as “full-ratchet”
anti-dilution adjustments for future issuances of other Company
securities (subject to certain standard carve-outs).
Upon the closing of a Subsequent Financing, each of the investors
shall be issued, in addition to any warrants issued in connection
with a Subsequent Financing, an additional warrant (the
“Additional Warrant”), to purchase a number of shares
of common stock equal to fifty percent (50%) of the number of
shares of common stock purchased by such investor in the Subsequent
Financing assuming a per share purchase price of the securities to
be issued in the Subsequent Financing. The terms of the Additional
Warrants shall be substantially identical to the terms of the
warrants issued in the Subsequent Financing, except the exercise
price per share of the Additional Warrants shall be equal to the
per share purchase price of the securities issued in the Subsequent
Financing. In the event no warrants are issued in the Subsequent
Financing, each of the investors shall nonetheless be entitled to
an Additional Warrant, which Additional Warrant shall be
non-callable, exercised on a cash only basis and have a term of
five (5) years following the closing date of the Subsequent
Financing.
The conversion feature of the 2016 Convertible Notes was
analyzed. The Company determined that the embedded
conversion feature did not meet the requirements for equity
classification in accordance with ASC Topic
815-40. Therefore, the conversion feature with a fair
value of $95,407 was bifurcated from the host contract, the 2016
Convertible Notes, and recorded as a derivative liability, thereby
creating a discount on the 2016 Convertible Notes. The
conversion feature is also being re-measured at each balance sheet
date based on estimated fair value, and any resultant changes in
fair value is being recorded in the Company’s consolidated
statement of operations.
On July 22, 2016, the 2016 Convertible Notes were amended to change
the final closing date from 120 days to 240 days after the initial
closing of March 23, 2016.
A reconciliation of the Company’s Convertible Notes Payable
– Short Term, as of December 31, 2016, is as
follows:
|
2014 Amended
Notes
|
2015 Convertible
Notes
|
2016 Convertible
Notes
|
Total
|
|
|
|
|
|
Principal
|
$2,198,416
|
$2,780,005
|
$570,000
|
$5,548,421
|
Adjustments
to fair value, net of accretion
|
496,681
|
-
|
-
|
496,681
|
Conversions
|
(175,922)
|
-
|
-
|
(175,922)
|
Debt
discount
|
-
|
(44,268)
|
(38,238)
|
(82,506)
|
Deferred
financing costs
|
-
|
(13,404)
|
(3,712)
|
(17,116)
|
|
|
|
|
|
|
$2,519,175
|
$2,722,333
|
$528,050
|
$5,769,558
|
In connection with the private placement of the Convertible Notes,
the Company entered into a registration rights agreement with the
investors, in which the Company agreed to file a registration
statement with the SEC to register for resale the shares underlying
the Convertible Notes and the warrants within 90 calendar days of
the final closing date of the Convertible Notes and to have
the registration statement declared effective within 120 calendar
days after the filing date.
For embedded conversion features that are accounted for as a
derivative liability, the Company used a Binomial Options Pricing
model. The primary assumptions used to determine the
fair values of these embedded conversion features were: risk free
interest rate with a range 0.35% - 1.14%, volatility of 68.09%, and
actual term of the related convertible notes.
Other Notes Payable
On
September 27, 2016, the Company borrowed $100,000 in the form of a
short term promissory note (the “Note”). The Note
matures on October 31, 2016 and bears interest at the rate of 5%
per annum if the Note is repaid on or prior to the maturity date
and 15% if the Note is not repaid by the maturity date. On November
2, 2016, the Company repaid the Note and accumulated interest in
the aggregate amount of $100,472.
On
October 25, 2016, the Company borrowed $5,000 in the form of a
promissory note (the “Note”), from a former Director of
the Company, which matured on November 25, 2016. The Note has been
amended to extend the maturity date to June 30, 2017.
On
December 22, 2016, the Company borrowed $50,000 in the form of a
promissory note (the “Note”). The Note matures on
January 31, 2017 and bears interest at the rate of 10% per annum if
the Note is repaid on or prior to the maturity date and 15% if the
Note is not repaid by the maturity date.
In connection with the issuance of the other notes payable and the
convertible notes in 2014, 2015 and 2016, the Company incurred
$345,836 in issuance costs. These costs are recorded as
deferred issuance costs, which are offset against the proceeds from
the convertible notes on the Company’s balance sheet and
amortized to interest expense over the term of such convertible
notes. For the period ended December 31, 2016 and 2015, the Company
has amortized $117,217 and $155,479, respectively, of issuance
costs to expense. For the period ended December 31, 2016
and 2015, the Company recorded non-cash interest expense related to
the amortization of the discount on the convertible notes of
$505,613 and $355,883, respectively.
Interest expense, including accretion of the 2014 Amended Notes to
fair value, amortization of deferred issuance costs and debt
discounts related to the warrants and beneficial conversion
feature, totaled $1,261,974 and $873,359 for the year ended
December 31, 2016 and 2015, respectively.
6. LICENSE
AGREEMENT
On June 3, 2016, the Company entered into two exclusive license
agreements (the “Licenses”) with Sinotau USA, Inc., a
wholly-owned subsidiary of Hainan Sinotau Pharmaceutical Co., Ltd.
(“Sinotau”), a pharmaceutical organization. Sinotau is
responsible for developing and commercializing the Company’s
proprietary cardiac PET imaging assets, CardioPET and BFPET, in
China and Canada. Sinotau also retains a first right of
refusal to license the technology for development in Australia and
Singapore. In accordance with the Licenses, the Company is
entitled to upfront payments of $550,000, milestone payments
totaling $1,450,000 upon the completion of certain development
activities and royalties on future sales made by Sinotau. As
of December 31, 2016, the Company has received payments of $775,000
under the terms of the License.
As of December 31, 2016, the transfer of technology specified in
the Sinotau agreement has not been completed and therefore a
portion of the payments received totaling $408,333 has been
recorded as deferred revenue. The remaining portion of the payments
received, totaling $366,667, is to be used in order to further fund
the Company’s research and development activities and is
included in accrued expenses and other liabilities until such
research and development costs are incurred. As of December 31,
2016, the Company has incurred $289,351 of research and development
costs and recorded these amounts as a reduction in research and
development expenses. The unused portion of funded research
totaling $77,316 remains in accrued expenses and other liabilities
as of December 31, 2016.
License payments, excluding payments to fund further research, are
subject to the Company’s license agreement with MGH (see Note
12). Upon receiving the upfront payment from Sinotau, the Company
recorded a royalty expense of $88,750, payable to MGH, within
research and development expenses.
7. CAPITAL
STOCK
SERIES A PREFERRED STOCK
The Company is authorized to issue 100,000,000 shares of preferred
stock, $0.001 par value, of which 3,500,000 shares have been
designated Series A Preferred Stock. At December 31, 2016 and 2015,
9,370 and 150,611 shares of Series A Preferred Stock, respectively,
were issued and outstanding.
The material terms of the Series A Preferred Stock, as specified in
the Certificate of Designation for the Series A Preferred Stock,
are as follows:
Conversion
Each share of Series A Preferred Stock may, at the holder’s
option, convert into common stock. The conversion rate is equal to
the sum of the stated value of the Series A Preferred Stock, which
is $0.83 per share, plus all accrued and unpaid dividends, divided
by the conversion price. As of December 31, 2016, the conversion
price was $0.28.
During the year ended December 31, 2016, 150,611 shares of Series A
Preferred Stock were converted into 440,202 shares of the
Company’s common stock. In addition, the Company issued
10,432 shares of the Company’s common stock in satisfaction
of $2,931 dividend accrued on the shares of Series A Preferred
Stock that were converted. During the year ended December 31, 2015,
856,219 shares of Series A Preferred Stock were converted into
1,923,324 shares of the Company’s common stock. In addition,
the Company issued 45,987 shares of the Company’s common
stock in satisfaction of $17,033 dividend accrued on the shares of
Series A Preferred Stock that were converted.
Subject to the specified provisions, the Series A Preferred Stock
will automatically convert into common stock at the conversion
price on the mandatory conversion date, which is defined as 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, a
qualified financing for aggregate gross proceeds to the Company of
$7,000,000, (ii) the volume weighted average trading price for the
Company’s common stock for each day on thirty (30)
consecutive trading days immediately preceding such date, must be
above $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, as amended (the
“Act”) pursuant to an effective registration statement
or are otherwise eligible for sale under Rule 144 under the Act. As
of December 31, 2016, no mandatory conversion has taken place as
all of the conditions required for such mandatory 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 and accrue daily from the original issuance
date.
(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 year ended December 31, 2016, the Company accrued a
preferred stock dividend of $10,708 and issued 9,370 shares of
Series A Preferred Stock in payment of such dividend. In addition,
during the year ended December 31, 2016, the Company issued 10,432
shares of common stock in payment of such dividend as related to
the shares of Series A Preferred Stock converted into common stock.
For the year ended December 31, 2015, the Company accrued a
preferred stock dividend of $64,635 and issued 57,353 shares of
Series A Preferred Stock in payment of such dividend. In addition,
during the year ended December 31, 2015, the Company issued 45,987
shares of common stock in payment of such dividend as related to
the shares of Series A Preferred Stock converted into common
stock.
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.
SERIES B PREFERRED STOCK
The Company is authorized to issue 100,000,000 shares of preferred
stock, $0.001 par value, of which 12,000,000 shares have been
designated Series B Preferred Stock. At December 31, 2016 and 2015,
5,382,071 shares of Series B Preferred Stock were issued and
outstanding.
The material terms of the Series B Preferred Stock, as specified in
the Certificate of Designation for the Series B Preferred Stock,
are as follows:
Ranking
The Series B Preferred Stock ranks junior to the Company’s
Series A Preferred Stock and senior to the Company’s common
stock with respect to distributions of assets upon the liquidation,
dissolution or winding up of the Company.
Stated Value
Each share of Series B Preferred Stock will have a stated value of
$0.80, subject to adjustment for stock splits, combinations and
similar events.
Dividends
Cumulative dividends on the Series B Preferred Stock accrue at the
rate of 10% of the stated value per annum, compounded annually,
from and after the date of the initial issuance through the third
anniversary of the issuance date; provided, however, that any
holder of at least 4,500,000 shares of Series B Preferred Stock
after the issuance date and prior to October 1, 2013 (a
“Major Holder”) will be entitled to accrued dividends
through the fourth anniversary of the issuance date (as applicable,
the “Accrual Period”). Accrued dividends are payable
upon the earliest to occur of (i) the third anniversary of the
issuance date (or, with respect to the Major Holder, the fourth
anniversary of the issuance date), (ii) mandatory conversion (as
described below) and (iii) an automatic conversion upon a
fundamental transaction (as such term is defined in the Certificate
of Designation) or triggering event (as described below). Dividends
are payable in Series B Preferred Stock valued at the stated value,
or in cash upon the mutual agreement of the Company and the
holder.
For the year ended December 31, 2016, the Company accrued a Series
B Preferred Stock dividend of $512,697 which is included in accrued
expenses in the Company’s consolidated balance sheet. As of
December 31, 2016, no voluntary conversion has taken place. For the
year ended December 31, 2015, the Company accrued a Series B
Preferred Stock dividend of $509,399 which is included in accrued
expenses in the Company’s consolidated balance sheet. In
addition, the Company issued 160,267 shares of common stock in
payment of such dividend as related to the 312,500 shares of Series
B Preferred Stock converted to common stock during the year ended
December 31, 2015.
Liquidation Preference
If the Company voluntarily or involuntarily liquidates, dissolves
or winds up its affairs, each holder of the Series B Preferred
Stock will be entitled to receive out of the Company’s assets
available for distribution to stockholders, after satisfaction of
liabilities to creditors, if any, and payments due to holders of
the Series A Preferred Stock but before any distribution of assets
is made on the Company’s common stock or any of our other
shares of stock ranking junior as to such a distribution to the
Series B Preferred Stock, a liquidating distribution in the amount
in the amount of the stated value of all such holder’s Series
B Preferred Stock plus all accrued and unpaid dividends
thereon.
Voluntary Conversion
Each share of Series B Preferred Stock is convertible at the
holder’s option into the Company’s common stock in an
amount equal to the stated value plus accrued and unpaid dividends
thereon through the conversion date divided by the then applicable
conversion price. The initial conversion price was $0.80 per share
and is subject to customary adjustments for issuances of shares of
common stock as a dividend or distribution on shares of the common
stock, or mergers or reorganizations, as well as
“full-ratchet” anti-dilution adjustments for future
issuances of other Company securities. At December 31,
2016, the conversion price was $0.28 per share.
During the year ended December 31, 2016, no voluntary conversions
have taken place. During the year ended December 31, 2015, 312,500
shares of Series B Preferred Stock were converted into 714,285
shares of the Company’s common stock.
Holders also have the option to convert their Series B Preferred
Stock upon the occurrence of a fundamental transaction or one of
the following triggering events: Johan (Thijs) Spoor ceases to be
the chief executive officer of the Company; or there is a change in
three of the five current members of the Company’s board of
directors, such conversion will be on the same terms as a mandatory
conversion.
Mandatory Conversion
The Series B Preferred Stock is subject to mandatory conversion at
such time as the volume weighted average price of the
Company’s common stock is at least $1.20 (subject to
adjustments for stock splits and similar events) provided, that, on
the mandatory conversion date, (A) a registration statement
providing for the resale of the shares underlying the Series B
Preferred Stock is effective, or such shares may be offered for
sale to the public without limitations pursuant to Rule 144, (B)
trading in the common stock shall not have been suspended by the
SEC or exchange or market on which the common stock is trading),
(C) the daily volume of the common stock is at least 50,000 shares
per day for the applicable ten (10) consecutive trading days, and
(D) the Company is in material compliance with the terms and
conditions of the transaction documents. In the event of mandatory
conversion, each share of Series B Preferred Stock will convert
into the number of shares of common stock equal to the stated value
plus accrued and unpaid dividends for the Accrual Period divided by
the conversion price.
Voting Rights
The holders of the Series B Preferred Stock will be entitled to
vote upon all matters upon which holders of common stock have the
right to vote, such votes to be counted together with all other
shares of capital stock having general voting powers and not
separately as a class. The holders of the Series B Preferred Stock
will be entitled to the number of votes equal to the number of
common stock into which the Series B Preferred Stock are then
convertible.
In addition, as long as at least 25% of the Series B Preferred
Stock remains outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least a majority
of the outstanding Series B Preferred Stock, voting as a separate
class, (i) amend, waive or repeal (including through a merger,
consolidation or similar event) any provision of the
Company’s articles of incorporation or by-laws in any manner
that adversely affects the rights of the holders of the Series B
Preferred Stock; (ii) alter or change adversely the preferences,
rights, privileges, or restrictions of the Series B Preferred
Stock; (iii) authorize or create any class or series of stock
having rights, preferences or privileges in any respect senior to
the Series B Preferred Stock; or (iv) reclassify, alter or amend
any existing class or series of stock, if such reclassification,
alteration or amendment would render such other class or series of
stock as having rights, preferences or privileges in any respect
senior to the Series B Preferred Stock.
COMMON STOCK
The Company has authorized 200,000,000 shares of its common stock,
$0.001 par value, At December 31, 2016 and 2015, the Company had
issued and outstanding 34,074,284 and 32,908,503, respectively,
shares of its common stock.
In January 2016, the Company issued an aggregate of 61,159 shares
of common stock with fair value of $21,406 in settlement of certain
outstanding liabilities to third parties.
In December 2015, the Company issued an aggregate of 867,143 shares
of common stock, with a total fair value of $337,250, for
consulting services and in settlement of certain outstanding
liabilities to third parties. As of December 31, 2015, $30,000 of
this settlement, relates to services to be performed in 2016 and is
included in prepaid expense in the consolidated balance sheet. In
addition, certain settlement agreements included a provision to
issue, upon a Subsequent Financing as defined, an amount of
warrants equal to fifty percent of the number of shares of common
stock issued by the Company in the Subsequent
Financing.
8. STOCK
PURCHASE WARRANTS
Common Stock Warrants
During the year ended December 31, 2016, the Company issued 200,000
common stock warrants at an exercise price of $0.28 per share with
a five-year term to a consultant. The fair value of
these warrants of $22,576 was recorded as expense in the year ended
December 31, 2016.
During the year ended December 31, 2016, 343,403 stock purchase
warrants expired with a weighted average exercise price of
$0.88.
As a result of the amendment to the 2014 Notes entered into with
existing convertible note holders on January 20, 2016, the
conversion price of certain related warrants has been adjusted
to $0.28 per share.
During the year ended December 31, 2015, the Company issued
3,971,436 common stock warrants to investors and 406,859
common stock warrants to the placement agents in connection with
issuance of the 2015 Convertible Notes (see Note 5). These warrants
are recorded as a derivative liability.
In addition, during the year ended December 31, 2015, the Company
issued 607,229 common stock warrants at an exercise price of $0.50
per share with a five-year term. These warrants were issued in
consideration of the warrant holder waiving its rights with respect
to indebtedness incurred by the Company in excess of the amount
permitted pursuant to the Certificate of Designation of Relative
Rights and Preferences of the Company’s Series A Preferred
Stock. The warrants had a fair value of $80,472 and are
included in interest and other expense in the consolidated
statement of operations.
During the year ended December 31, 2015, 3,558,395 stock purchase
warrants expired with a weighted average exercise price of
$1.29.
As a result of the issuance of the 2015 Convertible Notes, the
exercise price of the 8,676,408 common stock warrants, which were
issued in connection with the Company's Series B Preferred
Stock in 2013 and 2014, was reduced to $0.35 per
share.
The following is a summary of all common stock warrant activity
during the year ended December 31, 2016:
|
Number of Shares
Under Warrants
|
Exercise
Price
Per Share
|
Weighted
Average Exercise Price
|
Warrants
issued and exercisable at December 31, 2015
|
16,281,164
|
$0.35 - 1.33
|
$0.48
|
Warrants
Issued/Exchanged
|
200,000
|
$0.28
|
$0.28
|
Warrants
Expired/Forfeited
|
(343,403)
|
$0.83 – 1.33
|
$0.88
|
Warrants
issued and exercisable at December 31, 2016
|
16,137,761
|
$0.28 - 1.33
|
$0.37
|
The following represents additional information related to common
stock warrants outstanding and exercisable at December 31,
2016:
Exercise Price
|
Number of Shares Under Warrants
|
Weighted Average Remaining Contract Life in Years
|
Weighted Average Exercise Price
|
$0.28
|
13,054,703
|
2.42
|
$0.28
|
Total warrants accounted
for as derivative liability
|
13,054,703
|
2.42
|
$0.28
|
|
|
|
|
$0.28
|
200,000
|
4.30
|
$0.28
|
$0.50
|
607,229
|
3.79
|
$0.50
|
$0.83
|
1,928,500
|
2.01
|
$0.83
|
$0.85
|
181,912
|
0.88
|
$0.85
|
$1.00
|
165,417
|
2.13
|
$1.00
|
Total warrants accounted for as equity
|
3,083,058
|
2.45
|
$0.79
|
Total for all warrants outstanding
|
16,137,761
|
2.42
|
$0.37
|
The Company used the Black-Scholes option price calculation to
value the warrants granted in 2016 using the following assumptions:
risk-free rate of 1.24%, volatility of 68.09%, actual term and
exercise price of warrants granted. For warrants
granted that are accounted for as a derivative liability, the
Company used a Binomial Options Pricing model. The
primary assumptions used to determine the grant date fair value of
these warrants were: a risk free interest rate with the range from
1.01% - 1.93%, volatility of 68.89%, actual term and exercise price
of the warrants granted. There were no material changes to the
primary assumptions, as noted above, used to determine the fair
value of the warrants as of December 31, 2016.
The Company used the Black-Scholes option price calculation to
value the warrants granted in 2015 using the following assumptions:
risk-free rate of 1.76%, volatility of 49.42%, actual term and
exercise price of warrants granted. For warrants
granted that are accounted for as a derivative liability, the
Company used a Binomial Options Pricing model. The
primary assumptions used to determine the grant date fair value of
these warrants were: a risk free interest rate with the range from
1.37% - 1.76%, volatility of 49.42%, actual term and exercise price
of the warrants granted. There were no material changes to the
primary assumptions, as noted above, used to determine the fair
value of the warrants as of December 31, 2015.
9. 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. As of December
31, 2016, there were 3,577,661 shares available for issuance under
the Plan.
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 December 31,
2015 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 $1.07 per share.
The following is a summary of all common stock option activity for
the year ended December 31, 2016:
|
Options Outstanding
|
Weighted Average
Exercise Price
|
Outstanding
at December 31, 2015
|
4,996,095
|
$0.65
|
Options
granted
|
125,411
|
$0.35
|
Options
forfeited
|
(2,384,667)
|
$0.70
|
Options
exercised
|
-
|
$-
|
Outstanding
at December 31, 2016
|
2,736,839
|
$0.58
|
|
Options Exercisable
|
Weighted Average Exercise
Price per Share
|
Exercisable
at December 31, 2015
|
4,312,762
|
$0.68
|
Exercisable
at December 31, 2016
|
2,283,506
|
$0.62
|
The weighted average fair value of options granted during the year
ended December 31, 2016 was $0.14.
The weighted average remaining contractual term for exercisable and
outstanding options is 4.55 and 5.15 years,
respectively. The aggregate intrinsic value of all of
the Company’s exercisable and outstanding options is
approximately $0 and $0, respectively.
As of December 31, 2016, there was approximately $31,906 of
unrecognized compensation cost related to non-vested options. The
unrecognized compensation expense is estimated to be recognized
over a period of 1.7 years at December 31, 2016.
The Company used the Black-Scholes option pricing model to
value all option grants (see Note 2, Summary of Significant
Accounting Policies, “Accounting for Share Based
Payments”).
10. RETIREMENT
PLAN
In 2011, the Company adopted a defined contribution plan intended
to qualify under Section 401(k) of the Internal Revenue Code
covering all eligible employees of the Company. All
employees are eligible to become participants of the plan upon
reaching age 21 on the first day of the month following the hire
date. Each employee may elect, voluntarily, to
contribute a percentage of their compensation to the plan each
year, subject to certain limitations. The Company
reserves the right to make additional contributions to the
plan. The Company has elected to make “safe
harbor” contributions equal to 100% of the first 6% of
participants’ elective deferrals. In the years
ended December 31, 2016 and 2015, the Company recognized expense
related to its contributions of $31,300 and $37,175,
respectively.
11. INCOME
TAXES
The Company is subject to taxation in the U.S. and the State of New
Jersey. At December 31, 2016 and 2015, the Company had gross
deferred tax assets calculated at an expected blended rate of
39.94% of approximately $12,267,597 and $11,149,349, respectively.
As the Company cannot determine that it is more likely than not
that the Company will realize the benefit of the deferred tax
asset, a valuation allowance of approximately $12,266,000 and
$11,149,000 has been established at December 31, 2016 and 2015,
respectively.
The significant components of the Company’s net deferred tax
assets (liabilities) at December 31, 2016 and 2015 are as
follows:
|
December 31,
2016
|
December 31,
2015
|
Gross
deferred tax assets:
|
|
|
Net
operating loss carry-forwards
|
$10,144,390
|
$9,099,986
|
Stock
based expenses
|
1,108,677
|
1,094,424
|
Tax
credit carry-forwards
|
361,758
|
363,607
|
Capital
loss carry-forwards
|
462,566
|
462,128
|
Long lived
assets
|
190,206
|
129,204
|
|
12,267,597
|
11,149,349
|
Deferred
tax asset valuation allowance
|
(12,267,597)
|
11,149,349)
|
Net
deferred tax asset
|
$-
|
$-
|
Income taxes computed using the federal statutory income tax rate
differs from the Company’s effective tax rate primarily due
to the following:
|
December 31,
2016
|
December 31,
2015
|
Income
taxes benefit (expense) at statutory rate
|
34.00%
|
34.00%
|
State
income tax, net of federal benefit
|
(5.94)%
|
(5.94)%
|
Permanent
differences
|
|
|
Meals
& entertainment
|
(0.16)%
|
(0.01)%
|
Share-based
compensation & warrant adjustments
|
14.00%
|
2.56%
|
Change
in valuation allowance
|
(41.90)%
|
(30.62)%
|
|
0%
|
0%
|
At December 31, 2016, the Company has gross net operating loss
carry-forwards for federal income tax purposes of approximately
$26,800,000 which expire in the years 2023 through 2036. The
Company has gross state net operating loss carryforwards of
approximately $22,800,000 which expire in the years 2030 through
2035. The Company also has federal research and
development carryforwards of approximately $362,000 which expire
twenty years from the date of inception. The net
increase in the valuation allowance in the years ended December 31,
2016 and 2015 was approximately $1,000,000 and $1,500,000,
respectively.
The Company is subject to the net operating loss utilization
provisions of Section 382 of the Internal Revenue Code. Due to the
reverse merger/recapitalization, the Company is
restricted in the future use of net operating loss and tax credit
carry-forwards generated by the Company before the
effective date of the merger. Other ownership
changes may cause the net operating losses to further be
limited. Both of the separate loss years’ net
operating losses will be subject to possible limitations concerning
changes of control and other limitations under the Internal Revenue
Code. The effect of an ownership change would be the imposition of
an annual limitation on the use of NOL carryforwards attributable
to periods before the change. The amount of the annual limitation
depends upon the value of the Company immediately before the
change, changes to the Company’s capital during a specified
period prior to the change, and the federal published interest
rate.
Topic 740 in the Accounting Standards Codification (ASC 740)
prescribes recognition threshold and measurement attributes for the
financial statement recognition and measurement of uncertain tax
positions taken or expected to be taken in a tax return. ASC 740
also provides guidance on de-recognition, classification, interest
and penalties, accounting in interim periods, disclosure and
transition. At December 31, 2016, the Company had taken no
uncertain tax positions that would require disclosure under ASC
740.
12. COMMITMENTS
AND CONTINGENCIES
License Agreements
On June 26, 2014, the Company and The General Hospital Corporation,
d/b/a Massachusetts General Hospital (“MGH”) entered
into two license agreements (the “Agreements”), which
Agreements replace the single license agreement between the Company
and MGH dated April 27, 2009, as amended by letter dated June 21,
2011 and agreement dated October 31, 2011 (the “Original
Agreement”). The Agreements provide exclusive licenses for
the Company’s two lead product candidates, BFPET and
CardioPET, two of the three cardiac imaging technologies covered by
the Original Agreement. The Agreements were entered into
primarily for the purpose of separating the Company’s rights
and obligations with respect to its different product development
programs. Each of the Agreements requires the Company to pay MGH an
initial license fee of $175,000 and annual license maintenance fees
of $125,000 each. The Agreements require the Company to meet
certain obligations, including, but not limited to, meeting certain
development milestones relating to clinical trials and filings with
the United States Food and Drug Administration. 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. Additionally, upon commercialization, the Company is
required to make specified milestone payments and royalties on
commercial sales. The Company is amortizing the cost of these
intangible assets over the remaining useful life of the Agreements
of 10 years.
The Company pays annual maintenance fees of $125,000 for each of
its license agreements. For the years ended December 31, 2016 and
2015, the Company has recorded license fee expenses of $250,000 and
$153,332, respectively.
On August 10, 2016, the Company entered into agreements with
MGH to amend the Agreements to include the potential to
license technical information in addition to intellectual
property.
The Company is current with all stipulated obligations and
milestones under the Agreements and the Agreements remain 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 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.
Executive Employment Contracts
The Company maintains employment contracts with key Company
executives that provide for the continuation of salary and the
grant of certain options to the executives if terminated for
reasons other than cause, as defined within the agreements. One
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 a stock, or 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
Effective July 31, 2016, the Company terminated its existing lease
agreement. Then on August 1, 2016, the Company entered into a
new one year lease agreement. The annual minimum lease payments for
this space are $25,966, payable in equal installments of $2,164 per
month.
The future minimum lease payments remaining through August 1, 2017
amount to $17,312.
Rent expense, net of sublease income, was $37,551 and $76,975 for
the years ended December 31, 2016 and 2015,
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.
13. SUBSEQUENT
EVENTS
In
2017, Dr. Peter Conti, Mr. Johan (Thijs) Spoor, and Mr. Lawrence
Atinsky resigned as directors. The resignations are not due to any
disagreements on any matter relating to the Company’s
operations, policies and practices.
On
March 13, 2017, the Company obtained majority approval to further
amend the 2014 Notes to extend the maturity date of the Notes to
June 22, 2017, with an effective date of January 22,
2017.
In February 2017, the Company issued 187,980 shares of common stock
pursuant to the conversion of 2014 Convertible Notes.
During 2017, the Company issued promissory secured notes for the
aggregate amount of $155,000 with terms substantially similar to
the 2016 Convertible Notes (see Note 5).
Effective
as of February 24, 2017, Platinum Montaur, on behalf of itself and
each of its successors and assigns, waived its Preferred Ratchet
Rights and Warrant Ratchet Rights with respect to the Subsequent
Financing, as defined, provided, however, that such waiver shall be
automatically revoked and of no further force and effect if the
Subsequent Financing is not completed by August 10,
2017.
On
March 30, 2017, the Company obtained majority approval to amend the
2016 Notes to September 23, 2017, with an effective date of March
23, 2017.
F-27