R
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended September 30, 2011.
|
£
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period from _________ to __________.
|
Delaware
|
41-1649949
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification Number)
|
8 Penn Center
1628 JFK Blvd, Suite 300
Philadelphia, PA
|
19103
|
|
(Address of principal executive offices)
|
(Zip code)
|
Large accelerated filer £
|
Accelerated filer £
|
Non-accelerated filer £
|
Smaller reporting company R
|
(Do not check if a smaller reporting company) |
Item
|
Page
|
|
1.
|
Consolidated Financial Statements
|
|
3
|
||
4
|
||
5
|
||
7
|
||
2.
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19
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4.
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25
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PART II
|
||
OTHER INFORMATION
|
||
1.
|
26
|
|
2. | 26 | |
6.
|
26
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|
27
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||
28
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Item 1.
|
Financial Statements.
|
As of
|
||||||||
September 30,
2011
|
December 31,
2010
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash and cash equivalents
|
$ | 2,258,019 | $ | 1,342,044 | ||||
Accounts receivable
|
40,684 | 141,488 | ||||||
Stock subscriptions receivable
|
- | 285,000 | ||||||
Prepaid expenses and other current assets
|
446,116 | 195,205 | ||||||
Total current assets
|
2,744,819 | 1,963,737 | ||||||
Property and Equipment, at cost:
|
||||||||
Computer equipment
|
275,407 | 265,862 | ||||||
Office and laboratory equipment (including assets under capitalized leases)
|
616,250 | 626,823 | ||||||
Furniture and fixtures
|
181,080 | 17,019 | ||||||
Manufacturing equipment
|
164,637 | 129,320 | ||||||
Leasehold improvements
|
187,264 | 177,768 | ||||||
1,424,638 | 1,216,792 | |||||||
Less-Accumulated depreciation and amortization
|
(1,118,479 | ) | (1,168,758 | ) | ||||
Net property and equipment (including assets under capitalized leases)
|
306,159 | 48,034 | ||||||
Other Assets:
|
||||||||
Restricted cash
|
9,749 | 275,249 | ||||||
Intangible assets, net of accumulated amortization
|
9,625,000 | 9,625,000 | ||||||
Deposits and other assets
|
10,816 | 250 | ||||||
Total other assets
|
9,645,565 | 9,900,499 | ||||||
Total assets
|
$ | 12,696,543 | $ | 11,912,270 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable
|
$ | 362,513 | $ | 605,634 | ||||
Deferred revenue
|
196,290 | 405,454 | ||||||
Current portion of notes payable and capital lease obligation, net of discounts
|
2,231 | 102,071 | ||||||
Derivative warrant liability
|
1,561,244 | 1,544,996 | ||||||
Accrued expenses and other liabilities
|
817,639 | 463,475 | ||||||
Total current liabilities
|
2,939,917 | 3,121,630 | ||||||
Notes payable and capital lease obligation, net of current portion
|
4,482 | 6,176 | ||||||
Deferred revenue, net of current portion
|
92,794 | 82,180 | ||||||
Total liabilities
|
3,037,193 | 3,209,986 | ||||||
Commitments
|
||||||||
Stockholders’ Equity:
|
||||||||
Perpetual Redeemable Preferred Stock:
|
||||||||
Series B, $0.01 par value, authorized 40,000 shares, issued and outstanding 168.6701 and 154.3940 shares at September 30, 2011 and December 31, 2010, respectively (preference in liquidation of $1,686,700 at September 30, 2011)
|
2 | 2 | ||||||
Convertible Preferred Stock:
|
||||||||
Series C, $0.01 par value, authorized 10,000 shares, issued and outstanding 4,918.1 at September 30, 2011 and December 31, 2010
|
49 | 49 | ||||||
Series D, $0.01 par value, authorized 3,600,000 shares, issued and outstanding 3,506,000 shares at September 30, 2011 (preference in liquidation of $3,506,000 at September 30, 2011)
|
35,060 | - | ||||||
Common Stock, $0.01 par value, authorized 100,000,000 shares, issued and outstanding 34,455,452 and 31,126,245 shares at September 30, 2011 and December 31, 2010, respectively
|
344,557 | 311,264 | ||||||
Additional paid-in capital
|
88,730,324 | 79,646,385 | ||||||
Common stock subscribed for but not paid for or issued, 285,000 shares at December 31, 2010
|
- | 285,000 | ||||||
Accumulated deficit
|
(79,450,642 | ) | (71,540,416 | ) | ||||
Total stockholders’ equity
|
9,659,350 | 8,702,284 | ||||||
Total liabilities and stockholders’ equity
|
$ | 12,696,543 | $ | 11,912,270 |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Licensing revenue
|
$ | (44,360 | ) | $ | 16,023 | $ | 198,550 | $ | 197,594 | |||||||
Other revenue
|
- | 30,575 | 145,152 | 127,095 | ||||||||||||
Total revenues
|
(44,360 | ) | 46,598 | 343,702 | 324,689 | |||||||||||
Operating Expenses:
|
||||||||||||||||
Research and development
|
695,019 | 409,383 | 2,557,118 | 2,087,484 | ||||||||||||
Selling, general and administrative
|
1,527,317 | 546,446 | 3,427,582 | 2,434,944 | ||||||||||||
Total operating expenses
|
2,222,336 | 955,829 | 5,984,700 | 4,522,428 | ||||||||||||
Loss from operations
|
(2,266,696 | ) | (909,231 | ) | (5,640,998 | ) | (4,197,739 | ) | ||||||||
Other Income (Expense):
|
||||||||||||||||
Interest income
|
581 | 207 | 3,870 | 1,379 | ||||||||||||
Interest expense
|
(385 | ) | (2,867 | ) | (13,739 | ) | (4,574 | ) | ||||||||
Gain (loss) on extinguishment of debt/payables
|
- | - | (1,514 | ) | 200,000 | |||||||||||
Gain on disposals of assets
|
- | - | 834 | - | ||||||||||||
Derivative warrant liability gain (loss)
|
893,229 | 329,051 | (2,258,679 | ) | 1,000,987 | |||||||||||
Other income (expense), net
|
893,425 | 326,391 | (2,269,228 | ) | 1,197,792 | |||||||||||
Net loss
|
(1,373,271 | ) | (582,840 | ) | (7,910,226 | ) | (2,999,947 | ) | ||||||||
Deemed dividend on beneficial conversion feature of Series D Convertible Preferred Stock
|
- | - | (1,975,211 | ) | - | |||||||||||
Deemed dividend on repricing of warrants
|
(87,500 | ) | - | (87,500 | ) | - | ||||||||||
Accretion of dividends on Convertible Perpetual Redeemable Preferred Stock
|
(49,519 | ) | (37,026 | ) | (142,761 | ) | (93,700 | ) | ||||||||
Net loss applicable to common shareholders
|
$ | (1,510,290 | ) | $ | (619,866 | ) | $ | (10,115,698 | ) | $ | (3,093,647 | ) | ||||
Net loss per common share, basic and diluted
|
$ | (0.04 | ) | $ | (0.02 | ) | $ | (0.30 | ) | $ | (0.11 | ) | ||||
Basic and diluted weighted average common shares outstanding
|
34,295,425 | 29,105,517 | 33,620,751 | 28,809,682 |
Nine Months Ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Cash Flows From Operating Activities:
|
||||||||
Net loss
|
$ | (7,910,226 | ) | $ | (2,999,947 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
29,877 | 104,065 | ||||||
Share-based compensation
|
566,301 | 143,045 | ||||||
Fair value of common stock issued for charitable contributions
|
- | 113,400 | ||||||
Fair value of common stock and warrants issued for services
|
384,620 | 930,144 | ||||||
Fair value of options issued for services
|
- | 59,471 | ||||||
Derivative warrant liability loss (gain)
|
2,258,679 | (1,000,987 | ) | |||||
Non-cash gain on extinguishment of financial advisor fee payable
|
- | (200,000 | ) | |||||
Non-cash loss on extinguishment of debt
|
1,514 | - | ||||||
Non-cash interest expense
|
12,159 | 2,450 | ||||||
Non-cash loss on disposal of assets
|
2,731 | - | ||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
100,804 | 117,741 | ||||||
Prepaid expenses and other current assets
|
(250,911 | ) | (36,541 | ) | ||||
Accounts payable
|
(243,121 | ) | (442,637 | ) | ||||
Deferred revenue
|
(198,550 | ) | (197,594 | ) | ||||
Accrued expenses and other liabilities
|
356,991 | (85,422 | ) | |||||
Deposits and other assets
|
(10,566 | ) | (1,380 | ) | ||||
Net cash used in operating activities
|
(4,899,698 | ) | (3,494,192 | ) | ||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of property and equipment
|
(290,733 | ) | (11,157 | ) | ||||
Decrease in restricted cash
|
265,500 | - | ||||||
Net cash used in investing activities
|
(25,233 | ) | (11,157 | ) | ||||
Cash Flows From Financing Activities:
|
||||||||
Proceeds from the exercise of warrants
|
1,250,824 | - | ||||||
Proceeds from issuance of common stock and warrants, net of expenses
|
1,121,124 | 2,311,157 | ||||||
Principal payments for capital lease obligations
|
(1,534 | ) | (1,388 | ) | ||||
Proceeds from issuance of Series D Convertible Preferred Stock, net of expenses
|
2,478,702 | - | ||||||
Proceeds from bridge notes
|
1,000,000 | 250,000 | ||||||
Repayment of bridge notes
|
(75,000 | ) | - | |||||
Proceeds from exercise of stock options, net of forfeitures
|
66,790 | - | ||||||
Net cash provided by financing activities
|
5,840,906 | 2,559,769 | ||||||
Net increase (decrease) in cash and cash equivalents
|
915,975 | (945,580 | ) | |||||
Cash and cash equivalents, beginning of period
|
1,342,044 | 1,166,858 | ||||||
Cash and cash equivalents, end of period
|
$ | 2,258,019 | $ | 221,278 |
Nine Months Ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Supplemental Disclosure of Cash Flow Information and Non-Cash Financing Transactions:
|
||||||||
Cash paid for interest
|
$ | 1,581 | $ | 2,124 | ||||
Accretion of dividend on Series B Perpetual Redeemable Preferred Stock
|
$ | 142,761 | $ | 93,700 | ||||
Deemed dividend on beneficial conversion feature of Series D Convertible Preferred Stock
|
$ | 1,975,211 | $ | - | ||||
Issuance of common stock in settlement of short term note
|
$ | 25,000 | $ | - | ||||
Issuance of common stock in settlement of accounts payable
|
$ | - | $ | 23,000 | ||||
Issuance of common stock in connection with issuance of promissory notes
|
$ | - | $ | 48,500 | ||||
Conversion of notes payable and accrued interest into Series D Convertible Preferred Stock
|
$ | 1,006,000 | $ | - | ||||
Reclassification of derivative warrant liability to additional paid-in capital
|
$ | 2,242,431 | $ | 200,357 | ||||
Fair value of warrants issued for investor relations services
|
$ | 173,000 | $ | - | ||||
Fair value of common stock issued for short-term note extension
|
$ | 10,500 | $ | - | ||||
Fair value of warrants issued to financial advisors as financing costs
|
$ | 41,363 | $ | 217,141 | ||||
Cancellation of restricted Common Stock
|
$ | 5,250 | $ | - | ||||
Deemed dividend on repricing of warrants
|
$ | 87,500 | $ | - |
(1)
|
ORGANIZATION AND BASIS OF PRESENTATION
|
|
·
|
analyte extraction, with the Symphony® tCGM System (“Symphony”) for needle-free, continuous glucose monitoring in hospital patients and diabetics as the first application; and
|
|
·
|
enhanced needle-free drug delivery.
|
September 30, 2011
|
December 31, 2010
|
||||||||||||||||
Estimated
|
Accumulated
|
||||||||||||||||
Life
|
Cost
|
Amortization
|
Net
|
Net
|
|||||||||||||
Contract related intangible asset:
|
|||||||||||||||||
Cato Research discounted contract
|
3 years
|
$ | 355,000 | $ | 355,000 | $ | — | $ | — | ||||||||
Technology related intangible assets:
|
|||||||||||||||||
Patent for the AzoneTS-based product candidates and formulation
|
6 years
|
1,305,000 | — | 1,305,000 | 1,305,000 | ||||||||||||
Drug Master Files containing formulation, clinical and safety documentation used by the FDA
|
6 years
|
1,500,000 | — | 1,500,000 | 1,500,000 | ||||||||||||
Two in-process Durhalieve-related pharmaceutical products
|
6 years
|
6,820,000 | — | 6,820,000 | 6,820,000 | ||||||||||||
Total technology related intangible assets
|
9,625,000 | — | 9,625,000 | 9,625,000 | |||||||||||||
Intangible assets, net
|
$ | 9,980,000 | $ | 355,000 | $ | 9,625,000 | $ | 9,625,000 |
For the period ending December 31,
|
Franklin
|
Philadelphia
|
Total
|
|||||||||
2011
|
$ | 36,000 | $ | 31,000 | $ | 67,000 | ||||||
2012
|
144,000 | 128,000 | 272,000 | |||||||||
2013
|
144,000 | 132,000 | 276,000 | |||||||||
2014
|
36,000 | 44,000 | 80,000 | |||||||||
2015
|
- | - | - | |||||||||
Total
|
$ | 360,000 | $ | 335,000 | $ | 695,000 |
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Short-term notes
|
$ | — | $ | 100,000 | ||||
Capital lease obligation
|
6,713 | 8,247 | ||||||
Total notes payable and capital lease obligation
|
6,713 | 108,247 | ||||||
Less current portion of notes payable and capital lease obligation, net of discounts
|
(2,231 | ) | (102,071 | ) | ||||
Notes payable and capital lease obligation, net of current portion
|
$ | 4,482 | $ | 6,176 |
Level 1:
|
Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. 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 m arket data for substantially the full term of the assets or liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted prices that are traded less frequently than exchange-traded instruments.
|
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. This category generally includes certain private equity investments and long-term derivative contracts.
|
Liabilities:
|
||||
Derivative warrant liability as of December 31, 2010
|
$ | 1,544,996 | ||
Total unrealized losses included in net loss (1)
|
2,191,146 | |||
Total realized losses included in net loss (1)
|
978,678 | |||
Total unrealized gains included in net loss (1)
|
(891,727 | ) | ||
Total realized gains included in net loss (1)
|
(19,418 | ) | ||
Reclassification of derivative warrant liability to additional paid-in capital for derivative warrants exercised
|
(2,242,431 | ) | ||
Derivative warrant liability as of September 30, 2011
|
$ | 1,561,244 |
Series B Perpetual Redeemable Preferred Stock
|
Share-Based Compensation
|
2011
|
2010
|
|||||||
Risk-free interest rate
|
1.91% — 3.47 | % | 2.54% — 3.71 | % | ||||
Expected dividend yield
|
— | — | ||||||
Expected term (employee / director grants)
|
6.00 — 10.00 years
|
6.75 years
|
||||||
Forfeiture rate (excluding fully vested stock options)
|
0% — 15 | % | 0% — 37 | % | ||||
Expected volatility
|
138% — 142 | % | 143% — 151 | % |
Stock Options
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||
Outstanding at January 1, 2011
|
3,029,030 | $ | 0.87 | ||||||||||
Granted
|
1,115,000 | 3.21 | |||||||||||
Exercised
|
(615,334 | ) | 0.86 | ||||||||||
Forfeited or expired
|
(173,593 | ) | 3.34 | ||||||||||
Outstanding at September 30, 2011
|
3,355,103 | $ | 1.52 |
7.05 years
|
$ | 9,570,215 | |||||||
Exercisable at September 30, 2011
|
2,420,099 | $ | 0.88 |
6.29 years
|
$ | 5,298,175 |
Restricted Stock
|
Shares
|
Weighted-
Average
Grant-Date
Fair Value
|
||||||
Nonvested at January 1, 2011
|
1,629,594 | $ | 1.12 | |||||
Granted
|
680,000 | 3.39 | ||||||
Vested
|
(65,000 | ) | (1.49 | ) | ||||
Forfeited
|
(525,000 | ) | (1.57 | ) | ||||
Nonvested at September 30, 2011
|
1,719,594 | $ | 1.82 |
Number of
|
|||||||||
Shares
|
Exercise
|
Date of
|
|||||||
Exercisable
|
Price
|
Expiration
|
|||||||
Outstanding warrants accounted for as derivative warrant liability:
|
|||||||||
Granted to investors and placement agent in private placement
|
341,535 | $ | 1.28 |
6/15-7/16/2012
|
|||||
Granted to financial investment advisor
|
3,000 | $ | 1.38 |
7/25/2012
|
|||||
Granted to financial advisor in connection with an acquisition
|
61,625 | $ | 1.75 |
9/14/2012
|
|||||
Granted to financial investment advisor
|
7,500 | $ | 1.30 |
2/11/2013
|
|||||
Granted to investors in private placement
|
154,990 | $ | 0.50 |
2/11/2013
|
|||||
Granted to investors in private placement
|
177,324 | $ | 1.50 |
3/24/2013
|
|||||
Total outstanding warrants accounted for as derivative warrant liability
|
745,974 | ||||||||
Weighted average exercise price
|
$ | 1.21 | |||||||
Weighted average time to expiration in years
|
1.08 years
|
||||||||
Outstanding warrants accounted for as equity:
|
|||||||||
Granted to investors and placement agent in private placement
|
180,000 | $ | 0.75 |
6/15/2012
|
|||||
Granted to investors in private placement
|
578,422 | $ | 0.50 |
2/11/2013
|
|||||
Granted to investors in private placement of preferred stock
|
121,663 | $ | 0.75 |
9/30/2013
|
|||||
Granted to investors in private placement of preferred stock
|
32,249 | $ | 1.00 |
9/30/2013
|
|||||
Granted to investors in private placement of preferred stock
|
198,333 | $ | 1.50 |
10/28/2013
|
|||||
Granted to investors in private placement of preferred stock
|
70,000 | $ | 0.75 |
10/31/2013
|
|||||
Granted to investors in private placement of preferred stock
|
640,000 | $ | 0.75 |
2/28/2014
|
|||||
Granted to vendor
|
50,000 | $ | 0.70 |
3/2/2012
|
|||||
Granted to vendor
|
60,000 | $ | 0.60 |
3/15/2014
|
|||||
Granted to investors in private placement
|
400,000 | $ | 1.59 |
6/30/2014
|
|||||
Granted to investors in private placement
|
1,368,000 | $ | 2.00 |
11/13/2014
|
|||||
Granted to investors in private placement
|
800,000 | $ | 1.60 |
11/13/2014
|
|||||
Granted to placement agent in private placement
|
256,906 | $ | 1.50 |
11/13/2014
|
|||||
Granted to vendor
|
50,000 | $ | 2.00 |
12/1/2012
|
|||||
Granted to investors in private placement
|
63,000 | $ | 2.00 |
12/3/2014
|
|||||
Granted to investors in private placement
|
374,658 | $ | 2.25 |
2/9/2015
|
Number of Shares Exercisable
|
Exercise Price
|
Date of Expiration
|
|||||||
Granted to placement agents in private placement
|
28,500 | $ | 2.25 |
2/9/2015
|
|||||
Granted to investor in private placement
|
6,375 | $ | 2.25 |
3/18/2015
|
|||||
Granted to financial investment advisor
|
100,000 | $ | 1.50 |
2/10/2013
|
|||||
Granted to financial investment advisor
|
10,367 | $ | 2.00 |
3/3/2013
|
|||||
Granted to investors in private placement
|
187,500 | $ | 1.50 |
11/5/2012
|
|||||
Granted to investors in private placement
|
187,500 | $ | 2.50 |
11/5/2012
|
|||||
Granted to placement agent in private placement
|
5,000 | $ | 1.50 |
11/5/2012
|
|||||
Granted to placement agent in private placement
|
5,000 | $ | 2.50 |
11/5/2012
|
|||||
Granted to investors in private placement
|
35,000 | $ | 1.50 |
11/26/2012
|
|||||
Granted to investors in private placement
|
35,000 | $ | 2.50 |
11/26/2012
|
|||||
Granted for waiver of Series B Perpetual Redeemable Preferred Stock redemption
|
125,000 | $ | 1.50 |
12/8/2012
|
|||||
Granted for waiver of Series B Perpetual Redeemable Preferred Stock redemption
|
125,000 | $ | 2.50 |
12/8/2012
|
|||||
Granted to investors in private placement
|
495,000 | $ | 1.50 |
12/29/2012
|
|||||
Granted to investors in private placement
|
512,500 | $ | 2.50 |
12/29/2012
|
|||||
Granted to placement agent in private placement
|
30,000 | $ | 1.50 |
12/29/2012
|
|||||
Granted to placement agent in private placement
|
30,000 | $ | 2.50 |
12/29/2012
|
|||||
Granted to investors in private placement
|
245,750 | $ | 1.50 |
1/4/2013
|
|||||
Granted to investors in private placement
|
245,750 | $ | 2.50 |
1/4/2013
|
|||||
Granted to placement agent in private placement
|
18,125 | $ | 1.50 |
1/4/2013
|
|||||
Granted to placement agent in private placement
|
18,125 | $ | 2.50 |
1/4/2013
|
|||||
Granted to investors in private placement
|
255,000 | $ | 1.50 |
2/3/2013
|
|||||
Granted to investors in private placement
|
280,000 | $ | 2.50 |
2/3/2013
|
|||||
Granted to placement agent in private placement
|
1,250 | $ | 1.50 |
2/3/2013
|
|||||
Granted to placement agent in private placement
|
1,250 | $ | 2.50 |
2/3/2013
|
|||||
Granted to investors in private placement
|
1,753,000 | $ | 1.50 |
2/8/2013
|
|||||
Granted to investors in private placement
|
1,753,000 | $ | 2.50 |
2/8/2013
|
|||||
Total outstanding warrants accounted for as equity
|
11,732,223 | ||||||||
Weighted average exercise price
|
$ | 1.75 | |||||||
Weighted average time to expiration in years
|
1.37 years
|
||||||||
Totals for all warrants outstanding:
|
|||||||||
Total
|
12,478,197 | ||||||||
Weighted average exercise price
|
$ | 1.72 | |||||||
Weighted average time to expiration in years
|
1.35 years
|
●
|
persuasive evidence of an arrangement exists;
|
●
|
delivery has occurred and risk of loss has passed;
|
●
|
the price to the buyer is fixed or determinable; and
|
●
|
collectability is reasonably assured.
|
●
|
our ability to obtain funding from third parties, including any future collaborative partners, on reasonable terms;
|
●
|
our progress on research and development programs;
|
●
|
the time and costs required to gain regulatory approvals;
|
●
|
the costs of manufacturing, marketing and distributing our products, if successfully developed and approved;
|
●
|
the costs of filing, prosecuting and enforcing patents, patent applications, patent claims and trademarks;
|
●
|
the status of competing products; and
|
●
|
the market acceptance and third-party reimbursement of our products, if successfully developed and approved.
|
Item 4.
|
Controls and Procedures.
|
Legal Proceedings.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
Item 6.
|
Exhibits.
|
ECHO THERAPEUTICS, INC.
|
|||
Date: November 7, 2011
|
By:
|
/s/ Patrick T. Mooney, M.D. | |
Patrick T. Mooney, M.D.
|
|||
Chief Executive Officer and Chairman of the Board
|
|||
(Duly authorized officer of the Registrant) | |||
By: | /s/ Christopher P. Schnittker, CPA | ||
Christopher P. Schnittker, CPA | |||
Chief Financial Officer and Treasurer | |||
(Principal Financial Officer) |
Exhibit No.
|
Item
|
|
Second Amendment dated January 13, 2009 to Lease between CRP-2 Forge, LLC and Registrant.
|
||
Third Amendment dated September 30, 2009 to Lease between CRP-2 Forge, LLC and Registrant.
|
||
Fourth Amendment dated November 29, 2010 to Lease between CRP-2 Forge, LLC and Registrant.
|
||
Amendment to Employment Agreement dated May 13, 2011 between Harry G. Mitchell and Registrant.
|
||
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
101
|
The following materials from Echo Therapeutics, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.*
|
* |
Pursuant to Rule 406T of Regulation S-T, the XBRL (Extensible Business Reporting Language) information included in Exhibit 101 hereto is deemed furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
|
Period
|
Base Rent
(per annum)
|
Monthly Base Rent
|
Approximate S.F.
Base Rent
|
|||||||||
April I, 2009· March 31,2010
|
$ | 162,487.56 | $ | 13,539.88 | $ | 12.50 |
TENANT:
|
LANDLORD:
|
||||
ECHO THERAPEUTICS, INC. (f/k/a SONTRA
|
CRP-2 FORGE, LLC,
|
||||
MEDICAL CORPORATION),
|
a Delaware limited liability company | ||||
a Delaware corporation | |||||
By:
|
/s/ Harry G. Mitchell
|
By:
|
/s/ Robert W. Holmes
|
||
Name:
|
Harry G. Mitchell
|
Name:
|
Robert W. Holmes
|
||
Title:
|
CFO & COO, Treasurer
|
Title:
|
Vice President
|
||
Date:
|
2/19/09
|
Date:
|
2/23/09
|
Period
|
Base Rent
(per annum)
|
Monthly Base Rent
|
Approximate S.P,
Base Rent
|
||||||
April 1,2010- March 31, 2011
|
$ | 155,988.00 |
§12,999.00
|
$ | 12.00 |
TENANT:
|
LANDLORD:
|
||||
ECHO THERAPEUTICS, INC. (f/k/a SONTRA
|
CRP-2 FORGE, LLC,
|
||||
MEDICAL CORPORATION),
|
a Delaware limited liability company | ||||
a Delaware corporation | |||||
By:
|
/s/ Harry G. Mitchell
|
By:
|
/s/ Robert W. Holmes
|
||
Name:
|
Harry G. Mitchell
|
Name:
|
Robert W. Holmes
|
||
Title:
|
COO/CFO
|
Title:
|
Vice President
|
||
Date:
|
10/26/09
|
Date:
|
11/2/09 |
Period
|
Base Rent
(per annum)
|
Monthly Base Rent
|
Approximate S.F. Base Rent
|
|||||||||
December 1, 2010 - March 31, 2014
|
$ | 113,741.25 | $ | 9,478.44 | $ | 8.75 |
TENANT: | LANDLORD: | ||||
ECHO THERAPEUTICS, INC. (f/k/a SONTRA MEDICAL CORPORATION), | CRP-2 FORGE, LLC, | ||||
a Delaware corporation | a Delaware limited liability company | ||||
By: |
/s/ Harry G. Mitchell
|
By: |
/s/ (illegible)
|
||
Name: Harry G. Mitchell
|
Name:
|
||||
Title: CFO, COO & Treasurer |
Title:
|
ECHO THERAPEUTICS, INC | ||
By: | /s/ Patrick T. Mooney | |
Patrick T. Mooney | ||
Chief Executive Officer | ||
/s/ Harry G. Mitchell | ||
Harry G. Mitchell |
1. I have reviewed this Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended September 30, 2011;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of and for the periods presented in this report;
|
4.
|
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period on which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
|
5.
|
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
|
Date: November 7, 2011 | |||
/s/ Patrick T. Mooney, M.D. | |||
Patrick T. Mooney, M.D. | |||
Chief Executive Officer and Chairman of the Board |
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended September 30, 2011;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of and for the periods presented in this report;
|
4.
|
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period on which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
|
5.
|
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
|
Date: November 7, 2011 | |||
/s/ Christopher P. Schnittker, CPA | |||
Christopher P. Schnittker, CPA | |||
Chief Financial Officer and Treasurer |
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Patrick T. Mooney, M.D.
|
|||
Patrick T. Mooney, M.D. | |||
Chief Executive Officer and Chairman of the Board | |||
(Principal Executive Officer) | |||
November 7, 2011 |
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Christopher P. Schnittker, CPA | |||
Christopher P. Schnittker, CPA | |||
Chief Financial Officer and Treasurer | |||
(Principal Financial Officer) | |||
November 7, 2011 |
Document And Entity Information (USD $) | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Nov. 07, 2011 | Jun. 30, 2010 | |
Entity Registrant Name | Echo Therapeutics, Inc. | ||
Entity Central Index Key | 0001031927 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 36,354,000 | ||
Entity Common Stock, Shares Outstanding | 34,967,452 | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Document Type | 10-Q | ||
Amendment Flag | false | ||
Document Period End Date | Sep. 30, 2011 |
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FAIR VALUES OF ASSETS AND LIABILITIES | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUES OF ASSETS AND LIABILITIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUES OF ASSETS AND LIABILITIES | (7) FAIR VALUES OF ASSETS AND LIABILITIES The Company groups its financial assets and liabilities generally 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, as follows:
The Company uses valuation methods such as the Black-Scholes option pricing model, and assumptions in estimating fair value for the warrants considered to be derivative instruments including, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates. The table below presents the changes in Level 3 derivative warrant liability measured at fair value on a recurring basis.
(1) Included in derivative warrant liability gain or loss in the Consolidated Statement of Operations. |
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LICENSING AND OTHER REVENUE | 9 Months Ended |
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Sep. 30, 2011 | |
LICENSING AND OTHER REVENUE [Abstract] | |
LICENSING AND OTHER REVENUE | (12) LICENSING AND OTHER REVENUE Ferndale License of Prelude® SkinPrep System – On May 27, 2009, the Company entered into a License Agreement with Ferndale Pharma Group, Inc. (“Ferndale”) pursuant to which the Company granted Ferndale a license in North America and the United Kingdom to develop, assemble, use, market, sell and export Prelude for skin preparation prior to the application of a topical analgesic or anesthetic cream for local dermal anesthesia or analgesia prior to a needle insertion or IV procedure (the “Ferndale License”). The Ferndale License has a minimum term of 10 years from the date of the first commercial sale of Prelude product components in North America or the United Kingdom. The Company received a licensing fee of $750,000 upon execution of the Ferndale License. The Company recognizes the upfront, nonrefundable payments as revenue on a straight-line basis over the contractual or estimated performance period. During the nine months ended September 30, 2011 and 2010, approximately $168,000 and $76,000, respectively, of the nonrefundable license revenue was recognized. As of September 30, 2011, approximately $73,000 of remaining deferred revenue is recognizable over the next 12 months and is shown in Deferred Revenue amongst current liabilities on the Consolidated Balance Sheet. Other Revenue - The Company has retained contract engineering services in connection with product development pursuant to the Ferndale License and the Company is reimbursed by Ferndale for the cost of product development engineering services. Other Revenue of approximately $145,000 and $127,000 related to product development costs incurred was earned during the nine months ended September 30, 2011 and 2010, respectively. The expenses billed to the Company are included in Research and Development expenses in the Consolidated Statement of Operations. There was no markup on expenses from third party vendors. Handok License of Symphony® tCGM System – On June 15, 2009, the Company entered into a License Agreement with Handok Pharmaceuticals Co., Ltd. (“Handok”) pursuant to which the Company granted Handok a license to develop, use, market, sell and import Symphony for continuous glucose monitoring for use by medical facilities and/or individual consumers in South Korea (the “Handok License”). The Handok License has a minimum term of 10 years from the date of the first commercial sale of Symphony in South Korea. The Company received a licensing fee of approximately $500,000 upon execution of the Handok License. The Company recognizes the upfront, nonrefundable payments as revenue on a straight-line basis over the contractual or estimated performance period. During the nine months ended September 30, 2011, as a result of a change in the amortization period, the Company recorded a charge of approximately $30,000 to nonrefundable license revenue. During the nine months ended September 30, 2010, the Company recognized nonrefundable license revenue of $121,000. As of September 30, 2011, approximately $124,000 of remaining deferred revenue is recognizable over the next 12 months and is shown as Deferred Revenue amongst current liabilities on the Consolidated Balance Sheet. Approximately $93,000 of the remaining deferred revenue will be earned after 12 months and is shown as non-current Deferred Revenue. |
INTANGIBLE ASSETS | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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INTANGIBLE ASSETS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | (3) INTANGIBLE ASSETS The Company's intangible assets are related to the acquisition of assets from Durham Pharmaceuticals Ltd. in 2007 and are summarized as follows:
Intangible assets related to technology are expected to be amortized on a straight-line basis over the period ending 2018, when the underlying patents expire, and will commence upon revenue generation which the Company estimates to occur in 2013. The contract related intangible asset was amortized over a 3 year period that ended in 2010. Amortization expense relating to the contract was $25,000 and $84,000 for the three and nine months ended September 30, 2010, respectively, and is included in research and development expense in the Consolidated Statement of Operations. |
COMMON STOCK | 9 Months Ended |
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Sep. 30, 2011 | |
COMMON STOCK [Abstract] | |
COMMON STOCK | (9) COMMON STOCK The Company has authorized 100,000,000 shares of Common Stock of which 34,455,452 and 31,126,245 shares were issued and outstanding as of September 30, 2011 and December 31, 2010, respectively. November 2010 Common Stock and Warrant Financing In November 2010, the Company initiated a private placement (the “November 2010 Financing”) of up to 120 units (each, a “Unit” and together, the “Units”) or partial Units at a price per Unit of $25,000. Each Unit consisted of (i) 25,000 shares of Common Stock, (ii) Series-1 warrants to purchase 12,500 shares of Common Stock with an exercise price of $1.50 per share (the “Series-1 Warrants”), and (iii) Series-2 warrants to purchase 12,500 shares of Common Stock with an exercise price of $2.50 per share (the “Series-2 Warrants”). Through December 31, 2010, the Company had entered into subscription agreements with certain strategic institutional and accredited investors in connection with the November 2010 Financing for a total of 68.8 Units. The Company received gross proceeds from these subscriptions in the amount of $1,720,000. Included in this amount, the Company received proceeds of $100,000 in the form of extinguishment of a promissory note issued by the Company on September 28, 2010. Additionally, the Company had received a commitment for an additional 11.4 Units for which the expected proceeds of $285,000 had not been received as of December 31, 2010. This was recorded as Stock Subscriptions Receivable in the December 31, 2010 Consolidated Balance Sheet. The corresponding proceeds of $285,000 were received in January and February 2011. As of December 31, 2010, the Company issued an aggregate of 1,720,000 shares of Common Stock and issued an aggregate of 860,000 Series-1 Warrants and 860,000 Series-2 Warrants. These warrants are immediately exercisable and expire two years after issuance. The exercise price is subject to adjustment for stock splits, combinations or similar events. An exercise under these warrants may not result in the holder beneficially owning more than 4.99% or 9.99%, as applicable, of all of the Common Stock outstanding at the time; provided, however, that a holder may waive the foregoing provision upon 61 days' advance written notice to the Company. During the nine months ended September 30, 2011, the Company entered into additional subscription agreements with certain strategic institutional and accredited investors in connection with the November 2010 Financing for a total of 35.66 Units. The Company received gross proceeds from these 2011 subscriptions in the amount of $891,500 which included proceeds of $25,000 in the form of extinguishment of a 2010 short-term note issued by the Company on September 24, 2010 (see Note 5). Financing costs related to these issuances amounted to approximately $72,000. Pursuant to these November 2010 Financing subscription agreements that occurred in 2011, including the subscription receivable, the Company issued an aggregate of 607,625 Series-1 Warrants and 607,625 Series-2 Warrants to the investors and placement agents. In connection with the November 2010 Financing, the Company entered into agreements with two placement agents (each, an “Agent” and collectively, the “Agents”) pursuant to which the Company agreed to pay each Agent for its services as follows: (a) a cash fee equal to 7% of the gross cash proceeds received by the Company in connection with the November 2010 Financing from investors introduced by the Agent; and (b) warrants to acquire a number of shares of Common Stock equal to 10% of the securities sold to investors introduced by the Agent. The warrants are identical to those issued to the investors in the November 2010 Financing, except that they include a cashless exercise provision. One Agent received an up-front cash fee of $10,000 for financial advisory services and received a cash fee equal to 7% of the gross cash proceeds in excess of $150,000 received by the Company in connection with the November 2010 Financing from investors introduced by the Agent. During the nine months ended September 30, 2011, the cash fee paid to the Agents amounted to approximately $30,000. In connection with the November 2010 Financing, the Company issued the Agents warrants to purchase 19,375 shares of Common Stock at an exercise price of $1.50 per share and warrants to purchase 19,375 shares of Common Stock at an exercise price of $2.50 per share, with a combined fair value of approximately $41,000 which was recorded as non-cash stock issuance cost. Stock Issued for Services During the nine months ended September 30, 2011, the Company issued 60,000 shares of Common Stock with a fair value of $173,000 to a vendor for investor relations services. Expenses associated with this transaction were included in Selling, General and Administrative Expenses in the Consolidated Statements of Operations. During the nine months ended September 30, 2011, the Company issued 40,000 shares of Common Stock with a fair value of $166,000 to a vendor for business development services. The Company recorded $83,000 and $153,000 of Selling, General and Administrative Expense related to this issue in the Consolidated Statements of Operations for the three and nine months ended September 30, 2011. Approximately $14,000 of unrecognized expense remains to be recognized related to this arrangement. During the nine months ended September 30, 2011, the Company issued 14,000 shares of Common Stock with a fair value of $45,000 to a vendor for investor relations services. Expenses associated with this transaction were included in Selling, General and Administrative expenses in the Consolidated Statements of Operations. |
SUBSEQUENT EVENTS | 9 Months Ended |
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Sep. 30, 2011 | |
SUBSEQUENT EVENTS [Abstract] | |
SUBSEQUENT EVENTS | (14) SUBSEQUENT EVENT On October 27, 2011, the Company entered into an agreement with Platinum Long Term Growth VII, LLC (“Platinum”) and Platinum Montaur Life Sciences, LLC (“Montaur”) pursuant to which Platinum and Montaur exercised certain warrants to purchase Common Stock and, in lieu of delivering the cash exercise price for such warrant exercises, Montaur, on behalf of itself and Platinum, surrendered an aggregate of 170.1672 shares of the Series B Stock held by it, with a redemption value of $1,701,672, as full payment for the exercise of the warrants (the “Exchange”). After giving effect to the Exchange, the Company has no issued or outstanding Series B Stock. As part of the Exchange, Platinum exercised its warrants in full and Montaur exercised certain of its warrants in full and certain of its warrants in part. In the aggregate, and without giving effect to any beneficial ownership limitation provisions contained in the warrants, the warrant exercises would have resulted in the issuance to Platinum and Montaur of 1,830,895 shares of Common Stock. In connection with the Exchange, the Company agreed that the exercise price for Montaur's Series 2 warrants issued in February 2011 to be exercised as part of the Exchange (and only such February 2011 Series 2 warrants) would be reduced from $2.50 per share to $1.50 per share for purposes of the Exchange. As part of the Exchange, Platinum and Montaur requested, and the Company agreed, that the Company would, in lieu of issuing 1,830,895 shares of Common Stock, issue an aggregate of 1,830.895 shares of Series C Stock to Montaur. After the Exchange, Montaur holds no shares of Series B Stock and 6,749.001 shares of Series C Stock. |
STOCK OPTION AND EQUITY COMPENSATION PLANS | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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STOCK OPTION AND EQUITY COMPENSATION PLANS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK OPTION AND EQUITY COMPENSATION PLANS | (10) STOCK OPTION AND EQUITY COMPENSATION PLANS In 1997, the Company adopted a Long-Term Incentive and Stock Option Plan (the “1997 Plan”). Pursuant to the 1997 Plan, the Company's Board of Directors (or its committees and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified stock options to the Company's employees, officers, directors, consultants and advisors. As of September 30, 2011, there were options to purchase an aggregate of 20,000 shares of Common Stock outstanding under the 1997 Plan and none available for future grants. In connection with the Company's strategic merger with ChoiceTel in 2002, the Company assumed all outstanding options under the 1999 Sontra Medical, Inc. Stock Option and Incentive Plan (the “1999 Plan”). The Company assumed options to purchase an aggregate of 86,567 shares of Common Stock under the 1999 Plan. As of September 30, 2011, there were options to purchase an aggregate of 3,853 shares of Common Stock outstanding under the 1999 Plan and none available for future grants. In March 2003, the Company's shareholders approved its 2003 Stock Option and Incentive Plan (the “2003 Plan”). Pursuant to the 2003 Plan, the Company's Board of Directors (or its committees and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified stock options, restricted stock, and other stock-based awards to the Company's employees, officers, directors, consultants and advisors. As of September 30, 2011, the maximum aggregate number of shares that may be authorized for issuance under the 2003 Plan for all periods is 1,600,000 shares. As of September 30, 2011, there were restricted shares of Common Stock and options to purchase an aggregate of 1,372,500 shares of Common Stock outstanding under the 2003 Plan and 132,500 shares available for future grants. In May 2008, the Company's shareholders approved the 2008 Equity Compensation Plan (the “2008 Plan”). The 2008 Plan provides for grants of incentive stock options to employees and nonqualified stock options and restricted stock to employees, consultants and non-employee directors of the Company. In July 2010, the Company's shareholders approved an amendment to the 2008 Plan to increase the maximum number of shares of Common Stock available under the Plan by 2,000,000 shares to 4,700,000 shares. As of September 30, 2011, there were restricted shares of Common Stock and options to purchase an aggregate of 3,166,416 shares of Common Stock outstanding under the 2008 Plan and 1,500,250 shares available for future grants.
For stock options and restricted stock issued and outstanding during the nine months ended September 30, 2011 and 2010, the Company recorded additional paid-in capital and non-cash compensation expense of approximately $566,000 and $143,000, respectively. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model with certain assumptions noted below. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercise and employee termination and forfeitures within the valuation model. The expected term of stock options granted under the Company's stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 24 to 42 months). The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. Restricted stock grants are valued based on the closing market price for the Common Stock on the grant date. The assumptions used principally for stock options granted to employees and members of the Company's Board of Directors in the nine months ended September 30, 2011 and 2010 were as follows:
A summary of stock option activity under the Company's stock plans and stock options granted to officers of the Company outside any plan as of and for the nine months ended September 30, 2011 is as follows:
The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2011 was $3.21 per share. Share-based compensation expense recognized in the nine months ended September 30, 2011 was approximately $566,000 for options granted in the nine months ended September 30, 2011. As of September 30, 2011, there was approximately $2,098,000 of total unrecognized compensation expense related to non-vested share-based option compensation arrangements. With the exception of the unrecognized share-based compensation related to certain restricted stock grants to officers and employees that contain performance conditions related to United States Food and Drug Administration (“FDA”) approval for Symphony or the sale of substantially all of the stock or assets of the Company (see Restricted Stock section below), unrecognized compensation is expected to be recognized over the next 12 months. Restricted Stock During the nine months ended September 30, 2011, the Company granted an aggregate of 615,000 restricted shares of Common Stock to certain employees, officers and directors of the Company. The grants were issued pursuant to the 2008 Plan. The grant date fair value of these restricted stock grants was approximately $2,116,000. These restricted share grants are subject to the terms and conditions of the Restricted Stock Agreements and the shares will vest upon the first to occur of (i) FDA approval of Symphony; or (ii) the sale of all or substantially all of the assets of the Company or all or substantially all of the outstanding capital stock of the Company in exchange for Liquid Proceeds. For the purposes of the Restricted Share Grants, “Liquid Proceeds” means (a) cash; (b) securities which can be sold immediately on NYSE or NASDAQ; (c) securities which are or will be registered such that they can be sold immediately on NYSE or NASDAQ upon termination of a lock-up period not to exceed one hundred eighty (180) days; or (d) a combination of cash and the foregoing securities. Compensation expense related to the restricted share grants will be recognized when the Company concludes that achievement of the performance vesting conditions is probable. No compensation expense was recognized during the nine months ended September 30, 2011. As of September 30, 2011, the Company had outstanding restricted stock grants amounting to 2,615,094 shares at a weighted-average grant-date fair value of $1.74 per share. Of the outstanding vested restricted stock grants, 895,500 shares have not been registered under the Securities Act. A summary of the Company's restricted stock activity as of and for the nine months ended September 30, 2011, is as follows:
As of September 30, 2011, there was approximately $3,503,000 of total unrecognized compensation expense related to non-vested share-based restricted stock arrangements granted pursuant to the Company's equity compensation plans. As of September 30, 2011, the Company cannot estimate the timing of completion of performance vesting requirements included in these restricted stock grant arrangements and accordingly no compensation expense has been recorded. |
PREFERRED STOCK | 9 Months Ended | ||
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Sep. 30, 2011 | |||
PREFERRED STOCK [Abstract] | |||
PREFERRED STOCK | (8) PREFERRED STOCK The Company is authorized to issue up to 40,000,000 shares of preferred stock with such rights, preferences and privileges as are determined by the Board of Directors.
The Company has authorized 40,000 shares of non-convertible, redeemable Series B Perpetual Preferred Stock (the “Series B Stock”), of which 168.6701 and 154.3940 shares were issued and outstanding as of September 30, 2011 and December 31, 2010, respectively. The Company accrued and satisfied approximately $50,000 and $37,000 of dividends by issuing 4.9519 and 3.7026 shares of Series B Stock during the three months ended September 30, 2011 and 2010, respectively. The Company accrued and satisfied approximately $143,000 and $94,000 of dividends by issuing 14.2761 and 9.3700 shares of Series B Stock during the nine months ended September 30, 2011 and 2010, respectively. These dividends are included in the Consolidated Statements of Operations in arriving at Net Loss Applicable to Common Shareholders. As described in Note 14 below, subsequent to September 30, 2011 the Series B Stock was exchanged in full and it is no longer outstanding. Series C Convertible Preferred Stock The Company has authorized 10,000 shares of Series C Preferred Stock (the “Series C Stock”), of which 4,918.1 shares were issued and outstanding as of September 30, 2011 and December 31, 2010. Series D Convertible Preferred Stock On February 8, 2011 the Company entered into a Series D Convertible Preferred Stock Purchase Agreement (the “Series D Agreement”) with Platinum-Montaur Life Sciences, LLC and certain other strategic accredited investors (each, a “Series D Investor” and collectively, the “Series D Investors”) in connection with the Company's private placement (the “Series D Financing”) of Series D Convertible Preferred Stock (“Series D Stock”) at a price per share of $1.00. For every $100,000 face value of Series D Stock purchased in the Series D Financing, the Series D Investor was issued (i) Series 1 warrants to purchase 50,000 shares of Common Stock with an exercise price of $1.50 per share (the “Series D-1 Warrants”), and (ii) Series 2 warrants to purchase 50,000 shares of Common Stock with an exercise price of $2.50 per share (the “Series D-2 Warrants” and, together with the Series D-1 Warrants, the “Series D Warrants”). On February 8, 2011 there was a closing in connection with the Series D Agreement and the Company received cash proceeds of $2,500,000 for the purchase of 2,500,000 shares of Series D Stock. The Company issued 1,006,000 shares of Series D Stock in exchange for the extinguishment of an 8% Senior Promissory Note issued by the Company on January 5, 2011 in the principal amount of $1,000,000, plus interest accrued through February 1, 2011 in the amount of $6,000. The Company issued an aggregate of 1,753,000 Series D-1 Warrants and 1,753,000 Series D-2 Warrants to the Series D Investors pursuant to the Series D Agreement. The Series D Warrants are immediately exercisable and expire on February 7, 2013; however, if the Series D Warrants are not exercised in full by February 7, 2013 by virtue of the application of a beneficial ownership “blocker”, then the term of the Series D Warrants shall be extended for thirty (30) days past the date on which the beneficial ownership blocker is no longer applicable. An exercise under the Series D Warrants may not result in the holder beneficially owning more than 4.99% or 9.99%, as applicable, of all of the Common Stock outstanding at the time; provided, however, that a holder may waive the foregoing provision upon 61 days' advance written notice to the Company. The exercise price of these warrants is subject to adjustment for stock splits, business combinations or similar events. Pursuant to the Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock, the shares of Series D Stock are initially convertible into shares of Common Stock at a price per share equal to $1.00, subject to adjustment for stock splits, business combinations or similar events, and shall have a liquidation preference equal to their stated value. Each holder who receives Series D Stock may convert it at any time following its issuance. The Series D Stock does not pay a dividend and is not redeemable. In connection with issuance of Series D Stock, the conversion feature of Series D Stock was considered beneficial, or “in the money”, at issuance due to a conversion rate that allows the investor to obtain the Common Stock at below market price. The Company recorded a deemed dividend on the beneficial conversion feature equal to the incremental fair value resulting from the reduction in the conversion rate of $1,975,211. This deemed dividend is included in the Consolidated Statement of Operations for the nine months ended September 30, 2011 in arriving at Net Loss Applicable to Common Shareholders. In accordance with (i) the Certificate of Designation, Rights and Preferences of the Series B Stock (the “Series B Certificate”) and (ii) a letter agreement dated January 19, 2010 between the Company and the sole holder of the Series B Stock (the “Series B Holder”), the Company was obligated to use 25% of the gross proceeds from the Series D Financing to redeem Series B Stock. On February 4, 2011, the Company entered into a letter agreement (the “Letter”) with the Series B Holder pursuant to which the Series B Holder waived the redemption of shares of the Series B Stock triggered by the Series D Financing. |
ORGANIZATION AND BASIS OF PRESENTATION | 9 Months Ended | ||||||||
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Sep. 30, 2011 | |||||||||
ORGANIZATION AND BASIS OF PRESENTATION [Abstract] | |||||||||
ORGANIZATION AND BASIS OF PRESENTATION |
Echo Therapeutics, Inc. (the “Company”) is a transdermal medical device company with expertise in advanced skin permeation technology that is primarily focused on continuous glucose monitoring and needle-free drug delivery. Echo is developing its Prelude® SkinPrep System (“Prelude”) as a platform technology to allow for significantly enhanced and painless skin permeation that will enable two important applications:
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company's audited financial statements and related footnotes for the year ended December 31, 2010 included in the Company's Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 18, 2011. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company's financial position as of September 30, 2011 and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading. Certain amounts in prior periods have been reclassified to conform to current presentation. The accompanying consolidated financial statements have been prepared on a basis assuming that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2011, the Company had cash of approximately $2,258,000, working capital of approximately $(195,000) and an accumulated deficit of approximately $79,451,000. We will require additional capital to fund our product development, research, manufacturing and clinical programs in accordance with our current projected level of operations. The Company has funded its operations in the past primarily through debt and equity issuances. Management will continue to pursue additional financing to fund its operations. Although management believes that it will be successful in securing additional financing, no assurances can be given as to the success of these plans or that such capital will be available to the Company in sufficient amounts to meet its operating cash needs or on terms acceptable to the Company. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. |
OPERATING LEASE COMMITMENT | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATING LEASE COMMITMENT [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATING LEASE COMMITMENT | (4) OPERATING LEASE COMMITMENT The Company leases approximately 13,000 square feet of manufacturing, laboratory and office space in a single facility located in Franklin, Massachusetts under a lease expiring March 31, 2014. Effective as of May 2, 2011, the Company commenced a lease for approximately 5,400 square feet of corporate office space in a single facility located in Philadelphia, Pennsylvania under a lease expiring April 30, 2014. Future minimum lease payments for the next 5 years under these operating leases at September 30, 2011 are approximately as follows:
The Company's facilities lease expense was approximately $67,000 and $44,000 for the three months ended September 30, 2011 and 2010, respectively, and $153,000 and $138,000 for the nine months ended September 30, 2011 and 2010, respectively. The Company leases copiers in the Philadelphia office through a non-cancelable operating lease at a cost of approximately $635 per month. The Company is obligated to pay approximately $2,000, $8,000, $8,000 and $3,000 for 2011, 2012, 2013 and 2014, respectively. The total is approximately $21,000 over the course of the lease. |
NOTES PAYABLE AND CAPITAL LEASE OBLIGATION | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE AND CAPITAL LEASE OBLIGATION [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE AND CAPITAL LEASE OBLIGATION | (5) NOTES PAYABLE AND CAPITAL LEASE OBLIGATION Notes payable and capital lease obligation at September 30, 2011 and December 31, 2010 consisted of the following:
Short-term Notes - In September 2010, the Company issued $250,000 of short-term notes, maturing in 90 days. In lieu of interest, the note holders were issued 2,000 unregistered shares of the Company's Common Stock, $0.01 par value (“Common Stock”), for every $10,000 of principal loaned. A total of 50,000 shares with a fair value of $48,500 were issued in September 2010 pursuant to these short-term notes. The fair value of the stock was amortized over the 90-day term. One short-term note in the amount of $100,000 was extended for one month on December 23, 2010 in exchange for 5,000 shares of Common Stock issued in January 2011 with a fair value of $10,500. In January 2011, the Company repaid $75,000 in cash on the extended note and the remaining $25,000 was used to purchase Common Stock and warrants to purchase Common Stock (see Note 9). Interest expense on the extended note during the nine months ended September 30, 2011 was approximately $6,200. See also Note 8 regarding the 8% Senior Promissory Note issued on January 5, 2011 and extinguished on February 8, 2011 in connection with the Series D Convertible Preferred Stock financing. Capital Lease Obligation - In 2009, the Company entered into a five year lease of an office copier. The value of the equipment capitalized was approximately $11,000. The lease payments of $234 per month, payable in arrears, reflect a 10% interest rate. Accumulated depreciation on the leased copier as of September 30, 2011 was approximately $4,000. During each of the three months ended September 30, 2011 and 2010, interest expense related to the capital lease obligation was approximately $200. During the nine months ended September 30, 2011 and 2010, interest expense related to the capital lease obligation was approximately $600 and $700, respectively. |
LITIGATION | 9 Months Ended |
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Sep. 30, 2011 | |
LITIGATION [Abstract] | |
LITIGATION | (13) LITIGATION Harry G. Mitchell, the former Chief Operating Officer of the Company, resigned from that position in June 2011. On August 25, 2011, Mr. Mitchell filed a complaint in the Norfolk County Superior Court in Massachusetts against the Company and its Chief Executive Officer, Patrick T. Mooney, claiming, among other things, that he resigned for good reason (as defined under his employment agreement) and is therefore entitled to certain benefits and also to certain payments under state wage payment statutes. Mr. Mitchell is seeking compensatory damages, an award of attorneys' fees and costs and other relief. On September 28, 2011, the Company filed a Notice of Partial Motion to Dismiss with the Norfolk County Superior Court. At the time of this filing, Mr. Mitchell has not responded to the Partial Motion to Dismiss. While the Company believes that it is likely to succeed on the merits, the Company has accrued approximately $400,000 in liability as of September 30, 2011 with respect to this matter, payable in a combination of cash and stock, reflecting the Company's best estimate of probable loss exposure. |
DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended |
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Sep. 30, 2011 | |
DERIVATIVE FINANCIAL INSTRUMENTS [Abstract] | |
DERIVATIVE FINANCIAL INSTRUMENTS | (6) DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are recognized as a liability on the Consolidated Balance Sheet and measured at their current fair value. At September 30, 2011 and December 31, 2010, the Company had outstanding warrants to purchase 12,478,197 and 10,336,292 shares of its Common Stock, respectively. Included in these outstanding warrants at September 30, 2011 are warrants to purchase 745,974 shares that are considered to be derivative financial instruments, because the warrant agreements contain “down round” provisions whereby the number of shares covered by the warrants is subject to change in the event of certain future dilutive stock issuances. The fair value of these derivative instruments at September 30, 2011 was approximately $1,561,244 and is included in the Derivative Warrant Liability, a current liability, on the Consolidated Balance Sheet. Changes in the fair value of the derivative financial instruments are recognized in the Consolidated Statement of Operations as a Derivative Warrant Gain or Loss. The Derivative Warrant Gain for the three months ended September 30, 2011 was approximately $893,000. The Derivative Warrant Loss for the nine months ended September 30, 2011 was approximately $2,259,000. The Derivative Warrant Gain for the three and nine months ended September 30, 2010 was approximately $329,000 and $1,001,000, respectively. The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying Common Stock for each reporting period. For the nine months ended September 30, 2011, holders exercised warrants with “down round” provisions to purchase 632,318 shares which resulted in a reclassification of $2,242,000 from the Derivative Warrant Liability to Additional Paid-in Capital. |
CASH AND CASH EQUIVALENTS | 9 Months Ended |
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Sep. 30, 2011 | |
CASH AND CASH EQUIVALENTS [Abstract] | |
CASH AND CASH EQUIVALENTS | (2) CASH AND CASH EQUIVALENTS As of September 30, 2011, the Company held approximately $2.3 million in cash and cash equivalents. From time to time, the Company may have cash balances in excess of insurance limits. The Company has never experienced any previous losses related to these balances. All of the Company's non-interest bearing cash balances were fully insured at September 30, 2011 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. The Company's cash equivalents consist solely of bank money market funds. Under the program, there is no limit on the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and non-interest bearing cash balances may again exceed federally insured limits. |
WARRANTS | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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WARRANTS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
WARRANTS | (11) WARRANTS At September 30, 2011, the Company had the following outstanding warrants:
Exercise of Common Stock Warrants During the nine months ended September 30, 2011, the Company issued 744,243 shares of Common Stock upon the exercise of warrants to purchase 1,419,470 shares of Common Stock through cashless exercise provisions, and 705,048 shares of Common Stock upon the exercise of warrants for cash, providing gross proceeds to the Company of $1,251,629. During the nine months ended September 30, 2010, investors effected cashless exercises of warrants to purchase 143,793 shares which resulted in the issuance of 35,714 shares to the investors. During the nine months ended September 30, 2011, the Company contacted certain holders of the Series 1 and Series 2 Warrants to encourage them to exercise their warrants voluntarily by reducing the exercise price on the Series 2 Warrants from $2.50 to $2.00 per share, provided they elected to simultaneously exercise an equal number of Series 1 and Series 2 Warrants. Warrants to purchase an aggregate of 350,000 shares of Common Stock across the Series 1 and Series 2 warrants were exercised under this arrangement during the nine months ended September 30, 2011 and cash proceeds of $612,500 from these transactions were received. As a result of the reductions in exercise price, the Company recorded $87,500 in deemed dividends for the three and nine months ended September 30, 2011 in the Consolidated Statement of Operations. |