UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(MARK
ONE)
x QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
quarterly period ended June 30, 2009
¨ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE
ACT
For the
transition period from ___________ to __________
Commission
file number: 000-32603
ARBIOS SYSTEMS,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
91-1955323
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
530
South Lake Avenue, #363, Pasadena, CA
|
91101
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(626)
795-4641
(Registrant's telephone number,
including area code)
200 E. Del Mar Blvd., Suite
320, Pasadena, CA, 91105
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
(do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
On
September 14, 2009, there were 24,356,247 shares of common stock, $.001 par
value per share, issued and outstanding.
ARBIOS
SYSTEMS, INC.
FORM
10-Q
TABLE
OF CONTENTS
|
|
PAGE NO.
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements:
|
|
|
|
|
|
Condensed
Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008
(audited)
|
3
|
|
|
|
|
Condensed
Statements of Operations for the three and six months ended June 30, 2009
and 2008 and from August 23, 2000 (inception) through June 30, 2009
(unaudited)
|
4
|
|
|
|
|
Condensed
Statements of Cash Flows for the six months ended June 30, 2009 and 2008
and from August 23, 2000 (inception) through June 30, 2009
(unaudited)
|
5
|
|
|
|
|
Condensed
Statement of Stockholders’ Equity (Deficit) from August 23, 2000
(inception)through June 30, 2009 (unaudited)
|
6
|
|
|
|
|
Notes
to Condensed Financial Statements
|
11
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
|
|
|
Item
3.
|
Qualitative
and Quantitative Disclosures About Market Risk.
|
20
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
20
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
20
|
|
|
|
Item
1A.
|
Risk
Factors
|
21
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
21
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
21
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
21
|
|
|
|
Item
5.
|
Other
Information
|
21
|
|
|
|
Item
6.
|
Exhibits
|
21
|
|
|
|
SIGNATURES
|
22
|
PART
I - FINANCIAL INFORMATION
ITEM
1. Condensed Financial Statements
ARBIOS
SYSTEMS, INC.
(Debtor-in-Possession)
(A
Development Stage Company)
CONDENSED
BALANCE SHEETS
|
|
June
30, 2009
|
|
|
December
31,
|
|
|
|
(Unaudited)
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
|
|
$ |
185,598 |
|
|
$ |
370,686 |
|
Restricted
cash
|
|
|
199,112 |
|
|
|
- |
|
Prepaid
expenses
|
|
|
149,044 |
|
|
|
21,506 |
|
Total
current assets
|
|
|
533,754 |
|
|
|
392,192 |
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
- |
|
|
|
200,000 |
|
Property
and equipment, net
|
|
|
4,339 |
|
|
|
6,177 |
|
Investment
|
|
|
- |
|
|
|
86,209 |
|
Other
assets
|
|
|
750 |
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
538,843 |
|
|
$ |
685,328 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
393,863 |
|
|
$ |
194,046 |
|
Deposit
from Arbios Acquisition Partners, LLC
|
|
|
199,112 |
|
|
|
- |
|
Accrued
expenses
|
|
|
530,000 |
|
|
|
286,888 |
|
Total
current liabilities
|
|
|
1,122,975 |
|
|
|
480,934 |
|
|
|
|
|
|
|
|
|
|
Liabilities
subject to compromise under reorganization proceedings
|
|
|
111,029 |
|
|
|
- |
|
Long
term contract obligations
|
|
|
- |
|
|
|
150,000 |
|
Total
liabilities
|
|
|
1,234,004 |
|
|
|
630,934 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
(deficit) equity
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value; 100,000,000 shares authorized; 24,356,247 and
25,792,747 shares
issued and outstanding at June 30, 2009 and December 31, 2008,
respectively
|
|
|
24,356 |
|
|
|
25,792 |
|
Additional
paid-in capital
|
|
|
21,618,511 |
|
|
|
21,617,075 |
|
Deficit
accumulated during the development stage
|
|
|
(22,338,028 |
) |
|
|
(21,588,473 |
) |
Total
stockholders' (deficit) equity
|
|
|
(695,161 |
) |
|
|
54,394 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' (deficit) equity
|
|
$ |
538,843 |
|
|
$ |
685,328 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(Debtor-in-Possession)
(A
Development Stage Company)
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the three months ended June 30,
|
|
|
For
the six months ended June 30,
|
|
|
Inception
to
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
June
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
320,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
284,828 |
|
|
|
492,121 |
|
|
|
404,447 |
|
|
|
1,211,615 |
|
|
|
13,646,498 |
|
Research
and development
|
|
|
- |
|
|
|
345,971 |
|
|
|
- |
|
|
|
1,056,397 |
|
|
|
9,325,632 |
|
Total
operating expenses
|
|
|
284,828 |
|
|
|
838,092 |
|
|
|
404,447 |
|
|
|
2,268,012 |
|
|
|
22,972,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before reorganization costs and other income (expense)
|
|
|
(284,828 |
) |
|
|
(838,092 |
) |
|
|
(404,447 |
) |
|
|
(2,268,012 |
) |
|
|
(22,651,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
costs and other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
costs, primarily professional fees
|
|
|
(185,264 |
) |
|
|
- |
|
|
|
(259,128 |
) |
|
|
- |
|
|
|
(259,128 |
) |
Interest
income
|
|
|
- |
|
|
|
8,178 |
|
|
|
229 |
|
|
|
28,478 |
|
|
|
497,748 |
|
Gain
on sale of HepatAssist program, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
404,863 |
|
Loss
on investment
|
|
|
- |
|
|
|
- |
|
|
|
(86,209 |
) |
|
|
- |
|
|
|
(86,209 |
) |
Interest
expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(244,138 |
) |
Total
reorganization costs and other income (expense)
|
|
|
(185,264 |
) |
|
|
8,178 |
|
|
|
(345,108 |
) |
|
|
28,478 |
|
|
|
313,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(470,092 |
) |
|
$ |
(829,914 |
) |
|
$ |
(749,555 |
) |
|
$ |
(2,239,534 |
) |
|
$ |
(22,338,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
24,356,247 |
|
|
|
25,749,458 |
|
|
|
24,427,675 |
|
|
|
25,672,613 |
|
|
|
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(Debtor-in-Possession)
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the six months ended June 30,
|
|
|
Inception to
|
|
|
|
2009
|
|
|
2008
|
|
|
June
30, 2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(749,555 |
) |
|
$ |
(2,239,534 |
) |
|
$ |
(22,338,028 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount
|
|
|
- |
|
|
|
- |
|
|
|
244,795 |
|
Depreciation
and amortization
|
|
|
1,838 |
|
|
|
21,592 |
|
|
|
337,875 |
|
Patent
rights impairment
|
|
|
- |
|
|
|
- |
|
|
|
91,694 |
|
Issuance
of common stock, options and warrants for compensation
|
|
|
- |
|
|
|
419,070 |
|
|
|
4,071,460 |
|
Issuance
of warrants for patent acquistion
|
|
|
- |
|
|
|
- |
|
|
|
74,570 |
|
Settlement
of accrued expense
|
|
|
- |
|
|
|
- |
|
|
|
54,401 |
|
Deferred
compensation costs
|
|
|
- |
|
|
|
- |
|
|
|
319,553 |
|
Loss
on disposition of fixed assets
|
|
|
- |
|
|
|
- |
|
|
|
5,037 |
|
Loss
on disposition of investment
|
|
|
86,209 |
|
|
|
- |
|
|
|
86,209 |
|
Gain
on sale of HepatAssist program, net
|
|
|
- |
|
|
|
- |
|
|
|
(404,863 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(127,538 |
) |
|
|
25,938 |
|
|
|
(149,046 |
) |
Deferred
financing costs
|
|
|
- |
|
|
|
16,757 |
|
|
|
- |
|
Other
assets
|
|
|
- |
|
|
|
20,189 |
|
|
|
(750 |
) |
Accounts
payable
|
|
|
199,817 |
|
|
|
81,428 |
|
|
|
393,863 |
|
Accrued
expenses
|
|
|
243,112 |
|
|
|
7,770 |
|
|
|
436,498 |
|
Other
liabilities
|
|
|
- |
|
|
|
- |
|
|
|
64,695 |
|
Liabilities
subject to compromise under reorganization proceedings
|
|
|
111,029 |
|
|
|
- |
|
|
|
111,029 |
|
Long
term contract obligations
|
|
|
(150,000 |
) |
|
|
(100,000 |
) |
|
|
- |
|
Net
cash used in operating activities
|
|
|
(385,088 |
) |
|
|
(1,746,790 |
) |
|
|
(16,601,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
of property and equipment
|
|
|
- |
|
|
|
- |
|
|
|
(149,467 |
) |
Proceeds
from sale of fixed assets
|
|
|
- |
|
|
|
- |
|
|
|
4,176 |
|
Proceeds
from sale of HepatAssist program
|
|
|
200,000 |
|
|
|
- |
|
|
|
450,000 |
|
Purchase
of short term investments
|
|
|
- |
|
|
|
- |
|
|
|
(21,866,787 |
) |
Maturities
of short term investments
|
|
|
- |
|
|
|
- |
|
|
|
21,866,787 |
|
Net
cash provided from investing activities
|
|
|
200,000 |
|
|
|
- |
|
|
|
304,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible debt
|
|
|
- |
|
|
|
- |
|
|
|
400,000 |
|
Proceeds
from common stock option/warrant exercise
|
|
|
- |
|
|
|
- |
|
|
|
67,900 |
|
Net
proceeds from issuance of common stock and warrants
|
|
|
- |
|
|
|
- |
|
|
|
15,797,080 |
|
Net
proceeds from issuance of preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
238,732 |
|
Payments
on capital lease obligation, net
|
|
|
- |
|
|
|
- |
|
|
|
(21,815 |
) |
Net
cash provided by financing activities
|
|
|
- |
|
|
|
- |
|
|
|
16,481,897 |
|
Net
(decrease) increase in cash
|
|
|
(185,088 |
) |
|
|
(1,746,790 |
) |
|
|
185,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
370,686 |
|
|
|
2,735,944 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$ |
185,598 |
|
|
$ |
989,154 |
|
|
$ |
185,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of non-cash financing activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of securities for obligation related to finder's fees
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
47,500 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(Debtor-in-Possession)
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
During
the
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Costs
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 23,2000 (inception) restated for effect of reverse merger with
Historical Autographs U.S.A. Inc.
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issuance in exchange for cash
|
|
|
|
|
|
|
|
|
|
|
5,000,000 |
|
|
|
50 |
|
|
|
4,950 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,454 |
) |
|
|
(9,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2000, as restated
|
|
|
- |
|
|
|
- |
|
|
|
5,000,000 |
|
|
|
50 |
|
|
|
4,950 |
|
|
|
- |
|
|
|
(9,454 |
) |
|
|
(4,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of junior preferred stock for cash of $250,000 and in exchange for
$400,000 in patent rights, research and development costs,and employee
loanout costs less issuance expenses of $11,268, June 29,
2001
|
|
|
681,818 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
958,278 |
|
|
|
(343,553 |
) |
|
|
|
|
|
|
614,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for patent rights and deferred research and
development costs
|
|
|
|
|
|
|
|
|
|
|
362,669 |
|
|
|
4 |
|
|
|
547,284 |
|
|
|
|
|
|
|
|
|
|
|
547,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(550,000 |
) |
|
|
|
|
|
|
(550,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
employee loan-out costs receivable earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,888 |
|
|
|
|
|
|
|
82,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237,574 |
) |
|
|
(237,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2001
|
|
|
681,818 |
|
|
|
7 |
|
|
|
5,362,669 |
|
|
|
54 |
|
|
|
1,510,512 |
|
|
|
(810,665 |
) |
|
|
(247,028 |
) |
|
|
452,880 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(Debtor-in-Possession)
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
During
the
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Costs
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amendment
of December 31, 2001 agreement for the issuance of common stock agreement
in exchange for research and development services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495,599 |
) |
|
|
550,000 |
|
|
|
|
|
|
54,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
employee loan out costs receivable earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,776 |
|
|
|
|
|
|
171,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for compensation
|
|
|
|
|
|
|
|
|
70,000 |
|
|
|
1 |
|
|
|
10,499 |
|
|
|
|
|
|
|
|
|
|
10,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash
|
|
|
|
|
|
|
|
|
999,111 |
|
|
|
9 |
|
|
|
149,857 |
|
|
|
|
|
|
|
|
|
|
149,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(494,780 |
) |
|
|
(494,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2002
|
|
|
681,818 |
|
|
|
7 |
|
|
|
6,431,780 |
|
|
|
64 |
|
|
|
1,175,269 |
|
|
|
(88,889 |
) |
|
|
(741,808 |
) |
|
|
344,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash less issuance expense of $2,956
|
|
|
|
|
|
|
|
|
|
|
417,000 |
|
|
|
417 |
|
|
|
246,827 |
|
|
|
|
|
|
|
|
|
|
|
247,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in private placement for cash less issuance expense of
$519,230
|
|
|
|
|
|
|
|
|
|
|
4,000,000 |
|
|
|
4,000 |
|
|
|
3,476,770 |
|
|
|
|
|
|
|
|
|
|
|
3,480,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for convertible debenture less issuance expense of
$49,500
|
|
|
|
|
|
|
|
|
|
|
400,000 |
|
|
|
400 |
|
|
|
350,100 |
|
|
|
|
|
|
|
|
|
|
|
350,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection with acquisition of Historical Autographs U.S.A.,
Inc. on October 30, 2003
|
|
|
|
|
|
|
|
|
|
|
1,220,000 |
|
|
|
8,263 |
|
|
|
(8,263 |
) |
|
|
|
|
|
|
|
|
|
|
- |
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(Debtor-in-Possession)
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
During
the
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Costs
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of warrants and beneficial conversion feature of bridge
loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,795 |
|
|
|
|
|
|
|
|
|
244,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
employee loan-out costs receivable earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,889 |
|
|
|
|
|
|
88,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock converted to Common Stock
|
|
|
(681,818 |
) |
|
|
(7 |
) |
|
|
681,818 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(885,693 |
) |
|
|
(885,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
- |
|
|
|
- |
|
|
|
13,150,598 |
|
|
|
13,151 |
|
|
|
5,485,498 |
|
|
|
- |
|
|
|
(1,627,501 |
) |
|
|
3,871,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock options and warrants for compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
972,430 |
|
|
|
|
|
|
|
|
|
|
|
972,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock options
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
|
|
18 |
|
|
|
2,682 |
|
|
|
|
|
|
|
|
|
|
|
2,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of securities for payable
|
|
|
|
|
|
|
|
|
|
|
47,499 |
|
|
|
47 |
|
|
|
47,451 |
|
|
|
|
|
|
|
|
|
|
|
47,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,327,827 |
) |
|
|
(3,327,827 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
- |
|
|
|
- |
|
|
|
13,216,097 |
|
|
|
13,216 |
|
|
|
6,508,061 |
|
|
|
- |
|
|
|
(4,955,328 |
) |
|
|
1,565,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in private placement for cash less issuance expense of
$384,312
|
|
|
|
|
|
|
|
|
|
|
2,991,812 |
|
|
|
2,992 |
|
|
|
6,224,601 |
|
|
|
|
|
|
|
|
|
|
|
6,227,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock options and warrants for compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
557,080 |
|
|
|
|
|
|
|
|
|
|
|
557,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock options
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
25 |
|
|
|
62,475 |
|
|
|
|
|
|
|
|
|
|
|
62,500 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(Debtor-in-Possession)
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
During
the
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Costs
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,823,903 |
) |
|
|
(3,823,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
- |
|
|
|
- |
|
|
|
16,232,909 |
|
|
|
16,233 |
|
|
|
13,352,217 |
|
|
|
- |
|
|
|
(8,779,231 |
) |
|
|
4,589,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in private placement for cash less issuance expense of
$95,013
|
|
|
|
|
|
|
|
|
|
|
1,227,272 |
|
|
|
1,227 |
|
|
|
1,253,760 |
|
|
|
|
|
|
|
|
|
|
|
1,254,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock options and warrants for compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
703,839 |
|
|
|
|
|
|
|
|
|
|
|
703,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
warrant term extension
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
482,964 |
|
|
|
|
|
|
|
|
|
|
|
482,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,284,841 |
) |
|
|
|
|
|
|
|
|
|
|
(1,284,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,461,904 |
) |
|
|
(4,461,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
- |
|
|
|
- |
|
|
|
17,460,181 |
|
|
|
17,460 |
|
|
|
14,507,939 |
|
|
|
- |
|
|
|
(13,241,135 |
) |
|
|
1,284,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjust
retained earnings at January 1, 2007 for change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(521,187 |
) |
|
|
(521,187 |
) |
Reclassification
of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,284,841 |
|
|
|
|
|
|
|
|
|
|
|
1,284,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock and warrants in private placement for cash less issuance
expense of $377,169
|
|
|
|
|
|
|
|
|
|
|
7,478,462 |
|
|
|
7,479 |
|
|
|
4,476,352 |
|
|
|
|
|
|
|
|
|
|
|
4,483,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
|
|
18 |
|
|
|
2,682 |
|
|
|
|
|
|
|
|
|
|
|
2,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
438,263 |
|
|
|
|
|
|
|
|
|
|
|
438,263 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(Debtor-in-Possession)
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
During
the
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Costs
|
|
|
Stage
|
|
|
Total
|
|
Stock
warrant term extension
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
59,025 |
|
|
|
|
|
|
|
|
|
59,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock based compensation expense
|
|
|
|
|
|
|
|
|
621,818 |
|
|
|
621 |
|
|
|
315,604 |
|
|
|
|
|
|
|
|
|
316,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants for patent acquistion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,570 |
|
|
|
|
|
|
|
|
|
74,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,552,650 |
) |
|
|
(5,552,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
- |
|
|
|
- |
|
|
|
25,578,461 |
|
|
|
25,578 |
|
|
|
21,159,276 |
|
|
|
- |
|
|
|
(19,314,972 |
) |
|
|
1,869,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,824 |
|
|
|
|
|
|
|
|
|
|
|
114,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
warrant term extension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,256 |
|
|
|
|
|
|
|
|
|
|
|
175,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,933 |
|
|
|
|
|
|
|
|
|
|
|
107,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for compensation
|
|
|
|
|
|
|
|
|
|
|
214,286 |
|
|
|
214 |
|
|
|
59,786 |
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,273,501 |
) |
|
|
(2,273,501 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
- |
|
|
|
- |
|
|
|
25,792,747 |
|
|
|
25,792 |
|
|
|
21,617,075 |
|
|
|
- |
|
|
|
(21,588,473 |
) |
|
|
54,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock shares surrendered by shareholder
|
|
|
|
|
|
|
|
|
|
|
(1,436,500 |
) |
|
|
(1,436 |
) |
|
|
1,436 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(749,555 |
) |
|
|
(749,555 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2009
|
|
|
- |
|
|
|
- |
|
|
|
24,356,247 |
|
|
$ |
24,356 |
|
|
$ |
21,618,511 |
|
|
$ |
- |
|
|
$ |
(22,338,028 |
) |
|
$ |
(695,161 |
) |
The
accompanying notes are an integral part of these condensed financial
statements.
Arbios
Systems, Inc.
(Debtor-in-Possession)
(A
Development Stage Company)
Notes
to Condensed Financial Statements (Unaudited)
Six
Months Ended June 30, 2009
(1)
Basis of Presentation
Arbios
Systems, Inc. is a Delaware corporation with its corporate office in Pasadena,
California. To date, our goal was to seek to develop, manufacture and
market liver assist therapies to meet the urgent need for medical treatment of
liver failure.
Since
Arbios Systems, Inc. was incorporated in February 1999, we have been a medical
device and cell-therapy company that was focused on the development of products
for the treatment of liver failure. Our lead product candidate was under
development during 2008 and consisted of a novel extracorporeal blood
purification therapy called the SEPET™ Liver Assist Device. Until
recently, we also owned the rights to an extracorporeal, bioartificial liver
therapy referred to as the HepatAssist™ Cell-Based Liver Support System which
incorporated porcine pig liver cells, which we sold to HepaLife Technologies,
Inc. in October 2008. Because of our limited financial resources, all
of our development activities during the past few years have focused on our
SEPET™ Liver Assist Device. In February 2008, the U.S. Food and Drug
Administration (“FDA”) granted us conditional approval of an Investigational
Device Exemption, or IDE, application to begin the pivotal clinical trial for
SEPET™. In May 2008, we received approval to begin the first segment
of our pivotal clinical trial for SEPETTM. The
budget to complete this clinical trial and our other projected operating
expenses, however, far exceeded the limited financial resources available to us
at that time, and we have, therefore, not commenced the clinical
trial.
As
a development stage company engaged solely in the development of new products,
we did not generate revenues from our activities and, accordingly, we were
solely dependent upon our ability to raise funding from investors to finance
both our operating expenses and the cost of developing our
technologies. Due in part to the global economic crisis that
commenced in 2008 and the dramatic decline in the availability of financing,
particularly to development stage companies, we were unable to raise the capital
we needed to finance our operational and developmental activities. As
a result, in order to preserve our remaining cash while seeking financing and
while attempting to otherwise maximize the value of our assets, in mid-2008, we
terminated all of our employees and suspended the majority of our
operations. Since then, all of our activities have been conducted by
our interim Chief Executive Officer and our interim Chief Financial Officer,
both of whom we engaged as part-time consultants. We have not
conducted any active operations since mid-2008, and our sole activity since that
time has been to (i) seek sufficient capital to re-initiate our operations, (ii)
find a strategic partner to co-develop our technologies with us, or (iii) sell
our technologies and assets in a manner that will maximize shareholder
value. Consistent with this Plan, in October 2008, we sold the
HepatAssistTM
Cell-Based Liver Support System to HepaLife Technologies, Inc. (“HepaLife”) for
(a) $450,000 in cash, of which $250,000 was paid in October 2008 and the
remaining $200,000 was deferred for up to 18 months from the date of sale, and
(b) a warrant to purchase 750,000 shares of HepaLife common stock at an exercise
price of $0.35 per share. On April 22, 2009, HepaLife paid us the
$200,000 deferred payment immediately, in return for the cancellation of the
warrant to purchase 750,000 shares of HepaLife common stock that was part of the
consideration in our sale of HepatAssistTM to
HepaLife.
Liquidity
and Going Concern
The
accompanying condensed financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred a net
operating loss of $749,555 for the six months ended June 30, 2009 and an
accumulated deficit of $22,338,028 at June 30, 2009. This factor
raises substantial doubt about the Company’s ability to continue as a going
concern.
Voluntary
Chapter 11 Filing
On
January 9, 2009, the Company filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United
States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”),
Case Number 09-10082 (the “Bankruptcy”). We are continuing to operate
as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and the orders
of the Bankruptcy Court. In general, as a debtor-in-possession, our
current part-time management supervises our activities as authorized under the
Bankruptcy Code, but may not engage in transactions outside the ordinary course
of business without the prior approval of the Bankruptcy Court.
Pending
$1,000,000 Investment and Recapitalization
One of
the principal reasons for commencing the Bankruptcy was to permit the orderly
sale of our remaining assets and technologies under court protection and/or to
recapitalize our company. Consistent with our goals, on March 9, 2009
we entered into a binding term sheet (the “Term Sheet”) with Arbios Acquisition
Partners, LLC (“Acquisition Partners”), an unrelated, privately held, limited
liability company formed for the purpose of effecting the transaction
contemplated by the Term Sheet. Pursuant to the Term Sheet, subject
to the approval of the Bankruptcy Court, we agreed that we would (i) cancel all
of our currently existing equity (including, but not limited to, any and all
outstanding common and preferred shares of stock, warrants, and options), (ii)
issue new shares of our common stock to Acquisition Partners representing 90% of
our newly issued shares, and (iii) issue to our existing shareholders new shares
of our common stock equal to 10% of our newly issued shares pro
rata. In consideration for issuing the new shares to it, Acquisition
Partners agreed to pay us $1,000,000.
The
$1,000,000 purchase price to be paid by Acquisition Partners for 90% of our new
shares of common stock is currently required to be paid as follows: (1) $100,000
was paid to us at the time that the Term Sheet was signed, (2) approximately
$100,000 was paid to us on May 1, 2009, and (3) $200,000 was paid to us in
August 2009 and deposited into an escrow account. These deposit
amounts are non-refundable to Acquisition Partners. In addition,
Acquisition Partners has agreed to pay us $400,000 on or about September 21,
2009 and to provide the final $200,000 following the Effective Date, on an as
needed basis on terms and conditions to be determined. We expect to
complete the stock sale to Acquisition Partners in late September 2009 and to
emerge from Bankruptcy shortly thereafter.
Our Plan
of Reorganization to approve the investment by Acquisition Partners has been
confirmed by the Bankruptcy Court on June 22, 2009. To date we have
received an aggregate of $400,000 from Acquisition Partners, a portion of which
as been deposited into an escrow account and will be released to us upon the
Plan with Acquisition Partners going Effective. The funds received
from Acquisition Partners will primarily be used to pay our creditors and to
begin to fund our operating costs, including the costs of remaining a public
company.
Plan
of Reorganization; Recapitalization of our Company
On April
3, 2009, we filed a motion to conditionally approve our Chapter 11 Plan of
Reorganization as the disclosure statement (the motion to conditionally approve
the disclosure statement and the Plan of Reorganization is herein referred to as
the “Plan”). On April 20, 2009, the Bankruptcy Court confirmed the
use of the Plan of Reorganization as a disclosure statement.
Now
that the Bankruptcy Court has confirmed the Plan, we expect to consummate the
transaction with Acquisition Partners as described in the Term Sheet, and our
Company is expected to thereafter emerge from Bankruptcy as
follows:
|
·
|
Administrative
and Priority Claims are expected to be paid in full and Allowed General
Unsecured Claim Holders are expected to receive 90% of the principal
amount of their Allowed Claim.
|
|
·
|
90%
of our common stock is expected to be owned by Acquisition Partners, and
10% will be owned by all of our stockholders who own shares on the date
that the Plan is confirmed. The 10% of our stock that is expected to be
issued to our existing stockholders will be issued pro rata based on the
number of shares each stockholder owned prior to the
confirmation. All currently outstanding shares of our common
stock are expected to be cancelled on the date that the Plan goes
effective, and new shares will thereafter be issued for the shares that
are cancelled.
|
|
·
|
All
currently outstanding options and warrants are expected to be cancelled
and will cease to exist.
|
|
·
|
The
$1,000,000 investment from Acquisition Partners (of which $800,000 will be
paid before we emerge from Bankruptcy, and $200,000 will be provided to us
as needed after the Plan has become Effective on terms and conditions to
be determined) is expected to be used to pay our creditors, to fund our
working capital needs, and possibly for the further development of our
technology. Through August 31, 2009, $400,000 of the $1,000,000
has been received.
|
|
·
|
All
of our officers and directors will resign, and new officers and directors
designated by Acquisition Partners will be
appointed. Currently, Acquisition Partners has designated
the following persons to hold the following offices with this company
after the Bankruptcy: Tom Fagan—Director, Chairman of the
Board, CEO and President; and John
Desiderio—Director.
|
|
·
|
Arbios
Systems, Inc. is expected to remain a public company whose shares are
listed for trading on the OTC Bulletin Board, or some other trading
platform.
|
|
·
|
We
previously in-licensed a family of issued U.S. patents and various U.S.
and foreign patent applications from Immunocept LLC, including five issued
U.S. patents, four pending U.S. patents, and two pending European
patents. On January 2, 2009, Immunocept, LLC declared a default
in the foregoing license with us. As part of the Bankruptcy proceedings,
upon the confirmation of the Plan on June 22, 2009, the Immunocept license
agreement was terminated and will therefore no longer be in
effect. Accordingly, this company’s post-Bankruptcy assets will
not include this License Agreement, which may affect our ability to
develop and commercialize our technologies as previously
planned.
|
The unaudited condensed financial
statements and notes are presented as permitted by Form 10-Q. These
unaudited condensed financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles in the United States of America, have been omitted pursuant to such
SEC rules and regulations. In the opinion of the management of the
Company, the accompanying unaudited condensed financial statements include all
adjustments, including those that are normal and recurring considered necessary
to present fairly the financial position of the Company as of June 30, 2009, and
the results of operations for the periods presented. These unaudited
condensed financial statements should be read in conjunction with the Company's
audited financial statements and the accompanying notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2008 as
filed with the SEC. Because of the Bankruptcy and the change in the
Company’s ownership and management, the Company expects that its operating
results will vary from its operating results before the
Bankruptcy. Therefore, period-to-period comparisons should not be
relied upon as predictive of the results in future periods. The
results of operations for the six months ended June 30, 2009 are not necessarily
indicative of the results to be expected for any subsequent periods or for the
entire 2009 fiscal year.
Sale
of HepaLife Technologies, Inc. Warrant
Pursuant
to a Bankruptcy Court Order, on April 22, 2009, the Company sold the five-year
Series D warrant to purchase up to 750,000 shares of HepaLife’s common stock at
an exercise price of $0.35 per share (the “Warrant”) back to HepaLife in
consideration for the early payment of the $200,000 Deferred Purchase Price,
which funds were received by the Company on April 22, 2009. The
closing price of HepaLife’s common stock on the OTC Bulletin Board on April 22,
2009 was $0.19 per share. The surrender of the Warrant in
exchange for the acceleration of the $200,000 Deferred Purchase Price payment
resulted in a “loss on investment” of $86,209.
Termination
of Immunocept, LLC License Agreement
On
January 2, 2009, Immunocept, LLC declared a default in the foregoing license
with the Company. On May 26, 2009, Immunocept filed an amended proof of claim in
the amount of $3.2 million plus unliquidated damages. In turn, the Company moved
to reject the License Agreement with the Bankruptcy Court on May 28, 2009. As
part of the rejection of the License Agreement, the Company objected to
Immunocept’s damages claims and filed a modified Plan of Reorganization that
rejected assumption of this License Agreement on June 9, 2009. The confirmation
of the Plan occurred on June 22, 2009. In an effort to end the costly litigation
in this matter and to move the Plan of Reorganization forward with the Court,
the Company and Immunocept LLC reached a settlement on July 21,
2009.
Pursuant
to the settlement agreement between Arbios Systems, Inc. and Immunocept, LLC,
the license agreement was terminated on June 22, 2009 and the Company agreed
that Immunocept, LLC will receive a pre-petition claim of $350,000 (to be paid
at 90%). The Company has acknowledged that it owed $100,000 to
Immunocept, LLC on January 1, 2009, as part of a milestone payment, along with
an additional $150,000 payment due for the issuance of a new
patent. Arbios will also pay up to $100,000 to Immunocept as part of
the settlement agreement for legal and administrative costs. Immunocept will
have no rights to the pre-clinical, clinical data, or IDE for SEPET devices and
the Company shall remain bound by confidentiality regarding the Immunocept, LLC
patent portfolio.
(2)
Reorganization Items Related to Chapter 11 Proceeding
According to Statement of Position
90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code,” we have prepared the financial statements to reflect items which are
affected by our Chapter 11 bankruptcy status. Accordingly, $111,029
of pre-petition liabilities (liabilities recorded prior to our bankruptcy
petition filing on January 9, 2009) have been segregated from accounts payable
on the balance sheet. Professional fees consisting primarily of legal
costs incurred for services rendered in connection with the Chapter 11
proceeding for the three and six months ended June 30, 2009 totaled
approximately $185,000 and $259,000, respectively, and are recorded as
reorganization costs.
Listed
below is a schedule depicting the Company’s cash flows as it relates to
reorganization and bankruptcy related costs for the six month period ending June
30, 2009.
Cash
flows from operating activities:
Cash
received from refunds of operating costs
|
|
$ |
5,165 |
|
Cash
paid to vendors
|
|
|
(355,417 |
) |
Net
cash used by operating activities before reorganization
items
|
|
|
(350,252 |
) |
Operating
cash flows from reorganization items:
|
|
|
|
|
Interest
received on cash accumulated because of the Chapter 11
proceeding
|
|
|
3 |
|
Professional
fees paid for service rendered in connection with the Chapter 11
proceeding
|
|
|
(34,839 |
) |
Net
cash used by reorganization items
|
|
|
(34,836 |
) |
Net
cash used by operating activities
|
|
|
(385,088 |
) |
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
Proceeds
from sale of HepatAssist program
|
|
|
200,000 |
|
Net
cash provided by investing activities
|
|
|
200,000 |
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(185,088 |
) |
Cash
at beginning of period
|
|
|
370,686 |
|
Cash
at end of period
|
|
$ |
185,598 |
|
Reconciliation
of net loss to net cash provided by operating activities
Net
loss
|
|
$ |
(749,555 |
) |
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
Depreciation
|
|
|
1,838 |
|
Loss
on disposition of investment
|
|
|
86,209 |
|
Increase
in prepaid insurance expense
|
|
|
(127,538 |
) |
Increase
in post-petition payables
|
|
|
199,817 |
|
Increase
in post-petition accrued expenses
|
|
|
243,112 |
|
Increase
in pre-petition payables
|
|
|
111,029 |
|
Decrease
in long term contract obligation
|
|
|
(150,000 |
) |
Net
cash used by operating activities
|
|
$ |
(385,088 |
) |
(3)
Recent Accounting Pronouncements
On June
27, 2007, the FASB reached a final consensus on EITF Issue No. 07-03:
“Accounting for Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities” (“EITF 07-03”). Currently, under FASB
Statement No. 2: “Accounting for Research and Development Costs,” nonrefundable
advance payments for future research and development activities for materials,
equipment, facilities and purchased intangible assets that have no alternative
future use are expensed as incurred. EITF 07-03 addresses whether such
non-refundable advance payments for goods or services that have no alternative
future use and that will be used or rendered for research and development
activities should be expensed when the advance payments are made or when the
research and development activities have been performed. The consensus reached
by the FASB requires companies involved in research and development activities
to capitalize such non-refundable advance payments for goods and services
pursuant to an executory contractual arrangement because the right to receive
those services in the future represents a probable future economic benefit.
Those advance payments will be capitalized until the goods have been delivered
or the related services have been performed. Entities will be required to
evaluate whether they expect the goods or services to be rendered. If an entity
does not expect the goods to be delivered or services to be rendered, the
capitalized advance payment will be charged to expense. The consensus on EITF
07-03 is effective for financial statements issued for fiscal years beginning
after December 15, 2007, and interim periods within those fiscal years. Earlier
application is not permitted. Entities are required to recognize the effects of
applying the guidance in EITF 07-03 prospectively for new contracts entered into
after the effective date. In accordance with EITF 07-03, the Company does
evaluate its research and development contracts and payments within the guidance
of EITF 07-03 and either expenses or capitalizes such payments based upon the
contract terms.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” The new standard is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable users of the financial statements to better
understand the effects on an entity’s financial position, financial performance,
and cash flows. It is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with early application
encouraged. The Company has determined that there is no impact of adopting SFAS
161 on our financial statements.
The
Company has adopted the guidance espoused in SFAS No. 165, “Subsequent
Events” (“SFAS 165”), effective beginning in the quarter ended June 30,
2009 and have evaluated for disclosure subsequent events that have occurred up
to September 21, 2009, the date of issuance of our financial
statements. The adoption of this statement has not had a material
impact to the financial statements.
(4)
Stock-Based Compensation:
During
the three months ended June 30, 2009 and 2008, the Company recognized equity
based compensation expense for stock options of $0 and $29,000, respectively,
which was recognized in the Statement of Operations. During the six months ended
June 30, 2009 and 2008, the Company recognized equity based compensation expense
for stock options of $0 and $76,000, respectively, which was recognized in the
Statement of Operations in general and administrative expenses. As of June 30,
2009, there was no unrecognized compensation costs related to non-vested
awards. As of June 30, 2009, there were 1,429,677 options to purchase
common stock outstanding under the Company’s 2005 Stock Option
Plan. However, if the Plan of Reorganization is approved and the
funding from AAP has been achieved, all of these outstanding options will be
canceled.
(5)
Subsequent Event
Arbios Acquisition Partners
Transaction.
In July
2009, Arbios Acquisition Partners funded an additional $200,000 deposit to an
escrow account. As of the end of August 2009, the Company had
received a total of $400,000 from AAP. Upon receipt of an additional $400,000
from AAP, the Company intends to file the Notice of Effectiveness in the form of
Counsel Certification with the Bankruptcy Court, and to emerge from Bankruptcy
within the next few weeks.
Immunocept, LLC Settlement
Agreement.
On July
21, 2009, the Company reached a settlement agreement with Immunocept whereby the
Company agreed to terminate its license agreement in consideration for
Immunocept to lower its amended proof of claim to an aggregate of no more than
$350,000.
ITEM
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
SAFE
HARBOR STATEMENT
In addition to historical
information, the information included in this Quarterly Report on Form 10-Q
contains forward-looking statements, such as those pertaining to the pending
Chapter 11 bankruptcy proceedings, our ability to sell our assets in the
bankruptcy proceedings, and the approval of the pending Plan of
Reorganization. Forward-looking statements involve numerous risks and
uncertainties and should not be relied upon as predictions of future events.
Certain such forward-looking statements can be identified by the use of
forward-looking terminology such as ''believes,'' ''expects,'' ''may,''
''will,'' ''should,'' ''seeks,'' ''approximately,” ''intends,'' ''plans,'' ''pro
forma,'' ''estimates,'' or ''anticipates'' or other variations thereof or
comparable terminology, or by discussions of strategy, plans or intentions. Such
forward-looking statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and may be incapable of being
realized. The following factors, among others, including those risks set forth
under “Factors That May Affect our Business And Our Future Results and Market
Price of Our Stock,” included in Item 6 “Management’s Discussion and Analysis of
Plan of Operation” of our Annual Report on Form 10-K for the year ended December
31, 2008 and other filings we make with the Securities and Exchange
Commission could cause actual results and
future events to differ materially from those set forth or contemplated in the
forward-looking statements: need for a significant amount of additional capital,
lack of revenue, uncertainty of product development, ability to obtain
regulatory approvals in the United States and other countries, and
competition. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect our management's analysis only. We
assume no obligation to update forward-looking statements.
Overview
During
the past few years, our efforts have been principally devoted to research and
development activities, raising capital, and recruiting additional scientific
and management personnel and advisors. We have not marketed or sold
any product and have not generated any revenues from commercial
activities.
In May
2008, we received approval from the FDA to commence a Phase II/III pivotal
clinical trial for SEPETTM. We
estimated that the cost of completing these trials was between $5 million and
$10 million. As we have done since our inception, we intended to
raise the funds to complete our development from financing
transactions. Unfortunately, because of the global economic crisis
that began in 2008 and the dramatic decline in the availability of financing,
particularly to development stage companies like ours, we were unable to raise
the capital we needed to finance our operations and development
activities. As a result, in order to preserve our remaining cash
while seeking financing and while attempting to otherwise maximize the value of
our assets, in July of 2008 we terminated all of our employees and suspended
most of our operations. We have not conducted any active operations
since mid-2008, and our sole activity since that time has been to (i) seek
sufficient capital to re-initiate our operations, (ii) find a strategic partner
to co-develop our technologies with us, or (iii) sell our technologies and
assets in a manner that will maximize shareholder value.
On
January 9, 2009, this Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code (the “Bankruptcy”) with the United States
Bankruptcy Court for the District of Delaware (the “Bankruptcy
Court”). We are continuing to exist as a debtor-in-possession under
the jurisdiction of the Bankruptcy Court.
On March
9, 2009, we entered into a Term Sheet with Arbios Acquisition Partners
(“Acquisition Partners”) pursuant to which Acquisition Partners agreed to invest
$1,000,000 for the purchase of 90% of our common stock. The Bankruptcy
Court confirmed the Plan on June 22, 2009. Through September
15, 2009, Acquisition Partners had paid us $400,000 in installments (a portion
of which is held in an escrow account). Another $400,000
payment is expected to be received, thereby permitting the sale to be
consummated (Acquisition Partners will provide the final $200,000 following the
Effective Date, on an as needed basis to fund our working capital
requirements). The Plan of Reorganization to approve that transaction
has been submitted to our creditors and stockholders and approved according to
the Plan of Reorganization.
In order
to have sufficient funds to operate, in October 2008, we sold our
HepatAssistTM
Cell-Based Liver Support System to HepaLife Technologies, Inc.
(“HepaLife”). We purchased HepatAssistTM in
April 2004 for $450,000 but had not further developed that
technology. We sold our HepatAssistTM system
to HepaLife for (a) $450,000 in cash, of which $250,000 was paid in October 2008
and $200,000 was deferred for up to 18 months from the date of sale, and (b) a
warrant to purchase 750,000 shares of Series D common stock at an exercise price
of $0.35 per share. HepaLife prepaid the $200,000 deferred payment on
April 22, 2009, in consideration for the cancellation of the warrant to purchase
750,000 shares of HepaLife Series D common stock.
As part
of the plan of reorganization to emerge from Bankruptcy, all of our current
officers and directors will resign upon the Plan becoming Effective and prior to
the time that we emerge from Bankruptcy, and new officers and directors will be
appointed upon the plan or reorganization becoming Effective. Because current
management will no longer be involved with the Company, current management is
unable to address the future plans of this Company following the Bankruptcy
proceedings. Accordingly, all information regarding the future
operations, if any, of this Company, and the future liquidity needs of this
Company have been omitted from this report.
Critical
Accounting Policies
This
discussion is based on our unaudited condensed financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these unaudited condensed financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis,
management evaluates its estimates, including those related to revenue
recognition, impairment of long-lived assets and their useful lives, including
finite lived intangible costs, accrued liabilities and certain
expenses. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these
estimates under different assumptions or conditions.
Our
significant accounting policies are summarized in Note 1 to our audited
financial statements for the year ended December 31, 2008 included in our Annual
Report on Form 10-K as filed with the Securities and Exchange
Commission. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
our unaudited condensed financial statements:
Development
Stage Enterprise
We are a
development stage enterprise as defined by the Financial Accounting Standards
Board's, or FASB, Statement of Financial Accounting Standards, or SFAS, No. 7,
"Accounting and Reporting by Development Stage Enterprises." All
losses accumulated since our inception have been considered part of our
development stage activities.
Cash
Cash
consists of a debtor-in-possession checking account.
Stock-Based
Compensation
Commencing
January 1, 2006, we adopted SFAS No. 123R, “Share Based Payment”, or SFAS 123R,
which requires all share based payments, including grants of stock options, to
be recognized in the income statement as an operating expense, based on fair
values.
Prior to
adopting SFAS 123R, we accounted for stock-based employee compensation under
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” as allowed by SFAS No. 123, “Accounting for Stock-Based
Compensation,” the predecessor to SFAS 123R. Accordingly, we have applied the
modified prospective method in adopting SFAS 123R whereby periods prior to
adoption have not been restated.
Accounting
for Uncertainty in Income Taxes
In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” or FIN 48. This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an entity’s financial statements and prescribes a recognition
threshold of more-likely-than-not to be sustained upon examination. Measurement
of the tax uncertainty occurs if the recognition threshold has been met. FIN 48
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. In the normal course
of business we are subject to examination by taxing authorities. At present,
there are no ongoing audits or unresolved disputes with the various tax
authorities that we file with. Given our substantial net operating loss
carryforwards as well as historical operating losses, the adoption of FIN 48 on
January 1, 2007 did not have any effect on our financial position, results of
operations or cash flows as of or for the period ended June 30,
2009.
Results
of Operations
Since we
have been involved in developing our product candidates and do not have any
products available for sale, we have not yet generated any revenue from
sales. Inception to date revenue represents revenue recognized from
an SBIR government grant.
General
and administrative expenses of approximately $285,000 and $492,000 were incurred
for the three months ended June 30, 2009 and 2008, respectively. General and
administrative expenses for the three months ended June 30, 2009 decreased by
approximately $207,000 from the prior year’s level, reflecting our suspended
operations beginning in the September 30, 2008 fiscal quarter. The
decrease is primarily attributed to a $67,000 decrease in legal and consulting
fees from the curtailment of patent work and a decline in contract negotiating
costs in 2009. In addition, there also was an overall decline in
virtually all expense categories as a result of curtailed operations due to a
lack of capital resources and our voluntary Chapter 11 bankruptcy filing on
January 9, 2009. General and administrative expenses of approximately
$404,000 and $1,212,000 were incurred for the six months ended June 30, 2009 and
2008, respectively. General and administrative expenses for the six months ended
June 30, 2009 decreased by approximately $808,000 over the prior year level. The
decrease is primarily attributed to a $303,000 decrease in non cash option and
warrant charges due to a decline in the number of stock options granted and a
non recurring 2008 charge incurred for warrant extensions, a $71,000 decline in
payroll costs due to staff reductions and a $169,000 decrease in legal and
consulting fees from the curtailment of patent work and a decline in contract
negotiating costs in 2009. In addition, there also was an overall
decline in virtually all expense categories as a result of curtailed operations
due to a lack of capital resources and our voluntary Chapter 11 bankruptcy
filing on January 9, 2009.
Research
and development expenses of approximately $0 and $346,000 were incurred for the
three months ended June 30, 2009 and 2008, respectively. The research
and development expenses for the three months ended June 30, 2009 decreased by
approximately $346,000 over the comparable prior year level. Research and
development expenses of approximately $0 and $1,056,000 were incurred for the
six months ended June 30, 2009 and 2008, respectively. The research
and development expenses for the three months ended June 30, 2009 decreased by
approximately $1,056,000 over the comparable prior year level. The
decline in research and development expenses for the three and six months ended
June 30, 2009 is due to the curtailment of all research and development
activities in the fourth quarter of 2008 due to a lack of capital resources and
our voluntary Chapter 11 bankruptcy filing on January 9, 2009.
Reorganization
costs for the three and six months ended June 30, 2009 were approximately
$185,000 and $259,000, respectively, and consist primarily of legal fees
incurred in the Bankruptcy proceedings.
Loss on
investment for the six months ended June 30, 2009 resulted from the surrender
and cancellation of the HepaLife warrant in exchange for an acceleration and
prepayment of a $200,000 receivable payment due from HepaLife.
Interest
income of $0 and $8,200 was earned for the three months ended June 30, 2009 and
2008, respectively. Interest income of $200 and $28,500 was earned
for the six months ended June 30, 2009 and 2008, respectively. The
change in interest income primarily reflects lower cash and cash equivalent
balances in 2009 from prior year levels and a decline in interest rates earned
on our cash account.
Our net
loss was approximately $470,000 and $830,000 for the three months ended June 30,
2009 and 2008, respectively. Our net loss was approximately $750,000 and
$2,240,000 for the six months ended June 30, 2009 and 2008, respectively. The
decrease in net loss for the three and six month periods ended June 30, 2009
compared to the comparable period in 2008 is due to the curtailment of operating
and research and development activities due to the lack of capital
resources.
Liquidity
and Capital Resources
Because
we did not have the financial resources to continue to develop our products, on
January 9, 2009 we filed for protection under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of
Delaware. The Bankruptcy enabled us to continue to seek investors in
our equity and bids for the purchase of our assets while working with our
creditors. Our Board of Directors determined that, in light of our
limited cash position and the current economic conditions and financial markets,
the best course of action was to obtain financing and/or sell our assets under
bankruptcy protection.
As of
June 30, 2009, we had cash of approximately $186,000, restricted cash of
approximately $200,000, current liabilities of approximately $1,123,000 and
liabilities subject to settlement under reorganization proceedings of
approximately $111,000. Prior to our Bankruptcy filing, we funded our
operations primarily from the sale of equity securities and, to a lesser extent,
from SBIR grants. Since our Bankruptcy commenced, we have funded our
operating expenses and bankruptcy costs through our remaining cash resources and
the $450,000 we received in October 2008 and April 2009 from the sale of certain
assets to the HepatAssist™. In addition, we have also received a total of
approximately $400,000 in cash deposits from Acquisition Partners, portions of
which are currently held in an escrow account with our Bankruptcy counsel as
part of the $1,000,000 investment we will receive from Acquisition Partners when
the sale of shares to Acquisition Partners is completed. The
foregoing funds constitute our sole source of liquidity. Assuming the
Reorganization Plan becomes Effective, closing the transaction with Acquisition
Partners, we anticipate that we may have sufficient funds to pay our post
petition administrative costs and expenses, and 90% of the principal amount of
allowed claims of general unsecured claim holders.
As a
development stage company that is in bankruptcy, we do not have any bank credit
lines or any other sources of capital. All of our operations have
been terminated pending our emergence from Bankruptcy. As part of our
Bankruptcy plan of reorganization, we agreed to sell 90% of our common stock to
Acquisition Partners in exchange for a total of $1,000,000 of consideration
($800,000 in cash for the plan to become effective and $200,000 after the
Effective date to fund operations, as needed on terms and conditions to be
determined). When we emerge from Bankruptcy, which we expect will
occur by no later than October, 2009, we expect to have some of the $1,000,000
purchase price available to us. However, any funds that we will have
on hand following the Bankruptcy will not be sufficient to continue the
development of our product candidates. Accordingly, if the new
officers and directors (who will replace the current officers and directors at
the time that the Plan becomes Effective) elect to continue to develop our liver
technologies, we will have to obtain additional funding. However, the
current management of this company is not aware of the future development or
other plans of the new officers and directors, and it is possible that the new
management of the company will choose not to develop our liver technologies (or
not develop them in the manner that we had planned to do before the
Bankruptcy).
Our
license agreement with Immunocept, LLC has been terminated as part of the
bankruptcy proceeding. As part of the termination of this license, we
will have to pay Immunocept $350,000 as a general unsecured claim once the
Reorganization Plan becomes Effective. This payment is expected to be
funded from the funds we have received from Acquisition
Partners.
In the
event, Acquisition Partners is unable to deliver the remaining money needed to
confirm the Plan of Reorganization in the next few weeks, we may be forced to
liquidate the remaining assets of the Company.
We do not
believe that inflation has had a material impact on our business or
operations.
We do not
engage in trading activities involving non-exchange traded
contracts. In addition, we have no financial guarantees, debt or
lease agreements or other arrangements that could trigger a requirement for an
early payment or that could change the value of our assets.
Off-
Balance Sheet Arrangements
We are
not a party to any off-balance sheet arrangements.
ITEM
3. Qualitative and Quantitative Disclosures about Market
Risk.
Not applicable as we are a smaller
reporting company.
ITEM
4T. Controls and Procedures.
(a) Evaluation of Disclosure
Controls and Procedures. As of the end of the period covered by this
report, our company conducted an evaluation, under the supervision and with the
participation of our Interim Chief Executive Officer and Chief Financial
Officer, of our disclosure controls and procedures (as defined in
Rules 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act). Based on this evaluation, our Interim Chief Executive
Officer and Interim Chief Financial Officer concluded that our company’s
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and
that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required
disclosures.
(b) Changes in Internal
Controls. There was no change in our internal controls, which are
included within disclosure controls and procedures, during our most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal controls.
(c) Limitations on the Effectiveness
of Controls. Our management, including our interim chief
executive officer and chief financial officer, does not expect that our
disclosure controls and procedures or our internal control over financial
reporting will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within an organization have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.
PART
II. OTHER INFORMATION
ITEM
1. Legal Proceedings.
On
January 9, 2009, the Company filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United
States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”),
Case Number 09-10082 (the “Bankruptcy”). Other than the pending legal
proceedings before the Bankruptcy Court related to our Plan of Reorganization,
we are not engaged in any other legal proceedings.
ITEM
1A. Risk Factors.
Information regarding risk factors
appears under “Factors That May Affect our Business And Our Future Results and
Market Price of Our Stock,” included in Item 6 “Management’s Discussion and
Analysis of Plan of Operation” of our Annual Report on Form 10-K for the year
ended December 31, 2008 as filed with the Securities and Exchange Commission.
Except as set forth below, there have been no material changes from the risk
factors previously disclosed in that Annual Report on
Form 10-K.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
None.
ITEM
3. Defaults Upon Senior Securities.
None.
ITEM
4. Submission of Matters to a Vote of Security
Holders.
None.
ITEM
5. Other Information.
None.
ITEM 6. Exhibits.
31.1
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Certification
of Principal Executive Officer Pursuant to Section 302
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31.2
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Certification
of Principal Financial Officer Pursuant to Section 302
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32
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Section
906 certification of periodic financial report by Chief Executive Officer
and Chief Financial Officer.
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SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
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ARBIOS
SYSTEMS, INC.
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DATE:
September 21, 2009
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By: /S/ SHAWN
CAIN
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Shawn
Cain
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Interim
Chief Executive Officer (Principal Executive Officer)
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DATE:
September 21, 2009
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By: /S/
SCOTT HAYASHI
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Scott
Hayashi
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Interim
Chief Financial Officer (Principal Financial
Officer)
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