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 March 31, 2008
o
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.)
|
1050
Winter Street, Suite 1000, Waltham, MA
|
02451
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(781)
839-7292
(Registrant's
telephone number, including area code)
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 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
April
24, 2008, there were 25,603,461 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 March 31, 2008 (unaudited) and December 31,
2007
(audited)
|
3
|
|
|
|
|
Condensed
Statements of Operations for the three months ended March 31, 2008
and
2007 and from August 23, 2000 (inception) to March 31, 2008 (all
unaudited)
|
4
|
|
|
|
|
Condensed
Statements of Cash Flows for the three months ended March 31, 2008
and
2007 and from August 23, 2008 (inception) to March 31, 2008 (all
unaudited)
|
5
|
|
|
|
|
Condensed
Statement of Stockholders’ Equity from August 23, 2000 (inception) to
March 31, 2008 (unaudited)
|
6
|
|
|
|
|
Notes
to Condensed Financial Statements
|
11
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results Of
Operations
|
14
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
18
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
18
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
19
|
|
|
|
Item
1A.
|
Risk
Factors
|
19
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
|
|
|
Item
5.
|
Other
Information
|
19
|
|
|
|
Item
6.
|
Exhibits
|
19
|
|
|
|
SIGNATURES
|
20
|
PART
I - FINANCIAL INFORMATION
ITEM
1. Condensed Financial Statements
ARBIOS
SYSTEMS, INC.
(A
development stage company)
CONDENSED
BALANCE SHEETS
|
|
March 31, 2008
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
2007
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,635,696
|
|
$
|
2,735,944
|
|
Prepaid
expenses
|
|
|
27,665
|
|
|
37,546
|
|
Total
current assets
|
|
|
1,663,361
|
|
|
2,773,490
|
|
|
|
|
|
|
|
|
|
Net
property and equipment
|
|
|
39,774
|
|
|
45,450
|
|
Patent
rights, net of accumulated amortization of $139,494 and $134,374,
respectively
|
|
|
127,173
|
|
|
132,293
|
|
Other
assets
|
|
|
66,054
|
|
|
86,993
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,896,362
|
|
$
|
3,038,226
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
444,005
|
|
$
|
434,727
|
|
Accrued
expenses
|
|
|
536,733
|
|
|
483,617
|
|
Total
current liabilities
|
|
|
980,738
|
|
|
918,344
|
|
|
|
|
|
|
|
|
|
Long
term contract obligations
|
|
|
150,000
|
|
|
250,000
|
|
Total
liabilities
|
|
|
1,130,738
|
|
|
1,168,344
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized: none issued
and
outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, $.001 par value; 100,000,000 shares authorized; 25,603,461
and
25,578,461 shares issued and outstanding at March 31, 2008 and December
31, 2007, respectively
|
|
|
25,603
|
|
|
25,578
|
|
Additional
paid-in capital
|
|
|
21,464,613
|
|
|
21,159,276
|
|
Deficit
accumulated during the development stage
|
|
|
(20,724,592
|
)
|
|
(19,314,972
|
)
|
Total
stockholders' equity
|
|
|
765,624
|
|
|
1,869,882
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
1,896,362
|
|
$
|
3,038,226
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(A
development stage company)
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the three months ended March 31,
|
|
Inception to
|
|
|
|
2008
|
|
2007
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
320,966
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
719,494
|
|
|
675,831
|
|
|
12,461,631
|
|
Research
and development
|
|
|
710,426
|
|
|
1,030,993
|
|
|
8,823,234
|
|
Total
operating expenses
|
|
|
1,429,920
|
|
|
1,706,824
|
|
|
21,284,865
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other income (expense)
|
|
|
(1,429,920
|
)
|
|
(1,706,824
|
)
|
|
(20,963,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity
offering contingency
|
|
|
-
|
|
|
(180,000
|
)
|
|
-
|
|
Interest
income
|
|
|
20,300
|
|
|
18,355
|
|
|
483,445
|
|
Interest
expense
|
|
|
-
|
|
|
-
|
|
|
(244,138
|
)
|
Total
other income (expense)
|
|
|
20,300
|
|
|
(161,645
|
)
|
|
239,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,409,620
|
)
|
$
|
(1,868,469
|
)
|
$
|
(20,724,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.06
|
)
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
25,595,769
|
|
|
17,460,181
|
|
|
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the three months ended March 31,
|
|
Inception to
|
|
|
|
2008
|
|
2007
|
|
March 31, 2008
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,409,620
|
)
|
$
|
(1,868,469
|
)
|
$
|
(20,724,592
|
)
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount
|
|
|
-
|
|
|
-
|
|
|
244,795
|
|
Depreciation
and amortization
|
|
|
10,796
|
|
|
11,974
|
|
|
313,060
|
|
Change
in fair value of warrant liability
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Patent
rights impairment
|
|
|
-
|
|
|
-
|
|
|
91,694
|
|
Interest
earned on discounted short term investments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Issuance
of common stock, options and warrants for compensation
|
|
|
305,362
|
|
|
212,951
|
|
|
3,918,809
|
|
Issuance
of warrants for patent acquistion
|
|
|
-
|
|
|
74,570
|
|
|
74,570
|
|
Settlement
of accrued expense
|
|
|
-
|
|
|
-
|
|
|
54,401
|
|
Deferred
compensation costs
|
|
|
-
|
|
|
-
|
|
|
319,553
|
|
Loss
on disposition of fixed assets
|
|
|
-
|
|
|
-
|
|
|
2,766
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
9,881
|
|
|
41,863
|
|
|
(27,667
|
)
|
Other
assets
|
|
|
20,939
|
|
|
12,009
|
|
|
(66,054
|
)
|
Accounts
payable
|
|
|
9,278
|
|
|
136,771
|
|
|
444,005
|
|
Accrued
expenses
|
|
|
53,116
|
|
|
418,868
|
|
|
443,231
|
|
Other
liabilities
|
|
|
-
|
|
|
-
|
|
|
64,695
|
|
Contractual
obligation
|
|
|
(100,000
|
)
|
|
250,000
|
|
|
150,000
|
|
Net
cash used in operating activities
|
|
|
(1,100,248
|
)
|
|
(709,463
|
)
|
|
(14,696,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Additions
of property and equipment
|
|
|
-
|
|
|
-
|
|
|
(149,467
|
)
|
Purchase
of short term investments
|
|
|
-
|
|
|
-
|
|
|
(21,866,787
|
)
|
Maturities
of short term investments
|
|
|
-
|
|
|
-
|
|
|
21,866,787
|
|
Net
cash (used in) provided from investing activities
|
|
|
-
|
|
|
-
|
|
|
(149,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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
increase (decrease) in cash
|
|
|
(1,100,248
|
)
|
|
(709,463
|
)
|
|
1,635,696
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
2,735,944
|
|
|
2,054,280
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
1,635,696
|
|
$
|
1,344,817
|
|
$
|
1,635,696
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of non-cash financing activity
|
|
|
|
|
|
|
|
|
|
|
Issuance
of securities for obligation related to finder's fees
|
|
|
-
|
|
|
-
|
|
$
|
47,500
|
|
Accrued
warrant liability
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO MARCH 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO MARCH 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO MARCH 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO MARCH 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
During the
|
|
|
|
|
|
Preferred Stock |
|
Common Stock
|
|
Paid-In
|
|
Deferred
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD
FROM AUGUST 23, 2000 (INCEPTION) TO MARCH 31, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
During the
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Paid-In
|
|
Deferred
|
|
Development
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Costs
|
|
Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,306
|
|
|
|
|
|
|
|
|
47,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
warrant term extension
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
175,256
|
|
|
|
|
|
|
|
|
175,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock based compensation expense
|
|
|
|
|
|
|
|
|
25,000
|
|
|
25
|
|
|
82,775
|
|
|
|
|
|
|
|
|
82,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,409,620
|
)
|
|
(1,409,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2008
|
|
|
-
|
|
|
-
|
|
|
25,603,461
|
|
$
|
25,603
|
|
$
|
21,464,613
|
|
|
-
|
|
|
($20,724,592
|
)
|
$
|
765,624
|
|
The
accompanying notes are an integral part of these unaudited condensed financial
statements.
Arbios
Systems, Inc. (A Development Stage Company)
Notes
to Condensed Financial Statements (Unaudited)
Three
Months Ended March 31, 2008
(1)
Basis of Presentation
Arbios
Systems, Inc., a Delaware corporation (the “Company”), seeks to develop,
manufacture and market liver assist devices to meet the urgent need for therapy
of liver failure.
On
October 30, 2003, Historical Autographs U.S.A., Inc. and Arbios Technologies,
Inc. (“ATI”) consummated a reverse merger, in which ATI became the wholly owned
subsidiary of Historical Autographs U.S.A., Inc. Concurrently with the merger,
Historical Autographs U.S.A., Inc. changed its name to Arbios Systems, Inc.
and
is herein referred to as “Arbios Systems”. The stockholders of ATI transferred
ownership of one hundred percent of all the issued and outstanding shares of
their capital stock of ATI in exchange for 11,930,598 newly issued shares,
or
approximately 91%, of the common stock, $.001 par value, of Arbios Systems.
At
that time, the former management of Arbios Systems resigned and was replaced
by
the same persons who served as officers and directors of ATI. Inasmuch as the
former owners of ATI controlled the combined entity after the merger, the
combination was accounted for as a purchase by ATI as acquirer, for accounting
purposes in accordance with Statement of Financial Accounting Standards,
(“SFAS”) No. 141: “Business Combinations” using reverse merger accounting, and
no adjustments to the carrying values of the assets or liabilities of the
acquired entity were required. Proforma operating results, as if the acquisition
had taken place at the beginning of the period, have not been presented as
the
operations of the acquiree were negligible. The financial position and results
of operations of Arbios Systems is included in the statements of the Company
from the date of acquisition.
On
July
25, 2005, Arbios Systems completed its reincorporation as a Delaware corporation
by merging with and into Arbios Systems, Inc., a Delaware corporation
(“Arbios”). The foregoing merger was approved by the Company’s stockholders at
the annual meeting of stockholders held on July 7, 2005. In order to consolidate
the functions and operations of Arbios and ATI, on July 26, 2005, ATI merged
into Arbios. As a result, Arbios now owns all of the assets of ATI and all
of
the operations of the two companies have been consolidated into Arbios. Unless
the context indicates otherwise, references herein to the “Company” during
periods prior to July 26, 2005 include Arbios Systems, a Nevada corporation
and
ATI.
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, 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 March 31, 2008, 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-KSB for the year ended December 31, 2007 as filed with the SEC. The
Company expects that its operating results will fluctuate for the foreseeable
future. Therefore, period-to-period comparisons should not be relied upon as
predictive of the results in future periods. The results of operations for
the
three months ended March 31, 2008 are not necessarily indicative of the results
to be expected for any subsequent periods or for the entire 2008 fiscal year.
As
of the date of the filing of the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008, the Company estimates that it does not have
sufficient cash to operate for the next six months.
(2)
Going Concern
The
Company’s financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America, which
contemplate continuation of the Company on a going concern basis, and which
contemplate the realization of assets and the satisfaction of liabilities in
the
normal course of business. The Company has incurred a net operating loss of
$1,410,000 for the three months ended March 31, 2008 and an accumulated deficit
of $20,725,000 at March 31, 2008. The Company’s lack of adequate cash reserves
to sustain ongoing operations after July 2008 raises substantial doubt about
the
Company’s ability to continue as a going concern.
The
Company has reduced its staffing levels by 2 employees and 1 consultant in
the
first quarter of 2008 as well as reduced salaries during the second quarter
of
2008 to help maintain its cash reserves. If the Company is unsuccessful in
its
efforts to raise additional funds through the sale of additional equity
securities or if the level of cash and cash equivalents falls below anticipated
levels, the Company will not have the ability to continue as a going concern
after July 2008. While the Company intends to pursue development of its product
candidates, any significant continued development is contingent upon additional
funding or a strategic partnership. The amount and timing of future capital
requirements will depend on numerous factors, including the number and
characteristics of product candidates that the Company pursues, the conduct
of
preclinical tests and clinical studies, the status and timelines of regulatory
submissions, the costs associated with protecting patents and other proprietary
rights, the ability to complete strategic collaborations and the availability
of
third-party funding, if any. The Company may also seek additional funding
through corporate collaborations and other financing vehicles. If funds are
obtained through arrangements with collaborative partners or others, the Company
may be required to relinquish rights to its technologies or product
candidates.
Management’s
plans include the sale of additional equity securities through a private
placement. However, no assurance can be given that the Company will be
successful in raising additional capital. Furthermore, there can be no
assurance, assuming the Company successfully raises additional equity, that
the
Company will achieve profitability or positive cash flow. If management is
unable to raise additional capital and expected significant revenues do not
result in positive cash flow, the Company will not be able to meet its
obligations and will have to cease operations. The financial statements do
not
include any adjustments that might result from the outcome of this
uncertainty.
(3)
Recent Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” or SFAS
157. SFAS 157 establishes a single authoritative definition of fair value,
sets
out a framework for measuring fair value, and requires additional disclosures
about fair-value measurements. SFAS 157 applies only to fair value measurements
that are already required or permitted by other accounting standards (except
for
measurements of share-based payments) and is expected to increase the
consistency of those measurements. Accordingly, SFAS 157 does not require any
new fair value measurements. However, for some entities, the application of
SFAS
157 will change current practice. SFAS 157 is effective for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The adoption of FAS 157 did not have a material impact on the financial
position or results of operations.
In
February 2007, the FASB issued FASB Statement No.159: “The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No. 115” (“FAS 159”). This statement permits entities to choose to
measure many financial instruments and certain other items at fair value and
is
expected to expand the use of fair value measurement. FASB 159 is effective
for
fiscal years beginning after November 15, 2007. The Company has adopted FAS
159
and the adoption did not have a material impact on the financial position or
results of operations.
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.
(4)
Stock-Based Compensation:
On
January 1, 2008, in accordance with the established Board of Director’s
compensation program, the Company granted 90,000 options to purchase common
stock to Board members with an exercise price of $0.69 per share, the closing
market price of the Company’s common stock on the date of grant, valued at
approximately $47,229, which vest on a monthly pro-rata basis over one year.
The
fair value of the options was determined using the Black Scholes option pricing
model utilizing the following assumptions: risk free interest rate 2.98%, stock
price volatility 0.84, expected life 7 years, dividend yield 0%.
On
January 28, 2008, the Company granted 70,000 options to purchase common stock
to
employees with an exercise price of $0.60 per share, the closing market price
of
the Company’s common stock on the date of grant, valued at approximately
$32,000, which vest upon the achievement of a performance milestone by December
31, 2008. The Company estimates
the probability at 100% that the performance objective will be met, but in
accordance with SFAS 123R, vesting will be adjusted in the future if the
probability changes.
The
fair value of the options was determined using the Black Scholes option pricing
model utilizing the following assumptions: risk free interest rate 2.98%, stock
price volatility 0.84, expected life 7 years, dividend yield 0%.
On
January 28, 2008, the Company issued 25,000 shares of restricted stock which
restrictions are removed upon achievement of a performance milestone by December
31, 2008, to an advisor and current member of the Board of Directors as
compensation for services at a price of $0.01 per share. The Company estimates
the probability at 100% the performance objective will be met, but in accordance
with SFAS 123R, vesting will be adjusted in the future if the probability
changes. The approximate $15,000 value of these restricted shares, based on
the
closing price of the Company’s common stock on the date of issuance, was
expensed with a corresponding increase in additional paid in capital.
On
March
25, 2008, the Company issued 250,000 options to purchase common stock with
an
exercise price of $0.30 per share, the closing market price of the Company’s
common stock on the date of grant, to employees as a retention incentive and
to
compensate employees for a salary deferral that begins on April 1, 2008, which
options were valued at approximately $57,000 and vest as long as the employee
remains with the Company until a financing is achieved. These options are
considered performance based options. The Company estimates the probability
at
100% that the performance objective will be met, but in accordance with SFAS
123R, vesting will be adjusted in the future if the probability changes. The
fair value of the options was determined using the Black Scholes option pricing
model utilizing the following assumptions: risk free interest rate 2.48%, stock
price volatility 0.84, expected life 7 years, dividend yield 0%.
During
the three months ended March 31, 2008 and 2007, the Company recognized equity
based compensation expense for stock options of $47,000 and $91,000,
respectively, which was recognized in the Statement of Operations. As of March
31, 2008, the total compensation costs related to non-vested awards not yet
recognized is $357,000 which will be recognized over the next 1.74 years. As
of
March 31, 2008, there were 2,376,677 options to purchase common stock
outstanding under the Company’s 2005 Stock Option Plan.
(5)
Warrant
Extension
On
February 15, 2008, the Company amended outstanding warrants to purchase an
aggregate of 900,000 shares of common stock of the Company, which have an
exercise price of $1.00 per share (the “Warrants”). The Warrants were originally
issued in 2003 in connection with certain financing transactions and were
scheduled to expire on
February 15, 2008. The amendment extends the expiration date of the Warrants
until February 15, 2010. The value of the extension of the warrants was
calculated using the Black Scholes pricing model and resulted in a charge of
approximately $176,000, which was recorded in the statement of operations during
the first quarter of 2008.
In
addition, the Warrants contain a call provision whereby the Company can require
the holders of the Warrants to exercise them if the Company’s common stock
trades at a level of at least $3.25 per share for 20 consecutive trading days
(the “Call Provision”). In addition to amending the expiration date of the
Warrants as described in the preceding paragraph, the Company amended the Call
Provision by lowering the trading price at which the Call Provision may be
triggered from $3.25 per share to $2.25 per share.
(6)
Subsequent Event
On
May
12, 2008, the Company announced that it had received approval from the U.S.
Food
and Drug Administration of an Investigation Device Exemption to begin the
pivotal clinical trial for SEPETTM,
the
Company’s extracorporeal (outside the body) liver assist device for blood
purification of chronically ill patients suffering from acute liver failure.
The
Company anticipates that
a
significant capital raise is necessary in order to continue operations and
development of planned products, including the development of SEPET™ and the
commencement of the SEPET™ pivotal trial.
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 our capital resources, our ability to complete the research and
development of our product candidates, and our ability to obtain regulatory
approval for our product candidates. 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-KSB for the year ended
December 31, 2007 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
To
date,
we have been principally engaged in research and development of our product
candidates, management of clinical trials, raising capital and recruitment
of
additional scientific and management personnel and advisors. We have not
marketed or sold any products and have not generated any revenues from
commercial activities; however, from inception, we have recorded revenues of
approximately $321,000 of Small Business Innovation Research, or SBIR, grants
that have been awarded by the United States Small Business
Administration.
Our
current plan of operations for the next 12 months primarily involves research
and development activities, including clinical trials for the SEPET™ Liver
Assist Device, and the preparation and submission of applications to the FDA
and
other competent authorities. We submitted an IDE application for SEPET™ in March
2005 and commenced clinical trials for SEPET™ in the third quarter of 2005. In
the third quarter of 2007, we completed the Phase I feasibility
clinical trial for SEPET™. Based
upon the results of the feasibility study, we submitted an IDE application
to
the FDA seeking approval to initiate a pivotal trial of SEPET™. Following a
meeting with the FDA in the summer of 2007, the FDA granted us conditional
approval of the IDE application in February 2008 to begin the pivotal clinical
trial while we respond to the FDA’s conditions and request for additional
information. After additional discussions with the FDA, we submitted a revised
IDE application to the FDA and in May 2008 the FDA granted us approval of the
revised IDE to begin segment one of the pivotal trial of SEPET™. Based on the
revised trial design, we expect that there will be three segments to the pivotal
trial of SEPET™ at up to 24 clinical sites in the United States and Europe.
During the first segment of the trial, 5 non-randomized patients will be treated
with SEPET™ to allow us to validate the patient selection criteria, clinical
protocol, case report forms, and other trial related documents. During the
second segment of the trial, we expect to enroll 116 patients in this
randomized, controlled phase of the trial. This segment is targeted to achieve
the co-primary endpoints, which are (i) the percentage of patients achieving
improvement in HE grade by a minimum of two grades by the end of Day 7 in the
SEPET™ treatment group versus the standard medical care group, using a 1:1
randomization between the two groups; and (ii) the 30-day transplant free
survival rate in all patients (i.e. control and treatment groups) who do reach
a
two grade HE improvement versus all patients who do not reach a two grade HE
improvement. Pending review and approval by the Data Safety Monitoring Board,
the third segment would permit the size of the trial to be increased by an
additional 52 patients, if the co-primary efficacy endpoints are reached or
have
not reached statistical significance but have shown a positive trend. If the
co-primary endpoints of the trial are reached upon completion of segment two,
extension of the trial into segment three may result in the achievement of
statistical significance of one or more secondary endpoints of the trial
relating to clinical, functional, and reimbursement advantages for
SEPET™-treatment over standard medical care. To be a candidate for the pivotal
trial, a patient must have chronic liver disease and be experiencing an acute
episode of liver failure that results in hospitalization with an HE grade of
between II and IV. In addition, the patient must not be responding
satisfactorily to standard medical care (e.g. fluid replacement, antibiotics,
lactulose) for 20 to 26 hours prior to randomization. Patients contraindicated
for a liver transplant (e.g. advanced liver cancer patients and drinking
alcoholics) are excluded from the trial. We expect to begin enrolling patients
for the first segment of the trial in clinical sites in Germany by the end
of
the second quarter of 2008.
There
is no assurance that our current trial design with co-primary endpoints which
measure survival and a two-stage change in hepatic encephalopathy will enable
us
to attract sufficient capital to continue our planned operations and activities.
Due to our limited cash resources, we may devote the remaining company resources
toward a European approval strategy through our CE Marking efforts which
commenced in April 2008 and temporarily delay our U.S. regulatory approval
strategy if we are unable to raise sufficient capital. The actual amounts we
may
expend on research and development and related clinical activities during the
next 12 months may vary significantly depending on numerous factors, including
how the results of our clinical trials and proposed trial designs are received
by the FDA, the number of patients needed to complete the trial, and the timing
and cost of regulatory submissions.
We
do not
expect to make any significant purchases or sales of plant or equipment during
the next 12 months. Based on our current estimates, we believe that we do not
have sufficient financial resources to conduct our planned operations for the
next 6 months and that our current cash and cash equivalents are budgeted to
last until July 2008, at which point we will need to terminate most of our
staff
and wind down operations. We will need to raise an aggregate of at least $5.2
million during 2008 in order to maintain the license to the Immunocept patent
portfolio, and there is a possibility that the license may revert to a
non-exclusive basis if we are unsuccessful in raising these funds. Failure
to
raise additional capital may also result in substantial adverse circumstances,
including our inability to continue the development of our product candidates
and our liquidation.
Our
research offices and laboratories are located in Medford, Massachusetts where
we
lease 1,783 square feet at $5,044 per month with a term of one year that was
entered into on September 15, 2007. We maintain an administrative office in
Pasadena, California leased on a month-to-month basis for approximately $1,500
per month and our corporate headquarters is located in Waltham, Massachusetts,
which is leased through July 2008 for approximately $3,700 per
month.
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, 2007 included in our Annual
Report on Form 10-KSB 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." We are devoting
substantially all of our present efforts to research and development. All losses
accumulated since our inception have been considered part of our development
stage activities.
Short
Term Investments
Short-term
investments generally mature between three and twelve months. Short term
investments consist of U.S. government agency notes purchased at a discount
with
interest accruing to the notes full value at maturity. All of our
short-term investments are classified as available-for-sale and are carried
at
fair market value which approximates cost plus accrued interest.
Patents
In
accordance with SFAS No. 2, “Accounting
for Research and Development Costs,”
the
costs of intangibles we purchased from others for use in research and
development activities and that have alternative future uses are capitalized
and
amortized. We capitalize certain patent rights that are believed to have future
economic benefit. The licensed capitalized patents costs were recorded based
on
the estimated value of the equity security issued by us to the licensor. The
value ascribed to the equity security took into account, among other factors,
our stage of development and the value of other companies developing
extracorporeal bioartificial liver assist devices. These patent rights are
amortized using the straight-line method over the remaining life of the patent.
Certain patent rights received in conjunction with purchased research and
development costs have been expensed. Legal costs incurred in obtaining,
recording and defending patents are expensed as incurred.
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, the predecessor to SFAS 123R,
“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 March 31, 2008.
Results
of Operations
Since
we
are still 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 a SBIR government
grant.
General
and administrative expenses of $719,000 and $676,000 were incurred for the
three
months ended March 31, 2008 and 2007, respectively. General and administrative
expenses for the three months ended March 31, 2008 increased by $43,000 over
the
prior year level. The increase is primarily attributed to an $84,000 increase
in
non cash common stock, option and warrant charges and $36,000 in legal fees
associated with patents. These increases are offset in part by a decrease of
$77,000 for travel expenses, audit fees, consulting fees, and rent costs. Non
cash equity charges increased due to charges associated with warrant exercise
term extensions. Patent legal costs increased due to increased patent
registration activity.
Research
and development expenses of $710,000 and $1,031,000 were incurred for the three
months ended March 31, 2008 and 2007, respectively. The research and development
expenses for the three months ended March 31, 2008 decreased by $321,000 over
the comparable prior year levels primarily due to $425,000 in costs related
to
the Immunocept, LLC patent portfolio acquisition in March 2007 and a decline
in
SEPETTM
development costs of $31,000 in 2008, the development of which has been placed
on hold until additional capital is secured. These declines are offset
in
part
by an increase of $60,000 in SEPET™ program costs which reflect the development
costs of producing a second generation cartridge design and salary costs due
to
the addition of two employees.
Interest
income of $20,000 and $18,000 was earned for the three months ended March 31,
2008 and 2007, respectively. The change in interest income primarily reflects
higher cash and cash equivalent balances in 2008 from prior year levels and
fluctuations of the interest rate in our cash account. In March 2007, an equity
offering contingency for $180,000 was accrued for potential contractual
obligations.
Our
net
loss was $1,410,000 and $1,868,000 for the three months ended March 31, 2008
and
2007, respectively. The decrease in net loss for the three months ended March
31, 2008 compared to the comparable period in 2007 is primarily attributable
to
the decrease in research and development expenses related to the March 2007
patent portfolio acquisition.
Liquidity
and Capital Resources
As
of
March 31, 2008, we had cash of approximately $1,636,000 and current liabilities
of approximately $981,000. We have long term contract obligations of $150,000
related to patent acquisitions and we do not have any bank credit lines. To
date, we have funded our operations primarily from the sale of debt and equity
securities and to a lesser extent, SBIR grants.
As
of the
date of the filing of the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008, we estimate that we do not have cash to operate
for the next six months. We are continuing to pursue fund-raising possibilities
through the sale of our equity securities. If we are unsuccessful in our efforts
to raise additional funds through the sale of additional equity securities
or if
the level of cash and cash equivalents falls below anticipated levels, we will
not have the ability to continue as a going concern after July 2008. While
we
intend to pursue development of our product candidates, any continued
development by us is contingent upon additional funding or a strategic
partnership. The amount and timing of our future capital requirements will
depend on numerous factors, including the number and characteristics of product
candidates that we pursue, the conduct of preclinical tests and clinical
studies, the status and timelines of regulatory submissions, the costs
associated with protecting patents and other proprietary rights, the ability
to
complete strategic collaborations and the availability of third-party funding,
if any. We may also seek additional funding through corporate collaborations
and
other financing vehicles. If funds are obtained through arrangements with
collaborative partners or others, we may be required to relinquish rights to
our
technologies or product candidates.
We
do not
currently anticipate that we will derive any revenue from either product sales
or from governmental research grants during the next 12 months. The cost of
completing the development of our product candidates and of obtaining all
required regulatory approvals to market our product candidates is substantially
greater than the amount of funds we currently have available and substantially
greater than the amount we could possibly receive under any governmental grant
program. As a result, we will have to obtain significant additional funds after
the date of this report. We currently expect to attempt to obtain additional
financing through the sale of additional equity and possibly through strategic
alliances with larger pharmaceutical or biomedical companies. We cannot be
sure
that we will be able to obtain additional funding from either of these sources
or that we will enter into strategic alliances, or that the terms under which
we
obtain such funding or of any such strategic alliance will be beneficial to
us
or our shareholders.
Based
on
our current plan, we believe that our current cash balances will not be
sufficient to fund our operations for the next six months from the date of
this
report.
The
following is a summary of our contractual cash obligations for the following
fiscal years:
Contractual Obligations
|
|
Total
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Long-Term
Leases
|
|
$
|
25,220
|
|
$
|
25,220
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
License
Agreement
|
|
|
250,000
|
|
|
-
|
|
|
100,000
|
|
|
150,000
|
|
|
-
|
|
Total
|
|
$
|
275,220
|
|
$
|
25,220
|
|
$
|
100,000
|
|
$
|
150,000
|
|
$
|
-
|
|
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 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.
Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control.
The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving our stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
PART
II. OTHER INFORMATION
ITEM
1. Legal Proceedings.
None.
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-KSB for the year ended December 31, 2007 as filed with the Securities
and Exchange Commission. There have been no material changes from the risk
factors previously disclosed in that Annual Report on
Form 10-KSB.
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.
31.1
|
Certification
of Principal Executive Officer Pursuant to Section 302
|
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Section 302
|
|
|
32
|
Section
906 certification of periodic financial report by Chief Executive
Officer
and Chief Financial Officer.
|
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.
|
ARBIOS
SYSTEMS, INC.
|
|
|
|
By:
/S/ Shawn P. Cain
|
DATE:
May 15, 2008
|
|
|
Shawn
P. Cain
|
|
Interim
Chief Executive Officer (Principal Executive Officer)
|
|
|
|
|
|
By:
/S/ Scott L. Hayashi
|
DATE:
May 15, 2008
|
|
|
Scott
L. Hayashi
|
|
Chief
Financial Officer (Principal Financial
Officer)
|