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, 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
August
8, 2008, there were 25,792,747 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:
|
|
|
|
|
|
|
3
|
|
|
Condensed
Balance Sheets as of June 30, 2008 (unaudited) and December 31,
2007
(audited)
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Operations for the three and six months ended June
30, 2008
and 2007 and from August 23, 2000 (inception) to June 30, 2008(all
unaudited)
|
|
4
|
|
|
|
|
|
|
|
Condensed
Statements of Cash Flows for the six months ended June 30, 2008 and
2007 and from August 23, 2000 (inception) to June 30, 2008(all
unaudited)
|
|
5
|
|
|
|
|
|
|
|
Condensed
Statement of Stockholders’ Equity from August 23, 2000 (inception) to June
30, 2008 (unaudited)
|
|
6
|
|
|
|
|
|
|
|
Notes
to Condensed Financial Statements
|
|
11
|
|
|
|
|
|
Item
2.
|
|
Management's
Discussion and Analysis of Financial Condition and Results Of
Operations
|
|
15
|
|
|
|
|
|
Item
3.
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
19
|
|
|
|
|
|
Item
4T.
|
|
Controls
and Procedures
|
|
19
|
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
|
|
Item
1.
|
|
Legal
Proceedings
|
|
19
|
|
|
|
|
|
Item
1A.
|
|
Risk
Factors
|
|
20
|
|
|
|
|
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
20
|
|
|
|
|
|
Item
3.
|
|
Defaults
Upon Senior Securities
|
|
20
|
|
|
|
|
|
Item
4.
|
|
Submission
of Matters to a Vote of Security Holders
|
|
20
|
|
|
|
|
|
Item
5.
|
|
Other
Information
|
|
20
|
|
|
|
|
|
Item
6.
|
|
Exhibits
|
|
20
|
|
|
|
|
|
SIGNATURES
|
|
|
|
21
|
PART
I - FINANCIAL INFORMATION
ITEM
1. Condensed Financial Statements
ARBIOS
SYSTEMS, INC.
(A
development stage company)
|
|
June
30, 2008
|
|
December
31,
|
|
|
|
(Unaudited)
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
989,154
|
|
$
|
2,735,944
|
|
Prepaid
expenses
|
|
|
11,608
|
|
|
37,546
|
|
Total
current assets
|
|
|
1,000,762
|
|
|
2,773,490
|
|
|
|
|
|
|
|
|
|
Net
property and equipment
|
|
|
34,098
|
|
|
45,450
|
|
Patent
rights, net of accumulated amortization of $144,614 and $134,374,
respectively
|
|
|
122,053
|
|
|
132,293
|
|
Deferred
financing costs
|
|
|
—
|
|
|
16,757
|
|
Other
assets
|
|
|
50,047
|
|
|
70,236
|
|
Total
assets
|
|
$
|
1,206,960
|
|
$
|
3,038,226
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
516,155
|
|
$
|
434,727
|
|
Accrued
expenses
|
|
|
491,387
|
|
|
483,617
|
|
Total
current liabilities
|
|
|
1,007,542
|
|
|
918,344
|
|
|
|
|
|
|
|
|
|
Long
term contract obligations
|
|
|
150,000
|
|
|
250,000
|
|
Total
liabilities
|
|
|
1,157,542
|
|
|
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; 25,792,747
and
25,578,461
|
|
|
|
|
|
|
|
shares
issued and outstanding at June 30, 2008 and December 31, 2007,
respectively
|
|
|
25,792
|
|
|
25,578
|
|
Additional
paid-in capital
|
|
|
21,578,132
|
|
|
21,159,276
|
|
Deficit
accumulated during the development stage
|
|
|
(21,554,506
|
)
|
|
(19,314,972
|
)
|
Total
stockholders' equity
|
|
|
49,418
|
|
|
1,869,882
|
|
Total
liabilities and stockholders' equity
|
|
$
|
1,206,960
|
|
$
|
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
|
|
For
the three months ended
June
30,
|
|
For
the six months ended
June
30,
|
|
Inception
to
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
June
30, 2008
|
|
Revenues
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
320,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
492,121
|
|
|
770,325
|
|
|
1,211,615
|
|
|
1,626,156
|
|
|
12,953,752
|
|
Research
and development
|
|
|
345,971
|
|
|
529,011
|
|
|
1,056,397
|
|
|
1,560,004
|
|
|
9,169,205
|
|
Total
operating expenses
|
|
|
838,092
|
|
|
1,299,336
|
|
|
2,268,012
|
|
|
3,186,160
|
|
|
22,122,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other income (expense)
|
|
|
(838,092
|
)
|
|
(1,299,336
|
)
|
|
(2,268,012
|
)
|
|
(3,186,160
|
)
|
|
(21,801,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8,178
|
|
|
56,264
|
|
|
28,478
|
|
|
74,619
|
|
|
491,623
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244,138
|
)
|
Total
other income (expense)
|
|
|
8,178
|
|
|
56,264
|
|
|
28,478
|
|
|
74,619
|
|
|
247,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(829,914
|
)
|
$
|
(1,243,072
|
)
|
$
|
(2,239,534
|
)
|
$
|
(3,111,541
|
)
|
$
|
(21,554,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
$
|
(0.09
|
)
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
25,749,458
|
|
|
23,154,717
|
|
|
25,672,613
|
|
|
20,323,180
|
|
|
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
ARBIOS
SYSTEMS, INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
|
|
For
the six months ended
June
30,
|
|
Inception
to
|
|
|
|
2008
|
|
2007
|
|
June
30, 2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,239,534
|
)
|
$
|
(3,111,541
|
)
|
$
|
(21,554,506
|
)
|
Adjustments
to reconcile net loss to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
(used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount
|
|
|
|
|
|
|
|
|
244,795
|
|
Depreciation
and amortization
|
|
|
21,592
|
|
|
23,947
|
|
|
323,856
|
|
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
|
|
|
419,070
|
|
|
337,177
|
|
|
4,032,517
|
|
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
|
|
|
25,938
|
|
|
84,615
|
|
|
(11,610
|
)
|
Deferred
financing costs
|
|
|
16,757
|
|
|
|
|
|
|
|
Other
assets
|
|
|
20,189
|
|
|
27,010
|
|
|
(50,047
|
)
|
Accounts
payable
|
|
|
81,428
|
|
|
172,698
|
|
|
516,155
|
|
Accrued
expenses
|
|
|
7,770
|
|
|
400,971
|
|
|
397,885
|
|
Other
liabilities
|
|
|
|
|
|
|
|
|
64,695
|
|
Contractual
obligation
|
|
|
(100,000
|
)
|
|
250,000
|
|
|
150,000
|
|
Net
cash used in operating activities
|
|
|
(1,746,790
|
)
|
|
(1,740,553
|
)
|
|
(15,343,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
2,700
|
|
|
67,900
|
|
Net
proceeds from issuance of common stock and warrants
|
|
|
|
|
|
4,483,831
|
|
|
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
|
|
|
|
|
|
4,486,531
|
|
|
16,481,897
|
|
Net
increase (decrease) in cash
|
|
|
(1,746,790
|
)
|
|
2,745,978
|
|
|
989,154
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
2,735,944
|
|
|
2,054,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
989,154
|
|
$
|
4,800,258
|
|
$
|
989,154
|
|
|
|
|
|
|
|
|
|
|
|
|
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 JUNE 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
During
the
|
|
|
|
|
|
|
|
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 JUNE 30,
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 JUNE 30, 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 JUNE 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 JUNE 30, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
During
the
|
|
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Paid-In
|
|
Deferred
|
|
Development
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Costs
|
|
Stage
|
|
Total
|
|
Issuance
of common stock for compensation
|
|
|
|
|
|
|
|
|
214,286
|
|
|
214
|
|
|
59,786
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,881
|
|
|
|
|
|
|
|
|
75,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
warrant term extension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,256
|
|
|
|
|
|
|
|
|
175,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,933
|
|
|
|
|
|
|
|
|
107,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,239,534
|
)
|
|
(2,239,534
|
)
|
Balance,
June 30, 2008
|
|
|
|
|
|
|
|
|
25,792,747
|
|
$
|
25,792
|
|
$
|
21,578,132
|
|
|
|
|
|
($21,554,506
|
)
|
$
|
49,418
|
|
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)
Six
Months Ended June 30, 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 June 30, 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
six months ended June 30, 2008 are not necessarily indicative of the results
to
be expected for any subsequent periods or for the entire 2008 fiscal year.
(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
$2,239,534 for the six months ended June 30, 2008 and an accumulated deficit
of
$21,554,506 at June 30, 2008. The Company’s lack of adequate cash reserves to
sustain ongoing operations after the end of the third quarter of 2008 raises
substantial doubt about the Company’s ability to continue as a going
concern.
The
Company reduced its staffing levels by 2 employees and 1 consultant in the
first
quarter of 2008 to reduce its administrative expenses. Thereafter, in July
2008,
the Company terminated all of its remaining employees to help maintain its
cash
reserves until a strategic transaction or financing is achieved (two officers
continue to provide services to the Company as consultants). If the Company
is
unsuccessful in its efforts to raise additional funds through the sale of
additional equity securities or a strategic transaction, the Company will not
have the ability to continue as a going concern after the end of the third
quarter of 2008. If the Company is unable to obtain financing, it will wind
down
operations and thereafter will either seek sale of the assets, attempt to
license its technologies, or seek a merger with another company. While the
Company hopes to pursue development of its product candidates, any significant
continued development is contingent upon significant 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 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.
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 the Company is unable to raise
additional capital for the Company by the
end
of the third quarter 2008, the Company will not be able to meet its obligations
and will have to cease all 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.
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 is evaluating the impact of adopting SFAS 161 on our
financial statements.
(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 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%. The Company estimates that as of June 30, 2008 it is not probable that
the
performance objective will be met, and in accordance with SFAS 123R, the
incremental vesting charges incurred through March 31, 2008 of approximately
$5,800 is reversed during the second quarter of 2008.
On
January 28, 2008, the Company issued 25,000 shares of restricted stock with
restrictions that 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 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. The Company estimates that as of June 30, 2008
it
is not probable that the performance objective will be met, and in accordance
with SFAS 123R, the incremental vesting charges incurred through March 31,
2008
of $15,000 is reversed during the second quarter of 2008.
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 that as of June
30,
2008 it is not probable that the performance objective will be met, and in
accordance with SFAS 123R, the incremental vesting charges incurred through
March 31, 2008 of approximately $4,000 is reversed during the second quarter
of
2008. 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%.
On
April
29, 2008, the Company entered into an agreement with a fund raising firm and
issued 214,286 shares of common stock at a price of $0.28 per share as
compensation plus other agreed upon terms. The value of the shares, based on
the
closing price of the Company’s common stock on the date of grant, was recorded
as a deferred financing expense of $60,000 with a corresponding increase in
additional paid in capital. An additional $30,000 cash retainer was also
recorded as a deferred financing cost for legal and other expenses. These costs
were subsequently expensed as of June 30, 2008 due to the termination of the
agreement.
During
the three months ended June 30, 2008 and 2007, the Company recognized equity
based compensation expense for stock options of $29,000 and $99,000,
respectively, which was recognized in the Statement of Operations. During the
six months ended June 30, 2008 and 2007, the Company recognized equity based
compensation expense for stock options of $76,000 and $190,000, respectively,
which was recognized in the Statement of Operations. As of June 30, 2008, the
total compensation costs related to non-vested awards not yet recognized is
$244,000 which will be recognized over the next 1.45 years. As of June 30,
2008,
there were 2,856,677 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
August
5, 2008, the Company announced that it was suspending its operations to focus
its efforts on obtaining financing or consummating a strategic transaction.
In
connection with the suspension of its operations, the Company on July 31, 2008
terminated the employment of Shawn Cain, President and Chief Executive Officer,
Scott Hayashi, Chief Financial Officer, Jacek Rozga, MD, Ph.D., Chief Scientific
Officer, and Susan Papalia, Vice President of Clinical Affairs. Upon the
termination of their employments, each of the foregoing officers executed the
Company’s standard severance/termination agreement, and each of these officers
received a severance payment in the following amount: Shawn Cain ($46,250,
representing three month’s salary), Scott Hayashi ($20,833, representing two
month’s salary), Jacek Rozga ($33,333, representing two month’s salary), and
Susan Papalia ($28,333, representing two month’s salary).
Pursuant
to a Consulting Agreement, dated August 1, 2008, Mr. Cain has agreed to continue
to provide services to the Company as a part-time consultant for a period of
30
days at a rate of $5,000 per month. The Consulting agreement is renewable for
consecutive 30-day periods upon joint agreement. Under the terms of the
consulting agreement, Mr. Cain will act as the interim principal executive
officer of the Company.
Pursuant
to a Consulting Agreement, dated August 1, 2008, Mr. Hayashi has agreed to
continue to provide services to the Company as a part-time consultant for a
period of 30 days at a rate of $5,000 per month The Consulting agreement is
renewable for consecutive 30-day periods upon joint agreement. Mr. Hayashi
will
act as the Company’s interim Chief Financial Officer.
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.
In
August
2008, we suspended all of our operations in order to focus exclusively on
obtaining financing or consummating a strategic transaction. We hope to obtain
additional financing through the sale of additional equity and possibly through
strategic alliances with larger pharmaceutical or biomedical companies. In
order
to preserve our remaining cash resources, the company’s remaining employees were
released from employment, except for Shawn Cain, our President and CEO, and
Scott Hayashi, our CFO, who will continue to provide services to as part-time
consultants on a month-to-month basis while they seek funding and strategic
alternatives. Based on our current budget and estimated expenses, we believe
that we only have cash available to fund our reduced level of operations until
the end of the third quarter of 2008. If we do not obtain financing or enter
into a strategic transaction by the end of the third quarter of 2008, we will
then need to consider other options, including liquidation of the
company.
To
date,
our plan of operations for the next 12 months primarily involved research and
development activities, including clinical trials for the SEPET™ Liver Assist
Device and the preparation and submission of an application for a CE Mark for
European marketing approval which is subject to completion of a financing.
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 SEPETTM.
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
SEPETTM.
Based
on the revised trial design, we expect that there will be three segments to
the
pivotal trial of SEPETTM
at up to
24 clinical sites in the United States and Europe. We hope to begin enrolling
patients for the first segment of the trial in clinical sites in Germany in
2008
if we are able to complete our critical fundraising efforts. 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.
Depending on the amount of financing we receive in the near future, if any,
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.
In
August
2008, we suspended all of our current operations, including clinical trials,
until we raise sufficient cash to continue our operations. There is no guarantee
that we will be able to raise sufficient capital in the next few months to
support operations. Accordingly, the actual amounts we may expend on research
and development and related clinical activities during the next 12 months is
unknown and will depend on whether, and how much financing we are able to
obtain. Based on our current estimates, we believe that we do not have
sufficient financial resources to conduct our planned operations for the next
two months and that our current cash and cash equivalents are budgeted to last
until the end of the third quarter of 2008. The amount of funds that we need
to
raise in the short term to fund our operations is relatively small because
of
our reduced level of operations. However, under our agreements with Immunocept
LLC, we are obligated to raise substantially more funds this year in order
to
maintain our licenses. Under those licenses, 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.
Accordingly, failure to raise additional capital in the near future could result
in the termination of our operations, the loss of significant patents, and
eventually in our liquidation.
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 June 30, 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 $492,000 and $770,000 were incurred for the
three
months ended June 30, 2008 and 2007, respectively. General and administrative
expenses for the three months ended June 30, 2008 decreased by $278,000 over
the
prior year level. The decrease is primarily attributed to a $91,000 decrease
in
legal fees and a $119,000 decline in payroll costs due to staff reductions,
salary deferrals and non-payment of 2008 bonuses. In addition, there was an
overall decline in virtually all expense categories in an effort to reduce
general and administrative costs. General and administrative expenses of
$1,212,000 and $1,626,000 were incurred for the six months ended June 30, 2008
and 2007, respectively. General and administrative expenses for the six months
ended June 30, 2008 decreased by $414,000 over the prior year level. The
decrease primarily reflects a $183,000 decrease in payroll costs from staff
reductions, a $180,000 non recurring contingency charge incurred in 2007 and
an
overall decline in virtually all expense categories in an effort to reduce
general and administrative costs.
Research
and development expenses of $346,000 and $529,000 were incurred for the three
months ended June 30, 2008 and 2007, respectively. The research and development
expenses for the three months ended June 30, 2008 decreased by $183,000 over
the
comparable prior year level due to $138,000 less in consulting costs primarily
from regulatory consultants utilized in 2007 and a decline of $19,000 in payroll
costs due to non-payment of bonus payments in 2008. Research and development
expenses of $1,056,000 and $1,560,000 were incurred for the six months ended
June 30, 2008 and 2007, respectively. The research and development expenses
for
the six months ended June 30, 2008 decreased by $504,000 over the comparable
prior year levels due to $375,000 in costs related to the Immunocept, LLC patent
portfolio acquisition in March 2007 and a decline in SEPETTM
development costs of $233,000 in 2008, the development of which has been placed
on hold until additional capital is secured and a decline in consultant costs
of
$85,000 also related to the SEPETTM
program.
These declines are offset in part by an increase of $70,000 in SEPET™ clinical
development costs to produce a second generation cartridge design, and salary
cost of $93,000 due to the addition of two employees.
Interest
income of $8,000 and $56,000 was earned for the three months ended June 30,
2008
and 2007, respectively. Interest income of $28,000 and $75,000 was earned for
the six months ended June 30, 2008 and 2007, respectively. The change in
interest income primarily reflects lower cash and cash equivalent balances
in
2008 from prior year levels and fluctuations of the interest rate in our cash
account.
Our
net
loss was $830,000 and $1,243,000 for the three months ended June 30, 2008 and
2007, respectively. Our net loss was $2,240,000 and $3,112,000 for the six
months ended June 30, 2008 and 2007, respectively. The decrease in net loss
for
the three and six months ended June 30, 2008 compared to the comparable periods
in 2007 is primarily attributable to the reductions in research and development
program activities and a decrease in general and administrative expenditures
as
we endeavored to conserve cash and secure additional capital.
Liquidity
and Capital Resources
As
of
June 30, 2008, we had cash of approximately $989,000 and current liabilities
of
approximately $1,008,000. 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 June 30, 2008, we estimate that we do not have cash to operate
until approximately the end of the third quarter of 2008. We are continuing
to
pursue fund-raising possibilities through the sale of our equity securities
or
strategic transactions. If we are unsuccessful in our efforts to raise
additional funds through the sale of additional equity securities, we will
not
have the ability to continue as a going concern after the end of the third
quarter of 2008. While we hope to pursue development of our product candidates,
any continued development by us is contingent upon significant additional
funding or a strategic partnership. The amount and timing of our future capital
requirements will depend on numerous factors, including the financial markets
in
general, and the perceived value of our company and our assets in particular.
While we are pursuing raising equity funding, we may also seek 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 in the foreseeable future. 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 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.
The
following is a summary of our contractual cash obligations for the following
fiscal years:
Contractual
Obligations
|
|
Total
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Short-Term
Leases
|
|
$
|
14,588
|
|
$
|
14,588
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
License
Agreement
|
|
|
250,000
|
|
|
-
|
|
|
100,000
|
|
|
150,000
|
|
|
-
|
|
Total
|
|
$
|
264,588
|
|
$
|
14,588
|
|
$
|
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. Except as set forth below, there have been no material
changes from the risk factors previously disclosed in that Annual Report on
Form 10-KSB.
We
are in
imminent danger of liquidation and the loss of our entire business if we do
not
raise additional funds or enter into a strategic transaction in the immediate
future.
As
of the
date of the filing of this report, we only have sufficient cash available to
fund our operations until approximately the end of the third quarter of 2008.
In
order to preserve our limited cash resources, we have suspended all of our
operations and have terminated all employees (only our Chief Executive Officer
and our Chief Financial Officer continue to provide services to us as part
time
consultants). We are currently seeking additional funding from various sources
and are considering certain strategic transactions to either fund and re-instate
our operations or to otherwise preserve the value of our patents and
technologies. However, we do not have any agreements in place for either
additional funding or for any strategic transactions, and no assurance can
be
given that we will be able to obtain additional financing or enter into a
strategic transaction. If we do not raise additional funds in the immediate
future or otherwise protect our business and assets in a strategic transaction,
we will have to consider filing for bankruptcy or otherwise liquidating our
company. In either case, our shareholders will lose their investment in our
securities.
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
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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:
August 14, 2008 |
By: |
/S/
Shawn P. Cain |
|
Shawn
P. Cain
Interim
Chief Executive Officer (Principal
Executive
Officer)
|
|
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DATE:
August 14, 2008 |
By: |
/S/
Scott L. Hayashi |
|
Scott
L. Hayashi
Interim
Chief Financial Officer (Principal
Financial
Officer)
|