NATURE OF BUSINESS, BASIS OF PRESENTATION |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Mar. 31, 2011 |
Sep. 30, 2011 |
Dec. 31, 2010 |
|||
| NATURE OF BUSINESS, BASIS OF PRESENTATION |
Novelos
Therapeutics, Inc. (“Novelos” or the
“Company”) is a biopharmaceutical company developing
compounds for the treatment of cancer.
On
April 8, 2011, the Company entered into a business combination with
Cellectar, Inc. (“Cellectar”), a privately held
Wisconsin corporation that designed and developed products to
detect, treat and monitor a wide variety of human cancers (the
“Acquisition”, see Note 10). Immediately
prior to the Acquisition, the Company completed a 1-for-153 reverse
split of its common stock (the “Reverse Split”). The
Company then issued to the former shareholders of Cellectar
17,001,596 shares of its common stock as consideration for the
Acquisition, which shares constituted approximately 85% of
Novelos’ outstanding common stock after giving effect to the
Acquisition. Upon the closing of the Acquisition, the
Company completed the private placement of 6,846,537 shares of its
common stock and warrants to purchase an additional 6,846,537
shares of its common stock (in each case after giving effect to the
Reverse Split) for gross proceeds of approximately
$5,135,000. As a result of the Acquisition, the Company
is implementing a revised business plan focused on the development
of the Cellectar compounds. Development of
Novelos’ other compounds (NOV-002 and NOV-205) has been
suspended.
The
Reverse Split reduced the number of outstanding shares of Common
Stock from 452,866,983 shares to 2,959,871 shares. On the
Company's balance sheet, the aggregate par value of the issued
common stock was reduced by reclassifying the par value amount of
the eliminated shares of common stock to additional paid-in
capital. All per share amounts and outstanding shares, including
all common stock equivalents, stock options and warrants, have been
retroactively restated in these financial statements and notes for
all periods presented to reflect the Reverse Split. Additionally,
the number of authorized shares of common stock disclosed on the
balance sheet has been reduced to 150,000,000 from 750,000,000 to
reflect the reduction in authorized shares of common stock that
became effective concurrent with the Reverse Split.
Accounting
principles generally accepted in the United States require that a
company whose security holders retain the majority voting interest
in the combined business be treated as the acquirer for financial
reporting purposes. Accordingly, the Acquisition will be
accounted for as a reverse acquisition whereby Cellectar, Inc. will
be treated as the acquirer for accounting and financial reporting
purposes. The financial statements presented herein represent the
historical financial information of Novelos, prior to the
Acquisition.
The
Company is subject to a number of risks similar to those of other
small biopharmaceutical companies. Principal among these risks are
dependence on key individuals, competition from substitute products
and larger companies, the successful development and marketing of
its products in a highly regulated environment and the need to
obtain additional financing necessary to fund future
operations.
On
February 24, 2010, the Company announced that its Phase 3 clinical
trial for NOV-002 in non-small cell lung cancer
(“NSCLC”) (the “Phase 3 Trial”) did not
meet its primary endpoint of a statistically significant increase
in median overall survival. Following evaluation of the detailed
trial data, on March 18, 2010, the Company announced that the
secondary endpoints had also not been met in the Phase 3 Trial and
that it had discontinued development of NOV-002 for NSCLC in
combination with first-line paclitaxel and carboplatin
chemotherapy.
These
financial statements have been prepared on the basis that the
Company will continue as a going concern. The Company has generated
insignificant revenues and has incurred operating losses since
inception in devoting substantially all of its efforts toward
research and development. The Company expects that it will continue
to generate operating losses for the foreseeable
future. The Company believes that its cash on hand at
March 31, 2011, plus the proceeds from the private placement
completed in connection with the Acquisition, is adequate to fund
operations into the fourth quarter of 2011. The
Company’s ability to execute its operating plan beyond that
time depends on its ability to obtain additional funding via the
sale of equity and/or debt securities, a strategic transaction or
otherwise. The Company plans to continue to actively
pursue financing alternatives, but there can be no assurance that
it will obtain the necessary funding.
The
accompanying unaudited financial statements of the Company have
been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim
financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
the fair presentation of these financial statements have been
included. The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Interim results are not necessarily indicative
of results to be expected for other quarterly periods or for the
entire year ending December 31, 2011. These unaudited financial
statements should be read in conjunction with the audited financial
statements and related notes thereto included in the
Company’s latest annual report for the year ended December
31, 2010 on Form 10-K, which was filed with the Securities and
Exchange Commission (“SEC”) on April 14, 2011. The
report from the Company’s independent registered public
accounting firm dated April 11, 2011 and included with its annual
report on Form 10-K indicated that factors exist that raised
substantial doubt about the Company’s ability to continue as
a going concern.
Comprehensive Income (Loss) – The Company had no
components of comprehensive income (loss) other than the net income
(loss) in all periods presented.
Derivative Instruments – The Company generally does
not use derivative instruments to hedge exposures to cash flow or
market risks. However, certain warrants to purchase
common stock that do not meet the requirements for classification
as equity, in accordance with the Derivatives and Hedging Topic of
the Financial Accounting Standards Board Accounting Standards
Codification (“FASB ASC”), are classified
as liabilities. In such instances, net-cash settlement
is assumed for financial reporting purposes, even when the terms of
the underlying contracts do not provide for a net-cash settlement.
These warrants are considered derivative instruments because the
agreements contain “down-round” provisions whereby the
number of shares for which the warrants are exercisable and/or the
exercise price of the warrants are subject to change in the event
of certain issuances of stock at prices below the then-effective
exercise price of the warrants. The number of shares
issuable under such warrants was 105,042 at March 31,
2011. The primary underlying risk exposure pertaining to
the warrants is the change in fair value of the underlying common
stock. Such financial instruments are initially recorded
at fair value with subsequent changes in fair value recorded as a
component of gain or loss on derivatives in each reporting period.
If these instruments subsequently meet the requirements for equity
classification, the Company reclassifies the fair value to
equity. At March 31, 2011, these warrants represented
the only outstanding derivative instruments issued or held by the
Company.
|
1. NATURE OF BUSINESS, ORGANIZATION AND GOING CONCERN
Novelos
Therapeutics, Inc. (“Novelos” or the
“Company”) is a pharmaceutical company developing
compounds for the treatment of cancer. On April 8, 2011, Novelos
completed a business combination with Cellectar, Inc.
(“Cellectar”), a privately held Wisconsin corporation
that designed and developed products to detect, treat and monitor a
wide variety of human cancers, and Cell Acquisition Corp. (the
“Merger Subsidiary”), a Wisconsin corporation and a
wholly owned subsidiary of Novelos. Pursuant to the transaction
Cellectar was merged into the Merger Subsidiary (the
“Acquisition”, see Note 4). References in these
financial statements and notes to “Cellectar” relate to
the activities and financial information of Cellectar prior to the
Acquisition, references to “Novelos” relate to the
activities and financial information of Novelos prior to the
Acquisition and references to “the Company” or
“we” or “us” or “our” relate to
the activities and obligations of the combined Company following
the Acquisition.
Immediately
prior to the Acquisition, Novelos completed a 1-for-153 reverse
split of its common stock (the “Reverse Split”).
Novelos then issued to the shareholders of Cellectar at that date
17,001,596 shares of its common stock as consideration for the
Acquisition, representing a ratio of 0.8435 shares of Novelos
common stock in exchange for one share of Cellectar common stock
(the “Exchange Ratio”) as set forth in the Agreement
and Plan of Merger (the “Merger Agreement”) dated April
8, 2011. The shares issued to Cellectar shareholders in the
Acquisition constituted approximately 85% of Novelos’
outstanding common stock after giving effect to the
Acquisition. Upon the closing of the Acquisition, the Company
completed the private placement of 6,846,537 shares of its common
stock and warrants to purchase an additional 6,846,537 shares of
its common stock for gross proceeds of approximately
$5,135,000.
Accounting principles generally accepted in the United States
require that a company whose security holders retain the majority
voting interest in the combined business be treated as the acquirer
for financial reporting purposes. Accordingly, the
Acquisition will be accounted for as a reverse acquisition whereby
Cellectar, Inc. will be treated as the acquirer for accounting and
financial reporting purposes. The financial statements presented
herein as of and for the twelve months ended December 31, 2010 and
2009 represent the historical financial information of Cellectar,
except for the capital structure which represents the historical
amounts of Cellectar, retroactively adjusted to reflect the legal
capital structure of Novelos by applying the Exchange Ratio. On
April, 8, 2011, Cellectar was merged into the Merger Subsidiary a
wholly owned subsidiary of Novelos; as such, the financial
statements presented herein as of and for the nine months ended
September 30, 2011 include the historical results of Cellectar from
January 1, 2011 through April 8, 2011, except for the capital
structure which represents the historical amounts of Cellectar,
retroactively adjusted to reflect the legal capital structure of
Novelos by applying the Exchange Ratio, and include the
consolidated results of the combined company from April 9, 2011
through September 30, 2011. All per-share amounts and
outstanding shares, including all common stock equivalents, and
stock options, have been retroactively restated in these financial
statements and notes for all periods presented to reflect the
capital structure of Novelos by applying the Exchange
Ratio. The cumulative capital activity from the date of
inception (November 7, 2002) up to the closing of the Acquisition,
as presented in the accompanying statement of stockholders’
equity, equals 17,001,596 shares of common stock, which represents
the equity interests the legal parent (Novelos) issued to effect
the Acquisition. The number of authorized shares of common stock
disclosed on the balance sheet (150,000,000) represents the number
of authorized shares of Novelos common stock following the
Acquisition. Additionally, on the accompanying balance sheets
as of December 31, 2010 and 2009 and statements of
stockholders’ equity for the period from inception (November
7, 2002) to December 31, 2010 the aggregate par value of the issued
common stock was reduced to reflect the $0.00001 par value of
Novelos common stock associated with the shares of Cellectar common
stock adjusted for the Exchange Ratio and the difference was
reclassified to additional paid-in capital.
As
a result of the Acquisition, the Company has implemented a revised
business plan focused on the development of the Cellectar
compounds. Development of Novelos’ other compounds
(NOV-002 and NOV-205) has been suspended. The Company is
conducting its operations from Cellectar’s headquarters in
Madison, WI and the Company’s executive offices are in
Newton, MA.
The
Company is subject to a number of risks similar to those of other
small pharmaceutical companies. Principal among these risks are
dependence on key individuals, competition from substitute products
and larger companies, the successful development and marketing of
its products in a highly regulated environment and the need to
obtain additional financing necessary to fund future
operations.
The
accompanying financial statements have been prepared on a basis
that assumes that the Company will continue as a going concern and
that contemplates the continuity of operations, realization of
assets and the satisfaction of liabilities and commitments in the
normal course of business. Cellectar has incurred losses since
inception in devoting substantially all of its efforts toward
research and development and has an accumulated deficit of
$24,045,004 at December 31, 2010. During the year ended December
31, 2010, Cellectar generated a net loss of $4,560,263 and the
Company expects that it will continue to generate operating losses
for the foreseeable future. The Company believes that its
cash on hand following the Acquisition, plus the proceeds from the
private placement completed in connection with the Acquisition, is
adequate to fund operations until the end of 2011. The
Company’s ability to execute its operating plan beyond that
time depends on its ability to obtain additional funding via the
sale of equity and/or debt securities, a strategic transaction or
otherwise. The Company plans to continue to actively pursue
financing alternatives, but there can be no assurance that it will
obtain the necessary funding. The accompanying financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
|
1. NATURE OF BUSINESS, ORGANIZATION AND GOING CONCERN
Novelos
Therapeutics, Inc. (“Novelos” or the
“Company”) is a biopharmaceutical company developing
compounds for the treatment of cancer.
On
April 8, 2011, the Company entered into a business combination with
Cellectar, Inc. (“Cellectar”), a privately held
Wisconsin corporation that designed and developed products to
detect, treat and monitor a wide variety of human cancers (the
“Acquisition”, see Note 12). Immediately prior to the
Acquisition, the Company completed a 1-for-153 reverse split of its
common stock (the “Reverse Split”). The Company then
issued 17,001,596 shares of its common stock to the former
shareholders of Cellectar as consideration for the Acquisition,
constituting approximately 85% of Novelos’ outstanding common
stock after giving effect to the Acquisition. Upon the closing of
the Acquisition, the Company completed the private placement of
6,846,537 shares of its common stock and warrants to purchase an
additional 6,846,537 shares of its common stock (in each case after
giving effect to the Reverse Split) for gross proceeds of
approximately $5,135,000. As a result of the Acquisition, the
Company is implementing a revised business plan focused on the
development of the Cellectar compounds. Development of
Novelos’ other compounds (NOV-002 and NOV-205) has been
suspended. The Company will conduct its operations from
Cellectar’s headquarters in Madison, WI and the
Company’s executive offices will remain in Newton,
MA.
The
Reverse Split reduced the number of outstanding shares of Common
Stock from 452,866,983 shares to 2,959,914 (2,959,871 after the
cash settlement of fractional shares). On the accompanying balance
sheet, the aggregate par value of the issued common stock was
reduced by reclassifying the par value amount of the eliminated
shares of common stock to additional paid-in capital. All per share
amounts and outstanding shares, including all common stock
equivalents, stock options and warrants, have been retroactively
restated in these financial statements and notes for all periods
presented to reflect the Reverse Split. Additionally, the number of
authorized shares of common stock disclosed on the balance sheet
has been reduced to 150,000,000 from 750,000,000 to reflect the
reduction in authorized shares of common stock that became
effective concurrent with the Reverse Split.
Accounting
principles generally accepted in the United States require that a
company whose security holders retain the majority voting interest
in the combined business be treated as the acquirer for financial
reporting purposes. Accordingly, the Acquisition will be
accounted for as a reverse acquisition whereby Cellectar, Inc. will
be treated as the acquirer for accounting and financial reporting
purposes. The financial statements presented herein represent the
historical financial information of Novelos, prior to the
acquisition.
The
Company is subject to a number of risks similar to those of other
small biopharmaceutical companies. Principal among these risks are
dependence on key individuals, competition from substitute products
and larger companies, the successful development and marketing of
its products in a highly regulated environment and the need to
obtain additional financing necessary to fund future
operations.
On
February 24, 2010, the Company announced that its Phase 3 clinical
trial for NOV-002 in non-small cell lung cancer (the “Phase 3
Trial”) did not meet its primary endpoint of a statistically
significant increase in median overall survival. Following
evaluation of the detailed trial data, on March 18, 2010, the
Company announced that the secondary endpoints had also not been
met in the Phase 3 Trial and that it had discontinued development
of NOV-002 for NSCLC in combination with first-line paclitaxel and
carboplatin chemotherapy.
These
financial statements have been prepared on the basis that the
Company will continue as a going concern. The Company has generated
insignificant revenues and has incurred operating losses since
inception in devoting substantially all of its efforts toward
research and development. The Company expects that it will continue
to generate operating losses for the foreseeable future. The
Company believes that its cash on hand at December 31, 2010, plus
the proceeds from the private placement completed in connection
with the Acquisition, is adequate to fund operations into the
fourth quarter of 2011. The Company’s ability to execute its
operating plan beyond the fourth quarter of 2011 depends on its
ability to obtain additional funding via the sale of equity and/or
debt securities, a strategic transaction or otherwise. The Company
plans to continue to actively pursue financing alternatives, but
there can be no assurance that it will obtain the necessary
funding.
|