x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended: March 31,
2009
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________ to
______________
|
DELAWARE
|
04-3321804
|
|
(State or other jurisdiction of
incorporation or
organization)
|
(IRS
Employer
Identification
No.)
|
Large
accelerated filer
|
o |
Accelerated
filer
|
o | ||
Non-accelerated
filer
|
o |
Smaller
reporting company
|
x | ||
(Do not check if a smaller reporting company) |
PART I. FINANCIAL
INFORMATION
|
||
Item 1.
|
Financial
Statements
|
3
|
Item 2.
|
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
|
14
|
Item 4.
|
Controls and
Procedures
|
17
|
PART II. OTHER
INFORMATION
|
||
Item 1.
|
Legal
Proceedings
|
18
|
Item 1A.
|
Risk
Factors
|
18
|
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
|
20
|
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and equivalents
|
$ | 6,974,412 | $ | 1,262,452 | ||||
Prepaid
expenses and other current assets
|
88,495 | 129,785 | ||||||
Total
current assets
|
7,062,907 | 1,392,237 | ||||||
FIXED
ASSETS, NET
|
52,220 | 58,451 | ||||||
DEPOSITS
|
15,350 | 15,350 | ||||||
TOTAL
ASSETS
|
$ | 7,130,477 | $ | 1,466,038 | ||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 3,393,512 | $ | 4,653,912 | ||||
Accrued
compensation
|
68,258 | 240,639 | ||||||
Accrued
dividends
|
860,362 | 1,689,322 | ||||||
Derivative
liability
|
586,824 | — | ||||||
Deferred
revenue – current
|
33,333 | 33,333 | ||||||
Total
current liabilities
|
4,942,289 | 6,617,206 | ||||||
DEFERRED
REVENUE – NONCURRENT
|
425,000 | 433,333 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
REDEEMABLE
PREFERRED STOCK:
|
||||||||
Series
D convertible preferred stock, $0.00001 par value; 420 shares designated;
413.5 shares issued and outstanding at December 31, 2008
|
— | 13,904,100 | ||||||
Series
E convertible preferred stock, $0.00001 par value; 735
shares designated; 645.442875 shares issued and
outstanding at March 31, 2009 (Note 5) (liquidation preference $32,675,546
at March 31, 2009)
|
21,672,675 | — | ||||||
|
21,672,675 | 13,904,100 | ||||||
STOCKHOLDERS’
DEFICIENCY:
|
||||||||
Preferred
stock, $0.00001 par value; 7,000 shares authorized:
|
||||||||
Series
C cumulative convertible preferred stock; 272 shares issued and
outstanding at March 31, 2009 and December 31, 2008 (liquidation
preference $3,720,960 at March 31, 2009)
|
— | — | ||||||
Common
stock, $0.00001 par value; 150,000,000 shares authorized; 43,975,656
shares issued and outstanding at March 31, 2009 and December 31,
2008
|
440 | 440 | ||||||
Additional
paid-in capital
|
35,702,300 | 40,204,112 | ||||||
Accumulated
deficit
|
(55,612,227 | ) | (59,693,153 | ) | ||||
Total
stockholders’ deficiency
|
(19,909,487 | ) | (19,488,601 | ) | ||||
TOTAL
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’
DEFICIENCY
|
$ | 7,130,477 | $ | 1,466,038 |
Three
Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
REVENUE
|
$ | 30,968 | $ | 8,333 | ||||
COSTS
AND EXPENSES:
|
||||||||
Research
and development
|
1,783,832 | 6,911,925 | ||||||
General
and administrative
|
476,197 | 263,075 | ||||||
Total
costs and expenses
|
2,260,029 | 7,175,000 | ||||||
LOSS
FROM OPERATIONS
|
(2,229,061 | ) | (7,166,667 | ) | ||||
OTHER
INCOME:
|
||||||||
Interest
income
|
1,013 | 63,321 | ||||||
Gain
on derivatives
|
412,120 | — | ||||||
Miscellaneous
|
2,483 | 2,249 | ||||||
Total
other income
|
415,616 | 65,570 | ||||||
NET
LOSS
|
(1,813,445 | ) | (7,101,097 | ) | ||||
PREFERRED
STOCK DIVIDENDS
|
(768,183 | ) | (402,780 | ) | ||||
PREFERRED
STOCK DEEMED DIVIDENDS
|
(714,031 | ) | — | |||||
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ | (3,295,659 | ) | $ | (7,503,877 | ) | ||
BASIC
AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE
|
$ | (0.07 | ) | $ | (0.19 | ) | ||
SHARES
USED IN COMPUTING BASIC AND DILUTED
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS PER COMMON SHARE
|
43,975,656 | 39,342,494 |
Three
Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (1,813,445 | ) | $ | (7,101,097 | ) | ||
Adjustments
to reconcile net loss to cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
6,231 | 3,491 | ||||||
Stock-based
compensation
|
126,587 | 87,689 | ||||||
Gain
on derivatives
|
(412,120 | ) | — | |||||
Change
in:
|
||||||||
Prepaid
expenses and other current assets
|
41,290 | 33,533 | ||||||
Accounts
payable and accrued liabilities
|
(1,260,400 | ) | 2,173,202 | |||||
Accrued
compensation
|
(172,381 | ) | (45,172 | ) | ||||
Deferred
revenue
|
(8,333 | ) | 491,667 | |||||
Cash
used in operating activities
|
(3,492,571 | ) | (4,356,687 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of fixed assets
|
— | (12,271 | ) | |||||
Change
in restricted cash
|
— | 1,184,702 | ||||||
Deferred
financing costs
|
— | (57,213 | ) | |||||
Cash
provided by investing activities
|
— | 1,115,218 | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from the sale of preferred stock and warrants, net
|
9,204,531 | — | ||||||
Proceeds
from exercise of stock option
|
— | 1,000 | ||||||
Cash
provided by financing activities
|
9,204,531 | 1,000 | ||||||
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
5,711,960 | (3,240,469 | ) | |||||
CASH
AND EQUIVALENTS AT BEGINNING OF YEAR
|
1,262,452 | 9,741,518 | ||||||
CASH
AND EQUIVALENTS AT END OF PERIOD
|
$ | 6,974,412 | $ | 6,501,049 | ||||
SUPPLEMENTAL
DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
|
||||||||
Deemed
dividends to preferred stockholders
|
$ | 714,031 | $ | — | ||||
Dividends
paid to preferred stockholders in shares of Series E preferred
stock
|
$ | 1,597,144 | $ | — | ||||
Dividends
accrued but not paid to preferred stockholders
|
$ | 566,602 | $ | 402,780 | ||||
Relative
fair value of warrants to preferred stockholders
|
$ | 2,907,208 | $ | — | ||||
Exchange
of Series D preferred stock for Series E preferred stock
|
$ | 13,904,100 | $ | — |
1.
|
NATURE
OF BUSINESS, BASIS OF PRESENTATION
|
2.
|
CHANGE
IN ACCOUNTING PRINCIPLE
|
3.
|
FAIR
VALUES OF ASSETS AND LIABILITIES
|
|
·
|
Level
1: Input prices quoted in an active market for identical financial assets
or liabilities.
|
|
·
|
Level
2: Inputs other than prices quoted in Level 1, such as prices quoted for
similar financial assets and liabilities in active markets, prices for
identical assets and liabilities in markets that are not active or other
inputs that are observable or can be corroborated by observable market
data.
|
|
·
|
Level
3: Input prices quoted that are significant to the fair value of the
financial assets or liabilities which are not observable nor supported by
an active market.
|
March
31, 2009
|
||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Fair
Value
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Warrants
|
$ | - | $ | 587,000 | $ | - | $ | 587,000 |
4.
|
COLLABORATION
AGREEMENTS
|
5.
|
STOCKHOLDERS’
DEFICIENCY
|
Offering
|
Outstanding
(as adjusted)
|
Exercise
Price
(as adjusted)
|
Expiration Date
|
||||||
2005
Bridge Loans
|
720,000 | $ | 0.625 |
April
1, 2010
|
|||||
2005
PIPE - Placement agents and finders
|
1,046,143 | $ | 0.65 |
August
9, 2010
|
|||||
Series
A Preferred:
|
|||||||||
Investors
– September 30, 2005 closing
|
909,090 | $ | 0.65 |
September
30, 2010
|
|||||
Investors
– October 3, 2005 closing
|
60,606 | $ | 0.65 |
October
3, 2010
|
|||||
2006
PIPE – Investors and placement agents
|
12,379,848 | $ | 1.82 |
March
7, 2011
|
|||||
Series
B Preferred:
|
|||||||||
Investors
|
7,500,000 | $ | 0.65 |
December
31, 2015
|
|||||
Placement
agents
|
900,000 | $ | 1.25 |
May
2, 2012
|
|||||
Series
C Exchange
|
1,333,333 | $ | 1.25 |
May
2, 2012
|
|||||
Series
D Preferred
|
4,365,381 | $ | 0.65 |
December
31, 2015
|
|||||
Series
E Preferred
|
9,230,769 | $ | 0.65 |
December
31, 2015
|
|||||
Total
|
38,445,170 |
6.
|
STOCK-BASED
COMPENSATION
|
Three months
ended
March 31,
|
||||||||
2009
|
2008
|
|||||||
Employee and director stock option
grants:
|
||||||||
Research
and development
|
$ | 36,260 | $ | 28,330 | ||||
General
and administrative
|
82,015 | 58,887 | ||||||
118,275 | 87,217 | |||||||
Non-employee consultants stock
option grants and restricted stock
awards:
|
||||||||
Research
and development
|
3,329 | 70 | ||||||
General
and administrative
|
4,983 | 402 | ||||||
8,312 | 472 | |||||||
Total stock-based
compensation
|
$ | 126,587 | $ | 87,689 |
Three months
ended
March 31,
|
||||||||
2008
|
||||||||
Volatility
|
80 | % | ||||||
Weighted-average
volatility
|
80 | % | ||||||
Risk-free interest
rate
|
3.28 | % | ||||||
Expected life
(years)
|
5 | |||||||
Dividend
|
0 | |||||||
Weighted-average exercise
price
|
$ | 0.60 | ||||||
Weighted-average grant-date fair
value
|
$ | 0.40 |
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contracted
Term in
Years
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding at December 31,
2008
|
7,279,825 | $ | 0.60 | 7.9 | $ | 989,718 | ||||||||||
Options
granted
|
— | |||||||||||||||
Outstanding at March 31,
2009
|
7,279,825 | $ | 0.60 | 7.6 | $ | 713,648 | ||||||||||
Exercisable at March 31,
2009
|
4,371,481 | $ | 0.68 | 6.4 | $ | 713,648 |
7.
|
NET
LOSS PER SHARE
|
Three Months Ended March
31,
|
||||||||
2009
|
2008
|
|||||||
Stock
options
|
7,279,825 | 5,082,651 | ||||||
Warrants
|
38,445,170 | 26,873,047 | ||||||
Conversion of preferred
stock
|
54,670,982 | 18,264,000 |
8.
|
INCOME
TAXES
|
·
|
selling
or otherwise disposing of all or substantially all of our assets (and in
the case of licensing, any material intellectual property) or entering
into a merger or consolidation with another company unless we are the
surviving corporation, the Series E Preferred Stock remains outstanding
and there are no changes to the rights and preferences of the Series E
Preferred Stock;
|
·
|
redeeming
or repurchasing any capital stock other than Series E Preferred Stock;
or
|
·
|
incurring
any new debt for borrowed money in excess of
$500,000.
|
Incorporated by
Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed with this Form
10-Q
|
Form
|
Filing Date
|
Exhibit
No.
|
|||||
2.1
|
Agreement and plan of merger among
Common Horizons, Inc., Nove Acquisition, Inc. and Novelos Therapeutics,
Inc. dated May 26, 2005
|
8-K
|
June 2,
2005
|
99.2
|
||||||
2.2
|
Agreement and plan of merger
between Common Horizons and Novelos Therapeutics, Inc. dated June 7,
2005
|
10-QSB
|
August 15,
2005
|
2.2
|
||||||
3.1
|
Amended and Restated Certificate
of Incorporation filed as Exhibit A to the Certificate of Merger merging
Nove Acquisition, Inc. with and into Novelos Therapeutics, Inc. dated May
26, 2005
|
10-QSB
|
August 10,
2007
|
3.1
|
||||||
3.2
|
Certificate of Merger merging
Common Horizons, Inc. with and into Novelos Therapeutics, Inc. dated June
13, 2005
|
10-QSB
|
August 10,
2007
|
3.2
|
||||||
3.3
|
Certificate of Correction dated
March 3, 2006
|
10-QSB
|
August 10,
2007
|
3.3
|
||||||
3.4
|
Certificate of Amendment to
Amended and Restated Certificate of Incorporation dated July 16,
2007
|
10-QSB
|
August 10,
2007
|
3.4
|
||||||
3.5
|
Certificate of Designations of
Series C cumulative convertible preferred
stock
|
10-QSB
|
August 10,
2007
|
3.6
|
||||||
3.6
|
Certificate of Designations of
Series E convertible preferred stock
|
8-K
|
February 18,
2009
|
4.1
|
||||||
3.7
|
By-Laws
|
8-K
|
June 17,
2005
|
2
|
||||||
10.1
|
Securities
Purchase Agreement dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.1
|
||||||
10.2
|
Registration
Rights Agreement dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.2
|
||||||
10.3
|
Series
D Preferred Stock Consent and Agreement to Exchange dated February 10,
2009
|
8-K
|
February
18, 2009
|
10.3
|
||||||
10.4
|
Warrant
Amendment Agreements dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.4
|
||||||
10.5
|
Amendment
No. 2 to Registration Rights Agreement dated February 11,
2009
|
8-K
|
February
18, 2009
|
10.5
|
||||||
10.6
|
Collaboration
Agreement dated February 11, 2009
|
10-K
|
March
30, 2009
|
10.39
|
||||||
31.1
|
Certification of the chief
executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
X
|
||||||||
31.2
|
Certification of the chief
financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
X
|
||||||||
32.1
|
Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
X
|
NOVELOS THERAPEUTICS, INC. | |||
Date: May 15,
2009
|
By: |
/s/ Harry S.
Palmin
|
|
Harry S. Palmin | |||
President and Chief Executive Officer |
Incorporated by
Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed with this Form
10-Q
|
Form
|
Filing Date
|
Exhibit
No.
|
|||||
2.1
|
Agreement and plan of merger among
Common Horizons, Inc., Nove Acquisition, Inc. and Novelos Therapeutics,
Inc. dated May 26, 2005
|
8-K
|
June 2,
2005
|
99.2
|
||||||
2.2
|
Agreement and plan of merger
between Common Horizons and Novelos Therapeutics, Inc. dated June 7,
2005
|
10-QSB
|
August 15,
2005
|
2.2
|
||||||
3.1
|
Amended and Restated Certificate
of Incorporation filed as Exhibit A to the Certificate of Merger merging
Nove Acquisition, Inc. with and into Novelos Therapeutics, Inc. dated May
26, 2005
|
10-QSB
|
August 10,
2007
|
3.1
|
||||||
3.2
|
Certificate of Merger merging
Common Horizons, Inc. with and into Novelos Therapeutics, Inc. dated June
13, 2005
|
10-QSB
|
August 10,
2007
|
3.2
|
||||||
3.3
|
Certificate of Correction dated
March 3, 2006
|
10-QSB
|
August 10,
2007
|
3.3
|
||||||
3.4
|
Certificate of Amendment to
Amended and Restated Certificate of Incorporation dated July 16,
2007
|
10-QSB
|
August 10,
2007
|
3.4
|
||||||
3.5
|
Certificate of Designations of
Series C cumulative convertible preferred
stock
|
10-QSB
|
August 10,
2007
|
3.6
|
||||||
3.6
|
Certificate of Designations of
Series E convertible preferred stock
|
8-K
|
February 18,
2009
|
4.1
|
||||||
3.7
|
By-Laws
|
8-K
|
June 17,
2005
|
2
|
||||||
10.1
|
Securities
Purchase Agreement dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.1
|
||||||
10.2
|
Registration
Rights Agreement dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.2
|
||||||
10.3
|
Series
D Preferred Stock Consent and Agreement to Exchange dated February 10,
2009
|
8-K
|
February
18, 2009
|
10.3
|
||||||
10.4
|
Warrant
Amendment Agreements dated February 11, 2009
|
8-K
|
February
18, 2009
|
10.4
|
||||||
10.5
|
Amendment
No. 2 to Registration Rights Agreement dated February 11,
2009
|
8-K
|
February
18, 2009
|
10.5
|
||||||
10.6
|
Collaboration
Agreement dated February 11, 2009
|
10-K
|
March
30, 2009
|
10.39
|
||||||
31.1
|
Certification of the chief
executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
X
|
||||||||
31.2
|
Certification of the chief
financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
X
|
||||||||
32.1
|
Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
X
|