x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended: September 30,
2009
|
¨
|
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
|
¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer
|
¨
|
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
|
17
|
Item
4.
|
Controls
and Procedures
|
21
|
PART
II. OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
22
|
Item
1A.
|
Risk
Factors
|
22
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
23
|
Item
3.
|
Defaults
Upon Senior Securities
|
24
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
24
|
Item
5.
|
Other
Information
|
24
|
Item
6.
|
Exhibits
|
25
|
Item
1.
|
Financial
Statements
|
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and equivalents
|
$ | 5,567,114 | $ | 1,262,452 | ||||
Prepaid
expenses and other current assets
|
359,969 | 129,785 | ||||||
Total
current assets
|
5,927,083 | 1,392,237 | ||||||
FIXED
ASSETS, NET
|
54,028 | 58,451 | ||||||
DEPOSITS
|
15,350 | 15,350 | ||||||
TOTAL
ASSETS
|
$ | 5,996,461 | $ | 1,466,038 | ||||
LIABILITIES,
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIENCY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 2,688,469 | $ | 4,653,912 | ||||
Accrued
compensation
|
187,264 | 240,639 | ||||||
Accrued
dividends
|
2,411,558 | 1,689,322 | ||||||
Derivative
liability
|
2,088,176 | — | ||||||
Deferred
revenue – current
|
33,333 | 33,333 | ||||||
Total
current liabilities
|
7,408,800 | 6,617,206 | ||||||
DEFERRED
REVENUE – NONCURRENT
|
408,334 | 433,333 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
REDEEMABLE
PREFERRED STOCK:
|
||||||||
Series
D convertible preferred stock, $0.00001 par value; 420 shares designated;
no shares and 413.5 shares issued and outstanding at September 30, 2009
and December 31, 2008, respectively
|
— | 13,904,100 | ||||||
Series
E convertible preferred stock, $0.00001 par value; 735
shares designated; 606.399338125 shares and no shares
issued and outstanding at September 30, 2009 and December 31, 2008,
respectively (Note 5) (liquidation preference $32,063,367 at September 30,
2009)
|
20,381,810 | — | ||||||
20,381,810 | 13,904,100 | |||||||
STOCKHOLDERS’
DEFICIENCY:
|
||||||||
Preferred
stock, $0.00001 par value; 7,000 shares authorized:
|
||||||||
Series
C cumulative convertible preferred stock; 232 shares issued and
outstanding at September 30, 2009 and 272 shares issued and outstanding at
December 31, 2008 (liquidation preference $3,452,160 at September 30,
2009)
|
— | — | ||||||
Common
stock, $0.00001 par value; 150,000,000 shares authorized; 55,455,394
shares issued and outstanding at September 30, 2009 and 43,975,656 shares
issued and outstanding at December 31, 2008
|
555 | 440 | ||||||
Additional
paid-in capital
|
41,008,571 | 40,204,112 | ||||||
Accumulated
deficit
|
(63,211,609 | ) | (59,693,153 | ) | ||||
Total
stockholders’ deficiency
|
(22,202,483 | ) | (19,488,601 | ) | ||||
TOTAL
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’
DEFICIENCY
|
$ | 5,996,461 | $ | 1,466,038 |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
REVENUE
|
$ | 13,702 | $ | 35,513 | $ | 76,983 | $ | 89,523 | ||||||||
COSTS
AND EXPENSES:
|
||||||||||||||||
Research
and development
|
1,765,664 | 1,971,501 | 5,137,955 | 12,929,184 | ||||||||||||
General
and administrative
|
545,883 | 622,347 | 1,528,826 | 1,602,120 | ||||||||||||
Total
costs and expenses
|
2,311,547 | 2,593,848 | 6,666,781 | 14,531,304 | ||||||||||||
LOSS
FROM OPERATIONS
|
(2,297,845 | ) | (2,558,335 | ) | (6,589,798 | ) | (14,441,781 | ) | ||||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
Interest
income
|
— | 21,344 | 1,012 | 122,556 | ||||||||||||
Loss
on derivatives (Notes 1 and 2)
|
(446,685 | ) | — | (2,830,274 | ) | — | ||||||||||
Miscellaneous
|
1,500 | 2,250 | 6,233 | 6,750 | ||||||||||||
Total
other income (expense)
|
(445,185 | ) | 23,594 | (2,823,029 | ) | 129,306 | ||||||||||
NET
LOSS
|
(2,743,030 | ) | (2,534,741 | ) | (9,412,827 | ) | (14,312,475 | ) | ||||||||
PREFERRED
STOCK DIVIDENDS
|
(842,996 | ) | (530,467 | ) | (2,495,90222 | ) | (1,463,715 | ) | ||||||||
PREFERRED
STOCK DEEMED DIVIDENDS
|
— | — | (714,031 | ) | (4,417,315 | ) | ||||||||||
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ | (3,586,026 | ) | $ | (3,065,208 | ) | $ | (12,622,760 | ) | $ | (20,193,505 | ) | ||||
BASIC
AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE
|
$ | (0.07 | ) | $ | (0.07 | ) | $ | (0.27 | ) | $ | (0.50 | ) | ||||
SHARES
USED IN COMPUTING BASIC AND DILUTED
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS PER COMMON SHARE
|
49,653,675 | 41,667,964 | 45,944,799 | 40,132,085 |
Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (9,412,827 | ) | $ | (14,312,475 | ) | ||
Adjustments
to reconcile net loss to cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
22,423 | 11,955 | ||||||
Loss
on disposal of fixed assets
|
— | 6,472 | ||||||
Stock-based
compensation
|
503,161 | 330,296 | ||||||
Loss
on derivatives
|
2,830,274 | — | ||||||
Changes
in:
|
||||||||
Prepaid
expenses and other current assets
|
(230,184 | ) | (62,934 | ) | ||||
Accounts
payable and accrued liabilities
|
(1,965,443 | ) | (751,979 | ) | ||||
Accrued
compensation
|
(53,375 | ) | (102,208 | ) | ||||
Deferred
revenue
|
(24,999 | ) | 475,000 | |||||
Cash
used in operating activities
|
(8,330,970 | ) | (14,405,873 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of fixed assets
|
(18,000 | ) | (31,003 | ) | ||||
Change
in restricted cash
|
— | 1,184,702 | ||||||
Cash
provided by (used in) investing activities
|
(18,000 | ) | 1,153,699 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from issuance of common stock, net
|
3,449,101 | 2,986,738 | ||||||
Proceeds
from the sale of preferred stock and warrants, net
|
9,204,531 | 5,469,672 | ||||||
Dividends
paid to preferred stockholders
|
— | (740,280 | ) | |||||
Proceeds
from exercise of stock option
|
— | 1,000 | ||||||
Cash
provided by financing activities
|
12,653,632 | 7,717,130 | ||||||
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
4,304,662 | (5,535,044 | ) | |||||
CASH
AND EQUIVALENTS AT BEGINNING OF YEAR
|
1,262,452 | 9,741,518 | ||||||
CASH
AND EQUIVALENTS AT END OF PERIOD
|
$ | 5,567,114 | $ | 4,206,474 | ||||
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Deemed
dividends on preferred stock
|
$ | 714,031 | $ | 4,417,315 | ||||
Dividends
accrued but not paid to preferred stockholders
|
$ | 2,294,321 | $ | 1,060,935 | ||||
Dividends
paid to preferred stockholders in shares of Series E preferred
stock
|
$ | 1,597,144 | $ | — | ||||
Relative
fair value of warrants issued to stockholders
|
$ | 3,659,692 | $ | 1,302,592 | ||||
Issuance
of common stock in exchange for tender of warrants
|
$ | 1,625,760 | $ | — | ||||
Reclassification
of derivative liability to paid-in capital upon cashless exercise of
warrants
|
$ | 115,283 | $ | — | ||||
Exchange
of Series B preferred stock for Series D preferred stock
|
$ | — | $ | 9,918,666 | ||||
Exchange
of Series D preferred stock for Series E preferred stock
|
$ | 13,904,100 | $ | — | ||||
Conversion
of Series E preferred stock and accumulated dividends into common
stock
|
$ | 2,039,130 | $ | — | ||||
Conversion
of Series C preferred stock and accumulated dividends into common
stock
|
$ | 569,566 | $ | — |
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 or supported by
an active market.
|
September 30, 2009
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Warrants
|
$ | - | $ | 2,088,000 | $ | - | $ | 2,088,000 |
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
|
762,810 | $ | 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
|
5,559,674 | $ | 1.78 |
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
|
|||||
August
2009 Private Placement
|
1,856,062 | $ | 0.66 |
December
31, 2015
|
|||||
Total
|
33,197,725 |
6.
|
STOCK-BASED
COMPENSATION
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Employee
and director stock option grants:
|
||||||||||||||||
Research
and development
|
$ | 34,953 | $ | 21,049 | $ | 106,500 | $ | 135,333 | ||||||||
General
and administrative
|
62,130 | 57,476 | 219,449 | 174,028 | ||||||||||||
97,083 | 78,525 | 325,949 | 309,361 | |||||||||||||
Non-employee
consultants stock option grants and restricted stock
awards:
|
||||||||||||||||
Research
and development
|
32,825 | (4,976 | ) | 111,658 | 4,339 | |||||||||||
General
and administrative
|
13,163 | (288 | ) | 65,554 | 16,596 | |||||||||||
45,988 | (5,264 | ) | 177,212 | 20,935 | ||||||||||||
Total
stock-based compensation
|
$ | 143,071 | $ | 73,261 | $ | 503,161 | $ | 330,296 |
Nine Months
Ended
September 30,
2008
|
||||
Volatility
|
80 | % | ||
Weighted-average
volatility
|
80 | % | ||
Risk-free
interest rate
|
3.14 | % | ||
Expected
life (years)
|
5 | |||
Dividend
|
0 | |||
Weighted-average
exercise price
|
$ | 0.60 | ||
Weighted-average
grant-date fair value
|
$ | 0.39 |
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 September 30, 2009
|
7,279,825 | $ | 0.60 | 7.1 | $ | 3,333,459 | ||||||||||
Exercisable
at September 30, 2009
|
4,692,732 | $ | 0.67 | 6.1 | $ | 2,213,727 |
7.
|
NET
LOSS PER SHARE
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Stock
options
|
7,279,825 | 5,154,825 | 7,279,825 | 5,154,825 | ||||||||||||
Warrants
|
33,197,725 | 28,102,033 | 33,197,725 | 28,102,033 | ||||||||||||
Conversion
of preferred stock
|
53,589,726 | 36,829,192 | 53,589,726 | 36,829,192 |
8.
|
INCOME
TAXES
|
9.
|
SUBSEQUENT
EVENTS
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Item
4.
|
Controls
and Procedures
|
Item
1.
|
Legal
Proceedings
|
Item
1A.
|
Risk
Factors
|
·
|
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
the related warrants; or
|
·
|
incurring
any new debt for borrowed money in excess of
$500,000.
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Item
3.
|
Defaults
Upon Senior Securities
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Item
5.
|
Other
Information
|
Item
6.
|
Exhibits
|
Filed
with
this
|
Incorporated by Reference
|
|||||||||
Exhibit
No.
|
Description
|
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
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation dated
November 3, 2009
|
X
|
||||||||
3.8
|
Amended
and Restated By-Laws
|
8-K
|
August
26, 2009
|
3.1
|
||||||
10.1
|
Form
of Warrant Exchange Agreement dated August 21, 2009
|
8-K
|
August
26, 2009
|
10.5
|
||||||
10.2
|
Securities
Purchase Agreement dated August 25, 2009
|
S-1
|
September
15, 2009
|
10.41
|
||||||
10.3
|
Registration
Rights Agreement dated August 25, 2009
|
S-1
|
September
15, 2009
|
10.42
|
||||||
10.4
|
Common
Stock Purchase Warrant dated August 25,2009
|
S-1
|
September
15, 2009
|
10.43
|
||||||
10.5
|
Letter
Agreement with LP Clover Limited dated August 25, 2009
|
S-1
|
September
15, 2009
|
10.44
|
||||||
10.6
|
Letter
Agreement with Mundipharma International Corporation Limited dated August
25, 2009
|
S-1
|
September
15, 2009
|
10.45
|
||||||
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: November
16, 2009
|
By:
|
/s/ Harry S. Palmin
|
Harry
S. Palmin
|
||
President
and Chief Executive
Officer
|
Filed
with
this
|
Incorporated
by Reference
|
|||||||||
Exhibit
No.
|
Description
|
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
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation dated
November 3, 2009
|
X
|
||||||||
3.8
|
Amended
and Restated By-Laws
|
8-K
|
August
26, 2009
|
3.1
|
||||||
10.1
|
Form
of Warrant Exchange Agreement dated August 21, 2009
|
8-K
|
August
26, 2009
|
10.5
|
||||||
10.2
|
Securities
Purchase Agreement dated August 25, 2009
|
S-1
|
September
15, 2009
|
10.41
|
||||||
10.3
|
Registration
Rights Agreement dated August 25, 2009
|
S-1
|
September
15, 2009
|
10.42
|
||||||
10.4
|
Common
Stock Purchase Warrant dated August 25,2009
|
S-1
|
September
15, 2009
|
10.43
|
||||||
10.5
|
Letter
Agreement with LP Clover Limited dated August 25, 2009
|
S-1
|
September
15, 2009
|
10.44
|
||||||
10.6
|
Letter
Agreement with Mundipharma International Corporation Limited dated August
25, 2009
|
S-1
|
September
15, 2009
|
10.45
|
||||||
31.1
|
Certification
of the chief executive officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
X
|
Filed
with
this
|
Incorporated
by Reference
|
|||||||||
Exhibit
No.
|
Description
|
Form
10-Q
|
Form
|
Filing Date
|
Exhibit
No.
|
|||||
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
|
|