|
[mark
one]
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended: September 30,
2010
|
o
|
TRANSITION
REPORT PURSUANT TO 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.)
|
PART
I. FINANCIAL INFORMATION
|
|||||
Item
1.
|
Financial
Statements
|
3 | |||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15 | |||
Item
4.
|
Controls
and Procedures
|
18 | |||
PART
II. OTHER INFORMATION
|
|||||
Item
1.
|
Legal
Proceedings
|
19 | |||
Item
1A.
|
Risk
Factors
|
19 | |||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20 | |||
Item
3.
|
Defaults
Upon Senior Securities
|
20 | |||
Item
5.
|
Other
Information
|
20 | |||
Item
6.
|
Exhibits
|
21 |
September
30,
|
||||||||
2010
(unaudited)
|
December
31,
2009
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and equivalents
|
$
|
3,365,741
|
$
|
8,769,529
|
||||
Prepaid
expenses and other current assets
|
99,771
|
102,923
|
||||||
Total
current assets
|
3,465,512
|
8,872,452
|
||||||
FIXED
ASSETS, NET
|
11,222
|
44,097
|
||||||
DEPOSITS
|
15,350
|
15,350
|
||||||
TOTAL
ASSETS
|
$
|
3,492,084
|
$
|
8,931,899
|
||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued liabilities
|
$
|
770,748
|
$
|
3,299,217
|
||||
Accrued
compensation
|
146,790
|
245,711
|
||||||
Accrued
liquidated damages (see Note 4)
|
819,000
|
—
|
||||||
Accrued
dividends
|
4,088,067
|
2,902,963
|
||||||
Derivative
liability (see Note 2)
|
507,126
|
10,486,594
|
||||||
Deferred
revenue – current
|
33,333
|
33,333
|
||||||
Total
current liabilities
|
6,365,064
|
16,967,818
|
||||||
DEFERRED
REVENUE – NONCURRENT
|
375,000
|
400,000
|
||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
REDEEMABLE
PREFERRED STOCK:
|
||||||||
Series
E convertible preferred stock, $0.00001 par value; 735 shares designated;
408.264045 and 548.26078125 shares issued and outstanding at September 30,
2010 and December 31, 2009, respectively (liquidation preference
$23,424,150 at September 30, 2010)
|
13,770,026
|
18,459,619
|
||||||
STOCKHOLDERS’
DEFICIENCY:
|
||||||||
Preferred
Stock, $0.00001 par value; 7,000 shares authorized: Series C cumulative
convertible preferred stock; 272 shares designated; 204 shares issued and
outstanding at September 30, 2010 and December 31, 2009 (liquidation
preference $3,525,120 at September 30, 2010)
|
—
|
—
|
||||||
Common
stock, $0.00001 par value; 225,000,000 shares
authorized; 111,931,182 and 69,658,002 shares issued and
outstanding at September 30, 2010 and December 31, 2009,
respectively
|
1,119
|
697
|
||||||
Additional
paid-in capital
|
56,359,557
|
49,175,853
|
||||||
Accumulated
deficit
|
(73,378,682
|
)
|
(76,072,088
|
)
|
||||
Total
stockholders’ deficiency
|
(17,018,006
|
)
|
(26,895,538
|
)
|
||||
TOTAL
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’
DEFICIENCY
|
$
|
3,492,084
|
$
|
8,931,899
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
REVENUE
|
$ | 8,333 | $ | 13,702 | $ | 25,000 | $ | 76,983 | ||||||||
COSTS
AND EXPENSES:
|
||||||||||||||||
Research
and development
|
374,822 | 1,765,664 | 2,482,728 | 5,137,955 | ||||||||||||
General
and administrative
|
542,544 | 545,883 | 1,930,464 | 1,528,826 | ||||||||||||
Total
costs and expenses
|
917,366 | 2,311,547 | 4,413,192 | 6,666,781 | ||||||||||||
LOSS
FROM OPERATIONS
|
(909,033 | ) | (2,297,845 | ) | (4,388,192 | ) | (6,589,798 | ) | ||||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
Interest
income
|
1,300 | — | 1,300 | 1,012 | ||||||||||||
Gain
(loss) on derivatives
|
(2,860 | ) | (446,685 | ) | 7,899,298 | (2,830,274 | ) | |||||||||
Liquidated
damages (see Note 4)
|
(315,000 | ) | — | (819,000 | ) | — | ||||||||||
Miscellaneous
|
— | 1,500 | — | 6,233 | ||||||||||||
Total
other income (expense)
|
(316,560 | ) | (445,185 | ) | 7,081,598 | (2,823,029 | ) | |||||||||
NET
INCOME (LOSS)
|
(1,225,593 | ) | (2,743,030 | ) | 2,693,406 | (9,412,827 | ) | |||||||||
PREFERRED
STOCK DIVIDENDS
|
(581,697 | ) | (842,996 | ) | (1,820,029 | ) | (2,495,902 | ) | ||||||||
PREFERRED
STOCK DEEMED DIVIDENDS
|
(586,050 | ) | — | (586,050 | ) | (714,031 | ) | |||||||||
NET
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ | (2,393,340 | ) | $ | (3,586,026 | ) | $ | 287,327 | $ | (12,622,760 | ) | |||||
BASIC
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE
|
$ | (0.02 | ) | $ | (0.07 | ) | $ | 0.00 | $ | (0.27 | ) | |||||
SHARES
USED IN COMPUTING BASIC NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON
STOCKHOLDERS PER COMMON SHARE
|
105,642,361 | 49,653,675 | 92,109,358 | 45,944,799 | ||||||||||||
DILUTED
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE
|
$ | (0.02 | ) | $ | (0.07 | ) | $ | 0.00 | $ | (0.27 | ) | |||||
SHARES
USED IN COMPUTING DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS PER COMMON SHARE
|
105,642,361 | 49,653,675 | 95,193,685 | 45,944,799 |
Nine
months ended
September
30,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income (loss)
|
$ | 2,693,406 | $ | (9,412,827 | ) | |||
Adjustments
to reconcile net income (loss) to cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
32,875 | 22,423 | ||||||
Stock-based
compensation
|
191,762 | 503,161 | ||||||
(Gain)
loss on derivative warrants
|
(7,899,298 | ) | 2,830,274 | |||||
Changes
in:
|
||||||||
Prepaid
expenses and other current assets
|
3,152 | (230,184 | ) | |||||
Accounts
payable and accrued liabilities
|
(2,528,469 | ) | (1,965,443 | ) | ||||
Accrued
compensation
|
(98,921 | ) | (53,375 | ) | ||||
Accrued
liquidated damages
|
819,000 | — | ||||||
Deferred
revenue
|
(25,000 | ) | (24,999 | ) | ||||
Cash
used in operating activities
|
(6,811,493 | ) | (8,330,970 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of fixed assets
|
— | (18,000 | ) | |||||
Cash
used in financing activities
|
— | (18,000 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from issuance of common stock, net
|
1,249,138 | 3,449,101 | ||||||
Proceeds
from issuance of Series E convertible preferred stock and warrants,
net
|
— | 9,204,531 | ||||||
Proceeds
from exercise of stock options
|
158,567 | — | ||||||
Cash
provided by financing activities
|
1,407,705 | 12,653,632 | ||||||
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
(5,403,788 | ) | 4,304,662 | |||||
CASH
AND EQUIVALENTS AT BEGINNING OF PERIOD
|
8,769,529 | 1,262,452 | ||||||
CASH
AND EQUIVALENTS AT END OF PERIOD
|
$ | 3,365,741 | $ | 5,567,114 | ||||
SUPPLEMENTAL
DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
|
||||||||
Dividends
accumulated on shares of Series E preferred stock exchanged or converted
into shares of common stock
|
$ | 634,925 | $ | 1,773,666 | ||||
Fair
value of derivative warrants upon adoption of new accounting
principle
|
$ | — | $ | 998,945 | ||||
Fair
value of derivative warrants reclassified to additional paid-in capital
upon cashless exercise or exchange
|
$ | 2,584,397 | $ | 1,741,043 | ||||
Carrying
value of redeemable preferred stock converted into common
stock
|
$ | 4,689,593 | $ | 1,290,865 | ||||
Exchange
of Series D for Series E preferred stock
|
$ | — | $ | 13,904,100 | ||||
Relative
fair value of warrants issued to stockholders in financing
transactions
|
$ | 504,227 | $ | 3,659,692 | ||||
Fair
value of warrants issued to preferred stockholders in exchange for their
consent
|
$ | 586,050 | $ | — |
|
·
|
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, 2010
|
||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Fair
Value
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Warrants
|
$ | - | $ | 507,126 | $ | - | $ | 507,126 |
December
31, 2009
|
||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Fair
Value
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Warrants
|
$ | - | $ | 10,486,594 | $ | - | $ | 10,486,594 |
Offering
|
Outstanding
(as adjusted)
|
Exercise
Price
(as adjusted)
|
Expiration Date
|
||||||
2006
Issuance of Common Stock
|
5,136,191
|
$
|
1.53
|
March
7, 2011
|
|||||
Series
B Preferred Stock – placement agents
|
825,000
|
$
|
1.25
|
May
2, 2012
|
|||||
Series
C Exchange
|
1,250,000
|
$
|
1.25
|
May
2, 2012
|
|||||
Series
E Preferred Stock
|
9,230,769
|
$
|
0.65
|
December
31, 2015
|
|||||
August
2009 Private Placement
|
4,772,730
|
$
|
0.66
|
December
31, 2015
|
|||||
July
2010 Direct Offering
|
16,071,434
|
$
|
0.07
|
July
27, 2015
|
|||||
Preferred
Incentive Warrants
|
16,071,434
|
$
|
0.105
|
July
27, 2015
|
|||||
Total
|
53,357,558
|
Original
private placement
|
Shares
of Common Stock Issued
|
Warrants
Exercised
|
Exercise
Price
|
|||||||
2005
Bridge Financing
|
314,982
|
400,000
|
$
|
0.625
|
||||||
2005
Issuance of Common Stock – placement agents
|
226,544
|
317,350
|
$
|
0.65
|
||||||
2006
Issuance of Common Stock
|
366,492
|
991,516
|
$
|
1.72
|
||||||
Series
B Preferred Stock – purchasers
|
4,545,447
|
7,500,000
|
$
|
0.65
|
||||||
Series
B Preferred Stock – placement agents
|
35,106
|
75,000
|
$
|
1.25
|
||||||
Series
D Preferred Stock
|
2,645,685
|
4,365,381
|
$
|
0.65
|
||||||
Series
C Exchange
|
47,902
|
83,333
|
$
|
1.25
|
||||||
Total
|
8,182,158
|
13,732,580
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Employee
and director stock option grants:
|
||||||||||||||||
Research
and development
|
$ | 58,198 | $ | 34,953 | $ | 172,789 | $ | 106,500 | ||||||||
General
and administrative
|
92,448 | 62,130 | 267,290 | 219,449 | ||||||||||||
150,646 | 97,083 | 440,079 | 325,949 | |||||||||||||
Non-employee
consultant stock option grants:
|
||||||||||||||||
Research
and development
|
(4,729 | ) | 32,825 | (220,370 | ) | 111,658 | ||||||||||
General
and administrative
|
(645 | ) | 13,163 | (27,947 | ) | 65,554 | ||||||||||
(5,374 | ) | 45,988 | (248,317 | ) | 177,212 | |||||||||||
Total
stock-based compensation
|
$ | 145,272 | $ | 143,071 | $ | 191,762 | $ | 503,161 |
Options
Outstanding
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contracted
Term in
Years
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding
at January 1, 2010
|
9,219,825
|
$
|
0.63
|
7.5
|
$
|
17,650,255
|
||||||||||
Options
exercised
|
(916,667
|
)
|
$
|
0.17
|
||||||||||||
Options
cancelled
|
(171,426
|
)
|
$
|
1.99
|
||||||||||||
Outstanding
at September 30, 2010
|
8,131,732
|
$
|
0.65
|
7.2
|
$
|
49,684
|
||||||||||
Exercisable
at September 30, 2010
|
5,390,039
|
$
|
0.68
|
6.5
|
$
|
49,684
|
Numerator:
|
||||
Net
income available to common stockholders used in basic earnings per share
calculation
|
$ |
287,327
|
||
Derivative
gain recorded on dilutive warrants
|
(24,040
|
)
|
||
Net
income available to common stockholders used in diluted earnings per share
calculation
|
$ |
263,287
|
||
Denominator:
|
||||
Weighted
average shares of common stock used in the computation of basic earnings
per share
|
92,109,358
|
|||
Dilutive
effect of stock options
|
1,391,653
|
|||
Dilutive
effect of warrants to purchase common stock
|
1,692,674
|
|||
Shares
used in computation of diluted earnings per share
|
95,193,685
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Stock
options
|
8,131,732 | 7,279,825 | 3,984,721 | 7,279,825 | ||||||||||||
Warrants
|
53,357,558 | 33,197,725 | 53,357,558 | 33,197,725 | ||||||||||||
Conversion
of preferred stock
|
41,460,413 | 53,589,726 | 41,460.413 | 53,589,726 |
Filed
with
|
Incorporated
by Reference
|
|||||||||
Exhibit
No.
|
Description
|
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
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation dated
November 3, 2009
|
10-Q
|
November
16, 2009
|
3.7
|
||||||
3.8
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation dated
October 18, 2010
|
8-K
|
October
19, 2010
|
3.1
|
||||||
3.9
|
Amended
and Restated By-Laws
|
8-K
|
August
26, 2009
|
3.1
|
||||||
10.1
|
Written
Consent and Waiver of Holders of Series C Convertible Preferred Stock and
Series E Convertible Preferred Stock dated July 7, 2010
|
S-1
|
July
7, 2010
|
10.52
|
||||||
10.2
|
Form
of Securities Purchase Agreement dated July 21, 2010
|
8-K
|
July
22, 2010
|
10.1
|
||||||
10.3
|
Amendment
to Consent and Waiver of Holders of Series C Convertible Preferred Stock
and Series E Convertible Preferred Stock dated July 21,
2010
|
8-K
|
July
22, 2010
|
10.2
|
||||||
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
19, 2010
|
By:
|
/s/ Harry S. Palmin | |
Harry S. Palmin | |||
President and Chief Executive Officer |
Filed
with
|
Incorporated
by Reference
|
|||||||||
Exhibit
No.
|
Description
|
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
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation dated
November 3, 2009
|
10-Q
|
November
16, 2009
|
3.7
|
||||||
3.8
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation dated
October 18, 2010
|
8-K
|
October
19, 2010
|
3.1
|
||||||
3.9
|
Amended
and Restated By-Laws
|
8-K
|
August
26, 2009
|
3.1
|
||||||
10.1
|
Written
Consent and Waiver of Holders of Series C Convertible Preferred Stock and
Series E Convertible Preferred Stock dated July 7, 2010
|
S-1
|
July
7, 2010
|
10.52
|
||||||
10.2
|
Form
of Securities Purchase Agreement dated July 21, 2010
|
8-K
|
July
22, 2010
|
10.1
|
||||||
10.3
|
Amendment
to Consent and Waiver of Holders of Series C Convertible Preferred Stock
and Series E Convertible Preferred Stock dated July 21,
2010
|
8-K
|
July
22, 2010
|
10.2
|
||||||
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
|