e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008.
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to .
For the quarterly period ended March 31, 2008
Commission File Number: 000-23017
ECHO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
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Minnesota
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41-1649949 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number) |
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10 Forge Parkway, Franklin, MA
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02038 |
(Address of principal executive offices)
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(Zip code) |
(508) 553-8850
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
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 the definitions 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 þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of May 12, 2008, 18,510,581 shares of the registrants Common Stock. $0.01 par value, were
issued and outstanding.
PART IFINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
Echo Therapeutics, Inc.
(Formerly Sontra Medical Corporation)
Consolidated Balance Sheets
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As of, |
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March 31, |
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December 31, |
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2008 |
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2007 |
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(unaudited) |
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(audited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
1,177,058 |
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$ |
1,193,163 |
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Prepaid expenses and other current assets |
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96,914 |
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25,263 |
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Total current assets |
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1,273,972 |
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1,218,426 |
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Property and Equipment, at cost: |
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Computer equipment |
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239,546 |
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233,946 |
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Office and laboratory equipment |
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588,498 |
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588,498 |
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Furniture and fixtures |
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14,288 |
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14,288 |
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Manufacturing equipment |
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197,888 |
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197,888 |
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Leasehold improvements |
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177,768 |
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177,768 |
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1,217,988 |
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1,212,388 |
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Less-Accumulated depreciation and amortization |
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(1,128,206 |
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(1,100,507 |
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Net property and equipment |
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89,782 |
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111,881 |
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Other Assets: |
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Restricted cash |
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10,250 |
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10,250 |
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Intangible assets, net of accumulated amortization |
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9,915,903 |
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9,945,486 |
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Deferred financing costs, net |
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593,266 |
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Deposits and other assets |
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2,000 |
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2,000 |
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Total other assets |
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10,521,419 |
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9,957,736 |
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Total assets |
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$ |
11,885,173 |
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$ |
11,288,043 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
554,185 |
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$ |
382,308 |
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Derivative liability |
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871,575 |
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Current portion of notes payable, net of discounts |
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174,328 |
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386,458 |
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Accrued expenses |
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679,966 |
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451,136 |
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Total current liabilities |
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2,280,054 |
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1,219,902 |
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Notes Payable, net of current portion and discounts |
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1,752,626 |
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Commitments |
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Stockholders Equity: |
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Series A Convertible Preferred Stock, $0.01 par value, authorized 7,000,000 shares,
none issued and outstanding at March 31, 2008 and December 31, 2007 |
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Common stock, $0.01 par value, authorized 60,000,000 shares, issued and outstanding
18,510,581 shares and 17,870,804 shares at March 31, 2008 and December 31, 2007,
respectively |
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185,108 |
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178,710 |
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Additional paid-in capital |
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59,334,648 |
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57,575,593 |
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Accumulated deficit |
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(51,667,263 |
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(47,686,162 |
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Total stockholders equity |
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7,852,493 |
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10,068,141 |
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Total liabilities and stockholders equity |
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$ |
11,885,173 |
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$ |
11,288,043 |
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The
accompanying notes are an integral part of these consolidated
financial statements.
2
Echo Therapeutics, Inc.
(Formerly Sontra Medical Corporation)
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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March 31, |
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2008 |
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2007 |
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Revenue: |
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Product revenue |
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$ |
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$ |
9,767 |
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Licensing revenue |
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12,500 |
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Total revenue |
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22,267 |
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Operating Expenses: |
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Cost of product revenue |
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1,556 |
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Research and development |
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770,207 |
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307,023 |
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Selling, general and administrative |
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1,190,418 |
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304,214 |
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Total operating expenses |
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1,960,625 |
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612,793 |
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Loss from operations |
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(1,960,625 |
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(590,526 |
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Other Income (Expense): |
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Interest income |
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10,468 |
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6,326 |
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Interest expense |
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(280,233 |
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(2,766 |
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Loss on extinguishment of debt |
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(1,212,013 |
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Derivatives loss |
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(538,698 |
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Other income (expense), net |
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(2,020,476 |
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3,560 |
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Net loss |
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(3,981,101 |
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(586,966 |
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Accretion of dividend on Series A Convertible
Preferred Stock |
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(483 |
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Net loss applicable to common shareholders |
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$ |
(3,981,101 |
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$ |
(587,449 |
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Net loss per common share, basic and diluted |
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$ |
(0.22 |
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$ |
(0.08 |
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Basic and diluted weighted average common
shares outstanding |
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18,314,683 |
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7,178,683 |
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The
accompanying notes are an integral part of these consolidated
financial statements.
3
Echo Therapeutics, Inc
(Formerly Sontra Medical Corporation)
Consolidated Statements of Cash Flows
(Unaudited)
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Three
Months Ended March31, |
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2008 |
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2007 |
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Cash Flows From Operating Activities: |
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Net loss |
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$ |
(3,981,101 |
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$ |
(586,966 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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57,282 |
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30,748 |
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Share-based compensation |
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486,000 |
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87,367 |
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Fair value of common stock and warrants issued for services |
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180,227 |
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Derivative loss |
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538,698 |
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Loss on extinguishment of debt |
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1,212,013 |
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Non-cash interest expense |
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254,579 |
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Changes in assets and liabilities: |
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Accounts receivable |
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(1,607 |
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Inventory |
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1,556 |
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Prepaid expenses and other current assets |
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(71,651 |
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(17,897 |
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Deferred financing costs |
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(432,309 |
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Accounts payable |
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171,877 |
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122,918 |
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Deferred revenue |
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(12,500 |
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Accrued expenses |
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267,673 |
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58,381 |
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Net cash used in operating activities |
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(1,316,712 |
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(318,000 |
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Cash Flows from Investing Activities: |
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Purchase of property and equipment |
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(5,600 |
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Increase in restricted cash |
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(500 |
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Net cash used in investing activities |
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(5,600 |
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(500 |
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Cash Flows From Financing Activities |
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Repurchase of Series A preferred stock |
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(73,334 |
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Proceeds from the sale of common stock, net of expenses |
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584,570 |
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Proceeds from Senior Convertible Notes and Warrants |
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700,000 |
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Proceeds from Secured Notes and Warrants |
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500,000 |
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Payments on equipment note payable |
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(27,319 |
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Proceeds from the exercise of warrants |
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106,207 |
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Net cash provided by financing activities |
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1,306,207 |
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483,917 |
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Net (Decrease) Increase in Cash and Cash Equivalents |
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(16,105 |
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165,417 |
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Cash and Cash Equivalents, beginning of period |
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$ |
1,193,163 |
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559,017 |
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Cash and Cash Equivalents, end of period |
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$ |
1,177,058 |
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$ |
724,434 |
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Supplemental Disclosure of Cash Flow Information and Non Cash Financing
Transactions: |
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Cash paid for interest |
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$ |
613 |
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$ |
2,765 |
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Accretion of dividend on Series A Convertible Preferred Stock |
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$ |
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$ |
483 |
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Common stock issued for dividends on Series A Convertible Preferred Stock |
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$ |
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$ |
3,440 |
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Common stock issued for conversion of Senior Convertible Notes and
accrued interest |
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$ |
52,041 |
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$ |
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Fair value of common stock issued for deferred financing costs |
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$ |
185,668 |
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$ |
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Beneficial conversion feature on Senior Convertible Notes |
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$ |
121,320 |
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$ |
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Fair value of warrants issued in connection with Senior Convertible Notes
included in extinguishment loss |
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$ |
626,480 |
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$ |
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Adjustment to fair value of Bridge Notes exchanged for Senior Convertible
Notes included in extinguishment loss |
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$ |
585,533 |
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$ |
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Intrinsic value of the conversion feature of the Bridge Notes when
converted to Senior Convertible Notes recorded as a reduction of
additional paid-in capital |
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$ |
212,938 |
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$ |
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Relative fair value of warrants issued with Secured Notes |
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$ |
219,838 |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
ECHO THERAPEUTICS, INC.
(Formerly Sontra Medical Corporation)
Notes to Consolidated Financial Statements
Period Ended March 31, 2008
(Unaudited)
(1) ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN
Organization and Basis of Presentation
Echo Therapeutics, Inc. (the Company) is a transdermal medical device and specialty
pharmaceutical company developing a non-invasive (needle-free), wireless, transdermal continuous
glucose monitoring (tCGM) system for people with diabetes and for use in hospital critical care
units and a wide range of topical reformulations of pharmaceutical products previously approved by
the United States Food and Drug Administration (FDA).
The Company was formed through the merger of Sontra Medical Corporation (Sontra) and Durham
Pharmaceuticals, Ltd. (doing business as Echo Therapeutics, Inc.) in September 2007 (the Merger).
Previously, Durham Pharmaceuticals, Ltd. was a wholly-owned subsidiary of Cato Holding Company
(doing business as Cato BioVentures) (Cato). Effective October 8, 2007, Sontra changed its name
to Echo Therapeutics, Inc.
The accompanying unaudited consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States (GAAP) consistent with those
applied in, and should be read in conjunction with, the Companys audited financial statements and
related footnotes for the year ended December 31, 2007 included in the Companys Annual Report on
Form 10-KSB as filed with the United States Securities and Exchange Commission (SEC) on March 31,
2008. The unaudited consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of management, necessary for a fair
presentation of the Companys financial position as of March 31, 2008 and its results of operations
and cash flows for the interim periods presented and are not necessarily indicative of results for
subsequent interim periods or for the full year. The interim financial statements do not include
all of the information and footnotes required by GAAP for complete financial statements and allowed
by the relevant SEC rules and regulations. However, the Company believes that its disclosures are
adequate to ensure that the information presented is not misleading.
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant inter-company balances and transactions have been
eliminated in consolidation.
The accompanying consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. As of March 31, 2008, the Company had cash of approximately $1.2 million
and an accumulated deficit of approximately $51.7 million. Through March 31, 2008, the Company had
no sales or revenues to cover its costs and operating expenses. Although the Company has been able
to issue securities through senior promissory notes, secured promissory notes and a series of
private placements to raise capital in order to fund its operations, it is not known whether the
Company will be able to continue this practice, or be able to obtain other types of financing to
meet its cash operating expenses. This, in turn, raises substantial doubt about the Companys
ability to continue as a going concern. Subsequent to March 31, 2008, the Company received gross
proceeds from the 2008 Senior Secured Note and Warrant Financing of $500,000 and has the right to
issue additional Secured Notes in 2008 for additional gross proceeds of $1,000,000 (see Note 5).
Management is currently pursuing additional private equity financing, and such financing is
expected to be completed during 2008. However, no assurances can be given as to the success of
these plans. The consolidated financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of the following accounting
policies:
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
judgments, estimates and assumptions that affect the amounts reported in the Companys consolidated
financial statements and accompanying notes. Actual results could differ materially from those
estimates. The Company considers the valuation of intangible assets, the
5
recoverability of long-lived assets, the realizability of deferred tax assets and the fair
value of share-based payments issued to be material accounting estimates.
Intangible Assets and Other Long-Lived Assets
The Company records intangible assets at the acquisition date fair value. As a policy, the
Company amortizes its intangible assets using the straight-line method over their estimated useful
lives, as follows: patents and licenses, two to 20 years; definite-lived core and developed
technology, five to 25 years; and other intangible assets over various periods. In connection with
the acquisition of Durham Pharmaceuticals Ltd., intangible assets related to contractual
arrangements and technology are amortized over estimated useful lives of three (3) and nine (9)
years, respectively, on a straight-line basis.
In accordance with Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment and Disposal of Long-Lived
Assets, the Company reviews intangible assets subject to amortization quarterly to determine if any
adverse conditions exist or a change in circumstances has occurred that would indicate impairment
or a change in the remaining useful life of any intangible asset. Conditions that would indicate
impairment and trigger an impairment assessment include, but are not limited to, a significant
adverse change in legal factors or business climate that could affect the value of an asset, or an
adverse action or assessment by a regulator. If the carrying value of an asset exceeds its
undiscounted cash flows, the Company writes-down the carrying value of the intangible asset to its
fair value in the period identified.
The Company generally calculates fair value as the present value of estimated future cash
flows it expects to generate from the asset using a risk-adjusted discount rate. If the estimate of
an intangible assets remaining useful life is changed, the Company amortizes the remaining
carrying value of the intangible asset prospectively over the revised remaining useful life.
For other long-lived assets, the Company evaluates quarterly whether events or circumstances
have occurred that indicate that the carrying value of these assets may be impaired. No impairment
losses were recorded for the three months ended March 31, 2008.
Share-Based Payments
Under SFAS No. 123R, the Company recognizes compensation costs resulting from the issuance of
stock-based awards to employees and directors as an expense in the statement of operations over the
service period based on a measurement of fair value for each stock award.
The Companys policy is to grant employee and director stock options with an exercise price
equal to the fair value of the Companys common stock at the date of grant.
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 are indexed to the Companys
common stock are classified as liabilities when the Company is not permitted to settle the
instruments in unregistered shares. In such instances, in accordance with EITF Issue No. 00-19,
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. Such financial instruments are
initially recorded at relative fair value with subsequent changes in fair value charged (credited)
to operations in each reporting period. If the Company subsequently achieves the ability to settle
the instruments in unregistered shares, the instruments are reclassified to equity at their fair
value.
Reclassifications
Certain comparative amounts have been reclassified to correspond with the current years
presentation.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. The pronouncement is
applicable in cases when assets or liabilities are to be measured at fair value. It does not
establish new circumstances in which fair value would be used to measure assets or liabilities. The
provisions of
6
SFAS No. 157 are effective for fiscal years commencing after November 15, 2007. The adoption
of SFAS No. 157 did not have a material impact on the Companys consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This statement is expected to expand
the use of fair value measurement, which is consistent with the FASBs long-term measurement
objectives for accounting for financial instruments. The fair value option permits the Company to
choose to measure eligible items at fair value at specified election dates. The Company will record
unrealized gains and losses on items for which the fair value option has been elected through net
income in the statement of operations at each subsequent reporting date. SFAS No. 159 is effective
as of the beginning of an entitys first fiscal year that begins after November 15, 2007, which is
fiscal year 2008 for the Company. The adoption of SFAS No. 159 did not have a material impact on
the Companys consolidated financial statements.
In December 2007, the FASB issued Statement No. 141 (revised) (No. 141 R), Business
Combinations. This Statement replaces FASB Statement No. 141, and applies to all business entities
that previously used the pooling-of-interests method of accounting for some business combinations.
Under Statement No. 141R, an acquirer is required to recognize, at fair value, the assets acquired,
liabilities assumed, and any non-controlling interest in the entity acquired at the acquisition
date. Further, it requires that acquisition costs and expected restructuring costs be recognized
separately from the acquisition, and that the acquirer, in a business combination executed in
stages, recognizes the identifiable assets and liabilities as well as the non-controlling interest
in the entity acquired, at the full amounts of their fair values. SFAS No. 141R also requires an
acquirer to recognize the assets acquired and liabilities assumed arising from contractual
contingencies as of the acquisition date. Also under this statement, an acquirer is required to
recognize contingent consideration as of the acquisition date and eliminates the concept of
negative goodwill and requires gain recognition in instances in which the fair value of the
identifiable net assets exceeds the fair value of the consideration plus any non-controlling
interest in the entity acquired as of the acquisition date. SFAS No. 141R makes significant
amendments to other Statements and other authoritative guidance, and applies prospectively to
business combinations on or after the acquiring entities first fiscal year that begins after
December 15, 2008, which is fiscal year 2009 for the Company. It may not be applied prior to that
date.
In March of 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133. SFAS No. 161 changes the disclosure
requirements for derivative instruments and hedging activities. Entities are now required to
provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged items affect the entitys
financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal
years and interim periods beginning after November 15, 2008 and is not expected to have a material
impact on the consolidated financial statements of the Company.
(3) ACQUISITION OF DURHAM PHARMACEUTICALS, LTD.
The Company completed the acquisition of Durham Pharmaceuticals, Ltd. (Durham) (doing
business as Echo Therapeutics, Inc.) (the Durham Acquisition) on September 14, 2007. Durham was a
development-stage company focused on a broad portfolio of advanced topical reformulations of
widely-used, FDA-approved pharmaceutical products using AzoneTS, its proprietary
transdermal drug delivery technology platform. Durhams lead AzoneTS-reformulated
pharmaceutical product candidate is Durhalieve, an advanced reformulation of
triamcinolone acetonide for the treatment of corticosteroid responsive dermatoses. Durhalieve is
covered by a pending New Drug Application on file with the FDA.
(4) INTANGIBLE ASSETS
As of March 31, 2008, intangible assets related to the Durham Acquisition are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Life |
|
|
Cost |
|
|
Amortization |
|
|
Net |
|
|
|
|
Contract related intangible asset: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cato Research discounted contract |
|
3 years |
|
$ |
355,000 |
|
|
$ |
64,097 |
|
|
$ |
290,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology related intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent for the AzoneTS-based product
candidates and formulation |
|
9 years |
|
|
1,305,000 |
|
|
|
|
|
|
|
1,305,000 |
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Life |
|
|
Cost |
|
|
Amortization |
|
|
Net |
|
|
|
|
Drug Master Files containing formulation,
clinical and safety documentation used by
the FDA |
|
9 years |
|
|
1,500,000 |
|
|
|
|
|
|
|
1,500,000 |
|
Two(2) in-process Durhalieve-related
pharmaceutical products |
|
9 years |
|
|
6,820,000 |
|
|
|
|
|
|
|
6,820,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total technology related intangible assets |
|
|
|
|
|
|
9,625,000 |
|
|
|
|
|
|
|
9,625,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
9,980,000 |
|
|
$ |
64,097 |
|
|
$ |
9,915,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was approximately $30,000 and zero for the three months ended March 31,
2008 and 2007, respectively, and is included in research and development in the Statement of
Operations.
(5) NOTES PAYABLE
Notes payable at March 31, 2008 and December 31, 2007 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Secured Notes |
|
$ |
552,357 |
|
|
$ |
|
|
Unamortized discounts |
|
|
(378,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,328 |
|
|
|
|
|
|
|
|
|
|
|
|
Senior Convertible Notes |
|
|
2,292,459 |
|
|
|
|
|
Unamortized discount |
|
|
(539,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,752,626 |
|
|
|
|
|
|
|
|
|
|
|
|
Senior Promissory Bridge Notes |
|
|
|
|
|
|
1,325,000 |
|
Unamortized discount |
|
|
|
|
|
|
(938,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386,458 |
|
|
|
|
|
|
|
|
Total notes payable |
|
|
1,926,954 |
|
|
|
386,458 |
|
Less current portion of notes payable |
|
|
174,328 |
|
|
|
386,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion |
|
$ |
1,752,626 |
|
|
$ |
|
|
|
|
|
2008 Senior Secured Note and Warrant Financing
On March 24, 2008, the Company entered into a secured note financing agreement with Imperium
Master Fund, Ltd. (Imperium), providing for, at the Companys option, the issuance of up to an
aggregate $2,000,000 of original issue discount senior secured notes (the Secured Notes) in up to
four equal tranches, together with warrants (the Imperium Warrants) to purchase up to 634,920
shares of common stock at an exercise price of $2.00 per share. On March 24, 2008, the Company drew
down the initial $500,000 in gross proceeds and issued the Imperium Warrants upon execution of the
agreement. The Company also issued an additional Secured Note and drew down $500,000 in gross
proceeds on April 24, 2008. The Company may exercise its option to issue an additional Secured
Note on each of May 24, 2008 and June 24, 2008 (each, a $500,000 Drawdown) at a purchase price of
$500,000. To terminate a scheduled $500,000 Drawdown, the Company must notify Imperium at least ten
(10) days prior to the date of such $500,000 Drawdown.
The Company is not required to make monthly cash payments of principal and interest under the
Secured Notes. Instead, the outstanding principal of each Secured Note will accrete in value at an
annual rate of 10%, compounded monthly, resulting in a total principal amount of approximately
$552,357 due for each Secured Note at maturity. If, however, the Company completes an equity
issuance in one or more series of transactions totaling $5,000,000 (a Qualified Issuance), then
the aggregate amount due for each Secured Note will be reduced from $552,357 to $546,903 and the
annual accretion value will be reduced from 10% to 9%.
Each Secured Note is due twelve months after the date of the issuance, provided, however, that
if the Company completes a Qualified Issuance by October 31, 2008, the Company has a right to
extend the maturity date of each Secured Note to 24 months after the date of the issuance. The
Company has the right to repay the principal amount of the Secured Notes in cash, in whole, but not
in part, prior to maturity at a premium of 1.02 times the unpaid principal plus any other amount
due under the Secured Notes.
8
Events of default under the Secured Notes include: (1) failure to make a payment when due or
payable; (2) a breach or notice of intent to breach of any material term, covenant or condition in
the Secured Note or any of the transaction documents and such breach is not cured within five
business days after notice; (3) any false, incorrect or breach in any material respect of any
material representation or warranty made by the Company in the transaction documents; (4) the
default of more than $25,000 of any other of the Companys indebtedness that causes such amount to
become due and payable; or (5) a bankruptcy (whether voluntary or involuntary) or general
assignment for the benefit of the Companys creditors. All amounts outstanding under the Secured
Notes, plus an amount equal to the product of 1.10 and all amounts outstanding under the Secured
Notes, become due and payable upon the occurrence of an event of default or upon a change in
control (as defined in the Secured Notes).
In addition, the Company has agreed to certain covenants, including a prohibition on the
ability to incur future indebtedness (subject to certain exceptions) or make any dividend or
payment to holders of its capital stock (other than shares of the class of stock held by such
recipient), and a requirement that the Company maintain $6.5 million in stockholders equity
(excluding any impact of the issuance of the Imperium Warrants to stockholders equity) for so long
as the Secured Notes remain outstanding. The Company also agreed that it may not redeem its Senior
Convertible Notes (discussed below) as long as the Secured Notes remain outstanding, unless it
receives at least $10 million in gross proceeds from an issuance or series of related issuances of
equity securities.
The Companys subsidiaries have guaranteed the obligations under the Secured Notes.
Additionally, the Secured Notes are secured by all of the Companys assets.
The Imperium Warrants have a term of five years and are immediately exercisable at an exercise
price of $2.00 per share. The Imperium Warrants provide for weighted average anti-dilution
protection upon future issuances or deemed issuances (subject to customary exceptions) below the
exercise price. The Imperium Warrants also allow for cashless exercise unless the shares underlying
the warrants are registered for resale on a registration statement filed under the Securities Act
of 1933, as amended (the Securities Act).
In connection with the issuance of the Secured Notes and Imperium Warrants, on March 24, 2008,
the Company entered into a registration rights agreement pursuant to which the Company has agreed
to file a registration statement with the Securities and Exchange Commission covering the resale of
the common stock issuable upon exercise of the Imperium Warrants within 60 days after issuance of
the securities. The Company has also agreed to use its best efforts to cause the registration
statement to become effective under the Securities Act as soon as practicable after the filing of
the registration statement, but in no event later than 180 days after issuance of the Imperium
Warrants. The Companys inability to file the registration statement, or to have the registration
statement declared effective, within the applicable time period will result in the incurrence of
penalties payable to the holders of the Imperium Warrants in an amount equal to 2% of the product
of the highest daily volume weighted average price during the twenty consecutive trading days prior
to the date of payment and the number of registrable securities, and will constitute an event of
default under the Secured Notes. The Company would incur additional penalties in such amount for
each thirty day period the filing or registration failure remains uncured (prorated for any period
less than thirty days). The Company is required to maintain the effectiveness of the registration
statement until the earlier to occur of the date on which all the securities subject to
registration have been publicly sold pursuant to the registration statement or Rule 144 promulgated
under the Securities Act and the date on which all of the securities subject to the registration
statement remaining to be sold may be immediately sold to the public under Rule 144(k) under the
Securities Act.
Due to certain requirements to obtain and maintain an effective registration statement
covering the shares underlying the Imperium Warrants, the Company has determined that the Imperium
Warrants do not meet the requirements for classification as equity as described in EITF Issue No.
00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock. As a result, the fair value of the Imperium Warrants was recorded as a
derivative liability which resulted in the recognition of a derivative loss upon issuance in the
amount of approximately $569,000. The derivative liability was adjusted to fair value as of March
31, 2008 with a decrease in the fair value of approximately $30,000 being recorded as a reduction
in the derivative loss.
Interest expense related to the Secured Notes in the three months ended March 31, 2008,
including amortization of discounts, was approximately $7,300.
2007 and 2008 Senior Note Financings
On September 14, 2007, the Company completed a private placement of unsecured Senior
Promissory Bridge Notes (the Bridge Notes) in the aggregate principal amount of $1,325,000 to
Montaur Capital through Platinum Long Term Growth
9
VII, LLC and to other strategic institutional and individual accredited investors. The Bridge
Notes were scheduled to be due September 15, 2008 and accrued interest at a rate of 10% per annum,
with interest payable upon maturity. If the Company had completed a subsequent equity or
equity-linked financing or a combination of equity financings resulting in gross proceeds to the
Company totaling at least $2,500,000 on or before December 15, 2007, inclusive of the Bridge Notes
(a Qualified Financing), then the Bridge Notes would have converted automatically into the equity
securities issued in the Qualified Financing. The terms of the Bridge Notes reflected a 20% premium
in the event of an exchange such that upon an automatic exchange of the Bridge Notes in any
Qualified Financing, the holders of the Bridge Notes would be deemed to have tendered an amount
equal to 120% of the outstanding principal and interest of the Bridge Notes in exchange for the
equity securities issued to such holders in the Qualified Financing. A Qualified Financing was not
completed by December 31, 2007 and accordingly, the holders of the Bridge Notes had one demand
registration right and the Bridge Notes became (1) convertible into shares of common stock at a
ratio determined by dividing the outstanding principal and interest of each Bridge Note by a price
per share equal to the price per share of our most recent equity or equity-linked financing or (2)
exchangeable at a 20% premium for securities issued in any other subsequent equity or equity-linked
financing.
On February 11, 2008, the Company completed an approximately $2.3 million private financing
with substantially all of the holders of the Bridge Notes. The $2,292,459 in aggregate principal
amount of unsecured Senior Convertible Notes issued in the financing (the Senior Convertible
Notes) bear interest annually at a rate of 8.0% per annum and provide the holders with the right
to convert principal into shares of the Companys common stock at $1.35 per share. The conversion
price is subject to weighted average anti-dilution protection, excluding certain customary
exceptions. The Senior Convertible Notes have a three-year term and the Company may elect to make
payments of interest in cash, additional notes, or stock.
Additionally, the investors received warrants to purchase 849,059 shares of common stock at an
exercise price of $1.69 per share for a term of five years. The warrants provide for full
anti-dilution price protection to the holders and allow for cashless exercise.
In connection with the Senior Convertible Note financing, certain holders representing
$1,275,000 face value of Bridge Notes exchanged their Bridge Notes at 120% of the outstanding
principal and interest of the Bridge Notes as payment toward the purchase price of the Senior
Convertible Notes purchased by such holders. Accordingly, the Company issued notes in the Senior
Convertible Note financing in the aggregate principal balance of $1,592,459 to the former holders
of the Bridge Notes upon their surrender of the Bridge Notes, and the Company received gross cash
proceeds in the amount of $700,000 in connection with the financing.
One holder of a Bridge Note with a face value of $50,000 converted the principal and accrued
interest of such Bridge Note into 52,041 shares of the Companys common stock, using a $1.00
conversion price as provided in the terms of the Bridge Notes.
The Company has determined that the terms of the Senior Convertible Notes are deemed
substantially different, as described in EITF Issue No. 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments, from the terms of the Bridge Notes based on the
change in the fair value of the embedded conversion features. As a result, the Company recorded the
Senior Convertible Notes issued in exchange for the Bridge Notes at fair value on the date of
issuance and recorded a loss on extinguishment of approximately $586,000. An amount equal to the
intrinsic value of the conversion feature of the Bridge Notes as measured on the date of exchange
for the Senior Convertible Notes, or approximately $213,000, was recorded as a reduction in
additional paid-in capital in accordance with EITF Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. The
fair value of the warrants issued to the holders of the Bridge Notes upon conversion into the
Senior Convertible Notes, which the Company estimated to be approximately $626,000, was also
included in the loss on extinguishment. The difference between the fair value and the face value of
the Senior Convertible Notes is being accreted to interest expense over the term of the notes.
The new cash proceeds from the Senior Convertible Notes of $700,000 were allocated between the
notes and the warrants issued in the Senior Convertible Note financing on a relative fair value
basis. Approximately $220,000 of the proceeds was allocated to the warrants and recorded as
additional paid-in capital and a discount on the Senior Convertible Notes. The Company determined
that the effective conversion price, after allocation of the proceeds, resulted in a beneficial
conversion feature of approximately $121,000 which was recorded as additional paid-in capital and a
further discount on the Senior Convertible Notes. The discounts on the Senior Convertible Notes are
being accreted to interest expense over the term of the notes.
Interest expense related to the Bridge Notes and Senior Convertible Notes in the three months
ended March 31, 2008, including amortization of discounts, was approximately $247,300.
10
(6) Fair Values of Assets and Liabilities
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, which
provides a framework for measuring fair value under GAAP.
In accordance with SFAS 157, the Company groups its financial assets and financial liabilities
measured at fair value in three levels, based on the markets in which the assets and liabilities
are traded and the reliability of the assumptions used to determine fair value.
Level 1 Quoted prices in active markets for identical assets or liabilities. Level 1 assets and
liabilities include debt and equity securities that are traded in an active exchange market.
Valuations are obtained from readily available pricing sources for market transactions involving
identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or
liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted
prices that are traded less frequently than exchange-traded instruments.
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include
financial instruments whose value is determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the determination of fair
value requires significant management judgment or estimation. This category includes, for example,
certain private equity investments and long-term derivative contracts.
The only asset or liability measured at fair value on a recurring basis is the Companys derivative
liability. The fair value of the derivative liability at March 31, 2008 was $871,575 and is
included in Level 3 in the fair value hierarchy.
The table below presents the changes in Level 3 derivative liability measured at fair value on a
recurring basis.
|
|
|
|
|
|
|
Quarter ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
|
|
|
|
Balance as of January 1, 2008 |
|
$ |
|
|
|
|
|
|
|
Total unrealized gain included
in net loss |
|
|
(30,669 |
)(1) |
Purchases, sales, issuances
and settlements |
|
|
902,244 |
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008 |
|
$ |
871,575 |
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains/(losses)
relating to instruments still held
at the reporting date |
|
$ |
30,669 |
|
|
|
|
|
|
|
|
(1) |
|
Included in derivative loss on the statement of operations. |
Also, the Company may be required, from time to time, to measure certain other financial assets at
fair value on a nonrecurring basis. These adjustments to fair value usually result from
application of lower-of-cost-or-market accounting or write-downs of individual assets. In the
three months ended March 31, 2008, there were no such adjustments.
(7) COMMON STOCK
The Company has authorized 60,000,000 shares of common stock, $0.01 par value per share, of
which 18,510,581 and 17,870,804 shares were issued and outstanding as of March 31, 2008 and
December 31, 2007, respectively.
11
Exercise of Warrants
In December 2007, the Company requested from the holders of the warrants issued in January
2007 the right to redeem the outstanding warrants to purchase 1,506,250 shares of the Companys
common stock, $.01 par value, at $0.21 per share, for $0.001 per share. Through March 31, 2008, no
such warrants had been redeemed and warrants to purchase 507,500 shares of common stock were
exercised voluntarily, providing gross proceeds of approximately $106,575. In addition, on March
13, 2008, the Company issued 66,486 shares of common stock in connection with the cashless exercise
of warrants to purchase 75,000 shares of common stock.
Restricted Common Stock issued for Services
On March 25, 2008, the Companys Board of Directors approved the issuance of 25,000 fully
vested, unregistered shares of the Companys common stock to a consultant for investor relations
services (see Note 8).
12
(8) STOCK OPTION PLANS
In 1997, the Company adopted its 1997 Long-Term Incentive and Stock Option Plan (the 1997
Plan). Pursuant to the 1997 Plan, the Companys Board of Directors (or committees and/or executive
officers delegated by the Board of Directors) may grant incentive and nonqualified stock options to
the Companys employees, officers, directors, consultants and advisors. The Company has reserved an
aggregate of 150,000 shares of its common stock for issuance upon exercise of options granted under
the 1997 Plan. As of March 31, 2008, there were options to purchase an aggregate of 30,000 shares
of common stock outstanding under the 1997 Plan and 111,546 shares available for future option
grants under the 1997 Plan.
In connection with the Companys strategic merger with ChoiceTel in 2002, the Company assumed
all outstanding options under the 1999 Sontra Medical, Inc. Stock Option and Incentive Plan (the
1999 Plan). The Company may not grant any additional options under the 1999 Plan. The Company
assumed options to purchase an aggregate of 86,567 shares of common stock under the 1999 Plan. As
of March 31, 2008, there were options to purchase an aggregate of 5,780 shares of common stock
outstanding under the 1999 Plan and none available for future grants.
In March 2003, the Companys shareholders approved its 2003 Stock Option and Incentive Plan
(the 2003 Plan). Pursuant to the 2003 Plan, the Companys Board of Directors (or committees
and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified
stock options, restricted stock and other stock-based awards to the Companys employees, officers,
directors, consultants and advisors. On May 22, 2007, the shareholders of the Company increased the
number of shares authorized for issuance under the 2003 Plan by 1,000,000 shares. As of March 31,
2008, the maximum aggregate number of shares that may be authorized for issuance under the 2003
Plan for all periods is 1,600,000. As of March 31, 2008, there were restricted shares of common
stock and options to purchase an aggregate of 1,059,866 shares of common stock outstanding under
the 2003 Plan and 527,134 shares available for future grants under the 2003 Plan.
13
On January 28, 2008, in connection with medical advisory services, the Company granted to a
physician non-qualified stock options, under the 2003 Plan, to purchase 20,000 shares of the
Companys common stock at an exercise price per share of $1.20. The options expire on January 28,
2018.
On February 5, 2008, in connection with medical advisory board member services, the Company
granted to a medical advisory board member non-qualified stock options, under the 2003 Plan, to
purchase 50,000 shares, of the Companys common stock at an exercise price per share of $1.40. One
third of the options vested immediately upon issuance and one-third of the options will vest on
each on the first and second anniversaries of the grant date. The options expire on February 5,
2018.
On March 25 2008, the Company granted a newly-appointed director non-qualified stock options,
outside any stock option plan, to purchase an aggregate of 50,000 shares of the Companys common
stock at an exercise price per share of $1.55. One third of the options vested immediately upon
issuance and one-third of the options will vest on each on the first and second anniversaries of
the grant date. The options expire on March 25, 2018.
Share-Based Compensation
For options and restricted stock issued and outstanding during the three months ended March
31, 2008 and 2007, the Company recorded additional paid-in capital and non-cash compensation
expense of approximately $486,000 and $87,000, respectively, each net of estimated forfeitures.
The fair value of each option award is estimated on the date of grant using the Black-Scholes
option pricing model that uses the assumptions noted in the following table. Expected volatilities
are based on historical volatility of the Companys common stock using historical periods
consistent with the expected term of the options. The Company uses historical data, as well as
subsequent events occurring prior to the issuance of the financial statements, to estimate option
exercise and employee termination within the valuation model. The expected term of options granted
under the Companys stock plans, all of which qualify as plain vanilla, is based on the average
of the contractual term (generally 10 years) and the vesting period (generally 36 42 months) as
permitted under SEC Staff Accounting Bulletin No. 107 and 110. The risk-free rate is based on the
yield of a U.S. Treasury security with a term consistent with the option. Restricted stock grants
are valued based on the closing market price for the Companys common stock on the grant date.
The assumptions used principally for options granted to employees and members of the Companys
Board of Directors in the three months ended March 31, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
2008 |
|
2007 |
Risk-free interest rate |
|
3.45% |
|
4.72% |
Expected dividend yield |
|
|
|
|
Expected term (employee / director grants) |
|
6 years |
|
6.75 years |
Forfeiture rate (excluding fully vested options) |
|
11% |
|
54% |
Expected volatility |
|
156% |
|
118% 126% |
A summary of option activity under the Companys stock plans and options granted to officers
of the Company outside any plan as of March 31, 2008 and changes during the three months then ended
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
Options |
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
Outstanding at January 1, 2008 |
|
|
4,066,271 |
|
|
$ |
1.99 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
120,000 |
|
|
|
1.43 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(148,334 |
) |
|
|
1.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
4,037,937 |
|
|
$ |
2.00 |
|
|
9.45 years |
|
$ |
552,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008 |
|
|
1,722,767 |
|
|
$ |
2.27 |
|
|
9.25 years |
|
$ |
365,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The weighted-average grant-date fair value of options granted during the three months ended
March 31, 2008 was $1.43 per share. Share-based compensation expense recognized in the three months
ended March 31, 2008 was approximately $74,000 for options granted in the three months ended March
31, 2008. There were no options exercised in the three months ended March 31, 2008.
Restricted Stock Grants
As of March 31, 2008, the Company had outstanding restricted stock grants amounting to 167,875
shares at a weighted-average grant-date fair value of $1.79 per share. Of the outstanding
restricted stock grants, 154,750 shares have not been registered under the Securities Act. A
summary of the status of the Companys nonvested restricted stock grants as of March 31, 2008, and
changes during the three months ended March 31, 2008, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
Nonvested Shares |
|
Shares |
|
Grant-Date Fair Value |
Nonvested at January 1, 2008 |
|
|
16,875 |
|
|
$ |
1.77 |
|
Granted |
|
|
25,000 |
|
|
|
1.50 |
|
Vested |
|
|
(25,000 |
) |
|
|
1.50 |
|
Forfeited |
|
|
(11,250 |
) |
|
|
1.77 |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2008 |
|
|
5,625 |
|
|
$ |
1.77 |
|
|
|
|
|
|
|
|
|
|
Share-based compensation recognized in the three months ended March 31, 2008 related to
restricted stock grants was $1,452.
On March 25, 2008, the Companys Board of Directors approved the issuance of 25,000 restricted
shares of the Companys common stock to a consultant for investor relations services. The fair
value of the services has been determined to be approximately $37,500 and was recorded as investor
relations expense in selling, general and administrative expense during the three months ended
March 31, 2008.
(9) WARRANTS
At March 31, 2008, the Company had the following outstanding warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Exercise |
|
|
Date of |
|
|
|
Exercisable |
|
|
Price |
|
|
Expiration |
|
Issued to investors in private placement |
|
|
501,200 |
|
|
$ |
15.00 |
|
|
|
9/15-10/15/2008 |
|
Issued to placement agent in private placement |
|
|
41,059 |
|
|
$ |
12.00 |
|
|
|
9/15-10/15/2008 |
|
Issued to investors and placement agent in private placement |
|
|
118,620 |
|
|
$ |
24.50 |
|
|
|
12/8-10/15/2009 |
|
Issued to investor in former subsidiary |
|
|
15,000 |
|
|
$ |
50.00 |
|
|
|
2/23/2010 |
|
Issued to investors and placement agent in private placement |
|
|
476,829 |
|
|
$ |
5.80 |
|
|
|
3/16/2016 |
|
Issued to investors in private placement |
|
|
755,000 |
|
|
$ |
0.21 |
|
|
|
1/30/09 |
|
Issued to investors and placement agent in private placement |
|
|
599,250 |
|
|
$ |
1.40 |
|
|
|
6/15-7/16/2012 |
|
Issued to financial advisor |
|
|
60,000 |
|
|
$ |
1.61 |
|
|
|
7/25/2012 |
|
Issued to financial advisor in connection with an acquisition |
|
|
425,000 |
|
|
$ |
2.26 |
|
|
|
9/14/2012 |
|
Issued to financial advisor |
|
|
175,013 |
|
|
$ |
1.49 |
|
|
|
2/11/2013 |
|
Issued to Senior Convertible Note holders |
|
|
849,059 |
|
|
$ |
1.69 |
|
|
|
2/11/2013 |
|
Issued to Secured Note holders |
|
|
634,920 |
|
|
$ |
2.00 |
|
|
|
3/14/2013 |
|
Issued to consultant |
|
|
25,000 |
|
|
$ |
2.50 |
|
|
|
3/25/2010 |
|
Issued to consultant |
|
|
80,000 |
|
|
$ |
2.50 |
|
|
|
3/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,755,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price |
|
|
|
|
|
$ |
4.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average duration in years |
|
|
|
|
|
|
|
|
|
3.32 years |
|
|
|
|
|
|
|
|
|
|
|
|
Issuances to Consultants
15
On March 25, 2008, the Companys Board of Directors approved the issuance of warrants to
purchase 105,000 shares of the Companys common stock at an exercise price of $2.50 per share to
two (2) consultants for investor relations services. The fair value of these services has been
determined to be approximately $133,000.
Issuance of Warrants for Financing
On February 11, 2008, the Company provided warrants to purchase 173,013 shares of the
Companys common stock at an exercise price of $1.49 per share to Burnham Hill Partners, a division
of Pali Capital, Inc., for a financing fee in connection with the Senior Convertible Note
financing. The fair value of these services has been determined to be approximately $186,000 and
has been recorded as a deferred financing cost with amortization over a three year period.
Amortization for the three months ended March 31, 2008 amounted to $8,536.
(10) SUBSEQUENT EVENTS
2008 Senior Secured Note and Warrant Financing
On April 24, 2008, the Company issued an additional Secured Note in connection with its second
drawdown under the terms of the March 2008 Senior Secured Note and Warrant financing (see Note 5).
Grant of Non-Qualified Stock Options
On April 2, 2008, the Company granted to a new medical advisory board member non-qualified
stock options, under the 2003 Plan, to purchase 60,000 shares, of the Companys common stock at an
exercise price per share of $1.25. One third of the options vested immediately upon issuance and
one-third of the options will vest on each on the first and second anniversaries of the grant date.
The options expire on April 2, 2018.
Dermatology Product Candidate with Cato BioVentures
On April 21, 2008, the Company entered into a Dermatology Product Candidate Right of First Offer
Agreement (the Right of First Offer Agreement) with Cato BioVentures pursuant to which Cato
BioVentures granted the Company a right of first offer to purchase certain dermatology small
molecule drug or protein biologic product candidates or transdermal drug delivery technologies of
which Cato BioVentures owns or licenses, as well as those owned by a third party for which Cato
BioVentures has a right to disclose to the Company (Available Product Candidates). Under the
terms of the Right of First Offer Agreement, Cato BioVentures must promptly notify the Company of
an Available Product Candidate and discuss such Available Product Candidate exclusively with the
Company for a period of at least 90 days. The Company must provide notice of its interest in
pursuing the Available Product Candidate within such 90 day period or the Company will be deemed to
have declined its rights to the Available Product Candidate. The Right of First Offer Agreement
terminates on December 31, 2010 unless the parties mutually agree to extend the term beyond such
date.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our consolidated financial condition and results of operations
should be read in conjunction with the financial statements and the related notes thereto included
in the Companys Form 10-KSB for the year ended December 31, 2007 and elsewhere in this Form 10-Q.
The matters discussed herein contain forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended, which involve risks and uncertainties. All statements other than statements of
historical information provided herein may be deemed to be forward-looking statements. Without
limiting the foregoing, the words believes, anticipates, plans, expects and similar
expressions are intended to identify forward-looking statements. Factors that could cause actual
results to differ materially from those reflected in the forward-looking statements include, but
are not limited to, those discussed in Risk Factors in our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2007 and elsewhere in this report and the risks discussed in our
other filings with the SEC. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements analysis, judgment, belief or expectation
only as of the date hereof. We undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Overview
Strategic Acquisition of Durham Pharmaceuticals Ltd
On September 14, 2007, we acquired Durham Pharmaceuticals, Ltd. (doing business as Echo
Therapeutics, Inc. (Durham)) (the Durham Acquisition). Durham was a development-stage company
focused on a broad portfolio of advanced topical reformulations of FDA-approved pharmaceutical
products using its proprietary AzoneTS drug delivery technology. Durhams lead
AzoneTS-reformulated product, Durhalieve, is focused on the treatment of
corticosteroid responsive dermatoses and is covered by a New Drug Application on file with the FDA.
Durhalieve is also expected to be developed for the treatment of keloid scarring. We acquired
principally patented and unpatented pipeline specialty pharmaceutical product candidates, AzoneTS
formulation know-how and data-based technology related to AzoneTS Drug Master Files (including more
than 20 years of clinical and product development documentation) (DMFs). We purchased the DMFs
and related trademark and tradenames from an affiliate of Durham. We also entered into a Strategic
Master Services Agreement with Cato Research Ltd. (Cato Research), a global contract research and
development organization (CRO), providing for discounted service fees.
Since inception of Durham and up to the time of the Durham Acquisition, Durham operated as
both a majority-owned subsidiary of Cato Holding Company (doing business as Cato BioVentures, Cato
BioVentures) and a strategic drug development partner of Cato Research. We believe the research
and development of Durhams AzoneTS drug candidate formulations was conducted through projects
performed using contracted services through Cato BioVentures and Cato Research, as Durham had no
employees. During the period from its inception in 1999 through the date of the Durham Acquisition,
Durham incurred approximately $7,500,000 of costs and expenses related to its product development
and regulatory activities and had no product or service revenues.
As a result of the Durham Acquisition, we are now a transdermal medical device and specialty
pharmaceuticals company.
Results of Operations
We substantially reduced our staff and restructured our operations in December 2006.
Commencing in January 2007 and throughout 2007, we rehired certain previous employees and newly
introduced employees and engaged numerous independent contractors from time to time. As of March
31, 2008, we had ten (10) employees and six (6) independent contractor arrangements with
consultants. Of this group of employees and consultants, five (5) are involved with finance and
administration and eleven (11) are involved with research and development, and clinical and
regulatory matters. As a result of our restructuring in December 2006, the expenses for the three
months ended March 31, 2008 may not be comparable with those in the same period in 2007.
Comparison of the three months ended March 31, 2008 and 2007
Licensing Revenue Licensing revenue for the three months ended March 31, 2008 was zero
compared to $12,500 for the three months ended March 31, 2007 through an agreement with
HortResearch. In 2005 and 2006, HortResearch paid us
17
$50,000 each year for a one year option to license the use of our ultrasonic skin permeation
technology. Accordingly, the payments were recognized as revenue ratably over the service periods.
In November 2007, HortResearch did not elect to renew its license option.
Product Revenue and Cost of Product Revenue As a result of our decision to not pursue sales
and marketing of the SonoPrep System, we had no product revenue in the three months ended March 31,
2008. For the same period in 2007, we had nominal revenues of $9,767 with a cost of product
revenue of $1,556.
Research and Development Expenses Research and development expenses increased by $463,184
to $770,207 for the three months ended March 31, 2008 from $307,023 for the three months ended
March 31, 2007. Research and development expenses amounted to 39% of total operating expenses
during the three months ended March 31, 2008, and included product development expenses (including
outside contract engineering) for our next generation skin permeation technology, product
development for our next generation transdermal continuous glucose monitoring (tCGM) system,
clinical study expenses associated with a completed pilot study for our tCGM system in the hospital
critical care setting and research and regulatory expenses related to our specialty pharmaceutical
product candidate, Durhalieve. We anticipate that research and development costs, particularly in
the product development of our tCGM and skin permeation devices, and with increased clinical study
activity, will continue to increase during 2008. Product development and clinical expenses included
in research and development expenses represented approximately 91% and 6%, respectively, of
research and development expenses.
Selling, General and Administrative Expenses Selling, general and administrative expenses
increased by $886,204 to $1,190,418 for the three months ended March 31, 2008 from $304,214 for the
three months ended March 31, 2007. Selling, general and administrative expenses represented 61% of
total operating expenses during the three months ended March 31, 2008, and included an increase in
share-based compensation expense of approximately $399,000 to $486,000. Share-based compensation
expenses is a non-cash charge relating to the fair value assigned to the issuance of restricted
common stock, options and warrants to purchase our common stock by employees, directors and certain
service providers. We are not engaged in selling activities and accordingly, general and
administrative expenses relate to salaries and benefits for our executive, financial and
administrative staff, public company costs related to investor relations, legal, accounting,
printing and media costs, capital-raising costs including those associated with travel, legal and
accounting costs, and costs for general operations.
Other Income (Expense) Interest income was $10,468 for the three months ended March 31,
2008, compared to interest income of $6,326 for the three months ended March 31, 2007, an increase
of $4,142. The increase in interest income for the three months ended March 31, 2008 was primarily
attributable to our higher average amount of cash equivalents that we had on hand during 2008
compared to 2007.
Interest expense was $280,233 for the three months ended March 31, 2008, compared to interest
expense of $2,766 for the three months ended March 31, 2007, an increase of $277,467. The increase
in interest expense is partly due to an increase in the amount of funding obtained through the use
of convertible and secured note arrangements. Bridge Notes in the amount of $1.325 million
issued on September 14, 2007 were either exchanged for Senior Convertible Notes or converted into
shares of our common stock in February 2008. Included in interest expense is approximately
$255,000 of non-cash interest related primarily to the amortization of discounts on notes payable
and the amortization of deferred financing costs.
Interest expense of $6,326 for the three months ended March 31, 2007 related to an outstanding
note payable on equipment financing secured in 2005. The entire outstanding note payable on
equipment financing was paid in full in September 2007.
Derivative Loss Due to certain requirements to obtain and maintain an effective registration
statement covering the shares of common stock underlying the Imperium Warrants, we determined that
the Imperium Warrants did not meet the requirements for classification as equity as described in
EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock. As a result, the fair value of the Imperium Warrants has been
recorded as a derivative liability which resulted in the recognition of a derivative loss upon
issuance in the amount of approximately $569,000. The derivative liability was adjusted to fair
value at March 31, 2008 with the decrease in the fair value of approximately $30,000 being recorded
as a reduction of the derivative loss.
Loss on Extinguishment of Debt We determined that the terms of the Senior Convertible
Notes are deemed substantially different, as described in EITF Issue No. 96-19, Debtors
Accounting for a Modification or Exchange of Debt Instruments, from the terms of the Bridge Notes
based on the change in the fair value of the embedded conversion features. As a result, we recorded
the Senior Convertible Notes issued in exchange for the Bridge Notes at fair value on the date of
issuance and recorded a loss on extinguishment of debt of approximately $586,000. The fair value of
the warrants issued to the holders of the Bridge Notes upon conversion into the Senior Convertible
Notes, which we estimated to be
18
approximately $626,000, was also included in the loss on extinguishment of debt. The
difference between the fair value and the face value of the Senior Convertible Notes is being
accreted to interest expense over the term of the notes.
Liquidity and Capital Resources
We have financed our operations since inception primarily through private sales of common and
preferred stock, the issuance of convertible promissory notes and secured promissory notes, and
cash received in connection with exercises of options and warrants. As of March 31, 2008, we had
$1,177,058 of cash and cash equivalents, with no other short term investments.
Net cash used in operating activities was $1,316,712 for the three months ended March 31,
2008. The use of cash in operating activities was primarily attributable to the net loss of
$3,981,101 for the three months ended March 31, 2008, offset by non-cash expenses of $57,282 for
depreciation and amortization, $486,000 for share-based compensation, the fair value of common
stock and warrants issued for services of $180,227, a derivative loss of $538,698, a debt
extinguishment loss of $1,212,013 and $254,579 in non-cash interest expense relating to the
amortization of discounts and the amortization of deferred financing costs. Increases in accounts
payable and accrued expenses provided $439,550 of cash. Deferred financing costs related to Senior
Convertible Notes and Secured Notes amounting to $432,309, plus an increase in prepaid expenses,
used cash of $503,960.
Net cash used in investing activities was $5,600 for the three months ended March 31, 2008.
This item is attributable to the cash used to purchase property and equipment.
Net cash provided by financing activities was $1,306,207 and was comprised of gross proceeds
from the issuances of Senior Convertible Notes and a Secured Note in the aggregate amount of $1.2
million and proceeds from the exercise of common stock purchase warrants in the amount of $106,207.
At March 31, 2008, we had outstanding warrants to purchase 4,755,950 shares of common stock at
exercise prices ranging from $0.21 to $50.00.
As of May 6, 2008, we had cash and cash equivalents of approximately $1.1 million. We have the
option to drawdown an additional $1,000,000 through June 24, 2008 under the terms of our March 2008
Secured Note and Warrant financing.
Senior Convertible Notes On February 11, 2008, we completed an approximately $2.3 million
private financing with substantially all of the holders of the prior Bridge Notes. The $2,292,459
in aggregate principal amount of unsecured Senior Convertible Notes issued in the financing (the
Senior Convertible Notes) bear interest annually at a rate of 8.0% per annum and provide the
holders with the right to convert principal into shares of our common stock at $1.35 per share. The
conversion price is subject to weighted average anti-dilution protection, excluding certain
customary exceptions. The Senior Convertible Notes have a three-year term and we may elect to make
payments of interest in cash, additional notes, or stock.
Additionally, the investors received warrants to purchase 849,058 shares of common stock at an
exercise price of $1.69 per share for a term of five years. The warrants provide for full
anti-dilution price protection to the holders and allow for cashless exercise.
In connection with the Senior Convertible Note financing, certain holders representing
$1,275,000 face value of Bridge Notes exchanged their Bridge Notes at 120% of the outstanding
principal and interest of the Bridge Notes as payment toward the purchase price of the Senior
Convertible Notes purchased by such holders. Accordingly, we issued notes in the Senior Convertible
Note financing in the aggregate principal balance of $1,592,459 to the former holders of the Bridge
Notes upon their surrender of the Bridge Notes, and we received gross cash proceeds in the amount
of $700,000 in connection with the financing.
One holder of a Bridge Note with a face value of $50,000 converted the principal and accrued
interest of such Bridge Note into 52,041 shares of our common stock, using a $1.00 conversion price
as provided in the terms of the Bridge Notes.
We are using the net proceeds from the Senior Convertible Note offering for product
development, working capital and general corporate purposes.
We paid Burnham Hill Partners, a division of Pali Capital, Inc., $162,000 in connection with
the Senior Convertible Note financing and will provide to it or its designees/assignees warrants to
purchase an aggregate of 175,013 shares of common stock at an exercise price of $1.49 per share.
19
2008 Secured Note and Warrant Financing On March 24, 2008, we entered into a Secured Note
financing with Imperium Master Fund, Ltd., providing for, at our option, the issuance of up to an
aggregate $2,000,000 of original issue discount senior secured notes (the Secured Notes) in four
equal tranches, together with warrants (the Imperium Warrants) to purchase up to 634,920 shares
of our common stock at an exercise price of $2.00 per share. On March 24, 2008, we drew down the
initial $500,000 in gross proceeds and issued the Imperium Warrants upon execution of the
agreement. We also issued an additional Secured Note and drew down $500,000 in gross proceeds on
April 24, 2008. We have the option, exercisable in our sole discretion, to issue an additional
Secured Note on each of May 24, 2008 and June 24, 2008 (each, a $500,000 Drawdown) at a purchase
price of $500,000. To terminate a scheduled $500,000 Drawdown, we must notify Imperium at least ten
(10) days prior to the date of such scheduled $500,000 Drawdown.
We are not required to make monthly payments of principal and interest under our Secured
Notes. Instead, the outstanding principal of each Secured Note will accrete in value at an annual
rate of 10%, compounded monthly, resulting in a total principal amount of approximately $552,357
due for each Secured Note at maturity. If we complete an equity issuance in one or more series of
transactions totaling $5,000,000 (a Qualified Issuance), then the aggregate amount due for each
Secured Note will be reduced from $552,357 to $546,903 and the annual accretion value will be
reduced from 10% to 9%.
Each Secured Note is due twelve months after the date of the issuance, provided, however, that
if we complete a Qualified Issuance by October 31, 2008, we may extend the maturity date of each
Secured Note to 24 months after the date of the issuance. We may repay the principal amount of the
Secured Notes in cash, in whole, but not in part, prior to maturity at a premium of 1.02 times the
unpaid principal plus any other amount due under the Secured Notes.
All amounts outstanding under the Secured Notes, plus penalties, become due and payable upon
the occurrence of an event of default or upon a change in control, as defined in the Secured Notes.
In addition, we have agreed to certain covenants, including a prohibition on our ability to incur
future indebtedness (subject to certain exceptions) or make any dividend or payment to holders of
our capital stock (other than shares of the class of stock held by such recipient), and a
requirement that we maintain $6.5 million in stockholders equity (excluding any impact of the
issuance of the Imperium Warrants to stockholders equity) for so long as the Secured Notes remain
outstanding. Because costs associated with the development of our products will increase our
liabilities, the requirement that we maintain a certain level of stockholders equity could limit
our ability to pursue necessary product development if we fail to raise additional equity capital.
We also agreed that we may not redeem our Senior Convertible Notes as long as the Secured
Notes remain outstanding, unless we receive at least $10 million in gross proceeds from an issuance
or series of related issuances of equity securities.
Our subsidiaries have guaranteed our obligations under the Secured Notes. Additionally, the
Secured Notes are secured by all of our assets.
The Imperium Warrants have a term of five years and are immediately exercisable at an exercise
price of $2.00 per share. The Imperium Warrants provide for weighted average anti-dilution
protection upon future issuances or deemed issuances (subject to customary exceptions) below the
exercise price. The Imperium Warrants also allow for cashless exercise unless the shares underlying
the Warrants are registered for resale on a registration statement filed under the Securities Act
of 1933, as amended (the Securities Act). An exercise under the Imperium Warrants may not result
in the holder beneficially owning more than 9.9% of our common stock outstanding at the time. The
holder may waive the foregoing upon 60 days advance written notice.
In connection with the issuance of the Secured Notes and Imperium Warrants, on March 24, 2008,
we entered into a registration rights agreement pursuant to which we have agreed to file a
registration statement with the Securities and Exchange Commission covering the resale of the
common stock issuable upon exercise of the Imperium Warrants within 60 days after issuance of the
securities. We have also agreed to use our best efforts to cause the registration statement to
become effective under the Securities Act as soon as practicable after the filing of the
registration statement, but no later than 180 days after issuance of the Imperium Warrants. Our
inability to file the registration statement, or to have the registration statement declared
effective, within the applicable time period will result in the incurrence of penalties payable to
the holders of the Imperium Warrants in an amount equal to 2% of the product of the highest daily
volume weighted average price during the twenty consecutive trading days prior to the date of
payment and the number of registrable securities, and will constitute and event of default under
the Secured Notes. We would incur additional penalties in such amount for each thirty day period
the filing or registration failure remains uncured (prorated for any period less than thirty days).
We are required to maintain the effectiveness of the registration statement until the earlier to
occur of the date on which all the securities subject to registration have been publicly sold
pursuant to the registration statement or Rule 144 and the date on which all of the
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securities subject to the registration statement remaining to be sold may be immediately sold
to the public under Rule 144(k) promulgated under the Securities Act.
Our Secured Note financing agreement with Imperium includes a number of restrictive covenants,
including a prohibition on our ability to incur future indebtedness (subject to certain exceptions)
or make any dividend or payment to holders of our capital stock (other than shares of the class of
stock held by such recipient), and a requirement that we maintain $6.5 million in stockholders
equity (excluding any impact of the issuance of the Imperium Warrants to stockholders equity) for
so long as the Secured Notes remain outstanding. In order to advance our product development,
clinical programs and financing activities, we expect our monthly salaries and benefits, consulting
costs, legal costs and other working capital costs to increase. Because costs associated with the
development of our products will increase our liabilities, the requirement that we maintain a
certain level of stockholders equity could limit our ability to pursue necessary product
development if we fail to raise additional equity capital. Therefore, in order to achieve our
business objectives while continuing to satisfy the restrictive covenants of the Secured Notes, we
will be required to raise additional capital in 2008.
Our ability to incur additional indebtedness is significantly restricted by the terms of our
Secured Notes and other outstanding debt securities. Accordingly, we must raise substantial equity
capital in 2008 in order to continue our operations as planned.
We have the ability to manage our costs aggressively and increase our operating efficiencies
while continuing our current level of product development and clinical programs thereby maximizing
the time available to complete an equity financing. Delays in obtaining an equity financing could
cause us to delay or halt our product development and clinical programs. Although we believe that
the required financing can be completed, there can be no guarantee that additional equity capital
will be available on favorable terms favorable to us, if at all.
Even if we are successful in raising additional equity capital during 2008, we will still be
required to raise substantial additional capital in the future to fund our research and development
programs, commercialize our product candidates and achieve profitability. Our ability to fund our
future operating requirements will depend on many factors, including:
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our ability to obtain funding from third parties, including any future collaborative
partners, on reasonable terms; |
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our progress on research and development programs; |
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the time and costs required to gain regulatory approvals; |
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the costs of manufacturing, marketing and distributing our products, if successfully
developed and approved; |
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the costs of filing, prosecuting and enforcing patents, patent applications, patent
claims and trademarks; |
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the status of competing products; and |
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the market acceptance and third-party reimbursement of our products, if successfully
developed and approved. |
Strategic Product Development Agreement with Cato Research In connection with the Durham
Acquisition, we entered into a Strategic Master Services Agreement with Cato Research (Cato Master
Agreement) to provide us with contract research and development services and regulatory advice
(CRO Services). The Cato Master Agreement has an initial one year term, and is automatically
renewable for additional one-year terms unless either party provides sixty days notice prior to
the expiration of any one year term. The Cato Master Agreement provides an initial $80,000 credit,
of which $80,000 was used through March 31, 2008, for CRO Services and an ongoing 25% discount on
all CRO Services rendered on a time and materials basis during the term of the agreement. In
connection with the Cato Master Agreement, we entered into a Strategic Deferred Payment Agreement
with Cato Research in September 2007 (the Cato SDPA). Pursuant to the Cato SDPA, we are entitled
to defer payment to Cato Research for certain critical path CRO Services provided under the Cato
Master Agreement for the earlier of six (6) months from the due date of each invoice relating to
such CRO Services or the date we receive at least $5,000,000 in equity financing following the date
of the agreement. As of March 31, 2008, we have not deferred any payments for CRO Services. The CRO
Services covered by the Cato Master Agreement relate to core AzoneTS drug development programs,
regulatory matters related to such development programs and other programs as agreed upon by the
parties. The Cato SDPA may be extended for three (3) months by agreement of the parties.
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Dermatology Product Candidate with Cato BioVentures On April 21, 2008, we entered into a
Dermatology Product Candidate Right of First Offer Agreement (the Right of First Offer Agreement)
with Cato BioVentures pursuant to which
Cato BioVentures granted to us a right of first offer to purchase certain dermatology small
molecule drug or protein biologic product candidates or transdermal drug delivery technologies of
which Cato BioVentures owns or licenses, as well as those owned by a third party for which Cato
BioVentures has a right to disclose to us (Available Product Candidates). Under the terms of the
Right of First Offer Agreement, Cato BioVentures must promptly notify us of an Available Product
Candidate and discuss such Available Product Candidate exclusively with us for a period of at least
90 days. We must provide notice of our interest in pursuing the Available Product Candidate within
such 90 day period or we will be deemed to have declined our rights to the Available Product
Candidate. The Right of First Offer Agreement terminates on December 31, 2010 unless the parties
mutually agree to extend the term of the Agreement beyond such date.
Item 4T. Controls and Procedures.
Disclosure Controls and Procedures. Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures as of the end of the period
covered by this report were effective in ensuring 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 the SECs rules and forms and that the information
required to be disclosed by us in such reports is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Internal Control over Financial Reporting. There was no change in our internal control over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the
fiscal quarter to which this report relates that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
PART IIOTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March 25, 2008, we issued 25,000 shares of common stock and warrants to purchase 25,000
shares of common stock at an exercise price of $2.50 per share to an
investor relations consulting firm pursuant
to a marketing agreement dated as of February 28, 2008 in consideration for consulting
services. The warrants have a five-year term and are immediately exercisable. On March 25, 2008,
we issued warrants to purchase 80,000 shares of common stock at an exercise price of $2.50 per
share to an investor relations consulting firm, pursuant to a services
agreement dated as of March 7, 2008 in consideration for consulting services. The warrants have a
five-year term and are immediately exercisable. The issuance of the warrants was made in a
transaction not involving any public offering pursuant to an exemption from registration under
Section 4(2) of the Securities Act.
Item 6. Exhibits.
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10.1 |
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Form of Warrant to Purchase Shares of Common Stock issued to the Registrants financial advisor is
incorporated herein by reference to Exhibit 10.1 of the Registrants Quarterly Report on Form 10-QSB
for the period ended September 30, 2007. |
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31.1 |
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Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of the Chief Operating Officer and Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
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Certification of the Chief Operating Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ECHO THERAPEUTICS, INC.
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Date: May 13, 2008 |
By: |
/s/ PATRICK T. MOONEY, M.D.
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Patrick T Mooney, M.D. |
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Chief Executive Officer and Chairman of the Board |
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By: |
/s/ HARRY G. MITCHELL, CPA
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Harry G. Mitchell, CPA |
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Chief Operating Officer , Chief Financial Officer and Treasurer |
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EXHIBIT INDEX
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Exhibit No. |
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Item. |
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10.1
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Form of Warrant to Purchase Shares of Common Stock issued to the Registrants financial advisor is
incorporated herein by reference to Exhibit 10.1 of the Registrants Quarterly Report on Form 10-QSB
for the period ended September 30, 2007. |
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31.1
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Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of the Chief Operating Officer and Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
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32.1
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Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Certification of the Chief Operating Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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