Document_and_Entity_Informatio
Document and Entity Information (USD $) | 9 Months Ended | ||
Sep. 30, 2014 | Nov. 11, 2014 | Jun. 28, 2013 | |
Document And Entity Information | ' | ' | ' |
Entity Registrant Name | 'Echo Therapeutics, Inc. | ' | ' |
Entity Central Index Key | '0001031927 | ' | ' |
Document Type | '10-Q | ' | ' |
Document Period End Date | 30-Sep-14 | ' | ' |
Amendment Flag | 'true | ' | ' |
Amendment description | 'Echo Therapeutics, Inc. (the "Company") is filing this Amendment No. 1 (this "Amendment") to its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2014 (the "Form 10-Q") to make the following changes: Revising disclosure regarding corporate counsel withdrawal in (i) Note 15 to the Consolidated Financial Statements for the Three and Nine Months ended September 30, 2014, (ii) "Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Business - Recent Developments - Corporate Counsel Withdrawals from Engagement", and (iii) "Part I - Item 3. Disclosure Controls and Procedures - Disclosure Controls and Procedures - Corporate Counsel Withdrawals from Engagement"; Revising disclosure in "Part I - Item 2. Management's DIscussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Comparison of the Three Months ended September 30, 2014 and 2013" to add interest income and interest expenses disclosure; Revising disclosure in "Part I - Item 4. Disclosure Controls and Procedures - Internal Control over Financial Reporting"; Revising the caption of "Part II - Item 1. Legal Proceedings" to correct a typographical error. | ' | ' |
Current Fiscal Year End Date | '--12-31 | ' | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' | ' |
Is Entity a Voluntary Filer? | 'No | ' | ' |
Is Entity's Reporting Status Current? | 'Yes | ' | ' |
Entity Filer Category | 'Smaller Reporting Company | ' | ' |
Entity Public Float | ' | ' | $24,732,724 |
Entity Common Stock, Shares Outstanding | ' | 12,631,595 | ' |
Document Fiscal Period Focus | 'Q3 | ' | ' |
Document Fiscal Year Focus | '2014 | ' | ' |
Consolidated_Balance_Sheets
Consolidated Balance Sheets (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Current Assets: | ' | ' |
Cash and cash equivalents | $1,469,405 | $8,055,385 |
Cash restricted pursuant to letters of credit | 52,488 | 302,488 |
Current portion of deferred financing costs | ' | 968,004 |
Prepaid expenses and other current assets | 234,207 | 49,221 |
Total current assets | 1,756,100 | 9,375,098 |
Property and Equipment, at cost: | ' | ' |
Computer equipment | 337,044 | 323,488 |
Office and laboratory equipment (including assets under capitalized leases) | 740,177 | 728,152 |
Furniture and fixtures | 755,444 | 755,444 |
Manufacturing equipment | 111,980 | 111,980 |
Leasehold improvements | 825,589 | 825,589 |
Property and equipment, at cost | 2,770,234 | 2,744,653 |
Less-Accumulated depreciation and amortization | -1,534,874 | -1,248,846 |
Net property and equipment (including assets under capitalized leases) | 1,235,360 | 1,495,807 |
Other Assets: | ' | ' |
Restricted cash | 9,990 | 10,490 |
Intangible assets, net of accumulated amortization | 9,625,000 | 9,625,000 |
Deferred financing costs | ' | 2,581,324 |
Other assets | ' | 1,576 |
Total other assets | 9,634,990 | 12,218,390 |
Total assets | 12,626,450 | 23,089,295 |
Current Liabilities: | ' | ' |
Accounts payable | 905,572 | 1,036,320 |
Current portion of deferred revenue from licensing arrangements | 76,428 | 76,428 |
Current portion of capital lease obligation | ' | 1,361 |
Derivative warrant liability | 113,155 | 1,119,155 |
Accrued expenses and other liabilities | 769,974 | 1,411,107 |
Total current liabilities | 1,865,129 | 3,644,371 |
Deferred revenue from licensing arrangements, net of current portion | 19,107 | 76,428 |
Total liabilities | 1,884,236 | 3,720,799 |
Stockholders' Equity: | ' | ' |
Common Stock, $0.01 par value, authorized 150,000,000 shares, issued and outstanding 12,665,518 and 11,776,578 shares at September 30, 2014 and December 31, 2013, respectively | 126,482 | 117,764 |
Additional paid-in capital | 135,599,249 | 132,192,648 |
Accumulated deficit | -125,011,013 | -112,969,412 |
Total stockholders' equity | 10,742,214 | 19,368,496 |
Total liabilities and stockholders' equity | 12,626,450 | 23,089,295 |
Series C Preferred Stock [Member] | ' | ' |
Stockholders' Equity: | ' | ' |
Series C, $0.01 par value, authorized 10,000 shares, issued and outstanding 1,000 shares at September 30, 2014 and December 31, 2013; Series D, $0.01 par value, authorized 3,600,000 shares, issued and outstanding 1,000,000 shares at September 30, 2014 and December 31, 2013 (preference in liquidation of $1,000,000); Series E, $0.01 par value, authorized 1,748,613 shares, issued and outstanding 1,748,613 shares at September 30, 2014 and December 31, 2013 | 10 | 10 |
Series D Preferred Stock [Member] | ' | ' |
Stockholders' Equity: | ' | ' |
Series C, $0.01 par value, authorized 10,000 shares, issued and outstanding 1,000 shares at September 30, 2014 and December 31, 2013; Series D, $0.01 par value, authorized 3,600,000 shares, issued and outstanding 1,000,000 shares at September 30, 2014 and December 31, 2013 (preference in liquidation of $1,000,000); Series E, $0.01 par value, authorized 1,748,613 shares, issued and outstanding 1,748,613 shares at September 30, 2014 and December 31, 2013 | 10,000 | 10,000 |
Series E Preferred Stock [Member] | ' | ' |
Stockholders' Equity: | ' | ' |
Series C, $0.01 par value, authorized 10,000 shares, issued and outstanding 1,000 shares at September 30, 2014 and December 31, 2013; Series D, $0.01 par value, authorized 3,600,000 shares, issued and outstanding 1,000,000 shares at September 30, 2014 and December 31, 2013 (preference in liquidation of $1,000,000); Series E, $0.01 par value, authorized 1,748,613 shares, issued and outstanding 1,748,613 shares at September 30, 2014 and December 31, 2013 | $17,486 | $17,486 |
Consolidated_Balance_Sheets_Pa
Consolidated Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Stockholders' Equity: | ' | ' |
Convertible Preferred Stock, authorized | 40,000,000 | ' |
Common stock, par value | $0.01 | $0.01 |
Common stock, authorized | 150,000,000 | 150,000,000 |
Common stock, outstanding | 12,648,353 | 11,776,578 |
Common stock, Share Issued | 12,648,353 | 11,776,578 |
Series C Preferred Stock [Member] | ' | ' |
Stockholders' Equity: | ' | ' |
Convertible Preferred Stock, par value | $0.01 | $0.01 |
Convertible Preferred Stock, authorized | 10,000 | 10,000 |
Convertible Preferred Stock, outstanding | 1,000 | 1,000 |
Convertible Preferred Stock, Share Issued | 1,000 | 1,000 |
Series D Preferred Stock [Member] | ' | ' |
Stockholders' Equity: | ' | ' |
Convertible Preferred Stock, par value | $0.01 | $0.01 |
Convertible Preferred Stock, authorized | 3,600,000 | 3,600,000 |
Convertible Preferred Stock, outstanding | 1,000,000 | 1,000,000 |
Convertible Preferred Stock, Share Issued | 1,000,000 | 1,000,000 |
Convertible Preferred Stock,preference in liquidation | $1,000,000 | $1,000,000 |
Series E Preferred Stock [Member] | ' | ' |
Stockholders' Equity: | ' | ' |
Convertible Preferred Stock, par value | $0.01 | $0.01 |
Convertible Preferred Stock, authorized | 1,748,613 | 1,748,613 |
Convertible Preferred Stock, outstanding | 1,748,613 | 1,748,613 |
Convertible Preferred Stock, Share Issued | 1,748,613 | 1,748,613 |
Consolidated_Statements_of_Ope
Consolidated Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Income Statement [Abstract] | ' | ' | ' | ' |
Licensing revenue | $19,107 | $22,557 | $57,321 | $67,671 |
Total revenues | 19,107 | 22,557 | 57,321 | 67,671 |
Operating Expenses: | ' | ' | ' | ' |
Research and development | 1,200,590 | 2,756,005 | 4,348,752 | 9,994,877 |
Selling, general and administrative | 1,731,868 | 2,192,412 | 5,207,103 | 6,590,206 |
Total operating expenses | 2,932,458 | 4,948,417 | 9,555,855 | 16,585,083 |
Loss from operations | -2,913,351 | -4,925,860 | -9,498,534 | -16,517,412 |
Other Income (Expense): | ' | ' | ' | ' |
Interest income | 181 | 877 | 915 | 2,580 |
Interest expense | -3,064,414 | -242,062 | -3,551,482 | -3,657,921 |
Gain on disposals of assets | ' | ' | 1,500 | ' |
Gain (loss) on revaluation of derivative warrant liability | 473,000 | -70,000 | 1,006,000 | 4,605,986 |
Other income (expense), net | -2,591,233 | -311,185 | -2,543,067 | 950,645 |
Net loss | ($5,504,584) | ($5,237,045) | ($12,041,601) | ($15,566,767) |
Net loss per common share, basic and diluted | ($0.43) | ($0.49) | ($0.99) | ($2.06) |
Basic and diluted weighted average common shares outstanding | 12,660,182 | 10,688,781 | 12,199,476 | 7,571,733 |
Consolidated_Statements_of_Cas
Consolidated Statements of Cash Flows (Unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Cash Flows From Operating Activities: | ' | ' |
Net loss | ($12,041,601) | ($15,566,767) |
Depreciation and amortization | 296,686 | 288,883 |
Share-based compensation, net | 1,056,915 | 908,983 |
Fair value of common stock and warrants issued for services | 8,404 | 89,970 |
Gain on revaluation of derivative warrant liability | -1,006,000 | -4,605,986 |
Gain on disposal of assets | -1,500 | ' |
Amortization of discount on note payable | ' | 2,879,166 |
Amortization of non-cash deferred financing costs | 3,549,328 | 726,003 |
Prepaid expenses and other current assets | -184,986 | -51,484 |
Other assets | 2,076 | -1,500 |
Accounts payable | -130,748 | -768,127 |
Deferred revenue from licensing arrangements | -57,321 | -67,671 |
Accrued expenses and other liabilities | -641,133 | 14,472 |
Net cash used in operating activities | -9,149,880 | -16,154,058 |
Cash Flows from Investing Activities: | ' | ' |
Purchase of furniture, equipment and leasehold improvements | -36,626 | -237,387 |
Decrease (increase) in restricted cash | 250,000 | -250,000 |
Proceeds on disposal of furniture, equipment and leasehold improvements | 1,887 | ' |
Net cash used in investing activities | 215,261 | -487,387 |
Cash Flows From Financing Activities: | ' | ' |
Proceeds from issuances of Common Stock, and warrants, net of expenses | 2,350,000 | 21,964,575 |
Repayment of Montaur note payable | ' | -3,000,000 |
Principal payments on capital lease obligations | -1,361 | -1,871 |
Net cash provided by financing activities | 2,348,639 | 18,962,704 |
Net increase (decrease) in cash and cash equivalents | -6,585,980 | 2,321,259 |
Cash and cash equivalents, beginning of period | 8,055,385 | 3,747,210 |
Cash and cash equivalents, end of period | 1,469,405 | 6,068,469 |
Supplemental Disclosure of Cash Flow Information and Non Cash Financing Transactions: | ' | ' |
Cash paid for interest | $2,154 | $114,082 |
ORGANIZATION_AND_BASIS_OF_PRES
ORGANIZATION AND BASIS OF PRESENTATION | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
Note 1. ORGANIZATION AND BASIS OF PRESENTATION | ' |
Echo Therapeutics, Inc. (the “Company” or “Echo”) is a medical device company with expertise in advanced skin permeation technology. The Company was developing its Symphony® CGM System (“Symphony”) as a non-invasive, wireless continuous glucose monitoring (“CGM”) system for use initially in hospital critical care units. The Symphony SkinPrep System (“SkinPrep”), a component of Symphony, allows for enhanced skin permeation that enables extraction of analytes such as glucose and enhanced delivery of topical pharmaceuticals. | |
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements have been prepared in conformity with Generally Accepted Accounting Principles (“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 28, 2014. These 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 Company’s financial position as of September 30, 2014 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. These interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements as 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. | |
On June 7, 2013, the Company effected a 1-for-10 reverse stock split of its Common Stock. All share and per share information has been retroactively restated to reflect this reverse stock split. | |
Liquidity, Going Concern and Management’s Plans | |
The accompanying consolidated financial statements have been prepared on a basis assuming that the Company is a Going Concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2014, the Company had cash of approximately $1,469,000, a negative working capital of approximately $109,000 and an accumulated deficit of approximately $125,011,000. In the past, the Company has funded its operations primarily through debt and equity issuances. | |
In August 2014, the Company announced that it had taken steps to substantially reduce operating costs and preserve cash while further refining its development efforts and resources needed to implement key product performance enhancements to its Symphony CGM System. The Company implemented significant cost reductions across all aspects of its operations in both external spend and workforce, including reductions in general and administrative, manufacturing, clinical and product development expenditures. The Company anticipated a meaningful decrease in expenses as a result of the cost reduction efforts. As a result of these August 2014 initiatives, which included a 35% reduction in employees, the burn rate in September 2014 was decreased by 40%-50% as compared to the average monthly burn rate experienced during the first six months of 2014. At that time, the Company continued to explore a variety of funding alternatives which it believed, together with the cost reduction initiatives, would be necessary to permit the Company to ultimately achieve its clinical trial and regulatory approval objectives. Additionally, the Company publicly stated that in the absence of a financing or strategic transaction, Echo’s ability to achieve its previously stated product development timelines would be negatively impacted by the Company’s effort to preserve cash and reduce expenses. | |
On September 23, 2014, the Company announced that it believed that its liquidity was insufficient to fund its needs beyond September 30, 2014 if its operations continued as they were at that time. Accordingly, it suspended its product development, research, manufacturing and clinical programs and operations to conserve its liquidity and capital resources. The actions followed a strategic review of the Company’s current financial position, funding alternatives, and projected product development costs and timelines. The workforce reduction that resulted from the suspension of operations comprised approximately 70% of Echo's workforce. Additionally, events such as the lawsuits filed or threatened by Platinum Management (NY) LLC (“Platinum”) and its affiliates and the ongoing interference by Platinum to damage Echo, its prospects and its relationships with its vendors and employees, have caused, and are expected to continue to cause, a significant liquidity strain on the Company. Any resumption of operations would be dependent on Echo’s ability to identify a strategic or financial alternative that would provide the Company with timely, committed and sufficient third-party funding. No assurances can be given that Echo will be able to identify a strategic or financial alternative that would provide the Company with funding sufficient to enable the resumption of its operations. | |
On October 2, 2014, the Company announced that it had retained PricewaterhouseCoopers LLP’s Restructuring and Recovery Services Practice (“PwC”) as a financial and restructuring consultant to assist the Company in exploring financial and strategic alternatives that could sufficiently address its liquidity needs and allow it to resume operations. Such financial and strategic alternatives include, but are not limited to, a sale and/or license of intellectual property and other assets, a merger or sale of the Company in entirety, other business combination, a capital transaction and/or a voluntary petition for reorganization or liquidation pursuant to the U.S. Bankruptcy Code. Echo with PwC’s support, continues to proceed in an orderly and timely manner to consider possible financial and strategic alternatives for the Company and their implications. However, no assurances can be given as to whether any particular financial or strategic alternative for Echo will be recommended or undertaken or, if so, upon what terms and conditions. If Echo is unable to identify an acceptable financial or strategic alternative that sufficiently addresses Echo’s liquidity needs, the Company could be forced to file for protection under the U.S. Bankruptcy Code. Echo continues to aggressively pursue additional financing from existing relationships (current and prior stockholders, investors and lenders) and from new investors to support operations, including its product and clinical development programs. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties including the possible write-down of the intangible assets or other assets as of September 30, 2014. | |
Pursuant to the Securities Purchase Agreement (“SPA”) between the Company and Medical Technologies Innovation Asia Ltd. (“MTIA”), as amended on January 30, 2014, in March 2014 and on June 17, 2014, the Company would sell 1,818,182 shares of its Common Stock and 181,818 warrants to purchase its Common Stock to MTIA for an aggregate purchase price of $5,000,000, such sales to be made in three installments through March 27, 2014. From February 4, 2014 through April 15, 2014, the Company received gross proceeds of $2,400,000 of the anticipated $5,000,000 in connection with the SPA. In connection with the receipt of those proceeds, the Company has issued to MTIA 872,728 shares of its Common Stock and 87,274 warrants to purchase its Common Stock (see Note 8). Based on representations made by MTIA to the Company, the Company had anticipated the receipt of the full $5,000,000 from MTIA despite the fact that the funding dates in the SPA, as amended, had passed without receipt of funds from MTIA. MTIA’s failure to provide funds in a timely manner resulted in its material breach of the SPA, which has subsequently expired and has a negative impact on Company’s operations and planned development efforts. The Company met with representatives of MTIA on October 22 and 23, 2014, regarding MTIA’s possible investment in the Company. At the conclusion of the meeting, MTIA proposed an offer with an approximate 24-hour lifespan that upon execution of a convertible note purchase agreement with a first stage financing amount of $1,500,000, Echo would be required to turn-over all relevant technical product information and samples of our Generation 1 Symphony product to MTIA as well as dedicate personnel to support their consumer based business plan. As the MTIA offer did not include the previously agreed purchase of the additional $2,600,000 in Company securities as a prerequisite for the release and support of technical product information, the Company deemed the offer inadequate to warrant a response. On October 24, 2014, the Managing Director of MTIA communicated to PwC that they “have no intention to provide any so-called better offer.” Accordingly, the Company has ceased pursuing funding from MTIA. | |
Management’s Structure, Staffing and Facilities | |
Effective at midnight on June 30, 2014, Robert F. Doman’s consulting contract with the Company expired in accordance with its terms and, accordingly, he no longer serves as the Company’s Executive Chairman and Interim Chief Executive Officer. On June 30, 2014, the Board appointed Kimberly A. Burke to serve as Interim Chief Executive Officer of Echo, for a sixty-day period beginning on July 1, 2014 and ending on August 30, 2014. Ms. Burke has served as Echo’s General Counsel and Senior Vice President since January 2011, as Chief Compliance Officer since April 2012, and she has served as Echo’s Secretary since 2010. Ms. Burke joined the Company as Vice President, Corporate Counsel in 2008. | |
On September 12, 2014, Kimberly A. Burke informed the Company of her decision to resign as Senior Vice President, General Counsel and Chief Compliance Officer of Echo to pursue other opportunities. Ms. Burke agreed to transition matters appropriately and the effective date of her resignation will be determined once an effective transition has occurred. At this time, Ms. Burke continues to serve Echo as its Senior Vice President, General Counsel, Chief Compliance Officer and Secretary. | |
Effective July 16, 2014, the Board appointed Charles T. Bernhardt to serve as Interim Chief Financial Officer of Echo. As the Company continues to explore financial and strategic alternatives that could sufficiently address its liquidity needs and allow it to resume operations, it has drastically reduced its workforce to conserve cash. The Company retained a team of seven key employees to enable it to explore its financial and strategic alternatives. | |
The Company leases approximately 37,000 square feet of manufacturing, laboratory and office space in a single-story building located in Franklin, Massachusetts under a lease expiring October 31, 2017. The Company is actively attempting to sublease, some or all, of this space to conserve cash as well as more efficiently accommodate its projected facilities needs. | |
The Company also leases approximately 7,900 square feet of corporate office space in a multi-story building located in Philadelphia, Pennsylvania under a lease expiring May 31, 2017, with the right to terminate the lease on November 30, 2014. The Company has reached an understanding with the landlord that, as of November 1, 2014, the lease will become month-to-month and the monthly rent will be reduced by 50% while the landlord attempts to rent some, or all, of the current space occupied by the Company. The Company expects to be provided 60 days’ notice to vacate its current office space and the landlord has pledged to assist Echo in locating office space in one of the landlord’s Philadelphia area office buildings that would better fit the Company’s current needs on a month-to-month basis. | |
Reclassifications | |
Certain expenses prior to the second quarter of 2014 were reclassified to correspond with the current reporting structure for the nine months ended 2014. In prior periods, Research & Development (“R&D”) facilities expense and related personnel benefits were recognized as Sales, General and Administrative (“SG&A”) expenses. Where relevant, recognition is given to the impact of this reclassification. | |
Recently Issued Accounting Standards | |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosures. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016. We are currently in the process of evaluating the impact of the adoption of this ASU on the financial statements. | |
In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. Under the new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results and is disposed of or classified as held for sale. The standard also introduces several new disclosures. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. ASU 2014-08 is effective for annual and interim periods beginning after December 15, 2014, with early adoption permitted. We are currently in the process of evaluating the impact of adoption of this ASU on the financial statements. | |
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” which applies should a company be facing probable liquidation within one year of the issuance of the financial statements, but is not actually in liquidation at the time of issuance. The applicable accounting basis for presentation remains as a going concern, but if liquidation within one year is probable, then certain disclosures must be included in the financial statement presentation. ASU 2014-15 is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. We are currently in the process of evaluating the impact of adoption of this ASU on the financial statements. |
CASH
CASH | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
Note 2. CASH | ' |
Cash and Cash Equivalents | |
As of September 30, 2014, the Company held approximately $1,469,000 in cash and cash equivalents. The Company’s cash equivalents consist solely of bank money market funds. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has never experienced any losses related to these balances. | |
Restricted Cash | |
As of September 30, 2014, restricted cash represents a $52,488 letter of credit issued in favor of one of its landlords, which is a condition of the lease. As of December 31, 2013, restricted cash consisted of a $250,000 letter of credit issued in favor of one of the Company’s key product development vendors and a $52,488 letter of credit issued in favor of one of its landlords. Non-current restricted cash as of September 30, 2014 and December 31, 2013 represent a security deposit on the Company’s leased offices. |
INTANGIBLE_ASSETS
INTANGIBLE ASSETS | 9 Months Ended | |||||||||||||||||
Sep. 30, 2014 | ||||||||||||||||||
Notes to Financial Statements | ' | |||||||||||||||||
Note 3. INTANGIBLE ASSETS | ' | |||||||||||||||||
The Company’s intangible assets are related to the acquisition of assets from Durham Pharmaceuticals Ltd. in 2007. Following the acquisition in 2007, the Company has modestly advanced the development programs for DurhalieveTM for the treatment of corticosteroid-responsive dermatoses and for other earlier stage AzoneTS reformulation drug candidates. Among other activities, the Company has monitored stability on new drug formulations, assembled a complete response on the Durhalieve New Drug Application (“NDA”), met with the United States Food and Drug Administration (“FDA”) on development status, worked on a response for the methotrexate-AzoneTS (“MAZ”) ‘end of Phase 2’ meeting with the FDA, engaged consultants to review and recommend new product candidates and formulations, and conducted partnering activities around the technology. In addition, the Company has made applicable regulatory filings necessary to maintain the active status of the AzoneTS Drug Master File, the Durhalieve and MAZ Investigational New Drug applications and the MAZ Orphan Drug application with the FDA. | ||||||||||||||||||
As of September 30, 2014 and December 31, 2013, intangible assets related to this acquisition are summarized as follows: | ||||||||||||||||||
2014 | 2013 | |||||||||||||||||
Estimated | Accumulated | |||||||||||||||||
Life | Cost | Amortization | Net | Net | ||||||||||||||
Contract related intangible asset: | ||||||||||||||||||
Cato Research discounted contract | 3 years | $ | 355,000 | $ | 355,000 | $ | — | $ | — | |||||||||
Technology related intangible assets: | ||||||||||||||||||
Patents for the AzoneTS-based product candidates and formulation | 4 years | 1,305,000 | — | 1,305,000 | 1,305,000 | |||||||||||||
Drug Master Files containing formulation, clinical and safety documentation used by the FDA | 4 years | 1,500,000 | — | 1,500,000 | 1,500,000 | |||||||||||||
In-process pharmaceutical products for 2 indications | 4 years | 6,820,000 | — | 6,820,000 | 6,820,000 | |||||||||||||
Total technology related intangible assets | 9,625,000 | — | 9,625,000 | 9,625,000 | ||||||||||||||
Total, net | $ | 9,980,000 | $ | 355,000 | $ | 9,625,000 | $ | 9,625,000 | ||||||||||
Intangible assets related to technology are expected to be amortized on a straight-line basis over the period ending in September 2019, when the underlying patents expire, and will commence upon revenue generation which the Company estimates could occur with proper funding as early as the third quarter of 2016. The Cato Research contract included above was amortized over a three-year period, which ended in 2010. | ||||||||||||||||||
Estimated amortization expense for each of the next five calendar years is as follows: | ||||||||||||||||||
Estimated | ||||||||||||||||||
Amortization | ||||||||||||||||||
Expense | ||||||||||||||||||
2014 | $ | — | ||||||||||||||||
2015 | $ | — | ||||||||||||||||
2016 | $ | 1,480,800 | ||||||||||||||||
2017 | $ | 2,961,600 | ||||||||||||||||
2018 | $ | 2,961,600 | ||||||||||||||||
The Company annually reviews the carrying value of intangible assets and considers events or circumstances that would indicate that the carrying amount of the intangible assets may not be recoverable. If such events or circumstances exist, the Company performs an impairment test. If the carrying value of the intangibles exceeds undiscounted cash flows, the Company writes down the carrying value of the intangible assets to their fair value in the period identified. It is the Company’s policy to evaluate intangible assets for impairment at least annually in connection with its year-end financial statement preparation. Given current circumstances, the Company believes that the carrying value of the intangible assets as of September 30, 2014 remains recoverable despite the current curtailment of operations. | ||||||||||||||||||
OPERATING_LEASE_COMMITMENTS
OPERATING LEASE COMMITMENTS | 9 Months Ended | ||||||||||||
Sep. 30, 2014 | |||||||||||||
Notes to Financial Statements | ' | ||||||||||||
Note 4. OPERATING LEASE COMMITMENTS | ' | ||||||||||||
The Company leases approximately 37,000 square feet of manufacturing, laboratory and office space in a single-story building located in Franklin, Massachusetts under a lease expiring October 31, 2017. The Company is actively attempting to sublease some, or all, of this space to conserve cash as well as more efficiently accommodate the projected needs of the facility. | |||||||||||||
The Company also leases approximately 7,900 square feet of corporate office space in a multi-story building located in Philadelphia, Pennsylvania under a lease expiring May 31, 2017, with the right to terminate the lease on November 30, 2014 at a cost that the Company has approximated at $43,000. The Company has reached an understanding with the landlord that, as of November 1, 2014,the lease will become month-to-month and the monthly rent will be reduced by 50% while the landlord attempts to rent some or all of the current space occupied by the Company. The Company expects to be provided 60 days’ notice to vacate its current office space and the landlord has pledged to assist Echo in locating office space in one of the landlord’s Philadelphia area office buildings that would better fit the Company’s current needs on a month-to-month basis. | |||||||||||||
As of October 7, 2014, the Company terminated its lease of a corporate apartment in Franklin, Massachusetts prior to the expiration date of November 21, 2014. The landlord has charged the Company an early termination fee of $305, which the Company has disputed due to a former Company employee agreeing to take over the lease as of October 7, 2014. | |||||||||||||
Future minimum lease payments for each of the next five years under the current terms of these operating leases at September 30, 2014 are approximately as follows: | |||||||||||||
Franklin | Philadelphia | Total | |||||||||||
Year Ending December 31, | |||||||||||||
2014 | $ | 113,000 | $ | 31,333 | $ | 144,333 | |||||||
2015 | 457,000 | — | 457,000 | ||||||||||
2016 | 468,000 | — | 468,000 | ||||||||||
2017 | 389,000 | — | 389,000 | ||||||||||
2018 | — | — | — | ||||||||||
Total | $ | 1,427,000 | $ | 31,333 | $ | 1,458,333 | |||||||
The Company’s facilities lease expense, including accruals for lease incentives, was approximately $143,000 and $141,000 for the three months ended September 30, 2014 and 2013, respectively, and $418,000 and $530,000 for the nine months ended September 30, 2014 and 2013, respectively. |
CREDIT_FACILITY_WITH_PLATINUMM
CREDIT FACILITY WITH PLATINUM-MONTAUR LIFE SCIENCES, LLC | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
NOTE 5. CREDIT FACILITY WITH PLATINUM-MONTAUR LIFE SCIENCES, LLC | ' |
On August 31, 2012, the Company and Platinum Montaur Life Sciences, LLC (“Montaur”) entered into a Loan Agreement (the “Loan Agreement”) pursuant to which Montaur made a non-revolving draw credit facility (the “Credit Facility”) of up to $20,000,000 available to the Company, a substantial portion of which was subject to the successful achievement of certain clinical and regulatory milestones set forth in the Loan Agreement, with an initial available principal amount of $5,000,000. The principal balance of each draw bore interest from the applicable draw date until repayment at a rate of 10% per annum, compounded monthly. The Company issued to Montaur a Promissory Note dated August 31, 2012, with a maturity date of five years from the date of closing. The Company used the proceeds from the Credit Facility to fund operations. As a result of the Company’s 2013 financing transactions, this Credit Facility was currently only available at Montaur’s discretion. In addition, for each $1,000,000 of funds borrowed pursuant to the Credit Facility, the Company agreed to issue Montaur a warrant to purchase 100,000 shares of Common Stock, with a term of five years and an exercise price equal to 150% of the market price of the Common Stock at the time of the draw, but in no event less than $20.00 or more than $40.00 per share (together with the Commitment Warrant, the “Warrants”). All of the Warrants were immediately exercisable and have a term of five years from the issue date. The exercise price of the Warrants is subject to adjustment for stock splits, combinations or similar events. An exercise under the Warrants could not result in the holder beneficially owning more than 4.99% or 9.99%, as applicable, of all of the Common Stock outstanding at the time; provided, however, that a Holder may waive the 4.99% ownership limitation upon sixty-one (61) days advance written notice to the Company. | |
On September 14, 2012, the Company submitted a draw request to Montaur in the amount of $3,000,000 in the form required by the Loan Agreement (the “September Request”). The Company ultimately received the $3,000,000 across three draws in 2012. These draws were recorded on the Consolidated Balance Sheet under Note Payable, net of the initial $3,000,000 in discounts recorded related to the warrants issued and described below. In accordance with the Loan Agreement and as a result of funding received from Montaur, the Company issued to Montaur separate warrants concurrent with the three draws in 2012 to purchase an aggregate of 300,000 shares of Common Stock, with a term of five years, and having exercise prices ranging from $21.10 to $22.70 per share. The fair value of these warrants issued was determined to be approximately $3,455,000, of which $3,000,000 was treated as a debt discount and was to be accreted to interest expense over the term of the note, and the balance of approximately $455,000 was charged to interest expense in 2012. | |
On March 1, 2013, the Company elected to prepay all outstanding draws under the Credit Facility totaling $3,113,366, which includes interest accrued and unpaid to that date of $113,366. After such date, no principal amount was outstanding under the Credit Facility. Concurrent with this prepayment, the Company recorded non-cash interest expense of approximately $2,879,166 in March 2013 relating to the unamortized debt discount on the outstanding draws paid off. | |
Section 3.1 (Prepayment and Prepayment Notice) of the Loan Agreement states that “The Borrower shall have the option at all times to permanently prepay any Draw, in whole or in part, by providing to Lender two (2) Business Days prior written notice of the effective date and amount of such cancellation or prepayment; provided, however, that any such prepayments shall be applied to accrued and unpaid interest before being applied to principal (such principal payments to be applied to the Draw or Draws as designated by the Borrower in the Borrower’s discretion). The Borrower shall have the right, upon two (2) Business Days prior written notice to the Lender, to irrevocably cancel and terminate the Term Loan Facility upon payment of all amounts due and owing hereunder to Lender; provided, that, it is understood and agreed that the provisions of Article 9 hereof shall survive any such termination.” As a result of the Company’s contractual ability to obtain funds through this Loan Agreement only at Montaur’s discretion, the expiration of the Loan Agreement on to December 31, 2014, and the Company’s inability to motivate Montaur to allow the Company to draw against the Credit Facility to fund operations, the Compnay elected to terminate the Loan Agreement. Accordingly, on October 28, 2014, the Company notified Montaur that it was irrevocably canceling and terminating the Loan Agreement effective as of October 30, 2014. | |
Pursuant to the Loan Agreement, the Company issued Montaur a warrant to purchase 400,000 shares of its Common Stock, with a term of five years and an exercise price of $20.00 per share (the “Commitment Warrant”). The fair value of the Commitment Warrant was determined to be approximately $4,840,000, recorded as a deferred financing cost and the Company had been amortizing the interest expense over the term of the note. With the Company’s inability to utilize the Credit Facility on September 30, 2014, and the termination of the Loan Agreement effective October 30, 2014, the Company fully amortized the remaining $2,823,325 in Deferred Financing Cost as of September 30, 2014. Therefore, amortization of the deferred financing cost for the three and nine months ended September 30, 2014 was $3,065,325 and $3,549,325, respectively, and is recorded as interest expense. Amortization of the deferred financing cost for the three and nine months ended September 30, 2013 was $242,000 and $726,000, respectively. |
DERIVATIVE_WARRANT_LIABILITY
DERIVATIVE WARRANT LIABILITY | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Notes to Financial Statements | ' | ||||||||
Note 6. DERIVATIVE WARRANT LIABILITY | ' | ||||||||
Derivative financial instruments are recognized as a liability on the Consolidated Balance Sheet and measured at fair value. On September 30, 2014 and December 31, 2013, the Company had outstanding warrants to purchase 1,211,485 and 1,209,211 shares of its Common Stock, respectively. Included in these outstanding warrants at September 30, 2014 and December 31, 2013 are warrants to purchase 700,000 shares, which are considered to be derivative financial instruments. The fair value of these derivative instruments on September 30, 2014 and December 31, 2013 were approximately $113,000 and $1,119,000, respectively, and is included in Derivative Warrant Liability, a current liability in the Consolidated Balance Sheet. Changes in fair value of the derivative financial instruments are recognized in the Consolidated Statement of Operations as a gain or loss on revaluation of Derivative Warrant Liability. The Gain (Loss) on Revaluation of Derivative Warrant Liability for the three months ended September 30, 2014 and 2013 were approximately $473,000 and $(70,000), respectively, and for the nine months ended September 30, 2014 and 2013 were approximately $1,006,000 and $4,606,000, respectively. | |||||||||
The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying common stock for each reporting period. For the three months ended September 30, 2014 and 2013, no Derivative Warrants were exercised and none expired. | |||||||||
The table below presents the changes in the Derivative Warrant Liability, which is measured at fair value on a recurring basis and classified as Level 3 in fair value hierarchy: | |||||||||
2014 | 2013 | ||||||||
Derivative Warrant Liability as of January 1 | $ | 1,119,155 | $ | 5,585,141 | |||||
Total unrealized losses included in net loss (1) | 176,000 | 1,061,682 | |||||||
Total unrealized gains included in net loss (1) | (1,182,000 | ) | (5,515,000 | ) | |||||
Total realized gains included in net loss (1) | — | (152,668 | ) | ||||||
Derivative Warrant Liability as of September 30 | $ | 113,155 | $ | 979,155 | |||||
(1) Included in Gain on Revaluation of Derivative Warrant Liability in the Consolidated Statement of Operations. |
PREFERRED_STOCK
PREFERRED STOCK | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
Note 7. PREFERRED STOCK | ' |
The Company is authorized to issue up to 40,000,000 shares of preferred stock with such rights, preferences and privileges as are determined by the Board of Directors. | |
Series C Convertible Preferred Stock | |
The Company has authorized 10,000 shares of Series C Preferred Stock, of which 1,000 shares were issued and outstanding as of September 30, 2014 and December 31, 2013. | |
Series D Convertible Preferred Stock | |
The Company has authorized 3,600,000 shares of Series D Convertible Preferred Stock, of which 1,000,000 shares were issued and outstanding as of September 30, 2014 and December 31, 2013. | |
Series E Convertible Preferred Stock | |
The Company has authorized 1,748,613 shares of Series E Convertible Preferred Stock, all of which were issued and outstanding as of September 30, 2014 and December 31, 2013. |
COMMON_STOCK
COMMON STOCK | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
Note 8. COMMON STOCK | ' |
The Company has authorized 150,000,000 shares of Common Stock, of which 12,648,353 and 11,776,578 shares were issued and outstanding as of September 30, 2014 and December 31, 2013, respectively. | |
January 2013 Financing | |
On January 31, 2013 and February 1, 2013, the Company entered into underwriting agreements (collectively, the “Underwriting Agreements”) with Aegis Capital Corp. (“Aegis”), as a representative of several underwriters, with respect to the issuance and sale in an underwritten public offering by the Company of an aggregate of 1,567,855 shares of the Company’s Common Stock (including 204,500 shares sold pursuant to the over-allotment option), at a price to the public of $7.50 per share. The net proceeds to the Company, after deducting the underwriting discount and other offering expenses payable by the Company, from the sale of the shares in the offering were approximately $10,626,000. On March 1, 2013, the Company used a portion of the net proceeds of the offering to pay off the $3,113,366 balance under the note issued to Montaur in connection with the $20 million non-revolving draw credit facility (see Note 5). | |
December 2013 Financing | |
On December 10, 2013, in connection with a licensing transaction, the Company entered into (i) a Securities Purchase Agreement with Platinum Partners Value Arbitrage Fund L.P. (“Platinum Value”) and Platinum Partners Liquid Opportunity Master Fund L.P. (“Platinum Liquid”, and together with Platinum Value, the “Platinum Partners”) (the “Platinum Securities Purchase Agreement”) and (ii) a Securities Purchase Agreement with MTIA and Beijing Sino Tau Shang Pin Tech and Development Corp. (“MTIA Affiliate”, and together with MTIA, the “China Purchasers”) (the “MTIA Securities Purchase Agreement”, and together with the Platinum Securities Purchase Agreement, the “Securities Purchase Agreements”). | |
Pursuant to the Platinum Securities Purchase Agreement, the Platinum Partners purchased an aggregate of 1,818,182 of the Company’s Capital Stock. Of that total, Platinum Partners purchased 69,569 shares of the Company’s Common Stock at $2.75 per share, being a premium to the NASDAQ closing price of $2.71 per share on December 9, 2013. In addition, the Platinum Partners purchased a total of 1,748,613 shares of Series E Preferred Stock (“Preferred Stock”) at a purchase price of $2.75 per share, which, under certain conditions, are exchangeable into shares of the Company’s Common Stock on a one-for-one basis. The conversion of Preferred Stock into shares of Common Stock, however, is subject to a restriction, which prohibits the conversion of shares of Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by the Platinum Partners and their affiliates at such time, the number of shares of Common Stock which would result in Platinum Partners and their affiliates beneficially owning in excess of 19.99% of all of the Company’s Common Stock outstanding at such time. Under the terms of the Platinum Securities Purchase Agreement, the Platinum Partners also received 181,818 warrants, having a five-year term and an exercise price of $2.75 per Warrant. The warrants are exercisable six months and one day following the issuance date thereof. Under the terms of the Platinum Securities Purchase Agreement, the Company has, at the request of the Platinum Partners, agreed to prepare a Proxy Statement and seek stockholder approval of the issuance of the Common Stock underlying the Preferred Stock (see Note 15). The Company received gross proceeds of $5,000,000 from the sale of the securities to the Platinum Partners on December 10, 2013 and incurred issuance costs of $100,000. | |
In connection with the issuance of this Series E Preferred Stock, the conversion feature of Series E Stock was considered beneficial, or “in the money”, at issuance due to a conversion rate that allows the investor to obtain the Common Stock at below market price. The Company recorded a deemed dividend on the beneficial conversion feature equal to its relative fair value resulting from the offering of $371,140 in the fourth quarter of the year ended December 31, 2013. | |
Under the MTIA Securities Purchase Agreement, the China Purchasers agreed to purchase a total of 1,818,182 shares of the Company’s Common Stock at $2.75 per share along with 181,818 warrants, having a five-year term and an exercise price of $2.75 and exercisable six months and one day following the issue date. As of September 30, 2014, the Company had not received the full proceeds of the sale of the securities from the MTIA after the parties had extended the due date for the receipt of all such proceeds to March 27, 2014, from the original closing date of December 12, 2013. MTIA failed to provide funds in a timely manner, resulting in its material breach of the SPA, which has subsequently expired. Due to the fact that the Company has not received the full proceeds from MTIA under the SPA, the Company has not issued all of the shares which it anticipated issuing under the MITA Securities Purchase nor has it recorded the complete MTIA transaction. In addition, the Company has not transferred any information related to license, development or commercialization of Symphony to MTIA since, pursuant to the license agreement between the Company and MTIA, the Company is not obligated to transfer technology unless and until MTIA fulfills its funding obligations under the MTIA Securities Purchase Agreement. The Company met with representatives of MTIA on October 22 and 23, 2014, regarding a MTIA’s possible investment in the Company. At the conclusion of the meeting, MTIA proposed an offer with an approximate 24 hour lifespan that upon execution of a convertible note purchase agreement with a first stage financing amount of $1,500,000, Echo would be required to turn-over all relevant technical product information and samples of our Generation 1 Symphony product to MTIA as well as dedicate personnel to support their consumer based business plan. As the MTIA offer did not include the previously agreed purchase of the additional $2,600,000 in Company securities as a prerequisite for the release and support of technical product information, the Company deemed the offer inadequate to warrant a response. On October 24, 2014, the Managing Director of MTIA communicated to PwC that they “have no intention to provide any so-called better offer”. Accordingly, the Company has ceasedpursuing funding from MTIA. Through September 30, 2014, the Company has issued 872,728 shares of Common Stock and warrants to purchase 87,274 shares of Common Stock in exchange for $2,400,000 in gross proceeds, of which the last installment was paid to the Company on April 15, 2014. The Company incurred issuance costs of $50,000. The fair value of warrants issued to MTIA to purchase 87,274 shares of Common Stock was determined to be $174,396 and was recorded as a debit and a credit to Additional Paid in Capital in the second quarter of 2014. | |
Stock Issued in Exchange for Services | |
During the three months ended September 30, 2014 and 2013, the Company did not issue shares of Common Stock to vendors in exchange for their services. During the nine months ended September 30, 2014 and 2013, the Company issued 2,636 and 7,450 shares, respectively, of Common Stock with a fair value of $8,404 and $89,970, respectively, to vendors in exchange for their services. The Company recorded expense related to these issuances, which represents the fair value of the related stock at the time of issuance, to Selling, General and Administrative expense. |
EQUITY_COMPENSATION_PLANS
EQUITY COMPENSATION PLANS | 9 Months Ended | |||||||||||||
Sep. 30, 2014 | ||||||||||||||
Compensation and Retirement Disclosure [Abstract] | ' | |||||||||||||
Note 9. EQUITY COMPENSATION PLANS | ' | |||||||||||||
In March 2003, the Company’s stockholders approved its 2003 Stock Option and Incentive Plan (the “2003 Plan”). Pursuant to the 2003 Plan, the Company’s Board of Directors (or its 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 Company’s employees, Officers, Directors, consultants and advisors. As of September 30, 2014, there were 10,000 restricted shares of Common Stock issued and options to purchase an aggregate of 39,000 shares of Common Stock outstanding under the 2003 Plan and no shares are available for future grants due to the 2003 Plan’s expiration. | ||||||||||||||
In May 2008, the Company’s stockholders approved the 2008 Equity Compensation Plan, as amended (the “2008 Plan”). The 2008 Plan provides for grants of incentive Stock Options to employees and nonqualified Stock Options and restricted stock to employees, consultants and non-employee Directors of the Company. The maximum number of shares available under the 2008 Plan is 10,000,000 shares. As of September 30, 2014, there were 108,550 restricted shares of Common Stock issued and Stock Options to purchase 644,154 shares of Common Stock outstanding under the 2008 Plan and 9,234,296 shares available for future grants. | ||||||||||||||
For the nine months ended September 30, 2014, no Stock Option grants were issued outside of an equity compensation plan. | ||||||||||||||
The following table shows the remaining shares available for future grants for each plan and outstanding shares: | ||||||||||||||
Equity Compensation Plans | Not Pursuant to a Plan | |||||||||||||
2003 Plan | 2008 Plan | |||||||||||||
Shares Available For Issuance | ||||||||||||||
Total reserved for stock options and restricted stock | 160,000 | 10,000,000 | ||||||||||||
Net restricted stock issued net of cancellations | (10,000 | ) | (108,550 | ) | ||||||||||
Stock options granted | (154,449 | ) | (1,700,883 | ) | ||||||||||
Add back options cancelled before exercise | 79,849 | 1,043,729 | ||||||||||||
Less shares no longer available due to Plan expiration | (75,400 | ) | — | |||||||||||
Remaining shares available for future grants at September 30, 2014 | — | 9,234,296 | ||||||||||||
Stock options granted | 154,449 | 1,700,883 | 310,000 | |||||||||||
Less:Stock options cancelled | (79,849 | ) | (1,043,729 | ) | (188,333 | ) | ||||||||
Stock options exercised | (35,600 | ) | (13,000 | ) | (66,667 | ) | ||||||||
Net options outstanding before restricted stock | 39,000 | 644,154 | 55,000 | |||||||||||
Net restricted stock issued net of cancellations | 10,000 | 108,550 | 6,485 | |||||||||||
Outstanding options and restricted shares at September 30, 2014 | 49,000 | 752,704 | 61,485 |
STOCK_OPTIONS
STOCK OPTIONS | 9 Months Ended | |||||||||||||
Sep. 30, 2014 | ||||||||||||||
Notes to Financial Statements | ' | |||||||||||||
Note 10. STOCK OPTIONS | ' | |||||||||||||
The fair value of each award of an option to purchase Common Stock (collectively, “Stock Options”) is estimated on the date of grant using the Black-Scholes-Merton option pricing model with certain assumptions noted below. Expected volatilities are based on historical volatility of the 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 and forfeitures within the valuation model. The expected term of Stock Options granted under the Company’s stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 12 to 42 months). The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. | ||||||||||||||
For Stock Options issued and outstanding during the nine month period ended September 30, 2014 and 2013, the Company recorded adjustments to paid-in capital and non-cash compensation expense of $708,000 and $554,000, respectively, each net of estimated forfeitures. | ||||||||||||||
The assumptions used principally for Stock Options granted to employees and members of the Company’s Board of Directors in the nine months ended September 30, 2014 and 2013 were as follows: | ||||||||||||||
2014 | 2013 | |||||||||||||
Risk-free interest rate | 1.75% – 2.08 | % | 0.13% - 1.89 | % | ||||||||||
Expected dividend yield | — | — | ||||||||||||
Expected term | 5.5 - 6.5 years | 1.0 - 6.5 years | ||||||||||||
Forfeiture rate (excluding fully vested Stock Options) | 15 | % | 15 | % | ||||||||||
Expected volatility | 120% - 141 | % | 129% - 141 | % | ||||||||||
A summary of Stock Option activity as of and for the nine months ended September 30, 2014 is as follows: | ||||||||||||||
Weighted- | Weighted- | |||||||||||||
Average | Average | Aggregate | ||||||||||||
Exercise | Remaining | Intrinsic | ||||||||||||
Shares | Price | Contractual | Value | |||||||||||
Stock Options | Term | |||||||||||||
Outstanding options at January 1, 2014 | 1,455,432 | $ | 4.9 | |||||||||||
Granted | 187,950 | $ | 3.08 | |||||||||||
Exercised | — | $ | — | |||||||||||
Forfeited or expired | (905,228 | ) | $ | 4.19 | ||||||||||
Outstanding options at September 30, 2014 | 738,154 | $ | 5.32 | 7.66 years | $ | — | ||||||||
Exercisable options at September 30, 2014 | 328,422 | $ | 8.02 | 5.75 years | $ | — | ||||||||
The weighted-average grant-date fair value of Stock Options granted during the nine months ended September 30, 2014 was $3.08 per share. As of September 30, 2014, there was approximately $602,000 of total unrecognized compensation expense related to non-vested share-based Stock Option compensation arrangements. With the exception of the unrecognized share-based compensation related to certain restricted stock grants to Officers and employees that contain performance conditions related to FDA approval for Symphony or the sale of substantially all of the stock or assets of the Company, unrecognized compensation is expected to be recognized over the next 5.25 years. |
RESTRICTED_STOCK
RESTRICTED STOCK | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Notes to Financial Statements | ' | ||||||||
Note 11. RESTRICTED STOCK | ' | ||||||||
For restricted stock issued and outstanding during the nine month period ended September 30, 2014 and 2013, the Company incurred non-cash compensation expense of approximately $349,000 and $355,000, respectively, each net of estimated forfeitures. | |||||||||
During the nine months ended September 30, 2014, the Company granted an aggregate of 36,936 restricted shares of Common Stock to certain Officers, employees, Directors and consultants of the Company. The grants were issued pursuant to the 2008 Plan. The grant date fair value of these restricted stock grants was approximately $111,000. | |||||||||
A summary of non-vested restricted stock activity as of and for the nine months ended September 30, 2014 is as follows: | |||||||||
Restricted Stock | Weighted- | ||||||||
Average | |||||||||
Shares | Grant-Date | ||||||||
Fair Value | |||||||||
Non-vested shares at January 1, 2014 | 201,655 | $ | 10.66 | ||||||
Granted | 36,936 | $ | 3 | ||||||
Vested | (66,333 | ) | $ | 7.15 | |||||
Forfeited | (47,223 | ) | $ | 7.41 | |||||
Non-vested shares at September 30, 2014 | 125,035 | $ | 11.48 | ||||||
Among the 125,035 shares of non-vested restricted stock, the various vesting criteria include the following: | |||||||||
· | 51,685 shares of restricted stock vest upon the FDA approval of Symphony or the sale of the Company; and | ||||||||
· | 73,350 shares of restricted stock vest over four years, at each of the anniversary dates of the grants. | ||||||||
As of September 30, 2014, there was approximately $296,000 of total unrecognized compensation expense related to non-vested share-based restricted stock arrangements granted pursuant to the Company’s equity compensation plans that vest over time in the foreseeable future. As of September 30, 2014, the Company cannot estimate the timing of completion of performance vesting requirements required by certain of these restricted stock grant arrangements. Compensation expense related to these restricted share grants will be recognized when the Company concludes that achievement of the performance vesting conditions is probable. |
WARRANTS
WARRANTS | 9 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Notes to Financial Statements | ' | |||||||||
Note 12. WARRANTS | ' | |||||||||
The Company uses valuation methods and assumptions that consider among other factors the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. The following assumptions were utilized by the Company: | ||||||||||
2014 | 2013 | |||||||||
Risk-free interest rate | 1.44% - 1.85 | % | 0.65% - 1.85 | % | ||||||
Expected dividend yield | — | — | ||||||||
Expected term (contractual term) | 2.9 – 3.1 years | 4.2 – 4.4 years | ||||||||
Expected volatility | 120% - 122 | % | 121% - 123 | % | ||||||
Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the warrant. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the warrant. | ||||||||||
In the nine months ended September 30, 2014, the Company issued 87,274 warrants in connection with partial closings related to the private placement of the Company’s Common Stock with MTIA (See Note 8). | ||||||||||
At September 30, 2014, the Company had the following outstanding warrants: | ||||||||||
Number of | Exercise Price | Date of Expiration | ||||||||
Shares | ||||||||||
Exercisable | ||||||||||
Outstanding warrants accounted for as Derivative Warrant liability: | ||||||||||
Granted to debt holder | 400,000 | $ | 20 | 8/31/17 | ||||||
Granted to debt holder | 100,000 | 21.3 | 9/20/17 | |||||||
Granted to debt holder | 50,000 | 22.7 | 10/17/17 | |||||||
Granted to debt holder | 150,000 | 21.1 | 11/6/17 | |||||||
Total outstanding warrants accounted for as Derivative Warrant liability | 700,000 | |||||||||
Weighted average exercise price | $ | 20.61 | ||||||||
Weighted average time to expiration | 2.98 years | |||||||||
Outstanding warrants accounted for as equity: | ||||||||||
Granted to investors in private placement | 76,800 | $ | 20 | 11/13/14 | ||||||
Granted to placement agent in private placement | 25,695 | 15 | 11/13/14 | |||||||
Granted to investors in private placement | 6,300 | 20 | 12/3/14 | |||||||
Granted to investors in private placement | 34,147 | 22.5 | 2/9/15 | |||||||
Granted to placement agents in private placement | 2,853 | 22.5 | 2/9/15 | |||||||
Granted to investor in private placement | 638 | 22.5 | 3/18/15 | |||||||
Granted to investors in private placement | 95,960 | 30 | 12/7/14 | |||||||
Granted to investors in private placement of common and preferred stock | 181,818 | 2.75 | 12/10/18 | |||||||
Granted to investors in private placement of common stock | 18,182 | 2.75 | 2/20/19 | |||||||
Granted to investors in private placement of common stock | 69,092 | 2.75 | 6/17/19 | |||||||
Total outstanding warrants accounted for as equity | 511,485 | |||||||||
Weighted average exercise price | $ | 12.73 | ||||||||
Weighted average time to expiration | 1.58 years | |||||||||
Totals for all warrants outstanding: | ||||||||||
Total | 1,211,485 | |||||||||
Weighted average exercise price | $ | 17.29 | ||||||||
Weighted average time to expiration | 2.72 years | |||||||||
A summary of warrants activity for the nine months ended September 30, 2014 is as follows: | ||||||||||
Weighted- | ||||||||||
Average | ||||||||||
Exercise | ||||||||||
Warrants | Shares | Price | ||||||||
Outstanding warrants at January 1, 2014 | 1,209,211 | $ | 17.92 | |||||||
Granted | 87,274 | $ | 2.75 | |||||||
Exercised | — | $ | — | |||||||
Forfeited or expired | (85,000 | ) | $ | 11.35 | ||||||
Outstanding warrants at September 30, 2014 | 1,211,485 | $ | 17.29 |
LICENSING_AND_OTHER_REVENUE
LICENSING AND OTHER REVENUE | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
Note 13. LICENSING AND OTHER REVENUE | ' |
In 2009, the Company entered into a License Agreement with Handok Pharmaceuticals Co., Ltd. (“Handok”) pursuant to which the Company granted Handok a license to develop, use, market, sell and import Symphony for continuous glucose monitoring for use by medical facilities and/or individual consumers in South Korea (the “Handok License”). The Handok License has a minimum term of 10 years from the date of the first commercial sale of Symphony in South Korea. | |
The Company received a licensing fee of approximately $500,000 upon execution of the Handok License and the right to receive future milestone payments and royalties. The Company recognizes these upfront, nonrefundable payments as revenue on a straight-line basis over the contractual or estimated performance period. During the three months ended September 30, 2014 and 2013, the Company recorded approximately $19,000 and $23,000, respectively, of nonrefundable license revenue. During the nine months ended September 30, 2014 and 2013, the Company recorded approximately $57,000 and $68,000, respectively, of nonrefundable license revenue. As of September 30, 2014, approximately $76,000 is recognizable over the next 12 months and is shown as current deferred revenue. The remaining $19,000 is recognizable as revenue beyond the 12 month period and is classified as non-current. | |
In December 2013, in connection with a capital raising transaction, the Company entered into a license, development and commercialization agreement with MTIA (the “License Agreement”). Later in December 2013, January 2014 and March 2014, the License Agreement with MTIA was amended to extend the due date to March 27, 2014 for receipt of all proceeds past the original closing date of December 12, 2013. The amendment provides that the Company is not required to commence its obligations under the License Agreement, including the transfer of any technology or other documents, products or information to MTIA, until the Company has received the full proceeds from the capital raising transaction. To date, the Company has received from MTIA $2,400,000 of the previously anticipated $5,000,000 in proceeds in accordance with the capital raising transaction (see Note 8). Since MTIA did not fulfill its obligations with respect to the capital raising transaction, the Company has not transferred any information to MTIA relating to the license, development or commercialization of our product in accordance with the License Agreement. |
LITIGATION
LITIGATION | 9 Months Ended |
Sep. 30, 2014 | |
Commitments and Contingencies Disclosure [Abstract] | ' |
NOTE 14. LITIGATION | ' |
In February 2014, Patrick T. Mooney, M.D., our former President and Chief Executive Officer, and his wife, Elizabeth Mooney, filed a complaint against the Company and certain of its Directors and Officers in the Court of Common Pleas in Philadelphia County. The complaint, which alleges (i) that Dr. Mooney’s termination was without cause so that he is entitled to certain severance benefits under his employment agreement and associated statutory remedies; (ii) that certain legally required disclosures by the Company and its General Counsel defamed Dr. Mooney; and (iii) that Dr. Mooney’s wife is entitled to damages under a theory of loss of consortium, seeks in excess of $20 million in damages. The Company denied the allegations of the complaint and asserted counterclaims against Dr. Mooney based upon the same conduct which provided the cause for his termination. Thereafter, the Company withdrew three of the counterclaims after concluding that Dr. Mooney’s personal financial condition was unlikely to permit recovery of the advanced defense costs he had demanded or such damages as the Company might ultimately recover and that the expenditure of cash necessary to prosecute those affirmative claims was best conserved for other corporate purposes. The Company believes it has strong defenses to the claims asserted and intends to defend them vigorously. The Company similarly believes that it has strong support for its remaining counterclaim. | |
In July 2014, Dr. and Mrs. Mooney filed another complaint in the Court of Common Pleas in Philadelphia County against the Company, certain of its directors and Officers and a former Director and officer alleging (i) wrongful use of civil proceedings and (ii) abuse of process in the original filing of the counterclaims withdrawn in the earlier action. Mrs. Mooney also asserted another claim for loss of consortium. This complaint seeks in excess of $30 million in damages. The Company has denied the allegations. The Company believes that this action is without merit, that it acted lawfully and in good faith, and that it has strong defenses to the claims asserted. Accordingly, the Company intends to vigorously defend against this lawsuit. | |
In August 2014, Dr. Mooney filed a complaint in Delaware Chancery Court against the Company for advancement of defense costs related to his February 2014 complaint, many of which the Company had paid to date and the remainder of which were subject to a good faith dispute that counsel for the Company and Dr. Mooney had been attempting to amicably resolve. Dr. Mooney also demanded that the Company pay for his attorneys fees related to his July 2014 complaint against the Company, amongst other matters. The Company filed a Motion to Dismiss this complaint and is awaiting the Court’s ruling. | |
In September 2014, Platinum Partners Value Arbitrage Fund L.P. (“Platinum Partners”) filed a complaint in Delaware Chancery Court against the Company seeking inspection of certain of the Company’s books and records. The Company responded to the complaint on October 7, 2014. On November 17, 2014, the Company and Platinum Partners filed a Joint Stipulation of Dismissal, and this matter is now concluded. | |
In October 2014, Platinum filed a complaint in Delaware Chancery Court against the Company seeking inspection of the Company's stocklist and certain of the Company’s books and records. The Company responded to the complaint on October 24, 2014. On November 10, 2014, the Company and Platinum Partners filed a Joint Stipulation of Dismissal, and this matter is now concluded. | |
On October 31, 2014, Platinum Partners filed a complaint in Delaware Chancery Court against the Company and three of its directors seeking, among other things, a declaration that certain of the Company's bylaws are invalid and that the three directors breached their fiduciary duties and an order requiring the Company to hold a special meeting at which the stockholders can vote on whether to remove the three directors. The Company believes that Platinum Partners' request for relief is without merit and intends to contest the suit vigorously. |
SUBSEQUENT_EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2014 | |
Subsequent Events | ' |
Note 15. SUBSEQUENT EVENTS | ' |
Management has evaluated events subsequent to September 30, 2014. In addition to the items discussed in Notes 1, 5 and 14, there are no subsequent events that require adjustment to or disclosure in the Financial Statements, other than the following. | |
As described in Note 1, on October 2, 2014, the Company announced that it had retained PwC as a financial and restructuring consultant to assist the Company in exploring financial and strategic alternatives that could sufficiently address its liquidity needs and allow it to resume operations. Such financial and strategic alternatives include, but are not limited to, a sale and/or license of intellectual property and other assets, a merger or sale of the Company in entirety, other business combination, a capital transaction and/or a voluntary petition for reorganization or liquidation pursuant to the U.S. Bankruptcy Code. With PwC’s support of the process, the Company continues to proceed in an orderly and timely manner to consider possible financial and strategic alternatives for the Company and their implications. However, no assurances can be given as to whether any particular financial or strategic alternative will be recommended or undertaken or, if so, upon what terms and conditions. If the Company is unable to identify an acceptable financial or strategic alternative that sufficiently addresses the Company’s liquidity or operational needs, the Company could be forced to file for protection under the U.S. Bankruptcy Code. The engagement agreement between Echo and PwC stated that the Company agreed to pay PwC a $50,000 retainer upon the execution of the agreement and apply this dollar sum to PwC’s final billing. Additionally, PwC would render invoices on a regular basis and that were to be paid within five business days if the Company does not file a petition for relief under Chapter 11 of the U.S. Bankruptcy Code. On November 5, 2014, PwC supplied the Company with a progress billing invoice for $240,740 related to their advisory services. As of November 18, 2014, the Company has deemed it prudent to withhold payment as a result of their desire to gain greater detail regarding the description of services rendered. Accordingly, the Company anticipates that PwC will pursue all remedies available to it up and to including legal action. | |
On October 2, 2014, the Company commented on the recent unauthorized public statements relating to the Company that have been made by Michael M. Goldberg M.D. and Shepard M. Goldberg (“the Goldbergs”), two members of the Company’s Board of Directors that were either designated or nominated to the Company’s Board by an affiliate of Platinum Management (NY) LLC. The press release stated that in prior weeks, the Goldbergs had engaged in numerous unauthorized public communications targeted at the Company’s stockholders, the trading markets and the media. These communications included an unauthorized public investor conference call during which the Goldbergs made a presentation relating to the Company, unauthorized press releases discussing the Company and other unauthorized statements by which the Goldbergs have sought to relay to the Company‘s stockholders information relating to the Company, its prospects and its financing and strategic alternatives. Stockholders were further advised that all such communications by the Goldbergs have been made solely in their individual capacities and not as authorized representatives of the Company or the Company’s Board. The Company specifically disclaimed (i) any responsibility for the Goldbergs’ public statements, communications and other unauthorized actions; (ii) any responsibility for the accuracy of any of the information relating to the Company, its prospects or its financing and strategic alternatives that is disseminated by the Goldbergs or those that may be acting in concert with the Goldbergs; and (iii) any obligation to correct any false and misleading statements and disclosures that may be issued by the Goldbergs or those that may be acting in concert with the Goldbergs. | |
Under Section 5.6 of the Platinum Securities Purchase Agreement, at the reasonable request of Platinum Partners, the Company is required to prepare and file with the SEC a Proxy Statement and seek stockholder approval of the issuance of the Common Stock underlying the Series E Preferred Stock and the warrants. The Company is required to file the Proxy Statement as promptly as reasonably practicable, but in any event no later than 30 business days following the receipt of the request. Thereafter, as promptly as reasonably practicable, but in any event no later than three business days after the Proxy Statement becomes definitive, the Company is required to duly call, give notice to stockholders, convene and hold the Special Meeting, which shall be held no later than 45 business days following the request. On July 9, 2014, Platinum Partners delivered to the Company a Notice of Request to Call a Special Meeting of Stockholders, in which Platinum Partners requested pursuant to Section 5.6 of the Platinum Stock Purchase Agreement that the Company call a special meeting of stockholders to seek stockholder approval of the issuance of 1,748,613 shares of the Common Stock upon the conversion of the 1,748,613 shares of Series E Preferred Stock (the “Special Meeting”). On October 16, 2014, the Company filed a Revised Preliminary Proxy Statement regarding the Special Meeting to consider and act upon a proposal to approve the issuance by the Company of 1,748,613 shares of its Common Stock, to Platinum Partners Value Arbitrage Fund L.P. (“PPVA”) and Platinum Partners Liquid Opportunity Master Fund, L.P. (“PPLO” and, together with PPVA, “Platinum”) upon the conversion by Platinum of 1,748,613 shares of Series E Convertible Preferred Stock of the Company, par value $0.01 per share, which would result in Platinum holding more than 20% of the Company’s outstanding shares of Common Stock, triggering the stockholder approval requirement under Nasdaq Marketplace Rule 5365(b). At this time, no Record Date for holders of the Common Stock nor the date of the Special Meeting of Stockholders has been established. If and when a meeting date is established, no other business will be transacted at the Special Meeting. In accordance with Section 222 of the Delaware General Corporation Law, as amended (the “DGCL”), and Section 1.3 of Echo’s Amended and Restated Bylaws, the business transacted at the Special Meeting shall be limited to the purpose stated in this notice of the Special Meeting. | |
On September 29, 2014, Platinum filed with the SEC a Preliminary Proxy Statement on Schedule 14A for the purpose of commencing a proxy contest to purportedly remove, for “cause”, the only duly-elected independent members of Echo’s Board of Directors that were not designated or nominated by Platinum, namely William F. Grieco, Vincent D. Enright and James F. Smith (the “Non-Affiliated Independent Directors”). We believe that the Preliminary Proxy Statement that Platinum filed with the SEC in connection with the special meeting proxy contest is procedurally and substantively deficient and may involve violations of the federal securities laws and rules and regulations governing proxy solicitations. Among other issues, Echo believes that Platinum’s proxy materials filed with the SEC in connection with its purported attempt to remove the three duly-elected Non-Affiliated Independent Directors through a Special Meeting proxy contest contain numerous inaccuracies, misstatements and untruths. In its numerous conclusory statements, the Platinum Group has taken upon itself to declare that “cause” exists to remove the Non-Affiliated Independent Directors even though it has failed to articulate any conduct engaged in by the Non-Affiliated Independent Directors that would support such a determination consistent with the applicable law of the State of Delaware. | |
As described in Note 5, on August 31, 2012, the Company and Montaur entered into a loan agreement pursuant to which Montaur made a credit facility of up to $20,000,000 available to the Company, a substantial portion of which is subject to the successful achievement of certain clinical and regulatory milestones set forth in the Loan Agreement, with an initial available principal amount of $5,000,000. The Company issued to Montaur a Promissory Note dated August 31, 2012, with a maturity date of five years from the date of closing. On March 1, 2013, the Company elected to prepay all outstanding draws under the Montaur Credit Facility. After such date, no principal amount was outstanding under the Credit Facility. On October 28, 2014, the Company sent a letter to Montaur notifying them that the Company was irrevocably cancelling and terminating the loan agreement in accordance with Section 3.1 of the loan agreement as of October 30, 2014 (see Note 5). | |
On November 6, 2014, the Company received a letter from the Listing Qualifications Department of the NASDAQ Stock Market (“Nasdaq”) informing the Company that because the closing bid price for the Company's common stock listed on Nasdaq was below $1.00 for 30 consecutive business days and therefore out of compliance with the minimum closing bid price requirement for continued listing on the Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2). The letter further provides that, under the Nasdaq rules, the Company has a 180-day compliance period, or until May 5, 2015, to regain compliance with Nasdaq's listing requirements by having the closing bid price of its common stock be at least $1.00 for at least 10 consecutive trading days. In the event that the Company does not regain compliance by May 5, 2015, the Company may be granted an additional 180-day compliance period, provided that the Company (i) meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and (ii) provides written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Nasdaq staff will notify the Company that its common stock will be subject to delisting. In the event that the Company does not regain compliance within the requisite time period, it would have the right to appeal a delisting determination. Failure to maintain listing on the Nasdaq Capital Market may have a material adverse effect on the price and/or liquidity of the Company’s common stock. During this process, shares of the Company's common stock will continue to trade on the Nasdaq Capital Market. | |
On November 14, 2014, the Company’s corporate governance counsel withdrew from its representation of the Company effective immediately. On November 17, 2014, the Company’s securities and transactional counsel notified the Company that, after their review of and comment on the Company’s Form 10-Q was completed, their work for Echo would be concluded and they intended to withdraw from further representation. Management has identified new outside counsel who is ready to begin providing services to the Company, but the Company has not retained new counsel at this time. Accordingly, the Company is without external legal representation to advise on corporate governance, securities and transactions matters. Such counsel remains integral to the Company’s ability to provide assurance as to the effectiveness of its system of internal controls, to support Management during a time of discord between members of the Board of Directors, and to assist Management in addressing threats of potential litigation against the Company and public allegations of wrongdoing against various members of the Company’s Board that have previously made public by the Company and/or certain members of its Board. |
ORGANIZATION_AND_BASIS_OF_PRES1
ORGANIZATION AND BASIS OF PRESENTATION (Policies) | 9 Months Ended |
Sep. 30, 2014 | |
Organization And Basis Of Presentation Policies | ' |
ORGANIZATION AND BASIS OF PRESENTATION | ' |
Echo Therapeutics, Inc. (the “Company” or “Echo”) is a medical device company with expertise in advanced skin permeation technology. The Company was developing its Symphony® CGM System (“Symphony”) as a non-invasive, wireless continuous glucose monitoring (“CGM”) system for use initially in hospital critical care units. The Symphony SkinPrep System (“SkinPrep”), a component of Symphony, allows for enhanced skin permeation that enables extraction of analytes such as glucose and enhanced delivery of topical pharmaceuticals. | |
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements have been prepared in conformity with Generally Accepted Accounting Principles (“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 28, 2014. These 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 Company’s financial position as of September 30, 2014 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. These interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements as 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. | |
On June 7, 2013, the Company effected a 1-for-10 reverse stock split of its Common Stock. All share and per share information has been retroactively restated to reflect this reverse stock split. | |
LIQUIDITY, GOING CONCERN AND MANAGEMENT'S PLAN | ' |
Liquidity, Going Concern and Management’s Plans | |
The accompanying consolidated financial statements have been prepared on a basis assuming that the Company is a Going Concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2014, the Company had cash of approximately $1,469,000, a negative working capital of approximately $109,000 and an accumulated deficit of approximately $125,011,000. In the past, the Company has funded its operations primarily through debt and equity issuances. | |
In August 2014, the Company announced that it had taken steps to substantially reduce operating costs and preserve cash while further refining its development efforts and resources needed to implement key product performance enhancements to its Symphony CGM System. The Company implemented significant cost reductions across all aspects of its operations in both external spend and workforce, including reductions in general and administrative, manufacturing, clinical and product development expenditures. The Company anticipated a meaningful decrease in expenses as a result of the cost reduction efforts. As a result of these August 2014 initiatives, which included a 35% reduction in employees, the burn rate in September 2014 was decreased by 40%-50% as compared to the average monthly burn rate experienced during the first six months of 2014. At that time, the Company continued to explore a variety of funding alternatives which it believed, together with the cost reduction initiatives, would be necessary to permit the Company to ultimately achieve its clinical trial and regulatory approval objectives. Additionally, the Company publicly stated that in the absence of a financing or strategic transaction, Echo’s ability to achieve its previously stated product development timelines would be negatively impacted by the Company’s effort to preserve cash and reduce expenses. | |
On September 23, 2014, the Company announced that it believed that its liquidity was insufficient to fund its needs beyond September 30, 2014 if its operations continued as they were at that time. Accordingly, it suspended its product development, research, manufacturing and clinical programs and operations to conserve its liquidity and capital resources. The actions followed a strategic review of the Company’s current financial position, funding alternatives, and projected product development costs and timelines. The workforce reduction that resulted from the suspension of operations comprised approximately 70% of Echo's workforce. Additionally, events such as the lawsuits filed or threatened by Platinum Management (NY) LLC (“Platinum”) and its affiliates and the ongoing interference by Platinum to damage Echo, its prospects and its relationships with its vendors and employees, have caused, and are expected to continue to cause, a significant liquidity strain on the Company. Any resumption of operations would be dependent on Echo’s ability to identify a strategic or financial alternative that would provide the Company with timely, committed and sufficient third-party funding. No assurances can be given that Echo will be able to identify a strategic or financial alternative that would provide Echo with funding sufficient to enable Echo to resume its operations. | |
On October 2, 2014, the Company announced that it had retained PricewaterhouseCoopers LLP’s Restructuring and Recovery Services Practice (“PwC”) as a financial and restructuring consultant to assist the Company in exploring financial and strategic alternatives that could sufficiently address its liquidity needs and allow it to resume operations. Such financial and strategic alternatives includes, but are not limited to, a sale and/or license of intellectual property and other assets, a merger, other business combination, a capital transaction and/or a voluntary petition for reorganization or liquidation pursuant to the U.S. Bankruptcy Code. Echo with PwC’s support, continues to proceed in an orderly and timely manner to consider possible financial and strategic alternatives for the Company and their implications. However, no assurances can be given as to whether any particular financial or strategic alternative for Echo will be recommended or undertaken or, if so, upon what terms and conditions. If Echo is unable to identify an acceptable financial or strategic alternative that sufficiently addresses Echo’s liquidity needs, the Company could be forced to file for protection under the U.S. Bankruptcy Code. Echo continues to aggressively pursue additional financing from existing relationships (current and prior stockholders, investors and lenders) and from new investors to support operations, including its product and clinical development programs. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties including the possible write-down of the intangible assets or other assets as of September 30, 2014. | |
Pursuant to the Securities Purchase Agreement (“SPA”) between the Company and Medical Technologies Innovation Asia Ltd. (“MTIA”), as amended on January 30, 2014, in March 2014 and on June 17, 2014, the Company would sell 1,818,182 shares of its Common Stock and 181,818 warrants to purchase its Common Stock to MTIA for an aggregate purchase price of $5,000,000, such sales to be made in three installments through March 27, 2014. From February 4, 2014 through April 15, 2014, the Company received gross proceeds of $2,400,000 of the anticipated $5,000,000 in connection with the SPA. In connection with the receipt of those proceeds, the Company has issued to MTIA 872,728 shares of its Common Stock and 87,274 warrants to purchase its Common Stock (see Note 8). Based on representations made by MTIA to the Company, the Company had anticipated the receipt of the full $5,000,000 from MTIA despite the fact that the funding dates in the SPA, as amended, had passed without receipt of funds from MTIA. MTIA’s failure to provide funds in a timely manner resulted in its material breach of the SPA, which has subsequently expired and have a negative impact on Company’s operations and planned development efforts. The Company met with representatives of MTIA on October 22 and 23, 2014, regarding MTIA’s possible investment in the Company. At the conclusion of the meeting, MTIA proposed an offer with an approximate 24-hour lifespan that upon execution of a convertible note purchase agreement with a first stage financing amount of $1,500,000, Echo would be required to turn-over all relevant technical product information and samples of our Generation 1 Symphony product to MTIA as well as dedicate personnel to support their consumer based business plan. As the MTIA offer did not include the previously agreed purchase of the additional $2,600,000 in Company securities as a prerequisite for the release and support of technical product information, the Company deemed the offer inadequate to warrant a response. On October 24, 2014, the Managing Director of MTIA communicated to PwC that they “have no intention to provide any so-called better offer.” Accordingly, the Company has ceased pursuing funding from MTIA. | |
MANAGEMENT'S STRUCTURE, STAFFING AND FACILITIES | ' |
Management’s Structure, Staffing and Facilities | |
Effective at midnight on June 30, 2014, Robert F. Doman’s consulting contract with the Company expired in accordance with its terms and, accordingly, he no longer serves as the Company’s Executive Chairman and Interim Chief Executive Officer. On June 30, 2014, the Board appointed Kimberly A. Burke to serve as Interim Chief Executive Officer of Echo, for a sixty-day period beginning on July 1, 2014 and ending on August 30, 2014. Ms. Burke has served as Echo’s General Counsel and Senior Vice President since January 2011, as Chief Compliance Officer since April 2012, and she has served as Echo’s Secretary since 2010. Ms. Burke joined the Company as Vice President, Corporate Counsel in 2008. | |
On September 12, 2014, Kimberly A. Burke informed the Company of her decision to resign as Senior Vice President, General Counsel and Chief Compliance Officer of Echo to pursue other opportunities. Ms. Burke agreed to transition matters appropriately and the effective date of her resignation will be determined once an effective transition has occurred. At this time, Ms. Burke continues to serve Echo as its Senior Vice President, General Counsel, Chief Compliance Officer and Secretary. | |
Effective July 16, 2014, the Board appointed Charles T. Bernhardt to serve as Interim Chief Financial Officer of Echo. As the Company continues to explore financial and strategic alternatives that could sufficiently address its liquidity needs and allow it to resume operations, it has drastically reduced its workforce to conserve cash. The Company retained a team of seven key employees to enable it to explore its financial and strategic alternatives. | |
The Company leases approximately 37,000 square feet of manufacturing, laboratory and office space in a single-story building located in Franklin, Massachusetts under a lease expiring October 31, 2017. The Company is actively attempting to sublease some or all of this space to conserve cash as well as more efficiently accommodate its projected facilities needs. | |
The Company also leases approximately 7,900 square feet of corporate office space in a multi-story building located in Philadelphia, Pennsylvania under a lease expiring May 31, 2017, with the right to terminate the lease on November 30, 2014. The Company has reached an understanding with the landlord that, as of November 1, 2014, the lease will become month-to-month and the monthly rent will be reduced by 50% while the landlord attempts to rent some, or all, of the current space occupied by the Company. The Company expects to be provided 60 days notice to vacate its current office space and the landlord has pledged to assist Echo in locating office space in one of the landlord’s Philadelphia area office buildings that would better fit the Company’s current needs on a month-to-month basis. | |
RECLASSIFICATIONS | ' |
Reclassifications | |
Certain expenses prior to the second quarter of 2014 were reclassified to correspond with the current reporting structure for the nine months ended 2014. In prior periods, Research & Development (“R&D”) facilities expense and related personnel benefits were recognized as Sales, General and Administrative (“SG&A”) expenses. Where relevant, recognition is given to the impact of this reclassification. | |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosures. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016. We are currently in the process of evaluating the impact of adoption of this ASU on the financial statements. | |
In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. Under the new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results and is disposed of or classified as held for sale. The standard also introduces several new disclosures. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. ASU 2014-08 is effective for annual and interim periods beginning after December 15, 2014, with early adoption permitted. We are currently in the process of evaluating the impact of adoption of this ASU on the financial statements. | |
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” which applies should a company be facing probable liquidation within one year of the issuance of the financial statements, but is not actually in liquidation at the time of issuance. The applicable accounting basis for presentation remains as a going concern, but if liquidation within one year is probable, then certain disclosures must be included in the financial statement presentation. ASU 2014-15 is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. We are currently in the process of evaluating the impact of adoption of this ASU on the financial statements. |
INTANGIBLE_ASSETS_Tables
INTANGIBLE ASSETS (Tables) | 9 Months Ended | |||||||||||||||||
Sep. 30, 2014 | ||||||||||||||||||
Intangible Assets Tables | ' | |||||||||||||||||
Intangible assets | ' | |||||||||||||||||
As of September 30, 2014 and December 31, 2013, intangible assets related to this acquisition are summarized as follows: | ||||||||||||||||||
2014 | 2013 | |||||||||||||||||
Estimated | Accumulated | |||||||||||||||||
Life | Cost | Amortization | Net | Net | ||||||||||||||
Contract related intangible asset: | ||||||||||||||||||
Cato Research discounted contract | 3 years | $ | 355,000 | $ | 355,000 | $ | — | $ | — | |||||||||
Technology related intangible assets: | ||||||||||||||||||
Patents for the AzoneTS-based product candidates and formulation | 4 years | 1,305,000 | — | 1,305,000 | 1,305,000 | |||||||||||||
Drug Master Files containing formulation, clinical and safety documentation used by the FDA | 4 years | 1,500,000 | — | 1,500,000 | 1,500,000 | |||||||||||||
In-process pharmaceutical products for 2 indications | 4 years | 6,820,000 | — | 6,820,000 | 6,820,000 | |||||||||||||
Total technology related intangible assets | 9,625,000 | — | 9,625,000 | 9,625,000 | ||||||||||||||
Total, net | $ | 9,980,000 | $ | 355,000 | $ | 9,625,000 | $ | 9,625,000 | ||||||||||
Intangible assets related to technology are expected to be amortized on a straight-line basis over | ||||||||||||||||||
Amortization expense | ' | |||||||||||||||||
Estimated amortization expense for each of the next five calendar years is as follows: | ||||||||||||||||||
Estimated | ||||||||||||||||||
Amortization | ||||||||||||||||||
Expense | ||||||||||||||||||
2014 | $ | — | ||||||||||||||||
2015 | $ | — | ||||||||||||||||
2016 | $ | 1,480,800 | ||||||||||||||||
2017 | $ | 2,961,600 | ||||||||||||||||
2018 | $ | 2,961,600 | ||||||||||||||||
OPERATING_LEASE_COMMITMENTS_Ta
OPERATING LEASE COMMITMENTS (Tables) | 9 Months Ended | ||||||||||||
Sep. 30, 2014 | |||||||||||||
Operating Lease Commitments Tables | ' | ||||||||||||
Future minimum lease payments | ' | ||||||||||||
Future minimum lease payments for each of the next five years under the current terms of these operating leases at September 30, 2014 are approximately as follows: | |||||||||||||
Franklin | Philadelphia | Total | |||||||||||
Year Ending December 31, | |||||||||||||
2014 | $ | 113,000 | $ | 31,333 | $ | 144,333 | |||||||
2015 | 457,000 | — | 457,000 | ||||||||||
2016 | 468,000 | — | 468,000 | ||||||||||
2017 | 389,000 | — | 389,000 | ||||||||||
2018 | — | — | — | ||||||||||
Total | $ | 1,427,000 | $ | 31,333 | $ | 1,458,333 |
DERIVATIVE_WARRANT_LIABILITY_T
DERIVATIVE WARRANT LIABILITY (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Derivative Warrant Liability Tables | ' | ||||||||
Derivative warrant liability | ' | ||||||||
The table below presents the changes in the Derivative Warrant Liability, which is measured at fair value on a recurring basis and classified as Level 3 in fair value hierarchy: | |||||||||
2014 | 2013 | ||||||||
Derivative Warrant Liability as of January 1 | $ | 1,119,155 | $ | 5,585,141 | |||||
Total unrealized losses included in net loss (1) | 176,000 | 1,061,682 | |||||||
Total unrealized gains included in net loss (1) | (1,182,000 | ) | (5,515,000 | ) | |||||
Total realized gains included in net loss (1) | — | (152,668 | ) | ||||||
Derivative Warrant Liability as of September 30 | $ | 113,155 | $ | 979,155 | |||||
(1) Included in Gain on Revaluation of Derivative Warrant Liability in the Consolidated Statement of Operations. | |||||||||
EQUITY_COMPENSATION_PLANS_Tabl
EQUITY COMPENSATION PLANS (Tables) | 9 Months Ended | |||||||||||||
Sep. 30, 2014 | ||||||||||||||
Compensation and Retirement Disclosure [Abstract] | ' | |||||||||||||
Share based compensation options | ' | |||||||||||||
Equity Compensation Plans | Not Pursuant to a Plan | |||||||||||||
2003 Plan | 2008 Plan | |||||||||||||
Shares Available For Issuance | ||||||||||||||
Total reserved for stock options and restricted stock | 160,000 | 10,000,000 | ||||||||||||
Net restricted stock issued net of cancellations | (10,000 | ) | (108,550 | ) | ||||||||||
Stock options granted | (154,449 | ) | (1,700,883 | ) | ||||||||||
Add back options cancelled before exercise | 79,849 | 1,043,729 | ||||||||||||
Less shares no longer available due to Plan expiration | (75,400 | ) | — | |||||||||||
Remaining shares available for future grants at September 30, 2014 | — | 9,234,296 | ||||||||||||
Stock options granted | 154,449 | 1,700,883 | 310,000 | |||||||||||
Less:Stock options cancelled | (79,849 | ) | (1,043,729 | ) | (188,333 | ) | ||||||||
Stock options exercised | (35,600 | ) | (13,000 | ) | (66,667 | ) | ||||||||
Net options outstanding before restricted stock | 39,000 | 644,154 | 55,000 | |||||||||||
Net restricted stock issued net of cancellations | 10,000 | 108,550 | 6,485 | |||||||||||
Outstanding options and restricted shares at September 30, 2014 | 49,000 | 752,704 | 61,485 |
STOCK_OPTIONS_Tables
STOCK OPTIONS (Tables) | 9 Months Ended | |||||||||||||
Sep. 30, 2014 | ||||||||||||||
Stock Options Tables | ' | |||||||||||||
Assumption used for stock option granted | ' | |||||||||||||
2014 | 2013 | |||||||||||||
Risk-free interest rate | 1.75% – 2.08 | % | 0.13% - 1.89 | % | ||||||||||
Expected dividend yield | — | — | ||||||||||||
Expected term | 5.5 - 6.5 years | 1.0 - 6.5 years | ||||||||||||
Forfeiture rate (excluding fully vested Stock Options) | 15 | % | 15 | % | ||||||||||
Expected volatility | 120% - 141 | % | 129% - 141 | % | ||||||||||
Stock option activity | ' | |||||||||||||
Weighted- | Weighted- | |||||||||||||
Average | Average | Aggregate | ||||||||||||
Exercise | Remaining | Intrinsic | ||||||||||||
Shares | Price | Contractual | Value | |||||||||||
Stock Options | Term | |||||||||||||
Outstanding options at January 1, 2014 | 1,455,432 | $ | 4.9 | |||||||||||
Granted | 187,950 | $ | 3.08 | |||||||||||
Exercised | — | $ | — | |||||||||||
Forfeited or expired | (905,228 | ) | $ | 4.19 | ||||||||||
Outstanding options at September 30, 2014 | 738,154 | $ | 5.32 | 7.66 years | $ | — | ||||||||
Exercisable options at September 30, 2014 | 328,422 | $ | 8.02 | 5.75 years | $ | — |
RESTRICTED_STOCK_Tables
RESTRICTED STOCK (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Notes to Financial Statements | ' | ||||||||
Nonvested restricted stock activity | ' | ||||||||
A summary of non-vested restricted stock activity as of and for the nine months ended September 30, 2014 is as follows: | |||||||||
Restricted Stock | Weighted- | ||||||||
Average | |||||||||
Shares | Grant-Date | ||||||||
Fair Value | |||||||||
Non-vested shares at January 1, 2014 | 201,655 | $ | 10.66 | ||||||
Granted | 36,936 | $ | 3 | ||||||
Vested | (66,333 | ) | $ | 7.15 | |||||
Forfeited | (47,223 | ) | $ | 7.41 | |||||
Non-vested shares at September 30, 2014 | 125,035 | $ | 11.48 | ||||||
WARRANTS_Tables
WARRANTS (Tables) | 9 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Warrants Tables | ' | |||||||||
Warrants assumptions utilized by the Company | ' | |||||||||
2014 | 2013 | |||||||||
Risk-free interest rate | 1.44% - 1.85 | % | 0.65% - 1.85 | % | ||||||
Expected dividend yield | — | — | ||||||||
Expected term (contractual term) | 2.9 – 3.1 years | 4.2 – 4.4 years | ||||||||
Expected volatility | 120% - 122 | % | 121% - 123 | % | ||||||
Outstanding Warrants | ' | |||||||||
Number of | Exercise Price | Date of Expiration | ||||||||
Shares | ||||||||||
Exercisable | ||||||||||
Outstanding warrants accounted for as Derivative Warrant liability: | ||||||||||
Granted to debt holder | 400,000 | $ | 20 | 8/31/17 | ||||||
Granted to debt holder | 100,000 | 21.3 | 9/20/17 | |||||||
Granted to debt holder | 50,000 | 22.7 | 10/17/17 | |||||||
Granted to debt holder | 150,000 | 21.1 | 11/6/17 | |||||||
Total outstanding warrants accounted for as Derivative Warrant liability | 700,000 | |||||||||
Weighted average exercise price | $ | 20.61 | ||||||||
Weighted average time to expiration | 2.98 years | |||||||||
Outstanding warrants accounted for as equity: | ||||||||||
Granted to investors in private placement | 76,800 | $ | 20 | 11/13/14 | ||||||
Granted to placement agent in private placement | 25,695 | 15 | 11/13/14 | |||||||
Granted to investors in private placement | 6,300 | 20 | 12/3/14 | |||||||
Granted to investors in private placement | 34,147 | 22.5 | 2/9/15 | |||||||
Granted to placement agents in private placement | 2,853 | 22.5 | 2/9/15 | |||||||
Granted to investor in private placement | 638 | 22.5 | 3/18/15 | |||||||
Granted to investors in private placement | 95,960 | 30 | 12/7/14 | |||||||
Granted to investors in private placement of common and preferred stock | 181,818 | 2.75 | 12/10/18 | |||||||
Granted to investors in private placement of common stock | 18,182 | 2.75 | 2/20/19 | |||||||
Granted to investors in private placement of common stock | 69,092 | 2.75 | 6/17/19 | |||||||
Total outstanding warrants accounted for as equity | 511,485 | |||||||||
Weighted average exercise price | $ | 12.73 | ||||||||
Weighted average time to expiration | 1.58 years | |||||||||
Totals for all warrants outstanding: | ||||||||||
Total | 1,211,485 | |||||||||
Weighted average exercise price | $ | 17.29 | ||||||||
Weighted average time to expiration | 2.72 years | |||||||||
Warrant Activity | ' | |||||||||
Weighted- | ||||||||||
Average | ||||||||||
Exercise | ||||||||||
Warrants | Shares | Price | ||||||||
Outstanding warrants at January 1, 2014 | 1,209,211 | $ | 17.92 | |||||||
Granted | 87,274 | $ | 2.75 | |||||||
Exercised | — | $ | — | |||||||
Forfeited or expired | (85,000 | ) | $ | 11.35 | ||||||
Outstanding warrants at September 30, 2014 | 1,211,485 | $ | 17.29 |
ORGANIZATION_AND_BASIS_OF_PRES2
ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative) (USD $) | 9 Months Ended | |||
Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2013 | Dec. 31, 2012 | |
Organization And Basis Of Presentation | ' | ' | ' | ' |
Reverse stock split ratio | '1-for-10 | ' | ' | ' |
Liquidity and Management's Plans | ' | ' | ' | ' |
Cash | $1,469,405 | $8,055,385 | $6,068,469 | $3,747,210 |
Negative working capital | 109,000 | ' | ' | ' |
Accumulated deficit | 125,011,000 | ' | ' | ' |
Shares of common stock sold to MTIA | 1,818,182 | ' | ' | ' |
Warrants sold to MTIA | 181,818 | ' | ' | ' |
Net cash proceeds from financing | 2,400,000 | ' | ' | ' |
First stage financing amount | 1,500,000 | ' | ' | ' |
Financing total amount | $5,000,000 | ' | ' | ' |
Shares of stock issued in financing | 872,728 | ' | ' | ' |
Warrants issued in financing | 87,274 | ' | ' | ' |
Securities not included in purchase offer | 2,600,000 | ' | ' | ' |
Manfc Lab Office [Member] | ' | ' | ' | ' |
Liquidity and Management's Plans | ' | ' | ' | ' |
Leased space square footage | 37,000 | ' | ' | ' |
Philadelphia [Member] | ' | ' | ' | ' |
Liquidity and Management's Plans | ' | ' | ' | ' |
Leased space square footage | 7,900 | ' | ' | ' |
CASH_AND_CASH_EQUIVALENTS_Deta
CASH AND CASH EQUIVALENTS (Details Narrative) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2013 | Dec. 31, 2012 |
Cash And Cash Equivalents | ' | ' | ' | ' |
Cash and cash equivalents | $1,469,405 | $8,055,385 | $6,068,469 | $3,747,210 |
Letter of credit, landlord | 52,488 | ' | ' | ' |
Letter of credit, vendor | $250,000 | ' | ' | ' |
INTANGIBLE_ASSETS_Details
INTANGIBLE ASSETS (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Cost | $9,980,000 | ' |
Accumulated Amortization | 355,000 | ' |
Total | 9,625,000 | 9,625,000 |
Research [Member] | ' | ' |
Cost | 355,000 | ' |
Accumulated Amortization | 355,000 | ' |
Total | ' | ' |
Patents [Member] | ' | ' |
Cost | 1,305,000 | ' |
Accumulated Amortization | ' | ' |
Total | 1,305,000 | 1,305,000 |
Drug [Member] | ' | ' |
Cost | 1,500,000 | ' |
Accumulated Amortization | ' | ' |
Total | 1,500,000 | 1,305,000 |
Pharmaceutical [Member] | ' | ' |
Cost | 6,820,000 | ' |
Accumulated Amortization | ' | ' |
Total | 6,820,000 | 6,820,000 |
PatentedTechnologyMember | ' | ' |
Cost | 9,625,000 | ' |
Accumulated Amortization | ' | ' |
Total | 9,625,000 | ' |
Intangible Assets [Member] | ' | ' |
Cost | 9,625,000 | ' |
Accumulated Amortization | ' | ' |
Total | $9,625,000 | $9,625,000 |
INTANGIBLE_ASSETS_Details_1
INTANGIBLE ASSETS (Details 1) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Estimated amortization expense | ' |
2014 | ' |
2015 | ' |
2016 | 1,480,800 |
2017 | 2,961,600 |
2018 | $2,961,600 |
OPERATING_LEASE_COMMITMENTS_De
OPERATING LEASE COMMITMENTS (Details) (USD $) | Sep. 30, 2014 |
OPERATING LEASE COMMITMENTS | ' |
Year ended December 31, 2014 | $144,333 |
Year ended December 31, 2015 | 457,000 |
Year ended December 31, 2016 | 468,000 |
Year ended December 31, 2017 | 389,000 |
Year ended December 31, 2018 | ' |
Total | 1,458,333 |
Franklin [Member] | ' |
OPERATING LEASE COMMITMENTS | ' |
Year ended December 31, 2014 | 113,000 |
Year ended December 31, 2015 | 457,000 |
Year ended December 31, 2016 | 468,000 |
Year ended December 31, 2017 | 389,000 |
Year ended December 31, 2018 | ' |
Total | 1,427,000 |
Philadelphia2 [Member] | ' |
OPERATING LEASE COMMITMENTS | ' |
Year ended December 31, 2014 | 31,333 |
Year ended December 31, 2015 | ' |
Year ended December 31, 2016 | ' |
Year ended December 31, 2017 | ' |
Year ended December 31, 2018 | ' |
Total | $31,333 |
OPERATING_LEASE_COMMITMENTS_De1
OPERATING LEASE COMMITMENTS (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Operating Lease Commitments | ' | ' | ' | ' |
Facilities lease expense | $143,000 | $141,000 | $418,000 | $530,000 |
Buy-out to terminate lease | ' | ' | 305 | ' |
Manfc Lab Office [Member] | ' | ' | ' | ' |
Operating Lease Commitments | ' | ' | ' | ' |
Leased space square footage | 37,000 | ' | 37,000 | ' |
Philadelphia [Member] | ' | ' | ' | ' |
Operating Lease Commitments | ' | ' | ' | ' |
Leased space square footage | 7,900 | ' | 7,900 | ' |
Right to early lease termination buy out value | $43,000 | ' | $43,000 | ' |
CREDIT_FACILITY_WITH_PLATINUMM1
CREDIT FACILITY WITH PLATINUM-MONTAUR LIFE SCIENCES, LLC (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2014 | Sep. 20, 2012 | Sep. 14, 2012 | Aug. 31, 2012 | |
Notes to Financial Statements | ' | ' | ' | ' | ' |
Loan agreement initial credit facility | ' | ' | ' | ' | $20,000,000 |
Loan agreement Maximum Draw Amount | ' | ' | ' | ' | 5,000,000 |
Principal interest rate per annum | ' | ' | ' | ' | 10.00% |
Commitment warrant value, shares | ' | ' | ' | ' | 400,000 |
Fair value Commitment warrant, recorded as deferred financing costs | ' | ' | ' | ' | 4,840,000 |
Amortization of fair value Commitment warrant | 3,065,325 | 3,549,325 | ' | ' | ' |
Funds borrowed pursuant to the Credit Facility | ' | ' | ' | ' | 1,000,000 |
Purchase warrant value per 1,000,000 borrowed amount, shares | ' | ' | ' | ' | 100,000 |
Commitment Warrant exercise price maximimum | ' | ' | ' | ' | $40 |
Commitment Warrant exercise price minimum | ' | ' | ' | ' | $20 |
Commitment Warrant beneficial ownership maximum | ' | ' | ' | ' | 49.90% |
Commitment Warrant beneficial ownership minimum | ' | ' | ' | ' | 99.90% |
Loan agreement September Request | ' | ' | ' | 3,000,000 | ' |
September Request warrant issued | ' | ' | 300,000 | ' | ' |
Warrant exercise price September Request | ' | ' | ' | $21.10 | ' |
Warrant exercise price September Request, maximum | ' | ' | ' | $22.70 | ' |
Fair value September Request | ' | ' | ' | 3,455,000 | ' |
Debt Discount | ' | ' | ' | 3,000,000 | ' |
Interest Expense | ' | ' | ' | 455,000 | ' |
Repayment of outstanding draws | ' | 3,113,366 | ' | ' | ' |
Interest accrued | ' | 113,366 | ' | ' | ' |
Non-cash interest expense | ' | 2,879,166 | ' | ' | ' |
Deferred financing cost | 2,823,325 | 2,823,325 | ' | ' | ' |
Amortization of deferred financing cost | $242,000 | $726,000 | ' | ' | ' |
DERIVATIVE_WARRANT_LIABILITY_D
DERIVATIVE WARRANT LIABILITY (Details) (USD $) | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | ||
DERIVATIVE WARRANT LIABILITY | ' | ' | |
Beginning balance | $1,119,155 | $5,585,141 | |
Total unrealized losses included in net loss | 176,000 | 1,061,682 | |
Total unrealized gains included in net loss | -1,182,000 | [1] | -5,515,000 |
Total realized gains included in net loss | ' | [1] | -152,668 |
Ending balance | $113,155 | $979,155 | |
[1] | Included in Gain (Loss) on Revaluation of Derivative Warrant Liability in the Consolidated Statement of Operations. |
DERIVATIVE_WARRANT_LIABILITY_D1
DERIVATIVE WARRANT LIABILITY (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | |
Derivative Warrant Liability Details Narrative | ' | ' | ' | ' | ' | ' |
Outstanding warrants | ' | ' | $1,209,211 | ' | $1,211,485 | ' |
Derivative financial instruments | 700,000 | ' | 700,000 | ' | ' | 700,000 |
Fair value of derivative instruments on recurring basis | 113,000 | ' | 113,000 | ' | ' | 1,119,000 |
Gain/Loss on Revaluation of Derivative Warrant Liability | $1,006,000 | $606,000 | $473,000 | ($70,000) | ' | ' |
PREFERRED_STOCK_Details_Narrat
PREFERRED STOCK (Details Narrative) | Sep. 30, 2014 | Dec. 31, 2013 |
Class of Stock [Line Items] | ' | ' |
Authorized Preferred Stock | 40,000,000 | ' |
SeriesCPreferredStock [Member] | ' | ' |
Class of Stock [Line Items] | ' | ' |
Authorized Preferred Stock | 10,000 | 10,000 |
Issued and outstanding | 1,000 | 1,000 |
SeriesDPreferredStock [Member] | ' | ' |
Class of Stock [Line Items] | ' | ' |
Authorized Preferred Stock | 3,600,000 | 3,600,000 |
Issued and outstanding | 1,000,000 | 1,000,000 |
Series E Preferred Stock [Member] | ' | ' |
Class of Stock [Line Items] | ' | ' |
Authorized Preferred Stock | 1,748,613 | 1,748,613 |
COMMON_STOCK_Details_Narrative
COMMON STOCK (Details Narrative) (USD $) | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Common stock, shares authorized | 150,000,000 | ' | 150,000,000 |
Common stock, Shares outstanding | 12,648,353 | ' | 11,776,578 |
Share sale price | $2.75 | ' | ' |
Stock issued in exchange for services | 2,636 | 7,450 | ' |
Fair value of stock issued in exchange for services | $8,404 | $89,970 | ' |
Shares of common stock sold to MTIA | 1,818,182 | ' | ' |
Warrants sold to MTIA | 181,818 | ' | ' |
Securities not included in purchase offer | 2,600,000 | ' | ' |
First stage financing amount | 1,500,000 | ' | ' |
January [Member] | ' | ' | ' |
Common Stock public offering | 1,567,833 | ' | ' |
Shares sold pursuant to over-allotment | 204,500 | ' | ' |
Share sale price | $7.50 | ' | ' |
Net proceeds from sale of shares in public offering | 10,626,000 | ' | ' |
Total balance paid off | 3,113,366 | ' | ' |
December 2013 [Member] | ' | ' | ' |
Common Stock public offering | 1,818,182 | ' | ' |
Shares purchased | 69,569 | ' | ' |
Share sale price | $2.75 | ' | ' |
Series E Preferred Stock purchased | 1,748,613 | ' | ' |
Platinum Securities Purchase Agreement warrants | 872,728 | ' | ' |
Gross proceeds | 2,400,000 | ' | ' |
Issuance costs | 50,000 | ' | ' |
Stock issuance costs to paid in capital | 174,396 | ' | ' |
Fair value of stock issued in exchange for services | $371,140 | ' | ' |
Shares of common stock sold to MTIA | 1,818,182 | ' | ' |
Warrants sold to MTIA | 181,818 | ' | ' |
Securities not included in purchase offer | 2,600,000 | ' | ' |
EQUITY_COMPENSATION_PLANS_Deta
EQUITY COMPENSATION PLANS (Details) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Shares Available For Issuance | ' |
Add back options cancelled before exercise | -905,228 |
Outstanding Options and Restricted Stock | ' |
Options exercised | ' |
Ending Balance | 61,485 |
Plan2003Member | ' |
Shares Available For Issuance | ' |
Total reserved for stock options and restricted stock | 160,000 |
Net restricted stock issued net of cancellations | -10,000 |
Stock options granted | -154,449 |
Add back options cancelled before exercise | 79,849 |
Options cancelled by plan vote | -75,400 |
Remaining shares available for future grants | ' |
Outstanding Options and Restricted Stock | ' |
Total granted | 154,449 |
Options cancelled | -79,849 |
Options exercised | -35,600 |
Net shares outstanding before restricted stock | 39,000 |
Net restricted stock issued net of cancellations | 10,000 |
Ending Balance | 49,000 |
Plan2008Member | ' |
Shares Available For Issuance | ' |
Total reserved for stock options and restricted stock | 10,000,000 |
Net restricted stock issued net of cancellations | -108,550 |
Stock options granted | -1,700,883 |
Add back options cancelled before exercise | 1,043,729 |
Options cancelled by plan vote | ' |
Remaining shares available for future grants | 9,234,296 |
Outstanding Options and Restricted Stock | ' |
Total granted | 1,700,883 |
Options cancelled | -1,043,729 |
Options exercised | -13,000 |
Net shares outstanding before restricted stock | 644,154 |
Net restricted stock issued net of cancellations | 108,550 |
Ending Balance | 752,704 |
Not Pursuant to a Plan [Member] | ' |
Outstanding Options and Restricted Stock | ' |
Total granted | 310,000 |
Options cancelled | -188,333 |
Options exercised | -66,667 |
Net shares outstanding before restricted stock | 55,000 |
Net restricted stock issued net of cancellations | 6,485 |
EQUITY_COMPENSATION_PLANS_Deta1
EQUITY COMPENSATION PLANS (Details Narrative) | Sep. 30, 2014 | Dec. 31, 2013 |
Stock Options And Restricted Stock | ' | ' |
Maximum authorized shares | 150,000,000 | 150,000,000 |
EqPlan 2003 [Member] | ' | ' |
Stock Options And Restricted Stock | ' | ' |
Restricted shares of Common Stock issued | 10,000 | ' |
Options to purchase an aggregate of shares | 39,000 | ' |
EqPlan 2008 [Member] | ' | ' |
Stock Options And Restricted Stock | ' | ' |
Restricted shares of Common Stock issued | 108,550 | ' |
Options to purchase an aggregate of shares | 644,154 | ' |
Maximum authorized shares | 10,000,000 | ' |
Shares Future grants | 9,234,296 | ' |
STOCK_OPTIONS_Details_1
STOCK OPTIONS (Details 1) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
STOCK OPTIONS AND RESTRICTED STOCK | ' | ' |
Risk-free interest rate minimum | 1.75% | 0.13% |
Risk-free interest rate maximum | 2.08% | 1.89% |
Expected dividend yield | ' | ' |
Expected term, minimum | '5 years 5 months | '1 year |
Expected term, maximum | '6 years 5 months | '6 years 6 months |
Forfeiture rate (excluding fully vested stock options) minimum | 15.00% | 15.00% |
Forfeiture rate (excluding fully vested stock options) maximum | 15.00% | 15.00% |
Expected volatility | 120.00% | 129.00% |
Expected volatility | 141.00% | 141.00% |
STOCK_OPTIONS_Details_2
STOCK OPTIONS (Details 2) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Shares | ' |
Beginning Balance | 1,455,432 |
Granted | 187,950 |
Exercised | ' |
Forfeited or expired | -905,228 |
Ending Balance | 738,154 |
Exercisable at March 31, 2014 | 328,422 |
Weighted-Average Exercise Price | ' |
Beginning Balance | $4.90 |
Granted | $3.08 |
Exercised | ' |
Forfeited or expired | $4.19 |
Ending Balance | $5.32 |
Exercisable at March 31, 2014 | $8.02 |
Weighted-Average Remaining Contractual Term | ' |
Beginning Balance | '7 years 7 months 28 days |
Ending Balance | '5 years 9 months 0 days |
Aggregate Intrinsic Value | ' |
Beginning Balance | ' |
Ending Balance | ' |
STOCK_OPTIONS_Details_Narrativ
STOCK OPTIONS (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | |
Stock Options And Restricted Stock | ' | ' | ' |
Weighted-average grant-date fair value of stock options granted | ' | ' | $3.08 |
Total unrecognized compensation expense | $602,000 | ' | $602,000 |
Additional paid-in capital | 708,000 | 554,000 | ' |
Non-cash compensation expense | $708,000 | $554,000 | ' |
RESTRICTED_STOCK_Details
RESTRICTED STOCK (Details) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Shares | ' |
Nonvested at January 1, 2014 | 201,655 |
Granted | 36,936 |
Vested | -66,333 |
Forfeited | -47,223 |
Nonvested at June 30, 2014 | 125,035 |
Weighted- Average Grant-DateFair Value | ' |
Nonvested at January 1, 2014 | $10.66 |
Granted | $3 |
Vested | $7.15 |
Forfeited | $7.41 |
Nonvested at June 30, 2014 | $11.48 |
RESTRICTED_STOCK_Details_Narra
RESTRICTED STOCK (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | |
Stock Options And Restricted Stock | ' | ' | ' |
Non-cash compensation expense | $349,000 | $355,000 | ' |
Aggregate restricted shares of Common Stock pursuant to 2008 plan | ' | ' | 36,936 |
Grant date fair value of restricted stock grants | ' | ' | 111,000 |
Shares of non-vested restricted stock | ' | ' | 125,035 |
Total unrecognized compensation expense | $296,000 | ' | $296,000 |
FDA Approval [Member] | ' | ' | ' |
Stock Options And Restricted Stock | ' | ' | ' |
Restricted stock to vest upon FDA approval | ' | ' | 51,685 |
Yearly [Member] | ' | ' | ' |
Stock Options And Restricted Stock | ' | ' | ' |
Restricted stock to vest upon FDA approval | ' | ' | 73,350 |
WARRANTS_Details
WARRANTS (Details) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Warrants Details | ' | ' |
Risk-free interest rate | 1.44% | 0.65% |
Risk-free interest rate, maximum | 1.85% | 1.85% |
Expected dividend yield | ' | ' |
Expected term (contractual term) | '2 years 10 months 14 days | '4 years 2 months 15 days |
Expected term (contractual term), maximum | '3 years 1 month 7 days | '4 years 4 months 28 days |
Expected volatility | 120.00% | 121.00% |
Expected volatility, maximum | 122.00% | 123.00% |
WARRANTS_Details_1
WARRANTS (Details 1) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Warrants | ' |
Total outstanding warrants accounted for as derivative warrant liability | 700,000 |
Weighted average exercise price | $20.61 |
Weighted average time to expiration in years | '2 years 11 months 23 days |
Exp 8/31/2017 Warrant [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 400,000 |
Exercise Price | $20 |
Exp 9/20/2017 Warrant [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 100,000 |
Exercise Price | $21.30 |
Investors1 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 50,000 |
Exercise Price | $22.70 |
Exp 11/6/2017 Warrant [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 150,000 |
Exercise Price | $21.10 |
WARRANTS_Details_2
WARRANTS (Details 2) (USD $) | Sep. 30, 2014 |
Warrants | ' |
Total Warrants Outstanding | 1,211,485 |
Total Weighted average exercise price | $17.29 |
Investors1 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 76,800 |
Exercise Price | $20 |
Exp 11/6/2017 Warrant [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 25,695 |
Exercise Price | $15 |
Investors3 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 6,300 |
Exercise Price | $20 |
Investors4 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 34,147 |
Exercise Price | $22.50 |
Investors5 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 2,853 |
Exercise Price | $22.50 |
PlacementAgents1 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 638 |
Exercise Price | $22.50 |
Investors6 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 95,960 |
Exercise Price | $30 |
Investors19 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 181,818 |
Exercise Price | $2.75 |
PreferredStock1 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 18,182 |
Exercise Price | $2.75 |
PreferredStock3 [Member] | ' |
Warrants | ' |
Number of Shares Exercisable | 69,092 |
Exercise Price | $2.75 |
TotaloutstandingwarrantsaccountedforasequityMember | ' |
Warrants | ' |
Number of Shares Exercisable | 511,485 |
WeightedaverageexercisepriceMember | ' |
Warrants | ' |
Exercise Price | $12.73 |
WARRANTS_Details_3
WARRANTS (Details 3) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Shares | ' |
Beginning Balance | 1,209,211 |
Granted | 87,274 |
Exercised | ' |
Forfeited or expired | -85,000 |
Ending Balance | 1,211,485 |
Weighted-Average Exercise Price | ' |
Beginning Balance | $17.92 |
Granted | 2.75 |
Exercised | ' |
Forfeited or expired | 11.35 |
Ending Balance | $17.29 |
WARRANTS_Details_Narrative
WARRANTS (Details Narrative) | 9 Months Ended |
Sep. 30, 2014 | |
Warrants Details Narrative | ' |
Warrants issued in connection with private placement | 69,092 |
LICENSING_AND_OTHER_REVENUE_De
LICENSING AND OTHER REVENUE (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Licensing and Other Revenue | ' | ' | ' | ' | ' |
Nonrefundable license revenue | $19,107 | $22,557 | $57,321 | $67,671 | ' |
Deferred revenue recognized over next twelve months | 76,428 | ' | 76,428 | ' | 76,428 |
Deferred revenue to be recognized after next twelve months | 19,107 | ' | 19,107 | ' | 76,428 |
Total MTIA investment | ' | ' | 5,000,000 | ' | ' |
Handok [Member] | ' | ' | ' | ' | ' |
Licensing and Other Revenue | ' | ' | ' | ' | ' |
Minimum licensing term | ' | ' | '10 years | ' | ' |
Nonrefundable license revenue | ' | ' | 19,000 | 68,000 | ' |
Licensing fee relating to Handok | ' | ' | 500,000 | ' | ' |
Deferred revenue recognized over next twelve months | 76,000 | ' | 76,000 | ' | ' |
Deferred revenue to be recognized after next twelve months | 57,000 | ' | 57,000 | ' | ' |
Net cash proceeds from MTIA Common Stock financing | ' | ' | 2,400,000 | ' | ' |
Total MTIA investment | ' | ' | 5,000,000 | ' | ' |
Additional proceeds from MTIA financing | ' | ' | $400,000 | ' | ' |