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FPMI > SEC Filings for FPMI > Form 10-K on 28-Mar-2013All Recent SEC Filings

Show all filings for FLUOROPHARMA MEDICAL, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-K for FLUOROPHARMA MEDICAL, INC.


28-Mar-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This report contains forward-looking statements. These forward-looking statements include, without limitation, statements containing the words "believes,""anticipates,""expects,""intends,""projects,""will," and other words of similar import or the negative of those terms or expressions. Forward-looking statements in this report include, but are not limited to, expectations of future levels of research and development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate strategic opportunities available to us, including sales of certain of our assets. Forward-looking statements subject to certain known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to those described in "Risk Factors" of the reports filed with the Securities and Exchange Commission.

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere herein.

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Overview

We are a biopharmaceutical company specializing in discovering, developing and commercializing molecular imaging pharmaceuticals with initial applications in the area of cardiology. Molecular imaging pharmaceuticals are radiopharmaceuticals that enable early detection of disease through the visualization of subtle changes in biochemical and biological processes. We currently have two clinical-stage molecular imaging pharmaceutical product candidates: CardioPET and BFPET. Additionally we have identified potential candidates that may be useful in the detection and/or treatment of vulnerable plaque.

The Company was organized January 25, 2007 under the laws of the State of Nevada. The Company served as an electronics waste management solution provider, specializing in the collection, retirement, storage and remarketing of excess, damaged or obsolete electronic assets, such as computer, telecommunications and other electronic office equipment.

FluoroPharma Inc. ("FPI"), a Delaware corporation, is a molecular imaging company headquartered in Montclair, New Jersey. FPI was founded in 2003 to engage in the discovery, development and commercialization of proprietary products for the positron emission tomography (PET) market. The Company's initial focus has been on the development of novel cardiovascular imaging agents that can more efficiently and effectively detect and assess acute and chronic forms of coronary artery disease (CAD). Molecular imaging pharmaceuticals are radiopharmaceuticals that enable early detection of disease through the visualization of subtle changes in biochemical and biological processes.

On May 16, 2011, the Company entered into the Merger Agreement by and among the Company, FPI, and MergerCo. Upon closing of the Merger on May 16, 2011, MergerCo merged with and into FPI, and FPI, as the surviving corporation, became a wholly owned subsidiary of the Company.

From and after the Merger, our business is conducted through our wholly owned subsidiary FPI. The discussion of our business in this prospectus is that of our current business which is conducted through FPI.

Restatement

The financial statements as of and for the year ended December 31, 2011 have been restated to reflect stock option expense of $167,880 related to a portion of an option grant which had not vested and was improperly recognized during the period. This restatement results from our following the guidance of ASC 250-10, which provides accounting guidance for correction of an error. As a result of this guidance, we recorded a decrease to general and administrative expense of $167,880, representing the fair value of the unvested option.

The effect of this restatement is a decrease to additional paid-in capital of $167,880 from the previously reported amount of $16,015,484, with a corresponding decrease to the previously reported amount of $(12,873,729) of deficit accumulated in the development stage for the same amount as of and for the period ended December 31, 2011. This restatement has no impact on our net financial condition. The consolidated statement of operations for the year ended December 31, 2011 and for the cumulative period June 13, 2003 (inception) to December 31, 2011 each reflect a decrease in general and administrative expense of $167,880. The effect of this restatement on net loss is to decrease the net loss $167,880 from the previously reported amount of $(3,428,105). The effect of this restatement on loss per share is to decrease the loss from a previously reported amount of $(0.25) per share for the year ended December 31, 2011 to a revised net loss per share of $(0.24) per share. There was no impact of the restatement on any other periods.

Recent Accounting Pronouncements

Management does not expect any recently issued, but not yet effective, accounting standards to have a material effect on its results of operations or financial condition.

On December 16, 2011, the FASB issued new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. This amendment is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013, and will not have a material effect on our financial position or results of operations.

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Critical Accounting Policies

This summary of significant accounting policies is presented to assist in understanding our consolidated financial statements. The consolidated financial statements and notes are representations of our management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America ("GAAP") and have been consistently applied in the preparation of the financial statements.

Accounting for Share-Based Payments

We follow the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. We use the Black-Scholes option pricing model in determining fair value. Accordingly, compensation is recognized using the fair value method and expected term accrual requirements as prescribed.

We account for share-based payments granted to non-employees in accordance with ASC Topic 505, "Equity Based Payments to Non-Employees." The Company determines the fair value of the stock-based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete.

The fair value of each share based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year:

Risk-Free Interest Rate. We utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards.

Expected Volatility. We calculate the expected volatility based on a volatility index of peer companies as we did not have sufficient historical market information to estimate the volatility of our own stock.

Dividend Yield. We have not declared a dividend on its common stock since its inception and have no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.

Expected Term. The expected term of options granted represents the period of time that options are expected to be outstanding. We estimated the expected term of stock options by using the simplified method. For warrants, the expected term represents the actual term of the warrant.

Forfeitures. Estimates of option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

Impairments
We assess the impairment of long-lived assets, including other intangible assets, whenever events or changes in circumstances indicate that their carrying value may not be recoverable in accordance with ASC Topic 360-10-35, "Impairment or Disposal of Long-Lived Assets." The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. We hold investments in companies having operations or technologies in areas that are within or adjacent to our strategic focus when acquired, all of which are privately held and whose values are difficult to determine. We record an investment impairment charge if it believes an investment has experienced a decline in value that is other than temporary.

Management has determined that no impairments were required during the years ended December 31, 2012 and 2011.

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Intangible Assets
Our intangible assets consist of technology licenses and are carried at the legal cost to obtain them. Intangible assets are amortized using the straight-line method over the estimated useful life. Useful lives are as follows: technology licenses 5 to 15 years.

Research and Development Costs
Research and development costs are expensed as incurred. The cost of intellectual property purchased from others that is immediately marketable or that has an alternative future use is capitalized and amortized as intangible assets. Capitalized costs are amortized using the straight-line method over the estimated economic life of the related asset.

Use of Estimates
The accompanying consolidated financial statements are prepared in conformity with GAAP in the United States of America, and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.

RESULTS OF OPERATIONS

Year Ended December 31, 2012 compared to the Year Ended December 31, 2011

During each of the years ended December 31, 2012 and 2011, we had no revenues, and are considered a development stage company. We do not expect to have revenues relating to our products prior to December 31, 2013.

General and Administrative Expenses

General and administrative expenses were $1,548,299 and $1,907,220 for the years ended December 31, 2012 and 2011, respectively. The decrease was due primarily to a decrease in stock based compensation in 2012. In the year ended December 31, 2011, we recorded a one-time charge of approximately $1,200,000 related to the modification of the terms of the stock options due to the merger. This was partially offset by an increase in executive compensation in 2012 as well as a general increase in operating expenses, which we expect to increase going forward, in the long term, as we proceed to move our technologies forward toward commercialization.

Professional Fees

Professional fees were $1,153,475 and $682,899 for the years ended December 31, 2012 and 2011, respectively. This increase was due primarily to increases in investor relation activity as well as increases in consulting expenses.

Research and Development Expenses

Research and development expenses were $1,423,286 and $640,730 for the years ended December 31, 2012 and 2011, respectively. The increase was primarily due to increases in clinical trial expenses overall in the year ended December 31, 2012. We expect research and development expenses to continue to increase in future periods as we continue our clinical studies of our lead candidates in cardiology and pursue our strategic opportunities.

Interest and Other Income and Expenses, net

Other income, net was $132,764 and $11,697 for the years ended December 31, 2012 and 2011, respectively. For the year ended December 31, 2012, other income, net was primarily due to a $133,142 gain on the settlement of accounts payable. For the year ended December 31, 2011, the $124,889 gain on settlements of accounts payable was offset by interest expense of $113,192 for the year ended December 31, 2011. The interest expense for the year ended December 31, 2011 was mainly due to the change in notes payable issued for the purposes of bridge financing. There was no interest expense in the year ended December 31, 2012. We do not expect interest expense to increase unless we are unable to raise additional capital through an equity financing or a partnering arrangement.

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Liquidity and Capital Resources

We have experienced net losses and negative cash flows from operations since our inception. We have sustained cumulative losses of $15,745,207 through December 31, 2012. We have historically financed our operations through issuances of equity and the proceeds of debt instruments. In the past, we have also provided for our cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees. During the year ended December 31, 2012, we raised gross proceeds of $1,546,250 through a private placement of our common stock and warrants.

We continue to actively pursue various funding options, including equity offerings, to obtain additional funds to continue the development of its products and bring them to commercial markets. Management continues to assess fund raising opportunities to ensure minimal dilution to its existing shareholder base and to obtain the best price for its securities. Management is optimistic based upon its ability to raise funds in prior years, through private placement offerings, that it will be able to raise additional funds in the future. In November 2012, we issued warrants to purchase 1,819,119 shares of our common stock at an exercise price of $0.90 which expire in November 2013. If these warrants are exercised, we will receive approximately $1,637,207 in funding. There can be no assurance that we will be able to consummate any fund raising transactions on terms acceptable to us or at all or in the time frames we anticipate. Also, there can be no assurance that any or all of the warrants that expire in November 2013 will be exercised by the holders. If we are unable to raise additional capital as may be needed to meet our projections for operating expenses, it could have a material adverse effect on liquidity or require us to cease or significantly delay some of its clinical trials.

Net cash used in operating activities for the year ended December 31, 2012 was $3,280,696 which primarily reflected our net loss of $4,016,746, offset by non-cash expenses of $893,805, a decrease in working capital of $24,613 and a non-cash gain on settlement of accounts payable of $133,142. Net cash used in operating activities for the year ended December 31, 2011 was $2,279,996, which primarily reflected our net loss of $3,260,225, offset by non-cash expenses related to employee stock options of $1,569,037 and changes in working capital.

Net cash used by investing activities was $40,929 for the year ended December 31, 2012, which primarily reflected purchases of new furniture and leasehold improvements made to our new office in Montclair, NJ. For the year ended December 31, 2011, net cash used by investing activities was $185,855, which primarily reflected the purchase of equipment to be used in our clinical trials, in addition to fees paid to extend one of our licensing agreements.

Net cash provided by financing activities was $1,360,572 for the year ended December 31, 2012, which reflected the net cash received in the equity financing in November 2012. For the year ended December 31, 2011, net cash provided by financing activities was $5,719,579, representing the net proceeds from the issuance of notes payable and net cash received in the 2011 Private Placement.

Effects of inflation

We generally have been able to price our contracts in a manner to accommodate the rates of inflation experienced in recent years, although we cannot be sure that we will be able to do so in the future.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

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