NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
1. DESCRIPTION OF BUSINESS
Arno Therapeutics, Inc. (“Arno”
or the “Company”) develops innovative drug candidates intended to treat patients with cancer. The Company was incorporated
in Delaware in March 2000, at which time its name was Laurier International, Inc. (“Laurier”). Pursuant to an Agreement
and Plan of Merger dated March 6, 2008 (as amended, the “Merger Agreement”), by and among the Company, Arno Therapeutics,
Inc., a Delaware corporation formed on August 1, 2005 (“Old Arno”), and Laurier Acquisition, Inc., a Delaware corporation
and wholly-owned subsidiary of the Company (“Laurier Acquisition”), on June 3, 2008, Laurier Acquisition merged with
and into Old Arno, with Old Arno remaining as the surviving corporation and a wholly-owned subsidiary of Laurier. Immediately following
this merger, Old Arno merged with and into Laurier and Laurier’s name was changed to Arno Therapeutics, Inc. These two merger
transactions are hereinafter collectively referred to as the “Merger.” Immediately following the Merger, the former
stockholders of Old Arno collectively held 95% of the outstanding common stock of Laurier, assuming the issuance of all shares
issuable upon the exercise of outstanding options and warrants, and all of the officers and directors of Old Arno in office immediately
prior to the Merger were appointed as the officers and directors of Laurier immediately following the Merger. Further, Laurier
was a non-operating shell company prior to the Merger. The merger of a private operating company into a non-operating public shell
corporation with nominal net assets is considered to be a capital transaction in substance, rather than a business combination,
for accounting purposes. Accordingly, the Company treated this transaction as a capital transaction without recording goodwill
or adjusting any of its other assets or liabilities. All costs incurred in connection with the Merger have been expensed. Upon
completion of the Merger, the Company adopted Old Arno’s business plan.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Company is a development stage enterprise
since it has not yet generated any revenue from the sale of products and, through March 31, 2014, its efforts have been principally
devoted to developing its licensed technologies and raising capital. Accordingly,
the accompanying condensed financial statements have been prepared in accordance with the provisions of Accounting Standards Codification
(“ASC”) 915, “Development Stage Entities.” The Company has experienced net losses since its inception and
has an accumulated deficit of approximately $90.0 million at March 31, 2014. The Company expects to incur substantial and increasing
losses and to have negative net cash flows from operating activities as it expands its technology portfolio and engages in further
research and development activities, particularly from conducting manufacturing activities, pre-clinical studies and clinical trials.
The accompanying unaudited Condensed Financial
Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q adopted under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete
financial statements. In the opinion of Arno’s management, the accompanying Condensed Financial Statements contain all adjustments
(consisting of normal recurring accruals and adjustments) necessary to present fairly the financial position, results of operations
and cash flows of the Company at the dates and for the periods indicated. The interim results for the period ended March 31, 2014
are not necessarily indicative of results for the full 2014 fiscal year or any other future interim periods. Because the Merger
was accounted for as a reverse acquisition under generally accepted accounting principles, the financial statements for periods
prior to September 3, 2008, reflect only the operations of Old Arno.
Effective as of the close of business on
October 29, 2013, the Company amended its Amended and Restated Certificate of Incorporation to effect a combination (“Reverse
Stock Split”) of the Common Stock at a ratio of one-for-eight. All historical share and per share amounts have
been adjusted to reflect the Reverse Stock Split.
These unaudited Condensed Financial Statements
have been prepared by management and should be read in conjunction with the financial statements and notes thereto included in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange
Commission.
The preparation of financial statements
in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Estimates and assumptions principally
relate to services performed by third parties but not yet invoiced, estimates of the fair value and forfeiture rates of stock options
issued to employees and consultants, and estimates of the probability and potential magnitude of contingent liabilities. Actual
results could differ from those estimates.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
2. BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Research and Development
Research and development costs are charged
to expense as incurred. Research and development includes employee costs, fees associated with operational consultants, contract
clinical research organizations, contract manufacturing organizations, clinical site fees, contract laboratory research organizations,
contract central testing laboratories, licensing activities, and allocated office, insurance, depreciation, and facilities expenses.
The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial and the invoices
received from its external service providers. The Company adjusts its accruals when actual costs become known. Costs related to
the acquisition of technology rights for which development work is still in process are charged to operations as incurred and considered
a component of research and development expense.
Warrant Liability
The Company accounts for the warrants issued
in connection with the 2013, 2012 and 2010 Purchase Agreements (see Note 7) in accordance with the guidance on Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity, which provides that the Company classify the warrant
instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is
subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized as a component
of other income or expense. The fair value of warrants issued by the Company, in connection with private placements of securities,
has been estimated using a Monte Carlo simulation model and, in doing so, the Company’s management utilized a third-party
valuation report. The Monte Carlo simulation is a generally accepted statistical method used to generate a defined number of stock
price paths in order to develop a reasonable estimate of the range of the Company’s future expected stock prices and minimizes
standard error.
3. LIQUIDITY AND CAPITAL RESOURCES
Cash resources as of March 31, 2014 were
approximately $21.4 million, compared to approximately $26.8 million as of December 31, 2013. Based on its resources at March 31,
2014 and the current plan of expenditure on continuing development of the Company’s current product candidates, the Company
believes that it has sufficient capital to fund its operations into the first quarter of 2015. However, the Company will need substantial
additional financing in order to fund its operations beyond such period and thereafter until it can achieve profitability, if ever.
The Company’s continued operations will depend on its ability to raise additional funds through various potential sources,
such as equity and debt financing, or to license its product candidates to another pharmaceutical company. The Company will continue
to fund operations from cash on hand and through sources of capital similar to those previously described. The Company cannot assure
that it will be able to secure such additional financing, or if available, that it will be sufficient to meet its needs.
The success of the Company depends on its
ability to develop new products to the point of regulatory approval and subsequent revenue generation and, accordingly, to raise
enough capital to finance these developmental efforts. Management plans to raise additional capital either by selling shares of
its stock or other securities, issuing debt or by licensing one or more of its products to finance the continued
operating and capital requirements of the Company. Amounts raised will be used to further develop the Company’s product candidates,
acquire rights to additional product candidates and for other working capital purposes. While the Company will extend its best
efforts to raise additional capital to fund all operations beyond the first quarter of 2015, management can provide no assurances
that the Company will be successful in raising sufficient funds.
In addition, to the extent that the Company
raises additional funds by issuing shares of its common stock or other securities convertible or exchangeable for shares of common
stock, stockholders will experience dilution, which may be significant. In the event the Company raises additional capital through
debt financings, the Company may incur significant interest expense and become subject to covenants in the related transaction
documentation that may affect the manner in which the Company conducts its business. To the extent that the Company raises additional
funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to its technologies or product
candidates, or grant licenses on terms that may not be favorable to the Company. Any or all of the foregoing may have a material
adverse effect on the Company’s business and financial performance.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
4. BASIC AND DILUTED LOSS PER SHARE
Basic loss per share is computed by dividing
the loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is
computed similarly to basic loss per share except that the denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were
dilutive.
For all periods presented, potentially dilutive
securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive.
As of March 31, 2014 and 2013,
potentially dilutive securities include:
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
4,455,231
|
|
|
|
-
|
|
Options to purchase common stock
|
|
|
-
|
|
|
|
-
|
|
Total potentially dilutive securities
|
|
|
4,455,231
|
|
|
|
-
|
|
For the three months ended March 31, 2014
and 2013, 51,473,941 and 20,712,821 options, warrants and convertible debentures have been excluded from the computation of potentially
dilutive securities, respectively, as their exercise prices are greater than the fair market price per common share as of March
31, 2014 and 2013, respectively.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
5. INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY
License Agreements
Onapristone License Agreement
The Company’s rights to onapristone
are governed by a license agreement with Invivis Pharmaceuticals, Inc. (“Invivis”), dated February 13, 2012. Under
this agreement, the Company holds an exclusive, royalty-bearing license for the rights to commercialize onapristone for all therapeutic
uses. The license agreement provides the Company with worldwide rights to develop and commercialize onapristone with the exception
of France; provided, however, that the Company has an option to acquire French commercial rights from Invivis upon notice to Invivis
together with additional consideration.
The onapristone license agreement provides
the Company with exclusive, worldwide rights to a United States provisional patent application that relates to assays for predictive
biomarkers for anti-progestin efficacy. The Company intends to expand its patent portfolio by filing additional patent applications
covering the use of onapristone and/or a companion diagnostic product. If the pending patent application issues, the issued patent
would be scheduled to expire in 2031.
The Company made a one-time
cash payment of $500,000 to Invivis upon execution of the license agreement on February 13, 2012. Additionally, Invivis
will receive performance-based cash payments of up to an aggregate of $15.1 million upon successful completion of clinical
and regulatory milestones relating to onapristone, which milestones include the marketing approval of onapristone in
multiple indications in the United States or the European Union as well as Japan. The first milestone was due upon the dosing
of the first patient in a pharmacokinetic study and was achieved during August 2013 and the Company made a $150,000 payment
to Invivis during October 2013. The Company made its next milestone payment of $100,000 to Invivis upon the dosing of the
first subject in the first Company-sponsored Phase I clinical trial of onapristone in January 2014. In addition, the Company
will pay Invivis low single digit sales royalties based on net sales of onapristone by the Company or any of its
sublicensees. Pursuant to a separate services agreement which expired in April 2014, Invivis provided
the Company with certain clinical development support services, which includes the assignment of up to two full-time
employees to perform such services, in exchange for a monthly cash payment of approximately $70,833. Effective April 1, 2014,
the Company renewed the services agreement for a period of one year for a monthly cash payment of $50,000.
Under the license agreement with Invivis,
the Company also agreed to indemnify and hold Invivis and its affiliates harmless from any and all claims arising out of or in
connection with the production, manufacture, sale, use, lease, consumption or advertisement of onapristone, provided, however,
that the Company shall have no obligation to indemnify Invivis for claims that (a) any patent rights infringe third party intellectual
property, (b) arise out of the gross negligence or willful misconduct of Invivis, or (c) result from a breach of any representation,
warranty confidentiality obligation of Invivis under the license agreement. The license agreement will terminate upon the later
of (i) the last to expire valid claim contained in the patent rights, and (ii) February 13, 2032. In general, Invivis may terminate
the license agreement at any time upon a material breach by the Company to the extent the Company fails to cure any such breach
within 90 days after receiving notice of such breach or in the event the Company files for bankruptcy. The Company may terminate
the agreement for any reason upon 90 days’ prior written notice.
University of Minnesota License
In February 2014, the Company entered
into an Exclusive Patent License Agreement with the Regents of the University of Minnesota (UM), pursuant to which Arno was granted
an exclusive, worldwide, royalty-bearing license for the rights to develop and commercialize technology embodied by certain patent
applications relating to a gene expression signature derived from archived breast cancer tissue samples. The Company plans to develop
and commercialize this technology as part of its companion diagnostic development program as a tool to identify progesterone-stimulated
pathway activation, which in turn may identify patients who would be more likely to benefit from treatment with onapristone.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
5. INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY
(Continued)
The license agreement requires the Company
to use commercially reasonable efforts to commercialize the licensed technology as soon as practicable, and includes several performance
milestones relating to the development and commercialization of the technology to be achieved by specified dates beginning in the
second quarter of 2014 and continuing during the term of the agreement. Under the terms of the agreement, Arno made a small one-time
cash payment and reimbursed UM for past patent expenses it has incurred. The agreement also provides for royalties to be paid to
UM on net sales of “Licensed Products” (as defined in the agreement) at a rate in the low-single digits, which royalty
obligation terminates on a licensed product-by-licensed product and country-by-country basis upon the first date when there is
no longer a valid claim under a licensed patent or patent application covering such licensed product in the country where the licensed
product is made or sold.
The term of the license agreement continues
until the last date on which there is any active licensed patent or pending patent application. UM may terminate the agreement
earlier upon certain Arno breaches that remain uncured for a period specified in the agreement. UM may also terminate the agreement
if Arno voluntarily files for bankruptcy or similar proceeding, or if a petition for an involuntary bankruptcy proceeding is filed
and is not released for 60 days. The agreement may be immediately terminated upon notice to Arno if the Company commences or maintains
a proceeding in which it asserts that the licensed patents are invalid or unenforceable. Arno may terminate the agreement at any
time and for any reason upon 90 days’ written notice.
The license agreement further provides
that the Company will indemnify and hold UM and its affiliates harmless from any and all suits, actions, claims, liabilities, demands,
damages, losses or expenses relating to Arno’s exercise of its rights under the agreement, including the right to commercialize
the licensed technology. UM is required to indemnify Arno with respect to claims relating to or resulting from its breach of the
agreement.
AR-12 and AR-42 License Agreements
The Company’s rights to both AR-12
and AR-42 are governed by separate license agreements with The Ohio State University Research Foundation (“Ohio State”)
entered into in January 2008. Pursuant to each of these agreements, Ohio State granted the Company exclusive, worldwide, royalty-bearing
licenses to commercialize certain patent applications, know-how and improvements relating to AR-12 and AR-42 for all therapeutic
uses.
In 2008, pursuant to the Company’s
license agreements for AR-12 and AR-42, the Company made one-time cash payments to Ohio State in the aggregate amount of $450,000
and reimbursed it for past patent expenses. Additionally, the Company is required to make performance-based cash payments upon
successful completion of clinical and regulatory milestones relating to AR-12 and AR-42 in the United States, Europe and Japan.
The license agreements for AR-12 and AR-42 provide for aggregate potential milestone payments of up to $6.1 million for AR-12,
of which $5.0 million is due only after marketing approval in the United States, Europe and Japan, and $5.1 million for AR-42,
of which $4.0 million is due only after marketing approval in the United States, Europe and Japan. In September 2009,
the Company paid Ohio State a milestone payment upon the commencement of the first Company-sponsored Phase I clinical study
of AR-12. The first milestone payment for AR-42 will be due when the first patient is dosed in the first Company-sponsored
clinical trial, which is not expected to occur in 2014. Pursuant to the license agreements for AR-12 and AR-42, the Company must
pay Ohio State royalties on net sales of licensed products at rates in the low-single digits. To the extent the Company
enters into a sublicensing agreement relating to either or both of AR-12 or AR-42, the Company will be required to pay Ohio State
a portion of all non-royalty income received from such sublicensee. The Company does not expect to be required to make any milestone
payments under these license agreements during 2014.
The license agreements with Ohio State further
provide that the Company will indemnify Ohio State from any and all claims arising out of the death of or injury to any person
or persons or out of any damage to property, or resulting from the production, manufacture, sale, use, lease, consumption or advertisement
of either AR-12 or AR-42, except to the extent that any such claim arises out of the gross negligence or willful misconduct of
Ohio State. The license agreements for AR-12 and AR-42 each expire on the later of (i) the expiration of the last valid claim contained
in any licensed patent and (ii) 20 years after the effective date of the license. Ohio State will generally be able to terminate
either license upon the Company’s breach of the terms of the license to the extent the Company fails to cure any such breach
within 90 days after receiving notice of such breach or the Company files for bankruptcy. The Company may terminate either license
upon 90 days prior written notice.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company defines fair value as the amount
at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties,
that is, other than in a forced or liquidation sale. The fair value estimates presented in the table below are based on information
available to the Company as of March 31, 2014.
The accounting standard regarding fair value
measurements discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present
value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).
The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:
|
•
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
•
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
•
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
The Company has determined the fair value
of certain liabilities using the market approach. The following table presents the Company’s fair value hierarchy for these
assets measured at fair value on a recurring basis as of March 31, 2014:
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
Significant Other
|
|
|
Significant Other
|
|
|
|
Fair Value
|
|
|
Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
March 31, 2014
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability - 2010 Series
B
|
|
$
|
376,886
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
376,886
|
|
Warrant liability - 2012 Series A&B
|
|
|
14,196,837
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,196,837
|
|
Warrant liability - 2012 placement agent
|
|
|
320,636
|
|
|
|
-
|
|
|
|
-
|
|
|
|
320,636
|
|
Warrant liability - 2013 Series D&E
|
|
|
15,184,930
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,184,930
|
|
Warrant liability - 2013
placement agent
|
|
|
78,122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,157,411
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,157,411
|
|
The following
table presents the Company’s fair value hierarchy for these assets measured at fair value on a recurring basis as of
December 31, 2013:
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
Significant Other
|
|
|
Significant Other
|
|
|
|
Fair Value
|
|
|
Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
December 31, 2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability - 2010 Series B
|
|
$
|
362,452
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
362,452
|
|
Warrant liability - 2012 Series A&B
|
|
|
16,703,983
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,703,983
|
|
Warrant liability - 2012 placement agent
|
|
|
362,633
|
|
|
|
-
|
|
|
|
-
|
|
|
|
362,633
|
|
Warrant liability - 2013 Series D&E
|
|
|
18,337,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,337,733
|
|
Warrant liability - 2013 placement agent
|
|
|
98,080
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,864,881
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35,864,881
|
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
The following table provides a summary of
changes in fair value of the Company’s liabilities, as well as the portion of losses included in income attributable to unrealized
depreciation that relate to those liabilities held March 31, 2014:
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
Debenture
|
|
|
|
Warrant
|
|
|
2013
|
|
|
2013
|
|
|
Placement
|
|
|
2012
|
|
|
2012
|
|
|
Placement
|
|
|
2010
|
|
|
Conversion
|
|
|
|
Liability
|
|
|
Series E
|
|
|
Series D
|
|
|
Agent
|
|
|
Series B
|
|
|
Series A
|
|
|
Agent
|
|
|
Series B
|
|
|
Feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2013
|
|
$
|
21,420,276
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,744,784
|
|
|
$
|
6,685,740
|
|
|
$
|
542,530
|
|
|
$
|
898,722
|
|
|
$
|
7,548,500
|
|
Purchase, sales and settlements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and other derivatives issued
|
|
|
15,681,151
|
|
|
|
5,057,354
|
|
|
|
10,552,240
|
|
|
|
71,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivatives
|
|
|
(5,403,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,403,000
|
)
|
Total gains or losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
depreciation (appreciation)
|
|
|
4,166,454
|
|
|
|
797,852
|
|
|
|
1,930,287
|
|
|
|
26,523
|
|
|
|
(2,928,108
|
)
|
|
|
7,201,567
|
|
|
|
(179,897
|
)
|
|
|
(536,270
|
)
|
|
|
(2,145,500
|
)
|
Balance at January 1, 2014
|
|
$
|
35,864,881
|
|
|
$
|
5,855,206
|
|
|
$
|
12,482,527
|
|
|
$
|
98,080
|
|
|
$
|
2,816,676
|
|
|
$
|
13,887,307
|
|
|
$
|
362,633
|
|
|
$
|
362,452
|
|
|
$
|
-
|
|
Purchase, sales and settlements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and other derivatives issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
depreciation (appreciation)
|
|
|
(5,707,470
|
)
|
|
|
(1,865,945
|
)
|
|
|
(1,286,858
|
)
|
|
|
(19,958
|
)
|
|
|
(897,621
|
)
|
|
|
(1,609,525
|
)
|
|
|
(41,997
|
)
|
|
|
14,434
|
|
|
|
|
|
Balance at March 31, 2014
|
|
$
|
30,157,411
|
|
|
$
|
3,989,261
|
|
|
$
|
11,195,669
|
|
|
$
|
78,122
|
|
|
$
|
1,919,055
|
|
|
$
|
12,277,782
|
|
|
$
|
320,636
|
|
|
$
|
376,886
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value per Warrant
|
|
$
|
0.69
|
|
|
$
|
0.31
|
|
|
$
|
0.87
|
|
|
$
|
1.19
|
|
|
$
|
0.31
|
|
|
$
|
1.19
|
|
|
$
|
1.13
|
|
|
$
|
0.47
|
|
|
|
|
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
7. STOCKHOLDERS’ EQUITY
Common Stock
The Company amended its Amended
& Restated Certificate of Incorporation, effective as of October 29, 2013, to effect a combination of its common stock at
a ratio of 1-for-8 (the “Reverse Split”). The Reverse Split was effective immediately prior to the entry into
the 2013 Purchase Agreement (defined below). The Reverse Split was authorized by the stockholders of the Company on November 10,
2010.
As a result of the Reverse Split, all references
to common stock, stock options and warrants and other securities convertible into common stock, and per share amounts for all prior
periods presented have been retroactively restated to reflect the 1-for-8 reverse stock split of common stock.
On November 26, 2012, the Company
entered into a Securities Purchase Agreement, or the 2012 Purchase Agreement, with a number of institutional and accredited
investors pursuant to which the Company sold in a private placement an aggregate principal amount of $14,857,200 of
three-year 8% Senior Convertible Debentures, or the Debentures, plus the 2012 Warrants (defined below). On October 29, 2013,
the Company entered into a Conversion Agreement (the “Conversion Agreement”) with the holders (the
“Holders”) of its Debentures. Pursuant to the Conversion Agreement, the Holders agreed to convert the entire
outstanding principal amount of their Debentures, together with accrued and unpaid interest through October 29, 2013, into
shares of the Company’s common stock at a conversion price of $2.40 per share for a total of approximately 6,530,154
shares, of which 345,606 shares were issued in satisfaction of accrued and unpaid interest. As a result of such
conversion, all of the Company’s obligations under the Debentures were fully satisfied.
The Company also entered into
a Registration Rights Agreement on November 26, 2012 (the “2012 Registration Rights Agreement”), with the
purchasers of the Debentures pursuant to which the Company agreed to register the resale of the common stock underlying the
Debentures and the 2012 Warrants. Pursuant to the terms of an amendment to the 2012 Registration Rights Agreement entered
into on March 25, 2013, the Company was permitted, in its sole discretion, to pay liquidated damages resulting from the
Company’s failure to successfully cause the registration statement covering the resale of 100% of the securities
covered by the 2012 Purchase Agreement to be declared effective by the SEC by March 26, 2013, in common stock. In accordance
with the amended Registration Rights Agreement, the Company issued common stock as follows:
|
i)
|
On March 27, 2013, the Company issued an aggregate of approximately 123,809 shares of common stock to the investors in lieu
of an aggregate cash payment of $297,143, representing the first installment of liquidated damages under the Registration Rights
Agreement, as amended.
|
|
ii)
|
On April 29, 2013, the Company issued an aggregate of approximately 136,536 shares of common stock to the investors in lieu
of an aggregate cash payment of $327,688, representing the second installment of liquidated damages under the Registration Rights
Agreement, as amended.
|
|
iii)
|
On May 27, 2013, the Company issued an aggregate of approximately 120,280 shares of common stock to the investors in lieu of
an aggregate cash payment of $288,674, representing the third and final installment of liquidated damages under the Registration
Rights Agreement, as amended.
|
On October 29, 2013, the Company entered
into a Securities Purchase Agreement (the “2013 Purchase Agreement”) with certain purchasers identified therein (the
“Purchasers”) pursuant to which the Company sold and the Purchasers purchased, an aggregate of 12,868,585 units of
the Company’s securities (the “Units”), with each Unit consisting of the following:
|
(i)
|
either (a) one share of common stock (each a “Share,” and collectively, the “Shares”), or (b) a five-year
common stock warrant to purchase one share of common stock (collectively, the “Series C Warrant Shares”) at an exercise
price of $0.01 per share (collectively, the “Series C Warrants”);
|
|
(ii)
|
a five-year warrant to purchase one share of common stock (collectively, the “Series D Warrant Shares”) at an exercise
price of $4.00 per share (collectively, the “Series D Warrants”); and
|
|
(iii)
|
a warrant, expiring on October 31, 2014, to purchase one share of common stock (collectively, the “Series E Warrant Shares,”
and together with the Series C Warrant Shares and the Series D Warrant Shares, the “Warrant Shares”) at an exercise
price of $2.40 per share (collectively, the “Series E Warrants,” and together with the Series C Warrants and the Series
D Warrants, the “2013 Warrants”).
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
7. STOCKHOLDERS’ EQUITY
(Continued)
The Company sold and issued 8,413,354
Units consisting of Shares, Series D Warrants and Series E Warrants at a purchase price of $2.40 per Unit, and 4,455,231 Units consisting
of Series C Warrants, Series D Warrants and Series E Warrants at a purchase price of $2.39 per Unit, for total gross proceeds to
the Company of $30.84 million, before deducting fees and other transaction related expenses of approximately $760,000. A closing
of the sale of 12,826,752 Units was completed on October 29, 2013, and the sale of the remaining 41,833 Units was completed on
October 30, 2013.
The 2013 Purchase Agreement
contains customary representations, warranties and covenants by each of the Company and the Purchasers. In addition, the 2013
Purchase Agreement provides that each Purchaser has a right, subject to certain exceptions described in the agreement, to
participate in future issuances of equity and debt securities by the Company for a period of 18 months following the
effective date of the Registration Statement (defined below).
Contemporaneously with the entry into
the 2013 Purchase Agreement, and as contemplated thereby, the Company entered into a Registration Rights Agreement with the
Purchasers. Pursuant to the terms of the Registration Rights Agreement, the Company agreed to file, on or before December 30,
2013 (the “Filing Date”), a registration statement under the Securities Act covering the resale of the Shares and
Warrant Shares (the “Registration Statement”), and to cause such Registration Statement to be declared effective
by the Commission as soon as practicable thereafter, but not later than 120 days following the date of the Registration
Rights Agreement (the “Effectiveness Date”). The Registration Statement was declared effective on January 27,
2014. The Company is required to maintain the effectiveness of the Registration Statement until all of the shares covered
thereby are sold or may be sold pursuant to Rule 144 under the Securities Act without volume or manner of- sale restrictions
and without the requirement that the Company be in compliance with the current public information requirements of Rule
144.
As of March 31, 2014, the Company had 20,370,331
shares of common stock issued and outstanding and approximately 55,929,172 shares of common stock reserved for issuance upon the
exercise of outstanding options and warrants.
Warrants
In accordance with the 2010 sale and issuance
of Series A preferred stock, the Company issued two-and-one-half-year “Class A” warrants to purchase an aggregate of
152,740 shares of Series A Preferred Stock at an initial exercise price of $8.00 per share (the “2010 Class A Warrants”)
and five-year Class B warrants to purchase an aggregate of 801,885 shares of Series A Preferred Stock at an initial exercise price
of $9.20 per share (the “2010 Class B Warrants,” and together with the 2010 Class A Warrants, the “2010 Warrants”).
Upon the automatic conversion of the Series A Preferred Stock in January 2011, the 2010 Warrants automatically converted to the
right to purchase an equal number of shares of common stock. The terms of the warrants contain an anti-dilutive price adjustment
provision, such that, in the event the Company issues common shares at a price below the current exercise price of the 2010 Warrants,
the exercise price will be decreased pursuant to a customary “weighted-average” formula. In accordance with this provision
and as a result of the issuances made pursuant to the 2012 Purchase Agreement and 2013 Purchase Agreement, the exercise price of
the 2010 Class B warrants has been adjusted to $3.55 per share. Because of this anti-dilution provision and the inherent uncertainty
as to the probability of future common share issuances, the Black-Scholes option pricing model the Company uses for valuing stock
options could not be used. Management used a Monte Carlo simulation model and, in doing so, utilized a third-party valuation
report to determine the warrant liability to be approximately $0.4 million and approximately $0.4 million at March 31, 2014 and
December 31, 2013, respectively. The Monte Carlo simulation is a generally accepted statistical method used to generate a defined
number of stock price paths in order to develop a reasonable estimate of the range of the Company’s future expected stock
prices and minimizes standard error. This valuation is revised on a quarterly basis until the warrants are exercised or they expire
with the changes in fair value recorded in other income (expense) on the statement of operations. The 2010 Class A warrants, representing
the right to purchase an aggregate of 152,704 shares of common stock, expired during the year ended December 31, 2013 unexercised.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
7. STOCKHOLDERS’ EQUITY
(Continued)
Pursuant to the 2012
Purchase Agreement, the Company issued five-year Series A warrants to purchase an aggregate of approximately 6,190,500 shares
of common stock at an initial exercise price of $4.00 per share and 18-month Series B warrants to purchase an aggregate
of approximately 6,190,500 shares of common stock at an initial exercise price of $2.40 per share. The terms of the
2012 Warrants contain a “full-ratchet” anti-dilutive price adjustment provision. In accordance with such
full-ratchet anti-dilution provision, in the event that the Company sells or issues additional shares of common stock,
including securities convertible or exchangeable for common stock (subject to customary exceptions), at a per share price
less than the applicable 2012 Warrant exercise price, such warrant exercise price will be reduced to an amount equal to the
issuance price of such subsequently issued shares; after such time as the Company has raised at least $12 million in
additional equity financing, the 2012 Warrants are subject to further anti-dilution protection based on a weighted-average
formula. Further, the anti-dilution provisions of the 2012 Warrants provide that, in addition to a reduction in the
applicable exercise price, the number of shares purchasable thereunder is increased such that the aggregate exercise price of
the warrants (exercise price per share multiplied by total number of shares underlying the warrants) remained unchanged. In
accordance with the terms of this anti-dilution provision and as a result of the Company’s issuances under the 2013
Purchase Agreement, the exercise price of the Series A warrants was reduced to $2.40 per share and the aggregate number of
shares underlying such warrants was increased to 10,317,464 shares. Because of this anti-dilution provision and the inherent
uncertainty as to the probability of future common share issuances, the Black-Scholes option pricing model the Company uses
for valuing stock options could not be used. Management used a Monte Carlo simulation model and, in doing so,
utilized a third-party valuation report to determine the warrant liability to be approximately $14.2 million and $16.7
million at March 31, 2014 and December 31, 2013, respectively.
In connection with the 2012 offering of
the Debentures and 2012 Warrants, the Company engaged Maxim Group LLC, or Maxim Group, to serve as placement agent. In consideration
for its services, the Company paid Maxim Group a placement fee of $1,035,000. In addition, the Company issued to Maxim Partners
LLC, or Maxim Partners, an affiliate of Maxim Group, 7,500 shares of common stock and five-year warrants to purchase an additional
283,750 shares of common stock at an initial exercise price of $2.64 per share. The warrants issued to Maxim Partners are in substantially
the same form as the Warrants issued to the investors, except that they do not include certain anti-dilution provisions contained
in the Warrants. However, the placement warrants do contain a provision that could require the Company to repurchase the warrants
from the holder under certain conditions. Management used a Monte Carlo simulation model and, in doing so, utilized a third-party
valuation report to determine the warrant liability to be approximately $0.3 million and $0.4 million at March 31, 2014 and December
31, 2013, respectively.
Under the terms of the 2013 Purchase Agreement,
each Purchaser had the option to elect to receive a Series C Warrant in lieu of a Share in connection with each Unit it purchased.
The Series C Warrants have a five-year term and are exercisable at an initial exercise price of $0.01 per share. The Series D Warrants
have a five-year term and are exercisable at an initial exercise price of $4.00 per share, subject to adjustment for stock splits,
combinations, recapitalization events and certain dilutive issuances (as described below). The Series E Warrants are exercisable
until October 31, 2014 at an initial exercise price of $2.40 per share, subject to adjustment for stock splits, combinations, recapitalization
events and certain dilutive issuances (as described below). The applicable exercise price of the Series D Warrants and Series E
Warrants (but not the Series C Warrants) is subject to a weighted-average price adjustment in the event the Company makes future
issuances of common stock or rights to acquire common stock (subject to certain exceptions) at a per share price less than the
applicable warrant exercise price. Because of this anti-dilution provision and the inherent uncertainty as to the probability of
future common share issuances, the Black-Scholes option pricing model the Company uses for valuing stock options could not be used. Management
used a Monte Carlo simulation model and, in doing so, utilized a third-party valuation report to determine the warrant liability
for the Series D and Series E Warrants to be approximately $15.2 million and $18.3 million at March 31, 2014 and December 31, 2013,
respectively.
The 2013 Warrants are
required to be exercised for cash, provided that if during the term of the Warrants there is not an effective registration statement
under the Securities Act covering the resale of the shares issuable upon exercise of the Warrants, then the Warrants may be exercised
on a cashless (net exercise) basis.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
7. STOCKHOLDERS’ EQUITY
(Continued)
Below is a table that
summarizes all outstanding warrants to purchase shares of the Company’s common stock as of March 31, 2014.
Grant Date
|
|
Warrants
Issued
|
|
|
Exercise
Price
|
|
|
Weighted Average
Exercise
Price
|
|
|
Expiration
Date
|
|
Exercised
|
|
|
Warrants Outstanding
|
|
09/03/2010
|
|
|
801,885
|
|
|
$
|
3.55
|
|
|
$
|
3.55
|
|
|
09/03/2015
|
|
|
-
|
|
|
|
801,885
|
|
09/03/2010
|
|
|
132,116
|
|
|
$
|
8.80
|
|
|
$
|
8.80
|
|
|
09/03/2015
|
|
|
-
|
|
|
|
132,116
|
|
11/26/2012
|
|
|
5,293,738
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
10/31/2014
|
|
|
-
|
|
|
|
5,293,738
|
|
12/18/2012
|
|
|
896,748
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
10/31/2014
|
|
|
-
|
|
|
|
896,748
|
|
11/26/2012
|
|
|
8,822,887
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
11/26/2017
|
|
|
-
|
|
|
|
8,822,887
|
|
11/26/2012
|
|
|
261,250
|
|
|
$
|
2.64
|
|
|
$
|
2.64
|
|
|
11/26/2017
|
|
|
-
|
|
|
|
261,250
|
|
12/18/2012
|
|
|
1,494,577
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
12/18/2017
|
|
|
-
|
|
|
|
1,494,577
|
|
12/18/2012
|
|
|
22,500
|
|
|
$
|
2.64
|
|
|
$
|
2.64
|
|
|
12/18/2017
|
|
|
-
|
|
|
|
22,500
|
|
10/29/2013
|
|
|
4,455,231
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
10/29/2018
|
|
|
-
|
|
|
|
4,455,231
|
|
10/29/2013
|
|
|
12,868,585
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
10/31/2014
|
|
|
-
|
|
|
|
12,868,585
|
|
10/29/2013
|
|
|
12,868,585
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
10/29/2018
|
|
|
-
|
|
|
|
12,868,585
|
|
10/29/2013
|
|
|
65,650
|
|
|
$
|
2.64
|
|
|
$
|
2.64
|
|
|
10/29/2018
|
|
|
-
|
|
|
|
65,650
|
|
|
|
|
47,983,752
|
|
|
|
|
|
|
$
|
2.65
|
|
|
|
|
|
-
|
|
|
|
47,983,752
|
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
8. STOCK OPTION PLAN
The Company’s 2005 Stock Option Plan
(the “Plan”) was originally adopted by the Board of Directors of Old Arno in August 2005, and was assumed by the Company
on June 3, 2008 in connection with the Merger. After giving effect to the Merger, there were initially 373,831 shares of the Company’s
common stock reserved for issuance under the Plan. On April 25, 2011, the Company’s Board of Directors (the “Board”)
approved an amendment to the Plan to increase the number of shares of common stock issuable under the Plan to 875,000 shares. On
January 14, 2013, the Company’s Board of Directors approved an amendment to the Plan to increase the number of shares of
common stock issuable under the Plan to 945,276 shares. On October 7, 2013, the Company’s Board of Directors adopted an amendment
to the Company’s 2005 Plan, as amended that increased the number of shares of common stock authorized for issuance thereunder
from 945,276 to 11,155,295. Under the Plan, incentives may be granted to officers, employees, directors, consultants, and advisors.
Incentives under the Plan may be granted in any one or a combination of the following forms: (a) incentive stock options and non-statutory
stock options, (b) stock appreciation rights, (c) stock awards, (d) restricted stock and (e) performance shares.
The Plan is administered by the Board, or
a committee appointed by the Board, which determines recipients and types of awards to be granted, including the number of shares
subject to the awards, the exercise price and the vesting schedule. The term of stock options granted under the Plan cannot exceed
10 years. Options shall not have an exercise price less than the fair market value of the Company’s common stock on the grant
date, and generally vest over a period of three to four years.
As of March 31, 2014, there are 3,169,896
shares available for future grants and awards under the Plan, which covers stock options, warrants and restricted awards.
The Company issued 2,186,957 and 1,413,500
stock options during the three months ended March 31, 2014 and March 31, 2013, respectively. The Company estimated the fair value
of each option award granted using the Black-Scholes option-pricing model. The following assumptions were used for the three months
ended March 31, 2014 and March 31, 2013:
|
|
Three months
ended March 31,
2014
|
|
Three months
ended March 31,
2013
|
|
|
|
|
|
Expected volatility
|
|
92%
|
|
89% - 96%
|
Expected term
|
|
6 years
|
|
4-6 years
|
Dividend yield
|
|
0.0%
|
|
0.0%
|
Risk- free interest rate
|
|
1.57% - 1.58%
|
|
0.77% - 0.89%
|
Stock price
|
|
$2.23 - $2.90
|
|
$2.40
|
Forfeiture rate
|
|
0.0%
|
|
0.0%
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
8. STOCK OPTION PLAN
(Continued)
A summary of the status of the options issued
under the Plan at March 31, 2014, and information with respect to the changes in options outstanding is as follows:
|
|
|
|
|
Options Outstanding
|
|
|
|
Shares
Available for
Grant
|
|
|
Outstanding
Stock Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
|
5,396,832
|
|
|
|
5,758,463
|
|
|
$
|
2.66
|
|
|
|
|
|
Shares authorized for issuance
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options granted under the Plan
|
|
|
(2,186,957
|
)
|
|
|
2,186,957
|
|
|
$
|
2.83
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Options forfeited
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Balance at March 31, 2014
|
|
|
3,209,875
|
|
|
|
7,945,420
|
|
|
$
|
2.71
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2014
|
|
|
|
|
|
|
1,364,010
|
|
|
$
|
3.51
|
|
|
$
|
-
|
|
The following table summarizes information about stock options
outstanding at March 31, 2014:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise Price
|
|
|
Shares
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.23
|
|
|
|
223,445
|
|
|
|
0.28
|
|
|
$
|
2.23
|
|
|
|
-
|
|
|
|
|
|
$
|
2.40
|
|
|
|
5,594,152
|
|
|
|
6.57
|
|
|
$
|
2.40
|
|
|
|
1,154,066
|
|
|
$
|
2.40
|
|
$
|
2.90
|
|
|
|
1,963,512
|
|
|
|
2.43
|
|
|
$
|
2.90
|
|
|
|
45,632
|
|
|
$
|
2.90
|
|
$
|
8.00
|
|
|
|
117,969
|
|
|
|
0.06
|
|
|
$
|
8.00
|
|
|
|
117,969
|
|
|
$
|
8.00
|
|
$
|
19.38
|
|
|
|
37,383
|
|
|
|
0.02
|
|
|
$
|
19.38
|
|
|
|
37,383
|
|
|
$
|
19.38
|
|
$
|
24.00
|
|
|
|
8,959
|
|
|
|
0.00
|
|
|
$
|
24.00
|
|
|
|
8,959
|
|
|
$
|
24.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
7,945,420
|
|
|
|
9.35
|
|
|
$
|
2.71
|
|
|
|
1,364,010
|
|
|
$
|
3.51
|
|
Stock-based compensation costs under the Plan for the three
months ended March 31, 2014 and 2013 and for the cumulative period from August 1, 2005 (inception) through March 31, 2014 are as
follows:
|
|
|
|
|
Period from
|
|
|
|
|
|
|
August 1, 2005
|
|
|
|
Three months ended March 31,
|
|
|
(inception) to
|
|
|
|
2014
|
|
|
2013
|
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
247,327
|
|
|
$
|
245,761
|
|
|
$
|
2,806,678
|
|
General and administrative
|
|
|
917,729
|
|
|
|
218,266
|
|
|
|
3,486,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,165,056
|
|
|
$
|
464,027
|
|
|
$
|
6,293,047
|
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
8. STOCK OPTION PLAN
(Continued)
The fair value of options vested under the
Plan was approximately $1,060,090 and $387,805 for the three months ended March 31, 2014 and 2013, respectively, and approximately
$5,746,267 for the period from August 1, 2005 (inception) through March 31, 2014.
At March 31, 2014, total unrecognized estimated
compensation cost related to stock options granted prior to that date was approximately $13,871,614 which is expected to be recognized
over a weighted-average vesting period of 2.9 years. This unrecognized estimated employee compensation cost does not include any
estimate for forfeitures of performance-based stock options.
Common stock, stock options or other equity
instruments issued to non-employees (including consultants and all members of the Company’s Scientific Advisory Board) as
consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments
issued (unless the fair value of the consideration received can be more reliably measured). The fair value of stock options is
determined using the Black-Scholes option-pricing model and is expensed as the underlying options vest. The fair value of any options
issued to non-employees is recorded as expense over the applicable service periods.
9. RELATED PARTIES
On June 1, 2009, the Company entered into
a services agreement with Two River Consulting, LLC (“TRC”) to provide various clinical development, operational, managerial,
accounting and financial, and administrative services to the Company for a period of one year. David M. Tanen, a director and Secretary
of the Company and at the time also its President, Arie S. Belldegrun, M.D., the Chairman of the Board of Directors, and Joshua
A. Kazam, a director until September 2010, are each partners of TRC. The terms of the Services Agreement were reviewed and approved
by a special committee of the Company’s Board of Directors consisting of independent directors. None of the members of the
special committee has any interest in TRC or the services agreement. As compensation for the services contemplated by the services
agreement, the Company paid TRC a monthly cash fee of $55,000. The services agreement with TRC expired on April 1,
2011 and from that point until December 31, 2013, TRC billed the Company for actual hours worked on a monthly basis. For
the three months ended March 31, 2013, TRC billed the Company $76,151. For the period from inception to December 31, 2013, TRC
billed the Company a total of $2,052,571. As of January 1, 2014, the Company no longer received services from TRC.
On occasion, some of the Company’s
expenses were paid by TRC. No interest is charged by TRC on any outstanding balance owed by the Company. For the period from August
1, 2005 (inception) through March 31, 2014 services and reimbursed expenses totaled $2,482,958. As of March 31, 2014, the Company
had a payable to TRC of $3,814, which was paid in full during the second quarter of 2014.
The financial condition and results of operations
of the Company, as reported, are not necessarily indicative of results that would have been reported had the Company operated completely
independently.