UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
 
[X]
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended June 30, 2016
 
[  ]
Transition Report under Section 13 or 15(d) of the Exchange Act

For the transition period from __________ to __________
 
Commission file number:  333-147193

FluoroPharma Medical, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
 
20-8325616
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
8 Hillside Avenue, Suite 108
Montclair, NJ
 
 
07042
(Address of principal executive offices)
 
(Zip Code)

(973) 744-1565
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]   No [   ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files.  Yes [X]   No [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer
[   ]
 
Accelerated filer
[   ]
 
           
Non-accelerated filer
[   ]
 
Smaller reporting company
[X]
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ]   No [X]
 
As of August 14, 2016, there were 33,756,772 shares of $0.001 par value common stock issued and outstanding.
 
 
 
 
 


 
 
FORM 10-Q
 
FluoroPharma Medical, Inc.
 

   
Page
PART I - FINANCIAL INFORMATION
   
   
     
 
F-1
 
F-2
 
F-3
 
F-4
     
 
1
     
 
6
     
 
7
     
PART II  - OTHER INFORMATION
   
 
8
     
 
8
     
 
8
     
 
8
     
 
8
     
 
8
     
 
8
     
 
10
 
 
 
 
-i-

 
CONDENSED CONSOLIDATED BALANCE SHEETS

 
June 30,
2016
   
December 31, 2015
 
 
(Unaudited)
       
ASSETS
           
Current Assets:
           
Cash and cash equivalents
  $ 408,309     $ 290,847  
Prepaid expenses and other
    55,363       218,155  
                                        Total Current Assets     463,672       509,002  
                 
Property and equipment, net
    9,863       11,049  
Intangible assets, net
    299,049       318,547  
                 
                                        Total Assets   $ 772,584     $ 838,598  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current Liabilities:
               
Convertible notes payable - short term, net (see Note 4)
  $ 5,380,507     $ 4,349,449  
Accounts payable
    1,400,464       1,219,867  
Derivative liabilities
    1,649,010       1,526,060  
Deferred revenue
    183,333       -  
Accrued expenses and other
    2,348,089       1,603,605  
                                        Total Current Liabilities     10,961,403       8,698,981  
                 
Commitments & Contingencies
               
                 
Stockholders’ Deficit:
               
Preferred stock Series A; $0.001 par value, 3,500,000 shares designated 147,229 and 150,611 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
(preference in liquidation of $122,200 at June 30, 2016)
    149       152  
Preferred stock Series B; $0.001 par value, 12,000,000 shares designated 5,382,071 shares issued and outstanding at June 30, 2016 and  December 31, 2015
(preference in liquidation of $5,607,330 at June 30, 2016)
    5,382       5,382  
Common stock - Class A - $0.001 par value, 100,000,000 shares authorized, 33,648,780 and 32,908,503 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
    33,650       32,910  
Additional paid-in capital
    24,948,875       24,705,547  
Accumulated deficit
    (35,176,875 )     (32,604,374 )
                                       Total Stockholders’ Deficit     (10,188,819 )     (7,860,383 )
                 
                                       Total Liabilities and Stockholders’ Deficit
  $ 772,584     $ 838,598  
 
The accompanying notes are an integral part of these consolidated financial statements

 
FLUOROPHARMA MEDICAL, INC. and Subsidiary
 
   
For the Three Months
 Ended June 30,
   
For the Six Months
Ended June 30,
 
   
2016
   
2015
   
2016
   
2015
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
 Operating Expenses:
                               
 General and administrative
  $ 439,700     $ 602,386     $ 932,011     $ 1,281,022  
 Research and development
    239,667       102,801       429,327       285,206  
 Total Operating Expenses
    679,367       705,187       1,361,338       1,566,228  
                                 
 Loss from Operations
    (679,367 )     (705,187 )     (1,361,338 )     (1,566,228 )
                                 
 Other Income (Expense):
                               
Other income
    -       -       2,485       -  
 Gain (loss) on debt extinguishment
    21,413       -       (995,735 )     -  
 Gain on settlement of accounts payable
    -       -       21,406       -  
 Loss on sale of trading securities
    -       -       -       (11,946 )
 Unrealized gain on trading securities
    -       -       -       7,986  
 Gain (loss) on revaluation and modification of  derivative liabilities
    379,885       (642,031 )     881,555       (274,024 )
Interest and other expense
    (456,031 )     (80,822 )     (855,107 )     (157,924 )
 Total Other Income (Expense), net
    (54,733 )     (722,853 )     (945,396 )     (435,908 )
                                 
 Net Loss
  $ (734,100 )   $ (1,428,040 )   $ (2,306,734 )   $ (2,002,136 )
                                 
 Preferred Stock Dividends
    (132,898 )     (144,622 )     (265,767 )     (287,517 )
                                 
 Net Loss Attributable to Common Stockholders
  $ (866,998 )   $ (1,572,662 )   $ (2,572,501 )   $ (2,289,653 )
                                 
 Net Loss per Common Share - Basic and Diluted
  $ (0.03 )   $ (0.05 )   $ (0.08 )   $ (0.08 )
 
                               
Weighted Average Shares Used in per Share Calculation - Basic and Diluted:
    33,423,524       29,430,742       33,241,923       29,328,418  
                                 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
FLUOROPHARMA MEDICAL, INC. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
For the Six Months
Ended June 30,
 
   
2016
   
2015
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
(Unaudited)
   
(Unaudited)
 
                 
Net loss
  $ (2,306,734 )   $ (2,002,136 )
Adjustments to reconcile net loss to net cash used by
               
operating activities
               
Depreciation and amortization
    21,976       24,573  
Amortization of issuance costs and discounts on convertible notes     472,787       60,486  
Accretion of interests related to convertible notes
    149,424       -  
Share-based compensation related to stock options
    26,879       150,570  
Fair value of warrants
    22,576       -  
Gain on accounts payable settlement
    (21,406 )     -  
Loss on debt extinguishment
    995,735       -  
Net loss on sale of trading securities
    -       11,946  
Change in unrealized loss on trading securities
    -       (7,986 )
Gain (loss) on revaluation and modification of derivative liabilities
    (881,555 )     274,024  
(Increase) decrease in:
               
Prepaid expenses and other
    81,030       20,897  
Deferred issuance costs on convertible notes
    93,399       -  
Increase (decrease) in:
               
Accounts payable
    223,409       606,631  
Deferred revenue
    183,333       -  
Accrued expenses and other
    705,302       79,737  
                                Net Cash Used by Operating Activities
    (233,845 )     (781,258 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from sale of investments
    -       35,970  
Purchase of equipment
    (1,293 )     -  
                                Net Cash Provided by (Used in) Investing Activities
    (1,293 )     35,970  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
  Proceeds from issuance of convertible notes payable – short term
    360,000       600,000  
Notes payable issuance costs
    (7,400 )     (54,815 )
Repayment of notes payable
    -       (10,000 )
                                Net Cash Provided by Financing Activities
    352,600       535,185  
                 
Net change in Cash and Cash Equivalents
    117,462       (210,103 )
Cash and Cash Equivalents, Beginning of Period
    290,847       252,145  
Cash and Cash Equivalents, End of Period
  $ 408,309     $ 42,042  
                 
Supplemental Cash Flow Disclosures:
               
Interest expense paid in cash
  $ -     $ -  
Tax paid
  $ 1,662     $ -  
                 
Supplemental Non-Cash Disclosure:
               
Series B Preferred Stock dividends
  $ 259,778     $ 248,503  
Series A Preferred Stock dividends
  $ 5,943     $ 34,685  
Accounts payable settled in Common Stock
  $ 21,406     $ -  
Conversion of Series A Preferred Stock dividend to Common Stock
  $ 46     $ 4,329  
Conversion of Series A Preferred Stock to Common Stock
  $ 10     $ 180  
Conversion of Convertible Notes
  $ 167,217     $ -  
Fair value of embedded derivative liability in 2016 Convertible Notes
  $ 73,825     $ -  
Fair value of embedded derivative liability in 2014 Convertible Notes
  $ 945,951     $ -  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
FLUOROPHARMA MEDICAL, INC. and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.            ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN
 
FluoroPharma Medical, Inc., a Nevada corporation (the “Company”), is a molecular imaging company headquartered in Montclair, N.J. The Company was founded as FluoroPharma Inc. 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.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, FluoroPharma, Inc., a Delaware corporation. All intercompany transactions have been eliminated in consolidation.

Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements of FluoroPharma Medical, Inc. and subsidiary have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC").  Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by U.S. GAAP for complete annual financial statements.  In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation.  Certain prior year amounts in the condensed consolidated financial statements and notes thereto have been reclassified to conform to the current period’s presentation.  Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, 2016 or for any other interim period.  The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company and the notes thereto as of and for the year ended December 31, 2015, as included in the Company's Form 10-K filed with the SEC on March 30, 2016. 
 
Going concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has experienced net losses and negative cash flows from operations since its inception.  The Company has sustained cumulative losses attributable to common stockholders of $35,176,875 as of June 30, 2016.  The Company has historically financed its operations through issuances of equity and the proceeds of debt instruments. In the past, the Company has also provided for its cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees. During the six months ended June 30, 2016, the Company raised net cash proceeds of $352,600 through the issuance of notes payable.  During the year ended December 31, 2015, the Company raised net cash proceeds of $2,686,315 through the issuance of notes payable. In addition, during the year ended December 31, 2015, the Company received gross proceeds of $35,970 from the sale of freely tradable securities received as consideration for the issuance of promissory notes. 

The Company continues 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.  If the Company is unable to raise additional capital as may be needed to meet its projections for operating expenses, it could have a material adverse effect on liquidity or require the Company to cease or significantly delay some of its clinical trials.  These financial statements do not include any adjustments relating to the recoverability of recorded asset amounts that might be necessary as a result of the above uncertainty.  
 
 
 
 
F-4


2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Intangible Assets

The Company’s 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 on technology licenses are 5 to 15 years.
 
Impairments
 
The Company assesses the impairment of its 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. The Company records an 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 as of June 30, 2016 and December 31, 2015, respectively.
 
Fair Value Measurements
 
The Company has various financial instruments that must be measured at fair value on a recurring basis, including certain marketable securities and derivatives. Certain assets and liabilities are measured at fair value on a non-recurring basis. These assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances.  During the six months ended June 30, 2016, the Company valued the Amended 2014 Notes (see Note 4) at fair value in connection with a modification in terms that was accounted for as a Debt Extinguishment. The Amended 2014 Notes were recorded at fair value on the date of the modification and are not subsequently adjusted to fair value.
 
The Company groups its assets and liabilities measured at fair value, in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
 
Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
 
The three levels of the fair value hierarchy are as follows:
 
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
 
 Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
 Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.
 
 
The Company recognizes transfers between levels at the end of the reporting period as if the transfers occurred on the last day of the reporting period.

Assets and liabilities measured at fair value on a recurring basis at June 30, 2016 are summarized below:

   
June 30, 2016
 
   
Level 1
   
Level 2
   
Level 3
   
Fair Value
 
Current Liabilities:
                       
       Derivative liabilities
 
$
-
   
$
-
   
$
1,649,010
   
$
1,649,010
 
 
Assets and liabilities measured at fair value on a recurring basis at December 31, 2015 are summarized below:

 
December 31, 2015
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
Current Liabilities:
                       
       Derivative liability
  $ -     $ -     $ 1,526,060     $ 1,526,060  
  
The following table sets forth the changes in the estimated fair value for our Level 3 classified derivative liability:

   
Six Months Ended
   
Six Months Ended
 
   
June 30, 2016
   
June 30, 2015
 
             
Fair value at beginning of period
 
$
1,526,060
   
$
1,354,319
 
Embedded conversion feature – Amended 2014 Notes
   
945,951
     
  -
 
Embedded conversion feature – 2016 Notes
   
73,825
     
-
 
Embedded conversion feature – Amended 2014 Notes converted 
   
(15,271)
     
-
 
Change in fair value
   
(881,555)
     
274,024
 
Fair value at end of period
 
$
1,649,010
   
$
1,628,284
 
 
Revenue Recognition

From time to time the Company enters into licensing agreements, the terms of which may include grants of licenses, or options to obtain licenses, to our intellectual property and research and development activities. Payments under these arrangements typically include one or more of the following: non-refundable, up-front license fees; funding of research and/or development efforts; amounts due upon the achievement of specified objectives; and/or royalties on future product sales.

The Company recognizes milestone payments as revenue in their entirety upon the achievement of a substantive milestone if the consideration earned from the achievement of the milestone (i) is consistent with performance required to achieve the milestone or the increase in value to the delivered item, (ii) relates solely to past performance and (iii) is reasonable relative to all of the other deliverables and payments within the arrangement.  Amounts received contractually designated to fund further research are recorded as a reduction to research and development expenses when the Company has satisfied all performance obligations to the licensee and expenses for specified development activities have been incurred.   
 
Recently Issued Accounting Standards

In August 2014, the FASB issued ASU 2014-15 “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The core principle of the guidance is that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued. When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events that will alleviate the substantial doubt are adequately disclosed in the footnotes to the financial statements. This guidance will be effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
 
 
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”) which requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet.  The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this guidance.  ASU 2015-17 is effective for annual and interim periods beginning after December 15, 2016 but early application is permitted and the guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. 

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-03, 'Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 is intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. This new guidance is effective for fiscal years beginning after December 15, 2015.  The Company adopted ASU 2015-03 on January 1, 2016 and applied the standard retrospectively.
 
In January 2015, FASB issued ASU 2015-01 “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”. This ASU removes the concept of an extraordinary item.  Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item.  If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.  The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The Company adopted this standard on January 1, 2016.  The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires a lessee to recognize lease liabilities for the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and right-of-use assets, representing the lessee’s right to use, or control the use of, specified assets for the lease term.  Additionally, the new guidance has simplified accounting for sale and leaseback transactions.  Lessor accounting is largely unchanged.  The ASU is effective for fiscal years beginning after December 15, 2018.  Early application is permitted. The Company is currently evaluating the impact of adopting this ASU on the financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation”. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact of adopting this ASU on the financial statements.
 
3.            OTHER BALANCE SHEET INFORMATION
 
Components of selected captions in the accompanying balance sheets as of June 30, 2016 and December 31, 2015 consist of:
 
   
June 30,
2016
   
December 31,
2015
 
Prepaid expenses and other:
           
Prepaid insurance
 
$
18,944
   
$
39,756
 
Annual license fees
   
-
     
104,167
 
Other
   
36,419
     
74,232
 
 Prepaid expenses & other
 
$
55,363
   
$
  218,155
 
                 
Accrued expenses and other:
               
Accrued dividends Series A and B Preferred Stock
 
 $
1,301,672
   
 $
1,041,894
 
 Accrued interest on notes payable
   
325,709
     
327,203
 
 Deferred salary
   
155,625
     
88,958
 
 Research and development
   
67,465
     
39,268
 
 Funded research
   
366,667
     
-
 
 Other
   
130,951
     
106,282
 
            Accrued expenses & other
 
$
2,348,089
   
$
1,603,605
 
 
 
4.            CONVERTIBLE NOTES PAYABLE – SHORT TERM

2014 Convertible Notes Payable
 
During 2014 and 2015, the Company issued promissory notes (the “2014 Notes”) pursuant to a Note Purchase Agreement entered into with certain accredited investors for an aggregate principal amount of $2,198,416. The 2014 Notes mature one year from the date of issuance and bear interest at the rate of 8% per annum. All principal and accrued interest under the 2014 Notes will automatically convert into the Company’s next equity or equity-linked financing (a “Subsequent Financing”) in accordance with the following formula: (outstanding balance of the Notes as of the closing of the Subsequent Financing) x (1.15) / (the per security price of the securities sold in the Subsequent Financing).  The investors shall be considered to be purchasers in the Subsequent Financing by way of their converted 2014 Notes.  In addition, upon the closing of a Subsequent Financing, each of the investors shall be issued, in addition to any warrants issued in connection with a Subsequent Financing, an additional warrant to purchase a number of shares of common stock equal to fifty percent (50%) of the number of shares of common stock purchased by such investor in the Subsequent Financing assuming a per share purchase price of the securities to be issued in the Subsequent Financing.

In May 2015, in connection with the issuance of the Convertible Notes (as defined and discussed below), the holders of the 2014 Notes, in the outstanding principal amount of $2,198,416, amended their 2014 Notes to (i) extend the maturity date an additional six months, (ii) change the terms of the conversion premium from 1.15 to 1.25 to be consistent with conversion terms of the Convertible Notes, and (iii) provide that the issuance of promissory notes by the Company in a transaction with a substantially similar structure to the transactions contemplated by the 2014 Notes shall not be deemed a Subsequent Financing.

On January 20, 2016, the Company further amended  the 2014 Notes (the “Amended 2014 Notes”),  in order to  (i) extend the maturity date for an additional six months,  (ii) retroactively increase the interest rate to 12%, (iii) provide the ability to voluntary convert the notes, including principal and interest multiplied by 1.25, at a conversion price of $0.35 per share (which results in an effective conversion price of $0.28 per share), (iv) provide resale registration rights, and (v) provide “full-ratchet” anti-dilutive protection. As a result of this amendment, the conversion price of each of the Company's existing Series A Preferred Stock, Series B Preferred Stock, the Convertible Notes and certain related warrants, has been adjusted to $0.28 per share.

The Company applied guidance in FASB ASC 470-50, “Debt Modifications and Extinguishments,” (ASC 470-50) and determined that the amendment qualified as a debt extinguishment (the “Debt Extinguishment”). This determination was made after calculating that the newly amended terms increased the fair value of the embedded conversion feature in excess of 10 percent.

In order to account for the Debt Extinguishment, the Company recorded the Amended 2014 Notes and the embedded conversion feature at their then fair values of $2,495,582 and $945,951, respectively.  The embedded conversion feature was recorded as a derivative liability after determining the requirements for equity classification, in accordance with ASC Topic 815-40, were not met.  The difference between the carrying value of the 2014 Notes, including all principal, accrued interest and deferred financing costs and the fair value of the Amended 2014 Notes and embedded conversion feature was recorded as a loss on debt extinguishment of $1,022,520 in the statement of operations.  The difference between the principal amount of the Amended 2014 Notes and the fair value of the Amended 2014 Notes of $238,515 will be amortized to interest expense over the term of the notes. During the six months ended June 30, 2016, the Company amortized interest of $146,615 on the Amended 2014 Notes.

During the six months ended June 30, 2016, the Company issued 653,988 shares of common stock pursuant to the conversion of Amended 2014 Notes. The carrying value of the converted Amended 2014 Notes plus accreted interest was approximately $178,731 and the fair value of the derivative related to the embedded conversion feature was $15,271. The Company recorded a gain on extinguishment related to these conversions totaling $26,785.
 
 
The calculation of the net loss on extinguishment is as follows:

   
June 30,
2016
 
       
Fair value – Amended 2014 Notes
 
$
2,495,582
 
Fair value – embedded conversion feature
   
945,951
 
 Total Amended 2014 Notes
   
3,441,533
 
         
Principal – 2014 Notes
   
2,198,416
 
Accrued interest – 2014 Notes
   
232,235
 
Deferred financing costs – 2014 Notes
   
(11,638)
 
 Total 2014 Notes
   
2,419,013
 
         
         Loss on Extinguishment from 2014 Note Amendment
   
1,022,520
 
         
Carrying value – Amended 2014 Notes converted
   
175,922
 
Value of interest accretion – Amended 2014 Notes converted
   
2,809
 
Fair value of embedded conversion feature – Amended 2014 Notes converted
   
15,271
 
Fair value – common stock issued upon conversion
   
(167,217
)
 Gain on Extinguishment from Amended 2014 Note Conversions
   
26,785
 
         
 Loss on Extinguishment, net
 
$
995,735
 
 
The derivative liability related to the embedded conversion feature is being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value is being recorded in the Company’s consolidated statement of operations.

Upon conversion, the notes and embedded derivatives are removed at their carrying value, after a final mark-to-market of the embedded derivative’s fair value. Common stock issued upon conversion is measured at its current fair value, with any difference recorded as a gain or loss on extinguishment.

2015 Convertible Notes Payable

On May 28, 2015, the Company accepted subscriptions pursuant to a new Note and Warrant Purchase Agreement, as amended on August 6, 2015, for the issuance and sale in a private placement of up to $3,000,000 of convertible promissory notes (the “Convertible Notes”).  The Convertible Notes mature one year from the date of issuance and bear interest at the rate of 8% per annum.  All principal and accrued interest under the Convertible Notes will, at the sole option of the investor (i) convert into the Company’s next equity or equity-linked financing in which the Company raises gross proceeds of at least $3,600,000 (the “Subsequent Financing”), into such securities, including warrants of the Company as are issued in the Subsequent Financing, the amount of which shall be determined in accordance with the following formula: (the outstanding balance of the Convertible Notes plus accrued interest as of the closing of the Subsequent Financing) x (1.25) / (the per security price of the securities sold in the Subsequent Financing), or (ii) convert into a new financing in which the Company shall issue to the investor one share of common stock and one-half of one warrant at a purchase price no greater than $0.35 per share. The per security price of the securities sold in the Subsequent Financing shall not exceed $0.35.  In addition, the holders of the Convertible Notes shall have the option, at any time, to convert all principal and accrued interest into common stock at price per share of $0.35.   In the event that the Company shall, at any time, issue or sell additional shares of common stock or common stock equivalents, as defined, at a price per share less than $0.35, then the conversion price of the Convertible Notes shall be reduced to a price equal to the consideration paid for these additional shares of common stock.  As a result of the 2016 amendment to the 2014 Notes, the conversion price of the Convertible Notes was adjusted to $0.28 per share.

Pursuant to the Note and Warrant Purchase Agreement, the Company issued warrants at an initial exercise price per share of $0.50 to purchase a number of shares of common stock equal to fifty percent of the number of shares of common stock such investor would receive upon full conversion of the Convertible Notes at a conversion price of $0.35 per share.  As a result of the 2016 amendment to the 2014 Notes, the exercise price of the warrants was adjusted to $0.28 per share.
 
From May through September 2015, the Company issued Convertible Notes in the aggregate principal amount of $2,780,005 and warrants to purchase 3,971,436 shares of common stock at $0.50 per share.  In connection with the issuance of the Convertible Notes, the Company paid to placement agents a cash fee of $142,400 and issued 406,859 five-year warrants to purchase shares of common stock at an exercise price of $0.50 per share.   On the issuance date, the fair value of the placement agent warrants was $39,108 which was recorded as a deferred offering cost and as a derivative warrant liability. 

 
Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity” (“ASC Topic 815-40”), the Company has determined that since the exercise price of the warrants may be reduced if the Company issues shares at a price below the then-current exercise price, the warrants issued in connection with the Convertible Notes must be classified as derivative instruments. In accordance with ASC Topic 815-40, these warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value is being recorded in the Company’s consolidated statement of operations.
 
In order to account for the issuance of the Convertible Notes and warrants, the Company allocated the total gross proceeds of $2,780,005 between the Convertible Notes and the warrants.  The warrants were allocated their full fair value as of the respective grant dates totaling $358,255 and the residual net proceeds of $2,421,750 were allocated to the Convertible Notes.  The conversion feature of the Convertible Notes was then analyzed.  The Company determined that the embedded conversion feature did not meet the requirements for equity classification in accordance with ASC Topic 815-40.  Therefore, the conversion feature fair value of $490,340 was bifurcated from the host contract, the Convertible Notes, and recorded as a derivative liability, thereby creating a further discount on the Convertible Notes.  The conversion feature is also being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value is being recorded in the Company’s consolidated statement of operations.

On May 26, 2016, the 2015 Notes were amended to (i) extend the maturity date an additional six months and (ii) increase the interest rate, from 8% to 12%, applied retroactively from the initial issuance date of the Notes. The Company applied guidance in ASC 470-50 and determined that the amendment did not qualify as a debt extinguishment. This determination was made after calculating that the present value of the cash flows under the modified debt instrument is less than a 10 percent change from the present value of the remaining cash flows under the original debt.

Lewis Opportunity Fund, an affiliate of W. Austin Lewis, IV, a member of the Company’s Board of Directors, participated as an investor in the Convertible Notes in 2015 in an aggregate principal amount of $2,000,000 and was issued warrants to purchase an aggregate of 2,857,143 shares of common stock.

2016 Convertible Notes Payable

On March 23, 2016, the Company accepted subscriptions pursuant to a new Note Purchase Agreement for the issuance and sale in a private placement of an aggregate principal amount of up to $1,000,000 of convertible promissory notes (the “2016 Convertible Notes”), convertible into shares of common stock. The initial closing of the private placement was consummated on March 23, 2016 for an aggregate amount of $150,000, which was invested by Dr. Thomas H. Tulip, the Company’s chief executive officer. The Company may conduct any number of additional closings so long as the final closing occurs on or before the 120th day following the initial closing date.

From April 26, 2016 through May 24, 2016, the Company issued additional 2016 Convertible Notes in the aggregate principal amount of $210,000.

The 2016 Convertible Notes mature one year from the date of issuance and bear interest at the rate of 12% per annum payable upon the earlier of (i) exchange or voluntary conversion of the 2016 Convertible Notes in accordance with the terms thereof and (ii) the maturity date. All principal and accrued interest under the 2016 Convertible Notes (the “Outstanding Balance”) will automatically convert into the Company’s next equity or equity-linked financing (the “Subsequent Financing”), without any action on the part of the investor, into such securities, including warrants of the Company that are issued in the Subsequent Financing, the amount of which shall be determined in accordance with the following formula: (the Outstanding Balance as of the closing of the Subsequent Financing) x (1.25) / (the per security price of the securities sold in the Subsequent Financing). For the purpose of calculating the formula above, the per security price of the securities sold in the Subsequent Financing shall not exceed $0.35. The issuance of promissory notes by the Company in a transaction with a substantially similar structure to the 2016 Convertible Notes (as determined in good faith by the Company’s board of directors) shall not be deemed a Subsequent Financing.
 
 
Each investor also has the right, at its option at any time, to convert the Outstanding Balance into shares of common stock as is obtained by dividing (i) the Outstanding Balance to be converted multiplied by 1.25, by (ii) a conversion price, $0.35 per share; provided, however, if an event of default has occurred and is continuing, the conversion price shall be adjusted to $0.15 per share. The 2016 Convertible Notes are subject to customary adjustments for issuances of shares of common stock as a dividend or distribution on shares of the common stock, or mergers or reorganizations, as well as “full-ratchet” anti-dilution adjustments for future issuances of other Company securities (subject to certain standard carve-outs).

Upon the closing of a Subsequent Financing, each of the investors shall be issued, in addition to any warrants issued in connection with a Subsequent Financing, an additional warrant (the “Additional Warrant“), to purchase a number of shares of common stock equal to fifty percent (50%) of the number of shares of common stock purchased by such investor in the Subsequent Financing assuming a per share purchase price of the securities to be issued in the Subsequent Financing. The terms of the Additional Warrants shall be substantially identical to the terms of the warrants issued in the Subsequent Financing, except the exercise price per share of the Additional Warrants shall be equal to the per share purchase price of the securities issued in the Subsequent Financing. In the event no warrants are issued in the Subsequent Financing, each of the investors shall nonetheless be entitled to an Additional Warrant, which Additional Warrant shall be non-callable, exercised on a cash only basis and have a term of five (5) years following the closing date of the Subsequent Financing.

The conversion feature of the 2016 Convertible Notes was analyzed.  The Company determined that the embedded conversion feature did not meet the requirements for equity classification in accordance with ASC Topic 815-40.  Therefore, the conversion feature with a fair value of $73,825 was bifurcated from the host contract, the 2016 Convertible Notes, and recorded as a derivative liability, thereby creating a discount on the 2016 Convertible Notes.  The conversion feature is also being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value is being recorded in the Company’s consolidated statement of operations.

In connection with the issuance of the short-term financing notes and the convertible notes in 2014, 2015 and 2016, the Company incurred $343,526 in issuance costs.  These costs are recorded as deferred issuance costs, which are offset against the proceeds from the convertible notes on the Company’s balance sheet and amortized to interest expense over the term of such convertible notes. For the six months ended June 30, 2016 and 2015, the Company has amortized $89,162 and $60,486, respectively, of issuance costs to expense.  For the six months ended June 30, 2016 and 2015, the Company recorded non-cash interest expense related to the amortization of the discount on the convertible notes of $383,625 and $0, respectively.
 
A reconciliation of the Company’s Convertible Notes Payable – Short Term, as of June 30, 2016, is as follows:

   
2014 Amended
Notes
   
2015 Convertible
Notes
   
2016 Convertible
Notes
   
Total
 
                         
Principal
  $ 2,198,416     $ 2,780,005     $ 360,000     $ 5,338,421  
Adjustments to fair value, net of accretion
    443,781       -       -       443,781  
Conversions
    (175,922 )     -       -       (175,922 )
Debt discount
    -       (124,197 )     (58,715 )     (182,912 )
Deferred financing costs
    -       (37,307 )     (5,554 )     (42,861 )
                                 
    $ 2,466,275     $ 2,618,501     $ 295,731     $ 5,380,507  
 
Interest expense, including amortization of deferred issuance costs and debt discounts related to the warrants and beneficial conversion feature, totaled $855,107 and $157,924 for the six months ended June 30, 2016 and 2015, respectively.

In connection with the private placement of the Convertible Notes, the Company entered into a registration rights agreement with the investors, in which the Company agreed to file a registration statement with the SEC to register for resale the shares underlying the Convertible Notes and the warrants within 90 calendar days of the final closing date of the Convertible Notes and to have the registration statement declared effective within 120 calendar days after the filing date.

For embedded conversion features that are accounted for as a derivative liability, the Company used a Binomial Options Pricing model.  The primary assumptions used to determine the fair values of these embedded conversion features were: risk free interest rate of 0.35%, volatility of 68.09%, and actual term of the related convertible notes.
 
 
5.            LICENSE AGREEMENT

On June 3, 2016, the Company entered into two exclusive license agreements (the “Licenses”) with Sinotau USA, Inc., a wholly-owned subsidiary of Hainan Sinotau Pharmaceutical Co., Ltd. (“Sinotau”), a pharmaceutical organization. Sinotau is responsible for developing and commercializing the Company’s proprietary cardiac PET imaging assets, CardioPET and BFPET, in China and Canada.  Sinotau also retains a first right of refusal to license the technology for development in Australia and Singapore. In accordance with the Licenses, the Company  is entitled to upfront payments of $550,000, milestone payments totaling $1,450,000 upon the completion of certain development activities and royalties on  future sales made by Sinotau.

As of June 30, 2016, the transfer of technology specified in the Sinotau agreement has not been completed and therefore the entire upfront payment of $550,000 has been deferred. A portion of the upfront payment, totaling $366,667, is to be used in order to further fund the Company’s research and development activities and is included in accrued expenses and other liabilities. The remaining $183,333 has been recorded as deferred revenue.

License payments, excluding payments to fund further research, are subject to the Company’s license agreement with MGH (see Note 9). Upon receiving the upfront payment from Sinotau, the Company recorded a royalty expense of $37,500, payable to MGH, within research and development expenses.

6.            CAPITAL STOCK
 
SERIES A PREFERRED STOCK

The Company is authorized to issue 100,000,000 shares of preferred stock, $0.001 par value per share, of which 3,500,000 shares have been designated Series A Preferred Stock.

During the six months ended June 30, 2016, 10,542 shares of Series A Preferred Stock were converted into 25,000 shares of common stock.  In addition, the Company issued 130 shares of its common stock in satisfaction of a $46 dividend accrued on the shares of Series A Preferred Stock that were converted.

For the six months ended June 30, 2016 and 2015, the Company accrued a preferred stock dividend of $5,943 and issued 7,160 shares of Series A Preferred Stock in satisfaction of such accrued dividends.

During the six months ended June 30, 2015, 180,119 shares of Series A Preferred Stock were converted into 320,000 shares of common stock.  In addition, the Company issued 9,691 shares of its common stock in satisfaction of a $4,329 dividend accrued on the shares Series A Preferred Stock that were converted.

For the six months ended June 30, 2015, the Company accrued a preferred stock dividend of $34,685 and issued 41,790 shares of Series A Preferred Stock in satisfaction of such accrued dividends.
 
SERIES B PREFERRED STOCK
 
The Company is authorized to issue 100,000,000 shares of preferred stock, $0.001 par value per share, of which 12,000,000 shares have been designated Series B Preferred Stock.

For the six months ended June 30, 2016 and 2015, the Company accrued a Series B Preferred Stock dividend of $259,779 and $248,503, respectively.

During the six months ended June 30, 2016 and 2015, there were no voluntary conversions.
 
COMMON STOCK
 
The Company has authorized 100,000,000 shares of its common stock, $0.001 par value per share. At June 30, 2016 and December 31, 2015, the Company had issued and outstanding 33,648,780 and 32,908,503 shares of its common stock, respectively.

In January 2016, the Company issued an aggregate of 61,159 shares of common stock with fair value of $21,406 in settlement of certain outstanding liabilities to third parties.
 
 
In December 2015, the Company issued an aggregate of 867,143 shares of common stock, with a total fair value of $337,250, for consulting services and in settlement of certain outstanding liabilities to third parties. As of December 31, 2015, $30,000 of this settlement related to services that were performed in 2016 and is included in prepaid expense in the consolidated balance sheet. In addition, certain settlement agreements included a provision to issue, upon a subsequent financing as defined therein, an amount of warrants equal to fifty percent of the number of shares of common stock issued by the Company in the subsequent financing.
 
7.            STOCK PURCHASE WARRANTS

During the six months ended June 30, 2016, the Company issued 200,000 common stock warrants at an exercise price of $0.28 per share with a five-year term to a consultant.  The fair value of these warrants of $22,576 was recorded as expense in the six months ended June 30, 2016.

During the six months ended June 30, 2016, 123,403 stock purchase warrants expired with a weighted average exercise price of $0.92.

As a result of the amendment to the 2014 Notes entered into with existing convertible note holders on January 20, 2016, the conversion price of certain related warrants has been adjusted to $0.28 per share.

The following represents additional information related to common stock warrants outstanding and exercisable at June 30, 2016:
 
Exercise Price
   
Number of Shares Under Warrants
   
Weighted Average Remaining Contract Life in Years
   
Weighted Average Exercise Price
 
  $ 0.28       13,054,703       2.92     $ 0.28  
                               
Total warrants accounted for as derivative liability
    13,054,703       2.92     $ 0.28  
                               
  $ 0.28       200,000       4.80     $ 0.28  
  $ 0.50       607,229       4.29     $ 0.50  
  $ 0.83       2,008,500       2.42     $ 0.83  
  $ 0.84       20,000       0.09     $ 0.84  
  $ 0.85       281,912       1.06     $ 0.85  
  $ 0.95       20,000       0.25     $ 0.95  
  $ 1.00       165,417       2.63     $ 1.00  
                               
Total warrants accounted for as equity     3,303,058       2.76     $ 0.81  
Total for all warrants outstanding     16,357,761       2.89     $ 0.37  
                                                 
For warrants granted that are accounted for as a derivative liability, the Company used a Binomial Options Pricing model.  The primary assumptions used to determine the fair values of these warrants were: risk free interest rate of 1.01%, volatility of 68.09%, and actual term and exercise price of the warrants granted.

8.             COMMON STOCK OPTIONS
 
On February 11, 2011, the Company adopted its 2011 Equity Incentive Plan (the “Plan”) under which 6,475,750 shares of common stock were reserved for issuance under options or other equity interests as set forth in the Plan. Under the Plan, options are available for issuance to employees, officers, directors, consultants and advisors. The Plan provides that the board of directors will determine the exercise price and vesting terms of each option on the date of grant. Options granted under the Plan generally expire ten years from the date of grant.
 
Under the Plan, the Company has issued 161,250 shares of fully paid and non-assessable restricted common stock to a director of the Company. These shares of restricted stock are subject to the terms of the Plan and are unvested and outstanding as of June 30, 2016. The shares shall vest upon the earlier of (i) the occurrence of a Change of Control, as defined in the Plan, (ii) the successful completion of a Phase II clinical trial for any of the Company’s products, or (iii) the determination by the board of directors to provide for immediate vesting. The weighted average grant-date fair value is $1.07 per share.
 
 
The following is a summary of all common stock option activity for the three months ended June 30, 2016:
 
   
Options Outstanding
   
Weighted Average
Exercise Price
 
             
Outstanding at December 31, 2015
   
4,996,095
   
$
0.65
 
Options granted
   
125,411
   
$
0.35
 
Options forfeited
   
(1,951,417)
   
$
0.64
 
Options exercised
   
-
   
$
-
 
Outstanding at June 30, 2016
   
3,170,089
   
$
0.64
 

   
Options Exercisable
   
Weighted Average Exercise
Price per Share
 
             
Exercisable at December 31, 2015
   
4,312,762
   
$
0.68
 
Exercisable at June 30, 2016
   
2,525,089
   
$
0.69
 
 
The weighted average fair value of options granted during the six months ended June 30, 2016 was $0.14.

At June 30, 2016, the weighted average remaining contractual term for exercisable and outstanding options is 4.07 and 5.03 years, respectively.  At June 30, 2016, the aggregate intrinsic value of all of the Company’s exercisable and outstanding options is $40,500 and $40,500, respectively.

Employee stock-based compensation expense for the six months ended June 30, 2016 and 2015 is $26,879 and $150,570, respectively.

To compute compensation expense, the Company estimated the fair value of each option award on the date of grant using the Black-Scholes option pricing model for employees, and calculated the fair value of each option award at the end of the period for non-employees.  The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have sufficient historical market information to estimate the volatility of its own stock.  The expected term of options granted represents the period of time that options are expected to be outstanding.  The Company estimated the expected term of stock options by using the simplified method. The expected forfeiture rates are based on the historical employee forfeiture experiences.  To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards.  The Company has not declared a dividend on its common stock since its inception and has no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.
 
The fair value of each share-based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions as of June 30, 2016 and 2015, respectively: risk-free rate with a range from 1.49% - 1.83% and 1.82% - 1.94%, respectively, volatility of 68.08% and 49.42%, respectively, and expected term of 5 years and 5 years, respectively.  There was no dividend yield included in the calculations.

As of June 30, 2016, there was $40,444 of unrecognized compensation cost related to non-vested options. The unrecognized compensation expense is estimated to be recognized over a period of 2.21 years at June 30, 2016.
 
 
9.            COMMITMENTS AND CONTINGENCIES
 
License Agreements
 
On June 26, 2014, the Company and The General Hospital Corporation, d/b/a Massachusetts General Hospital (“MGH”) entered into two license agreements (the “Agreements”), which Agreements replace the single license agreement between the Company and MGH dated April 27, 2009, as amended by letter dated June 21, 2011 and agreement dated October 31, 2011 (the “Original Agreement”). The Agreements provide exclusive licenses for the Company’s two lead product candidates, BFPET and CardioPET, two of the three cardiac imaging technologies covered by the Original Agreement. The Company and MGH are in discussions regarding the exclusive license to VasoPET, the third product candidate covered by the Original Agreement, the Company’s rights to which ceased upon the termination of the Original Agreement contemporaneously with the execution of the new Agreements. The Agreements were entered into primarily for the purpose of separating the Company’s rights and obligations with respect to its different product development programs. Each of the Agreements requires the Company to pay MGH an initial license fee of $175,000 and annual license maintenance fees of $125,000 each. The Agreements require the Company to meet certain obligations, including, but not limited to, meeting certain development milestones relating to clinical trials and filings with the United States Food and Drug Administration. MGH has the right to cancel or make non-exclusive certain licenses on certain patents should the Company fail to meet stipulated obligations and milestones. Additionally, upon commercialization, the Company is required to make specified milestone payments and royalties on commercial sales.   The Company is amortizing the cost of these intangible assets over the remaining useful life of the Agreements of 10 years. For the six months ended June 30, 2016, the Company has recorded license fee expense of $125,000.

On July 31, 2015, the Company paid annual maintenance fees of $125,000 for each of its license agreements.  These costs are recorded as prepaid expenses, included in prepaid expenses and other current assets on the Company’s balance sheet and expensed over the term of one year.

The Company has agreed with MGH to split each annual $125,000 fee into two payments of $62,500, the first payment will be due in August and the second in December (see Note 10).

The Company is current with all stipulated obligations and milestones under the Agreements and the Agreements remain in full force and effect. The Company believes that it maintains a good relationship with MGH and will be able to obtain waivers or extension of its obligations under the Agreement, should the need arise. If MGH were to refuse to provide the Company with a waiver or extension of any of its obligations or were to cancel or make the license non-exclusive, this would have a material adverse impact on the Company as it may be unable to commercialize products without exclusivity and would lose its competitive edge for portions of the patent portfolio. 
 
Clinical Research Services Agreements

On September 7, 2012, the Company entered into a Clinical Research Services Agreement with SGS Life Science Services (“SGS”), a company with its registered offices in Belgium, for clinical research services relating to the Company’s CardioPET Phase II study to assess myocardial perfusion and fatty acid uptake in coronary artery disease (CAD) patients. The phase II trial will be an open label trial designed to assess the safety and diagnostic performance of CardioPET as compared to stress echocardiography, myocardial perfusion imaging and angiography as a gold standard of background disease. 
 
In addition, the Company engaged FGK Representative Service GmbH to serve as the Company’s sponsor in compliance with the laws governing clinical trials conducted in the European Union.  On February 28, 2013, the Company announced that the Phase II trial had begun and released the initial data and images from the trial. On February 6, 2014, the Company presented interim data from the trial at the SNMMI mid-winter meeting.  On October 20, 2014, the Company presented additional interim data at the EANM meeting in Gothenburg, Sweden. In December 2014, the Company announced that the enrollment for a Phase II clinical trial of CardioPET was closed. The estimated remaining cost payable to SGS through the completion of the trial, based upon the original contracted amount, is approximately $320,000.
 
On May 23, 2014, the Company entered into a Master Services Agreement with PPD Development, LP, a clinical research organization engaged in the business of managing clinical research programs and providing clinical development and other related services, for the clinical research services relating to the Company’s BFPET Phase II study.  The Phase II trial will be an open label trial designed to assess the safety and diagnostic performance of BFPET.  Multiple trial sites are planned in various locations in the United States.   In connection with this agreement, the Company has recorded $0 and $ 280,000   in the six months ended June 30, 2016 and 2015, respectively, related to start-up costs.  The trial is expected to commence in the near future. The estimated cost of this program is $1.7 million.
 
 
Executive Employment Contracts

The Company maintains employment contracts with key Company executives that provide for the continuation of salary and the grant of certain options to the executives if terminated for reasons other than cause, as defined within the agreements. One contract also provides for a $1 million bonus should the Company execute transactions as specified in the contract, including the sale of substantially all of the Company’s assets or a stock, or merger transaction, any of which resulting in compensation to the Company’s stockholders aggregating in excess of $50 million for such transaction.
 
Operating Lease Commitment

In July 2011, the Company entered into a three-year lease for office space, which commenced May 1, 2012 and was to expire on April 30, 2015. On July 1, 2014, the Company increased its office space and amended this agreement. The amended annual minimum lease payments for this office space are $76,200 per year plus common area costs. In accordance with the amended agreement, the Company maintains a $9,525 security deposit.  On February 24, 2015, the Company signed a three-year renewal of the lease which will expire on April 30, 2018. Subsequent to April 30, 2016, the Company has the option to terminate the lease with 6 months prior notice. On January 18, 2016, the Company submitted the lease termination notice effective July 31, 2016.
 
Effective January 1, 2016, the Company has entered into a sub-lease agreement with AzurRx BioPharma Inc., in which, Johan (Thijs) Spoor, a member of the Company’s board of directors, is the president and C.E.O. As of March 1, 2016, the sublease is for $38,330 per annum, payable in equal monthly installments of $3,240 per month.

Rent expense, net of sublease income, was $21,600 and $38,294 for the six months ended June 30, 2016 and 2015, respectively.
 
Legal Contingencies
 
The Company is not aware of any material, active, pending or threatened proceeding, nor is the Company, or any subsidiary, involved as a plaintiff or defendant in any other material proceeding or pending litigation.

10.            SUBSEQUENT EVENTS

On July 22, 2016, the Company entered into a further amendment to the 2014 Notes (see Note 4) to extend the maturity date of the 2014 Notes for an additional ninety days.
 
On July 22, 2016, the 2016 Convertible Notes were amended to change the final closing date from 120 days to 240 days after the initial closing of March 23, 2016.
 
On August 1, 2016, the Company has entered into a sub-lease agreement with Nexus Biopharma, Inc.  The sub-lease is for $25,966 per annum, payable in equal monthly installments of $2,164.
 
On August 8, 2016, 36,044 shares of Series A Preferred Stock were converted into 106,844 shares of common stock. In additon, the Company issued 1,148 shares of common stock in satisfaction of a $321 dividend accrued on the shares of Series A Preferred Stock that were converted.
 
On August 10, 2016, the Company entered into agreements with MGH to amend its Agreements (see Note 9) to provide for the payment of the annual license fees to be separated into two payments of $62,500 each. The first payment to be due 90 days from the amendment effective date, June 1, 2016 and the second payment to be due 6 months from that date.  In addition, the agreement was amended to inlcude the potential to license technical information in addition to intellectual property.
 

Item 2.  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.. Forward-looking statements are 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 we file with the SEC.

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere herein.
 
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.
 
Our Product Candidates
 
 BFPET (18-F FTPP)
 
  Our BFPET program employs a ([18F]-labeled cationic lipophilic tetraphenylphosphonium ion (18-F TPP) as an imaging agent designed for use in stress-testing for patients with presumptive or proven CAD. 18-F FTPP measures the extent and severity of cardiovascular disease through the detection of ischemic (i.e. reversible and viable) and infarcted (i.e., irreversibly damaged) myocardial (i.e., heart) tissue. Its mechanism of action allows it to enter the myocardial cells of the heart muscle in direct proportion to blood flow and membrane potential--the most important indicators of adequate cardiac blood supply. Since ischemic and infarcted myocardial cells take up significantly less 18-F FTPP than normal healthy myocardial cells do, 18-F FTPP can distinguish ischemic and infarcted cells from those that are healthy. If approved, 18-F FTPP will represent one of the first molecular imaging blood flow agents commercialized for use in the cardiovascular segment of the PET imaging market. 18-F FTPP may also provide information on cardiac mitochondrial membrane potential, enabling global and regional assessment of the electro-physiologic integrity of the myocardium.
 
Currently, cardiac perfusion imaging is performed routinely with SPECT tracers such as Sestamibi, Tetrofosmin, Thallium-201 or the PET tracers Rubidium-82 and N-13 ammonia. However, the industry standard SPECT imaging has a diagnostic accuracy of approximately 75%, with research indicating that 10% of patients cleared as “normal” were subsequently found to be “abnormal” using PET imaging. The current PET tracer Rubidium-82 has experienced an FDA recall and high cost issues, while N-13 ammonia is produced in a cyclotron and must be used locally within a matter of minutes due to a very short physical half-life. The introduction of a Fluorine-labeled myocardial agent, with its longer half-life enabling the existing supply-chain potential, would be a catalyzing event toward advancing the role of PET imaging in cardiovascular disease and improving diagnostic imaging.
 
18-F FTPP successfully completed a Phase I clinical trial in 12 healthy volunteers with no adverse events and no clinically significant changes noted in follow-up clinical and laboratory testing. The results of the trial demonstrated the required dosimetry, safety profile and high resolution myocardial imaging pharmacokinetics to justify a controlled Phase II clinical trial. We have announced that we will begin Phase II trials at Massachusetts General Hospital to assess its efficacy in CAD subjects; and expect enrollment to commence in 2016.

 
CardioPET (18-F FCPHA)
 
Our CardioPET program employs Trans-9-[18F]-Fluoro-3, 4-Methyleneheptadecanoic Acid (18-F FCPHA) as a molecular imaging agent designed to assess myocardial blood flow and metabolism in patients with CAD, including  patients  unable to perform exercise cardiac stress-testing. 18-F FCPHA allows for the potential detection of ischemic (i.e. reversible and viable) and infarcted (i.e. irreversibly damaged) myocardial tissue in patients with presumptive or proven acute and chronic CAD and related cardiac diseases.
 
In addition, 18-F FCPHA could be useful for assessing myocardial viability for the prediction of improvement prior to and/or following revascularization in patients with acute CAD, including myocardial infarction (heart attack). 18-F FCPHA allows for the identification of compromised but viable heart tissue, which is important since revascularization in those patients with substantial viable myocardium results in improved left ventricular function and survival. Importantly, 18-F FCPHA, if approved, may have several significant advantages for assessing cardiac viability using PET, and would likely represent the first imaging agent available in the U.S. for use in patients with chronic CAD and underlying metabolic disorders. 18-F FCPHA is designed to provide the fatty-acid metabolic component for assessing myocardial metabolism and viability, which play a central role in the progression of diabetes and heart failure.
 
The safety and tolerability of 18-F FCPHA have been demonstrated in a Phase I trial conducted at the Massachusetts General Hospital.  Enrollment in a Phase IIa trial has been completed at four sites in Belgium to assess its safety and efficacy in CAD patients.  This Phase IIa study was an open label trial designed to assess the safety and diagnostic performance of 18-F FCPHA compared with standard-of-care myocardial perfusion imaging, and angiography as a gold standard of epicardial coronary artery disease. Specifically, the Phase IIa trial consisted of approximately 30 individuals with known or suspected stable chronic CAD who underwent imaging at rest and after pharmacologic and exercise stress-testing for the evaluation of suspected or proven CAD. Interim safety and imaging results were presented in February 2014, and the final safety and efficacy analysis is ongoing. The enrollment for the Phase IIa clinical trial of CardioPET was closed in December 2014.  
 
Recent Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-15 “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The core principle of the guidance is that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued. When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events that will alleviate the substantial doubt are adequately disclosed in the footnotes to the financial statements. This guidance will be effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”) which requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet.  The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this guidance.  ASU 2015-17 is effective for annual and interim periods beginning after December 15, 2016 but early application is permitted and the guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. 
 
In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-03, 'Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 is intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. This new guidance is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company adopted ASU 2015-03 on January 1, 2016 and applied the standard retrospectively.
 
 
In January 2015, FASB issued ASU 2015-01 “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”. This ASU removes the concept of an extraordinary item.  Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item.  If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.  The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The Company adopted this standard on January 1, 2016.  The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements 

In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires a lessee to recognize lease liabilities for the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and right-of-use assets, representing the lessee’s right to use, or control the use of, specified assets for the lease term.  Additionally, the new guidance has simplified accounting for sale and leaseback transactions.  Lessor accounting is largely unchanged.  The ASU is effective for fiscal years beginning after December 15, 2018.  Early application is permitted. The Company is currently evaluating the impact of adopting this ASU on the financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation”. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact of adopting this ASU on the financial statements.

Management does not expect any other recently issued, but not yet effective, accounting standards to have a material effect on its results of operations or financial condition.
 
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 U.S. GAAP and have been consistently applied in the preparation of the financial statements.

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 on technology licenses are 5 to 15 years.

Impairments
 
We assess the impairment of its 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 record an impairment charge if it believes an investment has experienced a decline in value that is other than temporary.
 
We have determined that no impairments were required as of June 30, 2016 and December 31, 2015, respectively.
 
Fair Value of Financial Instruments

We group our assets and liabilities measured at fair value, in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
 
 
Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The three levels of the fair value hierarchy are as follows:
 
 Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
 
 Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
 Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.
 
We recognize transfers between levels at the end of the reporting period as if the transfers occurred on the last day of the reporting period.

License Revenue Policy

From time to time we enter into licensing agreements, the terms of which may include grants of licenses, or options to obtain licenses, to our intellectual property and research and development activities. Payments under these arrangements typically include one or more of the following: non-refundable, up-front license fees; funding of research and/or development efforts; amounts due upon the achievement of specified objectives; and/or royalties on future product sales.

We recognize milestone payments as revenue in their entirety upon the achievement of a substantive milestone if the consideration earned from the achievement of the milestone (i) is consistent with performance required to achieve the milestone or the increase in value to the delivered item, (ii) relates solely to past performance and (iii) is reasonable relative to all of the other deliverables and payments within the arrangement.  Amounts received contractually designated to fund further research are recorded as a reduction to research and development expenses when we have satisfied all performance obligations to the licensee and expenses for specified development activities have been incurred.   

RESULTS OF OPERATIONS

General
 
To date, we have not generated any revenues from operations and at June 30, 2016, we had an accumulated deficit of approximately $35.1 million, primarily as a result of research and development, or R&D, expenses and general and administrative, or G&A, expenses. While we may in the future generate revenue from a variety of sources, including license fees, research and development payments in connection with strategic partnerships and/or government grants, our product candidates are at an early stage of development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate significant revenues.
 
 
R&D Expenses
 
Conducting R&D is central to our business. R&D expenses consist primarily of:
 
employee-related expenses, which include salaries and benefits, and rent expense;
 
license fees and annual payments related to in-licensed products and intellectual property;
 
expenses incurred under agreements with clinical research organizations, investigative sites and consultants that conduct or provide other services relating to our clinical trials and a substantial portion of our preclinical activities;
 
the cost of acquiring clinical trial materials from third party manufacturers; and
 
costs associated with non-clinical activities, patent filings and regulatory filings.
 
We expect to continue to incur substantial expenses related to our R&D activities for the foreseeable future as we continue product development. Since product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, we expect that our R&D expenses will increase in the future. In addition, if our product development efforts are successful, we expect to incur substantial costs to prepare for potential commercialization of any late-stage product candidates and, in the event one or more of these product candidates receive regulatory approval, to fund the launch of the product.
 
G&A Expenses
 
G&A expenses consist principally of personnel-related costs, professional fees for legal, consulting and audit services, rent and other general operating expenses not otherwise included in R&D. We anticipate G&A expenses will increase in future periods, reflecting continued and increasing costs associated with:
 
support of our expanded R&D activities;
 
an expanding infrastructure and increased professional fees and other costs associated with the compliance with the Exchange Act, the Sarbanes-Oxley Act and stock exchange regulatory requirements and compliance; and
 
business development and financing activities.
 
Comparison of Three and Six Months Ended June 30, 2016 and 2015
 
G&A expenses were $439,700 and $602,386 for the three months ended June 30, 2016 and 2015, respectively. The 27.0% decrease was due primarily to a decrease in legal costs related to litigation and financings, reduced investor relations activities, as well as a general decrease in operating expenses. G&A expenses were $932,011 and $1,281,022 for the six months ended June 30, 2016 and 2015, respectively. The 27.2% decrease was due primarily to a decrease in legal costs related to litigation and financings, reduced investor relations activities, as well as a general decrease in operating expenses. We expect G&A expenses to increase going forward as we proceed to advance our product candidates through the development and regulatory process.

R&D expenses were $239,667 and $102,801 for the three months ended June 30, 2016 and 2015, respectively. R&D expenses were $429,327 and $285,206 for the six months ended June 30, 2016 and 2015, respectively. The 50.5% increase was due primarily to the increases in clinical consulting and research grant expenses in the second quarter of 2016.  We expect R&D expenses to increase in future periods as our product candidates continue through clinical trials and we seek strategic collaborations.
 
Other (expense) income, net was $(54,733) and $(722,853) for the three months ended June 30, 2016 and 2015, respectively. Other (expense) income, net was $(945,396) and $(435,908) for the six months ended June 30, 2016 and 2015, respectively.

For the three months ended June 30, 2016, other expense, net consisted primarily of gain on debt extinguishment of approximately $21,413 and a gain on revaluation and modification of the Company’s derivative liability of approximately $379,885 and interest and other expense of $456,031, which primarily related to the  interest expense on convertible notes payable. For the three months ended June 30, 2015, other expenses consisted primarily of loss on revaluation and modification of the Company’s derivative liability of approximately $642,031 and interest and other expense of $80,822, which primarily related to issuance of notes payable.

 
For the six months ended June 30, 2016, other expenses, net consisted primarily of loss on debt extinguishment of approximately $995,735 and a gain on revaluation and modification of the Company’s derivative liability of approximately $881,555 and interest and other expense of approximately $855,107, which primarily related to the interest expense on convertible notes payable. In addition, for the six months ended June 30, 2016, we recorded a gain on settlements of accounts payable of approximately $21,406. For the six months ended June 30, 2015, other expenses consisted primarily of realized and unrealized losses on trading securities of approximately $3,960 and a loss on revaluation and modification of the Company’s derivative warrant liability of approximately $274,024 and interest and other expense of $157,924, which primarily related to the issuance of notes payable.
 
Liquidity and Capital Resources
 
We have experienced net losses and negative cash flows from operations since our inception.  We have sustained cumulative losses attributable to common stockholders of approximately $35.1 million as of June 30, 2016.  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 six months ended June 30, 2016, we issued convertible promissory notes to a certain accredited investor and received gross proceeds of $360,000.
  
At June 30, 2016, we had cash, cash equivalents of approximately $400,000. We continue to actively pursue various funding options, including equity offerings, to obtain additional funds to continue our product development activities beyond such date. We will seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources. Adequate additional funding may not be available to us on acceptable terms or at all. If adequate funds are not available to us, we will be required to delay, curtail or eliminate one or more of our research and development programs.
 
During the year ended December 31, 2015, we issued convertible promissory notes to certain accredited investors and received gross proceeds of $2,980,005.  In addition, during the year ended December 31, 2015, we received gross proceeds of $365,000 from the issuance of short-term notes payable and $35,970 from the sale of freely tradable securities received pursuant to the issuance and sale in a private placement of promissory notes.

Cash Flows for the Six Months Ended June 30, 2016 and 2015
 
Net cash used in operating activities for the six months ended June 30, 2016 was $233,845, which primarily reflected our net loss of $2,306,734 including a non-cash gain on revaluation of the derivative liability of $881,555, offset by other non-cash expenses of $1,667,971, and changes in the components of working capital of $1,286,473. Net cash used in operating activities for the six months ended June 30, 2015 was $781,258, which primarily reflected our net loss of $2,002,136, including a non-cash loss on revaluation of the derivative liability of $274,024, offset by other non-cash expenses of $239,589, and changes in the components of working capital of $707,265.

Net cash provided by investing activities was $1,293 for the six months ended June 30, 2016, which primarily reflected the purchase of the office equipment. Net cash provided by investing activities was $35,970 for the six months ended June 30, 2015, which primarily reflected the proceeds from the sale of trading securities.  
 
For the six months ended June 30, 2016, net cash provided by financing activities was $352,600, which reflects net proceeds related to the issuance of convertible notes payable. For the six months ended June 30, 2015, net cash provided by financing activities was $535,185, which reflects net proceeds related to the issuance of notes payable.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.
 
 
Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures
 
At the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting
 
There have been no changes in our internal controls over financial reporting during our second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 

 
We are not aware of any material, active, pending or threatened proceeding, nor are we, or any subsidiary, involved as a plaintiff or defendant in any other material proceeding or pending litigation.
  

There have been no material changes in the Company’s risk factors from those previously disclosed in the Company’s Annual Report on Form 10-K, initially filed with the SEC on March 30, 2016, except for the following risk factor:

If the Company is unable to continue as a going concern, its securities will have little or no value.

The report of the Company's independent registered public accounting firm that accompanies the Company's audited consolidated financial statements for the year ended December 31, 2015 contains a going concern qualification in which such firm expressed substantial doubt about the Company's ability to continue as a going concern. As of December 31, 2015, we had an accumulated deficit of approximately $32.6 million. The Company believes it will have sufficient cash to fund its operations through September 2016.  The Company continues to pursue various funding options and will make every effort to raise the necessary capital. The continuation of the Company as a going concern is dependent upon continued financial support from its shareholders, the ability of the Company to obtain necessary equity and/or debt financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company cannot make any assurances that additional financings will be completed on a timely basis, on acceptable terms or at all. If the Company is unable to complete a debt or equity offering, or otherwise obtain sufficient financing when and if needed, it would negatively impact it’s business and operations, which could cause the price of its common stock to decline. It could also lead to the reduction or suspension of the Company’s operations and ultimately force the Company to go out of business.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
  
Item 3.  Defaults Upon Senior Securities
 
None.

Item 4.  Mine Safety Disclosures

Not Applicable.


None.
 
 
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
 
 
Exhibit No.
 
Title of Document 
10.1   Amendment to License Agreement (number A220395.01) dated as of June 1, 2016 between the Company and the General Hosptial Corporation, d/b/a Massachusetts General Hospital
10.2   Amendment to License Agreement (number A220396.01) dates as of June 1, 2016 between the Company and the General Hospital Corporation, d/b/a Massachusetts General Hospital
31.1
 
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
31.2
 
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
32.1
 
Certification of the Chief Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
 
Certification of the Chief Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
 
XBRL Instance Document*
101.SCH
 
XBRL Schema Document*
101.CAL
 
XBRL Calculation Linkbase Document*
101.LAB
 
XBRL Label Linkbase Document*
101.PRE
 
XBRL Presentation Linkbase Document*
101.DEF
 
XBRL Definition Linkbase Document*
 
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
 
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
FluoroPharma Medical, Inc.
 
     
Date:  August 15, 2016
/s/ Thomas H. Tulip
 
 
Thomas H. Tulip, Ph.D.
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
     
     
Date: August 15, 2016 /s/ Tamara Rhein  
  Tamara Rhein  
 
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
 
 
 
 
-10-

 
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