UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  
 
FORM 10-Q

(MARK ONE)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


¨    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT

For the transition period from ___________ to __________

Commission file number: 000-32603
 
 
ARBIOS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware
91-1955323
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

530 South Lake Avenue, #363, Pasadena, CA
91101
(Address of principal executive offices)
(Zip Code)

 (626) 795-4641
(Registrant's telephone number, including area code)

200 E. Del Mar Blvd., Suite 320, Pasadena, CA, 91105
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    
Yes  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 for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of  “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer o
Accelerated filer o
Non-accelerated filer o
(do not check if a smaller reporting company)
Smaller reporting company 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

On September 14, 2009, there were 24,356,247 shares of common stock, $.001 par value per share, issued and outstanding.

 
ARBIOS SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS

   
PAGE NO.
PART I. FINANCIAL INFORMATION
  
     
Item 1.
Financial Statements:
  
     
 
Condensed Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008 (audited)
 3
     
 
Condensed Statements of Operations for the three and six months ended June 30, 2009 and 2008 and from August 23, 2000 (inception) through June 30, 2009 (unaudited)
 4
     
 
Condensed Statements of Cash Flows for the six months ended June 30, 2009 and 2008 and from August 23, 2000 (inception) through  June 30, 2009 (unaudited)
 5
     
 
Condensed Statement of Stockholders’ Equity (Deficit) from August 23, 2000 (inception)through June 30, 2009 (unaudited)
 6
     
 
Notes to Condensed Financial Statements
11
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
16
     
Item 3.
Qualitative and Quantitative Disclosures About Market Risk.
20
     
Item 4T.
Controls and Procedures
20
     
PART II. OTHER INFORMATION
  
     
Item 1.
Legal Proceedings
20
     
Item 1A.
Risk Factors
21
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
21
     
Item 3.
Defaults Upon Senior Securities
21
     
Item 4.
Submission of Matters to a Vote of Security Holders
21
     
Item 5.
Other Information
21
     
Item 6.
Exhibits
21
     
SIGNATURES
22
 
2
 

PART I - FINANCIAL INFORMATION

ITEM 1.  Condensed Financial Statements

ARBIOS SYSTEMS, INC.
(Debtor-in-Possession)
(A Development Stage Company)
CONDENSED BALANCE SHEETS

   
June 30, 2009
    
December 31,
  
 
  
(Unaudited)
    
2008
  
ASSETS
            
             
Current assets
            
Cash
   $ 185,598     $ 370,686  
Restricted cash
     199,112       -  
Prepaid expenses
     149,044       21,506  
Total current assets
     533,754       392,192  
                 
Receivable
     -       200,000  
Property and equipment, net
     4,339       6,177  
Investment
     -       86,209  
Other assets
     750       750  
                 
Total assets
   $ 538,843     $ 685,328  
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
                
Current liabilities
                
Accounts payable
   $ 393,863     $ 194,046  
Deposit from Arbios Acquisition Partners, LLC
     199,112       -  
Accrued expenses
     530,000       286,888  
Total current liabilities
     1,122,975       480,934  
                 
Liabilities subject to compromise under reorganization proceedings
     111,029       -  
Long term contract obligations
     -       150,000  
Total liabilities
     1,234,004       630,934  
                 
Stockholders' (deficit) equity
                
Common stock, $.001 par value; 100,000,000 shares authorized; 24,356,247 and 25,792,747 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively
     24,356       25,792  
Additional paid-in capital
     21,618,511       21,617,075  
Deficit accumulated during the development stage
     (22,338,028 )     (21,588,473 )
Total stockholders' (deficit) equity
     (695,161 )     54,394  
                 
Total liabilities and stockholders' (deficit) equity
   $ 538,843     $ 685,328  

The accompanying notes are an integral part of these condensed financial statements.


 
3
 

ARBIOS SYSTEMS, INC.
(Debtor-in-Possession)
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

   
For the three months ended June 30,
    
For the six months ended June 30,
    
Inception to
  
   
2009
    
2008
    
2009
    
2008
    
June 30, 2009
  
                               
Revenues
   $ -     $ -     $ -     $ -     $ 320,966  
                                         
Operating expenses:
                                        
General and administrative
     284,828       492,121       404,447       1,211,615       13,646,498  
Research and development
     -       345,971       -       1,056,397       9,325,632  
Total operating expenses
     284,828       838,092       404,447       2,268,012       22,972,130  
                                         
Loss before reorganization costs and other income (expense)
     (284,828 )     (838,092 )     (404,447 )     (2,268,012 )     (22,651,164 )
                                         
Reorganization costs and other income (expense):
                                        
Reorganization costs, primarily professional fees
     (185,264 )     -       (259,128 )     -       (259,128 )
Interest income
     -       8,178       229       28,478       497,748  
Gain on sale of HepatAssist program, net
     -       -       -       -       404,863  
Loss on investment
     -       -       (86,209 )     -       (86,209 )
Interest expense
     -       -       -       -       (244,138 )
Total reorganization costs and other income (expense)
     (185,264 )     8,178       (345,108 )     28,478       313,136  
                                         
Net loss
   $ (470,092 )   $ (829,914 )   $ (749,555 )   $ (2,239,534 )   $ (22,338,028 )
                                         
Net loss per share:
                                        
Basic and diluted
   $ (0.02 )   $ (0.03 )   $ (0.03 )   $ (0.09 )        
                                         
Weighted-average shares:
                                        
Basic and diluted
     24,356,247       25,749,458       24,427,675       25,672,613          

The accompanying notes are an integral part of these condensed financial statements.

 
4
 


ARBIOS SYSTEMS, INC.
(Debtor-in-Possession)
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the six months ended June 30,
    
Inception to
  
   
2009
    
2008
    
June 30, 2009
  
Cash flows from operating activities:
                  
Net loss
   $ (749,555 )   $ (2,239,534 )   $ (22,338,028 )
Adjustments to reconcile net loss to net cash used in operating activities:
                        
Amortization of debt discount
     -       -       244,795  
Depreciation and amortization
     1,838       21,592       337,875  
Patent rights impairment
     -       -       91,694  
Issuance of common stock, options and warrants for compensation
     -       419,070       4,071,460  
Issuance of warrants for patent acquistion
     -       -       74,570  
Settlement of accrued expense
     -       -       54,401  
Deferred compensation costs
     -       -       319,553  
Loss on disposition of fixed assets
     -       -       5,037  
Loss on disposition of investment
     86,209       -       86,209  
Gain on sale of HepatAssist program, net
     -       -       (404,863 )
Changes in operating assets and liabilities:
                        
Prepaid expenses
     (127,538 )     25,938       (149,046 )
Deferred financing costs
     -       16,757       -  
Other assets
     -       20,189       (750 )
Accounts payable
     199,817       81,428       393,863  
Accrued expenses
     243,112       7,770       436,498  
Other liabilities
     -       -       64,695  
Liabilities subject to compromise under reorganization proceedings
     111,029       -       111,029  
Long term contract obligations
     (150,000 )     (100,000 )     -  
Net cash used in operating activities
     (385,088 )     (1,746,790 )     (16,601,008 )
                         
Cash flows from investing activities:
                        
Additions of property and equipment
     -       -       (149,467 )
Proceeds from sale of fixed assets
     -       -       4,176  
Proceeds from sale of HepatAssist program
     200,000       -       450,000  
Purchase of short term investments
     -       -       (21,866,787 )
Maturities of short term investments
     -       -       21,866,787  
Net cash provided from investing activities
     200,000       -       304,709  
                         
Cash flows from financing activities:
                        
Proceeds from issuance of convertible debt
     -       -       400,000  
Proceeds from common stock option/warrant exercise
     -       -       67,900  
Net proceeds from issuance of common stock and warrants
     -       -       15,797,080  
Net proceeds from issuance of preferred stock
     -       -       238,732  
Payments on capital lease obligation, net
     -       -       (21,815 )
Net cash provided by financing activities
     -       -       16,481,897  
Net (decrease) increase in cash
     (185,088 )     (1,746,790 )     185,598  
                         
Cash at beginning of period
     370,686       2,735,944       -  
                         
Cash at end of period
   $ 185,598     $ 989,154     $ 185,598  
                         
Supplemental disclosures of non-cash financing activity
                        
Issuance of securities for obligation related to finder's fees
   $ -     $ -     $ 47,500  

The accompanying notes are an integral part of these condensed financial statements.

 
5
 


ARBIOS SYSTEMS,  INC.
(Debtor-in-Possession)
(A Development Stage Company)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)

                                       
Deficit
        
                                       
Accumulated
        
                           
Additional
          
During the
        
   
Preferred Stock
    
Common Stock
    
Paid-In
    
Deferred
    
Development
        
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Costs
    
Stage
    
Total
  
                                                 
Balance, August 23,2000 (inception) restated for effect of reverse merger with Historical Autographs U.S.A. Inc.
     -     $ -       -     $ -     $ -     $ -     $ -     $ -  
                                                                 
Stock issuance in exchange for cash
                     5,000,000       50       4,950                       5,000  
                                                                 
Net loss
                                                     (9,454 )     (9,454 )
                                                                 
Balance, December 31, 2000, as restated
     -       -       5,000,000       50       4,950       -       (9,454 )     (4,454 )
                                                                 
Issuance of junior preferred stock for cash of $250,000 and in exchange for $400,000 in patent rights, research and development costs,and employee loanout costs less issuance expenses of $11,268, June 29, 2001
     681,818       7                       958,278       (343,553 )             614,732  
                                                                 
Issuance of common stock in exchange for patent rights and deferred research and development costs
                     362,669       4       547,284                       547,288  
                                                                 
Services receivable
                                             (550,000 )             (550,000 )
                                                                 
Deferred employee loan-out costs receivable earned
                                             82,888               82,888  
                                                                 
Net loss
                                                     (237,574 )     (237,574 )
                                                                 
Balance, December 31, 2001
     681,818       7       5,362,669       54       1,510,512       (810,665 )     (247,028 )     452,880  

The accompanying notes are an integral part of these condensed financial statements.
 
 
6
 

ARBIOS SYSTEMS,  INC.
(Debtor-in-Possession)
(A Development Stage Company)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)

                                       
Deficit
        
                                       
Accumulated
        
                           
Additional
          
During the
        
   
Preferred Stock
    
Common Stock
    
Paid-In
    
Deferred
    
Development
        
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Costs
    
Stage
    
Total
  
                                                 
Amendment of December 31, 2001 agreement for the issuance of common stock agreement in exchange for research and development services
                             (495,599 )     550,000             54,401  
                                                       
Deferred employee loan out costs receivable earned
                                     171,776             171,776  
                                                       
Issuance of common stock for compensation
                 70,000       1       10,499                     10,500  
                                                           
Issuance of common stock for cash
                 999,111       9       149,857                     149,866  
                                                           
Net loss
                                                 (494,780 )     (494,780 )
                                                             
Balance, December  31, 2002
     681,818       7       6,431,780       64       1,175,269       (88,889 )     (741,808 )     344,643  
                                                                 
Issuance of common stock for cash less issuance expense of $2,956
                     417,000       417       246,827                       247,244  
                                                                 
Issuance of common stock in private placement for cash less issuance expense of $519,230
                     4,000,000       4,000       3,476,770                       3,480,770  
                                                                 
Issuance of common stock for convertible debenture less issuance expense of $49,500
                     400,000       400       350,100                       350,500  
                                                                 
Shares issued in connection with acquisition of Historical Autographs U.S.A., Inc. on October 30, 2003
                     1,220,000       8,263       (8,263 )                     -  

The accompanying notes are an integral part of these condensed financial statements.

 
7
 


ARBIOS SYSTEMS,  INC.
(Debtor-in-Possession)
(A Development Stage Company)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)

                                       
Deficit
        
                                       
Accumulated
        
                           
Additional
          
During the
        
   
Preferred Stock
    
Common Stock
    
Paid-In
    
Deferred
    
Development
        
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Costs
    
Stage
    
Total
  
                                                 
Value of warrants and beneficial conversion feature of bridge loan
                             244,795                   244,795  
                                                     
Deferred employee loan-out costs receivable earned
                                     88,889             88,889  
                                                       
Preferred Stock converted to Common Stock
     (681,818 )     (7 )     681,818       7                             -  
                                                               
Net loss
                                                     (885,693 )     (885,693 )
                                                                 
Balance, December 31, 2003
     -       -       13,150,598       13,151       5,485,498       -       (1,627,501 )     3,871,148  
                                                                 
Issuance of common stock options and warrants for compensation
                                     972,430                       972,430  
                                                                 
Exercise of common stock options
                     18,000       18       2,682                       2,700  
                                                                 
Issuance of securities for payable
                     47,499       47       47,451                       47,498  
                                                                 
Net loss
                                                     (3,327,827 )     (3,327,827 )
                                                                 
Balance, December 31, 2004
     -       -       13,216,097       13,216       6,508,061       -       (4,955,328 )     1,565,949  
                                                                 
Issuance of common stock in private placement for cash less issuance expense of $384,312
                     2,991,812       2,992       6,224,601                       6,227,593  
                                                                 
Issuance of common stock options and warrants for compensation
                                     557,080                       557,080  
                                                                 
Exercise of common stock options
                     25,000       25       62,475                       62,500  

The accompanying notes are an integral part of these condensed financial statements.

8
 
ARBIOS SYSTEMS,  INC.
(Debtor-in-Possession)
(A Development Stage Company)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)

                                       
Deficit
        
                                       
Accumulated
        
                           
Additional
          
During the
        
   
Preferred Stock
    
Common Stock
    
Paid-In
    
Deferred
    
Development
        
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Costs
    
Stage
    
Total
  
                                                 
                                                 
Net loss
                                         (3,823,903 )     (3,823,903 )
                                                     
Balance, December 31, 2005
     -       -       16,232,909       16,233       13,352,217       -       (8,779,231 )     4,589,219  
                                                                 
Issuance of common stock in private placement for cash less issuance expense of $95,013
                     1,227,272       1,227       1,253,760                       1,254,987  
                                                                 
Issuance of common stock options and warrants for compensation
                                     703,839                       703,839  
                                                                 
Stock warrant term extension
                     -               482,964                       482,964  
                                                                 
Warrant liability
                                     (1,284,841 )                     (1,284,841 )
                                                                 
Net loss
                                                     (4,461,904 )     (4,461,904 )
                                                                 
Balance, December 31, 2006
     -       -       17,460,181       17,460       14,507,939       -       (13,241,135 )     1,284,264  
                                                                 
Cumulative effect of change in accounting principle:
                                                                
Adjust retained earnings at January 1, 2007 for change in accounting principle
                                                     (521,187 )     (521,187 )
Reclassification of warrants
                                     1,284,841                       1,284,841  
                                                                 
Issuance of common stock and warrants in private placement for cash less issuance expense of $377,169
                     7,478,462       7,479       4,476,352                       4,483,831  
                                                                 
Exercise of common stock warrants
                     18,000       18       2,682                       2,700  
                                                                 
Stock option based compensation expense
                                     438,263                       438,263  

The accompanying notes are an integral part of these condensed financial statements.

9
 
ARBIOS SYSTEMS,  INC.
(Debtor-in-Possession)
(A Development Stage Company)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM AUGUST 23, 2000 (INCEPTION) TO JUNE 30, 2009
(Unaudited)

                                       
Deficit
        
                                       
Accumulated
        
                           
Additional
          
During the
        
   
Preferred Stock
    
Common Stock
    
Paid-In
    
Deferred
    
Development
        
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Costs
    
Stage
    
Total
  
Stock warrant term extension
                 -             59,025                   59,025  
                                                       
Restricted stock based compensation expense
                 621,818       621       315,604                   316,225  
                                                         
Issuance of warrants for patent acquistion
                                 74,570                   74,570  
                                                         
Net loss
                                               (5,552,650 )     (5,552,650 )
                                                           
Balance, December 31, 2007
     -       -       25,578,461       25,578       21,159,276       -       (19,314,972 )     1,869,882  
                                                                 
Stock option based compensation expense
                                     114,824                       114,824  
                                                                 
Stock warrant term extension
                                     175,256                       175,256